Government Operations Committee on Oct. 25th, 2012

[The Chair, NDP, Pat Martin]

The call's not coming from us, I don't believe.

We can carry on, Ms. Clark.

[Sarah Clark]

British Columbia has a process of requiring a business case for all large projects in order to ensure that the planning and rigour around the analysis ensures that not only the right projects are chosen, but the right procurement approach is taken.

In British Columbia we do a procurement analysis for every major project. When they're over $50 million, a PPP is considered as one of the alternates in this procurement analysis unless there's a compelling reason not to do so. In some cases the partnership model, or the design-build-finance-maintain model, as we would call it, would be that model. These partnerships are usually best suited for large complex projects with a significant opportunity for risk transfer and innovation.

In British Columbia our track record shows this accounts for about 20% of the capital spent in this province and is a reflection of the type of projects the province has been focusing on for the past decade. In most cases, the majority of the other projects are done in more traditional approaches, design-bid-build, or construction management, etc.

Over the past 10 years, the approach in British Columbia has evolved considerably. Early projects, such as the Canada Line rapid transit project, the Abbotsford hospital and the Sea to Sky Highway were the ones that led the program, and from these the lessons that have been learned have been applied to more recent projects. These projects illustrated the ability through the design-build-finance-maintain approach to experience innovation in design and construction and also achieve the risk transfer that we were hoping to achieve.

Since this time we've been focusing on improving our approach in the delivery of these projects, the contracts have improved, and the competitive selection processes have improved. We have now learned to optimize the amount of private financing used to have the risk transfer that we would like to have, but optimize the cost of that private financing.

Another evolution has been that the evaluation criteria has been fine-tuned to achieve the intended outcomes for the facility that's being procured. This is best highlighted in our most recent project, the Interior Heart and Surgical Centre that was awarded in Kelowna this summer. The evaluation criteria not only focused on price but also focused on the effect that the building itself would have on the clinical and operating costs, that far outweigh the capital costs in a health care facility.

The present value of those benefits was used in the evaluation criteria. Bidders could use the value of those points to determine whether it was more economical to spend money on those features in the building and improve that building. The outcome is that we have a better functioning building that is about $30 million below budget and will come to fruition approximately a year earlier than expected. It will be built on only three floors instead of four floors, which was the province's design, and will result in better clinical outcomes as well.

As we've heard through other presenters, while some will say PPPs are done because they are off-book, they are not. The capital cost of the project is accounted for in the same manner as a traditional project. This is not about buying projects on credit. However, we've seen from the innovation and the resulting savings from these projects, that we've been able to do more projects with those savings. This has allowed British Columbia to increase its capital plan and also to have more people put to work in building and creating benefit for people that need the projects and need the work.

I think you've heard already that Canada has become one of the most attractive PPP markets in the world. Companies of all shapes and sizes are participating in projects throughout British Columbia and Canada, and the service providers and contractors are now exporting this expertise around the world.

When you look at local participation, 90% of labour is typically from the area, and in the range of 50% to 80% of the sub-trades are local.

Contractors, lawyers, financial advisers and engineering companies from British Columbia and across Canada have been exporting their services, not only to other parts of Canada but also to the United States, South America, Australia, and other locations, such as the Middle East. This is based on the experience in Canada and the track record in delivering sound projects.

In conclusion, I'd like to take a couple of minutes to provide some examples of what the appropriate risk allocation and innovation have achieved in some of the projects in British Columbia.

We see innovation coming when a builder and a contractor work together in cooperation with the party that's going to provide the maintenance and life cycle. The approach we see built in every project is inevitably different from what the province's concept design was going to be.

It's important to have skin in the game. With optimized long-term financing at risk, all parties are incented to deliver the most sustainable infrastructure. Risk transfer is really about splitting risk between parties that are best able to manage. The Canadian model is very mature in this respect. There is not too much risk transferred to the private sector, and I don't think the province or the jurisdiction retains too much, either.

In innovation, I highlighted the Interior Heart and Surgical Centre project. It was 12 months earlier than anticipated, with creative solutions that are going to serve the clinical and operating functions of that facility for a long time to come.

With the Port Mann Highway 1 project, we also saw interesting innovation. The province was going to twin the existing bridge, but when the bidders had a look at the life cycle of locations as well as the construction implications, building one new one was the more economical approach.

In the Canada Line, the province was going to share geotechnical risk, but offered the opportunity for the bidders to choose whether they would bid on that basis or offer to take that geotechnical risk. The winner did take the geotechnical risk in the tunnel, which was completely unexpected.

Thank you for having us today. I look forward to questions.

[The Chair, NDP, Pat Martin]

Thank you very much, Ms. Clark. I appreciate your contribution.

Next, we will invite the representatives from John Laing Investments. Mr. Marcus Akhtar, I didn't identify you properly. You're the project coordinator and project director of the Abbotsford Regional Hospital and Cancer Centre, and Tara Rogers is the bid director for business development.

Mr. Akhtar or Ms. Rogers, we welcome your presentation.

[Tara Rogers, Bid Director, Business Development, John Laing Investments Ltd.]

First, thank you very much for the opportunity to participate in this process.

John Laing is a leading developer, investor, operator, and manager of public sector infrastructure assets globally. We've been in operation since 1848. We're a market leader globally and we have global presence, with offices in the U.K., Canada, Australia, Singapore, and India.

Our mission is to succeed globally as a leading sponsor of privately financed investments in infrastructure through our expertise in creating sustainable value for all stakeholders. We seek to achieve this by enabling and organizing winning partnerships to deliver innovative development solutions with the public sector that operate for the benefit of the communities worldwide.

We participate in a wide range of infrastructure sectors, including health care, roads, and rail. This also extends to criminal justice in the U.K., education, waste management, energy, street lighting, and highway maintenance. We have just this year closed our 100th project, but our current portfolio consists of 74 projects across those sectors and around the world.

We have four projects in North America, three of which are in British Columbia: the Abbotsford Regional Hospital and Cancer Centre, the Gordon and Leslie Diamond Health Care Centre, and Kelowna and Vernon hospitals.

I'm going to pass it over to the head of our operations in B.C., Marcus, to talk about the practical implications of those projects.

[Marcus Akhtar, Project Director, British Columbia, Operations, Abbotsford Regional Hospital and Cancer Centre, John Laing Investments Ltd.]

Thank you very much for inviting us this morning.

I'm here as operational director for John Laing projects in B.C.. I will give you the operational overview, which is the less sexy part, probably being the 30-year part of the—it's where the rubber hits the road, so to speak. I will give you a brief overview of our B.C. projects and give you some of my observations on advantages of PPPs. I was advised that this is actually day four for you, so I'm sure you've heard it all before. You've probably even heard about projects that I'm going to talk about. Please stop me if it becomes overly repetitive.

The first project that we have is Abbotsford Regional Hospital and Cancer Centre, which is the first LEED gold hospital in Canada, LEED being leadership in energy and environmental design. We were contracted to provide LEED silver, but were only a few points away from LEED gold and partnered with the hospital and the local council in order to achieve LEED gold, which we're very happy about.

Abbotsford is an acute care hospital with a full cancer centre. It has 300 beds and is 70,000 square metres. It has nine operating rooms, a maternal-newborn facility with 28 beds, and a unit for 40 mental health patients. It's the first PPP in British Columbia, and I believe at this stage it's the only PPP in British Columbia, with fully integrated facilities management services. When I say fully integrated, that includes plant services and life cycle, obviously, which most PPPs include, but also soft services, which are housekeeping, linen laundry, food services, and portering.

The green features of the building include low-flush toilets, a motion-sensing light system, and 28 electrical car plug-ins. Unfortunately, we have no electrical cars in Abbotsford at the moment, although they are available in British Columbia. We have a stormwater retention pump on the lowest point of the site that we utilize for irrigation of plant life on-site.

The next asset that I'm going to talk about is the Gordon and Leslie Diamond Health Care Centre, which is in the heart of hospital land in Vancouver. It's adjacent to the Vancouver General Hospital. It is 32,000 square metres at a capital cost of $95 million. It is a combination of health authority clinics, UBC space, and private clinics. The University of British Columbia medical school has its medical lecture theatre on the ground floor. This has been operational since August 2006.

The next project I'm going to talk about is the Kelowna and Vernon hospitals project, which I believe you may know about. It has a $432-million capital cost, with 53,000 square metres. Kelowna and Vernon hospitals obviously are not in the same city; they're 45 kilometres apart. There are two sites, three buildings. The project was the Kelowna project, operational in May of this year. It was completed six months ahead of schedule.

That's a summary of our projects. I want to give you some of my views and experience of some of the advantages of PPP projects. The process from RFP to operation is far quicker than a traditional procurement approach. For example, the RFP for the Abbotsford Regional Hospital and Cancer Centre came out in 2003 and we were treating the first patients in that facility in August 2008.

In the Kelowna-Vernon project, the RFP came out in 2007 and we were treating patients in Vernon in September 2011 and in Kelowna in May 2012. I think you'll agree that's pretty impressive for such significant assets.

The public sector deals with a single point of contact. These projects are an integrated fora because the operator, designer, builder, mechanical and electrical are all under one roof. This extends also to users. At Abbotsford, there were more than 140 connections involved with the design meetings for that project. The private sector bring best-in-class providers, contractors, service providers, which allows the public sector to do what it does best. Because of the life-cycle approach, the public sector gets a new asset at the end of the concession period. It's a more aesthetically pleasing end product and indeed a product that has a more highly desired effect on the end user. I'll give you a brief example of this.

I was talking to a radiation oncologist only yesterday who was telling me the positive effect of the bright and spacious facility on both patients and staff, because most of our patient rooms have great views of the mountains in the Fraser Valley. But the overwhelming message that I got was that because his staff was so happy at work, the impact on the patients was so positive. I thought that was a really compelling endorsement.

Something we probably haven't touched on this morning is that key to the success of a public-private partnership is indeed that word “partnership”. It takes away the concept of vendor versus partner.

I often credit Larry Blain from Partnerships BC for the comment he made which really does sums it up: the mark of a success of a PPP project is the quality of the relationship between the public and private partners. In all of the three projects that I've described, the partnership is of the highest quality, and I really believe that is the overwhelming message I'd like to deliver.

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Akhtar.

Perhaps that would be a good point to end on. I appreciate your intervention, and Ms. Rogers'.

We've just learned we're going to have votes in the House of Commons beginning at about 10:40. The bells will begin at 10:41, our time. It will truncate our time a little that we have set aside for questions by committee members, so we'll ask everyone to please keep to the five-minute limit for both questions and answers.

We have two committee members from British Columbia who will be the first and second questioners. They will have some personal knowledge perhaps of the projects that you've told us about.

First, for the NDP, Mr. Kennedy Stewart.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Good morning, and thank you to all the witnesses. I know it's early in B.C. Thank you for all your efforts.

I have a question regarding monitoring. If we could perhaps focus on that through my five minutes, that would be great. Perhaps we could use one example of your choice to help me think about how you monitor contracts as they're progressing.

With that in mind, could you give me a tip-to-tail version of one project in terms of how the government, either through your office or through another ministry, would monitor the progress of the contract and whether the terms of the contract are being met? Really it's just on what kinds of people and how many are involved in that monitoring. I'll let you go from there and jump in if I need more clarification.

[Sarah Clark]

As with any major project, there is an owner's project team that consists of a project director as well as someone who has responsibility for the commercial interaction between engineers, architects, and financial people.

The Sea to Sky Highway is a $600-million highway spanning 99 kilometres between Vancouver and Whistler. The project had a team of between 10 and 15 people monitoring the construction. Had this been a traditionally built project, that would have been well over 100 people. In this case, many of the same monitoring activities go on. There is monitoring on-site, but much less than traditionally, because the contractors are responsible for their own quality assurance, that is, having concrete tested, asphalt tested, etc. They provide those people. They have to report all their tests to the province. The team that oversees it on behalf of the province is checking that those tests are being done.

With respect to commercial activities, their billing is monitored, as are payments for the subcontracts. Change orders are being negotiated for changes or other items that come up. That would be fairly typical on any of the construction, but note that private partners can be penalized for not performing during construction. They have the opportunity to address any faults that they may have, but if they do not, there are points that are established. For every point they cannot address, they are penalized. That is the case on some of our projects. On other projects other private partners have not received any penalties.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

You said the Sea to Sky Highway, if it had been done in-house, would have had 100 monitors, but with the private partnership, you only had 10. Is that because the monitoring is left up to the contractors themselves?

[Sarah Clark]

Yes. The contractors take on more of the quality assurance and quality control. They are the ones who are hiring the testers the Ministry of Transportation would have traditionally hired. They are reporting all of the activities and outcomes to the Ministry of Transportation. You still have a significant amount of oversight, but you're not actually doing the work. These are all respected, qualified testing agencies.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

I'm wondering about that. Do you ever do random audits to see if this testing and verification is actually solid?

[Sarah Clark]

Yes, the Ministry of Transportation did have field people on that project, and they were doing random testing daily and on site. The province at all times has access to the contractor's records, and they did random auditing of those records.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Okay.

[Marcus Akhtar]

I'll just give you a little bit of an insight into how the monitoring takes place.

[The Chair, NDP, Pat Martin]

Please be brief, Mr. Akhtar.

[Marcus Akhtar]

Okay.

In monitoring during the 30 years of operation, we're paid for performance. There are very large and conclusive specifications for all our subcontractors. For example, one of the advantages of a PPP project is that we're highly incentivized to ensure that the asset is available 100% of the time. For example, if an operating room should be unavailable for an entire day, we would be paying a penalty of about $3,000 per day. As you can imagine, if this was multiplied by multiple rooms, it would be quite significant.

The subcontractor audits himself. Then we, the project company, audit the subcontractor. Then the health authority, in conjunction with us, audits the service provider. We report every month to the health authority, and it's a very conclusive report we give them.

[The Chair, NDP, Pat Martin]

Mr. Akhtar, I'm afraid I have to interrupt.

[Marcus Akhtar]

I thought that was within one minute.

[The Chair, NDP, Pat Martin]

It was about one minute. You did very well. Thank you.

Next, for the Conservatives, we have Mr. Ron Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you, ladies and gentlemen, for being here with us via technology. It's a great way to use technology so you can join us early in the morning.

As the member of Parliament for Kelowna—Lake Country, I'm very familiar with our health care improvements in the Okanagan Valley over the last few years. Thank you, to each one of you, for your contribution. I was at the groundbreaking recently for the Interior Heart and Surgical Centre facility, and I am looking forward to the completion of that project on time and on budget, an even earlier completion, as with the other projects to date.

As you've mentioned, we've had a series of witnesses over the last couple of weeks. We've heard that P3s are another tool in the toolbox. They are not a specific panacea, for every project to have a $77.9 million infrastructure. Nine kilometres of a highway project just went to conventional tender.

Ms. Clark, could you share with the committee what projects you think are better suited for P3s? Supplemental to that, we've heard from a couple of witnesses that the biggest aspect is risk transfer and trying to quantify that risk. It's been a big factor, transferring the risk to the private sector—at what cost and how do you quantify that?

I'll let either Mr. Blain or Ms. Clark answer, if you'd like to jump in, please.

[Sarah Clark]

It's been our experience that projects that are larger—probably while the capital standard here is $50 million, it's probably $75 million or over—are complex. If it's a straightforward structure like an office building, it's probably not the best P3. But when there is opportunity to provide different designs that can improve the facility, such as in a hospital like the surgical centre, where the bidders looked at the adjacencies they could improve, lighting, access to natural light, a suite of things, those are the better projects.

With a highway, if you look at the Sea to Sky Highway, for example, when it was 100 kilometres long, there was an opportunity for better use of materials. When the winning proponent looked at the ministry's design, the ministry was only going to rehab about 13 of the bridges along the Sea to Sky Highway, and considering the life cycle cost, the proponent replaced all those bridges. That was all done within the ministry's original budget.

It's when you have an opportunity to really affect the design that those are the best projects.

We're doing a project in north Vancouver Island now, in Campbell River, the replacement of a large hydroelectric facility. There are many opportunities for where you can put the power house, and how you can run the water. All those things will be looked at through the lens of constructability, as well as long-term maintenance costs.

When it comes to risk transfer, in British Columbia we do a very detailed risk analysis, not only for the opportunity to try to quantify the kinds of risks, but also to mitigate the risks on the projects. I think people miss the fact that working on risk analysis provides the huge benefit of being able to identify the risks in the project and the mitigation strategies.

When it comes to evaluating risk, we look at each risk and attempt to quantify the province's exposure on a high, medium, and low basis as well as, on the other side, what a private sector proponent's exposure is to those risks. They can be significantly different just in how they are exposed to those risks. Then a Monte Carlo analysis is done and a range of outcomes is reviewed. We should all remember that a value-for-money analysis is an estimate of outcomes and not a pinpoint value.

[Larry Blain, Chair, Board of Directors, Partnerships British Columbia]

Maybe I could just add one point to amplify. There are some cases in projects where it makes a lot of sense to integrate maintenance and operations into the design and construction, and there are other projects where it does not. A really good example is that the Canada Line was a stand-alone transit line, and it made sense to integrate operations and maintenance with the contract; whereas the current project we're working on, the Evergreen Line, is part of a bigger system and it doesn't make sense to integrate maintenance and operations, so we have not. There are some cases where it makes sense and others where it does not, and that can be a driving factor.

[Sarah Clark]

Another large project that was not a PPP in B.C. was the replacement of the roof on BC Place. That was construction management. In the end, it was highly technical, and not really conducive to operation and maintenance either.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

The Canada Line is great. I was just on it on the weekend. You mentioned the Sea to Sky Highway. The William R. Bennett Bridge has been a great P3 as well.

One comment is that we talk about payment and deferment: it's like a lease, and it's going to be paid back over 30 years. Is there any discussion about the phraseology of intergenerational equity, such as whoever is using it pays for it? Is that ever under consideration in a project?

[The Chair, NDP, Pat Martin]

Could we have a very brief answer, please. We're over our time already.