A jurisdiction’s ability to function at capacity for the benefit of maximizing economic gain is inherently tied to the quality and amount of its established infrastructure, including essential services and facilities.
In Canada’s largest province, Infrastructure Ontario is a Crown corporation tasked with supporting the provincial government’s initiatives to modernize and maximize the value of public infrastructure in cooperation with the private sector. In its first decade, IO has completed more than $16 billion in projects with another $18 billion under construction and almost $10 billion more in the planning stages as of the start of 2016.
People from all walks of life use various forms of infrastructure on a daily basis, whether it’s roadways, bridges, public transit, healthcare facilities, courthouses or educational centres, to name just a few. It is the role of Infrastructure Ontario (IO) to partner with public sector agencies, including provincial ministries, Crown corporations, municipalities and not-for-profit organizations to renew high-quality infrastructure in a cost-effective, timely manner. Public-private partnerships tend to result in far fewer cost overruns because contractors have to pay penalties for late delivery so there is always utmost incentive to get the job done.
Infrastructure Ontario plays a key role in procuring and delivering infrastructure projects on behalf of the Province. It delivers thousands of projects of various sizes, using different delivery models, including a made-in-Ontario form of public private partnership called Alternative Financing and Procurement (AFP), which has been in place since 2006 with countless major infrastructure projects having been completed in that time.
The Success of AFP
The Canadian Business Journal recently spoke with Infrastructure Ontario President and CEO Bert Clark about the Crown corporation’s first 10 years and the notable success of the AFP model. Clark and his team of professionals have a consistent track record of being able to deliver large, complex infrastructure ventures on time and on budget, which was not the case for the provincial government in previous years prior to IO’s creation. Clark tells us that being late and/or over budget was problematic for two main reasons.
“First it meant that governments couldn’t reliably budget for these big budgets and it was embarrassing,” he candidly states. “Secondly it meant that they couldn’t launch bold plans to renew our infrastructure because there wasn’t a reliable delivery technique. Our first big contribution is to have restored our government’s faith in its ability to deliver those large projects on a more concrete front.”
The colossal infrastructure deficit that existed a decade ago in the health capital space has been addressed head on by IO. It’s a major area that Clark and his team have managed to turn around with increased efficiency procedures and practices, which once again is largely credited to the implementation of the AFP methodology.
“AFP amounts to adapting modern delivery techniques that address the major sources of cost overruns and late delivery in the past,” Clark remarks.
There are several core reasons as to why large-scale projects were often afflicted by cost overruns. Expansive projects were frequently broken up into smaller ones and tendered as a series of smaller entities. Any time such a problem arises, the public sector is left with the integration risk associated with the number of smaller projects that make up the large, overall initiative.
Clark provides an example. “If you were doing a subway extension and you tendered out the tunnel between each of the stations to different contractors and you tendered out each of the stations to different contractors, you’ve got the integration risk for every time the tunnel meets a station. Integration is a big part of big-project risk. We don’t do that anymore. We tender out projects as big projects and we ask the private sector to take all of that integration risk. Secondly, we combine the design and the construction together so we ask the contractor not just to build what we’ve designed but to design and build the project.”
In days gone by the government would create the design, put it out to tender and request that official bids be placed on the project. Invariably there would be taxing issues with some aspect of the design or implementation, which would ultimately leave the government on the hook for the necessary modifications because it was their design and so the contractor would return looking for amendment orders. But that was in the past.
“Now we say that we want the contractor to design the project they will build and if there are design issues then it’s the company’s problem. This has dramatically dropped the number of change orders,” Clark notes.
Infrastructure Ontario is also able to maintain a significant amount of control throughout the entire process of the build by withholding a sizable portion of the contracted payment until a substantial segment of the project is finished. Taking that approach gives IO a lot of leverage when disputes with contractors arise during the construction period.
“During the older traditional model we would have paid the contractor monthly and we would have funded all the construction costs,” Clark explains. “If there was a dispute with the contractor they had all the leverage because they didn’t have anything invested in the project and they could always walk off the site and so negotiations tended to be titled in their favour. Today we’re able to say that they have at least as much money invested as us and when they get it built, they’ll get paid. It changes the dynamic entirely.”
The government recently increased the threshold at which IO would consider AFP to $100 million, up from $50 million. This technique adapted by IO operates favourably for prodigious, complex projects because the larger the enterprise venture the more risk there tends to be. Traditional delivery methods are still efficient for smaller projects and as such IO remains comfortable in using traditional means, confident they can control the risks.
A considerable alteration that has been incorporated at IO is the requirement by those bidding on large-scale infrastructure projects to have local knowledge directly tied into the endeavour. There are also contemporary health and safety requirements with the Certificate of Recognition Program and a pilot project approach to encourage apprentices. Clark says it was discovered early in the program that local knowledge was an extremely important aspect to ensure the best possible outcome for each project.
“It doesn’t mean local ownership and control, but it simply means having people on your team who have knowledge of operating in the environment,” Clark clarifies. “Permitting, laws, regulations and working with the skilled trades would be examples. This is a requirement we’ve introduced in the last few years.”
Another positive refinement in recent years is the amount of private finance that IO requires in any of its transactions in an effort to optimize the mix of both public and private financing within the transactions.
“We don’t set out to privately finance our transactions. We set out to transfer risks associated with large projects and private finance is a way of doing that,” Clark says.
One of the big shifts currently underway at Infrastructure Ontario is the migration from constructing buildings to that of public transit. The redirect started to unveil about three years ago according to Clark. During the first six or seven years the IO program was primarily devoted to buildings, the vast majority of which were hospitals, but in recent years there has been a noticeable transition into the transit space, including such high-profile projects as the Ottawa LRT, the Waterloo LRT, the Union-Pearson Express Link and the Eglinton Project in Toronto.
IO is spearheading a tremendous amount of public transit in southern Ontario and many of the buildings require LEED certification, with silver as a minimum threshold.
“Often the builders will exceed LEED silver, but we require that as a minimum,” Clark confirms.
The distribution of Infrastructure Ontario’s projects does blanket the entire province. In the southwest quadrant there is the Windsor Expressway, the Right Hon. Herb Gray Parkway in Windsor. Hamilton and Mississauga are each having much-needed LRTs being built. On the north side of Toronto there is the extension of Highway 407 and to the east is the comprehensive Ottawa LRT.
“There is a very good distribution of projects right across the province,” Clark confirms.
As part of an ongoing commitment the Ontario government has pledged to spend $130 billion on infrastructure over the next decade — including $31.5 billion in public transit and transportation. Clark reports to a board of directors at IO and the chair of the board is then responsible for keeping Minister of Economic Development, Employment and Infrastructure Brad Duguid informed on all important issues.
“He’s (Duguid) been a tremendously supportive of our organization and we have a very good relationship with him,” Clark says. “The role of government is to determine what needs to be built and where and they assign the projects to us with a budget and our job is to get those projects done on time and on budget for them, so that’s how we divvy up the responsibilities.”
There are far too many IO projects to name, but several high-profile completed ventures have included the buildings for the recent Pan Am Games in Toronto, where the decrepit West Don Lands was converted from a vacant, contaminated eyesore to a tantalizingly spectacular athletes’ village.
“It’s one of the projects we’re most proud of,” Clark says. “The Games acted as a catalyst for us to go in and revitalize the area. We built a berm along the Don River which now protects that area. There are market-price condos, affordable housing, a YMCA, student housing, new public transit and a park.”
A vital expansion project that is still underway is a two-phase extension of Highway 407 on the northeast side of Toronto. The transportation project was tendered out in two separate packages. Phase One should be completed over the next six months with Phase Two to follow. The much-needed highway will increase productivity by allowing transportation of goods and services much quicker by being able to bypass the busy, congested streets in the core of Toronto.
Within the healthcare sector the brand new Humber River Hospital – touted as North America’s first all-digital hospital – has been receiving rave reviews and it’s expected other newly-built facilities will want to emulate what has been built in the magnificent facility. The new hospital provides in-patient and out-patient care, including cancer, cardiac and critical care, emergency services, dialysis, bariatric surgical services, women’s and children services, diabetes and mental health programs. The project was led by Plenary Group, known as a worldwide leader in the development and operation of public infrastructure.
“There are a number of incredible new technology features there,” Clark says. “The Humber and Halton hospitals were both on time and on budget. They were about one million square feet and really big, complicated projects.”
Another monumental healthcare project that has recently been completed is the Niagara Healthcare System’s St. Catharines site along with the adjoining Walker Family Regional Cancer Centre. The magnificent facility provides access to top-tier healthcare and cancer treatment meaning that people in the region no longer need to commute to Hamilton or Toronto for specialized medical services.
Bigger, Better, Faster
Clark believes projects of this magnitude would have been incredibly challenging if those projects were put out to market a decade ago due to the technical complexity. Nowadays, companies are equipped to handle the job. That was not often the case 10 years ago. Canadian construction companies would have been really challenged to take on a project of that size and technical complexity.
“We asked them to design and build to arrange financing and ensure it’s well maintained for 30 years. It would have been too much to have asked the industry 10 years ago, but here we are a decade later and they were both on time and on budget. That says something about what’s happened to Canadian infrastructure companies like PCL who were responsible for Humber and EllisDon who was responsible for Halton.”
Clark is optimistic that IO will continue to serve a market that will be one of the most active and consistent anywhere in North America.
“We’ve now tendered out the Eglinton project and you will soon see a heavy amount of construction along Eglinton. Over the next five years you’ll see that project reach completion. You’ll also see LRTs launched along Finch Avenue in Toronto, Hurontario Street in Mississauga and in Hamilton,” he says. “I think you’ll also see a lot of work underway on the province’s regional express rail program which involves the electrification of the Go corridors and various improvements to increase efficiencies and customer service.”
Clark says IO is fully committed to fostering long-term relationships with its employees and stakeholders and developing employees’ special skill sets and expertise. The work shared with clients and partners serves to identify new opportunities, creating industry-leading solutions and putting them into action. The mandate is to protect the public interest at all times by ensuring that every aspect of the process is openly transparent and represents value for the province and its taxpayers.
“As Canadians we are very modest but I think what we are doing in Ontario when it comes to infrastructure is truly at the forefront of infrastructure renewal,” Clark says. “There wouldn’t be another market in North America that is anywhere close to us in terms of the amount we are building. The sophistication of our programs and the companies responding to them is something we should be really proud about.”