January 13, 2012

Alternative Financing and Procurement key for Ontario government construction

KELLY LAPOINTE

staff writer

The provincial government is turning to the private sector to help reduce Ontario’s infrastructure deficit.

One of Infrastructure Ontario’s (IO) key areas of responsibility is to reduce the infrastructure deficit through its project delivery. The current average age of an IO building is 46 years old.

IO’s principle method for most project management has been Alternative Financing and Procurement (AFP), which allows IO to transfer risk to the private sector and thus deliver value for money.

“At the end of the day, value for money resonates with taxpayers,” said Peter Wilson, Vice-President AFP and Major Projects, Infrastructure Ontario.

AFP is an alternative to the more traditional Design-Bid-Build approach, though more traditional forms of procurement are used on smaller projects, he added.

“[Design-Bid-Build] was fraught with problems in terms of on-time and on-budget delivery and AFP seeks to solve that and thus far, has done so,” said Wilson.

“We are on-time with our projects, we’ve been able to close every deal and we’ve been very successful.”

Since its merger with the Ontario Realty Corporation, IO manages one of the largest real estate portfolios in the country and requires a strategic focus to manage it.

IO has brought more than 50 AFP projects to market and up to $23 billion in construction capital since 2005, said Wilson. The projects are primarily focused around health care, but they have also engaged in major civil engineering and information technology projects.

One case study presented at the recent Construct Canada conference demonstrated the value taxpayers can receive through the private sector.

The Durham Region Courthouse was completed in 2009, achieved LEED Gold in New Construction and Existing Building and is considered one of IO’s most successful projects. It was built by PCL with Johnson Controls as facility manager.

While IO is the owner, Johnson Controls has a deal to manage it over the course of 30 years, with hand-back requirements that start in the last five years. The 30-year operating period is not necessarily reflective of an operating life of the asset. An operating period is based on factors such as lifecycle and achieving private sector financing. There could be a renewal of contract with facilities manager or RFP process.

Johnson Controls looks at new technology that may not be affordable in a regular three to five-year contract, explained Jean-Michel Read, Director FM Customer Business at Johnson Controls. The manager can incur penalties if maintenance issues aren’t immediately addressed and cause portions of the building to go unused.

“We can amortize over a long period of time because we’re not in a three to five-year contract and it will foster availability so I don’t have to worry about the room becoming unavailable because the lights are going to burn out,” said Read.

“We replaced them all with LEDs. In a normal facility that might not make sense, in one of these facilities, it certainly does.”

IO manages the largest green building program in the country with 16 million-square-feet of green building and AFP has played a large role. As their green building program evolves, IO is aiming for a minimum of LEED silver on its projects.

These projects are evaluated in the bid stage using net present value, which allows the manager to collaborate with the constructor and talk about life cycle costs, maintenance and operations.

“The entire package gets presented at that point,” said Read. “Traditionally, facility management folks have not been involved all that much in the discussion during construction. This adds a lot of value to the project and I think ultimately the taxpayer.”

After Johnson Controls moves into a building, they are left to operate the building and continue that value.

“Throughout the life of the asset because we have a fixed life cycle budget, it’s basically a guarantee throughout the 30 years, every move, change, retrofit throughout the life of the asset,” said Read.

“We are considering life cycle and sustainability. Where we have the opportunity to replace an asset in years five, 10 or 15, it behooves us to look at the entire value, to look at the sustainability of the products we’re putting in.”

Wilson said there will be continued investment with new projects and green building will continue to be a priority. IO managed facilities are projected to achieve 20 per cent electricity reduction and IO is working towards a 27 per cent reduction in greenhouse gas emissions by 2020.

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