Contents Corporate Profile History and Qualifications of Altus Helyar Select Services to Building Owners and Developers...

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3 Contents Letter of Transmittal Contents Corporate Profile History and Qualifications of Altus Helyar Select Services to Building Owners and Developers Risk Management Services Risk Matrix Template Cost Base Probability Impact Assessment Risk Allocation Final Risk Matrix Conclusion...9 Appendix A: Definitions of Risk Categories...10 Appendix B: Risk Matrix Summary

4 1 Corporate Profile 2

5 1 Corporate Profile 1.1 History and Qualifications of Altus Helyar Altus Helyar Cost Consulting ( Altus Helyar ), a division of Altus Group Limited, is a leading cost consulting firm and authority on construction cost planning and management in Canada. We provide a range of services to understand and to control construction and development costs and risks. Established in 1958 and operating previously as Helyar & Associates and Helyar Limited, Altus Helyar is typically involved in excess of 400 projects annually, ranging in size, nature, and complexity, across Canada. Altus Helyar s diversity in expertise enables us to administer almost any development project from concept to completion. Our scope of work can include a package of any of the many cost consulting services we provide, a few of which are shown below. Our ability to deliver full development management services is enhanced by our ongoing relationships with leading developers, planners, architects, engineers, and contractors throughout Canada, and in select global markets. Exhibit 1 1: Services Offering Altus Group Limited Valuation and Research Cost Consulting Realty Tax Management Valuation and appraisal Cost analysis / feasibility studies Loan monitoring Property tax management and budgeting Legal support Development cost management Post-contract cost control Assessment appeal via expert witness Decision-making support Reconstruction cost estimation Life-cycle cost studies New construction / preliminary property t Financial due diligence Distressed real estate analysis Legal support Tax due diligence Research Physical due diligence reviews Risk analysis Vacancy rebate (maintenance) Information technology services Value management LEED/green design Government support 3

6 1 Corporate Profile (cont d) 1.2 Select Services to Building Owners and Developers As the leading authority on construction cost planning and management in Canada, we provide our clients with counsel on the most accurate, up to date planning and effective cost control techniques available in the construction industry. We are committed to assisting our clients to build the best buildings possible on budget and on time. Our clients include developers and financiers of many of the largest and most complex private and public sector projects currently under development across the country. Our primary services include the following: Cost consulting cost planning, schedule preparation, physical due diligence Risk management Project monitoring 1.3 Risk Management Services Our risk management services have helped protect the interests of many investors/financial institutions and Building Owners, who are investing in construction projects. We believe Infrastructure Ontario would benefit by receiving reliable information on the risk parameters of investing in and building infrastructure developments in Ontario to ensure stakeholders interests are met. We utilize sophisticated tools and techniques to assist building owners, developers and lenders in recognizing and controlling risks on their construction projects: Risk Identification and Assessment Risk Management Strategies to control mitigate or manage risk Risk Communication Effective communication between the various parties Exhibit 1 3: Risk Assessment and Analysis Process Risk Identification & Assessment Risk Management Risk Communication 4

7 1 Corporate Profile (cont d) 1.3 Risk Management Services (cont d) From initial concept and as the project progresses through the various design and construction phases, it is both necessary and timely to review all financial and process matters that need to occur to make the project successful and identify areas of risk and control measures necessary to mitigate it. We believe that by including specialists from Altus Helyar in the Risk Identification Analysis and Risk Management process, we help our clients achieve a more balanced assessment on factors that impact cost, budget and schedule. From initial concept and as the project progresses through the design development phase, major risks continue to be assessed in their relationships to the project budget and schedule. Risks identified at this stage would be high level that are specific to the project, e.g. budget risks, tender risks, construction risks, and risks that arise from macro market conditions. Lower level risks, such as increase in cost or schedule due to use of alternative structural or cladding systems, for example, could also be identified. The risks are identified by various means, including formal risk management meetings and brainstorming sessions. We usually propose utilizing our RIAS Risk Information and Assessment System, which is able to forecast the financial effects of risks that are inherent in the project, and then analyze them and recommend response actions through the life of the project. After the design of the project develops to a sufficient level that general information on the building s structure, materials, finishes, and system are generally known, further construction cost estimates should be carried out on more complete design information prior to final approval and commencement of construction. For effective Budget Control, we work closely with the client to refine the total project cost, as well as prepare projected cash flows on both cost and revenues, so final decisions on project profitability and financing could be made. During the construction stage, the project should be progressing on budget, but issues may arise due to costs being over claimed against committed contracts and/or line item budgets. The most important constant to construction Cost Control is to have a thorough understanding of the scope of work being undertaken via a detailed control budget that is based on accurate quantities and realistic composite pricing rates. Based on this core information, it is then a matter of tracking awarded contracts that make up the various scopes of work and determining if the cost of work claimed on an ongoing basis relates to the value of work in place. Furthermore, to expedite construction and deal with payment requests for work not in place (e.g. offsite material/fabrications), additional adequate measures would need to be undertaken to mitigate potential loss. The robustness of the construction market in Ontario would also necessitate the need for objective Schedule Control. Being extensively involved in the Ontario construction marketplace, we know first hand that tenders may be optically within budget but upon commencement of work the manpower requirements often fall short of what was required to move the project forward in the manner required. All of the above measures are of paramount importance to the risk of any capital construction project. 5

8 2 Risk Matrix Template 6

9 2 Risk Matrix Template We have provided below a brief explanation of the attributes that form the basis of our risk matrix template. The template has 4 main attributes which are the Cost Base, Probability %, Impact Assessment and Risk Allocation. Each one has been explained, as follows: 2.1 Cost Base The cost base is the value that is applicable to the relevant category that is being assessed and quantified for a specific risk. An example of this is the construction category that would be assessed at a cost base of the Construction Tender Sum. Similarly, the cost base amount could be a Master Plan Estimate or Pre Tender Estimate, depending at what stage the analysis was carried out. 2.2 Probability The Probability attribute is the possible outcomes of given events together with the outcomesʹ relative likelihoods and distributions. It is also the chance that a particular event (or set of events) will occur expressed as a percentage. (An example of assessing a probability of a risk occurring could be the likelihood of a nuclear explosion occurring in Toronto, which would be a very low probability. However, if it did occur then the impact would be very high). 2.3 Impact Assessment Impact is the result of the occurrence of an event on the project either positive or negative. (This could include a schedule delay due to a specific event that may have a high negative impact; increased access to a construction site due to early departure of occupants in an office space may have a positive impact on a project). The impact columns represent the cost impact as a result of the risk occurring, and are assessed on 10 th percentile, typical and 90 th percentile. If there were a hundred projects, the 10 th percentile would represent the average impact of the 10 projects with the lowest cost impact as a result of the risk occurring. The 90 th percentile would represent the average of the 10 projects with the highest cost impact as a result of the risk occurring. The Typical column represents the most likely cost impact of the remaining projects as a result of the risk occurring. 2.4 Risk Allocation The risk allocation indicates who has ownership of the risk item, or if the risk is shared between the province and contractor. The value of the risk is then quantified as: Value of Risk = Cost Base x Probability x Impact 7

10 2 Risk Matrix Template (cont d) 2.5 Final Risk Matrix We have identified more than 80 material risks for large, complex public infrastructure projects of the type delivered by Infrastructure Ontario. These risks are grouped into 10 major categories as listed in Appendix B. When the risks are evaluated in the context of a typical public infrastructure project, it is our view that the value of the risks under traditional delivery (i.e., a Canadian Construction Documents Committee Stipulated Price Contract, or CCDC2 arrangement) and under Infrastructure Ontario s Design, Build, Finance & Maintain delivery model are as set forth in Appendix B. It is worth noting that reduced risk does not necessarily translate directly into value for money; it is rather an essential component of the value for money analysis. In order to determine whether value for money may be achieved, the reduced risks of the Design, Build, Finance & Maintain model have to be weighed against any additional costs. Appendix B shows that, in an average project, the public sector retains approximately 76.5% of the base construction costs in risks under a traditionally delivered project versus 16.2% under a Design, Build, Finance & Maintain delivered project. The table in Appendix B also shows that the majority of the risks that are reduced by using Design, Build, Finance & Maintain can be classified as risks relating to policy and strategy, design & tender, construction, life cycle and residual risk, and operational risk. Policy / Strategic risks relate to government approvals and changes in law, policy or funding. On average, the Design, Build, Finance & Maintain model can reduce these risks from roughly 20.4% of the base cost (the total contract value, excluding financing for this category) to 5.6%. Design and Tender risks include architectural and procurement risks. On average, the Design, Build, Finance & Maintain model can reduce these risks from roughly 19.4% of the base cost (the design & construction portion of the contract for this category) to 1.7%. Construction risks relate to site conditions, labour, resource availability, permits and approvals, delays and commissioning. On average, the Design, Build, Finance & Maintain model can reduce these risks from roughly 16.6% of the base cost (the design & construction portion of the contract for this category) to 1.4% of construction costs. To give an example of how this occurs, consider the construction risk of design coordination and completion. This is the risk that change orders are issued during construction due to design coordination/design completion/design gaps, and includes the risk that method of pricing of change orders is not fully prescribed in the contract resulting in change order costs exceeding estimated amounts. In our view, the probability of this occurring under both the traditional delivery model and Design, Build, Finance & Maintain is 90%. The typical impact of this occurring under the traditional delivery method is 2% of the base cost (the design & construction portion of the contract for this category), and under the Design, Build, Finance & Maintain model is 1% per cent. 8

11 2 Risk Matrix Template (cont d) 2.5 Final Risk Matrix (cont d) The table below illustrates how these assumptions would translate into quantification of the risk associated with design coordination and completion under traditional delivery and under the Design, Build, Finance & Maintain model. Risk Category Design Coordination /Completion Design Build Finance Maintain Model Traditional Model Cost Base Probability Impact Risk Quantified Probability Impact Risk Quantified Portion of DBFM Value % 10th perct Typical 90th perct Province Shared % 10th perct Typical 90th perct Province Shared Design & Construction $240,000,000 90% 0.50% 1.00% 5.00% $0 $0 90% 0.50% 2.00% 5.00% $4,320,000 $0 The table above shows that by delivering a project using Design, Build, Finance & Maintain as opposed to traditional delivery, the risk associated with design coordination and completion is reduced to zero, as this risk has been transferred to the Project Co.. Life Cycle and Residual Risk relate to maintenance of the physical building. On average, the Design, Build, Finance & Maintain model can reduce these risks from roughly 132.8% of the base cost (the maintenance portion of the contract for this category) to 46.1%. Operational risks include technological obsolescence, quality and unanticipated operating costs. On average, the Design, Build, Finance & Maintain model can reduce these risks from roughly 51.5% of the base cost (the operations portion of the contract for this category) to 0.3%. 2.6 Conclusion Our analysis demonstrates the opportunities for risk transfer and mitigation of the risk by the party best suited to manage the risk, resulting in savings in the Design, Build, Finance, & Maintain model. However, each project is different, and requires its own, unique risk analysis. This matrix is intended to be a starting point in the development of these analyses of Design, Build, Finance & Maintain projects. 9

12 Appendix A Definitions of Risk Categories 10

13 Appendix A: Definitions of Risk Categories The summarized risk matrix attached as Appendix B is a roll up of numerous sub categories of risk. Each one of the risk categories identified below relates to a capital project from master planning through construction, and includes a 30 year maintenance and operations term. Each capital project under the Design Build Finance Maintain model will require its own individual analysis depending at which point in the process the risk study is carried out. Project Budget 1.00 Policy / Strategy The cost base for this category is the total contract value, excluding financing 1.01 Planning, process and allocation practices The risks that internal government approvals are not received in a timely manner and ultimately delay the issue of tenders Changes in Government Funding Policies The risk that the method of funding the project is changed by the current or subsequent governments Deal termination due to government policy changes Risk that a change in law, government policy or protocols leads to a change in the process or to termination of the process. Design, Tender and Construction 2.00 Design & Tender The cost base for this category is the construction and design portion of the contract value 2.01 Technology Selection The risk that changes in equipment selection and/or specifications could affect the design requirements (room sizes, space requirements, power supply, cooling requirements) and could lead to increased costs Owner s Project Management Team Experience Risk that, during design phases, the Project Management Team does not have sufficient experience to design and manage the procurement model. Risk of inadequate information flow within the Project Team. It is assumed that under DBFM, IO will be included in the Owner s Project Management Team Sign off by user groups incl. F.F.&E./I.T. Risks that user groups wish to revisit the design of their program space. Risk that approvals for F.F. & E. and I.T. components are not forthcoming. Risk that this could result in delays in the design process and ultimately delay the issue of the tender. 11

14 Design, Tender and Construction 2.00 Design & Tender The cost base for this category is the construction and design portion of the contract value (cont d) 2.04 Incomplete RFP Tender Documentation Risk that the RFP tender documentation is not complete. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Uncoordinated Information Risk that tender documentation is uncoordinated. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Financial capability of Proponent Risk that proponent does not have the financial resources or experience with the procurement model. The likelihood of an one of the entities or joint venture partners of the proponent becoming unable to fulfill its contractual obligations are greater under the DBFM model, due to the number of parties involved and the complexity of such a financial arrangement. Under the traditional model the components would be procured separately, thereby posing no risk to the other parties Tendering Competition Available GCs Risk that the lack of pre qualified or interested general contractors results in smaller than expected number of tenders. This could result in higher tender prices Tendering Competition Available Subtrades Risk that lack of pre qualified or interested subcontractors results in smaller than expected number of tenders. This could result in higher general contract tender prices Scope Changes by Owner During RFP Risk that scope of work is changed by the Owner during the RFP process. This could lead to a lack of confidence in the whole process. A reduced tolerance for risk exhibited by the tenderers could result in higher tender prices 2.10 Contract Award / Commercial Close Delay Risk that award of contract is delayed Financial Close Delay Risk that Commercial Financial Close is delayed. 12

15 Design, Tender and Construction (cont d) 3.00 Site Conditions/Environmental The cost base for this category is the construction and design portion of the contract value 3.01 Relocation of Municipal Services Risk that a relocation of municipal services could result in delays or additional costs Existing Condition Information provided by the Province Risk that existing Utility services are inadequate. If Owner has taken responsibility for provision of services then this could result in a change of scope. Risk that reports provided to bidders is inadequate and does not sufficiently describe the existing building conditions. This could result in the contractor having a claim for additional time and costs Geotechnical Risk that Geotechnical reports provided to tenderers are incomplete. This could result in the contractor having a claim for additional time and costs. Magnitude of risk will vary depending on particular site conditions and foundation designs Environmental Condition of Site Risk that Environmental reports provided to tenderers contain errors. This could result in the contractor having a claim for additional time and costs. Magnitude of risk will vary depending on particular site conditions. Tenderers will insist that they can rely upon the environmental reports provided in the tender documentation Archaeological Risk that archaeological finds will result in a delay and increased costs Construction activity results in contamination Risk that construction activity results in contamination of the site. This could result in temporary closure of the site and delay in contract completion. 13

16 Design, Tender and Construction (cont d) 4.00 Construction The cost base for this category is the construction and design portion of the contract value 4.01 Weather Risk that delays occur due to adverse weather conditions Construction Delays Risk that delays in the construction schedule could result in a delay to the handover of the facility. Delays will result in additional costs for the contractor. This could have detrimental effect on the liquidity of the contractor and ultimately result in bankruptcy. A delay in handover could result in additional or duplicate operating costs for the Province at the existing facility. In a traditional project, delays extend the schedule, under the DBFM the proponent will attempt to mitigate delays Failure to build to design Risk that project is not constructed in accordance with the design documents. This could result in a dysfunctional building Acceleration to maintain schedule Construction Impact 4.05 Acceleration to maintain schedule Labour Impact Risk associated with the construction contractor having to accelerate the schedule to achieve the completion date. This could result in additional costs for the construction contractor but could also result in substantial quality work due to subtrades working longer hours. Risk associated with increased labour costs for the construction contractor having to accelerate the schedule to achieve the completion date Construction safety obligations Risk that the construction contractor does not satisfy its safety obligations resulting in an increased incidence of lost work days for site labour. This could affect the overall schedule and profitability of the project for the construction contractor Force Majeure Risk of delays and additional costs due to force majeure risks. Such events typically result in the construction contractor is given an extension of time to complete the project Adequacy of Insurance Risk that the insurance provided by the construction contractor is not sufficient for a particular occurrence. Risk with adequacy of Bonding, especially major sub trades. Risk of Bonding capabilities of General Contractors and sub contractors Acute Market Conditions Risk associated with construction costs being higher than estimated by the construction contractor. This results in higher costs and a reduced profit margin for the contractor Deficiencies as Work Progresses Risk that defects are discovered during the construction of the project. This results in increased financial pressure on subcontractors and could result in reduced profit margins or even bankruptcy for the subcontractor. 14

17 Design, Tender and Construction (cont d) 4.00 Construction The cost base for this category is the construction and design portion of the contract value 4.11 Latent Defects Risk that latent defects are discovered after substantial completion Resource Availability; equipment Risk that equipment resources are not available when required for the project, resulting in delay and increased costs for the construction contractor Resource Availability; materials, cement, steel, etc. Risk that critical materials may not be available when required, resulting in delays and additional costs. Risk associated with lead time for materials, impact of major commercial and institutional projects sourcing the same materials especially Mechanical Head end equipment and Electrical distribution equipment Resource Availability; Labour Risk that labour resources are not available when required for the project, resulting in delay and increased costs for the construction contractor LEED / Other Performance Requirements Risk associated with the contractor s obligation to meet the LEED requirements stated in the contract documents On Site Security during Construction Risk that on site security is inadequate resulting in theft or damage. This will involve additional costs for the contractors and, in some cases, a delay to the schedule Non Payment: Cost & Delay to Substantial Completion Risk that the Finance Company defaults and is unwilling to meet financial obligations, resulting in delays to substantial completion Construction Contractor Default Risk that the construction contractor defaults and has to be replaced. This could result in delays to the delivery of the facility and additional costs for the Owner. In DBFM the Consortium Lead and/or the Lender would take over in this situation Pre tendered materials Risk that pre tendered materials are not procured early enough and result in delays to the overall schedule. Risk associated with lead time for materials. 15

18 Design, Tender and Construction (cont d) 4.00 Construction The cost base for this category is the construction and design portion of the contract value 4.20 Project Management Team Experience (Contractor) 4.21 Project Management Team Experience (Owner/Province) 4.22 Scope Changes by Owner During Construction Risk that the contractor s Project Management Team does not have sufficient experience to manage the construction contract. Risk that management team is not familiar with the procurement model. Risk that Project management team are unfamiliar with the particular challenges of the type of building to be constructed (for example, health care versus a detention facility). Risk of inadequate information flow within the Project Team. In traditional model, if the project is delayed due to the Contractor s inexperience, the Province will accept the delay. In DBFM, the Proponent receives a penalty from the Lender for delays and therefore has its A team assigned to the project. Risk that the Owner/Province s Project Management Team does not have sufficient experience to manage the construction contract. Risk that management team is not familiar with the procurement model. Risk of inadequate information flow within the Project Team. Risk that the scope of work is changed by the Owner during the construction period Cash Allowance Amounts The risk that the amount included in the contract documents for cash allowances is insufficient. Cost increases will result in a higher overall cost to the Owner. In traditional, cash allowances are included for items not fully designed in detail. In DBFM, these incidents are mitigated Design Co Ordination / Completion Risk that change orders are issued during construction due to design coordination/design completion/design gaps. Includes the risk that method of pricing of change orders is not fully prescribed in the contract resulting in change order costs exceeding estimated amounts Construction variations due to equipment selection Risk that there are construction scope changes as a result of equipment selection by the Owner. This could result in additional costs for the construction contractor. Under DBFM, although the risk has been mitigated by transferring the co ordination to the contractor, there still remains inherent risk in Owner changes Impact on Schedule due to F.F.&E. Risk that equipment selection changes and construction variations as a result, could impact the schedule. Under DBFM, although the risk has been mitigated by transferring the co ordination to the contractor, there still remains inherent risk in Owner changes. 16

19 Design, Tender and Construction (cont d) 4.00 Construction The cost base for this category is the construction and design portion of the contract value 4.27 General Strike Risk that a general strike could delay the overall schedule and result in additional costs Strike Specific to Contractor Risk that a strike specific to the construction site could affect schedule and result in additional costs Equipment Risk (F.F. &E.) The cost base for this category is the equipment value, which is not included in the contract 5.01 Owner Procurement / Project Co. Risk that equipment procured by the Owner is not suitable for the required use, or is not delivered in compliance with the construction contractor s schedule Equipment Selection Changes Risk that there are changes to the selected equipment by the Owner resulting in delays and additional costs for the construction contractor Permit and Approvals The cost base for this category is the construction and design portion of the contract value 6.01 Municipal Approvals Risk that municipal approvals delay commencement of construction Building Permits Risk that there is a delay in providing the Building Permit to the construction contractor and this results in an extension of time for the construction contractor with resultant additional costs Other Permits Where Other Permits are to be obtained by the Owner; then any delay in providing those Permits to the construction contractor would result in an extension of time for the construction contractor with resultant additional costs Building Code Design The risk that the design does not meet current building code Building Code Construction The risk that construction does not meet current building code Utilities Company Fees The risk that Utility Company fees are not included in the contract sum. The contract documents should clearly state which party is to include for utility company fees Title/Access/Title Encumbrances Risk that the construction contractor does not comply with all the encumbrances associated with the site. 17

20 Design, Tender and Construction (cont d) 7.00 Completion/Commissioning The cost base for this category is the construction and design portion of the contract value 7.01 Commissioning Delays Risk that commissioning delays could result in a delay to the handover of the facility. Delays will result in additional costs for the contractor. This could have detrimental effect on the liquidity of the contractor and ultimately result in bankruptcy. A delay in handover could result in additional or duplicate operating costs for the Province at the existing facility Deficiencies Risk that there are excessive deficiencies upon substantial completion resulting in operational difficulties and overall client satisfaction Handover Agreement Risk that ambiguities exist in the handover agreement that could lead to disagreements at a later stage. Maintenance 8.00 Life Cycle and Residual Risk The cost base for this category is the maintenance portion of the contract value 8.01 General Capital Maintenance / LCC Risk that capital maintenance to the structure and systems of the building is not performed when Schedule appropriate to sustain the capital value of the property. Often in the private sector the landlord has no incentive for providing quality maintenance towards latter period of the term where a special purpose built and single tenancy is involved. Under DBFM the risk and responsibility is transferred to Project Co. and Project Co. has an incentive to maintain the asset to meet their handback obligations. An example of general capital maintenance is a scheduled roof replacement Preventative / Periodic Maintenance Risk that periodic maintenance of the building is not adequate to sustain the service requirements. This type of risk increases the probability that the building under performs, causing higher utility costs, and the residual value depreciates more than if it was properly maintained. Government has a tendency to under fund budgets for building maintenance and improvements, while the private sector tends to do the appropriate repairs to protect its investment where market alternatives exist. An example of preventative / periodic maintenance would be annually servicing mechanical and electrical systems and major equipment. 18

21 Maintenance (cont d) 8.00 Life Cycle and Residual Risk (cont d) The cost base for this category is the maintenance portion of the contract value 8.03 Unscheduled Emergency Maintenance Risk that emergency maintenance is required that affects the life safety & immediate operation of the facility. The impact of this risk impacting the project is lower under DBFM because the Proponent is more likely to carry out general capital maintenance and preventative maintenance due to performance obligations Overlooked Defects Risk associated with design errors related to project details. Risk that overlooked design, construction, and manufacturing defects or design elements will cause unexpected problems, such as roof leaking, and as a result increased capital repair expenditures/costs Technology Changes Risk involving technology changes that could impact the delivery of building automation systems. Variance from operational budget due to changes required to address technology changes that will enhance systems, including mechanical, electrical, life safety, building automation systems, conveying systems, security systems. This risk is typically accounted for in the structural reserve Major Building Reconfiguration and Improvements Risk associated with required technology changes, safety and security, and any other changes required by the Government that may lead to major alterations to the building structure, including mechanical and electrical components Occupancy Requirements Risk associated with legislative and/or government occupancy requirements. Changes to requirements may require changes to the base building and/or tenant improvements. This could impact capital repairs and/or tenant improvement costs. Government has an obligation to ensure that required changes are implemented immediately; however may be less willing to pay for the changes for leased premises. In DBFM, the Proponent is responsible to ensure occupancy requirements are met. 19

22 Maintenance (cont d) 8.00 Life Cycle and Residual Risk (cont d) The cost base for this category is the maintenance portion of the contract value 8.08 Life Cycle Life cycle maintenance costs are higher than projected. The risk and associated costs of maintaining the building interior, exterior and building systems in good working order and in a mode of delivery of service or function required. This is the risk that sub systems identified for life cycle maintenance would require renewal costs higher or sooner than estimated or fail before renewal. This risk includes variance from operational budget due to request changes to address revised codes and/or local authority requirements, change in material, change in service delivery requirements, deferral of replacement schedules. Includes building exterior and site: building envelope, landscaping, irrigation, storm and sanitary, exterior signage Default of Property Management Risk of bankruptcy or default of building maintenance company Incomplete RFP Tender Documentation Risk that the RFP tender documentation is not complete. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Uncoordinated Information Risk that tender documentation is uncoordinated. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Asset Residual Risk in connection with residual value of the asset at the end of the term. Under the DBFM model the contract provision calls for very stringent requirements for handover procedure, hence the probability of it posing a financial risk to the proponent is greater. However, through the AFP model the impact would be less due to the mandatory LCC plans. 20

23 Maintenance (cont d) 9.00 Operational The cost base for this category is the operation portion of the contract value 9.01 Supplier / Contract Management / Supplier and Contract Management Risk is the risk of any contractor, outsourced serviced Outsourcing and Building Structure and provider, or supplier failing to provide products or services as agreed. It is also the risk that Systems including Maintenance supplier could walk away / breach the contract. It is also the risk of the Ministry not managing its multitude of contracts in a systematic, efficient and timely manner. This risk also relates to the impact of forming strategic alliances with inappropriate parties due to incomplete information or an inadequate or inappropriate selection process. This risk can result in disruptions in service and program delivery, missed deadlines, increased costs to the Ministry and increased exposure to liability Technological Obsolescence and Upgrade Risk of the contracted services and its method of delivery not keeping pace, from a technological perspective, with specified requirements and risk associated with the need for upgrade of the assets over the term of the project to meet performance requirements Operation of Building for Occupant Use Risk that appropriate performance specifications do not suit required standards of intended users. Failure to provide services to required standards and quantity Health & Safety The service is not operated in compliance with safety requirements Quality Risk Risk that government will change hospital quality standards. This could negatively impact operational costs of the building / service provider, including one time expenses/costs to upgrade the building to meet required quality standards Un anticipated Operating Costs Risk that operating costs will be higher than projected due to inflation factor or because of inaccurate estimates and assumptions, affecting utility and maintenance costs. Amongst the factors contributing to higher than projected operating costs are environmental issues (air quality), changes to room design, security supporting systems, and others Labour Relations Disputes The risks of adversarial union/management relations or inability to settle contract negotiations in a timely, fiscally responsible manner. The risk of not being able to put adequate structures in place (in a timely fashion or not at all) due to contract limitations. This risk can lead to strikes, decreased employee morale and business service interruptions. 21

24 Maintenance (cont d) 9.00 Operational (cont d) The cost base for this category is the operation portion of the contract value 9.08 Recruiting, Retention And Employee Recruiting and retention risk is the failure to appropriately identify, screen, hire and retain the Satisfaction most competent, individual for the job. Failure to manage this risk can lead to low productivity, loss of key personnel. The inability to attract these people may be a function of skill shortages in the marketplace, non competitive compensation packages, high demand for certain skills, or a perception that the organization is not a good place to work Professional and Legal Liability The risk that key staff of operating facility may be subject to litigation and claims related to negligence. Risk may affect operations of facility, causing delays in delivering services to public and, as a result, damaging reputation of the Ministry Incomplete RFP Tender Documentation Risk that the RFP tender documentation is not complete. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Uncoordinated Information Risk that tender documentation is uncoordinated. This will result in increased addenda and could give a sense of uncertainty to bidders, resulting in reduced tolerance to risk resulting in higher tenders Client / Customer / Public Satisfaction Inability to meet client/customer/public expectations, a lack of focus on specifics of the project and associated service requirements. Key contributors to this risk can include failure to respond in a prompt and efficient manner, failure to deliver services in an efficient and timely manner, lack of client/customer confidentiality, inadequate or inappropriate services delivery Project Agreement The cost base for this category is the total contract value, excluding financing Ambiguities in Agreement Risk that ambiguities exist in the project agreement that could lead to disagreements at a later stage Form of Contract Risk that ambiguities exist in the contract that could lead to disagreements at a later stage Termination For Convenience Risk that government(s) will terminate the contract prior to the expiration of the term, for convenience i.e., not for cause thus resulting in the loss of opportunity by the partner Innovation Risk Risk of not implementing the Project optimally. There is a risk that innovative approach, using an AFP model, to deliver this type of project will not achieve the desired outcome. Risk that make up of consortia may not be most cost effective / efficient. 22

25 Appendix B Risk Matrix Template Summary 23

26 Appendix B: Risk Matrix Template Summary Risk Category Cost Base (Portion of DBFM) Risk Retained by Province at Average Impact Design Build Finance & Maintain Model Traditional Model 1.00 Policy / Strategic Total Contract 5.6% 20.4% 2.00 Design & Tender Design & Construction 1.7% 19.4% 3.00 Site Conditions/Environmental Design & Construction 1.1% 1.1% 4.00 Construction Design & Construction 1.4% 16.6% 5.00 Equipment Risk (F.F.&E.) F.F.&E. (outside of contract) 0.0% 0.8% 6.00 Permit and Approvals Design & Construction 0.0% 0.2% 7.00 Completion Commissioning Design & Construction 0.1% 0.7% 8.00 Life Cycle and Residual Risk Maintenance 46.1% 132.8% 9.00 Operational Operations 0.3% 51.5% Project Agreement Total Contract 1.0% 0.0% Total Risks Retained by Province Total Contract 16.2% 76.5% Notes: 1. The value of each risk category shown in the matrix above is a summation (or ʹroll upʹ) of the values of multiple sub categories of risk. The percentage shown is the value of risk against the cost base for that risk category. For an explanation of the risks under each category and sub category, please refer to the definitions section. 2. The total risks retained by the Province for each model has been arrived at using the total contract value. 3. The above matrix evaluates risk for a project at Cabinet approval stage 4. The Operational risks are based upon a 30 year agreement 5. Financing has been excluded 6. The cost base is the Net Present Value 7. The risk values represent the true mean impact, calculated by statistical simulation calibrated to the 10th, Most Likely and 90th percentile impacts for each risk. 24