P3 Procurement Lessons Learned: Regina WWTP 1 WWTP City of Regina 2 Jayne Krueger and Rob Court Project Awesomeness Group February 25, 2016 3 4 Reasons for Project Tighter effluent limits (December 31, 2016) Ammonia removal (protection of fish and other aquatic species) Nutrient removal (to minimize growth of algae) Project Summary Combination of greenfield development and upgrades to existing infrastructure. Population growth Existing plant is close to capacity Aging plant infrastructure 1
Why did City consider P3? Track record of success with P3 at Provincial level Value for money recorded on Provincial projects (most 5%-15%) On time and on budget delivery Competition and innovation Long term budget certainty Additional motivations for municipalities P3 Canada Fund A way to address large one time projects that a municipality is not used to or equipped to deal with 5 Regina s P3 Experience City has two very large capital projects: Football stadium and WWTP A process was undertaken to determine if a P3 procurement would work for both projects In March 2012, City Council approved a policy framework to guide the analysis of P3 Three stage process undertaken to assess each P3 Screening Assessment Strategic Assessment Value for Money 6 Regina s P3 Assessment Process The City s Administration Bylaw requires that a P3 model must: align with priorities taking into account users needs and budgets; protect public interests taking into account affordability, access, safety and public input; manage project risks; be affordable; have strong private sector interest; ensure public sector employees are treated fairly and in compliance with applicable legislation; and have appropriate governance structure to ensure accountability. 7 Screening Assessment of Delivery Models The City reviewed 12 procurement options and shortlisted the options to 5 as part of the Strategic and VFM analysis. Traditional Alternative P3 Design-Bid-Build (DBB) (multiple tenders) Baseline for analysis only Construction Manager at Risk (CMAR) CMAR (Brownfield) + DB (Greenfield) Design-Build-Operate-Maintain (DBOM) Design-Build-Finance-Operate-Maintain (DBFOM) 8 2
Managing Risk Capital On-time Fixed price construction Shorter construction period Transfer of design/construction risk to P3 contractor 9 WWTP Plant Strategic Assessment Areas of Responsibility/Risk 1 DBB 2 CMAR 8 CMAR + DB 6 DBOM 7 DBFOM Ownership City City City City City Standard Setting City City City City City Oversight & Rate Setting City City City City City 10 Operations & Maintenance Fixed price operations and maintenance Long term service level guarantee Long term warranty Transfer of O&M risk to P3 contractor Design City City Share Contractor Contractor Contractor d Construction City City Share Contractor Contractor Contractor d Operation City City City Contractor Contractor Maintenance City City City Shared Contractor Long Term Financing City City City City Shared Funding (who pays) City City City City City/PPP Canada Indicates contractually-bundled responsibilities of contractor 11 12 WWTP Plant VFM of DBFOM & PPP Canada Contribution VFM of $79.6 million (NPV), 15.5% Benefits of the Approach Reduce risk for taxpayers (on-time/on-budget) Take a long-term perspective (lifecycle approach) Private sector innovation & efficiency (P3) Increase the financial certainty (due diligence/affordability) 3
13 14 City Council Approved P3 Delivery Design-Build-Finance-Operate-Maintain (DBFOM) delivery method on February 25, 2013 City Council has delegated responsibility for delivering project to Administration Capital contributions Successful proponent: Up to $118.3 million PPP Canada Up to $58.7 million representing 25% of eligible costs City of Regina $47.3 million City advisors Advocate Engineer and Project Manager AECOM Business Advisor Deloitte Legal Advisor Torys Fairness Advisor J.D. Campbell and Associates $224.3 million Project Summary Handover of wastewater treatment plant operation to consortium on execution of agreement Operation of collection system, pumping stations, and forcemains not included 30 year term for design, construction, operation and maintenance Hand back operations to City at end of term Ownership remains with City throughout Plant staff remain with same union Employee Transition Concerns About 20 existing plant staff Will remain with the same union with new employer Will remain with same pension plan with new employer Proponents required to maintain a set number of staff positions until expiry of CBA Work with Union representatives on Letters of Understanding to facilitate smooth transition with options for employees Co-management of plant staff for first 6 months of contract Staff have trial period and can return to City New employer has opportunity to bring in temporary specialist staff to alleviate any migration back to City. 15 Preparation for Procurement Data Room Drawings, Reports, Correspondence, Plant data Collaboration with WSA Geotechnical investigations Environmental investigations Provincial submission to waive EIA Baseline assessment Habitat survey Asbestos survey Tank inspections 16 4
17 18 Preparation for Procurement Resolve Key Risk Factors Early Develop and Implement a P3 Policy Own the Land Ensure Land is Within City Limits Annex if Necessary Conduct Extensive Site Investigation Build Relationship with the Regulators Work with Labour Unions to Facilitate Employee Transition Septage Preparation for Procurement Provide City Council with training on procurement, P3 models, value for money analysis Expect opposition to P3 project and plan for it Set a firm, realistic schedule Easy to understand budget (anticipate the end result) 19 20 RFQ Phase Industry Awareness Sessions March/April 2013 RFQ Issued May 14, 2013 Closed June 25, 2013 10 submission received Intended notice of selection July 10, 2013, but. Petition against P3 project March 20 to June 20, 2013 10% of population can initiate referendum (19,310 required) 18,145 valid petitions received although some disagreements on petition details City Council agreed to Referendum on the P3 project PPP Canada Funding PPP Canada funding confirmed June 14, 2013 Knox, S., & Stinson, W. (2013). City of Regina invalidates waste water treatment plant petition. Global News. Retrieved from http://globalnews.ca/news/729307/city-of-regina-invalidatedwaste-water-treatment-plant-petition/ PPP Canada. (2013) New Wastewater Treatment Facility to Improve Environmental Protection, Create Jobs and Stimulate Economic Growth in the City of Regina Retrieved from http://www.p3canada.ca/~/media/english/pressreleases/files/new%20wastewater%20treatment%20facility%20to%20improve%20environmental%20protection %20create%20jobs%20and%20stimulate%20economic%20growth%20in%20the%20city%20of%20regina.pdf 5
Referendum July 22 to September 25, 2013 Referendum question: Be it resolved that the council of the City of Regina publicly finance, operate and maintain the new wastewater treatment plant for Regina through a traditional Design, Bid, Build (DBB) approach." Significant media coverage Referendum results 57% Yes, 43% No 31% turnout 1. Lammam,C. (2013). Referendum on Regina Wastewater Plant an Opportunity to Clarify Facts About P3s.Retreived from http://www.huffingtonpost.ca/charles-lammam/referendum-on-reginawast_b_3677131.html 2. Lerat-Stetner, S. (Photographer). 2013. P3 option creating a lot of discussion for Regina waste water treatment plant. Global news Regina SK. (Photograph). October 9, 2014. From: http://globalnews.ca/news/819990/p3-option-creating-a-lot-of-discussionfor-regina-waste-water-treatment-plant/ 21 RFP Phase Shortlisting of 3 teams announced Used the Alberta model for the documents Successfully used on highways and schools projects Regular technical and legal meetings during RFP phase Regular updates on the documents Proponent submissions SR1 confirmation of RFQ SR2 technical submission SR2B technical submission, as clarified SR3 financial submission 22 23 24 RFP Phase Technical Submissions 30 Plans No scoring or ranking Either comply with technical requirements or not Iterative process of review Design Development Reports (includes drawings) Project Co s Construction Schedule Quality Management System Environmental Management System Health and Safety Management Plan Permitting and Approval Plan Operations Interface Plan Wastewater Sampling and Analysis Plan Incident Logging Centre Plan Design Plan Construction Management Plan Construction Occupational Health and Safety Plan Commissioning and Startup Plan Construction Period Public Communication Plan Construction Period Interface Protocol Demolition and Decommissioning Plan Operation and Maintenance Plan Emergency Response Plan O&M Occupational Health and Safety Plan Odour Management Plan Noise Control Plan Staffing and Training Plan Residuals Management Plan Biosolids and Existing Lagoon Management Plan Security Plan Asset Management Plan Transition Out Expiry Plan Transition Plan for Existing Facilities O&M O&M Plan for Existing Facilities Existing Facilities Occupational Health and Safety Plan RFP Phase RFP Issued October 16, 2013 RFP Closed (SR3) May 22, 2014 Lowest NPV wins EPCOR Water Prairies Inc. Early Works Contract June 17, 2014 Financial Close July 3, 2014 1. CBC News. (2014, May 29). Edmonton's EPCOR selected to build Regina sewage plant. Retrieved from http://www.cbc.ca/m/touch/canada/saskatchewan/story/1.2658541 2. Martel, K. (Photographer). 2014. Regina's new sewage treatment plant costing less than expected. News Talk 650 CKOM. (Photograph). October 14,2014. From: http://ckom.com/story/video-reginas-new-sewage-treatment-plant-costing-less-expected/389741 6
25 26 RFP Key Features Ineligible participants Request for Information process Commercially confidential meetings Financial Close - City Council delegated authority to award and enter into all contracts with successful consortium - Prior to closing, City required to pass bylaw related to the borrowing occurring as part of transaction - Little guidance in The Cities Act (Saskatchewan) regarding treatment of borrowing from P3 s - Timing concerns as bylaw passage required in advance of closing - Delegated authority affected legal opinions provided on closing DBFOM Contractual Structure LEGAL AGREEMENTS PROJECT AGREEMENT FINANCING AGREEMENTS SUBCONTRACTS 27 Actual Costs Capital Cost (EPCOR costs + City costs) Approved for DBFOM: $224.3 million Actual DBFOM: $180.8 million Saving of $43.5 million PPP Canada Ltd. ccontribution $48.2 million rather than $58. 28 PA = Project Agreement LA = Lending Agreements LDA = Lenders Direct Agreement EA = Equity Agreements DB = Design Build Contract O&M = Operations & Maintenance Contract CTV Regina. (2014, July 11). Cost of building new Regina sewage treatment plant $43.5M less than expected. Retrieved from http://regina.ctvnews.ca/cost-of-building-new-regina-sewage-treatment-plant-43-5m-less-than-expected-1.1910305 27 7
29 30 Security Provisions in Project Agreement $1 million Letter of Credit $10 million Initial Financing and Performance Letter of credit Independent Certifier Technical Advisor Milestone payment Substantial Completion Payment Operations and Maintenance Payment Adjustments Holdback for 30-day Performance Test Handback holdback Insurance Value for Money Cont d VFM with P3 Canada Funding Table 4 from Deloitte s VFM report Value for Money Cont d 31 Summary The Regina WWTP project demonstrates P3 s can be effective way to manage large project risks while delivering value for taxpayers Municipal P3 s are not common in North America, but so far Regina has proved that P3 s can be successfully implemented at this level of government 32 Figure 1 from Deloitte VFM report 8