Public Private Partnerships Business and Legal Issues Presented - PowerPoint PPT Presentation

Public – Private Partnerships Business and Legal Issues

Presented by: Mary Ellen Bench, City Solicitor, City of Mississauga Anna Kinastowski, City Solicitor, City of Toronto Lou Milrad, Associate Counsel, Miller Thomson LLP

Presentation Roadmap 1. Introduction and Outline 2. Advantages and Disadvantages of P3 3. Project Scope 4. Risk and Liability 5. Canadian Experience 6. Public Opinion 7. Case Law 8. P3 and the Global Economy 9. Conclusions

Terminology • Design-Build (DB) : The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector. (Many do not consider DB's to be within the spectrum of P3's). • Finance Only (FO): A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue. • Operation & Maintenance Contract (O & M): A private operator, under contract, operates a publicly-owned asset for a specified term. Ownership of the asset remains with the public entity. • Build-Finance (BF): The private sector constructs an asset and finances the capital cost only during the construction period. • Design-Build-Finance-Maintain (DBFM): The private sector designs, builds and finances an asset and provides hard facility management (hard fm) or maintenance services under a long-term agreement. • Design-Build-Finance-Maintain-Operate (DBFMO): The private sector designs, builds and finances an asset, provides hard and/or soft facility management services as well as operations under a long-term agreement. • Build-Own-Operate (BOO): The private sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory authority. • Concession: A private sector concessionaire undertakes investments and operates the facility for a fixed period of time after which the ownership reverts back to the public sector. • RFEI: Request for Expressions of Interest • RFQ: Request for Qualifications • RFP: Request for Proposals “Models of Public-Private Partnerships”, online: Canadian Council for Public-Private Partnerships <http://www.pppcouncil.ca>.

P3 Defined A cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards Most partnerships encompass the financing, design, construction, operation, and maintenance of public infrastructure and services Definitions, online: Canadian Council for Public-Private Partnerships ,http://www.pppcouncil.ca>.

Key Elements • Investment in the development of infrastructure • Distribution of risk – allocated where it is most effectively assumed • Clearly defined responsibilities and timelines • Interchange of public resources and initiatives and private finance and innovation • Sharing in the mutual advantages of the partnership

Advantages Challenges – Efficient method for allocating – Shift in public control risks and responsibilities to – Increased costs, complexity the party most able to manage and effort – Reduce political hazards for – Potential source of job loss the government and private – Diminished quality standards partners – Insufficient oversight – Increase accountability and added transparency – Mitigate financial and development risks

P3 Control and Risk Continuum LEVEL OF PRIVATE SECTOR CONTROL AND TRANSFER OF RISK

Risk and Liability • Proper management of the procurement process, founded on strong quality control policies and standards focused on P3 • Establish communication channels to make the entire process transparent and information flow uninhibited • Private partners can face construction, operations and maintenance risks: – Marketing or financing risks – Infrastructure design risk – Construction cost overruns – Project completion within deadlines – Meeting performance or delivery standards in the short and long term – Managing service delivery and lifecycle costs • Risk assessment is critical

P3 and the Global Economy • Global financial crisis has destabilized financing transactions across all asset classes and sectors • United Kingdom: – $23B lending initiative to safeguard 100 projects – Treasury Infrastructure Finance Unit (TIFU): ensures projects reach financial close and jobs remain secure • France: – $41B stimulus plan focused on infrastructure projects – “Government Guarantee Program”: $15B fund to provide partial guarantees for P3 – Regulatory changes: Private partners to source 50% project financing instead of all financing

P3 and the Global Economy • European Investment Bank (EIB): – Over $50B given to infrastructure projects to counter credit crunch – Provide loan guarantees to help transportation projects deal with early risk – European PPP Expertise Center (2008): best practice frameworks and other know-how • United States: – Transportation Infrastructure Finance and Innovation Act Credit Program: secured loans, loan guarantees, and standby lines of credit to US transportation investments – American Recovery and Reinvestment Act: TIGER grants for transportation infrastructure

Canadian P3 Experience • P3 active in Canada over 20 years • PPP Canada: Crown corporation to improve public infrastructure delivery utilizing P3 and deliver value, timeliness and accountability

• Mix of Markets: – Advanced: Significant capital infrastructure budgets and institutionalized P3 procurement capacity. • British Columbia, Alberta, Ontario, Quebec – Emerging: Established or developing policy framework for P3s and support general P3 advice. Lacks institutional capacity to support P3s procurements. Little experience executing P3 arrangements. • Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Northwest Territories – Undeveloped: Limited understanding of P3 approach or weak institutional and financial capacity.

Canadian P3 Experience • Municipalities: – Significant market: $15B construction capital expenditures in 2008 – Alternative forms of infrastructure: • Moncton, Saint John, Toronto, Montreal, Vancouver, Calgary, Edmonton, Ottawa – Key sectors: • Transportation (roads and bridges), public transit, water and wastewater treatment, civic buildings (administration, courthouses)

Canadian P3 Experience • Aboriginals: – Advancing framework to promote economic and social development based on partnerships between communities and private sector. – Minister of Indian and Northern Affairs: infrastructure financing structured to facilitate P3s. – Challenges: remote locations, small scale projects, Indian Act

Canadian P3 Experience “What Does The Canadian P3 Market Look Like?”, onine: PPP Canada <http://www.p3canada.ca>.

Public Opinion • High initial expectations from the community • Demonstrate benefits and limitations of a project through scheduling and reporting • Survey in 2007 on support for P3s: – 2/3 of respondents believe that P3s can keep pace with the demand for new or improved facilities – Public attitudes consistent over the last 5-10 years – Support strongest in Quebec and the Atlantic provinces

Case Law • Breach of Contract: – Letters of Intent to negotiate a P3 were not contracts. However, the clear wording of the Letters created contractual obligations. • ( Kingston 2000 Developments Ltd. V. Kingston (City ), 34 MPLR (4th) 150) – Although a formal lease was not entered into, all terms were identified in the agreements. This was sufficient to find a contractual breach • ( Sacks v. Canada Mortgage and Housing Corp ., 2001 BCSC 394)

Case Law • Public Disclosure and Privacy of Documents: – Companies cannot expect to keep information private when public funds are involved. • ( Atlantic Highways Corp. (Re), [1997] N.S.J. No. 238 (SC)) – Documents sufficient and relevant, such as project documents and city council reviews, will be produced. • ( Friends of Lansdowne v. Ottawa (City), 2011 ONSC 1015) – Public access to court documents or proceedings will only be denied if confidentiality is required to protect “super-ordinate importance.” • ( Ontario Council of Hospitals Unions v. Ontario (Minister of Health), [2007] O.J. No. 411)

Case Law • P3 Funding Arrangements: – The bank did not misrepresent the necessity of the government providing a funding guarantee. The bank never gave false assurances and viewed a guarantee as essential. • ( Victoria Sports/Entertainment Associates v. Toronto- Dominion Bank , 2006 BCSC 1441) • Expropriation: – Municipality was authorized to expropriate land after giving notice to the landowner of the intention to do so. • ( Apotres de l’Amour Infini v. Brebeuf (Municipality) [2008] C.S.C.R. no. 233)