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HomeMy WebLinkAboutFSD-006-21 Staff Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: General Government Committee Date of Meeting: January 29, 2021 Report Number: FSD-006-21 Submitted By: Trevor Pinn, Director of Financial Services Reviewed By: Andrew C. Allison, CAO By-law Number: File Number: Resolution#: Report Subject: South Bowmanville Recreation Centre Partnership Opportunity Recommendations: 1. That Report FSD-006-21 be received; 2. A) That the South Bowmanville Recreation Centre be referred to the 2021 budget for consideration of financing sources; OR B) That Staff be directed to undertake a “market sounding” exercise for private -public partnerships and report back to Council. Municipality of Clarington Page 2 Report FSD-006-21 Report Overview This report was prepared to provide Council background information on the feasibility of a Public-Private Partnership (P3) arrangement for the development of the South Bowmanville Recreation Centre, as they consider whether to move this project forward during the 2021 budget deliberations. 1. Background 1.1 Included in Council’s Strategic Plan 2019 – 2022 was the goal to “Develop the concept, financing, project plan and potential construction schedule for the South Bowmanville Recreation Centre for Council in 2019, for consideration in the 2020 budget, with a design to follow”. To that end staff presented Report #CSD-009-19 at the General Government Meeting of October 15, 2019. The report identified a Phase 1 Facility Program that would include a twin pad arena; indoor walking track; gymnasium; multi- purpose community/program space; administrative office and tourism space; and a branch library. 1.2 At the Joint Committee meeting of September 14, 2020 Report #FND-031-20 was presented. This report was seeking approval to move forward on the design and construction of the South Bowmanville Recreation Centre. Staff were recommending the project be funded through the issuing of a debenture of $50,000,000 from Durham Region. It is estimated that approximately 74% of the total project cost was eligible for development charge funding, with the remainder to be funded by the tax levy. 1.3 Following discussion by Members of Committee, the report was referred to the 2021 budget. During these discussions, the matter of finding alternative project financing options, such as a Public-Private Partnership (P3) was raised. Although specific direction was not included in the approved resolution, staff subsequently undertook researching the feasibility of utilizing the P3 model for this new community centre project. 1.4 Staff arranged for a presentation from a firm, whose services include providing strategic advisory services to clients to assess the viability of a P3 initiative for their potential projects. This presentation was attended by members of the Senior Management Team, Community Services staff as well as the local Ward 2 & 3 Councillors. The information provided in the presentation and the questions and answers were very informative and provided all in attendance a better understanding on how P3s work and how they could be considered for this project. 1.5 Subsequently, the Director of Community Services met with the President and CEO of The Canadian Council for Public-Private Partnerships. Provided with information on the proposed facility amenities of this project, The President/CEO was able to expand on Municipality of Clarington Page 3 Report FSD-006-21 the principles of P3s for a lower tier municipality. It was also stated that based on the scope and estimated cost of the project, there would be interest in the P3 market to partner with the Municipality on this facility. 1.6 At the time of preparing this report, staff are arranging a meeting with representatives from Infrastructure Ontario, who have extensive experience in managing numerous infrastructure projects across Ontario at the provincial, regional and local levels. 2. Public – Private Partnerships (P3s) 2.1 According to the Canadian Council for Public-Private Partnerships “Public-Private Partnerships, or P3s, are partnerships between governments and the private sector to build public infrastructure like roads, hospitals or schools, or to deliver services. Unlike traditional procurement, the public sector integrates all parts of a P3 project into one contract. Depending on the preferred P3 model, this approach requires the architect, the builder, the lender and the maintenance and/or operations provider to form a team ”. 2.2 The objective of a P3 for the public sector is to engage the private sector for their expertise and/or capital to deliver your project. This model also effectively transfers a significant amount of risk for cost and schedule overruns to the private sector team. Through these partnerships, the public sector client executes a contract with a group of private sector firms to provide services to deliver on the list of components that the client has determined to be included in this partnership. 2.3 The 5 components of a P3 are Design, Build, Finance, Operate and Maintain. An overview of each possible component of a P3 project include: Design - as a member of the partnership team, the architectural firm is responsible for the design of the project, in coordination with the constructor and other team members. Through this integrated design approach, the risk for errors and omissions , which result in scope changes, are minimized. Build – as a member of the partnership team, the constructor (a requirement for all P3 projects) is responsible for the construction of the project and to maintain control of quality, cost and schedule. Finance – members of the partnership team are responsible to provide funding for all projects cost, through the securing of debt or providing equity. The partnership team finances all costs associated with the project throughout the duration and only upon completion of the project, does the public sector pay for the asset. Operate – as a member of the partnership, a private operator would be contracted to operate the facility for a fixed period of time, generally in the 10 toto -20-year range. Municipality of Clarington Page 4 Report FSD-006-21 Despite the use of a private operator, the infrastructure remains the property of the public sector client. Maintain – as a member of the partnership team, a private firm would be contracted to assume the responsibility and risk associated with maintaining the “bricks and mortar” components of the asset. This would include setting aside funds for long term maintenance and life cycle replacements. Contract terms for this component range between 20 and 30 years. 2.4 Public – Private Partnerships are executed through a -long-term contract between the public entity (Municipality) and the private sector firm (P3 partnership firm) for the provision of services that could include the design, construction, financing, operating and long term maintenance of the infrastructure asset. The terms of the contract focus on the outputs and require the public entity to clearly articulate the objectives and performance standards they want to achieve (“the what”) through the deliver of the infrastructure project. 2.5 The first step to take to determine if the proposed project is suitable for a P3 is to undertake a “market sounding” exercise. This is an opportunity to reach out to the marketplace to receive open, uncommitted feedback on the characteristics of the proposed project and to assess the level of private sector interest. To gain useful feedback, a market-sounding document should give an overview of the project’s vision, characteristics, schedule, and an indication of the risk/reward structure. 3. Analysis 3.1 In preparing this report, staff discovered numerous examples of P3 projects across Ontario, with the majority being in the transportation, education and healthcare sectors. Most of these projects would be categorized as large scale and complex with budgets in the $100M and above range. A smaller number of projects were identified from lower tier municipalities. Of those, two were large spectator arena venues (5,000 seats plus) housing OHL and ECHL hockey clubs. Other examples included large multi-pad arena complexes that are operated by private facility management firms (e.g. NuStadia and Spectra). Another project in Orleans, Ontario was a performing arts centre that was included in an overall project to provide low-income and seniors housing as well as providing retail and commercial space opportunities. 3.2 Clarington has expertise in both maintaining and operating municipal build ings including community centres, funding can be secured economically so design/build are the only remaining components. Staff can better focus on a stringent methodology that achieves some objects of P3 and manages risk, cost and schedule overruns more effectively than the traditional method of design, bid, build Municipality of Clarington Page 5 Report FSD-006-21 3.3 Benefits of a P3 include allowing the public sector client to transfer risk associated with any and all of the five components to the partnership that is shared with the private firms in the partnership. For example, any project costs beyond those clearly outlined in the contract are the responsibility of the partnership. Another benefit of this model is to bring expertise s the opportunity to share the risks associated with the project across the private sector members of the partnership. 4. Financial Considerations 4.1 The Municipality of Clarington, through the Region of Durham can obtain debt financing at a significantly lower rate than most private-sector organizations. This would likely result in a lease-to-own arrangement resulting in higher overall costs, as the private sector partner would want to recover their cost of debt as well as a profit. Given the legal requirement that long-term debt obtained by the Municipality must be through the Region of Durham there is no ability to use the private sector solely as a debt financing source. A purely design-build-lease P3 would likely not be any cheaper than if the Municipality were to do it on our own. 4.2 If the facility were to differ from a typical recreation centre, for example it included a performing arts centre, commercial activities (restaurants, retail) it would make sense to look at outsourcing those specific functions to the private sector as it is likely to be more efficient to leverage those resources. 4.3 The existing cost of debt makes it advantageous to lock in lo ng term debt, if Council decides that this is a project they wish to pursue; the cost of debt is most likely to increase in the future rather than go lower. 4.4 Council could also consider the cost effectiveness of expanding on existing facilities rather than building a new facility and associated operating costs that are required for a standalone facility. The capital costs associated with expanding existing facilities to deal with growth would be eligible for development charges, just like they would be if th e facility expansion was at a new location. By expanding at existing locations, the Municipality could realize operating cost efficiencies through having less overhead, staffing efficiencies (no need for minimum staff levels at a new location), and capital costs could be lower to expand than to build from scratch. 5. Concurrence This report has been reviewed by the Director of Community Services who concurs with the recommendation. Municipality of Clarington Page 6 Report FSD-006-21 6. Conclusion 6.1 It is respectfully recommended, that if approved to proceed, the South Bowmanville Recreation Centre be financed by the Municipality, through the issuing of a debenture with Durham Region with a principal and interest payment plan utilizing the maximum eligible development charges with the remainder to be financed through the tax levy, as recommended in report FND-031-20. Also, once constructed, the facility will be effectively operated and maintained by Municipal staff. 6.2 Based on the information collected and the assessment of P3 models, staff are confident the Municipality can effectively finance, operate and maintain the project over the lifetime of the infrastructure asset. Also upon the approval of the project, staff will move forward with a design and build methodology that will best manage errors and omissions in the design and specifications phase of the project that will be most effective in managing project costs during the construction phase. Through this approach, staff are confident we can deliver a quality facility that will be of great benefit to the residents of Clarington. 6.3 Alternatively, if Council wishes to consider alternatives to the South Bowmanville Recreation Centre, direction can be given to seek interest from the private-sector for potential partnerships through a “market-sounding”, or to consider expansion opportunities at the existing recreational facilities. Staff Contact: Trevor Pinn, CPA, CA, Director of Financial Services/Treasurer, 905-623-3379 ext. 2602, tpinn@clarington.net Attachments: Not Applicable Interested Parties: There are no interested parties to be notified of Council's decision.