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Staff Report
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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.
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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
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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.
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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
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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.
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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.