New Health-Care Complex (Contact / Media Information )
Alternative Financing and Procurement
What is Alternative Financing and Procurement?
In 2005, the Provincial government introduced Alternative Financing and Procurement (AFP) as an innovative way to finance and carry out large infrastructure projects. This approach has many benefits; most importantly, it uses private sector resources and expertise to build projects on time and on budget. As well, it minimizes cost and schedule overruns by transferring risks to the party best able to manage them. All transactions conducted using the AFP method are conducted in an open and transparent manner.
Documents related to the procurement of projects, including the request for proposals and project agreements are posted on Infrastructure Ontario's website at www.infrastructureontario.ca.
In the past, the public sector assumed responsibility for many of the building risks that lead to cost and schedule overruns on large infrastructure projects. Building risks include design errors and omissions, project management and sub-contractor coordination, increases in construction material prices and labour costs, schedule and project completion delays, and other related construction risks. These risks, which can significantly increase construction costs, are now transferred to the contractor.
Under the AFP model, Infrastructure Ontario, the MOHLTC and the hospitals have worked with experienced experts in hospital architecture, construction, building maintenance and project finance at every step to ensure on time, on budget project delivery and ultimately, the best deal for Ontarians.
What are the benefits of AFP?
Alternative Financing and Procurement brings private-sector expertise, ingenuity and rigour to the process of managing and renewing Ontario's public infrastructure, but preserves public ownership of core public assets.
It works towards:
- Minimizing cost and schedule overruns;
- Better coordination between design, construction and long-term maintenance and building services;
- More accountability throughout the planning, construction and maintenance phases of each project;
- Building infrastructure that will last for years to come, supporting a strong Ontario economy, and enhancing the quality of life for everyone;
- Does not affect public ownership of core public assets such as hospitals, schools and water and wastewater infrastructure.
With future hospitals, such as the NHS project, being built under AFP, how will the public interest be protected?
All Ontario hospitals will continue to be publicly owned, publicly controlled and publicly accountable. Medical services in hospitals will continue to be publicly funded and publicly administered – this is non-negotiable for the Government of Ontario and more importantly, for the people of Ontario.
What mandate must Infrastructure Ontario follow in the delivery of AFP projects?
AFP transactions are strictly governed by the following five principles set out in the Provincial government's Building a Better Tomorrow framework for planning, financing and procuring public infrastructure:
- Public interest is paramount
- Value for money must be demonstrable
- Appropriate public control and ownership must be preserved
- Accountability must be maintained
- All processes must be fair, transparent and efficient.
The framework clearly states that public ownership will be maintained for public assets such as hospitals, schools, and water and wastewater infrastructure.
What are the differences between the ReNew Ontario AFP model and other P3 models?
There are four fundamental differences:
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Guiding principles that protect the public interest.
AFP is different from previous P3 models that were developed and used by previous Ontario governments. Unlike other models, AFP is guided by the Building a Better Tomorrow framework, which outlines five key principles, including transparency, value for money and public ownership and control of core public assets. Under AFP, all hospitals in Ontario will continue to be publicly owned, publicly controlled and publicly accountable. The private sector never touches the patient. -
Due Diligence and Analysis
Only if value for money is achievable will AFP be used to deliver an infrastructure project. And only if the value of using the AFP model outweighs a traditional approach to infrastructure delivery, will the government release the Request for Proposals for the project. -
Risks transfer to the private sector
Like all other governments in Canada, Ontario uses private sector construction firms to build public projects. However, under the AFP model, the private sector construction company initially finances the project throughout construction and it assumes increases to project costs that are related to construction risks, such as cost overruns and late delivery.
The AFP model has transferred some of the risks of commissioning the new hospital to the private sector. As well, for design, build, finance and maintain projects, the private sector becomes responsible for the long-term maintenance of the hospital. -
Accountability and transparency
All project Request for Proposals are posted on Infrastructure Ontario's website when they are released to short-listed bidders. The project agreements with the project teams will be available on Infrastructure Ontario's website. For example, the Montfort Hospital in Ottawa is under construction and the contract is available on Infrastructure Ontario's website as are the contracts for the Quinte Health project in Belleville and the North Bay Regional Health Centre.A third-party Value for Money assessment will be completed for each project and a copy of the report made available on Infrastructure Ontario's website. All Alternative Financing and Procurement (AFP) projects are open to an independent, third-party review by the Auditor General's office.
What are some examples of construction risks that will be avoided by using the new AFP model?
In other models, the public sector assumed responsibility for many of the building risks that lead to cost and schedule overruns. This is a key difference between the AFP model and previous private-public partnerships.
Under the AFP model, construction risks related to design errors and omissions, project management and sub-contractor coordination, increases in construction material prices and labour costs, schedule and project completion delays are now transferred to the contractor.
Examples of construction risks
For instance, in other hospital projects risks related to the procurement and installation of hospital equipment caused substantial cost increases. Often, hospitals didn't identify the types of equipment required until the hospital drawings were completed or the facility was close to completion. Selecting equipment at this stage required the contractor to make significant changes to the facility to accommodate the new equipment. Hospitals in this situation were unable to source a competitive rate for the work. AFP will help our project to avoid this pitfall. Under AFP, we will identify our equipment needs in a manner which will not cause the contractor to make significant changes to the facility thereby enabling the hospital to avoid costs. As well, the successful proponent will be responsible for ordering equipment, obtaining delivery insurance, and ensuring that third party vendors deliver required equipment on time. This is an important risk to transfer to the private sector because it reduces change orders and increases in costs.
Some geotechnical risks (anything below the ground) have also been transferred to the private sector under the AFP model. For example, large rocks and other known site conditions become the responsibility of the private sector.
How will we avoid long-term maintenance risks by using the new AFP model?
Under AFP's design, build, finance and maintain model, the private sector becomes responsible for maintaining the hard facilities of the new hospital for the first 30 years. Hard facilities maintenance includes roofing, elevator, electrical and ventilation services and grounds maintenance.
The public sector has built in a 30-year guarantee for these physical features, which previously had a one year guarantee only.
The hospital remains responsible for soft maintenance services (housekeeping, laundry and waste service) and non-clinical support services (patient transportation, patient food services and medical equipment maintenance).
How will we avoid commissioning risks by using the new AFP model?
The AFP model has transferred some of the risks of commissioning a new hospital to the private sector. AFP introduced a turn key approach that requires the project company to ensure the new hospital is fully operational following substantial completion. The project company assists with the transition of patients and equipment to the new hospital. In other models, the private sector's responsibility ends at substantial completion and the hospital is solely responsible for the transition strategy and any additional costs that are incurred for getting the hospital up and running.
What is the difference between the NHS AFP project and the Brampton Civic Hospital?
The new Brampton Civic Hospital was not procured and built under the AFP model.
Under the AFP model, Infrastructure Ontario, the MOHLTC and NHS staff are working with experienced experts in hospital architecture, construction, building maintenance and project finance at every step to ensure on time, on budget project delivery and ultimately, the best deal for Ontarians.
As well, the selected contractor will be required to take out a loan to finance the project. As part of the loan agreement, the contractor will have to commit not only to the hospital but to its financial lender to complete the project by a fixed date, for a fixed price. Should the contractor not be able to complete the St. Catharines health-care complex by the fixed date, additional interest charges will accumulate – and the contractor will be solely responsible to its lender.
This financial risk that the contractor will assume, along with the lender's oversight, provides greater due diligence and motivation to get the project completed on time and on budget.
How can we be sure that the beds and operating rooms that we require are actually built?
The Provincial government has made a commitment to the people of Niagara to build a state-of-the-art facility that will improve health-care services in the area.
Under the AFP model, all decisions surrounding health-care services, including the number of beds and operating rooms, is a joint decision made by the hospital and the Ministry of Health and Long-Term Care.
The NHS and the MOHLTC worked together to determine the scope and size of the new health-care complex, including the number of beds and operating rooms. This process also involved consultation with countless NHS physicians and staff (called user groups) to develop a functional program for the new health-care complex. A functional program is a document describing future functions, operations, activity, staffing and space requirements for each service to be provided at the new health-care complex.
The Request for Proposals that was issued on August 31, 2007 outlines the approved scope of the new hospital project and bidders will be submitting their proposals and cost estimates for the project based on the approved project scope. Tender documents provided to the bidders as part of this process included the functional program, as well as project output specifications, which extensively describe the necessary components of the hospital and its functionality. The project RFP is posted on Infrastructure Ontario's website at www.infrastructureontario.ca.
For further information about Alternative Financing and Procurement, please contact Infrastructure Ontario at info@infrastructureontario.ca or consult www.infrastructureontario.ca.