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CCCA_V3No1_P3-FIN.qxd:CCCA_V1No1_DriversSeat-FIN.qxd 1/21/09 2:55 PM Page 18 Cover n October 2008, not two weeks after the once-mighty finan- change. Further, P3 projects are funded privately until they are cial services giant Lehman Bros. declared bankruptcy, Michel completed, and potential lenders exercise a great deal of due dili- IJodoin sat in a Montreal conference room for a tense, nearly gence before financing. Finally, P3s are long-term deals: 30 or 35 silent, two hours. years for operations and maintenance is standard, with compen- Jodoin, a partner in Fraser Milner Casgrain LLP’s Montreal sation tied to performance at specific service levels. office, was waiting with his team to get the final okay on the approximately $1.5 billion (net present value) deal to complete A disciplined approach Highway 30, the western portion of the long-promised bypass For all these reasons, it’s important to be disciplined when nego- south of the city.A consortium of companies had come together tiating P3s, says Gigi Chen-Kuo, general counsel at the South to bid on a contract for the highway’s design and construction, Coast British Columbia Transportation Authority (better known financing, maintenance, operations and repair — for the next as TransLink) inVancouver. 35 years. “Contract changes can be difficult, costly and time-consum- The project,the second public-private partnership deal to close ing,” says Chen-Kuo, who has worked on two major P3 projects in Quebec, had taken up three years of Jodoin’s professional (and for TransLink: Canada Line, an automated rapid transit line to much of his personal) life. As head of the team that drafted the connect downtown Vancouver to the airport, and the Golden various proposals and agreements for the highway (as well as the Ears Bridge (GEB),which will take traffic across the Fraser River. province’s Highway 25), he had spent untold hours helping to “Therefore, the owner must try to anticipate what issues and nail down the details of the staggeringly complex deal. circumstances might arise over a 30-plus-year period and ensure The partnership agreement totalled approximately 1,700 they are addressed in the contract — not as they come up,” she pages; 15,000 email messages flew back and forth over the course says.“It’s tough.It’s important for the project team to consult with of the negotiations. But the Wall Street meltdown had thrown internal experts and adequately solicit the input of departments everything into turmoil. across the organization.” “We didn’t know if we would get confirmation,”Jodoin recalls. In order to reduce a project’s overall risk exposure, she notes, “It was the beginning of the financial crisis.When it came,I must owners need to invest considerable efforts upfront to secure certain- tell you, I had shivers all over my body. I had tears in my eyes.” ty to the greatest extent possible.That might include obtaining envi- ronmental assessment certificates, resolving First Nations issues, All about P3 securing any necessary legislative amendments,anticipating the var- A public-private partnership, or P3, brings together government ious legal agreements that will be required (particularly by lenders), and private business to design, build, finance, operate and/or reaching agreements with municipalities and utilities before a con- maintain large-scale public infrastructure — think highways,hos- cession agreement is signed, or building in flexibility to accommo- pitals, courthouses, correctional facilities, transit and bridges. date potential changes in the owner’s governance structure. More than simply capitalizing on the efficiencies of the private All that risk transference and upfront work means that a compa- sector,these deals are rigorously structured from the outset to dis- ny makes a significant commitment when bidding on a P3 project. tribute risk, responsibility and reward most effectively. “These are extremely large, extremely expensive deals,” says P3s (also known in Ontario as Alternative Financing and David Rosenberg, senior vice-president, legal affairs, general Procurement (AFP) arrangements) address some of what Robert counsel and corporate secretary at Carillion Canada Inc., which Pattison, vice-president of project delivery at Infrastructure builds and operates major infrastructure projects in Canada.The Ontario, calls the “pathologies” that can characterize troubled bidding process is competitive and time-intensive — one to two construction projects. These include break-even or under-bid- years is standard — with costs in the hundreds of thousands of ding, change orders (“I like to use the example of putting a hotel dollars and no guarantee of winning. on the SkyDome,”says Pattison),delays,cost overruns,inadequate Carillion is currently bidding jointly with a Spanish company measures for maintenance, and poor design. on a project, collaboratively sponsored by Infrastructure Ontario ALENA GEDEONOVA In P3s, everything — project specifications, pricing, schedules, and the province’s Ministry of Transportation, to redevelop 23 responsibility — is negotiated upfront, with little or no scope for service centres along the 400 and 401 series highways. 18 CCCA Canadian Corporate Counsel Association SPRING 2009