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Infrastructure: Investing in prosperity John Gamble, CET, P.Eng. FMI/CC Ottawa, ON January 22, 2015.

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Presentation on theme: "Infrastructure: Investing in prosperity John Gamble, CET, P.Eng. FMI/CC Ottawa, ON January 22, 2015."— Presentation transcript:

1 Infrastructure: Investing in prosperity John Gamble, CET, P.Eng. FMI/CC Ottawa, ON January 22, 2015

2 Outline ACEC-Canada What is infrastructure and why is it important? The case for infrastructure investment The New Building Canada Fund The concept of project life-cycle Where do PPP projects fit in? The importance of procurement in long- term success Questions and comments

3 ACEC Canada Association of Consulting Engineering Companies - Canada National voice of industry on business, regulatory and public policy issues Represents 450 firms across Canada Collectively employ 75,000 people 12 provincial and territorial associations Collaborates with key infrastructure stakeholders

4 Back to the beginning… Historically, communities came into existence for three core reasons: Security Commerce Infrastructure These continue to be key areas of interest to government

5 Infrastructure… An investment that: Enables economic activity Connects people and communities Ensures public health and safety Protects the environment

6 Case for investment TD Bank Financial Group, 2004 Conference Board of Canada, 2010 Residential and Civil Construction Alliance of Ontario, 2010 Canadian Infrastructure Report Card, 2012 Canadian Chamber of Commerce, 2013 Canada West Foundation, 2013

7 TD Bank Financial Group, 2004 Mind the Gap: Finding Money to Upgrade Canada’s Aging Infrastructure 50% decline in annual government per capita capital investment (1962-2003) Investment shortfall calculated to be $125 billion in 2004

8 Conference Board of Canada, 2010 Lessons From the Recession and Financial Crisis “Of all the fiscal stimulus measures, infrastructure spending has the largest impact on economic growth” Every dollar spent on infrastructure increased GDP by as much $1.20

9 RCCAO, 2010 Public Infrastructure Underinvestment: The Risk to Canada’s Economic Growth Investment declined from 6% to 3% of GDP from 1960 Infrastructure underinvestment will cost the Canadian economy 1.1% of real GDP annually over the next 50 years Underinvestment will reduce the long- term profitability of Canadian businesses by an average of 20%

10 Infrastructure Report Card, 2012 Approximately 30% of municipal infrastructure ranked “fair” to “very poor” Replacement cost of these assets totals $172 billion nationally: o $91billion for roads o $39 billion for wastewater o $26 billion for drinking water o $16 billion for stormwater Most infrastructure (even if in “good” to “very good” condition now) will require ever-increasing investment as it ages

11 Canadian Chamber of Commerce Top 10 Barriers to Competitiveness (2012- 2014) Inadequate plans for addressing deficiencies in public infrastructure o Barrier #3 in 2014 o Barrier #4 in 2013 o Barrier #10 in 2012 Canada 14 th in global economic competitiveness - down from 9 th in 2009

12 Canada West Foundation, 2013 At the Intersection: The Case for Sustained and Strategic Public Infrastructure Investment Sustained investment is essential to maintaining Canada’s future prosperity and quality of life Investments in infrastructure increase productivity Highest economic and social returns on investment occur with strategic investment The time to make critical investments in Canada’s infrastructure is NOW

13 Canada West Foundation, 2013 Recommendations from At the Intersection: Continue sustained and strategic investments Give priority to infrastructure that enhances economic performance Encourage innovative approaches to the design of public infrastructure Invest in renewing existing infrastructure Analyze and evaluate investments and apply lessons to future investments

14 Federal infrastructure investment In the last 10 years Canada has started to re- invest: In response to the 1991 recession, the several National Infrastructure Programs were created Programs were expanded resulting in some $50 billion in new funding from 2000-2015. 2008 recession prompted an additional $6 billion for economic stimulus New Building Canada Plan commits $53 billion over 10 years from 2014-2024

15 New Building Canada Plan, 2014 Building Canada Fund of $14 billion over 10 years for new major economic projects Gas Tax Fund of $21.8 billion over 10 years, including indexing of payments at 2% per year GST Rebate for Municipalities of $10.4 billion over 10 years PPP Canada Fund of $1.25 billion over 5 years (Projects of more than $100 million will be subject to a PPP screen) $6 billion committed under current programs

16 Project life-cycle costs Infrastructure is a long-term investment Operational life can span decades Operations & maintenance represents 80%- 95% of total infrastructure costs Initial capital construction costs represent only 6%-18% of the cost Engineering & design fees typically represents only 1%-2% over the lifecycle cost of a project

17 Project life-cycle costs

18 PPP can be a viable option PPP is a valid form of project delivery when used in the appropriate circumstances Greatest benefit occurs when private sector maintains/operates the asset for +20 years Best results are achieved through fair sharing of risk and reward Success is highly dependent upon having the right team Owners must be diligent in choosing the team… they are making a 'leap of faith'

19 But PPPs are not a panacea Do not assume that PPP is THE solution There are many variations of PPPs PPPs do NOT create “free” infrastructure Owners must assess each project to determine if a PPP will deliver greatest value Assess all applicable delivery models, including conventional delivery Remember, design consultant is not owner’s agent in a PPP NEVER forget the end user!

20 Achieving the best ROI Engineering is a modest but important investment in project success Good engineering & design can have dramatic impact on overall project costs Engineering & design impacts capital construction and ongoing operating & maintenance costs for decades Engineering & design offers the best opportunity for innovation and risk management

21 Time Level of Influence Construction Design Operations & Maintenance Achieving the best ROI

22 Time Cost of Making Changes ConstructionDesign Operations & Maintenance Achieving the best ROI

23 Procurement is the key Establishing common objectives and desired outcomes Understanding cost-benefit-risk relationships Clarifying roles and responsibilities Selecting the right team for the right job Identifying required resources

24 Selecting a Professional Consultant An InfraGuide Best Practice Developed by the public sector – for the public sector Based on extensive interviews and research Recommends “competitive qualifications-based process” (QBS)

25 National Guide to Sustainable Municipal Infrastructure National network of experts in public and municipal infrastructure: –Federation of Canadian Municipalities –National Research Council –Infrastructure Canada –Canadian Public Works Association Publisher of over 50 “Best Practice” documents What is InfraGuide?

26 How does the Best Practice work? Assumes that professional services are an investment – not an expense Focus on understanding client’s needs Proposals ranked based on providing service and achieving objectives A detailed scope is agreed to with preferred proponent Appropriate fees and schedule are negotiated to reflect scope, effort and risk

27 What’s in it for the client? The right team for the right job Realistic schedules and budgets Fees correspond to scope of work Fewer change orders and disputes Better business relationship between parties Better service, better quality & better value for taxpayers Better return on investment

28 Who else supports QBS? International Federation of Consulting Engineers (FIDIC) Engineers Canada Royal Architecture Institute of Canada American Institute of Architects American Council of Engineering Companies American Public Works Association

29 The Best Practice is good policy Competitive and transparent process Focus on merit, quality and long-term value Long-term savings realized over decades Encourages in-house expertise to represent the client’s (and taxpayer’s) interests Permits innovation and sustainability Allows creative risk management options Win-win for client and consultant It works!

30 Analysis of Issues Pertaining to QBS Georgia Institute of Technology and University of Colorado (2009) Reviewed over 200 projects across the USA 93% of clients expressed high or very high satisfaction with consultants selected using QBS QBS reduced construction cost growth by 70% QBS reduced schedule slippage by 20% QBS provided better ability to address societal issues or stakeholder concerns

31 “Not everything that counts can be counted; and not everything that can be counted counts.” - Albert Einstein, Famous Genius “It is unwise to pay too much, but it is worse to pay too little. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing you bought it to do.” John Ruskin, Philosopher

32 Conclusions Infrastructure is an investment in our quality of life Infrastructure is a core business of government but can be a role for the private sector Recent investments are welcome… but there is more work to be done Best value is achieved through a life-cycle approach to investment Similarly engineering is critical to life-cycle Base investment and procurement on long-term value - not short-term costs

33 Association of Consulting Engineering Companies Canada 130 Albert St. Suite 420 Ottawa, Ontario K1P 5G4 Tel: 613-236-0569

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