Report
to/Rapport au :
Corporate Services and Economic Development Committee
Comité des services organisationnels et du
développement économique
and Council / et au Conseil
Submitted by/Soumis par : Kent Kirkpatrick, City Manager/Directeur
général des services municipaux
Contact Person/Personne
ressource : Réjean Chartrand, Director, Strategic Delivery Unit/Directeur,
Unité d'exécution stratégique
(613) 580-2424 x21696, Rejean.Chartrand@ottawa.ca
SUBJECT: |
PUBLIC-PRIVATE PARTNERSHIP (P3)
PROJECT - |
|
|
OBJET : |
PROJET DE PARTENARIAT PUBLIC-PRIVÉ (3 P) - |
REPORT RECOMMENDATIONS
That the Corporate Services and
Economic Development Committee recommend Council:
1. Authorize the Deputy City Manager for Community
and Protective Services to finalize the negotiations and conclude and
execute all necessary agreements with a subsidiary of Forum Leasehold Partners
Inc. for the design, construction, financing and operation of the Ottawa
Paramedic Service Headquarters in accordance with the terms and conditions of
the Request for Proposal (RFP), the proposal submitted, the subsequent
negotiations between the parties, and the framework set out in this report;
2. Authorize the City Treasurer on
behalf of the City to enter into loan guarantee agreements with a financial
institution selected by Forum Leasehold Partners Inc., and satisfactory to the
City, to provide financing for the construction of the Ottawa Paramedic Service
Headquarters, to be repaid over a period of up to thirty years;
3. Designate the Ottawa Paramedic
Service Headquarters, to be located at 2465 and 2495 Don Reid Drive, as a
Municipal Capital Facility as permitted under section 110 of the Municipal Act
and Ontario Regulation 46/94, and that this designation be implemented by way
of an Agreement, as set out in recommendation 1, between the City and a
subsidiary of Forum Leasehold Partners Inc., and by presenting to Council for
enactment of a by-law in accordance with the requirements of the Municipal Act
and this report;
4. Authorize that development charges, site planning and building permit fees, and property taxes, both municipal and education, be exempted under the Municipal Capital Facilities Agreement.
RECOMMANDATIONS DU
RAPPORT
Que le Comité des services
organisationnels et du développement économique recommande au Conseil municipal
:
1. d’autoriser
le le Directeur municipal adjoint, Services
communautaires et de protection à
finaliser les négociations entreprises avec la société Forum Leasehold Partners
Inc. ainsi qu’à conclure et à signer toutes les ententes requises avec une
filiale de cette dernière en ce qui a trait à la conception, à la construction,
au financement et à l’exploitation du quartier général du Service paramédic
d’Ottawa conformément à la proposition présentée, aux négociations ultérieures
entre les parties, aux conditions de la demande de proposition (DDP) ainsi
qu’au cadre établi dans le présent rapport;
2. d'autoriser
le trésorier municipal, au nom de la Ville, à conclure des accords de garantie
d'emprunt avec l'institution financière choisie par Forum Leasehold Partners
Inc. et à assurer, à la satisfaction de la Ville, le financement nécessaire à
la construction du quartier général du Service paramédic d'Ottawa, lequel sera
remboursé sur une période de trente ans;
3. de
désigner le quartier général du Service paramédic d’Ottawa, qui sera situé au
2465 et au 2495, promenade Don-Reid, en tant qu’immobilisation municipale comme
le permet l’article 110 de la Loi sur les municipalités et le Règlement
de l’Ontario 46/94, et de mettre en œuvre cette désignation au moyen d’une
entente, comme le décrit la recommandation 1, conclue entre la Ville et une
filiale de Forum Leasehold Partners Inc., et en soumettant au Conseil municipal
une proposition d’adoption d’un règlement municipal conformément aux exigences
de la Loi sur les municipalités et du présent rapport.
4. d’accorder une
dispense de redevances d’exploitation, de droits de permis de construire et de
plans d’implantation ainsi que de taxes foncières, qui s’appliquent à la fois
aux parts municipales et scolaires, en vertu de l’entente sur les
immobilisations municipales.
BACKGROUND
The
Ottawa Paramedic Service currently operate out of leased premises located at
530 Tremblay Road. The Tremblay Road
facility does not meet operational requirements of the Ottawa Paramedic Service
Branch for the long term, and the property is currently for sale by the Ontario
Realty Corporation (ORC), owner of the property. The existing lease is on a
month to month basis with a 90 day notice period required to terminate.
As
a result, in October 2002, Council (ACS2002-CMR-OCM-0008), approved the design,
construction, financing and operation of a Paramedic Service Headquarters
facility as one of five projects to be
delivered under a public-private partnership arrangement.
The
new facility is intended to provide long term, secure, efficient and effective
support for the centralized processing of emergency response vehicles,
administration, as well as interaction of paramedics, supplies and supervisory
staff. The facility will be
approximately 100,000 sq. ft. in size and located on city-owned property at
2465 and 2495 Don Reid Drive in the Ottawa South Business Park.
A
Request for Qualifications (RFQ) was issued on 5 June 2003 by Supply Management
and advertised on MERX. The RFQ closed
on 7 July 2003 and qualification submissions were received from eight
firms. In September 2003, Council
(ACS2003-CMR-OCM-0010), approved a short-list of four firms to receive the
Request for Proposal (RFP).
The
RFP was issued by the Supply Management Division and distributed to these firms
on 26 September 2003. The RFP closed on
4 December 2003 and the City received proposals from each of the four
short-listed respondents.
The
evaluation team determined that the proposal received by Forum Leasehold
Partners Inc., provided the best value for the City, having met all the
mandatory criteria and achieved the highest point total. The members of the Forum Leasehold Partners,
Inc. team include Forum as the prime
proponent and Developer/Owner, Westeinde Construction, An Aecon Alliance
Company, as Design/Build Constructor, and Trammell Crow Services Canada, Ltd.
as the Property Manager.
On
January 28, 2004, Council (ACS2004-CMR-OCM-0001), authorized staff to enter
into negotiations with Forum Leasehold Partners Inc. for the design,
construction, financing and operation of an Ottawa Paramedic Services
Headquarters facility.
DISCUSSION
As part of the RFQ, proponents were given the opportunity to propose their own site for the construction of this new facility and/or use this project as the trigger for a larger development, which could have included other development opportunities or complementary uses. However, none of the respondents on the short list included these types of options in their proposal, and, as a result, the project will be built on city-owned property on Don Reid Drive, and the City will be the sole tenant in the facility.
This outcome greatly reduced the City's ability to fully benefit from a public-private partnership in terms of a larger development, which could have generated other revenue sources to reduce the cost of the City's occupancy in the building. The current structure of the partnership is therefore closer to the traditional approach of delivering these types of facilities, with the benefits to the City being more comparable.
The following details the agreement content and framework that is being recommended for approval under this public-private partnership.
Since the selection of the private sector partner by Council, staff have been working very closely with the design/build team to optimize the City's requirements and achieve an effective and efficient building design. A review of all building systems design was also undertaken to achieve the highest benefit between initial capital costs and long-term operational costs.
A price of $19.9M has been negotiated for the delivery of this facility by the private sector partner, subject only to an adjustment for increases in steel prices and minor adjustments by the City at the time of production of detailed design drawings, if required. It is well known in the industry that steel prices have increased anywhere from 30% to 100% since last fall depending on the type of steel, and it is impossible for the partnership to guarantee their price until the legal agreements are executed and steel orders are placed.
The agreement to be finalized with the partnership will recognize this situation and will allow for an adjustment to the negotiated price, proportional to the increase in steel prices for the various categories, from the time of the submission to the execution of the agreements. Industry experts expect a downward correction in steel prices over the coming months, but the timing and extent of such a correction is unknown. The City will benefit from any such correction if it takes place ahead of placing the steel orders.
As part of its P3 process, the City develops a Public Sector Comparator (PSC) to ensure it is receiving value for money. The PSC is developed based on the standard delivery approach that the City would normally use for a particular type of project. In this case, the City's approach would have been to retain the services of an architectural firm, complete a full set of design drawings and tender specifications based on the City's need, tender the project, and award construction to the lowest bidder.
The PSC was developed by Delcan Corporation with the assistance of Pelican Woodcliff Inc., an experienced cost estimating firm from Toronto, and reviewed by city staff. The PSC was estimated at $20.1M, approximately $140K more than the fixed price received from the private sector partner. This difference indicates a benefit of the design/built approach over the more standard approach, albeit at a modest level.
As stated at the beginning of the report, the fact that the private sector did not take the opportunity to build this facility on their own land as part of a larger development reduced the potential benefit of this P3 to the City, but still preserved the competitiveness of the process, as shown by the comparison above.
The larger benefit is likely to come from the fact that construction of the facility can now be delivered very quickly, with occupancy anticipated for November/December 2005, and that staff from RPAM and EMS have spent considerable time with the design/build team and have an in-depth understanding of the building design. This should greatly facilitate the delivery of the project during the construction stage.
As is necessary for these projects, quality assurance will be provided during construction, and funds to a maximum of $250K will be added by the City to the project cost to support this requirement.
It is intended that this facility will be declared a Municipal Capital Facility, and, therefore, exemptions for development charges, site planning and building permitting fees, and property taxes, both municipal and education, will be provided. As a result, the cost for these elements is not included in the negotiated price.
The property management of the new facility will be under the responsibility of the partnership, and Trammell Crow will be providing that function for the term of the agreement. Trammell Crow and the City will agree on levels of service required in the building, security protocol, emergency plans, life-cycle renewal, and annual budgets, and Trammell Crow will be responsible for implementation.
Trammell Crow will provide the property management services described above for an annual base management fee of $64,089, with 10% escalations each five years. All costs related to the operation of the facility will be a direct flow-through to the City without mark-up, contingencies, or premium of any kind.
The City will be required to budget for rent and operating dollars for this facility starting in November 2005. Current leasing and operating costs to sustain the Paramedic Services operations at 530 Tremblay Rd. and at 1887 St. Joseph Blvd are currently around $770K annually. It is anticipated that the annual operating cost for the new facility will also be in that range, exclusive however, of the lease payments, which effectively will be lease to own payments.
A life-cycle renewal fund will be set-up to ensure timely capital repairs to the building over time, and funding will be contributed annually into this reserve, as an addition to the lease payments. On the basis of typical industry standard contribution rates for life-cycle renewal, an annual amount of $150K (1% of reconstruction value) will be contributed commencing in year five of facility operations and continuing through year ten.
Commencing in year eleven of facility operations and continuing through to the transfer of ownership at the end of the term, this annual contribution will be increased to $220K (1.5% of reconstruction value), to reflect an aging infrastructure and price escalation.
These annual contributions to the life-cycle renewal fund will be paid to a trustee and will be available to Trammell Crow for the implementation of life-cycle capital repairs, under instructions from the City. Any amount left in the fund at the end of the term of the agreement will transfer to the City with the building.
Financial Framework
The
private sector partner is responsible to secure the funding required to build
this facility with costs to be
recovered in the form of lease payments from the City. In order to secure the
best financial rates possible, the City has agreed to provide a date certain
loan guarantee, similar to the other P3 projects approved earlier by Council.
The
financing will be in the form of a construction loan which will convert into
a term loan with a maximum amortization
of thirty years. The private sector
partner will enter into interest rate
protection agreements (IRPA) to protect against interest rate fluctuations over
the term and therefore ensure a stable level of lease payments by the City over
time.
Term
sheets have been submitted by two different competing financial institutions,
and based on the City's loan guarantee, the private sector partner has received
very competitive financing rates. Although final negotiations between Forum,
the lending institution, and the City may vary some of the terms proposed, it
is anticipated that the interest rate on the construction loan will be based on
Bankers Acceptances (BA) plus 20 basis points (bps).
This
rate, applied to the negotiated price to deliver the facility over an
anticipated construction period of fifteen months, will generate approximately
$400K of interim financing cost. This cost will be capitalized and added to the
project cost for long term financing.
At
the time of writing of this report, the rate for the 30-year term loan offered
by Forum's lending institution was 5.83% inclusive of the IRPA and BA stamping
fee of 20 bps. This rate is comparable to the 5.65% rate that the City could
obtain if it were to finance the project directly, either through a 20-year
serial or amortizing debenture. Also for comparison purposes, the indicative
rate for a 30-year term for the recently announced Ontario Strategic
Infrastructure Financing Authority (OSIFA) is 5.81%.
It
is important to recognize, however, that the interest rate for the term loan
will be set based on the prevailing rate at the time the agreements are
executed, and that the actual lease payments by the City will be affected
accordingly.
As
discussed previously in this report, Forum's fixed construction cost of $$19.9M
will be adjusted to allow for increases in the price of steel, and an amount of
up to $250K will be added by the City for quality assurance during
construction. Interim financing costs of approximately $400K will also form
part of the capital requirements, which will result in a projected total
capital requirement of over $21M to be financed over the 30-year term. These
additional project costs would be identical if the City were to deliver the
project directly, such that the comparison with the City's PSC remains
unaffected.
A
project cost of $21M at a 5.83% interest rate over a 30-year term will require
an annual lease payment by the City of approximately $1.5M, and this amount
will need to be reflected in future operational budgets.
It
is recommended that the City Treasurer be delegated with the authority to
negotiate, finalize, and execute all the relevant transactions and agreements
necessary to secure the loan required to finance the construction of the
Paramedic Services Headquarters, including an interest rate forward agreement,
and International SWAP Dealers Association Master Agreement (ISDA).
Subject
to final negotiations, it is anticipated that the agreement between the City
and the private sector partner will be developed in accordance with the
following framework:
-
Forum Leasehold Partners Inc. will incorporate a subsidiary company to be the
legal entity responsible for the agreement, as is often common practice in
public-private partnerships; Forum's fees will be used as security for the
successful delivery of the facility by its subsidiary company
-
The City's land at 2465 and 2495 Don Reid Dr. will be made available to the
partner through a ground lease covering the 30 year term
-
The ground lease will cover the requirements from the City, namely, that the
partner will build the facility required by the City for the firm price, in
accordance with the program of requirements and design brief agreed to between
the parties; the partner will enter into a design\build agreement with
Westeinde to build the facility
-
The partner will secure the financing for the construction of the facility,
based on terms acceptable to the City; the City will provide a date certain
loan guarantee to the lending insititution to secure the lowest financing costs
possible
-
The project will be executed under a Municipal Capital Facilities Agreement;
the partner will be exempted from development charges, site planning and
building permitting fees, and from property taxes, both municipal and education
-
The City will enter into a sub-lease with the partner to occupy the building
and will make lease payments to the partner
-
The partner will be responsible for the property management of the facility
based on the terms summarized in this report; the partner will enter into an
agreement with Trammell Crow for the provision of these services to the City
-
At the end of the 30 year term, the ground lease will expire and the land and
facility will transfer to the City for one dollar
Schedule
With
the approval of this report by Council, the City and Forum will immediately
proceed to finalize the necessary legal agreements and then seek the necessary
site planning and construction approvals.
A start of construction is anticipated by early September 2004 with the
opening of the facility in November/December 2005.
Benefits
This
public-private partnership approach is providing the City with good value as it
builds on the strength of both partners. Some of the more significant benefits
to the City are as follows:
-
the City is getting a new facility through a competitive process, at a slightly
better cost than under our standard procurement process
-
the partnership is committed to deliver the building for a firm price, subject
only to adjustments for steel price increases; any risks associated with the
design and construction is accepted by
the partner
-
the City, through its extensive discussions with the partner, has refined and
confirmed its requirements for the new facility; this ensures that there is a very
high level of understanding among all parties on the facility being delivered,
and will facilitate the construction management process
-
the approval of this partnership will ensure timely construction of the
facility and remove the operational risks associated with our current leasing
situation at 530 Tremblay Rd.
-
this partnerhip provides the City with a build to suit/lease to own type of
arrangement, with the land and facility transferring to the City for one dollar
at the end of the term; this is essentially a risk free proposition to the
City, as the building will be for the exclusive use of the City
-
the lease payments from the City will be the lowest rates possible from the
private sector, as the City will provide a loan guarantee on the debt to obtain
the lowest interest rates possible, and all operational costs are flowed
through the City without any mark-ups
The new facility will support public safety, health, and well being of residents and visitors alike, through the provision of efficient and effective emergency response services. It will also support improved operational efficiencies through the consolidation of services in one location.
RURAL
IMPLICATIONS
The Ottawa Paramedic Service Headquarters facility will serve all residents in the City of Ottawa, including those in rural areas.
CONSULTATION
As per Council’s direction, a public meeting will be held on June 8, 2004 to present the new facility design and agreement framework for the Ottawa Paramedic Service Headquarters public-private partnership. The feedback received at the open house will be communicated verbally to the Corporate Services and Economic Development Committee at the time of the presentation of the report.
FINANCIAL IMPLICATIONS
This agreement will result in an additional pressure on the City’s operating budget over the term of the agreement. As the new facility is expected to be delivered in late 2005, the financial impact will be reflected partly in 2005 and then fully from 2006 until conclusion of the lease and subsequent transfer of ownership.
Currently, the total annual cost to house the Paramedic Service at 530 Tremblay Rd. and at 1887 St. Joseph Blvd. is $770K. With the new facility, operating costs are expected to be in the same range. The lease to own payments will be approximately $1.5M annually, depending on final project costs and interest rates at the time of closing, and this amount will need to be added to the departmental base budget starting in late 2005.
DISPOSITION
The Strategic Delivery Unit, along with the Real Property Asset Management Branch, the Emergency and Protective Services Department, and the Corporate Services Department will finalize the terms and conditions of the agreements with Forum as outlined above. The Legal Services Branch will prepare and arrange for the execution of these Agreements and the Municipal Capital Facilities By-law.