Report
to/Rapport au :
Corporate Services and Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
03 February 2006 / le 03 février 2006
Submitted by/Soumis par : Ned Lathrop, Deputy City Manager/Directeur
municipal adjoint,
Planning and Growth Management/Urbanisme et Gestion de la croissance
and / et
Steve Kanellakos, Deputy City
Manager/Directeur municipal adjoint,
Community and Protective Services/Services communautaires et de
protection
Contact
Person/Personne ressource : Rob Mackay, Manager, Strategic Projects
Economic Development and Strategic
Projects/Développement économique et Projets stratégiques
(613) 580-2424 x22632, Rob.Mackay@ottawa.ca
Contact Person/Personne resource : Aaron
Burry, Director, Parks and Recreation
Parks and Recreation/Parcs et Loisir
(613) 580-2424 x23666, Aaron.Burry@ottawa.ca
REPORT RECOMMENDATIONS
That the Corporate Services and Economic
Development Committee recommend Council:
1.
Direct the Deputy City Manager of Community and
Protective Services to finalize negotiations and conclude and execute all
necessary agreements with Capital Sports Management Inc. (CSMI) for the
provision of a new ice surface, mini soccer field and paramedic post at the
Kinburn Client service centre site, 5670 Carp Road and for the operation and
management of the entire facility in accordance with the proposal submitted by
CSMI as amended through negotiations, the terms and conditions of the Request
for Proposal, and the framework contained in this report.
2.
Approve the capital contribution and annual operational
expenditures as outlined in the report.
3.
Establish an internal order number and authorize debt
financing in the amount of $5.4M.
4.
Direct the Planning and Growth Management department to
proceed with a minor variance for the parking requirements on the site.
RECOMMANDATIONS DU
RAPPORT
Que le Comité des services organisationnels et du développement
économique recommande au Conseil municipal :
1.
de donner instruction au directeur
municipal adjoint des Services de protection et d’urgence de finaliser les
négociations et de conclure et signer toutes les ententes nécessaires avec la
société Capital Sports Management Inc. (CSMI) pour la construction d’une
nouvelle patinoire, d’un mini‑terrain de soccer et d’un poste du Service
paramédic à l’emplacement du Centre du service à la clientèle de Kinburn, plus
précisément au 5670, chemin Carp, ainsi que pour l’exploitation et la
gestion de l’ensemble de l’installation, conformément à la proposition soumise
par CSMI et modifiée par suite des négociations, aux conditions de la demande
de propositions et au cadre énoncé dans le présent rapport.
2.
d’approuver l’apport financier et
les dépenses d’exploitation annuelles décrits dans le présent rapport.
3.
d’établir un numéro d’ordre interne
et d’autoriser le financement par emprunt au montant de 5,4 millions de
dollars.
4.
de donner instruction au Service de
l’urbanisme et de la gestion de la croissance de procéder à une dérogation
mineure pour ce qui concerne l’aménagement des places de stationnement requises
sur l’emplacement.
BACKGROUND
On 15 December 2004, Council directed staff to proceed with the development of the P3 framework for the construction and operation of an arena facility at the Kinburn Client Service Centre site. Subsequently, the construction of a paramedic post was added to the project. An Expression of Interest process was completed in January 2005 and the Request for Qualifications closed on 12 May 2005.
Council directed staff to proceed to the Request for Proposal (RFP) stage. The RFP was issued by the Supply Management Division and distributed directly to the two short listed proponents on 19 August 2005. The RFP closed on 13 October 2005 with one proposal received, the other firm having withdrawn from the process.
An evaluation team led by the City’s Supply Management Division and comprised of staff from Community and Protective Services, RPAM, the Strategic Projects Branch and an external representative, reviewed the proposal relative to the evaluation matrix and Public Sector Comparator (PSC), which were prepared for the project prior to the close of the RFP. The conclusion of this exercise was that the CSMI proposal was a competitive submission relative to the PSC and represented good value for the City. The entire process was reviewed and overseen by an independent Fairness Commissioner who supported the outcome of the evaluation process.
This report forms the next and final step in the P3 process in that it outlines the business terms and framework for an agreement between the City and CSMI. Discussions were initiated with CSMI to establish the business terms for an agreement. This report defines the negotiated business terms and seeks approval from Committee and Council on the execution of the partnership agreement.
DISCUSSION
The proposal submitted by CSMI is for the construction of a single pad arena with the option for expansion to a twin ice pad facility, addition of a paramedic post to the existing Kinburn Client Service Centre building, installation of a mini soccer field and renovations to the existing Kinburn Client Service Centre building to consolidate City staff and create leasable commercial space. Through discussions, the original proposal has been modified to the current framework being put before Council.
The partnership framework allows for the City to continue the ownership of all buildings and the site. For the 20-year term of the agreement, CSMI will operate and maintain the buildings and property, program the arena during the hours not purchased by the City, and lease the space not required by the City in the client service centre.
Design and Construction
The capital construction costs of the arena, paramedic post, interior renovations and installation of a mini soccer field is set at the fixed price of $8.2M. Through the design build process this price will be fixed requiring CSMI to achieve efficiencies and bring the project in on budget. This figure represents a savings of approximately $300K relative to the City’s PSC and represents good value for the City.
Completion of the client service centre and the paramedic post has been scheduled for 01 September 2006 with the arena to be available in the first week of December 2006.
The design-build process allows the City and private sector partner to work closely to incorporate the City’s requirements for both administrative and programming space. Priority belongs to the City to use the former Council chamber for City programs and public meetings. This room is also proposed to be designated as a secondary location of the paramedic emergency command centre in the event that the primary centre is inoperable.
With respect to the remaining vacant space in the building, CSMI will work in concert with the City to market and rent these areas not used for City programming. CSMI has brokerage experience in renting office space throughout Ottawa and can leverage back office expertise to establish a tenant base for this facility.
To establish a balanced level of parking for the facility, staff are recommending CSMI as the City’s agent apply to the Committee of Adjustment for a minor variance to the applicable parking provisions. Due to the structure of the bylaw, each use proposed and existing for the facility requires a minimum amount of parking. Combined, this requirement totals 213 parking spaces which if implemented would result in more of the site being developed for parking then what is needed. Using the approach of a peak use parking provision, staff and CSMI believe the site will function efficiently with only 161 new stalls with the introduction of the arena. The arena will be closed from April to August and the peak usage times at the arena are after 5 p.m. on weekdays and on weekends. The peak usage hours for the client service centre are weekdays, 8:30 a.m. to 4:30 p.m. If there are evening public meetings, staff are confident that the parking requirements can be accommodated in the arena parking area.
The facility design will complement the distinctive rural architecture of the existing Kinburn Client Service Centre, enhancing the site as an attractive community hub for West Carleton. The newly constructed arena will be designed to harmonize with the existing building
Operations and Maintenance
Once the facilities are constructed, CSMI will be responsible for the day-to-day operations, preventive maintenance of all facilities, landscaping, and winter grounds maintenance during the 20-year term of the agreement. The staff for the operations and maintenance as well as programming of the arena will be employed by CSMI, and as per the City’s Bilingualism Policy will provide services in both official languages.
The Kinburn site is located in a low-density rural setting and is removed from West Carleton’s villages and other areas of the community. This poses challenges in the marketing and selling of non-prime ice time and the leasing of commercial space in the client service centre. The establishment of this site as a community hub reduces the distances that must be travelled by local residents in order to obtain arena services and future commercial services provided by potential commercial leases.
CSMI as part of the Capital Sports Group of Companies that owns and operates the Ottawa Senators Hockey Club has the expertise and experience to optimize the leasing, programming and advertising opportunities of the facility. CSMI also manages the Bell Sensplex and will seek opportunities to program and leverage the branding and staff expertise from that facility to the new arena in West Carleton.
Financial Framework
Given that the existing client service centre and site is owned by the City and that there was little affinity for the private sector to own these assets, staff proposed early in the procurement process that the ownership of the arena, client service centre, the site and the new arena vest with the City. Given the challenges of establishing a business plan for this project in rural West Carleton that could carry the full capital and operating cost obligations, staff propose that the capital cost of $ 8.2M be paid for by the City and be offset by $2.8 M from existing capital accounts. This would leave a balance of $5.4M to be financed by the City at the anticipated interest rate of 4.9%. Servicing this debt will be at an annual cost of $430K. The $2.8M will come from existing capital accounts in Community and Protective Services ($2.7M) and from Corporate Services ($100K).
Over the 20-year term of the agreement, the City will purchase 800 prime time hours between September 1 and April 15 annually. These hours will then be sold to user groups at the same subsidized rate as at other City arenas. 800 prime time hours represents approximately 50% of the total prime time hours available on this single ice pad. The remaining prime hours will be used by CSMI to leverage and optimize the sale of all remaining non-prime hours that, from an industry perspective, prove difficult to sell.
The City is purchasing prime ice time from CSMI at a rate of $195/hour. This compares favourably to the City public sector comparator cost of $231/hr to operate an arena of similar scope. Over the life of the agreement, the hourly rate is guaranteed to remain at a minimum $20 lower than the ice rental market rate charged at this facility.
To contribute to the project’s proposed operating budget, the City will redirect its current operating payment for the Kinburn Client Centre of $164,000 annually into the projects pro forma in recognition of the office and programming space the City will utilize in the client service centre. The operating payment is currently made from an existing operational budget in Real Property and Asset Management. No other fee will be charged to the City. Both the ice rental rate and annual contribution of $164,000 are to escalate by the greater of 1.75% or the Consumer Price Index (CPI).
To compensate CSMI as the City’s operating manager, the business terms propose that a base management fee of $75,000 be established which is to escalate annually by the greater of 1.75% or CPI. To provide incentive to CSMI to manage the facility effectively, a Management Success Fee formula is proposed to be applied to every dollar by which CSMI improves the annual net cash flow.
The initial base year pro forma anticipates a possible operating shortfall in the neighbourhood of $100K. This is based on a conservative but realistic pro forma of anticipated revenues and expenses. To achieve savings and recognize what will be an initial week summer market for the arena, staff are proposing that the arena facility be closed from mid April to early August in order to carry out maintenance and realize a net operational savings of close to $10K. As the market matures and demand for ice time and programming space increases, the shortfall is expected to decrease. The private sector partner will be encouraged to both generate more revenue and manage expenses through the application of the management success fee formula.
This formula will have the City and CSMI share equally in operating efficiency achievements, each receiving 50% of the new dollars that are added to the pro forma on an annual basis. The City will have sole discretion on how it uses its share of these monies.
Staff are optimistic that CSMI can use its core skills to drive new revenues into the project and achieve additional cost savings beyond the base year budget. Improvements may be realized in the areas of sponsorship and advertising, new ice rentals, additional commercial leasing, etc.
CSMI will provide pre-operating annual budgets and post audited financial statements that will highlight efficiencies achieved and operating performance that respects the terms of the partnership agreement.
Risk Distribution
CSMI is assuming all risks associated with the capital cost of the design and construction of the facility, through a fixed price design-build contract. Should costs escalate beyond the budgeted capital cost set out in the partnership agreement, CSMI will be responsible to deliver the facility within the approved budget and timeline.
Given the current market and business challenges of this project, staff are proposing that the City assume the annual operating shortfall for the facility over the life of the agreement. In time the market will improve for this facility and through the financial incentives suggested for CSMI, staff are optimistic that the annual deficit can be eroded to a break even, if not better scenario.
P3 Benefits to the Community
Through the P3 process and the suggested timeline for delivery in this report, this long awaited facility will be advanced for West Carleton. Planning for a new arena had begun well in advance of municipal amalgamation and its achievement will be a source of pride for the West Carleton community. In June 2003, City Council approved the Community Infrastructure Framework. The report was partially based on a consultant’s study that examined the current status of recreational and cultural facilities in Ottawa. In 2003, the target ratio of arenas to population was 1:20,250 residents, which was approved by Council. The construction of this arena now sets the ratio to 1:20,748.
The construction of a new arena will also trigger the transformation of an underutilized facility into a vibrant community hub. The current City programs and services will gain exposure to a larger number of citizens and the leasing of commercial space will create a dynamic centre for the community. Existing City services and proposed at the client service centre will include:
· Client Service Centre counter (current)
· Public Health Nurse – rural programming (current and new)
· Fire Services (current)
· Paramedic Post (new)
· Police Services – community policing (current)
· Parks and Recreation programming (current and new)
· Councillor ward office (current)
· Increased outdoor recreational opportunities (new)
ENVIRONMENTAL IMPLICATIONS
The required changes to the septic, water, fire fighting and storm water systems will be conducted in accordance with all prevailing codes, regulations, directives, orders and legislation issued or enacted by those agencies having authority. A traffic impact study is being conducted to ensure that any required traffic measures will be incorporated into the project.
The development of the Kinburn client service centre site as an all-season community hub increases the use of the under utilized client service centre and brings new recreational and commercial services to the citizens of West Carleton. The construction of the paramedic post will improve the response times in West Carleton. There will be a specific enhancement of a five‑minute reduction in response time to the Constance Bay area without compromising response times in the Galetta and Fitzroy Harbour areas.
CONSULTATION
A public meeting was held in the community of West Carleton in February with a presentation of information on the proposed terms of the agreement and design.
FINANCIAL IMPLICATIONS
The
capital amounts for this project and ongoing operations of the Kinburn client
service centre were identified in the 2005 capital and operating budgets, the
Long Range Financial Plan and the 2006-2014 Capital Forecast.
The City will finance the $5.4M capital cost and this will be off set by an expected $200K fundraising contribution from the West Carleton community. The comprehensive marketing and sales program undertaken by CSMI upon approval of this project, is anticipated to lead to a balance of expenses and revenues for the opening three weeks in 2006. If targets are not met, the City will cover the shortfall.
In 2007, existing base budget provisions will be redirected to this project and the incremental increase in budget exposure in the base year is expected to total $605K. Of this total amount, the $430K in capital repayment will be included in the regular debt financing process. The incremental cost of purchasing ice time and the base year pro forma operating shortfall requirements which total $175K, will form a 2007 base budget adjustment for the Parks and Recreation branch. These incremental costs will be incorporated in the 2007 budget process.
SUPPORTING DOCUMENTATION
Document 1 Perspective Drawings
DISPOSITION
The Strategic Projects Branch and the Community and Protective Services Department, in consultation with the Legal Service Branch, will finalize and arrange for the execution of the necessary agreements to implement this public private partnership with CSMI. Implementation of the project will proceed immediately after the agreements are executed, with an anticipated completion date of December 2006.
