ARCHIVE - 2. Scope and Comparability of the Analysis
Archived Content
Information identified as archived is provided for reference, research or record-keeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
CSC has provided the all-in cash outflows for the status quo and the complex scenarios. This section presents that data for comparative purposes and comments on the reasonableness of the scope of the analysis and the comparability of the data.
2.1 Definition of Status Quo and Complex Scenarios
As mentioned, the purpose of this analysis is to compare a status quo costing scenario to a new complex scenario.
It is contemplated that the complex would be populated from the consolidation of 6 existing institutions: Pittsburgh, Joyceville, Warkworth, the Regional Treatment Centre, Kingston Penitentiary and Millhaven. These will be referred to as the status quo facilities.
The status quo put forth by CSC assumed, as captured in the CSC's long term capital management plan, that approximately $640 million in capital investment is required to continue operating the existing facilities. Much of this capital investment would be spent in the near term on the Joyceville, Warkworth, Kingston Penitentiary and Regional Headquarters and Training facilities. This data can be seen in Figure 2.2.
The complex scenario contemplates continued operation of the existing facilities until such time that certain elements of the complex are commissioned (operational).
The following section provides a more thorough review of the comparison of these scenarios and the associated assumptions.
2.2 Key assumptions related to the scope of the review
Several key assumptions related to the scope of the analysis conducted by CSC are material to this review and the comparison of status quo to the complex:
- Land has been assumed to be owned and available to CSC and is therefore not considered as a separate cost item. The value of land whether owned, acquired or disposed should be considered in any further analysis as some of the facility sites could have a significant value;
- The quantification of risks has not been included in the status quo or the complex, even though there are different inherent risk levels between the two scenarios. Risk quantification should be considered in any further analysis;
- Decommissioning of facilities and transitioning costs associated with moving populations from the status quo facilities are outside the scope of this analysis. This was considered to not be in scope as the assets revert to Public Works and are therefore not under the purview of CSC. A more holistic view of cost and benefit may be appropriate in any further analysis;
- The information provided by CSC extends until FY19-20, which is presumed to be the year under which steady state is achieved. It should be noted that common practice is to project cash flow profiles for the full lifecycle of the asset. The life of special purpose buildings are generally beyond 20 years which suggests any further analysis should be longer in duration;
- The status quo estimates do not consider the impact of inmate population growth over the period of analysis. The cost implications of future expansions or reconfigurations to handle growth should be considered in any further analysis;
- The scope of the analysis will be limited to the boundaries of the facility itself. The effect of the complex on costs outside of the complex (e.g., transportation of inmates or materials) was not in scope. There is the possibility for efficiencies in this regard and should be investigated in any further analysis; and
- All-in costs are generally assumed, which accords with common practice. However, differences relating to project management effort (including advisors) associated with implementing the status quo (many smaller capital projects) or the complex (one larger capital project) have not been included in the costs and should be considered in any further analysis.
2.3 Comparability of Status Quo Facilities to the Complex
In addition to the key assumptions, it should be noted that there are small differences between the organization and support levels of the status quo facilities and the complex. No adjustments have been made to the costs to account for these differences. At this stage of analysis it is assumed that the net effect of these differences is not material, although this assumption should be confirmed in any further analysis. These differences are1:
- The overall capacity identified in the "replacement" institutions is 2186 cells vs. a population of 2175 in the complex (not including segregation capacity).
- The distribution of inmate population security levels differs between the status quo facilities and the complex. It is generally assumed that the deficiency in maximum inmates is roughly balanced by the excess medium population. These differences are:
- The status quo maximum/multi-level (Treatment/ Reception) is 978 (excluding SHU which is in Quebec) vs. 1025 (excluding SHU) in the Complex;
- The status quo medium population is 982 vs. 800 for the complex; and
- The status quo minimum population is 226 vs. 250 for the complex.
- For mental health, the Ontario Region has 149 cells at RTC (KP/RTC) and 14 cells at Millhaven for a total of 163 cells as compared to the 225 in the complex model. While not providing the same capability as the dedicated Treatment Centers, some institutions provide intermediate mental health care in the Region (33 Warkworth, 18 KP and 33 Millhaven), partially offsetting the disparity between the status quo and the complex in the area of mental health. It should also be pointed out that, while the capacity in the status quo may be less than for the complex model, these offenders are accounted for in the regular accommodation provided under the status quo. Hence, the difference is only the variation between regular accommodation / intermediate care and primary mental healthcare provisions, which is assumed to not be material. The complex provides 7% mental health capacity the status quo is currently approximately 5% of the overall capacity.
- For reception, there are 205 cells dedicated at Millhaven. The majority of these cells are typically double-bunked so that the number of beds used is generally between 300 and 350. The complex model assumes a 300 cell capacity.
- For the special handling unit (SHU), the status quo does not include a SHU in Ontario. However, Millhaven did at one point provide this capacity (1980s). Hence, given the comparability of the two options in terms of overall capacity, it is assumed that this capability is, at least from a facility perspective, partially accounted for in the status quo. There is currently one national SHU, located in Quebec, with a capacity of 110 cells. Assuming per capita use of the facility is comparable from each part of the country, the Ontario share of this facility would presently be about 30 cells.
- Although the status quo does not specifically identify a healthcare capacity, this capability is provided at all existing major institutions and is, hence, taken into account in the comparative data.
- While the overall capabilities (offices, programs, accommodation etc...) of the RHQ and staff training unit are generally the same between the status quo and the complex. However, the complex is assumed to provide significantly less space (existing 11300 m2 vs. 9500 m2 planned). This difference results from anticipated design efficiencies associated with construction of a more purpose-built facility, with better gross-to-net efficiencies, than the current heritage structures.
2.4 Cash Flow Comparison of the Status Quo and Complex
Figure 2.1 presents the cash flow profiles of the status quo and complex options. From this it can be seen that an incremental investment of approximately $118 million is required to achieve approximately $12.6 million in annual savings (realizable in 2021 and beyond). This $12.6 million in ongoing savings is attributed to an assumed operating cost savings of $13 million per year and an assumed increment ongoing lifecycle maintenance cost of $0.4 million per year.
The projected operating cost savings are less than what might be expected from the co-location of 6 facilities given that nearly 60% of the operating costs (see Section 4) are FTE-related. The low difference in lifecycle expenses is due to the fact that under both the status quo and complex scenarios, there is a high degree of asset refresh by way of refurbishment or redevelopment that occurs. In fact the complex scenario necessarily requires a high degree of asset refresh by way of refurbishment or redevelopment of the existing infrastructure during the planning and construction phase of the new complex. Further investigation of the planning and construction phases of the complex may aid in minimizing the degree of refurbishment or redevelopment of the existing infrastructure.
Based on the above, and the several key assumptions that would benefit from further analysis (as identified in Section 2.2 and later in the report) a recommendation by the Panel that CSC investigate the complex costs and benefits in more detail would be reasonable.
Figure 2.1 Cash Flow Profiles of the Status Quo and the Complex
Inherent in the complex cash flow profile above is the assumption that the status quo institutions will be used until the new complex is ready, assumed to occur in FY18-19. The raw data that supports Figure 2.1 is found in Figure 2.2.
Figure 2.3 provides the same data in a manner that allows the status quo to be compared to the complex on a facility-by-facility basis up to the completion date of the complex. Note that the assumed sale of the Pittsburgh facility, assumed by CSC to occur in FY19-20, has been placed in FY18-19 for the purposes of Figure 2.3 to ensure that it is captured within this timeframe.
Figure 2.2 Cash Flow Profiles Provided by CSC (Status Quo)
FY 08-09 | FY 09-10 | FY 10-11 | FY 11-12 | FY 12-13 | FY 13-14 | FY 14-15 | FY 15-16 | FY 16-17 | FY 17-18 | FY 18-19 | FY 19-20 | FY 20-21 | Total | ||
Joyceville | Capital Costs | 1.0 | 5.0 | 10.00 | 50.0 | 60.0 | 50.0 | 4.0 | - | - | - | - | - | - | 180.0 |
Lifecycle Costs | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | 30.0 | |
O&M | 35.0 | 35.0 | 35.0 | 35.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 476.0 | |
Pittsburgh | Capital Costs | 0.5 | 2.5 | - | - | - | - | - | - | - | - | - | - | - | 3.0 |
Lifecycle Costs | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 13.0 | |
O&M | 16.0 | 16.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 263.0 | |
Warkworth | Capital Costs | 1.0 | 3.0 | 15.0 | 35.0 | 35.0 | 11.0 | - | - | - | - | - | - | - | 100.0 |
Lifecycle Costs | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 29.4 | |
O&M | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 519.0 | |
Millhaven | Capital Costs | 1.0 | 2.0 | 15.0 | 30.0 | 30.0 | 22.0 | - | - | - | - | - | - | - | 110.0 |
Lifecycle Costs | 1.3 | 1.3 | 1.3 | 1.3 | 1.3 | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 | 26.0 | |
O&M | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 39.0 | 39.0 | 39.0 | 39.0 | 39.0 | 39.0 | 39.0 | 543.0 | |
Kingston Pen. & RTC | Capital Costs | 2.0 | 7.0 | 27.0 | 75.0 | 65.0 | 55.0 | 17.0 | - | - | - | - | - | - | 245.0 |
Lifecycle Costs | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 4.9 | 4.9 | 4.9 | 4.9 | 4.9 | 4.9 | 4.9 | 48.7 | |
O&M | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 121.0 | 78.0 | 78.0 | 78.0 | 78.0 | 78.0 | 78.0 | 78.0 | 982.0 | |
RHQ & Training | Capital Costs | 1.0 | 10.0 | 9.0 | - | - | - | - | - | - | - | - | - | - | 22.0 |
Lifecycle Costs | 0.3 | 0.3 | 0.3 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 4.9 | |
O&M | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
Property Sale | - | - | - | (7.0) | - | - | - | - | - | - | - | - | - | (7.0) | |
Total Status Quo | Capital Costs | 6.5 | 21.5 | 77.0 | 199.0 | 190.0 | 138.0 | 18.0 | - | - | - | - | - | - | 650.0 |
Lifecycle Costs | 7.9 | 7.9 | 7.9 | 8.0 | 8.0 | 9.4 | 14.7 | 14.7 | 14.7 | 14.7 | 14.7 | 14.7 | 14.7 | 152.0 | |
O&M | 202.0 | 202.0 | 207.0 | 207.0 | 207.0 | 260.0 | 214.0 | 214.0 | 214.0 | 214.0 | 214.0 | 214.0 | 214.0 | 2,783.0 | |
Property Sale | - | - | - | (7.0) | - | - | - | - | - | - | - | - | - | (7.0) | |
Total (A) | 216.4 | 231.4 | 291.9 | 407.0 | 405.0 | 407.4 | 246.7 | 228.7 | 228.7 | 228.7 | 228.7 | 228.7 | 228.7 | 3,578.0 |
Figure 2.2 Cash Flow Profiles Provided by CSC (Complex)
FY 08-09 | FY 09-10 | FY 10-11 | FY 11-12 | FY 12-13 | FY 13-14 | FY 14-15 | FY 15-16 | FY 16-17 | FY 17-18 | FY 18-19 | FY 19-20 | FY 20-21 | Total | ||
Complex | Capital Costs | 5.0 | 5.0 | 25.0 | 25.0 | 25.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 80.0 | 53.0 | - | 718.0 |
Lifecycle Costs | - | - | - | - | - | - | - | - | - | - | - | 14.4 | 14.4 | 28.8 | |
O&M | - | - | - | - | - | - | - | - | 20.0 | 80.0 | 150.0 | 201.0 | 201.0 | 652.0 | |
Complex RHQ / Staff Training | Capital Costs | - | - | - | - | 4.0 | 20.0 | 11.0 | - | - | - | - | - | - | 35.0 |
Lifecycle Costs | - | - | - | - | - | - | - | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 4.2 | |
O&M | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
Joyceville | Lifecycle Costs | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 66.0 |
O&M | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 385.0 | |
Pittsburgh | Lifecycle Costs | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 22.0 |
O&M | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 176.0 | |
Property Sale | - | - | - | - | - | - | - | - | - | - | - | (2.0) | - | (2.0) | |
Warkworth | Lifecycle Costs | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | - | - | 60.5 |
O&M | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | - | - | 473.0 | |
Millhaven | Capital Costs | 6.5 | 6.5 | - | - | - | - | - | - | - | - | - | - | - | 13.0 |
Lifecycle Costs | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | - | - | 57.2 | |
O&M | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | - | - | 495.0 | |
Kingston Pen. & RTC | Capital Costs | 1.5 | 0.5 | - | - | - | - | - | - | - | - | - | - | - | 2.0 |
Lifecycle Costs | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 105.6 | |
O&M | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 693.0 | |
RHQ & Training | Lifecycle Costs | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | - | - | - | - | - | - | 9.8 |
O&M | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |
Property Sale | - | - | - | - | - | - | - | (15.0) | - | - | - | - | - | (15.0) | |
Total Cost of Complex | Capital Costs |
13.0 | 12.0 | 25.0 | 25.0 | 29.0 | 120.0 | 111.0 | 100.0 | 100.0 | 100.0 | 80.0 | 53.0 | - | 768.0 |
Lifecycle Costs | 29.7 | 29.7 | 29.7 | 29.7 | 29.7 | 29.7 | 29.7 | 29.0 | 29.0 | 29.0 | 29.0 | 15.1 | 15.1 | 354.1 | |
O&M | 202.0 | 202.0 | 202.0 | 202.0 | 202.0 |
202.0 | 202.0 | 202.0 | 222.0 | 282.0 | 352.0 | 201.0 | 201.0 | 2,874.0 | |
Property Sale | - | - | - | - | - | - | - | (15.0) | - | - | - | (2.0) | - | (17.0) | |
Total (B) | 244.7 | 243.7 | 256.7 | 256.7 | 260.7 | 351.7 | 342.7 | 316.0 | 351.0 | 411.0 | 461.0 | 267.1 | 216.1 | 3,979.1 |
Figure 2.3 Cash Flow Profiles on a Site-by-Site Basis until FY18-19
FY 08-09 | FY 09-10 | FY 10-11 | FY 11-12 | FY 12-13 | FY 13-14 | FY 14-15 | FY 15-16 | FY 16-17 | FY 17-18 | FY 18-19 | Total | |||
Status Quo | Joyceville | Capital | 1.0 | 5.0 | 10.0 | 50.0 | 60.0 | 50.0 | 4.0 | - | - | - | - | 180.0 |
Complex | Joyceville | Capital | - | - | - | - | - | - | - | - | - | - | - | - |
Status Quo | Joyceville | Lifecycle Costs | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | 24.0 |
Complex | Joyceville | Lifecycle Costs | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 6.0 | 66.0 |
Status Quo | Joyceville | O&M | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 400.0 |
Complex | Joyceville | O&M | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 385.0 |
Status Quo | Pittsburgh | Capital | 0.5 | 2.5 | - | - | - | - | - | - | - | - | - | 3.0 |
Complex | Pittsburgh | Capital | - | - | - | - | - | - | - | - | - | - | - | - |
Complex | Pittsburgh | Property Sale | - | - | - | - | - | - | - | - | - | - | (2.0)( | 2.0) |
Status Quo | Pittsburgh | Lifecycle Costs | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 11.0 |
Complex | Pittsburgh | Lifecycle Costs | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 22.0 |
Status Quo | Pittsburgh | O&M | 16.0 | 16.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 | 221.0 |
Complex | Pittsburgh | O&M | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 175.0 |
Status Quo | Warkworth | Capital | 1.0 | 3.0 | 15.0 | 35.0 | 35.0 | 11.0 | - | - | - | - | - | 100.0 |
Complex | Warkworth | Capital | - | - | - | - | - | - | - | - | - | - | - | - |
Status Quo | Warkworth | Lifecycle Costs | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 23.8 |
Complex | Warkworth | Lifecycle Costs | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 | 60.5 |
Status Quo | Warkworth | O&M | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 38.0 | 443.0 |
Complex | Warkworth | O&M | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 43.0 | 473.0 |
Status Quo | Millhaven | Capital | 1.0 | 2.0 | 15.0 | 30.0 | 22.0 | - | - | - | - | - | - | 100.0 |
Complex | Millhaven | Capital | 6.5 | 6.5 | - | - | - | - | - | - | - | - | - | 13.0 |
Status Quo | Millhaven | Lifecycle Costs | 1.3 | 1.3 | 1.3 | 1.3 | 1.3 | 1.3 | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 | 20.8 |
Complex | Millhaven | Lifecycle Costs | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 |
Status Quo | Millhaven | O&M | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 39.0 | 39.0 | 39.0 | 39.0 | 39.0 | 465.0 |
Complex | Millhaven | O&M | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 495.0 |
Status Quo | Kingston Pen. & RTC | Capital | 2.0 | 7.0 | 27.0 | 75.0 | 65.0 | 55.0 | 14.0 | - | - | - | - | 245.0 |
Complex | Kingston Pen. & RTC | Capital | 1.5 | 0.5 | - | - | - | - | - | - | - | - | - | 2.0 |
Status Quo | Kingston Pen. & RTC | Lifecycle Costs | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 4.9 | 4.9 | 4.9 | 4.9 | 4.9 | 38.9 |
Complex | Kingston Pen. & RTC | Lifecycle Costs | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 9.6 | 105.6 |
Status Quo | Kingston Pen. & RTC | O&M | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 121.0 | 78.0 | 78.0 | 78.0 | 78.0 | 78.0 | 826.0 |
Complex | Kingston Pen. & RTC | O&M | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 63.0 | 693.0 |
Status Quo | RHQ & Training | Capital | 1.0 | 2.0 | 10.0 | 9.0 | - | - | - | - | - | - | - | 22.0 |
Status Quo | RHQ & Training | Property Sale | - | - | (7.0) | - | - | - | - | - | - | - | (7.0) | |
Complex | RHQ & Training | Capital | - | - | - | - | 4.0 | 20.0 | 11.0 | - | - | - | - | 35.0 |
Complex | RHQ & Training | Property Sale | - | - | - | - | - | - | - | (15.0) | - | - | - | (15.0) |
Status Quo | RHQ & Training | Lifecycle Costs | 0.3 | 0.3 | 0.3 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 4.1 |
Complex | RHQ & Training | Lifecycle Costs | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 0.7 | 0.7 | 0.7 | 0.7 | 12.6 |
Status Quo | RHQ & Training | O&M | - | - | - | - | - | - | - | - | - | - | - | - |
Complex | RHQ & Training | O&M | - | - | - | - | - | - | - | - | - | - | - | - |
2.5 Consideration of Delivery Models
Inherent in the cash flow profiles is the assumption that the complex would be undertaken under a traditional design-bid-build delivery model. Given the government's increasing interest in pursuing alternative delivery models including public-private partnerships (P3), and the stature that this project would have within the government's planning priorities, it may be considered a viable candidate for an alternative model with greater private sector involvement.
The principal motivation for pursuing a greater role for the private sector would be to achieve greater value for money and, more specifically, greater economic and social benefits at a lower overall risk and cost. Value for money is achieved principally by allocating and managing design and construction risk more effectively. The allocation of these risks to the party best able to bear the risk results in resource allocation, production or economic and social efficiencies. Each party is motivated to minimize costs and maximize benefits, so the total cost of the risk is reduced.
The risk associated with the cost estimates is likely material to CSC's analysis. Some considerations for risk that may be made in future analyses are:
- To what extent is a different financing model appropriate for either the complex or status quo scenarios?
- What is the potential value of risk transfer in the status quo versus the complex scenarios? For example, it may be anticipated that there is less risk transfer available under the status quo scenarios because the capital programs, by and large, contemplate refurbishments as opposed to new-builds. Typically, within refurbishments, it is more difficult to transfer latent defect risk (the risk of discovering unknown issues during the refurbishment), thus lowering the amount of risk transfer. Similarly, in the status quo scenario, lifecycle risks are not transferred away from government. Therefore, it might be expected that lifecycle costs if adjusted for risk may be higher than what is currently assumed.
- To what extent can government transfer the performance risks of the facilities to the private sector thereby allowing CSC to focus on facility programming and monitoring performance.
A brief compare and contrast of the traditional and a P3 model referred to as design-build-finance-maintain is provided below.
Traditional Procurement
The traditional approach to capital project procurement is the design-bid-build approach. The government owner contracts with a design engineer to develop the project design documents (drawings, quantity estimates, and specifications) following the completion of the design. The construction contractor is selected through a competitive tender, with the contract assigned to the lowest bidder.
Because the contractor is bidding to construct a project that has been designed by others, it is not reasonable for it to bid a fixed price except for the simplest of projects. Any work required that was not foreseen and specified by the design documents is considered an "extra", and is negotiated during construction between the engineer, contractor, and government owner through a change order process. Traditional construction contracts therefore often anticipate some "time and materials" charges, and extras are generally incurred (for which a contingency allowance is usually planned). The cost of the project is not always certain at the outset, and the government owner retains much of the construction cost risk if the project does not progress as planned.
Innovation is possible in a traditional procurement. Many government owners push their design engineers to be creative and innovative, and many design engineers strive to bring innovative solutions to their clients. However, there is a structural limitation to the innovation that can be brought to a project in traditional procurement: there is only one designer and one operator (the government owner) dedicating their resources and talent to the problem at hand.
Design-Build-Finance-Maintain (DBFM)
In this scenario, the repayment of capital cost, financing costs, and maintenance costs are rolled into a series of performance payments made over a long period of time. This payment is then linked to a "payment mechanism" that provides the structure through with the private sector is incentivized to adhere to the agreed to performance standards. Combining construction, maintenance and financing skill sets at the beginning of the project creates more effective approaches to delivering the asset and related services. Key benefits of the DBFM model is the transfer of cost and time overrun risk, performance and life cycle cost risks to the service provider.
- Date modified: