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:

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:

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:

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: