Law Times

LAW TIMES / JUNE 9, 2008 FOCUS PAGE 13 Infrastructure market booming in Ontario BY HELEN BURNETT Law Times Canada — particularly Ontario — is booming, and while the invest- ment of government has helped in its success, lawyers say there are still several challenges to address when it comes to these projects. In the construction law area, the commitment at every level of government to investing in infrastructure through the P3 approach is one of the main suc- cesses in terms of these projects, says Ian Houston, a construction lawyer and a member of the infra- structure and public-private part- nership group at Borden Ladner Gervais LLP in Toronto. A new Crown corporation, named PPP Canada Inc., was an- nounced in this year's federal bud- get and will work with the public and the private sectors towards "encouraging the further develop- ment of Canada's P3 market." In the 2007 budget, a $1.2-billion P3 fund was created to support these projects. The fund will be administered by PPP Canada Inc. On a provincial level, orga- nizations such as Infrastructure Ontario, PPP Québec and Part- nerships British Columbia serve to bring together expertise, says Houston, and bring stability to the marketplace by helping to in- troduce some uniformity of prac- tices and processes as to how they procure these projects. "What we're seeing I think in T he market for infrastruc- ture and public-private partnership projects in all levels, including at municipal levels, is a high level of investment in this area by government, which is in response I think to our infra- structure deficit," he says. "That' tion lawyer, as well as just being a citizen, from the standpoint that we know that there is now, and will continue to be, a large amount of activity in this sector for the near and medium-range future," he says. John Rider, responsible for managing the development of commercial title insurance in Canada for First Canadian Title, says he hopes the new Crown cor- poration will kick the P3 projects "up a notch" in Canada. He says the time is right "be- s exciting for a construc- cause I think we're in a situation across the country where we're sorely in need of upgrading of our existing infrastructure. "I think we're also at a point where governments either don't have the money or are not in a political space where their vot- ers are going to allow them to go into deficit or huge deficit to rebuild," he says. "I think it's brilliant timing for this group to be set up, because I think the demand is there, but maybe not the cash to do it, so if you can get the cash from the pri- vate sector, then why not," he says. Gordon Willcocks, co-chair- man of the national infrastructure group at McCarthy Tétrault LLP in Toronto says that, "You've really got governments establishing agen- cies, really recognizing that public- private partnerships or alternative financing and procurement as it's described in Ontario, is a very good procurement model for particular types of projects, usually those that have some considerable construc- tion risks and performance risks associated with them." Underneath, says Willcocks, these P3 projects are "all great con- struction projects, so, from a con- struction lawyer perspective, it cer- tainly is important to get involved and engaged in this type of activity, which takes the construction con- tracting outside of the usual con- struction processes, it takes it out- side of the usual tender bid process for construction contracts." As the consortiums in the proj- Ian Houston says with P3 proj- ects the political risk is more pronounced as they run beyond the normal election cycle. from individuals, the industry hasn't seen major U.S. or U.K. construction and design firms move in, he says, although there has been more foreign activity in some discrete areas such as roads and highways, as well as interest from banks and financiers from outside of Canada, he says. "I would expect again as this market continues to mature that that will occur," he says. Willcocks says there is a huge amount of activity required to re- furbish and replace aging infrastruc- ture in Canada, with a lot of money committed by the various govern- ments for this type of activity. "To have a real good P3 market, ects are often led by contracting en- tities or equity entities, Willcocks notes that the process "also creates a different role with a contrac- tor client, you're not just working with them on the contract itself, but you're working with them on a commercial basis in their participa- tion in a P3 consortium." The market has also matured, as DD LT RXQTHZC-08 Promo ad 5/29/08 11:17 AM Page 1 a result of the development of the Crown agencies, as well as the key players in the market, such as con- struction companies, consulting companies, financing and bonding agents having become much more sophisticated, says Houston. External players have also be- come attracted to the Canadian market, he says, including indi- vidual experts. "All of that, I think, is good in a construction sense be- cause it makes the Canadian mar- ket more competitive," he says. Especially from the construc- tion side of the equation, apart though, you need a lot of players in it, and with the number of trans- actions, the construction providers that are in Canada and you would look at five years ago, it's really an insufficient number to actually roll out this type of large mega-infra- structure program," he says. Canada is on the global market for P3 activity, says Willcocks, and sees a great number of both con- tractors and international lenders coming in to bid on these projects, participate, and form consortiums. Indeed, there are also several challenges facing lawyers in this area. Problems that lawyers are running up against in these types of projects from Rider's point of view are that a lot of infrastructure deals are structured in such a way that the developer does not have any rights until they finish the work that is being built. "Sometimes, it, in particu- lar with the lenders, causes some problems, because basically the with summer inspired Corporate Promotional Products PRESENTING NEW EVIDENCE FOR A FUN FILLED SUMMER Our 2008 summer inspired Pomotional Products Brochure is now available. Contact us to receive your copy. government will say, we will give you the right to go into this land and build a $500-million facility, but you only have a licence to do it, you don't have a lease or an ac- tual interest in land," he says. In terms of challenges, Hous- ton notes that with these P3 projects the political risk is more pronounced, as they typically run beyond the normal election cycle. Also, one of the main rationales for using a P3 model is achieving maximum risk transfer from the public sector to the private sector, especially in the design and con- struction area, says Houston. The challenge, he says, if you're acting for the public sector, is how do you maximize that transfer, while for those acting for designers and builders, the question is how much risk can I take, how do I manage it, and how do I price it? Willcocks says there is a very strong commercial side to P3 proj- ects, in terms of a project agree- ment, which is the core document between the public sector sponsor and the consortium. The construction contract is typically established in a pre- scribed form, which is a schedule to the project agreement. "It [is] a very different looking construc- tion contract than might have been typically used, so the con- struction lawyer has to become familiar with this procurement process and the nature of the con- tracts under it," he says. The nature of the projects and how they're procured also lead to very high transaction costs, says Houston, in terms of getting the project off the ground, selecting a private sector partner, and finaliz- ing the contractual arrangements. "Those are usually protracted in relative terms, long . . . and ex- pensive processes," he says. The challenge, he says, is to re- fine those processes to make them less time-consuming and less cost- ly. While there is currently a lot of infrastructure activity ongoing out West as a result of factors such as the upcoming winter Olympics, Houston notes that next to B.C., Ontario is "right there." "Given the volume of work that needs to be done here in Ontario, if Ontario hasn't kind of surpassed British Columbia I suspect it will in the not-too-distant future, it has just a tremendous volume of work being done in the hospitals sector and Infrastructure Ontario is moving into the transportation sector now," he says. 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