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Home > Services and Resources > AFP - Public Private Partnerships (P3)
AFP - Public Private Partnerships (P3)
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E-bulletin AFP Articles: are about the $12B of public buildings to be constructed over the next 5 years, and were written for e-bulletin, the OAA e-newsletter. This continuing series of articles focuses on some of the opportunities and risks presented to practices of all sizes, all over Ontario, associated with this unprecedented investment in public buildings.
Public Private Partnerships (P3)
E-bulletin AFP Articles
AFP Risk No. 1 - Bankruptcy
Participation in some types of AFP projects has severely damaged the practices of architects in other jurisdictions. Too many architects went bankrupt as a result of taking on huge financial risk, primarily related to “pursuit costs”, in the hope of getting the job, including:
- Providing extensive architectural services “on spec”
- Services can extend to preparation of 60% construction documents or more. In some cases there was:
- Promise of some payment if the consortium wins
- The work “on spec” was regarded as “the cost of doing business”
- The “reward” was being contracted to complete the balance of the work
- Providing architectural services “at cost”
- Turns out not to reflect the true cost of providing the services, including overheads, etc.
- Tying up resources, means other profitable opportunities cannot be pursued
- Lured into providing services below cost with the promise of “success fees”, or “bonus” payment, if the consortium is successful
The Ontario government is announcing a long list of major public building projects that will be delivered through AFP. Although the government has not announced the policy and procedures which will govern these projects, much of the talk suggests that many of those same risks that pushed colleagues in other countries into insolvency will surface here.
Ontario architects and our profession as a whole cannot afford to make the same mistakes and fall into the same traps.
The OAA AFP Task Group will be meeting with Minister of Public Infrastructure Renewal David Caplan later this month. Minister Caplan is responsible for developing the policy and processes, including AFP, that will govern delivery of public buildings, (e.g. courthouses, universities, hospitals, correctional facilities or office space).
The objective of the meeting is to raise our concerns with AFP and propose some resolution. Among our suggestions will be:
- Limit the application of AFP to projects where it makes most sense, (example very large projects, where the consortium should be able to manage the “pursuit costs”)
- Avoid transferring so much of the risk to architects, who to date often do not have a “stake” in the consortium – and therefore do not have potential of “reward” commensurate with the “risk”
- Avoid AFP being forced onto projects where it isn’t practical
- Minimize “pursuit costs”
- Ask only for the information, including building design information, that is needed to identify the winning consortium
- Pay honoraria
- To cover the costs related to responding to AFP opportunities, including the cost of design – there are lots of precedents in other jurisdictions
- To recognize quality design which has proven to be critical to the success of AFP projects
- Total costs for AFP projects are amortized over a 25 to 40 year contract and in addition to the cost of design include construction; maintenance over the life of the contract; energy and operational costs related to the building; and often some support for the public services delivered from the building.
- The cost of supporting quality design is a tiny portion of these life cycle costs
- Decisions made during the design of the building will have a:
- Huge impact on life cycle costs
- Major impact on the delivery of the public services, (e.g. by providing for efficiencies)
- Financial recognition of quality design is a sound investment in the long-term public interest
Over the next several months and years, it is the intention of the OAA to establish an ongoing working relationship with the ministry and the government, together with other key stakeholders including CEO and OGCA. The purpose is to contribute the experience and expertise of the private sector into the formulation of these policies and processes for delivery of public buildings, including AFP.
Meantime, projects are being announced.
If you are approached to participate in an AFP project, be sure you are positioned to make the best, informed decisions you can.
Resources:
Opportunity - Design Quality Wins in AFP (the "new" P3)
The British government launched an initial series of P3 (Public-Private Partnership) projects about ten years ago, called Private Finance Initiative (PFI). It’s about using various new procurement schemes to involve the private sector in financing, designing, building and in some cases operating public buildings.
The Ontario government is calling it AFP, or Alternative Financing and Procurement. AFP is presenting new opportunities and new risks for Ontario’s architects. See article in e-bulletin: August 10 - 23, 2005 (login)
In many ways the early results in the U.K. were disastrous.
Poor quality design was one huge issue.
MP’s were embarrassed to stand in front of the new hospital or school at ribbon cuttings.
One architect told the OAA, "PFI has produced buildings that are a NATIONAL DISGRACE!"
Another said, "The first PFI schools were little better than agricultural sheds with windows."
Prime Minister Blair waded into the controversy: "… I am determined that good design should not be confined to high profile buildings in the big cities: all of the users of public services, wherever they are, should be able to benefit from better design."
The good news is that by the time the second wave of PFI rolled out in 2001, government and the design/construction sector had learned its lesson. In 2002, when the OAA researched P3 in the U.K., architects told us that design quality was a key factor in winning the competition for projects of all sizes.
A builder told us, "To be successful at PFI, you better have a good architect!" adding, "The Consortium won’t even get short-listed if the design isn’t exemplary."
AFP in Ontario is presenting our profession with a tremendous opportunity to raise the standard of design in public buildings. Let’s learn from our colleagues in the U.K. and seize it, right from the start!
This is one in a continuing series in e-bulletin about AFP in Ontario, focusing on the opportunities and the risks it presents for our profession. Next installment: "A Huge AFP Risk: Pursuit Costs that can Bankrupt Architects."
Opportunity or Threat for your practice? — Province announces major investment in public buildings
The provincial government is announcing a major investment, of approximately $12 billion in construction value, in public building “infrastructure” over the next 3 to 5 years.
“What’s new this time around?” you may ask. This time there is a difference.
The province, like many governments around the world, has decided to engage the private sector through Alternative Financing and Procurement strategies – AFP (AFP is the “new” P3 – Public Private Partnerships). Under this strategy, forms of AFP (still being determined) will be used to finance some public building projects, while others will be delivered using more traditional methods.
By involving the private sector in the financing of some public buildings the historical linkage of public building design and construction activity to the general economic cycles is broken. Reduced tax revenues during a dip in economic activity no longer lead to shelving of promised projects, because the financing will still flow from the private sector.
This represents a tremendous opportunity for our profession over the next several years. But that opportunity comes with new risks.
Details of the Province’s announcement:
- approximately $12 billion dollars in construction value;
- health care, public and secondary schools, colleges and universities, justice buildings, and more;
- a blend of new construction and “renewal” of existing stock;
- said to be the first instalment of a 20 year plan to address our expanding “infrastructure deficit”.
Architects need to consider this opportunity and be aware of the risks.
Here are some of the concerns that are already being discussed amongst professionals in the building industry:
- large and small practices are likely to be affected directly or indirectly, based on experience seen in other jurisdictions which employ P3
- e.g. the local school board (or sometimes a group of boards) “bundles” a number of school projects into one P3 contract in order to attract the interest of P3 consortia, including the financial component
- large and small projects, all opportunities, will be considered
- evidence from other jurisdictions shows that those that do not currently do public work may be affected
- additional competition is possible, if not likely, from outside of the province
- concerns are already arising that the profession in Ontario may not have the resources, especially the skilled workers, to meet emerging demand for services
- predicted in the OAA study “Succeeding by Design” even without factoring in this huge investment in public building infrastructure
Will the profession be able to meet the demand?
To maximize opportunity while helping architects manage risk, Council has struck an AFP Task Group whose mandate is to:
- investigate the impact of AFP on Ontario’s architects
- develop additional advice, education, tools and resources to assist those architects who decide to engage in AFP
- work with other stakeholders (Consulting Engineers of Ontario, Ontario General Contractors Association) including government, in an integrated approach to develop a “made in Ontario” model of AFP which achieves government objectives while providing greatest opportunity (and managed risk) for the private sector
- build on the foundation of the work completed in 2002
- renew that work through study of the continuing evolution of P3
- in a growing number of jurisdictions around the world and across Canada
- in Ontario, in particular through the two major hospital projects initiated by the previous government and initial efforts on the Durham courthouse
The OAA has been widely praised by architects, industry stakeholders and government for the extensive research it conducted into P3 in 2002:
The OAA research was conducted to help the profession and others in the industry prepare for the introduction of this new procurement method in the hope that Ontario could learn from the challenges, the problems and the mistakes in other jurisdictions such as the U.K.
This is the first in a series of articles that will track the work of the OAA and Council’s AFP Task Group in helping to maximize opportunity while helping architects manage risk.
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AFP - Public Private Partnerships (P3)
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