Municipalities are increasingly turning to the P3 model to upgrade aging transit infrastructure
Ask any commuter in a major urban centre about what sends them ballistic and you’re likely to hear the same refrain: stressed-out drivers stuck in gridlock in downtown cores, impatient hours spent commuting on arteries seemingly designed for traffic usage and patterns of yesteryear, or worse, a nightmare scenario where both scenarios combine. It’s clear the country’s urban transit needs an overhaul; moving people efficiently has become one of the top priorities for municipal and regional governments.
“All levels of government recognize the importance of renovating existing infrastructure and/or building new urban transit systems,” says Mark Romoff, President & CEO, the Canadian Council for Public-Private Partnerships (CCPPP). “However, municipalities generally are getting more and more interested in using the P3 model. Like their provincial and federal counterparts, municipalities have equally challenging infrastructure deficits and are looking to address those issues at a time of fiscal constraint. Without a doubt, one of the top sectors for P3 growth is urban transit.”
According to Romoff, there are a number of Light Rail Transit P3 projects in procurement, under construction or operational in Canada: Vancouver’s Canada Line, the country’s first LRT P3, the 19.5-km, $2-billion light rail transit line, which opened in August 2009; the Evergreen Line under construction in Vancouver, set to begin operation in 2016; and Ottawa’s Confederation Line, currently under construction, due to be operational in 2018. In addition, Edmonton’s Valley Line LRT is in procurement, as is Toronto’s Eglinton Crosstown Line. Waterloo’s ION Stage 1 LRT will begin construction soon, to become operational in 2017, running 19 km of LRT from Conestoga Mall in Waterloo to Fairview Park Mall in Kitchener.
Some infrastructure projects utilize both the conventional and P3 model, says Romoff; for example, the Union-Pearson Air-Rail link, currently under construction and set to open in 2015 for the Pan Am Games in Toronto. The P3 portion, he says, “includes a new 3-km rail spur for the Air Rail Link (ARL) and a new ARL passenger station at Toronto Pearson International Airport, with the rest of the project (connection at Union Station, signals, etc.) being done conventionally.”
Complex and unique challenges
Still, it’s early days in the use of P3s in urban transit, says Judy Wilson, a partner and lead of the Toronto Procurement and Infrastructure Group at Blake, Cassels & Graydon LLP. “Most of the country’s P3 projects have been concentrated in federal and provincial social infrastructure projects such as hospitals, penitentiaries, schools and courthouses,” says Wilson, who also heads the firm’s International Infrastructure Group, “although there’s been a number of road and highway projects across the country, including Highway 407 in Ontario or the Autoroute 30 in Quebec. Now, P3s are moving into the realm of some of the more traditional municipal responsibilities such as transit.”
Many lawyers with practices focusing on P3s say urban transit poses complex and unique challenges, although the learning curve is quickening as more projects are in procurement, in construction or in operation. “Canada does not have the same history of major light rail transit projects as other countries, particularly in Europe,” says Geoffrey Gilbert, a partner with Norton Rose Fulbright Canada LLP in Ottawa. “Jurisdictions there have good indications of what is coming for us and Canada is catching up quickly,” says Gilbert, co-lead of the firm’s North American Infrastructure Group. “As we work on projects we see that problems in Ottawa could be a problem in Waterloo, too.”
With urban transit “you can be marrying existing infrastructure, new roadways, greenfields, private and publicly owned properties, water mains, other utilities, all of which can stretch for say, 19 km, in the case of Waterloo or 12.5 km in Ottawa,” says Gilbert. “The municipality not only has to have 100 per cent confidence in the private-sector partner, but decide how to allocate risk, which is challenging.”
As such, “there’s the need to provide the private-sector partner with the kind of envelope of existing information that gives them confidence that they know what they’re going to find when they start tearing up roadways,” says Gilbert. “From a due diligence perspective, it’s important to make sure both parties are aware of what information is there, and further, what kinds of potential problems could arise.”
Public and private financing
Bob Shouldice, a senior partner focused on energy projects, commercial transactions and P3 projects with Borden Ladner Gervais LLP in Vancouver, says, “keeping in mind that every project differs, there are a few potentially unique aspects of P3 urban transit projects versus a provincially sponsored hospital, highway, prison or school project.” These different aspects, he says, sometimes include multiple layers or sources of public and private funding, a more hands-on approach and oversight by municipal officials, and also the lack of a greenfield element when it comes to land use and permitting matters.
On large-scale transit projects being run by municipalities, says Shouldice, there are usually multiple layers of funding: federal, provincial and municipal-level funding; various established infrastructure or transportation funds; agencies dedicated to P3 funding and, of course, funding from the private-sector partners. “All of this needs to be factored into the procurement planning and timetable, project governance protocols and into the various project and related financing agreements,” he says.
In municipal projects “the governance of the project is potentially more complicated because municipal authorities and elected officials sometimes like to have more of a hands-on approach than those involved in provincial or federal projects,” says Shouldice.
In part, he suggests, this is because municipal officials on these projects “sometimes interact in a more direct or frequent way with affected stakeholders, including property owners, transit users, public citizen groups and businesses often at a grassroots level.” As an example, with a light rail project going through the heart of the city, “you are often dealing with things that are near and dear to people’s hearts, as well as stakeholders who will feel a more direct impact from the project. There’s the potential to disrupt private residences, commercial businesses, even the general population who are forced to deviate from their normal transit routines.”
As well, urban transit projects that cut a big swath through large sections of a city can sometimes “really affect the city’s aesthetic features, which local citizens and politicians can feel very passionate about, and at a level not generally experienced with other projects,” says Shouldice. “This can become a much more significant consideration in a performance-based P3 procurement where proponents are usually given much more latitude to be innovative with their designs, meaning the authority may have less control over some or all of the aesthetic outcomes, compared to a more traditional procurement model, which can sometimes create apprehensions with the public and affected stakeholders.”
Multiple municipalities
P3 urban transit projects can involve multiple municipalities. Wilson, a former in-house lawyer with the City of Ottawa, sees “a trend whereby many large urban areas are planning transit systems on a more rationalized regional basis; for example, Ontario’s Metrolinx.”
It’s the role of lawyers, she says, to deal with issues arising from a multiplicity of regulatory authorities. “You have to be conscious of the fact there has to be a solid leader and decision-maker of policy from a transit perspective. Contractually, how does this consolidated group of entities reach a consensus, so that when the government purchaser brings the project to market to the public sector, there’s one voice? Further, how is risk allocated among the entities? How are the zoning, site development, city approvals going to work?”
Getting the relationship between those jurisdictions right becomes very important. “The lawyer has to put himself or herself in the private sector’s shoes and say ‘if I’m looking at this multi-jurisdictional project what risks am I worried about and do I want, for example, a one-window contact. Am I confident there’s an entity that has the authority to do this project and make their side of this contract work?’”
More than light rail projects
When the public thinks about P3 projects in urban transit, it’s generally in the context of mega projects such as LRTs. But, urban transit encompasses much more than a track or road, extending to vehicles, stations and maintenance yards. For example, says Romoff, the VIVA bus rapid transit Phase 1 is operational in York Region, with Phase 2 in procurement; the City of Barrie, Ontario, is currently procuring a P3 for a new transit facility, as well as the operation and maintenance of its bus fleet; and in Saskatoon, the Civic Operations centre, which includes a bus transit facility, is also in procurement.
Which brings up another issue related to risk. “Not only do construction issues make P3 urban transit complicated, I think the operation and maintenance part of them make things very, very complicated,” says Gilbert. “Do you bundle those two services together? How much of the operations risk is being taken by the municipality? How much risk does each party assume with respect to safety and security concerns? How do you make sure that is addressed in the risk transfer?”
As P3 contracts in urban transit become more common, lessons learned in Canada and abroad will be applied. P3 contracts “are structured in a way that they really require seasoned lawyers to ensure the partners, whether on the public or private side, are protected and the risks being transferred are optimal,” says Romoff. “The lawyers really play a key role in these projects.”
Bev Cline is a freelance business and legal-affairs writer and editor in Toronto.