Infrastructure: Investing in prosperity

Report
Infrastructure:
Investing in prosperity
John Gamble, CET, P.Eng.
FMI/CC
Ottawa, ON
January 22, 2015
Outline
• ACEC-Canada
• What is infrastructure and why is it
important?
• The case for infrastructure investment
• The New Building Canada Fund
• The concept of project life-cycle
• Where do PPP projects fit in?
• The importance of procurement in longterm success
• Questions and comments
ACEC Canada
• Association of Consulting Engineering
Companies - Canada
• National voice of industry on business,
regulatory and public policy issues
• Represents 450 firms across Canada
• Collectively employ 75,000 people
• 12 provincial and territorial associations
• Collaborates with key infrastructure
stakeholders
Back to the beginning…
Historically, communities came into
existence for three core reasons:
• Security
• Commerce
• Infrastructure
These continue to be key areas of interest to
government
Infrastructure…
An investment that:
•
•
•
•
Enables economic activity
Connects people and communities
Ensures public health and safety
Protects the environment
Case for investment
• TD Bank Financial Group, 2004
• Conference Board of Canada, 2010
• Residential and Civil Construction Alliance
of Ontario, 2010
• Canadian Infrastructure Report Card, 2012
• Canadian Chamber of Commerce, 2013
• Canada West Foundation, 2013
TD Bank Financial Group, 2004
Mind the Gap: Finding Money to Upgrade
Canada’s Aging Infrastructure
• 50% decline in annual government per
capita capital investment (1962-2003)
• Investment shortfall calculated to be $125
billion in 2004
Conference Board of Canada, 2010
Lessons From the Recession and Financial
Crisis
• “Of all the fiscal stimulus measures,
infrastructure spending has the largest
impact on economic growth”
• Every dollar spent on infrastructure
increased GDP by as much $1.20
RCCAO, 2010
Public Infrastructure Underinvestment: The
Risk to Canada’s Economic Growth
• Investment declined from 6% to 3% of
GDP from 1960
• Infrastructure underinvestment will cost
the Canadian economy 1.1% of real GDP
annually over the next 50 years
• Underinvestment will reduce the longterm profitability of Canadian businesses
by an average of 20%
Infrastructure Report Card, 2012
• Approximately 30% of municipal
infrastructure ranked “fair” to “very poor”
• Replacement cost of these assets totals
$172 billion nationally:
o $91billion for roads
o $39 billion for wastewater
o $26 billion for drinking water
o $16 billion for stormwater
• Most infrastructure (even if in “good” to
“very good” condition now) will require
ever-increasing investment as it ages
Canadian Chamber of Commerce
Top 10 Barriers to Competitiveness (20122014)
• Inadequate plans for addressing
deficiencies in public infrastructure
o Barrier #3 in 2014
o Barrier #4 in 2013
o Barrier #10 in 2012
• Canada 14th in global economic
competitiveness - down from 9th in 2009
Canada West Foundation, 2013
At the Intersection: The Case for Sustained and
Strategic Public Infrastructure Investment
• Sustained investment is essential to
maintaining Canada’s future prosperity and
quality of life
• Investments in infrastructure increase
productivity
• Highest economic and social returns on
investment occur with strategic investment
• The time to make critical investments in
Canada’s infrastructure is NOW
Canada West Foundation, 2013
Recommendations from At the Intersection:
• Continue sustained and strategic investments
• Give priority to infrastructure that enhances
economic performance
• Encourage innovative approaches to the
design of public infrastructure
• Invest in renewing existing infrastructure
• Analyze and evaluate investments and apply
lessons to future investments
Federal infrastructure investment
In the last 10 years Canada has started to reinvest:
• In response to the 1991 recession, the
several National Infrastructure Programs
were created
• Programs were expanded resulting in some
$50 billion in new funding from 2000-2015.
• 2008 recession prompted an additional $6
billion for economic stimulus
• New Building Canada Plan commits $53
billion over 10 years from 2014-2024
New Building Canada Plan, 2014
• Building Canada Fund of $14 billion over 10
years for new major economic projects
• Gas Tax Fund of $21.8 billion over 10 years,
including indexing of payments at 2% per year
• GST Rebate for Municipalities of $10.4 billion
over 10 years
• PPP Canada Fund of $1.25 billion over 5
years (Projects of more than $100 million will
be subject to a PPP screen)
• $6 billion committed under current programs
Project life-cycle costs
• Infrastructure is a long-term investment
• Operational life can span decades
• Operations & maintenance represents 80%95% of total infrastructure costs
• Initial capital construction costs represent
only 6%-18% of the cost
• Engineering & design fees typically
represents only 1%-2% over the lifecycle
cost of a project
Project life-cycle costs
PPP can be a viable option
• PPP is a valid form of project delivery when
used in the appropriate circumstances
• Greatest benefit occurs when private sector
maintains/operates the asset for +20 years
• Best results are achieved through fair sharing of
risk and reward
• Success is highly dependent upon having the
right team
• Owners must be diligent in choosing the team…
they are making a 'leap of faith'
But PPPs are not a panacea
•
•
•
•
Do not assume that PPP is THE solution
There are many variations of PPPs
PPPs do NOT create “free” infrastructure
Owners must assess each project to
determine if a PPP will deliver greatest value
• Assess all applicable delivery models,
including conventional delivery
• Remember, design consultant is not owner’s
agent in a PPP
• NEVER forget the end user!
Achieving the best ROI
• Engineering is a modest but important
investment in project success
• Good engineering & design can have
dramatic impact on overall project costs
• Engineering & design impacts capital
construction and ongoing operating &
maintenance costs for decades
• Engineering & design offers the best
opportunity for innovation and risk
management
Achieving the best ROI
Design
Construction
Time
Operations &
Maintenance
Achieving the best ROI
Design
Construction
Time
Operations &
Maintenance
Procurement is the key
• Establishing common objectives and desired
outcomes
• Understanding cost-benefit-risk relationships
• Clarifying roles and responsibilities
• Selecting the right team for the right job
• Identifying required resources
Selecting a Professional Consultant
• An InfraGuide Best Practice
• Developed by the public sector –
for the public sector
• Based on extensive interviews
and research
• Recommends “competitive
qualifications-based process” (QBS)
What is InfraGuide?
• National Guide to Sustainable Municipal
Infrastructure
• National network of experts in public and
municipal infrastructure:
–
–
–
–
Federation of Canadian Municipalities
National Research Council
Infrastructure Canada
Canadian Public Works Association
• Publisher of over 50 “Best Practice”
documents
How does the Best Practice work?
• Assumes that professional services are an
investment – not an expense
• Focus on understanding client’s needs
• Proposals ranked based on providing
service and achieving objectives
• A detailed scope is agreed to with preferred
proponent
• Appropriate fees and schedule are
negotiated to reflect scope, effort and risk
What’s in it for the client?
• The right team for the right job
• Realistic schedules and budgets
• Fees correspond to scope of work
• Fewer change orders and disputes
• Better business relationship between parties
• Better service, better quality & better value
for taxpayers
• Better return on investment
Who else supports QBS?
• International Federation of Consulting
Engineers (FIDIC)
• Engineers Canada
• Royal Architecture Institute of Canada
• American Institute of Architects
• American Council of Engineering Companies
• American Public Works Association
The Best Practice is good policy
• Competitive and transparent process
• Focus on merit, quality and long-term value
• Long-term savings realized over decades
• Encourages in-house expertise to represent
the client’s (and taxpayer’s) interests
• Permits innovation and sustainability
• Allows creative risk management options
• Win-win for client and consultant
• It works!
Analysis of Issues Pertaining
to QBS
• Georgia Institute of Technology and University
of Colorado (2009)
• Reviewed over 200 projects across the USA
• 93% of clients expressed high or very high
satisfaction with consultants selected using QBS
• QBS reduced construction cost growth by 70%
• QBS reduced schedule slippage by 20%
• QBS provided better ability to address societal
issues or stakeholder concerns
“Not everything that counts can be counted;
and not everything that can be counted
counts.”
- Albert Einstein, Famous Genius
“It is unwise to pay too much, but it is worse
to pay too little. When you pay too little, you
sometimes lose everything because the thing
you bought was incapable of doing the thing
you bought it to do.”
John Ruskin, Philosopher
Conclusions
• Infrastructure is an investment in our quality of life
• Infrastructure is a core business of government
but can be a role for the private sector
• Recent investments are welcome…
but there is more work to be done
• Best value is achieved through a life-cycle
approach to investment
• Similarly engineering is critical to life-cycle
• Base investment and procurement on long-term
value - not short-term costs
Association of Consulting
Engineering Companies
Canada
130 Albert St. Suite 420
Ottawa, Ontario K1P 5G4
Tel: 613-236-0569
[email protected]
www.acec.ca

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