Good morning, everyone.
[Translation]
My name is James Paul. I am the president and chief executive officer of Defence Construction Canada.
DCC is a federal Crown corporation established in 1951 pursuant to the Defence Production Act to operate as the tendering and supervisory authority for the Department of National Defence's construction requirements.
DDC's letters patent established our mandate to deliver and maintain infrastructure and environmental projects and services, and to provide full lifecycle infrastructure support, required for the defence of Canada.
[English]
DCC's role is contract management with respect to DND's construction and environmental program. We work together with our client department, National Defence, and their related agencies to meet the time, cost, and quality requirements, including maintaining the minimum possible administrative costs for our services. As we operate on a fee-for-service basis, DCC does not receive any direct government appropriations.
In 2009 we took on one of the largest public-private partnership projects that the federal government has taken on in this country, to build a long-term accommodation project—the acronym is LTAP—for the Communications Security Establishment Canada, CSEC, Canada's national cryptologic agency.
This was to be a design-build-finance-maintain project, or DBFM.
I'm certain you've heard much testimony toward the structure of P3s and all those aspects. My intention was not to come here today to try to further educate you, because I'm sure you're as expert as I am now on this whole area, but I wanted to focus specifically on our experience with this project, our role, and so on—and on any other questions you may have about it.
We were very pleased to undertake this project, given our highly specialized construction, procurement, and contract management experience and our proven track record for delivering complex defence projects quickly and efficiently.
Just to give you a sense of that, in the year just ended, DCC delivered in excess of 2,500 infrastructure projects totalling an expended value of over $1 billion for the defence program for Canada. Just to give you a sense of the volume of projects that we are completing annually, that's more than 50 a week, and they range from infrastructure projects of $20,000 to more than $100 million.
We understand the special-purpose needs of the defence infrastructure assets that the Government of Canada...and the Department of National Defence specifically owns and is responsible for as its steward. We support it from the design phase right through to the life-cycle management, as I said.
Within 20 months on this particular project we took this 30-year highly specialized project from concept to award, and we commenced construction in February 2011. We're just over 18 months into a 39-month planned construction program.
It's scheduled to open in August of 2014. At this point, I can tell you it's on time and on budget, generally speaking, and going very well. We believe it's a very successful project.
To achieve this success, we created a special team overseeing it—a small but focused team—and opened a dedicated project management where we work with CSEC staff collaboratively on the project.
I was asked to respond to a couple of questions in particular, so maybe I will just stay on those themes.
I was asked to address funding by PPP Canada. The quick answer there is to tell you that no funding was provided for PPP Canada on this project. I think you understand their mandate. It wouldn't typically be to fund that; however, they did review the value-for-money analysis provided to Treasury Board as part of the Treasury Board submission.
Because PPP Canada was in the process of being stood up in 2009, when this project was actually being planned, CSEC, our client partner in this project, chose to hire its own experts who had experience in P3s to advise them on the structure.
We were selected as the project manager, and they hired expert program managers with P3 experience—Partnerships BC being one, P3 Advisors, P1 Consulting, and others—to assist them.
The selection of the proponent for the P3 project was a procurement matter that DCC managed, so PPP Canada was not involved in that aspect. But I think their advice on the value for analysis was well received and very helpful towards this.
I was asked to also comment on our role, if any, in the project selection process.
As I've said, our role is in the procurement aspect and the project delivery; that's where we come in. You could consider us an infrastructure delivery organization. We did not play a role in the project selection process. In this case, our client partner came to us wanting to undertake a P3 for the project. We then advised on procurement options and how the contract might be structured, then executed the procurement, and we are overseeing the delivery of the project—with all the necessary approvals from whatever government levels having been received, of course.
In terms of advantages and disadvantages of PPPs versus, say, the traditional procurement process, with the volume of activity that we have and historically have operated for more than 60 years now, the majority of the projects we deliver use the more traditional construction procurement methods. This is in fact the first P3 that we've delivered. As I mentioned at the outset, we think it's going very well; we feel very favourably about it. That's not to say that we think every project should be undertaken with a P3.
Some of the advantages, of course...I think you've been well informed on the aspects of risk transfer, cost certainty, and the financing being arranged, and so on. I suspect that's not what you want to hear about from me today, but I'd be happy to respond concerning any of those matters, if you'd like.
As to the unique aspect that we saw in this, for which we think the P3 was well warranted, this is a very special-purpose, highly sophisticated, high-security facility. Our client partner, CSEC, had stated clear objectives for the space: it needed to be a well-constructed building, it needed to meet the security requirements, and they wanted a quality building that, some 30-odd years from now, when it's handed over from the P3 partner, is still going to be in the quality condition in which they want to continue to operate. It has very high operational requirements, of course, being 24/7 and so on.
You could ask, could those things not be achieved, potentially, with another form of procurement? Yes, they could be achieved; the question the analysis would have looked at is what the best-cost value-for-money approach to achieve those objectives was.
CSEC wanted to have a very collaborative, open-work space, and I think it has succeeded very much in achieving that. In fact, this is really going to be a model space for openness and communication amongst staff, albeit in a very secure facility. I've personally toured the facility a number of times during the construction phase, and there are, for example, no closed offices anywhere in that building. Everyone from the chief down is basically in an open, collaborative work space. It's quite forward-thinking in that regard.
The connection to P3 is that the proponents were, I guess we could say, challenged or tasked with coming up with very creative concepts and approaches for how to achieve this. I think there was a very successful process of collaboration with the industry partners out there who might take on a project of this sort.
The collaborative aspects of this transaction are relatively unique, or at least very forward-thinking, in that a number of meetings and exchanges of information occurred prior to requesting the submissions from the proponents. All of this was done with the full involvement and interaction of a fairness monitor, because you need to make sure that no one proponent is getting any advantage over another. An equal number of meetings were held. Typically these were one-on-one meetings, with CSEC present, with us present as the procurement authority, and, as I said, with the fairness monitor. A lot of discussion occurred so that CSEC could properly communicate its needs and requirements; then the proponents could take that away and come back with their vision as to how they would deliver this within an affordability ceiling that had been stated for the project.
Our observation is that this has been very successful. I had the unique pleasure of seeing all of the submissions. They were all unique, quite different, but I thought did a great job of addressing the needs for the project—all the things I said, plus a facility that the proponent would have the obligation to maintain for 30 years after occupancy commenced. As I said, you end up with a quality facility at the end of the game.
Given the sophistication and complexity of this project, I think it was a good choice to consider this approach and all of the other given factors that the P3 approach brought in. Of course, we're halfway through the construction, so it's hard to look back and speak from experience about the overall success, but I'm speaking in terms of the success to date on the procurement and the commencement of the construction activity.
As to any challenges or disadvantages to it, a facility of this complexity certainly made for a far more complicated procurement process at the front end than the typical procurement that we see does—even if I reflect upon, say, the $100 million-plus projects that we do. So comparatively speaking there has been more effort, more activity.
Of course, a lot of that is loaded onto the proponents who are coming forward. I know, having met with each one of the proponents, that they stated costs of $2 million to $3 million at least to prepare their proposals. But it's like a lot of the things you can say in life: a good upfront investment often sets the right direction for any successful project, and I think this is an example of having achieved that.
It's a great pleasure to be able to address the committee on this topic of public-private partnerships and their merits. I've been studying public-private partnerships for around the past 10 years, primarily in the infrastructure sector, in which we're talking about roads, bridges, public transit, highways, hospitals, and, increasingly here in Canada, prisons. These are the types of infrastructure facilities that are being built through public-private partnerships and they are the types of facilities I've been studying. I've studied them here in Canada and around the world.
What I'll do today is try to synthesize and summarize some of my experiences and some of my research to perhaps inform your decisions about how public-private partnerships should be used here and how the federal government should be involved in public-private partnerships.
Here in Canada, in the infrastructure sector, there have been around 175 infrastructure public-private partnerships. These are primarily delivered by the provincial governments, some at the municipal level, and the federal government has provided financing and funding for some of these projects, like the Canada Line, in which the federal government becomes involved and provides funding. But primarily, for the time being, this is a provincial jurisdiction, and these have been carried out by the provincial governments and their procurement agencies, like Infrastructure Ontario or Partnerships BC. That provides some of the context.
There are really two primary rationales that have been put forward here in Canada and around the world for why public-private partnerships are an effective model for delivering infrastructure. What I'd like to suggest is that one has been relatively debunked, and we should not follow that one here in Canada. A second explanation, perhaps, has more credibility, and we should explore this further.
The first explanation that I think should be debunked is the idea that public-private partnerships bring new money for infrastructure. There's a lot of talk that in periods of fiscal austerity, when governments are pulling back funding, when we're seeing large deficits at all levels of government, perhaps public-private partnerships and private financing can be a way to fill that gap. Here in Canada, to date, public-private partnerships have not played that role.
Public-private partnerships and private financing have been a finance strategy that brings money up front to finance some of the upfront costs of capital to deliver these major infrastructure projects, some of which can cost $100 million, $500 million, or $1 billion. But the money primarily for infrastructure projects here in Canada has been paid back directly by the governments that have procured the infrastructure projects over the life of their assets.
This is not a strategy that is bringing forward new money. It's kind of like paying for infrastructure on a credit card. Someone finances you the money, but the government pays it back over an extended period of time at a considerably higher rate of interest.
It's worth considering, then, that public-private partnerships may deliver other benefits, but when it comes to bringing new money to the table to deliver infrastructure, that has not been the case for hospitals, for prisons, and it has not been the case for public transit facilities. This is still government money, and I think that's important to keep in mind when we think about public-private partnerships.
There has been a second explanation, a second rationale, for why we might deliver them that I think does have merit.
I only heard part of it, but I think your previous speaker started to get at it. It's the topic of value for money. Can we understand whether bringing the private sector into the equation earlier in the deal, having them come to the table and collaborating, brings some type of value for money? Can it limit the instances of cost overruns? Can it deliver more innovative types of facilities that we might not get if these projects were being delivered through the traditional conventional types of approaches to delivering infrastructure? And do these innovations and this cost-saving, this transferring of risk, in particular, offset the higher costs of private financing? As I mentioned, the financing costs are considerably higher when you deliver projects through private capital and private upfront financing as opposed to direct public borrowing.
These are some of the rationales that have been put forward. I want to address the second rationale, in particular, around value for money. I want to advance that there are some concerns that I think we need to address, even as we try to zero in on whether public-private partnerships deliver value for money, and, more particularly, in what contexts are they going to be viable alternatives to deliver infrastructure.
The first concern is really this idea of risk transfer and the idea of how we transfer risk from the public to the private sector. In particular, at what cost are we transferring these risks? A colleague and I, a former student, conducted a study of recent projects completed here in Ontario. We looked at 28 public-private partnerships valued at $7 billion. They were primarily hospital projects.
We looked at the official government documents that compare the value-for-money reports, that compare the cost of delivering the projects through conventional delivery models and public-private partnerships. Our study found that, on average, it was 16% less expensive to deliver them through the conventional model. That's because the private sector model, the public-private partnership, had higher financing costs. It had risk transfer built into the model. Because of the higher financing, the higher transaction costs, 2% to 3% of the deal...as your previous speaker spoke about, there may be value to this, but you're paying upfront costs in order to structure these deals. There's a cost to that: 2% to 3%, on average, was the cost we found in transaction costs. Because of these additional costs, it was 16% less expensive. Only after considering risk transfer in the equation did we see that public-private partnerships delivered better value for money. So risk transfer is really the key part of the deal, the key part of public-private partnerships, that is swinging the balance of merit from the conventional to the public-private partnership.
When we're talking about risk transfer, we're primarily talking about construction risk. We have to understand how those risk premiums are being achieved and whether they're really based on previous evidence. Our study found that the risk premium added to the conventional project was on average 49%. That's a very high risk premium, and we couldn't find the technical evidence—the details of past studies were not in the public domain—to allow us as researchers to understand whether that was really based on past experience. We were concerned because this issue of risk transfer, invariably, is tipping the scale from the conventional model to the public-private partnership. It doesn't mean that it's not accurate. It means that we couldn't find the evidence to support it, and we were concerned about that because of how large this risk premium is.
We can say that public-private partnerships are not necessarily the cheapest way to deliver infrastructure, but they might deliver the best value, and that's really where we have to understand from a policy perspective the projects for which this actually makes sense.
There are a few other topics I want to touch on.
One is about public accountability and community engagement. We've heard consistently that in the public-private partnership model—oftentimes because of commercial sensitivities during the planning process—it's often difficult for stakeholders to gain access to the really important technical documents that determine whether these projects should go forward or not. There have been concerns about how to meaningfully engage in these processes.
Another issue is the loss of flexibility over the long term in delivering these projects. When you have contracts and concessions that stretch out for 25, 50, 99 years—as we've seen here in Canada—these can limit government's flexibility and its capacity to make changes to the system over time, to meet emerging policy goals, to change the user-fee structures, as has been the case in some of the projects, and to meet emerging and changing goals. This loss of flexibility is a key challenge that we have to think about when we're looking at public-private partnerships.
The final point is this issue of “the only game in town”. Are we seeing public-private partnerships being put forward more and more as the only option to deliver public infrastructure? Are governments—especially municipal governments seeking federal funding—increasingly trying to design their projects in order to make them realizable through public-private partnerships, even in cases where that might not be the best way forward?
I have a couple of recommendations. What I'm trying to highlight is that public-private partnerships may deliver value in certain cases. We have to be very clear about what they are. I think it should be based on empirical evidence. We should be carrying out studies to understand if the risk premium, the size of it, is appropriate, is based on past evidence, the history of actual cost overruns, on the cost of poor performance as these projects go along. I would add that we should be focusing the partnerships on the design-build finance side. I think public-private partnerships have the best opportunity to deliver on time and on budget—project delivery and in particular cost certainty—and there is merit in that. I think we should be very cautious about how we enter into long-term concession agreements for operations and maintenance, except under the most unique circumstances.
The final point I would raise is that I think we need to understand whether the agencies we've put in place—the procurement agencies—can work to improve both public-private partnership procurements and conventional approaches. Sometimes these have been separate. But the expertise in these agencies could provide the same benefit and perhaps deliver value for money in some cases without necessarily having to look to private finance—which is an expensive way of delivering public infrastructure.
I'll leave it at that. I look forward to participating in the discussion.
Thanks a lot.
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The example I've been using has been in reference to that project. As I said, the procurement phase was completed, obviously, and the construction has started, but we're halfway through the construction now, so I can really only keep my remarks limited to that experience.
I think the last witness's comments were bang on in support of what I was saying earlier. We look for opportunities with our client partner to enhance the approach here, that ultimately a P3 was used. The collaboration that I referred to I think is absolutely key, especially given the highly sophisticated facility that this is—to sit down with the industry partners. There were more than 50 collaboration meetings that occurred leading up to the actual procurement commencing, like the formal bidding process, let's say, in order to achieve that. That was done rapidly within a year—it was a matter of many months—to engage each one of those partners so that they understood the need the user was looking for and we understood what their capabilities were to bring to the table.
I think that's why those proposals I mentioned I was able to see were all very exciting, addressing the needs of the facility very well. Ultimately, with the value-for-money analysis, the best one was selected. It doesn't mean any of the others were bad. They could have been successful models that could have been used as well and delivered to CSEC for the capability it required.
As I was saying, I think the procurement was very successful. On the timeline alone, that entire process was done in less than two years, which is really remarkable for a facility of this size. Then, in the construction phase as well, which was envisioned over a period of just over three years—approximately 39 months—again, for a facility of this magnitude and sophistication, more than 70,000 square metres, that's a remarkably fast delivery from shovel in ground to full occupancy.
As I mentioned, there are very sophisticated tools being used to track the progress, etc., and manage the project. So when I said to you that it's on time and on budget, that's very much an informed and confirmed statement I'm making. Part of our management process is to ensure that's happening.
Overall, I think this particular project is proving, as far as that goes, to have been a success. Of course, somebody will, I'm sure, analyze, ongoing and at the end, looking back, whether the entire 34-year package, from procurement through to the end of the maintenance period, was successful. But we believe it will be.
First of all, I'd like to thank the House of Commons Standing Committee on Government Operations and Estimates for choosing to study the opportunities, advantages, and the effectiveness of using public-private partnerships in the delivery of federal government services.
The City of Winnipeg has found PPP or P3 projects, as they are called, to be phenomenal tools. They are not the right fit for every project, but for major infrastructure renewal, they make good sense for municipalities that need to stretch their infrastructure dollars further.
Like most other Canadian municipalities, the City of Winnipeg is faced with a pressing need to maintain and replace its critical infrastructure. At current levels of funding, the City of Winnipeg's infrastructure deficit is projected to reach $7.4 billion by 2018. Many of our roads, bridges, water and sewer systems, and community facilities require major upgrades and repairs, as they were built more than 60 years ago.
When we look at how to fund these projects, however, we come up short. As you know, municipalities are heavily reliant upon federal and provincial funding. We have few options for raising revenue outside of property taxes, fees, and permits. As members of city council, our challenge is to keep the budget balanced, maintain essential services to citizens, and reinvest in crumbling infrastructure, all at the same time.
P3s have offered one solution, allowing us to replace critical infrastructure while making wise use of taxpayer dollars. In essence, P3s allow the public sector to focus on defining the output—which may be better traffic flow or upgrading facilities—while leaving it with the private sector to provide the most productive way to deliver these outputs. From the city's perspective, P3s have four major benefits.
One, P3 projects provide the City of Winnipeg with long-term budget certainty, as all costs are determined up front.
Two, P3 projects encourage contract discipline, since there is no benefit to the contractor from incurring cost increases.
Three, P3 projects provide maintenance guarantees. City-owned assets will be turned over to the City of Winnipeg in good condition 30 years after the project is completed.
Four, P3 projects encourage innovation. Contractors are motivated to complete the project in the most efficient and sustainable ways, as they have responsibility for the long-term maintenance.
City of Winnipeg taxpayers have benefited from the P3 approach on several projects. The Chief Peguis Trail extension project, for example, marked the first time a Canadian municipality received a PPP Canada grant, and positioned Winnipeg as a municipal leader in P3 projects. This project involved extending a four-lane divided roadway for nearly four kilometres.
Completed on budget and one full year ahead of schedule, the Chief Peguis Trail extension project provided Winnipeg residents with early access to a roadway that took through-traffic off residential streets and onto a major thoroughfare. The project also included the construction of landscaping, multi-use pathways to encourage walking and cycling, and noise walls and berms to reduce traffic noise. This was a $108 million project. The design-build-finance-maintain approach is expected to bring value-for-money savings of approximately $31 million compared to a traditional procurement. Remember, the City of Winnipeg will have no maintenance risk on this project for the next 30 years.
The Chief Peguis Trail extension was named the province's best managed project for 2012 by the Project Management Institute of Manitoba.
This year, the City of Winnipeg is seeing the same success with the Disraeli Freeway and Bridges project, the city's largest bridge project and a P3. This major roadway connects the northeast part of the city of Winnipeg with downtown. Approximately 42,000 people travel these roads and bridge structures every day. One of the project’s major successes involved keeping four lanes of traffic open during all peak travel times during construction.
This new infrastructure will have a life of 75 years. By choosing to develop the Disraeli project as a P3, the city has been able to protect taxpayers from cost overruns, update a critical piece of aging infrastructure, and ensure that a well-maintained asset is transferred back to the city in good condition after the 30-year term. An independent, value-for-money assessment of the Disraeli Freeway and Bridges project determined that the City of Winnipeg will save approximately $47.7 million as a result of the P3 approach.
So when is a P3 not appropriate?
They’re not the best choice when the municipality already has a good track record of delivering projects of similar size and scope. In essence, a P3 is like an insurance policy: a premium is paid and the risk is transferred. If the risk transferred is greater than the premium, this represents positive value for money.
As you likely have gathered, the City of Winnipeg brings in a third party to assess the value for money in order to ensure that a P3 is the right choice.
I hope I have demonstrated the value the P3 model offers the City of Winnipeg. Our citizens gain from new infrastructure and from the cost certainty that P3s provide. We should never forget that it’s our public infrastructure that keeps us safe as we travel from work and back again each day. Our infrastructure forms the very foundation of our cities.
Unfortunately, most Canadian municipalities are at a tipping point. As the Federation of Canadian Municipalities has recently stated, our choice is to invest in infrastructure or stand by as the repair bills increase along with the possibility of serious infrastructure failures.
I have no doubt that in 30 years, when the future Mayor of Winnipeg takes a tally of all the major infrastructure projects being turned back to the City of Winnipeg in top condition, he or she will say, “Thank goodness for P3s.” That's why, as Mayor of Winnipeg, I will continue to be vocal about the benefits of public-private partnerships.
Thank you for having me here today.
I appreciate the opportunity to speak today about the Ministry of Infrastructure and the ministry's central role within the Ontario government to oversee capital infrastructure investment. The ministry is integral to modernizing Ontario's infrastructure, and also has responsibility for overseeing Ontario's growth planning policies and Ontario's large portfolio of real estate assets.
[Translation]
In this role, the ministry has legislative responsibility for Infrastructure Ontario, the agency of the government that manages delivery of major infrastructure projects. I should note that IO's responsibilities have increased since the June 2011 merger of the agency with the Ontario Realty Corporation, which managed the realty portfolio I just mentioned.
[English]
Well-maintained public infrastructure is the backbone of a strong economy and the cornerstone of healthy communities. But from the mid-1970s until the turn of the century, developed economies typically underinvested in infrastructure. Over the past decade, however, there have been significant increases in international infrastructure investment.
In Ontario, the province has been making historic investments in public infrastructure. In total, Ontario invested about $75 billion in infrastructure from 2004-05 to 2011-12 and plans to spend another $12.9 billion in this fiscal year.
As the province committed itself to increased investment, there was also recognition of the need to modernize our approach and reform our methodologies around infrastructure expenditures. In other words, in order to enhance economic competitiveness and improve delivery of social programs, the Ontario government updated procurement processes to get more bang for our buck.
That’s why Infrastructure Ontario was established in 2005—a single, dedicated infrastructure agency that uses the alternative financing and procurement model, or AFP, for capital projects. This model delivers value for money by involving the private sector. It leverages private sector expertise to build public infrastructure on time and on budget, letting the private sector take on the market risks that it is best able to manage. IO’s track record has proven highly successful, delivering 24 major AFP projects, virtually all of them on time and on budget, with value-for-money savings of more than $600 million.
The Ministry of Infrastructure works closely with IO in an oversight capacity. The ministry provides the policy framework, and all projects deemed suitable for AFP delivery are assigned to IO through the direction of the Minister of Infrastructure. Those AFP projects must demonstrate value for money and are procured by IO through a standardized process.
Because of IO’s track record, the Ministry of Infrastructure is expanding the use of AFP. Ontario’s long-term infrastructure plan, Building Together, was released in June 2011. It outlined a number of key initiatives, including a broad focus on improved asset management and the expansion of IO’s role. The Ministry of Infrastructure will make recommendations to the government on the procurement method and delivery of all infrastructure projects valued at more than $50 million owned by the province and for hospital and college infrastructure. Building Together also noted that recipients of provincial infrastructure funding in excess of $100 million will consult with IO to determine whether IO can assist with their procurement.
A few weeks ago the Government of Ontario submitted recommendations for the federal long-term infrastructure plan to succeed the 2007 Building Canada plan. The submission mirrored Building Together and advised the federal government to build on the establishment of the P3 Canada Fund and to promote greater use of AFPs, where appropriate, across jurisdictions.
[Translation]
Our economy and quality of life depend on the modern public infrastructure. In the current climate of fiscal restraint, it matters all the more that public infrastructure projects are well-managed to maximum impact. This committee's hearings are important in this regard, as attention focuses on the size, means and benefit of public infrastructure expenditures.
Thank you.
I appreciate this opportunity to share with you information about Ontario's approach to investing in infrastructure using AFPs, or P3s. AFP is the terminology we use in Ontario at IO.
IO is a crown agency of the government. It was created in 2005 to manage major projects on behalf of the government. It was created in response to two things: one, a very ambitious plan to rebuild the province’s capital stock, beginning with hospitals, but also the poor track record Ontario and other governments had at delivering large, complex projects on time and on budget.
Modern projects require modern delivery methods. IO works closely with the Ministry of Infrastructure. While the ministry is focused on policy, IO is focused on delivery. So we’re not a policy agency. IO is assigned the role of delivering projects on time and on budget and in a manner that’s consistent with the following principles—and these are taken seriously. They're in our enacting legislation, and my board certainly takes them very seriously.
First, the public interest is paramount. Second, there must be appropriate public control, and in certain instances—for example, hospitals—public ownership must also be preserved. Third, value for money must be demonstrable. And fourth, accountability must be maintained and processes must be fair, open, and transparent.
In the years prior to IO's creation, the province undertook a limited number of new hospitals. This compares with six hospitals, on average, per year that have been built since IO's creation. Prior to IO's creation there were problems with budgets and timelines on projects. For example, in Peterborough, Sudbury, and Thunder Bay, the hospital projects delivered using traditional methods had major challenges. The traditional delivery method was not working for the Province of Ontario.
Overall, IO has brought more than 60 projects to market, valued at $23 billion in capital construction. This is the largest expansion and modernization of social infrastructure in Ontario's history.
We've constructed state-of-the-art hospitals in every region of the province, delivering 20 health care projects at or below budget. More than 16 million new square feet of modernized space has been built. This simply could not have been done using traditional delivery methods.
IO is now working on a range of transportation projects, such as the Windsor-Essex Parkway and Highway 407 East, and IO is entering into the transit space. IO is involved in regional transit projects such as Toronto's Air Rail Link, the Ottawa LRT, the Waterloo regional LRT, and the Metrolinx projects.
The track record of IO and similar agencies across Canada is clear. A 2010 Conference Board of Canada report that assessed the performance of P3 projects executed in Canada found that large infrastructure projects delivered through public-private partnerships resulted in lower costs, quicker completion, and higher service levels. With our partners, we’re participating in a follow-up study that will be released later this fall.
I'd like to explain why our approach to P3s, or AFPs, has worked.
The first is risk transfer. Under the P3 model, the public sector establishes the desired outcome—for example, a hospital with a certain number of emergency rooms, bedrooms, operating rooms, and so on. The private sector bids to provide the building at the lowest certain cost over the entire life of the building. In this way the public sector transfers design risk, construction risk, and life-cycle risk to the private sector. It gets a building on time, on budget, and one that’s well maintained over its entire life, or it doesn't pay. This is the core of why governments ought to use public-private partnerships in certain instances. Risk is transferred and public payments are conditional on performance.
Each of our infrastructure projects undergoes a rigorous third-party value-for-money assessment to determine if the P3 model offers better value than traditional procurement. Infrastructure Ontario's value-for-money methodology was developed by a group of external and government experts and has been independently reviewed by a professional consulting firm and Ontario's internal auditor. These experts have found that our methodology is sound and yields fair and accurate results. We don't use alternative finance in procurement to deliver a project unless a value-for-money assessment establishes that this methodology makes sense.
For procurement, an important part of our methodology has been the development of a standardized and efficient procurement process. It has shortened the procurement timeline, lowered bidding costs, streamlined the project delivery schedule, and promoted competitive tension between bidders. This sort of efficiency is good for the bidders, and it also translates into more competitive bids and lower costs for government.
Finally, concerning transparency, we make every effort to ensure transparency and maintain accountability throughout our procurement process via regular public updates at each procurement stage and through the release of key documents, including detailed project agreements and third-party value-for-money assessments. Each procurement is monitored by a third-party fairness monitor to ensure an open and fair process.
In a nutshell, partnerships with the private sector can be an extremely effective means of delivering large and complex projects in a way that avoids many of the issues that arose with traditionally delivered projects, such as cost overruns and poorly maintained facilities. Ontario has been an extremely attractive infrastructure market over the last seven years because we are viewed as a leading jurisdiction in which modern, efficient, and fair processes are used to deliver public infrastructure assets.
Thank you again for the opportunity to appear before you.