Alternative finance is gaining traction in North America on "social infrastructure" projects such as public health-care, education and justice facilities. Their key focus is maximizing long-term life-cycle value.
The nearly complete $426-million expansion of two central British Columbia hospitals, the largest health-system investment in the Canadian province's interior, is the result of a finance partnership between the public Interior Health Authority and the private Infusion Health consortium.
Team members include European P3 veterans Bilfinger Berger Project Investments (BBPI) and John Laing Investments, which invested equity and raised bank debt to finance all but $50 million. Canadian firms Graham Design-Builders, Stantec and Black and MacDonald Ltd. are the contractor, designer and facilities manager.
BBPI President Damian Joy says Infusion Health financed the project through construction and will receive payment for the buildings only when they become operational, adding that the owner "has the right to impose payment deductions if areas of the hospitals are unavailable or support services are not performed as specified" during its 30-year operating period. The P3 approach is set to save about $25 million over traditional construction.
Early involvement
Facilities team members came in early. "As assets achieve mature status, it will be telling if the private sector has done a good job in predicting operating costs," says Steve Fleck, Stantec vice president and P3 practice leader. He notes that, in Canada, hospital maintenance costs are usually deferred in favor of patient care.
Stantec CEO Robert J. Gomes says P3 projects are "attractive to us as designers" because they are typically high-profile and substitute performance standards for set design rules, allowing for more innovation. "The design team can develop a better product with new designs, materials, etc. without being required to go through a litany of approvals," he says, noting the strong focus life cycle costs. "We can make some very innovative changes that have a huge impact on the O&M side of the facility which has a must larger impact on the final cost than just the capital cost," says Gomes.
Dave Corcoran, contractor project director, says, "We gave them a price in 2008 and delivered at the costs we gave them. We actively manage user groups. It's our risk. In health care, technology changes rapidly, which changes criteria for the building." Participants had to give up usual conventions, solve problems together and decide who would share in the costs. He says about 75% of issues were resolved at the site level. "We never went to formal dispute," says Corcoran. "That's incredible on [these] complex buildings."
Interior Health project director Normal Malanowich says the owner has found "incredible value for money in P3 for hospitals." She notes the ability "to transfer risk to those best able to manage it." Adds Malanowich, "we are guaranteed a high quality standard for the hospital, guaranteed cost and maintenance for 30 years, wiithout having to balance that against our other needs."
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