Delivered as Promised

TEXT David Steiner

In 2005, the Ontario government changed its approach to building large provincial infrastructure projects. The traditional stipulated-sum contract between owner and contractor was replaced with a program to use private-sector financing–often referred to as public-private partnerships and known as Alternative Financing and Procurement (AFP) in Ontario. The provincial agency Infrastructure Ontario was created to implement this program. There were two main reasons for the shift in procurement models. One was to transfer the inherent risks involved in construction and operations to the private sector, which can manage them best. Change orders, scope creep, delayed decisions and disorganization have often ensnared large infrastructure projects, caused delays and made projects go over budget. In AFP projects, the theory is that if the scope and intent of the building is clearly set out, the private sector will deliver the building on time and on budget. 

The second reason is to use private-sector innovation to produce projects that are more efficient and cost-effective than the government could have realized through a traditional method of project delivery. In a stipulated-sum contract, an architectural team works closely with a client and produces one design that is put to market and priced. The thinking goes that in an AFP project, the owner will get three solutions, produced under competitive pressure, where the likelihood of cost and design efficiencies are much greater. And because the facility design is the largest driver of project costs, the architect sits at the centre of this project delivery model.

Scope

Architects have one of two roles in AFPs: they can work for the owner and produce a set of detailed guidelines, or they can work with a contractor, designing the building and administering the contract. Though a firm can bid on both roles, conflict of interest prevents it from providing both services. Here’s how it works.

An architecture firm is hired and managed by the provincial agency Infrastructure Ontario, which works with an owner/sponsor, such as the Ministry of the Attorney-General (courthouses) or a hospital. The firm will create an Output Specification that includes performance criteria, specifications and a set of preliminary drawings that indicates what the owner requires.  The Output Specification will become one part of the overall agreement between the owner and the consortium that eventually constructs and maintains the building.

Developing these documents takes about a year. When this package is ready, Infrastructure Ontario will release a Request for Proposals (RFP) to three pre-qualified consortia. Each team consists of a developer, who is the overall team lead, a contractor, a lead architect (along with a battery of consultants) and a facility manager. During the RFP period, each of the three teams develops a design based on the indicative drawings and specifications the compliance architect prepared. Design drawings, taken to a level of 50% design development, along with a fixed price for construction (including financing) and 30 years of maintenance, form the basis of the bid. 

The AFP design and bid process is substantially more involved than a conventional competition.  Each team has design sessions with the owner and compliance architect to ensure its design meets the owner’s expectations. Fairness in the bid process prevents coaching the bidders. For example, an owner is not permitted to say a design would be stronger if an elevator bank were moved to the other side of the corridor and two courtrooms switched positions. Only direct references to the Output Specifications are permitted, and instructions are limited to telling a firm if its solution, or parts of it, are compliant. 

Infrastructure Ontario, along with the owner and compliance architects, will review the submissions, the price, and the technical capacity of the contractor and facility maintenance provider with points awarded for each. The bidder with the highest score is invited to enter negotiations with Infrastructure Ontario and the owner. Negotiations are typically focused on resolving design issues without adjusting the price. Only now will the owner openly discuss specific design modifications to make the submission compliant. 

Bidders are required to hold their price for about five-and-a-half months. During this time, all design and financial issues must be agreed upon with the highest-scoring team. It falls to the architect to do much of the work to reach a satisfactory design. Under the developer’s guidance, the architect will produce revisions to meet the owner’s requirements without adjusting the price. Once the owner is satisfied, the parties work toward closing the deal and starting construction.

The main difference between AFP projects and a conventional delivery model is who pays and when. Unlike conventional design-build projects where the owner pays the contractor monthly once a project is under construction, under the AFP model, the project is funded by private lenders. Consequently, the contractor and architects are under enormous pressure to meet their self-imposed deadline. In its bid, the consortium specifies a date to turn the building over to the owner. On this date, money is paid by the owner to the consortium for the first time–usually three to four years after the RFP was released. Miss the date, referred to as “substantial completion,” and significant interest penalties accrue.

Transferring risk–design, schedule, budget–from the government to the private sector is the heart of this procurement model. While the private sector cannot borrow at the same rates as the province, the government benefits from transferring to the private sector many of the typical risks on a large infrastructure project. The government also gets certainty that the hospital, courthouse, highway or detention centre will be delivered on time, on budget, and free of technical problems. This benefit is referred to as Value for Money: added upfront costs are recouped by avoiding the often higher cost of traditional project delivery pitfalls. 

Risk–Compliance

Architects assume various risks depending on which side of the project they are on. For compliance architects, the main risk is identifying when the project’s scope is expanding beyond their contract and obtaining the owner’s agreement on what is a valid extra. An unconventional product makes it difficult to accurately gauge the amount of resources required–schematic drawings, performance criteria, review of bidders’ work for compliance, transactions with municipalities for site plan approval. The compliance architect’s contract is a fixed fee, and the province typically wants them to take the risk for estimating the amount of work involved. 

Still, an AFP compliance contract is significant and will run for a few years. An additional benefit is the limited liabilities. Compliance architects do not stamp any drawings or specifications. While they are professionally responsible for producing quality documents that can withstand scrutiny from multiple architecture and construction firms, liability for the building’s technical performance resides with the bidder’s designer.

Risk–Project Company

For architects working on a bid team, there are risks similar to any business pursuit and there are associated costs if your team doesn’t win. The two unsuccessful teams produce 50% of design development drawings and specifications, and Infrastructure Ontario pays them an honorarium that typically covers a percentage of the overall bid cost. All bidders will agree it is crucial to be very selective in the team you join because much of the outcome is based on your team members’ abilities. Selecting the best possible partners is of paramount imp
ortance. Many factors, outside the architect’s design and fee, weigh heavily on the outcome: facility management pricing, construction pricing, lenders’ terms. Nevertheless, the biggest chance of success lies in producing an outstanding design based on first principles–maximum efficiency without compromising the intended function. 

Design

The province wants three compliant submissions in every AFP competition, where compliance means a design meets a minimum quality threshold. In theory, if all the proposals are of acceptable quality, then price will decide, maximizing the benefits to taxpayers. This is different from a competition where the lowest bid wins. In the AFP process, an exceptional design that is competitive in price (though not the lowest bid) could win since scoring is based on total points awarded in the bid evaluation. Should a bidder submit a design that falls below a minimum design threshold, its bid is not considered.

As such, the architect is squeezed between two opposing forces: keeping costs low by steering closely to the minimum compliance threshold, and producing a design that will impress the evaluation team. Not an easy task. The contractor or developer–who is almost always paying the architect–wants to keep a tight handle on the design, ensuring a low price. At the same time, the owner and compliance architect have written an indicative document that sets a standard to achieve high quality.

Sheena Sharp, president of the Ontario Association of Architects, calls it “falling alive across the compliance line,” implying that a minimal offer is enough. This sentiment may be pervasive among the architectural competitors; however, the projects that have been completed or that are underway don’t necessarily indicate it is true. The best example is St. Joseph’s Healthcare Hamilton, Margaret and Charles Juravinski Centre for Integrated Healthcare, in Hamilton. On a steeply sloping site, Cannon Design came up with a scheme that was substantially more efficient than the indicative design in terms of area, travel distance and energy consumption. These factors generate all other bid prices–construction cost, financing, maintenance fees–resulting in the most competitive solution. The size of this hospital project and the sloped site perhaps allowed greater design flexibility than a more urban location. Still, a calculated risk during the design stage can generate a large payoff when the bids close.  

Future

A quick look through Infrastructure Ontario’s website highlights many larger firms as the architect on winning bids. The AFP process favours groups that can mobilize a lot of resources and organize big production teams. Smaller offices still compete and often partner with other architects to provide the widest variety of expertise. Small firms that specialize in a niche–clinical-care design, barrier-free design, a specific building type like police stations or courthouses–are a valuable part of a successful bid. Large infrastructure built under the AFP model is undoubtedly a difficult game to compete in, but a design firm with strong and reliable track record is in a good position to parlay this into more. CA

David Steiner works for Infrastructure Ontario and as a freelance writer.


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