Canadian Lawyer InHouse

February 2015 30 INHOUSE I n d u s t r y S p o t l i g h t procurement] works, and there is a benefit to risk transfers. It is misleading to talk about the cost of private finance without also considering the value of risk transfer," says Marni Dicker executive vice president, general counsel, and corporate secretary at Infrastructure Ontario, the Crown corporation that helps Ontario modernize its infrastructure and real estate. Canada is already one of the biggest global markets for public-private partnerships, where a consortium of private firms get together to bid for a government project. And unlike traditional infrastructure development, where the builder hands over the keys and walks away when construction ends, the consortium may commit to maintain or operate the finished facility over a period that could last 40 years. Ottawa now requires buyers to review ev- ery project valued at more than $100 million to see if it's suitable for a P3 before it chips in with any federal funding. But the P3 model is supported across political lines. "It's a way of depoliticizing the planning and procurement process," says Dana Porter, a partner in Stikeman Elliott LLP's commercial real estate practice and co-head of the firm's public-private partnership/ infrastructure group. "Once you've signed the project agreement . . . it's very difficult for a government sponsor to get out of it without a huge expenditure. It reduces the risk that you are going to have a 180 degree about face by some politician about to score points." Of course a long-term P3 project imposes very different risks and challenges than does a conventional construction plan, and complex contract details bear those risks and what happens if things go wrong. Technology will obviously change over the lifetime of a project, as can political priorities, and different participants are involved at different times of the build/ operate/maintain cycle. Third-party lend- ers keep a close eye on things, which adds a level of discipline that may be lacking in other circumstances. "Most risks can be categorized," says Ilan Dunsky, a Montreal-based partner at Dentons Canada LLP, who focuses on infrastructure, P3s, and energy. "At a 10,000- foot level you can categorize a risk — default by private partner, default by authority, risk of a problem that is nobody's fault." P3 contracts are now relatively standard- ized within Canadian jurisdictions, and knowing what's going to be in a document reduces the legal costs. "Our project agreements are very comprehensive," says Dicker. "They are heavily templated in the sense that the market knows our contract, they know the deal, they know how we transfer risk. Every one is unique and may have its own nuances, but it's not a white paper every time we do another P3. There are no surprises. It's relatively easy for bidders to understand what they should price." Dicker recently surveyed the most senior lawyers in Canada's P3 space about possible changes to Ontario's P3 contracts after a decade of operations in the field. The final question was a catch-all: "What should Ontario look at now?" The results were gratifying, she says. "They have provided a really good amount of input into our documents, but surprisingly it seems that we've got it right. There were no outliers who were saying 'The contract is wrong,' or 'Your section on something is incomplete.'" The overall message, she says: "You've really got it right. Think about these few tweaks, but you are there." Dicker moved to Infrastructure Ontario in 2013 after 14 years at SNC-Lavalin Group Inc. She says it's been something of an eye-opener. "Coming from private sector you looked at how you can mitigate the risks that are being transferred and whether they are risks that you are willing to absorb," she says, admitting she always had the feeling that government was trying to offload all risks to the bidder. "You always want to win a project, but it's better to lose a project if you are going to lose money. Wearing that hat was one of my main functions in the private sector. Knowing when to say no, or knowing when to say yikes." "Now that I am in government . . . I see that my prior thoughts were wrong. Government tries to determine who is best suited to absorb risk. Government worries about the cost of risk transfer. It is some- times better to keep the risk and not have private sector price it." That concept will be important as gov- ernments shift other areas of infrastructure construction, maintenance, and renewal toward P3, including potential projects in transportation, waste disposal, or water pu- rification. Digging road or subway tunnels, for example, adds a new level of risk in that builders must relocate underground utili- ties, and they may not know precisely where those utilities lie when they submit their bid. "Under a conventional model the government co-ordinates with the utility to move all that, but under the P3 model the government asks the private sector to take the risk," says Swartz from Aecon. "Many contractors have been burned around the world where they had inordinate costs in utility relocation that were not properly '' '' at a 10,000-foot level you can categorize a risk — default by private partner, default by authority, risk of a problem that is nobody's fault. ilaN duNSky, dentons Canada llP

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