March 4, 2009
Port Mann P3 deal falls through as province turns to design-build contract
The B.C. government made a huge policy u-turn on the new Port Mann Bridge project by changing from a public-private partnership to a more traditional procurement model.
The province will now fully finance the design-build construction contract for the 10-lane super bridge.
The decision was announced after the government failed to finalize a deal with the lead proponent for the P3 contract.
For several months, Macquarie Group was having difficulties securing financing.
The global economic slowdown was behind the financing difficulties.
The government expected to reach a deal, but was forced to announce last week that negotiations between the province and MacQuarie collapsed.
The MacQuarie group was part of the Connect BC Development Group, which also included Transtoll Inc., Peter Kiewit Sons Co. and Flatiron Constructors Canada Limited.
“Over the past several weeks, negotiations continued in good faith with Connect BC Development Group,” said Larry Blain, Partnerships BC CEO in a letter dated Feb. 24 to Transportation and Infrastructure Minister Kevin Falcon.
“Despite these proceedings, a mutually satisfactory agreement could not be reached and more time will not alter this. Therefore, I recommend that this negotiation be concluded.”
The government announced on Feb 27 that it is entering into a fixed-price contract with a joint venture of Peter Kiewit Sons Co. and Flatiron Constructors Canada Limited.
The group will design and build the new, 10-lane Port Mann Bridge and Highway 1 widening at the previously agreed upon cost of $2.46 billion.
“The Port Mann/Highway 1 project has always been a certainty, but what was to be confirmed was the best way to finance it,” said Falcon.
“We have determined that a traditionally financed arrangement is the better way to proceed at the current time.”
The B.C. government reached an agreement-in-principle with Connect BC Development Group on Jan. 28, for construction of the project.
A few weeks before this, Macquarie was granted a one month extension to get their financing finalized.
The deal and final costs for the project should have been finalized in March.
The financial arrangements for the project, which were supposed to take the form of a public-private partnership, were originally scheduled for completion in early January.
Despite this, the government insists that the financial arrangements were not the problem and the negotiations broke down due to a lack of agreement on final terms.
“We said from the beginning that this was a very challenging capital market environment and that executing the project would involve complex negotiations,” said Falcon.
“Unfortunately, the parties could not agree on final terms. Partnerships BC recommended not to proceed, and the province and Connect BC have mutually agreed to end the P3 procurement process.”
Even though the parties were unable to agree on final terms, the government has retained Macquarie to provide advisory services including financing and tolling operations.
Despite the lack of arranged financing, an official ceremony unveiled the bridge’s new design and marked the start of construction. Earlier plans had called for the twinning of the existing bridge.
During the ceremony Falcon and Campbell talked about the benefits of using a private public partnership, such as the transfer of risk, innovative design, financing and the maintenance of the project over its life.
The project was supposed to be financed entirely by Macquarie, which is Australia’s largest investment bank.
However, construction on the new bridge actually started in August with geotechnical work, drilling, planning, detailed design, utility works and environmental permitting.
The fixed-price contract with Kiewit-Flatiron is designed to ensure cost overruns or construction delays are the responsibility of the contractor.
The 40 kilometre Port Mann Highway 1 project consists of the construction of a new Port Mann Bridge and widening Highway 1, as well as upgrading interchanges and improving safety and access between McGill Street in Vancouver and 216th Street in Langley.
The project should be complete by 2013 and is expected to create 8,000 jobs.
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