P3 Projects Use Less Contingency Per Infrastructure Ontario Report
Posted in P3s

This is the second of two posts about the recent Infrastructure Ontario 2015 Track Record Report.

As mentioned in the earlier post about Infrastructure Ontario’s 2015 Track Record Report, 98% of the infrastructure projects procured through the agency’s Alternative Financing and Procurement (AFP) program have been delivered on budget.

The report considers a project on budget if its final project cost (awarded contract amount plus utilized post contract contingency) was less than or equal to the awarded contract amount plus the budgeted post contract contingency set at financial close.  Whether a project has been delivered on budget therefore depends on the degree of post contract contingency utilization.

The purpose of post contract contingencies is to mitigate the risks associated with construction.  The intent is to include sufficient funding within the project budget to account for non-discretionary changes and to manage risks that are retained by the Province during the project.  Post contract contingencies are not intended to address client-initiated changes to scope (discretionary changes).

Forty-four of the 45 projects delivered using Infrastructure Ontario’s AFP model were found to be delivered on budget.  This means the post contract contingencies for these 44 projects were not fully utilized by substantial completion, which is indicative of Infrastructure Ontario’s ability to manage changes during construction while still achieving the original project scope.

The majority of the AFP projects analyzed in the report (30 of 45 projects) utilized less than 50% of the budgeted post contract contingency.  One project exceeded the allocation by 0.2%, while another utilized 99.5%.  Both of these projects were procured using the Build Finance model, wherein design risk is retained by the Province.

When the utilization of post contract contingency was broken down by AFP procurement model, it was found that Build Finance projects had the highest rate of utilization.  The report noted that this was unsurprising since the Build Finance delivery model is the most similar to a traditional project delivery model.

AFP procurement models that include a design component (Design Build Finance and Design Build Finance Maintain, which transfer the risk of design-related changes to the project company) saw reduced post contract contingency usage.

The report noted that the low utilization of post contract contingency budgets on AFP projects could be credited to upfront due diligence, project management controls exerted by Infrastructure Ontario, and the risk transferred to the bidders.

A full copy of the 2015 Track Record Report, including a more detailed discussion of post contract contingencies can be found here.

The first post regarding the Infrastructure Ontario 2015 Track Record Report can be found here.

  • Frank  Liu

    Frank Liu helps public agencies use innovative procurement methods to deliver highly complex and large-scale airport, highway, bridge, tunnel, transit and social infrastructure projects.

    His work spans every step of the ...

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