Renewable projects are generally structured to require project financing. This results in the formation of a new legal entity. The new company has no track record or financial history and that of its founders, while valuable, is not often provided as a covenant to lenders.

The value of the project is in the Power Purchase Agreement. This agreement establishes the appetite, rate and term for the power. This is the covenant to which the lender is most sensitive. If it’s a government-related entity, the project stands a chance.

The assets have no value in these types of deals. They can’t be repossessed and have no resale value of note. Their value lies in the ability to operate under an existing contract, so it’s important that they operate. Warranties and performance guarantees are critical to moving a project from profitable to fundable.

The debt service level is critical—cash flow should show the ability to service at least the required debt load, so that if the system performs below expectations there’s still enough revenue to support the debt payments. One way to help make a project fundable is to give the lender access to the revenue before it’s realized by the operating company. This is referred to as a “lockbox” or “sweep account.”

To move a project from profitable to fundable, the debt lenders must have the following:

• Enough security to cover them in a worst case scenario;
• Third party step-in operators that can run out the contract on their behalf if necessary;
• Equipment suppliers with the ability to fulfill their warranties;
• Sufficient cash flow to cover their payments; and,
• Take-or-pay contracts with government-grade customers.

In many cases, it becomes more cost-effective for equity to build and operate the generating asset for a few years until it has an operating history. As many of the unknowns become known, it’s more likely that the project can be eligible for refinancing.

Fidel Reijerse is the president of RESCo Energy Inc.

Toronto’s Gardiner Expressway (reimagined in this rendering) represents the type of infrastructure many of our biggest cities are struggling with; it also represents the opportunity most cities are ignoring. Credit: Quadrangle Architects Ltd.

Greying transportation infrastructure in Canada’s biggest cities means an opportunity to create something green in its place.

If only it were that simple. Tearing down an existing structure means wasted embedded energy and materials; leaving it intact means potentially failing to solve a problem that has been created by its very physical presence; overhauling it completely can lead to years of ongoing construction, escalating costs and noise and air pollution more offensive than the original piece of infrastructure.

Even so, the majority of elevated expressways in North America, built in the 1960s and 1970s, need to be upgraded or replaced. In several cities, elevated transitways have become grey monstrosities.

Proposals for more sustainable alternatives have been put forward—but sustainable has to be more than “green.” A solution has to include more than parks and bike lanes. It has to consider and retain the service the existing structure provides, while at the same time solve some of the problems it causes. In some cases, it’s a physical or visual barrier, dividing communities; in others, it’s a financial or environmental drain. These and other factors have to be considered. Otherwise, as Pulitzer Prize-winning architecture critic Paul Goldberger warned at a recent event in Toronto, “You can end up with a weak, almost insipid alternative; a green scar.”

The solution the City of Boston chose 30 years ago for its grey monstrosity, the Central Artery, resulted in one of the few true megaprojects in North America: the Big Dig. They buried the raised expressway, replacing it with a tunnel and pedestrian-friendly boulevard, and created a new construction term. When dealing with their own , clunky, aging infrastructure, at least two of Canada’s biggest cities are now asking, “Should we ‘Big Dig’ it?”

Credit: Serge Maheu (sergemaheu.com)

Toronto’s Gardiner and Montreal’s Turcot were completed in 1964 and 1967 respectively and, as they reach the end of their useful lives, they’re eating up more of the municipal budgets each year in maintenance. The Gardiner costs Toronto between $6 million and $10 million annually in repairs. In 2007, according to the ministère des Transports du Québec (MTQ), no less than 500 interventions were needed to maintain the 13 elevated ramps that support the Turcot, costing the MTQ $12 million. In 2008, major reinforcement work on the La Vérendrye ramp that links the Turcot to the Champlain Bridge took the maintenance bill for that year up to $22 million.

Over the last ten years proposals have been put forth for both structures that range from creating massive parklands to levelling the structures and starting from scratch. Should Toronto continue to maintain the Gardiner Expressway? And likewise should Montreal work with its existing Turcot Interchange? What lessons can these two cities learn from Boston’s 16-year construction-athon?

Shovels in the ground

Back in 1985, the Boston Transportation Planning Review Board acknowledged that the elevated Central Artery was a physical and physiologically divisive element and proposed that the City replace it with a tunnel. The tunnel was meant to reconnect downtown Boston to its waterfront by creating a boulevard filled with parks, trees and cafés. It was the Big Dig. Those words, instead of inspiring sustainable city planning, are now associated with escalating costs and unforeseen construction dilemmas.

Initially estimated at US$2.85 billion in 1985, by 2006 $14.6 billion (equal to $8.8 billion in 1985 dollars) had been spent by the federal and state governments. When Massachusetts finally pays off the structure, estimated for 2038, it will have paid more than $7 billion in interest, bringing the costs of the tunnel to more than $22 billion.

Construction on the tunnel finished in 2007 and restoration work started on the boulevard. Only now will residents start to find out if the expense and incidents (like leaking walls and a tunnel collapse in 2006) will pay off in the form of a greener and more efficient city.

If Toronto or Montreal goes the Big Dig route, these cities can learn from Boston’s mistakes. According to the Federal Highway Administration (FHWA), Boston didn’t include inflation in its initial estimates, but it represents about 55 per cent of the project’s cost. The project was also plagued by delays. The FHWA recommends the use of incentives and disincentives on massive infrastructure projects to help minimize the number of delays. Partnering is even better. Long-term public and private partnerships with attainable mutual goals are key elements to project success. Boston has been criticized for poor oversight on the project, which may have contributed to the faulty construction.

Before those mistakes can be avoided, a decision has to be made about whether these two megastructures deserve to be demolished. The jury has been out for at least a decade, especially when it comes to Toronto’s most talked-about roadway.

The future of transportation infrastructure belongs to pedestrians, bikers and motorists alike. Credit: Quadrangle Architects Ltd.

The Gardiner Expressway

The Frederick G. Gardiner Expressway, or the Gardiner as it’s known to Toronto residents, connects the western suburbs (and beyond) to Toronto’s downtown core. It extends from the eastern limit of the Queen Elizabeth Way, cutting through downtown Toronto and connecting to the Don Valley Parkway, which delivers drivers to the Highway 401 artery.

Every day, 200,000 people commute from the suburbs into the city on the Gardiner, their only connection to the city.

As much as it’s a connector, it’s also been called a barrier. The popular argument has been that, like Boston, Toronto’s city centre is cut off from its waterfront. Recent construction of tall buildings starting at York Street and moving west has further cemented the barrier, and, as construction of the mostly residential towers continues, the visual barrier grows.

Toronto-based Quadrangle Architects has proposed the much-publicized Green Ribbon as a fix. The idea is to recycle the existing Gardiner and add another layer, an elevated park space, atop it. This plan would close in the traffic with noise barriers, create parklands above the driving avenue with walking paths and bike lanes surrounded with low grasses and shrubs, and toss in some wind turbines and solar panels for extra “sustainability.”

Not everyone thinks drawing attention to the Gardiner is the solution to this ongoing dilemma. An architect with HOK in Toronto writes online that Klein’s proposal “makes what is a barrier even taller.”

Klein says the Gardiner is only an eyesore (perceived as a barrier) because it’s been ignored for 30 years. “It’s been allowed to decay,” he says. “But in some places you can still see how magnificent it once was. When it’s 60 feet in the air, that’s not a physical barrier.” But Les Klein with Quadrangle says the Gardiner is only a physical barrier when it’s at grade. His claims are backed by the Gardiner Expressway Transformation Study, completed by Calvin Brook and John van Nostrand in 2003. The study found that, if anything, it’s the area beneath the Gardiner that acts as a barrier. Given that, Klein says the proposal to add 12 lanes of traffic at grade is “sheer folly.”

Toronto doesn’t necessarily have to look to Boston’s example to see what it really means to take down a piece of infrastructure. According to Klein, the next phase of demolishing the Gardiner would costs an estimated $300 million, and the total estimated cost of flattening the expressway would be around $1.5 billion.

The total cost to build Klein’s Green Ribbon, including only basic upgrades, would be upwards of $600 million. There are other studies that have made recommendations for more dramatic improvements to the aging structure, like reorienting and relocating some of the ramps. Klein says that might add another $300 million or so to the total cost, but it would still be less than big-digging the expressway.

The Turcot Interchange: blame it on the rail yards

Just as the at-grade section of road under the Gardiner suffers from divisive, grey rail yards, Montreal’s Turcot is also tied to those desolate spaces. In fact, the structure is named for the original rail yards below it. And, just like the Gardiner, the Turcot has its share of fans, architects and urbanists who appreciate it as an example of Modernist architecture and a grandiose achievement of ambition.

Ken McLaughlin maintains a blog about walking the area around the interchange. Just as Klein admires the Gardiner in part for its extraordinary height, McLaughlin is drawn to the Turcot because of its size.

The Turcot, which connects the Montreal area’s major expressways, the 15, 20 and 720, and is a vital link to the airport and downtown, was completed just before the World’s Fair, Expo 67 as a symbol of Montreal’s status. Over forty years later the stacked interchange is falling apart and needs to be either rebuilt or reimagined.

Initially, MTQ’s goal was to leave the footprint of the highway as is and reduce the number of raised structures. Instead the decision was to build at grade or on embankments and increase road capacity. MTQ, the governing provincial transportation body, felt this was the most sustainable solution, as it respected the environment by reducing the amount of land covered and it had the shortest construction time, which meant it was least disruptive to traffic and more cost-effective.

The $1.5-billion project made it to number ten on ReNew Canada’s 2010 Top 100 Projects list, but this solution has since been turned down by Quebec’s environmental agency, BAPE, for being too expensive and not providing a viable solution.

One of MTQ’s main assumptions was that cars six years from now would be much more efficient than they are today. Even if this holds true, increased travel demand means air pollution would only decrease by about one per cent, says Jochen Jaeger, joint author of Montreal at the Crossroads: Super Highways, Turcot and Environment. Jaeger says the MTQ’s proposed solution is too traditional and doesn’t account for reconnecting neighbourhoods, promoting transit or protecting the environment.

Back in 2007 when the initial plan was announced, Line Hamel, leader of Montreal’s primary opposition party, Vision Montreal, said that tearing down the Turcot to build another one alongside is a lost opportunity. For one thing, many have asked, “Where’s the transit?”

There’s also a chance to protect—while at the same time making a feature of—an area of wilderness that would make Toronto’s ravine look like nothing more than a sizable backyard. The Falaise St. Jacques runs from the Turcot Interchange in the east to Angrignon in the west, and plans for the Turcot put it in danger.

Montreal-based non-profit Les Amis de Meadowbrook is rallying support for a Trame Verte that would link up the Parc des Rapides, Douglas Hospital grounds, Angrignon Park, the Falaise, and Meadowbrook, creating a green belt in southwest Montreal with Patrick Asch of Heritage Laurentien. Residents of the west and southwest would then be able to use bike paths, cross country ski trails and walking trails.

Possibilities

Solutions for the cities need to consider factors like the Falaise—a plan that doesn’t consider context or work with the areas it directly effects, is a failure. Beyond environmental and social context, a solution needs to consider not just initial economic costs, but also life-cycle costs. The fact that building a new Turcot at ground level would significantly reduce maintenance costs shouldn’t be ignored.

Whatever the redesign for the Gardiner Expressway and the Turcot Interchange, it needs to consider pedestrians, cyclists, transit—and cars. The greenest, most sustainable cities will be those that accommodate all modes of transportation, build upon its strengths and redesign its weaker areas.

As for Goldberger’s caution about creating a green scar when adapting a piece of infrastructure? “I couldn’t disagree with him more vehemently. To me the idea of tearing down something of that size is so not green,” says Klein, adding that the amount of energy required to dispose of all the rubble would be staggering.

One success that doesn’t involve cement and steel carnage is New York’s High Line, an operating freight rail line from 1934 to 1980. After it opened in June, New York Times reporter Nicolai Ouroussoff wrote: “Despite the fears and anxieties of many (including me) that rapacious developers would transform the High Line into a glorified mall, it has already become—just five months after the completion of its first phase—one of the most beloved public spaces in New York.”

Sometime in the future we might be able to say the same thing about Boston. Though it’s currently challenged by cost overruns and unforeseen circumstances, the future could be bright for Boston. Residents will become accustomed to the new boulevard and life around it will flourish. And a reconnection between the waterfront and city can be found.

But is the result worth the trouble?

Klein says that adapting the Gardiner above and below isn’t as much about current plans, but leaving the door open for future possibilities. In 20 years, the roadway may become a transitway. “By tearing it down,” says Klein, “we lose all our options; we lose the possibility for things we could never imagine.”

After New York’s High Line opened, the Huffington Post called it “a brilliant reuse of space that humanizes and harmonizes the surrounding city instead of hiding it from view.” Maybe you don’t have to bury an eyesore to heal a city after all.

John Gerretsen, minister of the Environment

ReNew Canada: How will new brownfield regulations speed the redevelopment process?

John Gerretsen: The two-tiered approach allows people to use the programming that’s out there to determine what levels of decontamination are required. In some cases, this will reduce processes that used to take a year and a half to a few months.

ReNew: Does speedier development make up for increased costs that may arise out of new soil, groundwater and sediment standards?

JG: In development, time is money. Plus there’s some recognition that our past standards were too basic. We’re now using much more of a risk-based approach, so that the standard will actually be higher or lower according to the proposed use of the site.

ReNew: If the aim is to encourage intensification—which means more infill projects—then won’t most sites be for residential use and therefore be held to a higher standard?

JG: You’d have to talk to the developer regarding use on infill, but I would imagine a number of these brownfield sites will be [redeveloped] for residential use. There’s nothing that rejuvenates a community more than having people living in its centre. In a perfect world, you would actually see a much bigger focus on mixed-use development.

ReNew: In addition to the high cost of remediation, the problem for developers has been liability. For instance, who is responsible when the groundwater is found to contain toxins years later? Typically, owners are liable—a risk that can deter development. Is there anything in the new changes that addresses the problem if liability?

JG: We haven’t really dealt with the civil liability issue—we need to. Being a lawyer, I’m well aware of the fact that anyone can sue you at any time—it’s whether they can prove it that matters. I know it’s a big issue to the financing community, but the new process we’ve put in place means that, provided the Record of Site Condition (RSC) has been filed, if there are any future issue, [developers] can’t be held responsible. We’ve dealt with onsite [contamination issues] through RSC and we’re going to sit down and see if we can deal with offsite. How many actual cases have there been of significance that dealt with offsite contamination issues? Not many.

ReNew: What work still needs to be done in order to create regulations that support the safe and swift redevelopment of contaminated sites?

JG: It’s a moving target. We’ve taken some good steps. We’ve taken the liability issue as far as we can on the regulatory side and we’ve put regulations in place that have been well-received by members of the industry. We have to do more for sites that are severely contaminated, projects where taxation measures aren’t enough to allow redevelopment to take place. It may be that we have to develop a fund that works like a revolving brownfield redevelopment loan system. That’s somewhere down the line. With the current deficit situation, the Province is not in the position to do that. But for the vast majority of sites, liability taxation along with the new regulations are going to [get redevelopment started].

You can read Ontario Minister of Environment John Gerretsen’s take on the new rules here.

How clean is clean?

The most important change will be the new standards. The new Soil, Ground Water and Sediment Standards for use under Part XV.1 of the Environmental Protection Act, dated July 27, 2009, will officially come into effect on July 1, 2011. An additional 18 months is available in some circumstances, but banks and other stakeholders are already using them. These contain hundreds of changes. Most standards have become more stringent, especially in soil, and new parameters are added, such as total boron, hexane and 1,4 dioxane. This alone will make redevelopment more expensive for many sites.

Sites affected with petroleum hydrocarbons will be particularly hard hit. For example, the acceptable level of benzene in non-potable groundwater will plunge from 1,900 parts per billion (ppb) to 44. Equally important, criteria have now been adopted for dissolved hydrocarbons in non-potable water, where none existed before. Metals, chlorinated solvents, PCBs, pesticides: each group has some steep reductions mixed with some increases, especially in non-potable water.

The Ministry of the Environment (MOE) says that these increases will be partly offset by a simplified, Tier 2 approach to risk assessment, but consultants tell us that they have already found errors in the Tier 2 model.

Movement of clean soils

For many years, the MOE has talked about a Materials Management policy to regulate the movement of “clean” soils from one property to another. In the absence of such a policy, some MOE offices have argued that only “inert fill” can be moved from one property to another. Although this restrictive interpretation has rarely been followed in practice, it is now becoming the law.

This major feature of the new rules will increase costs for many construction projects, even those that don’t think they’re dealing with a contaminated site.

When the new Part XII to the regulation comes into force, every stockpile of soil will have to be separately analyzed. Only soils that have been sampled and proven to meet this new standard may still be freely transported. Soils with higher levels of contamination may only be transported to properties that are already contaminated, and were previously used as gas stations, garages, dry cleaners or industries, and therefore will always require a Record of Site Condition (RSC) before conversion to a more sensitive use. (s. 32 of the Regulation). Reports will be required to document and quantify all movements of soil on and off an RSC property. (see new s. 27 to 34 of Schedule A.) This should significantly increase the cost of disposing of surplus soils from construction projects.

How qualified is qualified?

A key theme of the 1996 and 2004 regulatory reforms was that environmental professionals, paid by the property owner, could and should bear the primary responsibility of documenting the status of contaminated sites. Ministry involvement was drastically reduced and focused on risk assessment. Canadian Standards Association standards (designed by multi-stakeholder groups heavily populated by engineers and geoscientists, and heavily reliant upon professional judgement) were accepted as the regulatory standards for environmental site assessments. QPs authorized to sign such documents were gradually limited to professional engineers and professional geoscientists, expecting that their respective regulatory bodies would ensure adequate quality control.

This has not worked reliably and now a third major set of changes will reduce MOE deference to the consulting community and re-establish a higher degree of ministry scrutiny. Reg. 511/09 makes significant “enhancements” to the RSC process: a quality control/audit process for RSC before they are acknowledged by the MOE; detailed regulatory standards for the Phase I and II Environmental Site Assessments (ESAs) that must underpin an RSC, replacing the CSA standards; and, conflict of interest rules for the QPs who must sign each RSC.

For example, each RSC will now be reviewed by Ministry staff within 30 business days. Some will have a desktop review; others will be reviewed in more detail. Defective RSCs will be rejected; acceptable ones will be “acknowledged,” and can then be relied upon. This process should improve the minimum quality of RSCs, at the cost of adding an additional six weeks. The quality of ESAs will also increase, although at a commensurate increase in price.

These “enhancements” were necessary because of a minority of environmental consultants, and the real harm that some clients have suffered as a result. Why else must a regulation bring in rules against conflicts of interest by QPs? Or specify in so much detail the steps they have to take in investigating a property?

As someone who has devoted many years to the development of multi-stakeholder environmental standards, it’s a little disappointing to see the MOE turn away from such standards. On the other hand, having spent far too much time suing negligent consultants, I am pleased to see the Ministry insist on better work from the engineering/ geoscientist community. If the professional regulatory bodies won’t control conflicts of interest and shoddy environmental work (and they haven’t), the MOE must do so. These additional specifications should better protect high quality consultants from undercutting by less careful competitors, and should help protect clients against the risk of shoddy investigations and reports.

Dianne Saxe is a Certified Specialist in environmental law and a certified mediator.

The site has evolved tremendously since it was first launched a few years ago. It now features project news, new feature articles, video, company listings for all key players, detailed project entries and a Google Map showing you the exact location of every project on the Top 100. But, stop reading this and go check it out. Now.

Typical Alliance Team Structure

If a project is successful, then the owner saves money and the contractor and the designer each get a bonus. Sound good? It’s an alliance, a delivery model that’s been gaining some momentum in Australia.

Colin James, manager for Canada with Australian design firm GHD, says alliances are a non-combative way of reaching a goal.

It starts off with an alliance team—the owner, contractor and designer. Unlike a P3, where the incentive is getting risk off your plate and onto someone else’s, in an alliance, everyone shares in the risk. You get paid the minimum for your time. If you do achieve the goals, you receive your profit margin. If you exceed the goals of the team, you make more.

The better alliance contracts include a non-sue clause. The mantra is “we all win or all lose.” Under this approach, everyone focuses on solving problems if they arise rather than blaming each other. “The only people who lose in this scheme are the lawyers, because nobody sues anybody,” says James.

Merie-Anne Beavis at Ogilvy Renault LLP says, “I had the same thought. The model does require a lot of cooperation—the intention is not to engage lawyers who will pour through contracts.”

First of all, let’s be clear, this is not a public-private partnership (P3)—there’s not necessarily any private money involved. But why not do these projects as P3s and transfer the risk?

Michael Bernstien, whose company, Macquarie, has had some experience with alliances, says, “Alliances perform best when the project scope is hard to define.” A straightforward project that’s easy to cost may not warrant this approach, but if there’s uncertainty around, for example, an area’s geology or underground infrastructure and conditions, this is a solid approach. James explains: “Typically, with projects that have a lot of uncertainty, the contractor and the zoner will hit up the owner for costs associated with design changes or delays. But with this framework if one team member encounters a problem, the entire team has a problem.”

The financials involve an open-book approach where the non-owner participants place at risk their corporate overheads and profit in delivering their project. They are guaranteed their base costs. The amount of the profit and corporate overheads they are able to gain from the project depends on how successful they have been in meeting the agreed-upon key performance indicators (KPIs).The KPIs can include cost, time, environmental, safety, and community criteria. These are agreed upon before the project starts.

James says, “Everyone shares in the risk, that’s true, but we’ve done a whole bunch across the world now and the end result has been better.”

So far, alliances haven’t been used in Canada. “It’s going to be a challenge for the first government in Canada to step up and do it because it’s generally perceived that a competitive procurement process is the way to go. It’s transparent; politically, that’s certainly the less sensitive way to go.”

The reason the alliance model took off in Australia was that the country was in dire straits. Drought conditions were severely limiting water supply—dam levels in Brisbane were down to 14 per cent. The country had to have water supply. The government in Queens legislated a completion date for a water project. “This was born out of complete necessity,” says James. “When your back’s to the wall, you do it. This type of scheme probably won’t happen in Canada until that happens—or you get some brave politician.”

Beavis says, “I think [this model] is intriguing. It turns the traditional model on its head and I think some of the principles it espouses are worth considering and could help get some large-scale projects back on track.” Particularly, she says, large-scale projects where the government sponsor doesn’t really know what it needs.

One such project, says Beavis, is Infrastructure Ontario’s (IO’s) nuclear procurement—a potentially extremely large-scale facility where the government’s mandate required the private sector to be involved in the very early stages of the design process—over 10 or 15 years before construction even started. The project has been starting and stalling for some time—the latest hiccup is the RFP’s suspension because of “concern about pricing and uncertainty” regarding preferred proponent Atomic Energy of Canada Limited’s future. “Engaging someone who has the right expertise from the beginning and then following these principles—no blame, risk-sharing—may work for a large-scale project like this, as opposed to one with more traditional specs like a hospital,” says Beavis.

“We’ve hit our stride with hospitals,” says Beavis. At least in Ontario, that’s true. IO currently has 14 hospital P3s on our Top 100 Projects list.

The provincial body is actually toying with at least one alliance principle in some of its smaller projects, such as hospitals. Once a project is up and running, IO conducts energy modelling to determine what amount of power should be used and then, to encourage the managing company to be energy-efficient, it incorporates an element of gain share/pain share.

For Canada, James sees the water sector as potentially the equivalent of what the health care sector has been for AFPs in Ontario. But he also thinks it can happen with some of the larger light-rail transit projects coming down the pipeline. A prime example: the link from Toronto’s downtown to Pearson Airport. Now that the city has won the bid to host the Pan Am Games in 2015, that link will have to be built in a hurry.

“There’s nothing like a deadline,” says James. “There’s going to be uncertainties around building that link. Instead of arguing and worrying about who gets paid, an alliance team comes together and finds a solution.”

Beavis says the principles alliances bring to the industry are well worth considering. “If it actually works and you can get the buy-in, I think this model does have the potential to get people thinking about the entire process of infrastructure renewal and P3s and perhaps revisit and rethink how it’s being done.” She says it would be a hard adjustment because industry key players are not used to an open and transparent process.

“Somehow,” says Beavis, “I think there would still be work for the lawyers.” 

Most Montrealers picture bullets flying through the streets, not bricks and mortar, at the mention of Hells Angels, but that’s starting to change.

For years, the city was plagued by a biker gang war that resulted in 164 murders between 1994 and 2002. But after a major roundup and the arrest of hundreds of biker gang members, the city has enjoyed relative peace. The crime rate has plummeted, and the murder rate is the lowest it has been 
in decades.

But while the city’s biker gangs appear to have faded away, it seems they continue to wield significant influence in the city’s construction industry, as do many other members of organized crime.

“People think that the construction industry is about two-by-fours, and big conglomerates who sell those two-by-fours, but it’s really labour-driven,” says Paul Sauvé, the owner and president of the masonry company L.M. Sauvé, which was founded by his grandfather in 1954. “Organized labour in Quebec is completely controlled by [organized crime] and I found that out the hard way.”

Sauvé says he made a deal with the devil three years ago when he approached the Fédération des travailleurs du Québec (FTQ), the province’s largest labour union, representing 500,000 members, for funding. He was told at the time he needed to get on the good side of Louis-Pierre Lafortune, the vice president of Grues Guay, the province’s largest operator of cranes, and Normand Ouimet. He made Lafortune a member of his board of directors. Sauvé found out later that Ouimet was a Hells Angels member, and that Lafortune was his childhood friend. Both were arrested in November, with eight others as part of an investigation into the masonry industry by Quebec’s provincial police force, the Sûreté du Québec (SQ). Among those arrested was Guy Dufour, 42, a representative with the FTQ’s construction wing.

SQ Inspector Denis Morin told the Montreal Gazette that Ouimet planned to create a consortium of masonry firms through “threats, intimidation and extortion.” Morin said Ouimet laundered money through masonry companies in part by paying bricklayers under the table. He then used the money to buy real estate and moved the profits from that into offshore investments. The laundered money is believed to have come from drug trafficking. The SQ continues to investigate the construction industry. It has opened several investigations into complaints of collusion at Montreal’s city hall, and influence peddling by bureaucrats. It has also created a special squad to investigate the construction industry as a whole. The Canadian Competition Bureau is helping in the investigation.

Sauvé says as soon as he found out who he was dealing with, he realized he made a big mistake. He says Lafortune took control of the company’s financial records, and tried to take over his company. Then earlier this year, when Sauvé won a $10.6-million contract to repair City Hall’s copper roof, he says he was forced to use a roofer who had ties with the Italian mafia. Sauvé says that man asked for a $40,000 bribe for two city councillors to keep that contract. Sauvé refused, and received death threats, as well as threats against the lives of his wife and ten-year-old daughter. His car was twice rammed into by another car. He travelled around with bodyguards, and one of his cranes, valued at $500,000, was burned. That’s when he blew the whistle and complained to the SQ, which is still investigating the City Hall affair. Meanwhile, Sauvé’s Montreal-based company has filed for bankruptcy. It’s one of 11 companies under the L.M. Sauvé banner.

Sauvé’s case is one of hundreds in Montreal. In fact, recent reports have come to light of an intricate bid-rigging system for contracts in Montreal, whereby a group of construction firms agree in advance on a price and which company will submit the lowest bid for each project. Industry insiders say a group of 14 companies, dubbed the Fabulous 14, receives the lion’s share of public tenders from the city. As a result, construction work in Montreal costs about 35 per cent more than anywhere else—this according to retired Transports Québec official François Beaudry.

Sauvé says political parties and organized crime take a cut of the inflated prices in order to contribute to these big political campaigns.

There is a long history of collusion in Montreal’s construction industry, says Antonio Nicaso, an award-winning journalist, a bestselling author and an internationally recognized expert on organized crime.

“This is something that has existed at least since the 1970s,” says Nicaso. “That’s why when the reports came out about this, I wasn’t surprised at all.”

Nicaso doesn’t doubt that the mob is a big investor in the construction industry, and has been for many years. It makes sense for organized crime to get into the construction industry, as it allows criminals to launder money that comes from smuggling and dealing drugs.

Nicaso says Montreal isn’t alone. There are similar ties between construction companies, the mob, and politicians in every city in Canada. The difference is that the Montreal mafia has wielded influence for much longer, since the 1940s or 1950s, so the system is much more intricate there.

Nicaso says wherever there is big money to be made in the construction industry, criminals are trying to take advantage. “Organized crime is becoming less visible, and less violent, and more involved in business. But the fact that the mafia controls everything, I don’t believe.”

Nicaso said while mobsters don’t necessarily control the construction industry, the collusion among industry players who set prices and strong-arm those who don’t follow the rules they set is similar to tactics of gangs who have historically cooperated to set the price of illicit drugs.

While bid-rigging may be good for the construction firms involved, it’s a serious problem for the industry in general, says Pierre Hamel, the director of legal affairs at the Association de la construction du Québec, which represents 15,000 construction companies.

“When collusion is accompanied by threats and physical reprisals, that’s a big problem for our members,” says Hamel. The association is offering its members legal assistance to help members speak out against collusion. But Hamel says, “The problem is no one has come forward.”

Both Nicaso and Hamel say the problem isn’t just construction companies, it’s also a political system that allows bid-rigging to take place. They would like to see a wide public inquiry into the construction industry as a whole and its connections with both organized crime and politicians.

At Quebec’s national assembly, opposition parties have been calling for such an inquiry since May 2009, but so far Quebec Premier Jean Charest has resisted. He says he’d like to wait until police investigations have concluded before going further.

Under intense political pressure in the last municipal election campaign, Montreal’s Mayor Gérald Tremblay pledged to clean up the system. After re-elected to a third term in November 2009, Tremblay announced he was freezing all non-urgent city contracts until a new, more transparent bidding process could be adopted. Two weeks later, Quebec Municipal Affairs Minister Laurent Lessard announced plans to adopt a bill by February 2010 that will give the province the power to conduct random audits of infrastructure contracts and would keep the names of contractors private until bids are opened.

There is no such plan to review the bidding process at Transports Québec, which manages the province’s major highways, says spokesperson Réal Grégoire. That’s because the process was already reviewed two years ago.

“For every contract, we have a group of experts that evaluates how much it should cost, and if bids are at least ten per cent higher than that estimate, we cancel the process and start again,” says Grégoire. “Since this was introduced, our estimates usually come within two per cent of the actual cost.”
Grégoire says he believes Transports Québec pays a fair price for infrastructure. However, his department is in the process of doing a cost analysis which would compare roadwork in Quebec to work done in other provinces.

A study by Transport Canada done in 2000 showed Quebec’s total road costs accounts for about 18 per cent of the national total, while its population in that year accounted for 24 per cent of the national average, meaning that the cost of road construction in Quebec is actually slightly below the national average. Transport Canada cautioned that the study’s figures are purely theoretical, and it doesn’t have any studies comparing the cost of one kilometre of road in each of the provinces.

Sauvé says he doesn’t think much will change as a result of police investigations currently taking place.

“They’ll arrest a few little guys to make an example, but the big guys will continue doing what they do,” he says.

Nicaso agrees. “In Canada, there is no political commitment to fight organized crime. If an 11-year-old boy is hit by a car bomb, there is a public outcry, and politicians are forced to act. But if you don’t see blood on the streets, it doesn’t mean that there is no mafia presence or activity. Actually, it’s better, because that means there’s no conflict, so they’re making more money.” 

Jason Magder is a Montreal-based freelance writer and frequent contributor to ReNew Canada.

The Alberta Schools deal is Canada's largest schools P3 transaction and Alberta's largest social infrastructure P3 (rendered here is a typical school under this approach). In March 2009, Alberta’s Auditor General announced it will look into whether P3 arrangements like this one provide value for money. Credit: Bird Construction

In September 2008, the government of Alberta awarded a public-private partnership (P3) contract to BBPP Alberta Schools Limited for its Alberta Schools Alternative Procurement Phase I project (ranked 33 on this year’s Top 100 list). This project consists of building 18 schools, nine in Edmonton and nine in Calgary.

But critics question whether a P3 provides the best value for taxpayers and whether it is the best approach for the 30-year term of the contract.

The provincial government weighed BBPP’s and other proponents’ proposals against a Public Sector Comparator to determine if the bids would provide value. Tracy Larsen with Alberta Infrastructure says the estimate included input from an independent cost consultant, an independent financial advisor, as well as economic and financial data provided by Alberta Finance and Enterprise and from the government’s own experiences with building and maintaining schools.

Larsen says based on the analysis, it was determined the P3 model, which includes 30-year maintenance for all schools, would save taxpayers about $100 million (in 2008 dollars). “BBPP’s bid was $634 million Net Present Value (NPV). The same work through traditional delivery methods would have cost taxpayers $752 million NPV. Additionally, the 18 schools would be open two years earlier (September 2010) than would be possible through traditional delivery methods wherein schools would likely be phased in over a three-year period.”

Tim Heavenor, president of Gracorp Capital Advisors Ltd., one of the sponsors for BBPP, says part of the savings come from economy of scale. “It costs less to build multiple, identical schools on a coordinated schedule than to contract each one separately.”

Heavenor says the P3 model also allowed the government to transfer risk to the contractor. “Right now is a good time for government to be transferring risk to the private sector because construction costs are a lot lower this year and companies are still willing to accept these risks.”

But Gil McGowan, president of the Alberta Federation of Labour, says, “P3 systems are a financial shell game. By getting the private developer to do the financing, the costs are moved off the government’s books, but the taxpayer is still on the hook. In fact, because no one can get better financing rates than the government, and because private developers have to build in a profit margin, it always costs more to go with a P3 model.”

McGowan says P3 developers often lowball their bids and end up coming back to government asking for bigger payments even after the contracts have been signed. “Governments are then held over a barrel because politically they can’t afford to have a school close, so they pay up.”

McGowan refers to CUPE Alberta’s 2007 study, Doing the Math: Why P3s for Alberta Schools Don’t Add Up, which bases some of its analysis on using the P3 model for the ASAP I project. The report found that for every two schools financed using the P3 model, an additional school could be built if they were all financed using conventional public sector financing.

Another contract flaw is the restrictions for the uses of the schools. “The contract is very strict in what the communities can use these schools for,” says McGowan. “They can only be used for students during the day. That eliminates the rest of the uses such as night school, a meeting place for the community, health clinics to administer flu shots, or voting stations. Had these 18 schools been built using a traditional procurement approach, then the community would be allowed to use the schools for other purposes. As it stands, the government or the developer will decide who can use the schools and for what purposes.”

Wendy Cooper, chief executive officer, Consulting Engineers of Alberta, says P3s like the ASAP I project also eliminate small and medium sized companies from competing. The honorarium the government pays to companies for preparing a request for proposals (RFP) doesn’t come close to what they might have paid to prepare their RFP. “In some cases, it can take almost a year and cost $1 million to prepare an RFP for a P3 project, and if the team loses, they don’t get that time or money back,” says Cooper. “Only the large, usually multi-national companies can afford to compete.”

Cooper also says the government needs to be careful about which financing model it uses to build infrastructure. “If the government only chooses the P3 model from now on, they have to be careful how many projects they have to make payments on for the terms of the contracts.  They can only make so many payments out of their yearly operating budget. Once they run out of money, how can they afford to build any new projects?”

The ASAP I project is the first infrastructure project for which the government of Alberta has used the P3 model. Only in 30 years time will we know if this model is successful. But one current indication of its success or failure may be the fact that the ASAP II project—14 new schools for rural Alberta—will not be a repeat of ASAP I. Due to the economic collapse of 2008 and a lack of major contractors in Alberta, the government has decided to use the P3 model only to build the ten K-9 schools and a design-build model to build the four high schools.  

Diane L.M. Cook is a Calgary-based freelance writer and editor.

The Liberals report that only 12 per cent of the $4 billion Infrastructure Stimulus Fund (ISF) fund has been spent, resulting in job losses, rather than the gains of between 120,000 and 132,000 projected by the Conservatives.

At this September’s Institute of Public Administration of Canada (IPAC) conference in Toronto, WeirFoulds’  Bradley McLellan said, “Years ago there was long-term funding; now there’s different types of funding programs that have brought forth a trilogy of announcements before you actually have your project open.”

Kennedy calls this “announce-a-rama” a smokescreen for the fact that real action is not being taken.

Standing in an undeveloped park in Burlington, Ontario soon after the release of Kennedy’s report, Liberal leader Michael Ignatieff said, “Canadians are not going to be employed by press releases.” He called the empty plot “one example among thousands where they announce something and nothing happens.”

But Grant Hopcroft, director of intergovernmental and community liaison for the City of London, Ontario, said during a session at IPAC, “I don’t think anyone who knows how this program has unfolded should be surprised at how little actual construction has taken place up to this point.”

At that same session, McLellan said, “[Stimulus funding] is not necessarily going to create jobs in the next nine or ten months. When you take on an infrastructure project, you have to do it the right way. You have to consult, procure the right people to get it done, and so on.”

Hopcroft said things have progressed as quickly as can be expected: “We had a streamlined process after the federal budget announcement in January; we [London] submitted applications as a municipality in Ontario in the late spring; those were turned around in what was, for any government mechanism given the amount of applications they had to deal with, record time; and we had announcements in early June. “

Despite questions about how public servants were able to sift through the thousands of project applications—a recent Public Service Commission of Canada audit of Infrastructure Canada found the  department is facing “a significant shortfall of staff,” and that some of the existing staff don’t meet “essential qualifications”—Hopcroft said there’s already plenty of work underway that doesn’t involve shovels. While some projects are easy to implement—“you call for an extension on your road paving contract and you can put people to work next week”—others require time for design and public consultation.

“There are a lot of designers at work,” said Hopcroft. “The folks in the consulting community are probably swamped right now with the amount of work they’re doing in terms of finalizing design for roads, community centres and so on.”

Hopcroft said it’s important to make sure municipalities do these projects right, even with a March 2011 deadline looming—a deadline that Kennedy charges will allow the federal government to “claw back” some of the funding announced for municipalities if it’s not used.

At a separate IPAC session, Canadian Urban Institute’s Glen Murray said, “This ‘shovels in the ground’ mentality means most of what’s currently being built will end up costing us more in operations.” Planning properly makes the difference between a liability and an asset. “If you build ugly and brown, it costs you money,” said Murray.

To meet the March 2011 deadline, McLellan said municipalities need to be “nimble.” Coordinating construction work with payouts from the ISF and Communities Component of the Building Canada Fund (which has a slightly longer shelf life) is the only way to make this opportunity work.

That’s apparently easier said than done: the Globe & Mail recently reported that Huntsville, Ontario Mayor Claude Doughty put thousands of dollars on his personal credit card to order steel in January for the expansion of an $18.5-million community centre.

Edmonton Mayor Stephen Mandel said that while he can’t speak for a smaller municipality like Huntsville, as long as the paperwork is done, they feel okay to start work. “We’re not worried about getting paid—we’re a big city; if it takes some time we can carry that cost.”

The rollout has been slow going, but Mandel says that’s the nature of bureaucratic process. Once a project is approved by a politician, there’s the inevitable announcement and that’s when the “process” starts.

“If politicians could write the cheques, we would,” says Mandel. “That’s not how it works—at any level. “We have a process to go through at the municipal level, too. It takes a long time to get a development permit even once the project has been approved by Council.”

McLellan said the real issue isn’t how quickly current funding is flowing, rather it’s how to put long-term funding in place.  “As we look forward we’re concerned about what’s going to happen next,” he said. “What will help us address [municipalities’] needs on a go-forward basis as we try to restructure our communities that have been hard-hit by the recession, and what is the risk as we know from the mid-90s, when federal and provincial governments go into deficit? What happens to those programs is that they get cut.”

McLellan said, “Boom/bust is sometimes great; it helps us deal with backlogs. But at the same time we need to have sustainable base funding.” 

Alberta’s oil sands underlie 140,800 square kilometres of land, an area larger than the state of Florida. The extraction and upgrading of about 1.1 million barrels a day (in 2006) is simultaneously seen as a boon to the economy and a strain on the environment. While the sector provides billions of dollars in investment opportunities, jobs, and royalties to Alberta and Canada, it’s also a drain on water resources and a major emitter of greenhouse gases (GHGs).

There are currently 91 active oil sands projects—but that number is always increasing, and is expected to continue to increase in the coming years.

Even so, according to the government of Alberta, the oil sands make up only about five per cent of Canada’s overall GHG emissions and less than one-tenth of one per cent of the world’s emissions.

Emissions from extracting and upgrading bitumen have been found to be no higher than producing conventional crudes. Two independent studies prepared for the Alberta Energy Research Institute have found direct emissions from producing, transporting and refining oil sands crude are in the same range as those of the other crudes refined in the United States. Both reports, Life Cycle Assessment Comparison of North American and Imported Crudes, and Comparison of North American and Imported Crude Oil Lifecycle GHG Emissions, found that direct GHG emissions from the oil sands are generally about 10 per cent higher than direct emissions from other crudes in the United States. “If cogeneration is taken into consideration, oil sands crudes would be similar to conventional crudes in terms of GHG emissions.”

Hoping to reduce emissions, Canada’s government is investing heavily in carbon capture and storage (CCS). With CCS, carbon dioxide (CO₂) is captured at the site of extraction or upgrading, transported via pipeline, and then injected and stored into geological formations or deep saline aquifers that contain water that companies such as Enbridge claim is, “unsuitable for drinking or agriculture.”

How it’s determined that saline water is unsuitable for use is still unclear, and there’s been little testing to find out how sequestration could affect groundwater supplies. Some experts think that the chance that a properly engineered CCS project would contaminate groundwater is a long shot. But the American Water Works Association says that large-scale CCS projects could endanger underground sources of drinking water—not just through leaks but through displacement of saline. The pressurized carbon dioxide plume injected over years into a saline aquifer would force salt water from the aquifer into underground sources of drinking water. In a new study by the Munk Centre at University of Toronto, Graham Thompson calls carbon capture technology an “energy parasite.” He quotes Charlie Bullinger, senior engineer at the Great River power plant near Underwood, North Dakota: “[Carbon capture] costs half as much as the cost of the plant, and physically, you have to double the amount of real estate of the plant to retrofit it on the back of a plant that already exists. At a minimum, you’d have to build 30 per cent more power plants to get back to the base of where you first started.”

On top of those technical complexities, the physical pipeline network that would be required to transport CO₂ from all emissions points to the storage locations is extensive—and the infrastructure required for a province-wide CCS system is capital intensive.

While it’s too early for exact cost estimates, the governments of Alberta and Canada have already contributed funding to build the infrastructure for pilot projects.

In July 2008, Alberta announced it will invest $2 billion into CCS under its new Climate Change Strategy, unveiled in January 2008. The province committed to reducing projected emissions by 200 megatons by 2050, 70 per cent of which will be achieved through CCS.

Under The Clean Energy Fund, part of Canada’s Economic Action Plan announced in Budget 2009, the federal government will invest $650 million to support large-scale CCS projects in real-world applications. The Canadian and Alberta governments announced this October that they will spend a combined $865 million to help Royal Dutch Shell PLC build commercial-scale CCS at the site of Alberta’s Athabasca Oil Sands Project. Shell’s Quest project is aimed at capturing and storing 1 million metric tons of CO₂.

As an emerging industry, CCS is expected to create investment opportunities, jobs, and royalties to Alberta and Canada. The Canadian Energy Research Institute (CERI) calculates that over the next 25 years the total economic impact of increasing oil sands capacity at a rate of 100,000 barrels per day would manifest itself in increased investment of $7.8 billion; a combined investment and operations impact that will generate an additional $62 billion in gross domestic product (GDP) and tax revenue (federal, provincial, and municipal) of $11 billion; Alberta collecting an increase of $6.5 billion in royalties; and an incremental increase in GDP of $39.8 billion in the United States.

More specifically, CERI’s July 2009 study, Economic Impacts of the Petroleum Industry in Canada, reports that based on a 25-year forecast, oil sands developments in Alberta will inject $1.6 trillion into Alberta’s economy, contributing to a total impact of $1.7 trillion to Canada’s economy. The sector will also generate on average 11,419,000 person years, or, on average, 456,000 jobs—that includes direct employment in the oil sands area and indirect and induced employment in every other Canadian province and territory.

Peter Howard, vice president of research at CERI, says “Alberta’s economy runs on energy. With the province’s conventional oil on the decline and gas developments being curtailed because of low market prices, with its contributions to provincial royalties, taxes, GDP and employment, [the oil sands] is the energy source that will carry the province forward.”

As for the environmental costs of this economic growth, Howard says, “New technology will address GHG emissions and permit oil sands developments to continue to contribute to Alberta’s economy.”

Stephen Kaufman, chairman of the Integrated CO₂ Network, which has 18 of Canada’s largest CO₂ emitters as members, says the organization has been working with the governments of Alberta and Canada for the past four years on the network design concept for CCS, and to ensure that the pipeline infrastructure is built to the proper specifications.

“We still don’t know how the entire CCS network system will pan out,” says Kaufman. “Some emitters might opt to build their own pipeline from their emissions site to a nearby storage location and some emitters will choose to network with the province’s pipeline system. It depends on where their emission sites are located and the closest storage location.”

Climate change policy is also still uncertain, so emitters will likely wait for more details before moving forward with CCS plans. With new talk that Canada and the United States will want to align their climate change regulatory plans, plans for major CCS networks may be on hold.

Kaufman says, “There is still a lot of research to be conducted to compare the cost of CCS with other activities that can reduce emissions such as energy efficiency, renewables, or trading under the proposed cap-and-trade system.”

Nevertheless, he believes CCS is a blossoming industry—its success will depend on how well industry and government plans for open access and storage site proliferation. Kaufman says, “Common-use infrastructure will be key to Alberta’s CCS system. Whatever infrastructure is built, all emitters must be able to use it by paying the appropriate toll. This should be the case if government funds are used to subsidize the pipeline or storage infrastructure. Canada’s Integrated CO₂ Network wants the benefit of these public dollars to be as wide as possible.”

The oil sands and pipelines are some of Canada’s biggest—and most environmentally and economically impactful—infrastructure projects. While the world continues to rely on fossil fuels, this infrastructure will remain in place. But new infrastructure will be needed to support it and mitigate its effects. Whether or not a complete CCS network distribution system comes to fruition depends on government policy choices and the economics of CCS and the pipeline infrastructure itself. 

Diane L.M. Cook is a Calgary-based freelance energy writer and editor, children’s picture book author, and continues to hone her craft with academic pursuits.