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28| RISK "ALL OF THE CONSTRUCTION METHODS ARE THE BUILDER'S CHOICE AND ARE THEREFORE HIS RISK. IF I DECIDE TO ERECT THE STRUCTURAL STEEL FOR YOUR BUILDING IN A PARTICULAR SEQUENCE AND IT DOESN'T WORK, THOSE RISKS ARE MINE." you try to ensure that they understand, first, what they're taking on and that the contract is drafted so it's very clear to all the parties who is responsible for what, particularly the unknown." Adds Martin: "When you're using a P3 model, it's not just the project agreement at the top; risk analysis and risk transfer have to be considered at every level as you go down," including the contractor's sub-contractors. What makes P3 projects particularly appealing to government is that they maximize the transfer of risk, especially financial risk, from the public-sector to the private-sector partners. This is facilitated by the competitive nature of the bidding process, in which three rival consortia are shortlisted at the request for proposals (RFP) stage. If one or two of the consortia are unwilling to assume significant risk, they are unlikely to be selected. The government entity sets the timeframe and minimum specifications, and contracts for an on-time and on-budget project. The private sector then is at risk if the project falls behind schedule or suffers cost overruns. There are provisions in the contract that allow for the private partners to seek additional payment or time, but these can be invoked only in exceptional circumstances. Therefore, the P3 project has much more certainty of being built at the originally agreed price than does the traditional project. The P3 model spreads the risk among more parties. The winning consortium, Project Co., includes not only a designer and contractor, but also private financiers and a facility management entity. The private financiers include lenders, who will provide 80 to 90 per cent of the funding, and equity investors, who will provide the rest. The facility management entity will operate and maintain the asset upon its completion (and turn it over to the government 25 or 30 years later). Thus, the operation, maintenance and performance risk, traditionally borne by government, is shifted to the facility management entity. In the case of a bridge or a highway, the entity may be permitted to charge tolls (from which the lenders will be repaid). But the government will regulate the level of tolls, and the facility management entity bears the revenue risk of underestimating the level of tolls it needs to earn a profit. Also, the government may use a combination of bonuses ("availability payments") and penalties to optimize the entity's performance in keeping the road or bridge open. In theory, government also benefits because the designer, contractor and facilities management entity are all on the same team, Project Co., working collaboratively rather than as adversaries. Thus, while the contractor might otherwise be tempted, say, to use cheaper construction materials, the facilities management entity offsets that impulse with its concerns about how that would affect the long-term main vested first i as de McC W in th pletio ment teamw of pap the g You c respo a con be di and t finish Bu no p made that r Penn speci hand sure t accor "Th retain cost secto some Lexpert®Ranked Lawyers Nixon, Christopher W. Nordick, D'Arcy Stikeman Elliott LLP (403) 266-9017 cnixon@stikeman.com Mr. Nixon's practice focuses on M&A, corporate finance, JVs, corporate/trust reorganizations and corporate governance. Clients include oil & gas exploration and oilfield service corporations, investment dealers in Canada, the US and Asia. ROB-Infrastructure.indd 28 O'Doherty, Richard O'Leary, Dean A. Osler, William S. Ouimet, François H. Penn Stikeman Elliott LLP (416) 869-5508 dnordick@stikeman.com McCarthy Tétrault LLP (514) 397-5467 rodoherty@mccarthy.ca Farris, Vaughan, Wills & Murphy LLP (604) 661-9316 doleary@farris.com Bennett Jones LLP (403) 298-3426 oslerw@ bennettjones.com Stikeman Elliott LLP (514) 397-3057 fouimet@stikeman.com Davie Vineb (416) cpen Mr. Nordick advises foreign and domestic clients on infrastructure projects with a focus on financing. His clients include P3 and infrastructure participants, banks, dealers, governments and quasi-government entities, and private equity firms. Mr. O'Doherty focuses on project finance, corporate lending and other structured financings. He acts in particular for developers and financial institutions in the development and financing of projects in the infrastructure and energy sectors. Mr. O'Leary's practice includes a focus on P3s and corporate and project financing. He also advises on corporate reorganizations, share and asset acquisitions and divestitures, property rezoning and expropriation. Mr. Osler's practice includes securities law and M&A, with a focus on oil and gas. His experience embraces IPOs and other public offerings for issuers and underwriters, as well as Canadian and international takeover bids and plans of arrangement. Mr. Ouimet's corporate, real estate, and private and institutional financing practice includes experience with P3s and infrastructure projects, capitalizations, syndications, commercial contracts, leasing, securities and securitizations. 13-08-06 10:22 AM Ms. P on fin M&A, reorg repre arran syndi infras debt o struct She i Cana

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