March 16, 2009
Trades can get in on public-private partnerships
The old movie queen, Bette Davis, once mentioned that growing old is not for sissies.
Neither is getting involved in a public private partnership (P3), according to Robert Lashin.
Lashin is president of Houle Electric, arguably the largest electrical contractor in British Columbia.
The company has been involved with P3s since the provincial government first introduced them as a way of financing provincial projects.
Most recently Houle was the electrical contractor working for PCL Constructors Westcoast on the $356 million Abbotsford Regional Hospital and Cancer Centre.
Houle’s share of the contract was $30 million. The role of the general contractor in a P3 is fairly well understood.
Less obvious, however, are the roles played by the major trade contractors – normally the electrical and mechanical trades.
The fundamental purpose of a P3 is to download the risk of the project from the government to the team contracted to build and operate it.
Beyond that, though, the general contractor will then download a considerable part of the risk to the major trade contractors.
The general contractor is on the hook for considerable financial penalties, if the project is not delivered on time.
He then imposes similar penalties on the trade contractors.
They are called, delicately enough, liquidated damages.
One of the huge challenges for both generals and trades is the time involved.
It often takes two to three years to put a P3 together.
This means trades, such as Houle, must come up with an immovable price a couple of years before construction starts.
This can be tricky as evidenced by copper wire prices a few years ago.
The term “fit for purpose” becomes a key part of the vocabulary surrounding a P3.
In traditional procurement, the government will have a project designed and put out to tender.
With a P3, they will tell the industry what they want and how much they have to spend.
They then challenge a list of proponents to use their skills, experience and imagination to come up with an answer that falls within budget, and is fit for the purpose they have in mind.
Experience really helps.
Houle has done a lot of hospitals, for instance.
They started their estimating at Abbotsford armed with knowledge of the latest medical technology.
“The whole intent of a P3 is to give fit for purpose,” said Lashin. “An understanding of what the owner wants to use the facility for is critical as well as how he plans to use it.
“For example, it’s not just a matter of providing lights in a building. The lights you might provide are to do with whatever activity is required in a particular part of a building. The lights in a hospital operating room are different from the lights in the wards.”
The design is not complete when the trades have to start work.
It may, he said, be 85 or 90 per cent done – but it’s the last 10 per cent that can be the killer.
“At Abbotsford we had to design systems although the final drawings weren’t completed. For instance they had to buy $60 million worth of medical equipment. They buy state-of-the-art. This means the electrical audit might not be the same as when we initially proposed something several years prior.
“Dealing with a P3 is a paradigm shift for most trade contractors,” said Houle. “Normally they just take a set of drawings and tender it. Well, you can’t think that way anymore”.
To take on a P3, he said, a trade contractor must be sophisticated and creative. It also helps very much if he is a large contractor. It requires a staff big enough to have employees devoted to a project for between one and two years – while still taking care of regular customers.
“You have to go into these projects with your eyes wide open,” he said.
And if he had his “druthers” would he prefer the traditional system of tendering over a P3?
“I’m going to be a politician,” he laughed.
“If I had my druthers, I’d druther have the job.”
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