Update from GNWT Department of Finance on new Stanton hospital

STANTON TERRITORIAL HOSPITAL RENEWAL PROJECT

CARILLION PLC LIQUIDATION

ISSUE

Carillion Plc, the UK-based parent company of Carillion Canada Inc. (or “Carillion Canada”), has entered into liquidation.  Carillion Canada is an equity investor and key partner in the consortium that is developing and operating Stanton Hospital.

Key Messages

  • Construction activities are not affected. The design and construction of Stanton is being undertaken by a joint venture of Bird Construction and Clark Builders.  As Carillion Canada is not involved in the design-build phase, the liquidation of Carillion Plc will not impact current construction activity and timelines.
  • Carillion Canada is not in liquidation. Carillion Canada holds a 50 per cent equity interest in Boreal Health Partnership (“Project Co”).  Although not directly part of the liquidation, Carillion Canada is a profitable subsidiary of Carillion Plc, so is likely subject to a potential sale by the Receiver as part of the liquidation.
  • Service Contract with Carillion Canada remains ‘business as usual’. Carillion Canada remains fully operational and continues to deliver services on its existing contracts, which includes planning for the provision of services in new hospital after substantial construction is completed in late 2018.
  • P3 model and structure is functioning properly to protect the GNWT. Project Co is required to be a separate legal entity which isolates the GNWT from external shocks to any of Project Co’s parent companies.  It is Project Co’s responsibity to remedy any adverse operational or other impacts being faced by any member of the consortium.
  • Project Co partners remain committed. The other Partners of the consortium, Bird and HOCHTIEF, have confirmed their commitment to the project, which have confirmed their commitment to the project, which included assessing options related to Carillion Canada’s equity share in Project Co.

CURRENT Status

  • Carillion Canada Inc. holds a 50 per cent equity interest in Boreal Health Partnership (“Project Co”). The other equity investors and partners are Bird Construction Inc. (“Bird”) and HOCHTIEF Canada (“HOCHTIEF”), each of which holds a 25 per cent equity interest.
  • Project Co entered into a project agreement with the GNWT on September 22, 2015, to design, build, finance, operate and maintain the new Stanton Hospital. Under the Project Agreement Carillion Canada will operate and maintain the hospital for a 30-year period.
  • The Project is currently in construction, with commissioning of the new hospital scheduled for November, 2018.
  • The GNWT met with project Co on January 16, 2018 for an update on the status of Carillion plc’s receivership proceedings. Carillion Canada confirmed that Carillion’s Canadian operations have not been impacted by the receivership and continue to fullfil its contractual obligations to its clients.  BHP confirmed its obligations under the Project Agreement, spefcially, the requirement to have a service provider in place if Carillion Canada is subsequently unable to fullfil this role due to receivership.  Going forward, the GNWT has regularly scheduled meeitngs with Project Co to ensure it is kept up-to-date on the situation.

Potential Outcomes

The GNWT to needs to plan for three potential outcomes: Carillion plc will be unable to continue to provide its guarantee of Carillion Canada’s obligations under the Project despite its commitment to do so.

    1. Carillion plc will be unable to continue to provide its guarantee of Carillion Canada’s obligations under the Project despite its commitment to do so.

     

    1. Carillion Canada will fail to perform its obligations as Service Provider under the Project Agreement.

     

    1. Liquidation of Carillion Plc will otherwise impair the Project (i.e. through reputational harm to the GNWT, delays, or withdrawal of other Project stakeholders).

Failing a resolution by Project Co, project lenders have recourses available to them within the lending documents, which include: letters of credit; seek recourse to the Service Provider parent company guarantee and utilize step-in rights.

The GNWT also has recourses available such as: indemnities, termination of the Project Agreement, forcing Project Co to replace the Service Provider and step-in rights (which can only be exercised after the lenders exercise their step-in rights, or forego that opportunity).

It should be emphasized that the GNWT contracted with Project Co, and not directly with the subcontractors.  The responsibility therefore lies with Project Co to find a replacement Service Provider if the Services Contract ceases to be in full force and effect, for any reason.

Given that all DBFOM obligations ultimately remain with Project Co, Bird and HOCHTIEF are economically incentivized to implement appropriate mitigation strategies in the event that Carillion Canada is unable to perform as the Service Provider.

Appendix A:  Public Private Partnerships

Public-Private Partnership Policy

 The GNWT’s Public-Private Partnership Policy allows the GNWT to enter into partnership agreements with the private sector to procure services and public infrastructure when:

  • the total projected threshold for procuring those services, including capital, operating, and service costs over the life of the agreement exceeds $50 million;
  • there is appropriate risk sharing between the GNWT and the private sector partners;
  • the agreement extends beyond the initial capital construction of the project;
  • the arrangement results in a clear net benefit, as opposed to being merely neutral in comparison with standard procurement processes.

What does “P3” mean?

  • P3 is an acronym for “Public Private Partnership.”
  • Public Private Partnerships are a type of agreement that have become common in government infrastructure projects.
  • While there are a number of different models of P3 agreements, they are characterized by a transfer of risk from the government (public partner) to the private partner.
  • In most cases, the government does not pay anything until the project has been completed. This means that the private partner puts up the money for construction and does not start getting paid back until construction is finished.

What are the benefits of a P3?

This approach brings private-sector expertise, ingenuity, and rigor to the process of managing and renewing the GNWT’s public infrastructure, but preserves public ownership of core public assets. It works towards:

  • minimizing cost and schedule overruns;
  • better integration of design, construction, and long-term maintenance and building services;
  • more accountability throughout the planning, construction, and maintenance phases of each project;
  • building infrastructure that will last for years to come, be maintained to high standards, and support the delivery of quality health care for residents of the NWT; and
  • providing value through innovation, which manages costs, enhances program delivery, and generates economic benefits.

P3 projects in Canada and around the world have yielded many benefits. The most consistent of these include cost savings, faster construction, and improvements to plans. Evidence shows that Canada’s P3 model brings more transparency, rigorous analysis, and accountability to procurement, construction, financing, and maintenance than traditionally procured projects. The results are roads, hospitals, recreation centres, etc. that are delivered faster, on budget, and maintained to high standards over several decades. With almost everything being measured in a P3 project, there are more mechanisms to identify lapses in service quality and impose penalties according to the contract.