Report to/Rapport au :
Corporate
Services and Economic Development Committee
Comité des services organisationnels et du
développement économique
and Council/et au Conseil
8 May 2003/le 8 mai 2003
Submitted by/Soumis par : Steve Kanellakos, A/City Manager
Directeur des services municipaux intérimaire
City Manager’s Office/Bureau du directeur des
services municipaux
Contact/Personne-ressource : Réjean Chartrand, Director, Strategic
Delivery Unit
Directeur, Unité d’exécution stratégique
580-2424,
ext/poste : . 21696, Rejean.Chartrand@ottawa.ca
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Ref N°: ACS2003-CMR-OCM-0005 |
SUBJECT: PUBLIC-PRIVATE PARTNERSHIPS
– NEW ICE SURFACES
OBJET: PARTENARIATS PUBLICS/PRIVÉS – NOUVELLES
SURFACES DE GLACE
REPORT RECOMMENDATION
That the Corporate
Services and Economic Development Committee recommend Council authorize staff
to enter into negotiations for the supply of new ice surfaces with Serco
Management Facilities Inc. in the east district, and with the Ottawa Community
Ice Partners (OCIP) in the west district, and report back to Committee and
Council on the outcome of the negotiations in August 2003.
Que le Comité des services organisationnels et du développement économique recommande au Conseil municipal d’autoriser le personnel à entamer des négociations relatives à la fourniture de nouvelles surfaces de glace avec Serco Management Facilities Inc. dans le secteur est, ainsi qu’avec Ottawa Community Ice Partners (OCIP) dans le secteur ouest, et qu’il fasse rapport au Comité et au Conseil municipal des résultats des négociations au mois d’août 2003.
In October 2002, City Council approved that a number of projects be implemented on a priority basis under public-private partnerships, including the provision of new ice surfaces in the east and west districts of the city.
A Request for Qualifications (RFQ) for Indoor Ice Surfaces was issued by the Supply Management Division on 18 November 2002 and was advertised on MERX. The RFQ closed on 18 December 2002 and ten qualification submissions were received.
In February 2003, City Council approved that the following firms be on the short list to receive the Request for Proposal (RFP) in the next stage of the partnering process:
The RFP was issued by the Supply Management Division and distributed directly to these firms on 25 February 2003. The RFP closed on 8 April 2003 and proposals were received from each of the short-listed respondents.
This report forms the next step in the P3 process in that it establishes the City’s Public Sector Comparitor (PSC) and recommends the two preferred partners advance to the negotiations stage of the process.
DISCUSSION
Detailed proposals were received from each of the firms on the short list. The following is a brief overview of the concept submitted by each firm.
Serco Facilities Management Inc. (Serco)
Serco currently manages the operations of the City’s Ray Friel Centre located on Tenth Line Road in the east district of the city and proposes to add two new ice surfaces on the site as an addition to the existing building. The addition would include approximately 6155 sq.m. of floor space to accommodate the ice surfaces, a concession area, a storage area, and an expanded entrance and main corridor.
The proposal includes an option whereby the second floor could be developed to provide additional programming and storage space as well as meeting rooms. Additional parking would be added without compromising existing facilities such as the soccer pitches and the internal road system would be improved to accommodate increased vehicle traffic.
Ottawa Area Partners (OAP)
OAP is comprised of The Cochrane Group and Ellis Don Ltd. The group qualified for the provision of new ice surfaces in both the east and west districts and submitted essentially identical proposals for a 5510 sq.m. facility on each site. The facility proposed accommodates two ice-pads with minimum areas for concession and storage.
Additional space could be provided as an option, including a third ice pad, a multipurpose/community center room and commercial retail space. The proposed location in the east district is in Millenium Park, (Trim Road just east of Innes Road) in the section of park that is yet to be developed for sports field. The west district site is on March Road just north of Klondike Road.
Other City sites were proposed as alternative sites in both the east and west districts should the above two sites be unavailable.
Outside The
Crease General Partner, Inc. (Outside the Crease)
Outside the Crease is a private organization set up as a General Partner/Limited Partnership. The proposed facility would be located at 100 Michael Cowpland Drive just west of Eagleson Road in the west district, and would provide 9415 sq.m. of space spread over two floors.
The first floor would cover 7190 sq.m. and contain two ice surfaces, a concession area and a retail area. The second floor, at 2225 sq.m. would accommodate a restaurant, banquet/meeting facilities, additional commercial space, and office space. Additional space could also be provided as an option.
Ottawa Community Ice Partners (OCIP)
OCIP is a private sector not-for-profit consortium made up of H&R Real Estate Investment Trust, the Ottawa Senators Hockey Club, the Ottawa Senators Alumni, CB Richard Ellis Limited, Palladium Corporation, and Morley-Hoppner Group.
OCIP proposes to redevelop part of an existing 30597 sq.m. vacant building located at 500 Palladium Drive in the west district, into a major mixed-use center. The redevelopment would include 16740 sq.m. of space on the ground floor and a 1860 sq.m. mezzanine.
The facility would provide four ice surfaces, food operations, fitness areas, retail space, and the capacity for additional indoor recreational space. This redevelopment would utilize the industrial space available in the building, leaving the office space component of the building available for other users.
Public Sector
Comparitor (PSC)
The PSC represents the City’s cost to build, fund, and operate a twin ice surface facility. The model was developed based on historical operating costs for the Jim Durrell Recreation Centre (JDRC) and the Kanata Recreation Centre (KRC), two comparable facilities.
The capital costs for the construction of a similar type facility were developed with the assistance of RPAM and were used to identify the debt obligation of the City. The coupon rate of 6.35% for the debt repayment costing was obtained from the City’s Financial Services Branch and reflects the rates currently being paid by the City for long-term borrowing.
Appendix A details the development of the PSC for this P3 initiative and indicates that a typical cost to deliver one hour of ice time in a City owned twin pad facility is $258.00 based strictly on ice rental revenues. This reduces to $238.00 per hour if non-ice revenues such as meeting room rentals, concessions, public skating, storage space, etc. are included.
These figures represent break-even rates and would normally be adjusted upwards or downwards to reflect prime time or non-prime time, as shown in Appendix A. The difference between these figures and the city established ice rental rates represents the level of support the City provides to encourage and sustain recreational activities within its facilities.
As an example, in the case of the adult rental rate set at $143 per hour, this represents a level of support ranging from $95 to $115 per hour, and for minor organizations, with a city rate set at $87 per hour, this represents a level of support ranging from $151 to $171 per hour.
The PSC then becomes the benchmark by which one can evaluate the value of potential public-private partnerships as proposed by the respondents to the RFP.
The evaluation criteria were published in the RFP and were therefore available to each firm. An evaluation team was set up and included representatives from the People Services Department, RPAM, the Strategic Delivery Unit, and an external representative. Also, the firm of Deloitte Touche was retained to assist the Financial Services Branch and the evaluation team with the analysis of the financial information submitted in the responses.
As was the case in the initial RFQ stage of this P3 initiative, a Fairness Commissioner was retained to review the evaluation criteria prior to release of the RFP and oversaw the evaluation process.
The evaluation team evaluated each proposal considering the stated objectives of the City and using the established detailed evaluation criteria. The basis of selection for a preferred respondent is on the basis of best value to the City, which was determined by the respondent achieving the highest point total out of the 100 points that were available under the evaluation criteria for each district.
The evaluation committee, recommends that Serco, in the east district, and OCIP, in the west district, be selected as the preferred respondents, and that staff be authorized to initiate negotiations with these two groups to develop partnership agreements related to the provision of new ice surfaces.
Selecting these two groups as the preferred partners does not automatically imply that negotiations will be successful, as there are a number of elements that must be addressed with each respondent. The City needs to conduct a due diligence process and verify the information, assumptions, and distribution of risk proposed by these two respondents.
Issues specific to each site must also be addressed. For example, in the east, Serco currently manages our City facility, with three years left in their contract. An expansion to the facility is likely to require an integration of this existing contract into the new partnership and will require a review of the entire Ray Friel management effort.
With respect to the proposal by OCIP for the redevelopment of 500 Palladium Drive, parallel negotiations with Nortel will also be required since Nortel is the current tenant of the (vacant) building and it would need to assign its lease to OCIP as part of any negotiations.
Nevertheless, staff believe that the proposals submitted by these two groups contain the necessary elements to successfully negotiate partnership agreements, and the financial review indicates that in both cases the facilities could be provided at a cost lower than the City’s Public Sector Comparitor.
On that basis, it is recommended that staff immediately initiate negotiations with these two preferred partners and report back to Committee and Council in August. Negotiations will focus on meeting the needs of the community, achieving best value for the city within an acceptable risk structure, and creating a win-win partnership.
There are no environmental implications resulting from this report.
The provision of additional ice surfaces in the east and west districts will supplement existing city facilities and will provide a direct benefit to adjoining rural areas.
There has been no public consultation on this item. As per Council’s direction, a public meeting will be held in each community where these new facilities are being proposed, prior to the execution of the partnership agreements.
FINANCIAL IMPLICATIONS
There are no direct financial implications from the approval of this report.
Appendix A - Public Sector Comparitor (PSC)
The Strategic Delivery Unit will implement the recommendation as directed by Council.
Public Sector
Comparitor (PSC)
The purpose of the PSC is to
estimate the City’s cost profile if it were to build, finance, and operate a
twin pad facility on its own behalf. This cost profile is then used as a tool
to assist in the evaluation of proposals received in response to the City’s P3
initiative to secure additional ice surfaces.
As a municipality is generally not concerned with earning a return on
investment, there is no requirement for the PSC to incorporate return
expectations. The PSC therefore focuses on the operating and debt repayment
costs to the City.
In order to define operating costs for the PSC, similar City facilities
were identified and historical costs were reviewed. In this case, the Jim
Durrell Recreation Centre(JDRC) and the Kanata Recreation Centre(KRC) were used
as the benchmark facilities. A cost profile for a twin-pad facility was
developed from actual costs over the 1999 to 2002 period, and projected to
2004. The following table summarizes the information.
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Cost
Item |
Projected
2004 Cost |
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Salaries & Benefits |
$390,700 |
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Utilities
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Hydro |
$199,000 |
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Water & Sewer |
$26,000 |
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Natural Gas |
$40,200 |
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Sub-Total |
$265,200 |
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Office / Admin
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Purchased Services |
$81,500 |
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Materials and Supplies |
$38,400 |
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Capital Improvements (Service Response) |
$33,400 |
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Taxes
and Insurance |
$12,900 |
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Buildings and Trade |
$11,900 |
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Activity Allocations |
$8,400 |
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Sub-total |
$186,500 |
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Life Cycle O&M
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Average Annual Renewal Costs |
$138,100 |
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RPAM Cost Recovery |
$6,900 |
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Sub-total |
$145,000 |
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Corporate Overhead
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Sub-Total |
$85,800 |
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TOTAL EXPENSES |
$1,073,200 |
In order to translate this operating cost estimate into a per hour ice
rental rate, facility utilization was estimated. Based on historic operating
information from the JDRC and the KRC, the City is realizing facility
utilization rates which average approximately 79% for these two facilities based
on an average availability of approximately 10,630 hours and average
utilization of 8,370 hours.
These utilization rates are similar to those realized in other
municipalities. The resulting projected facility utilization profile is shown
on the following table.
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Kanata Recreation
Centre |
Jim
Durrell Recreation Centre |
Average |
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|||
Facility Availability
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|
|
|
|
Prime Time |
6,530 |
5,990 |
6,260 |
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Non-Prime Time |
4,830 |
3,910 |
4,370 |
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Total |
11,360 |
9,890 |
10,630 |
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|
|
|
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Facility Utilization
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|
|
|
|
Prime Time |
5,730 |
5,720 |
5,720 |
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Non-Prime Time |
2,580 |
2,720 |
2,650 |
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Total |
8,300 |
8,440 |
8,370 |
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Use Percentage
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|
|
|
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Prime Time |
88% |
95% |
91% |
|
Non-Prime Time |
53% |
70% |
61% |
|
Total |
73% |
85% |
79% |
The final step in completing the operating component of the PSC is to
determine the resultant rental rates, which would allow the facility to operate
on a break-even basis. Based on average annual ice rental revenues for JDCC and
KRC for prime time and non- prime time, it is possible to calculate the imputed
revenue per hour of utilization and to calculate the ratio of premium or
discount to the average rate. The following table identifies the results.
|
|
Prime
Time |
Non-Prime
Time |
Total |
|
|
|||
|
Annual Ice Revenue |
$440,700 |
$133,900 |
$574,700 |
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Facility Utilization |
5,720 |
2,650 |
8,370 |
|
Imputed Revenue per Hour
of Utilization |
$77.00 |
$50.60 |
$68.70 |
|
Ratio of Premium /
Discount to Average Rate |
1.122 |
0.737 |
|
Based on the foregoing analysis, the resultant rental rate structure
which the City would need to realize in order to ensure that facility revenue,
from ice rentals only, equals facility operating costs is approximately $128
per hour or roughly $144 for prime-time and $95 for non-prime time.
(Excluding
non-ice revenue)
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Operating
Costs |
Hours
of Utilization |
Cost
per Hour to Ensure Break Even Operations |
Prime Time
Rate |
Non-Prime
Time Rate |
|
|
||||
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$1,073,200 |
8,370 |
$128.22 |
$143.80 |
$94.52 |
Including ancillary revenues of $155,000 from meeting room rentals,
concessions, public skating, storage locker rental, advertising, and vending
reduces the break-even rental rate from $128.22 to $108.10, as per the
following table.
(Including
non-ice revenue)
|
Net
Operating Costs |
Hours
of Utilization |
Cost
per Hour to Ensure Break Even Operations |
Prime Time
Rate |
Non-Prime
Time Rate |
|
|
||||
|
$904,800 |
8,370 |
$108.10 |
$121.24 |
$79.69 |
With respect to the capital cost for a twin pad facility, RPAM developed
a comparitor of $11M based on 6140 sq.m. of ground space and an additional 280
sq.m. of meeting/community space. This figure is inclusive of general
requirements and fees, design costs, furnishings and equipment, and
construction contingency.
The annual debenture obligation over 20years for an $11M capital cost,
based on a 6.35% coupon rate is $1,087,472. Based on 8,370 hours of ice
utilization per year, this annual debenture repayment represents a cost per
hour of $129.92.
In summary, the city’s
Public Sector Comparitor for a twin surface facility is as follows:
(Excluding
non-ice revenue)
|
|
Cost
per Hour to Ensure Break Even Operations |
Prime Time
Rate |
Non-Prime
Time Rate |
|
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|||
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Operations |
$128.22 |
$143.80 |
$94.52 |
|
Debt Repayment |
$129.92 |
$145.72 |
$95.77 |
|
PSC |
$258.14 |
$289.52 |
$190.29 |
(Including
non-ice revenue)
|
|
Cost
per Hour to Ensure Break Even Operations |
Prime Time
Rate |
Non-Prime
Time Rate |
|
|
|||
|
Operations |
$108.10 |
$121.24 |
$79.69 |
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Debt Repayment |
$129.92 |
$145.71 |
$95.77 |
|
PSC |
$238.02 |
$266.95 |
$175.46 |