BudgetingCapitalCosts MMM Group

BUDGETING CAPITAL COSTS IN THE
TRANSIT AND HIGHWAY SECTOR:

DIFFERENCES BETWEEN DESIGN-BID-BUILD & ALTERNATIVE FINANCING & PROCUREMENT
Report prepared by MMM Group

for Infrastructure Ontario
January 2011
D16-011-03
TABLE OF CONTENTS
Executive Summary...................................................................................................................... 1
Introduction................................................................................................................................... 2
A Word on Terms ......................................................................................................................... 3
Study Approach and Methodology for Highway Projects............................................................... 3
Highway Cost Estimating Process (TD) ........................................................................................ 3

Typical Major Item Breakdown and Minor Item Adjustments ..................................................... 4
Engineering Allowances............................................................................................................ 4
Hard vs. Soft Costs on Highway Projects .................................................................................. 4
Study Approach and Methodology for Transit Projects ................................................................. 5
Profile of Capital Costs in the Transit Sector................................................................................. 6

Cost Categories ........................................................................................................................ 6
‘Hard’ Cost/Direct Cost ............................................................................................................. 7
‘Soft’ Cost/ Indirect Cost ........................................................................................................... 7
Profile of Transit Projects Procured Using AFP (PPP) Delivery Model ......................................... 8
Project Types............................................................................................................................ 8
Breakdown of ‘Hard’ Costs ....................................................................................................... 9
Breakdown of ‘Soft’ Costs ......................................................................................................... 9
Profile of Transit Projects Procured Using Traditional TD Delivery Model ................................... 10
Project Types.......................................................................................................................... 10
Breakdown of ‘Hard’ Costs ..................................................................................................... 10
Breakdown of ‘Soft’ Costs ....................................................................................................... 10
Comparison of AFP and TD Delivered Projects .......................................................................... 11
Contractor and Developer Questionnaire .................................................................................... 13

Questionnaire ......................................................................................................................... 13
Questionnaire Responses and Findings ................................................................................. 13
Factors Influencing the Ability to Deliver Better Value For Money on AFP Projects .................... 14
Conclusions ................................................................................................................................ 23
Appendices
Appendix A - Tables ............................................................................................................... 25
Appendix B - Contractor/Developer Questionaires .................................................................. 37
Budgeting Capital Costs in the Transit and Highway Sector January 2011
D16 010-75
Differences between Design-Bid-Build and AFP Page i

Executive Summary
This report summarizes the findings of two recent studies undertaken by MMM Group Limited for
Infrastructure Ontario on budgeting capital costs in the highway and transit sectors. The purpose
of these assignments was to review project data and obtain professional advice regarding the
difference in capital costs for major components of civil works (both highways and transit) and
transit vehicle acquisition that could be expected under different methods of procurement.
The study findings are based on a review and comparison of project cost data for a number of
Canadian projects delivered through Alternate Financing and Procurement (AFP) or Traditional
Delivery (TD) methods. In support of the findings, interviews were conducted with leading
Canadian and international companies in the AFP/PPP sector.
Value for money reports published by transportation agencies tend to identify only the net total
costs for projects had they been delivered by TD (the Public Sector Comparator estimate) vs. the
AFP contract price, the difference being an indication of value for money realized by the AFP
model. The MMM study moves beyond the traditional value for money analysis by providing not
only an understanding of the 'hard' and 'soft' (contractor as well as owner) components of costs
for both TD and AFP projects but also by identifying and quantifying to the extent possible several
other important benefits of the AFP model.
The study findings confirm that AFP projects deliver significant savings in both hard and soft
costs through:
 synergies and avoidance of duplication;
 the application of value engineering and innovation;
 the avoidance of 'scope creep'.
These savings in total project cost, which are common to all the civil works elements of both
highway and transit projects, range between 10% and 30% of the total cost of the project.
Moreover, evidence presented by contractors and developers surveyed indicated that schedule
savings in the delivery of major highway and transit projects (projects with estimated total costs in
the $2 billion range) could range from 2.5 to 3.5 years on a traditional 8 to 9 year TD schedule,
increasing cost savings and providing a more complete understanding of the true value for money
benefit of the AFP model.
The main advantages of AFP projects identified in the survey of major contractors and developers
are:
 enhanced project innovation;
 better life cycle costing;
 condensed schedules;
 the transfer of specific risks to the party best able to manage them;
 the opportunity to select the best team to develop and deliver the project.
Differences between Design-Bid-Build and AFP Page 1
The cost of financing an AFP project by the private sector (the 'F' in AFP) has not been included
in the comparison of the capital costs between TD and AFP since traditional delivery treats
financing costs in vastly different ways, varying by Government and level of Government, making
comparisons difficult. Given reported AFP savings of from 10% to 30%, however, the higher cost
of private sector financing is not likely to tip the scales in favour of TD delivery.
Introduction
For decades, governments and private sector owner/developers in Canada and around the world
used essentially the same technique to deliver large-scale capital projects: the sponsoring agency
or developer would arrange financing or set a budget for the project, then hire an architect or
project manager; that firm in turn would help to competitively select an engineer; the engineer
would prepare bid packages to select a contractor who would retain the sub-trades and so on.
This sequential, “food chain” approach seemed logical enough and appeared to preserve a
measure of project discipline, in part by setting the participants against each other all the way
down the line and by encouraging price competition, which often resulted in a poorer product or a
long list of change orders and extras. For these and other reasons, the traditional finance/ design/
tender/ construct delivery method has come to be seen as neither the fastest nor the most
efficient way to build large infrastructure projects.
With the introduction of alternative finance and delivery of large public infrastructure and
institutional building projects in Ontario (including highways, bridges, transit projects, airport
terminals, hospitals and courthouses), a new model emerged among private sector firms
competing for these opportunities. This model was characterized by the creation of unified teams
(consortia or joint ventures, and even incorporated entities) bringing together all of the skills
required to deliver the project, including project management, finance, planning, architecture (if
appropriate), engineering, contracting, and a range of specialized services.
The benefits of having all project stakeholders (including the owner) working together on the
project from the start include:
 The absence of conflict in an open-book, transparent project definition and costing process;
 The opportunity to create the best possible product through a collaborative effort involving all
parties;
 The addition of constructability to the process of design and development;
 The ability to achieve a high level of cost certainty early in the project development process;
 The provision of a high level of date certainty by shortening time frames from what would be
the case in conventional design/tender/construct delivery;
 The allocation of project risks to those best suited to manage them;
 The application of life cycle costing and the avoidance of “low bid”, low quality solutions;
 The maintenance of a competitive, transparent bidding process.
January 2011 Budgeting Capital Costs in the Transit and Highway Sector
Page 2 Differences between Design-Bid-Build and AFP
Typically on AFP projects, project definition and development have been at least in part a
collaborative process between the responsible government agency or owner and the teams
formed to pursue the opportunity. So, for instance, in preparing their proposals for Hwy 407
Central, both teams formed for the opportunity received an honorarium from the Ontario Ministry
of Transportation to complete a six week value engineering process that resulted in $200 million
in savings over the government‟s cost estimate.
A Word on Terms
In this report, the term “Owner” refers in the case of TD projects, to the sponsoring government
ministry or agency; in the case of AFP projects, to the private entity selected as proponent by the
sponsoring agency to undertake and assume all assigned risks for the entire highway or transit
project.
The terms 'hard' (or direct) costs and 'soft' (or indirect) costs, used throughout this paper, refer
respectively to project costs related directly to construction such as labour, materials and
equipment, and other indirect project costs such as engineering, legal, insurance, bonding, risk
and contingency allowances, etc.
Study Approach and Methodology for Highway Projects

The approach taken for budgeting capital costs for highway projects focused on summarizing the
traditional (TD) approach to cost estimating the capital cost of major highway projects vs. the
private sector‟s approach to developing the capital cost for an AFP highway project.
Highway Cost Estimating Process (TD)

On a typical highway project, quantities for major construction items (grading, drainage, granular
base, pavement and structures) are estimated using the preliminary design plans, profiles and
typical cross section drawings. Historical contract cost data, such as the Ministry of
Transportation (MTO) unit cost database, are then used to develop the capital cost of the major
items.
The cost for minor items, contingencies and engineering are subsequently added as different
percentages of the cost for major items. Depending on the level of design associated with the
preliminary design plans, it is not unusual to apply contingency and engineering allowances of
20% and 10% respectively to major items in arriving at a capital cost for the project. The current
approach applies these allowances to both the direct (hard) and indirect (soft) costs for the
project.
Typical Major Item Breakdown and Minor Item Adjustments
The following Figure 1 provides the typical capital cost percentages for major items on a large
new highway transportation project (excluding engineering and contingency allowances).
Figure 1 – Highway Projects – Major Item Breakdown

Major Items % Total Capital Cost
Grading and Drainage 15 – 20 (1)
Granular Base and Paving 30 – 35
Structures 30 – 35
(1) Greenfield projects
Allowances for minor items, if not carefully considered during the development of a project
budget, can lead to overstated cost estimates. Assuming the development of a preliminary
design to a 20 to 25% level of completion, an allowance of 15% of the major item hard cost would
adequately reflect the value of the minor items within an AFP 'greenfield' highway project. A
minor item allowance of 20 – 25% would be more representative of a 'brownfield' major highway
transportation project involving major reconstruction and/or widening.
Engineering Allowances
Current industry practice is to use an allowance of 10% for engineering applied to the projected
capital cost of both the major and minor items on a project. As the MTO's unit cost data file is
developed from tender breakdowns on typical highway projects delivered conventionally, the unit
costs represent both 'hard' and 'soft' costs incorporated into each unit cost. In other words, the
contractor's indirect costs (soft costs), including allowances for risk and contingencies, general
administration, bonding, insurance, etc and margin allowance (profit), are normally built into the
tendered unit prices on a conventional tender. It is recognized that contractors may find it
necessary to initiate/raise change orders/claims during construction; however, since their bids will
generally be based on the tender documents, any approved change orders/claims will tend to
contribute to an improved margin on the project when completed.
Assuming that 'soft' costs on a major highway project approximate 30% of the average tender
unit prices, the current practice of applying a 10% engineering allowance to the major and minor
item costs translates into an engineering allowance of approximately 14.5% of the direct or „hard‟
cost of the project.
MMM Group's experience in negotiating engineering fees on AFP projects across Canada
indicates that engineering allowances on AFP projects will generally fall in the range of 7 to 9% of
the 'hard' cost of the project.
Hard vs. Soft Costs on Highway Projects

It is important to understand the methodology generally followed in developing a bid on an AFP
project. The first step in the estimating process is to estimate the direct or 'hard' cost of all labour
and materials for each construction item of work required to complete the contract. The next
step in the bid process is to estimate the indirect or 'soft' costs to be added to the direct or 'hard'
costs to arrive at the total bid cost.
In the case of traditionally delivered (TD) transportation projects, following a design, tender, bid
and build process, the indirect or 'soft' costs are distributed across all the tender items and are
reflected in the unit prices bid for the various elements of work. In the case of an AFP project,
which invariably uses a design/build approach whereby the contractor is responsible for
engineering and other design components, these soft costs are the contractor's responsibility and
are not applied across the board.
Figure 2 provides a comparative outline of the various elements of indirect ('soft') costs for TD vs
AFP delivery.
Figure 2 – Highway Projects – Contractor Soft Costs

Element % Direct or Hard Costs
TD Delivery AFP Delivery
General and Administrative (1) 4–5 5-6
Indirect (Soft) (2) 8 – 10 15 – 17
Contingency 2–3 3–4
Risk 2–5 3–6
Margin (3) 10 – 12 10 – 12
Range 26 – 35 36 – 45
Average 30% 40%
(1) General and Administrative (not directly billed to the project)
In the case of TD projects, Engineering Construction Management, Quality Control, Quality
(2)
Assurance, Bonding, Insurance, Price Escalation, Financing, etc. In the case of AFP projects, the
additional costs of Engineering (both Design and Design Management Services during Construction)
(3) Target Profit Margin
Study Approach and Methodology for Transit Projects

Unlike the approach and methodology for budgeting capital costs for highway projects delivered
through both AFP and TD methods, the first step in conducting a similar analysis of transit
projects was to develop a framework that would allow different types of transit projects to be
examined on a consistent basis. For convenience, the team developed an analysis methodology
based on the earlier Risk Matrix study that used the established principle of cost categories.
Using the same basis for cost analysis allows Infrastructure Ontario to use the same units and
compare the findings of this study with data collected on other Ontario transit projects. The list of
cost categories developed under the Risk Study was condensed significantly from the original to
identify only the main contract elements of a transit project.
The next phase was to develop an understanding of how project costing is built up in order to
identify the differences between AFP and TD projects. This was necessary to determine what
information needed to be collected and analyzed. Project costing was broken down into 'hard'
and 'soft' costs, those being the direct and indirect costs of a project, respectively. It was also
important to differentiate between the 'soft' costs that apply to the contractor and those that apply
to the owner. 'Soft' costs are an important consideration for deriving value in AFP projects.
The first step in developing the cost analysis matrix is to estimate the direct or 'hard' costs of
construction (labour, materials and equipment). The next step is to add the contractor 'soft' costs,
which the contractor applies to calculate his “bid” price or Guaranteed Maximum Price (GMP).
The final step is to add the owner's 'soft' costs to arrive at the overall project cost. The following
section, Profile of Capital Costs in the Transit Sector, describes in more detail how these 'hard'
and 'soft' costs are identified and applied.
A number of recent Canadian projects were used as examples for the comparison of AFP and TD
procured projects. Due to the confidential nature of the projects, actual cost figures were not
available. The team worked with percentage breakdown figures, which were quite adequate for
the purposes of this assignment. The breakdown of the 'hard' and 'soft' costs were generated
from known data as well as the team's extensive experience in costing of major infrastructure
projects (both AFP and TD).
Interviews were also conducted with a number of contractors and developers who have been
involved in major transit projects, both AFP and TD, in Canada and internationally. The
interviews were undertaken to support and confirm the findings related to this study. A summary
of the responses is provided later in this report.
After the data was collected, the information was summarized in spreadsheets for comparison.
The results are discussed in more detail in subsequent sections. The data was consistent across
the different projects and with an earlier study conducted for Infrastructure Ontario relative to
highway projects to be delivered using the AFP model. The responses from industry interviews
supported the results of the analysis and the team‟s own experience.
Finally, some interesting conclusions were drawn from the data with some tangible findings on
the difference in capital costs for major components of civil works and vehicle acquisition that
could be expected under different methods of procurement. A number of key findings were also
identified that should provide guidance to Infrastructure Ontario with respect to preferred
procurement options and methods.
Profile of Capital Costs in the Transit Sector
Cost Categories
The basic units of work for transit projects were divided into two groups: the 'civil' works, being
the typical physical construction elements; and the 'vehicle' technology, which included the
passenger vehicles and systems for control and safety. The civil elements are the more common
items, which most contractors can bid and build, and the vehicle elements are the more technical
components produced as proprietary products by a limited number of world-wide suppliers.
The civil construction works were subdivided into characteristic elements of construction, such as
at-grade runningway sections, elevated guideways (structures), tunnels, track work, stations and
support facilities. The vehicle elements were separated into vehicles and systems. Figure 3
describes the basic breakdown of the categories used in the analysis.
Figure 3 – Cost Category Breakdown of Transit Projects
Contract Elements Contract Sub-Elements
Civil Construction At-grade guideway elements, including all earthworks, retaining walls, roads, etc.
Elevated guideway structures (bridges, retaining structures)
Tunnels excavation, boring and construction including station area
Track elements including rails, fixation, switches, turnouts and crossovers
Station construction excluding guideway
Support facilities, including administration and maintenance, operation buildings
and yard.
Vehicle and Systems Vehicles
Systems to include all elements with power supply, train control, communications,
etc.
„Hard‟ Cost/Direct Cost

'Hard' Costs are the direct costs of construction. 'Hard' costs are those that the contractor incurs
for actual construction, including all the labour, material and equipment costs. A contractor adds
his 'soft' costs to the 'hard' costs to form his bid price. Owners do not typically know what the
'hard' costs are because they usually only see the final bid costs, which include both the
contractor's 'hard' and 'soft' costs. Most owners maintain an inventory of project costs from bid
prices, which do not break out the 'hard', or direct costs.
In most conventional construction projects, the 'hard' costs would be the same regardless of the
method of procurement or contractor. There are instances where additional value can be derived
from the 'hard' costs through AFP delivery methods. These opportunities will be discussed in
more detail later on in this report.
„Soft‟ Cost/ Indirect Cost

'Soft' costs can be divided into two groups: the 'soft' costs that contractors apply to arrive at their
bid price and the 'soft' costs that owners apply on top of the bid price to cover their indirect project
related costs (hereinafter referred to as owner costs). It is very important to understand how the
'soft' cost is built up because this is one area where AFP benefits are derived.
Contractor 'soft' Costs are the costs that contractors add to their 'hard' costs to form the bid price.
These 'soft' costs include items such as:
 General administrative costs (not directly billed to the project);
 Indirect costs such as engineering, construction management, quality control, quality
assurance, bonding, insurance, price escalation, financing, etc.;
 Contingency allowance to address unknowns;
 Risk premium to address project risks (sometimes contingencies and risk are dealt with
together);
 Target profit margin.
Owner 'soft' Costs are the costs that the owner adds to the contractor's bid price to form the
project cost. These 'soft' costs include items such as:
 Design and engineering, which include all of the planning, environmental assessment, detail
design, surveys and engineering studies;
 Project management;
 Construction management and administration;
 Contingency allowances for unknowns and risk.
The proportion of contractor 'soft' costs and Owner 'soft' costs will be different depending on the
type of procurement delivery method used (TD or AFP). The difference in 'soft' costs between
TD and AFP projects is one key area where value can be realized in AFP projects.
Another cost element that forms part of the owner's total project cost is “change orders”. Project
related information on change orders was not readily available and therefore not covered as part
of the analysis in this study. However, it is noted that change orders are often a significantly
higher cost component of the TD project than on AFP projects. Anecdotal comments made by
contractors during the interview, indicate that during the TD bidding process, contractors plan for
5-10% in extra change order fees through the life of the contract. As noted above, change orders
can significantly increase a contractor's profit margin.
Profile of Transit Projects Procured Using AFP (PPP)

Delivery Model
Project Types
Although the team's knowledge and experience is based on a variety of worldwide projects
delivered through both AFP and TD delivery methods, the data collected and analyzed as part of
this study is primarily based on projects in western Canada. The projects in western Canada are
most representative in terms of the AFP delivery process of transit projects and truly reflect the
Canadian experience.
The transit projects under consideration include the Canada Line, the Millennium Line, the recent
Calgary LRT extension and the Evergreen Line. All four projects are considered rapid transit
projects. Of the four projects, the first three have been awarded and either completed or under
construction; the Evergreen Line has not been procured at this time. These projects represent a
range of AFP procurement delivery methods from design-build (DB) to design-build-finance-
operate-maintain (DBFOM).
Detail cost breakdowns on these projects are confidential and were not available to the public or
the MMM team. The team was able to determine the proportional (percentage) breakdown of the
projects by construction element for comparison purposes. This information was sufficient to
conduct a high-level review. In order to further maintain confidentiality the projects are not
specifically identified.
The results of the analysis are presented in Appendix A: Table 1 at the back of this report.
Breakdown of „Hard‟ Costs

The 'hard' costs are described in Table 1 as a percentage of contract sub-element over total
project cost. The four projects are listed in no particular order, with the last one representative of
what the team felt was a typical rapid transit project inclusive of all sub-elements. The overall
breakout of transit projects into civil components fell within the range of 75-80% and vehicles
within the range of 20-25%. These figures are within the range of the team's expectations and
provide comfort that these percentages are a good representation of a typical transit project.
One project had a higher proportion of vehicle related costs, but that was explained by the unique
aspects of that particular project procurement process.
Breakdown of „Soft‟ Costs

The breakdown of the 'soft' costs into each of the 'soft' cost categories was generated from
project data where available and from the extensive experience of the senior team members that
have been involved with costing of major infrastructure projects. Furthermore, these figures were
substantiated in the interviews held with the construction and development industry involved in
transit projects worldwide. Individual percentages will vary somewhat depending on the AFP
model of procurement (i.e. DB or DBFOM), but the MMM team does not have enough specific
data to provide this level of precision.
The AFP 'soft' costs identified in Table 1 are representative of the percentages applied to the
'hard' costs as a contractor and an owner would apply them during the bidding and/or project cost
estimating process. In some cases, the percentages are compounded, and this is noted at the
bottom of the table. The Total contractor 'soft' cost corresponds to the surcharge applied to the
'hard' cost to arrive at the bid price. The total owner's cost corresponds to the surcharge applied
to the bid price to arrive at the total project cost.
In AFP projects, the overall surcharge that a contractor applies to the 'hard' cost is in the range of
40%. On top of that, the surcharge an owner applies to the bid price is about 8%. The owner's
surcharge is lower because in an AFP project there is much less oversight required by the
owner. The owner is not responsible for the design, has transferred that risk to the contractor
(through the design/build process) and therefore carries less contingency. In comparison to a
TD project, the respective total contractor 'soft' costs and owner's 'Soft' costs are 32% and 26%
(see Appendix A: Table 2 – TD Transit Projects – Hard Cost and Soft Cost Breakdown).
A key observation from Table 2 is the “Total contractor soft cost" percentage (44%) and “Total
owner soft cost" percentage (9%) figures for the “Total Civil” cost category. These figures when
compared to the TD figures (35% and 30%) highlight a key area of difference between the two
procurement methods. In the AFP model, the contractor incurs a higher proportion of 'soft' costs
and the owner incurs a lower proportion of costs compared to the TD procurement method.
This will be discussed in more detail in the next section.
The team also compared the results of this study with a study conducted in June 2009 for
Infrastructure Ontario regarding conventional vs. AFP delivered projects in the highway sector
and found the results to be compatible in terms of the proportional cost of the civil elements.
Profile of Transit Projects Procured Using Traditional TD
Delivery Model
Project Types
For traditional TD delivered projects, sample transit projects were targeted from Ontario. For
comparison, data was collected from the following projects: Spadina Subway, Mississauga BRT
and Hurontario LRT. Three different project types were used in this analysis, to represent
subways, Bus Rapid Transit (BRT) and Light Rapid Transit (LRT). As with the AFP projects
studied, for confidential reasons detail costs are not available and cost breakdowns are presented
in the form of percentages.
The TD breakdown is described in Table 2.
Breakdown of „Hard‟ Costs

The TD breakdown of 'hard' costs is more variable than the examples used for AFP projects
because the projects under consideration represent a greater variety of types of transit projects.
The biggest difference lies in the distribution costs within the contract sub-element categories.
Projects such as the Hurontario LRT have lower civil related costs because they are generally
built at grade, have simple station platforms and often use existing right-of-ways or roadway
platforms; hence, the vehicle costs form a higher relative proportion of the total. Subway projects
on the other hand are similar to the AFP projects in western Canada as they include a lot of
heavy civil work such as tunnelling, underground stations and vertical shafts with elevators and
escalators, and have a similar proportion of civil (80%) vs. vehicle costs (20%). This range of
variability in 'hard' costs is illustrated in the first three columns of Table 2.
Breakdown of „Soft‟ Costs

As with the AFP projects, the breakdown of the 'soft' costs into each of the 'soft' cost categories
was generated from project data where available and from the extensive experience of the senior
team members who have been involved with costing of major infrastructure projects. The 'soft'
costs are described on the columns on the right side of Table 2.
The total contractor 'soft' costs percentage is lower for both civil works and vehicles in TD
delivered projects compared to AFP (32% vs. 40%). This is as expected, because under an AFP
procurement model there are additional cost for design fees (indirect), higher contingency and
higher risk premiums to the contractor. The contractor's general administration costs and profit
margin would be about the same. The differences are higher on the civil side than the vehicle
side because the civil elements form the main part of the contractor's work while the vehicles and
systems tend to be a third party supply item. For example, on the civil side, the contractor's 'soft'
cost surcharge is about 35% for TD projects compared to 23% on the vehicle side.
On the other hand, the total owner's surcharge on the bid price is much higher on a traditional TD
delivered project as compared to AFP projects. The difference is greatest on the civil elements,
with 30% for TD projects as compared to 9% for AFP projects. AFP projects relieve the owner of
many management and administrative costs (including design and engineering fees, project
management, and construction administration) and reduce the amount of contingency allowance
necessary to deal with unknowns and risk.
In reviewing some of the TD cost data, we noted that in some cases the owner's 'soft' costs for
civil elements were higher than the 30% noted above, up to 45%. Although these figures were
realistic, we ignored some specific project data to normalize the results.
Although not accounted for in these figures, traditional delivered TD projects also tend to incur
higher overruns due to change orders and claims, which are much less common in AFP projects.
This is primarily the result of scope creep (including quantity overruns on unit price contracts) that
occurs through the construction phase of traditional (TD) delivered projects.
Comparison of AFP and TD Delivered Projects

As noted in the earlier discussion, AFP projects have higher contractor 'soft' cost surcharges than
TD projects and result in higher construction bid prices. This is typically what would be expected
as contractors must absorb the additional costs associated with the design and engineering fees,
assuming risk transfer and higher contingency amounts as a result of assuming greater
responsibility.
On the other hand, there are also significant differences in how owner's 'soft costs' are structured
in AFP projects. As a result of the changing roles, Owner's 'soft' costs in AFP projects tend to be
a lot lower. In a TD project, an owner often incurs significant costs in developing and managing
projects, managing risk, designing to prescriptive standards, administering prescriptive contracts
and managing change orders. In AFP projects the contractor assumes the risk that he is best
able to manage and takes on the responsibility for the successful completion of the project, thus
reducing a significant amount of owner oversight. The contractor's payments tied to performance
specifications and the timely, successful completion of the project.
Figure 4 – Cost Distribution of a “Typical” $1 Billion Project (Hard cost)
Cost Distribution of a $1 billion Project
$1,600
$1,400
$1,200
$1,000 Owner Soft Cost

Contractor Soft Cost
$800
Hard Cost
$600
$400
$200
$0
AFP TD
The overall effect is that a project delivered through TD will incur a higher total project cost than a
project delivered through AFP procurement methods even though the hard construction costs
may be the same. Figure 4 illustrates the difference between the cost build-up of a project
delivered through TD versus AFP procurement methods. A “typical” project worth $1 billion
dollars in 'hard' costs will cost $1.51 billion following AFP delivery methods versus $1.66 billion
using TD; yielding a savings of $150 million in 'soft' costs alone. The “typical” project for the
purposes of this study is defined to have the proportional contract elements as identified in Tables
1, 2 and 3 in Appendix A. Transit projects with different proportions of vehicle and civil elements
will produce different results; however, TD projects will always reflect a higher total cost.
When the combined effect of the contractor 'soft' costs and owner 'soft' costs are compared, AFP
delivered projects provide overall greater value than TD delivered projects. This is key to the
value difference between the two procurement delivery methods.
Table 3 describes the comparison of the combined effect of the contractor and owner soft cost as
they are applied to AFP and TD projects. Using a sample project breakdown, the table shows
that the total 'soft' cost surcharge to an AFP project is 51% vs. 66% to a traditional TD project.
The net difference between the two (15% of 'hard' costs) represents the savings or value that an
AFP project has over a TD project. Different types of transit projects (i.e. with different contract
sub-element proportions) may have different overall outcomes.
If the results are reviewed on a contract sub-element basis, we can see that although all elements
show positive results, the highest AFP benefits are achieved in the heavy civil construction area
such as tunnels, stations and support facilities. Vehicles, on the other hand, show the lowest
benefit area. In the case of vehicles, the contractor does not have the opportunity to provide as
much additional value, because the vehicles are usually a third party supply item. AFP transit
projects that are high in heavy civil elements will generally realize the greatest benefits.
It is noted that although the analysis methodology is valid, this calculation is
derived from extrapolating basic assumptions. The reader should be cautioned
not to use these figures as empirical facts but rather to represent order of magnitude benefits.
The results support intuitive judgment and expert opinion within the AFP/PPP industry.
Contractor and Developer Questionnaire
Questionnaire
In order to gather additional data in support of the assumptions and findings of this report, a
questionnaire was developed for the purpose of interviewing leaders in the AFP/PPP industry.
Companies such as PCL, SNC Lavalin, Dragados, ACS, Ellis Don, AECON and Hochtief were
interviewed by Bob Nairn. In order to maintain confidentiality, the contractors were only identified
as Contractor A, B, C… etc.
Copies of the industry questionnaires are included in Appendix B.
Questionnaire Responses and Findings

Seven interviews were conducted with contractors and developers. A summary of the responses
is provided in Table 6 (at the back of the report). A copy of individual responses is also available
at the back of the report.
The following summarizes the key findings from the responses:
 All interviewees indicated that performance based specifications would result in capital cost
savings of 10% to 15%.
 Almost all contractors/developers preferred the optimal level of design prepared by the owner
to be in the range of 10% to 20%. This allows more opportunity on the contractor's part to
provide innovation.
 The contractors/developers all agreed that civil works provide the greatest opportunity for
innovation and cost savings with the margin of savings of 10% to 15%.
 All agreed that greater design and schedule efficiencies can be achieved by integrating the
design and build functions.
 All groups stated that the size of the project has an influence on the decision to bid or not.
However, there was no consistency on what that threshold project value is.
 DBF and DBFOM models apply the most accountability to contractors/developers.
 Significant construction schedule savings can be achieved in AFP projects compared to TD
projects. Contractors/developers estimated the time savings on a $2 billion project to be in
the order of two to three years.
 Contractor 'soft' costs are more than 10% higher on AFP transit projects than on a
comparable TD project.
 Design costs under an AFP model are lower than TD. Some contractors/developers stated
that AFP delivery would save 50% over TD design costs.
 The contractors were not concerned with having to provide funding. They all agreed that a
greater level of discipline is created when the contractor has to provide the funding.
Factors Influencing the Ability to Deliver Better Value For

Money on AFP Projects
In addition to the current practice of determining value for money achieved through the use of an
AFP procurement model vs. traditional delivery, a number of other factors for AFP related
benefits need to be understood and captured in order to understand all aspects of a value for
money determination. The following commentary explores factors influencing the ability to
achieve better value for money on AFP projects.
Environmental Assessment (EA) Planning Process

A review of recently completed and approved EA reports for major transportation projects in
Ontario indicates that the considerations of approval 'negotiated' with the various approval
ministries, agencies and affected municipalities are extensive and have or will result in significant
cost implications to a project both from the stand point of capital cost as well as implementation
schedule. Most of these studies are being carried out by competent transportation and
environmental planners; however, there is seldom sufficient overview in the course of these
studies by experienced designers and senior construction advisors. The addition of these
disciplines during the planning process on a periodic “Red Team” basis would provide a
challenge function for overly restrictive conditions of approval of the EA being imposed on the
project.
Prescriptive vs Non-Prescriptive Scoping

There continues to be considerable debate over the optimal level of design to be advanced by an
owner prior to releasing an RFP for a major transportation project. Various owners have a
tendency to advance the preliminary design work to 30 – 50 % completion. The major contracting
and development representatives surveyed in the course of this study were asked to respond to
the following question:
“What would be the optimum level of design prepared by the owner which would leave sufficient
room for innovation by the contractor and hence provide savings and value to the project? (%)”
The overall response indicated that a level of design between as low as 10% and as high as 20%
would result in maximizing potential savings and value to the project and to the owner.
Innovation and Value Engineering

Contractors continually look for opportunities to add value and reduce the costs of their bid. By
undertaking Value Engineering (VE) investigations and considering innovative and alternative
ways to deliver a project where savings can be realized, they are able to reduce the 'hard' costs
of a project. Major contractors are more familiar with new and different civil construction methods
than most owners are and they are more willing to assume risk to achieve savings in both cost
and schedule. Under traditional delivery (TD) delivery, owners tend to do the opposite -- they rely
on reliable past means and methods, avoid risk to the extent possible and continue to rely on past
experiences. The use of performance-based specifications allows contractors more opportunity
to deliver value for money.
To better illustrate the significance of contractor innovations and VE, the following summary
provides examples of significant savings achieved on four completed AFP transportation projects.
Fredericton to Moncton Highway Project (FHMP)

– New Brunswick
Earth Excavation
The grade line developed by NB DOT and identified in the RFP translated into
approximately 22 million cubic metres of excavation required to construct the 200 km four-
lane divided rural freeway. During the bidding stage, the design team working with the
contractor team were able to refine the gradeline (using a maximum haul distance of 1
kilometre) and reduce the bid quantity to approximately 20 million cubic metres. Further
refinements during detailed design resulted in a total grading quantity of approximately 19
million cubic metres. This represented a savings of approximately $30 to $40 million
dollars on a 'hard cost' for the entire contract of approximately $450 million (7-9%
reduction in total hard cost).
Rock Grading
NB DOT's design practice for highway projects being delivered conventionally was to
develop a pavement design that did not differentiate from earth vs. rock subgrade. The
design team working with the contractor team opted to use 300 mm of rock shatter
through the rock cut sections and thus refine the pavement design section through rock
cuts (using only top course granular and eliminating the need for base course granulars).
Furthermore, the pavement designs over the project were based on the adequacy of the
subgrade modulus by section and sub-section over the entire 200 km of the project, thus
significantly reducing the overall quantities of granular material that would have been
estimated within the NB DOT's public sector comparator (PSC).
Rock Capping
Over several sections of the project the design team working with the contracting team
opted to 'rock cap' the earth subgrade in order to facilitate an earlier spring start-up on
placing granulars for paving operations. This approach extended the normal construction
period by up to one month, shortening the overall construction timetable with consequent
savings.
Clearing and Grubbing
Rather than the conventional approach of clearing and grubbing the entire right-of-way,
the design/contracting team opted to only clear and grub the right-of-way to limits which
were some 5 meters clear of cut slopes/fill slopes.
Structures
Many of the structures identified in the RFP were planned as prestressed concrete girder
structures. Some of these structures were changed by the design/contracting team to
concrete rigid frame structures to achieve cost savings and more importantly schedule
savings since this type of structure facilitated winter construction.
Furthermore, most of the multi open structures were designed with integral or semi-
integral abutments thus eliminating the need for bearings and expansion joints at the
abutments (both capital cost and maintenance cost savings realized over NB DOT
practice at the time).
Paving
The project's paving subcontractor supplied and installed a portable asphalt plant on the
site dedicated to the project, thus enabling adherence to an aggressive paving schedule.
South East Anthony Henday Drive (SEAH) – Alberta

Interchanges
A number of interchanges planned to be constructed with Diamond configurations by
Alberta Infrastructure and Transportation (AIT) and identified as such in the RFP were
changed by the design team working with the contractor to Parclo 'A' configurations. This
change substantially reduced the structure, grading and paving costs at each
interchange by eliminating the initial requirement to provide left turning lanes over the
length of the overpass structures.
Structures
Not only were the multispan structures designed to be integral or semi-integral with the
abutments, but where possible all structures were designed with 'closed' abutments rather
than with 'open' end spans identified in the RFP. On this project, which had a capital cost
(both hard and soft) of approximately $325 million, the structures represented
approximately one-third of the total cost. Consequently, the elimination of the end 'spans'
probably accounted for up to a 5% reduction in the hard cost of the project.
Grading
Some of the earth subgrades on this project were particularly soft and wet. Rather than
opting for extensive 'sub-cutting' of the subgrade, the grading subcontractor carried out
extensive discing as well as the application of lime to address the wet subgrade. This
approach was both more cost effective and avoided schedule slippage.
Supply of Granular Base Materials
It is interesting to note that on this contract, the paving subcontractor opted to haul and
stockpile granular base material on the completed earth subgrade through the late fall and
early winter months in order to gain a schedule advantage in the following spring.
Subcontracting Strategy
All subcontractors on this project for structures; grading and drainage; granular base,
paving and signing were awarded by the prime contractor on a lump sum basis (no
quantity measurement, no change order, no claims, reduced quality control associated
with monthly measurement of quantities for payment purposes, etc.). This subcontracting
strategy resulted in a lower risk profile, some savings in 'soft' costs, avoidance of
overruns, etc.
Paving
The paving subcontractor supplied and installed a portable asphalt plant on the site
dedicated to the project, thus enabling adherence to an aggressive paving schedule.
Furthermore, the top course paving was deferred for three years following opening of the
highway to traffic in order to reduce the initial capital cost of the project and shift this work
to the operations and maintenance phase. This represented an initial capital cost saving
of approximately 3%.
407 ETR Value Engineering Delivers $200 Million Savings to the

Province
On June 24, 1993, the Premier of Ontario announced that two consortia, Ontario Road
Development Corporation (ORDC) and Canadian Highways International Corporation
(CHIC), had been selected to compete for the Design, Build, Finance, Operate and
Maintain contract for Highway 407.
Both competing teams were requested to prepare and submit value engineering proposals
to be developed within a period of six (6) weeks and submitted to the Ministry of
Transportation by August 6, 1993. The studies identified potential savings of $200 million
on a project that at the time was budgeted at approximately $1.2 billion. The biggest
savings were achieved by redesigning the three (3) freeway-to-freeway interchanges from
four (4) levels to three (3) levels as well as the deferral of several other interchanges.
Both consortia were paid an honorarium of $2 million for the value engineering proposal
and the Ministry incorporated the proposed changes into the final scope of the project
within the Request for Proposal (RFP). This early value engineering exercise at the
commencement of the RFP process resulted in a 'hard' cost reduction of the project in the
order of 15%. This approach provides an excellent example of how giving the private
sector reasonable latitude to 'challenge' the generally prescriptive approach to defining
project scope by government agencies can result in significant savings on AFP projects.
Canada Line – Vancouver, British Columbia

The Canada Line is a 19 km rail rapid transit system connecting downtown Vancouver to
the Vancouver International Airport and Central Richmond. The Province originally
planned for deep bored tunnels for the section of the Canada Line along the Cambie
corridor. The successful contractor changed the construction method to shallower cut and
cover construction over this section of the route and as a result achieved significant
savings from lower cost of cut and cover construction and stations as well from a reduced
construction schedule.
Furthermore, the Province's scope was based on the existing sky train vehicle technology
utilizing the linear induction motor (LIM) propulsion system. The developer's successful
bid involved contracting with an off-shore transit vehicle manufacturer for the supply of the
Canada Line vehicles at a savings of approximately $1 million/vehicle.
Schedule Savings
The time to complete a project from inception can be significantly reduced by procuring a project
through AFP delivery. When major transportation projects are delivered through traditional
delivery, they are often broken into a number of smaller contracts (bonding capacity being a
factor) and delivered through a number of non-concurrent design-bid-build steps that significantly
extend the project completion date.
When the major contractors and developers surveyed in the course of this study were asked the
following question:
“Considering the probable time frame to deliver a $2 billion dollar major transit project from the
time of initiating the project to its construction completion, how would you compare the [AFP vs.
TD] project schedules?”
The contractors noted that AFP procurement vs. traditional delivery would deliver the project
sooner, by up to two to three years. The savings realized by a shorter overall schedule are
difficult to quantify because they are not normally recognized in the financial accounting of the
project.
If we accept that the schedule to completion on a $2 billion dollar major transit project could be
achieved two years earlier under an AFP procurement model and that the annual 'burn' rate in
the traditional schedule would approximate $400 million dollars, the AFP schedule could deliver
as much as 3 to 4 % savings in the overall project cost (assuming a wage and consumer price
index of approximately 3%/year and owner management costs of 7% of construction
expenditures/year).
AFP contracts also allow the opportunity for a contractor to proceed at risk and hence deliver the
project even sooner. There can be months between the time a developer/contractor team has
been selected and a contract finally executed/awarded. Because a contractor most likely will
not receive payment until a milestone date or until construction is completed, it is in the
contractor's best interest to start as soon as possible following selection as preferred proponent.
By allowing the contractor to proceed at risk, the schedule can be further improved.
The foregoing two year AFP schedule savings on a $2 billion dollar major transit project, as
estimated by the contractors and developers surveyed in the course of this study, is premised on
the project being adequately funded whether it is to be delivered as a TD project or an AFP
project. In reality, government is seldom able to fund a project of this magnitude with public funds
within a relatively short time frame and deliver it as a single project. Consequently, projects of
this magnitude, whether transit projects or highway projects, are broken down into a sequential
series of projects when delivered conventionally, thus extending the overall schedule by many
years.
By way of example, the completion of the first 69 km of Highway 407 ETR was scheduled to take
23 years based on conventional annual MTO budget allocations, yet was delivered in less than 4
years.
TD Contract Creep
Change Orders issued in the course of managing a TD project are another area often overlooked
when comparing the cost of delivering TD projects vs. the cost of delivering AFP projects. AFP
projects very seldom generate change orders in comparison to TD contracts as a consequence of
most of the risk being transferred to the contractor. Under AFP contracts, the owner has to
commit early on to the scope of the project using performance specifications. As long as the
owner has properly defined the project requirements using performance specifications, there is
seldom any need to issue subsequent change orders.
TD Delivered projects, on the other hand, are prescriptive in nature and because the owner
continues to closely manage the project during the construction (remains responsible) there is
always the tendency to make adjustments and redefine scopes. In recent discussions with
representatives of the Ministry of Transportation, we understand that their records indicate that
contractor change orders and claims on TD projects currently account for approximately 10% of
the final contract value (or in other words, creep in the original contract value of +10%).
Life Cycle Benefits

Under either TD delivery or delivery of a major transportation project by Design-Build (D/B), the
operation, maintenance and rehabilitation of the asset over time remains the responsibility of the
owner. By way of comparison, a major transportation project undertaken as an AFP with follow-
on operations, maintenance and rehabilitation obligations over a concession period of some 30 to
40 years provides the owner with the added advantage of the application of life cycle attention to
the project throughout the term of the concession. Turn back requirements at the end of the
concession period obligate the concessionaire to return the asset to the owner in very good
condition.
There is very little information available to date to compare the resultant asset value between TD
and AFP (with O&M) at the end of a typical 30 year concession, but the cost benefits achieved by
the AFP procurement model will be significant.
Socio-Economic Benefits
Beyond the capital cost savings between TD and AFP delivered major transportation projects, the
completion of the project as an AFP makes it possible for users to take advantage of a quality
infrastructure asset within a significantly reduced time frame. The earlier completion will generate
significant socio-economic benefits for the users and various levels of government. In the case of
the road users, these benefits will include reduced travel time, a decrease in vehicle maintenance
and operating costs as well as the provision of an upgraded or new facility. From the perspective
of the community, benefits will include the potential for economic development and reduction in
vehicle emissions.
By way of example, the early completion of the 407 ETR, generated major social and economic
benefits due to congestion relief in Toronto that at the time was estimated to cost the Toronto
economy some $2 billion annualy.
Combined Effect of Value Engineering on AFP Hard Costs and Creep
on TD Project Costs
In order to take into account the effect of AFP Value Engineering (VE) benefits as well as the
effect of creep on TD projects, we applied varying percentages to the derived AFP and TD project
costs, to illustrate the implications that these two factors would have on the overall comparison for
value for money as a percentage of the project costs delivered traditionally (TD). Benefits
(reductions in cost) of 5% and 10% were applied to the AFP project costs to account for
VE/innovation and 5% and 10% surcharges were applied to the TD project costs to account for
creep (change orders and claims).
Tables 4 and 5 (pages 17 and 18 of this report) illustrate the effect of VE benefits and creep
adjustments on major transit projects (civil elements only) and on major highway projects. Using
as a base reference the 10% reduction in hard costs for AFP projects, as identified in the survey
of major contractors familiar with AFP delivery, the civil project cost of AFP projects can be 19%
(say 20%) lower than equivalent TD transit and highway projects. When one takes into account
the effect of creep on TD projects, the value for money to be realized by an AFP procurement
model could reach 25% with 5% creep and as much as 30% assuming 10% creep. Other factors
such as approval of environmental assessments, schedule savings, more attention to staging
capital works over the term of an AFP contract and unaccounted-for owner management costs on
TD projects also need to be considered when considering the full story on value for money
achieved by AFP delivery.
Table 4 – Effect of Value Engineering on AFP Hard Costs and Creep on TD Project Costs
Transit Sector – Civil Elements Only
Alternate Financing Procurement Traditional Delivery

Adjustment for Value Engineering Adjustment for Creep (Change Orders)
Multiplier factors
of Hard Cost No 'Ha rd' Cost VE 5% Benefit VE 10% Benefit No "Hard" Cost 5% Creep 10% Creep
Adjustment Adjustment
'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1.10
Contractor's
1 0.44 0.41 0.39 0.35 0.36 0.38
Soft Cost
Owner's
1 0.10 0.09 0.09 0.30 0.32 0.33
Soft Cost
1
Project Cost 1.54 1.45 1.38 1.65 1.73 1.81
Range of potential Savings of AFP over TD costs
No 'Ha rd' Cost VE 5% Benefit VE 10% Benefit

Value for Money
Adjustment
% of TD Cost
No Creep 7.1% 13.8% 19.6%
5% Creep 12.3 % 19.3% 25.4%
10% Creep 17.5% 24.8% 31 .2%
(1) Soft Costs Not Compounded
Highway Sector

Adjustment for Value Engineering Adjustment for Creep (Change Orders)
Multiplier factors
of Hard Cost No 'Hard' Cost VE 5% Benefit VE 10% Benefit No "Hard" Cost 5% Creep 10% Creep
'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1.10
Contractor's
040 0.38 0.36 0.30 0.32 0.33
Soft Cost 1
Owner's
0.10 0.09 0.09 0.30 0.32 0.33
Soft Cost P
Project Cost 1 1.50 1.42 1.35 1.60 1.69 1.76
No 'Hard' Cost VE 5% Benefit VE 10% Benefit

Value for Money
Adjustment
% of TD Cost
No Creep 6.7% 12.7% 18.5%
5% Creep 12.7% 19.0% 25.2%
10% Creep 17.3% 23.9% 30.4%
Conclusions
In carrying out this study, it became apparent that it is not possible to simply classify all projects
into a simple category. Nevertheless, despite differences in size and complexity among the
projects considered, we were able to draw a number of key conclusions as to where the main
AFP benefits lie and to provide a rationale for the differences.
When one considers both contractor and owner 'soft' costs for major transit projects, AFP
procurement can on average provide total project 'soft' costs savings over TD delivery in the
order of 15% of the 'hard' costs (Table 3) or approximately 9% of the total TD project cost. The
savings on major transit projects are greater in the 'civil' elements, in the order of 18% (Appendix
A: Table 3 – Comparison of Transit AFP and Transit TD Soft Costs) assuming no Value
Engineering or scope creep adjustments.
When the effect of Value Engineering on AFP 'hard costs' and contract creep of traditional (TD)
project costs is included in the overall project cost analysis as outlined in Tables 4 and 5 of this
report, the savings of both transit and highway AFP projects over equivalent TD projects
conservatively range between 10% and 30%.
Based on specific project data and comments from industry bidders, it can be concluded that the
case for AFP delivery of transit and highways is even stronger than the conservative approach
taken by Infrastructure Ontario in its Value for Money (VFM) model. In general, the savings can
be attributed to:
 Reduced owner 'soft' costs (10% to 15%)
 Bidder innovation and Value Engineering (10% to 20%)
 Avoidance of Change Orders and Scope Creep (10% +)
 On-time or Accelerated Completion (5% to 10%)
 Economies of Scale
 Performance specifications compared to prescriptive specifications
Although not captured in the review of soft costs associated with TD transit projects as
summarized in Table 2 of this report, the Toronto Transit Commission (TTC) as an example,
regularly carry allowances of 25% for engineering and project management fees and 30% for
construction management and contingency. These allowances compare to 13% and 15%
respectively carried by other owner agencies as identified in this report, resulting in significantly
higher owner 'soft costs' (over 20%) than those reported in this report. Based on current
budgeting practices by agencies like TTC, it can be expected that even greater savings than
those mentioned in this report could be achieved if major projects brought to market by agencies
like TTC were procured using AFP delivery methods.
By way of another comparison on major 'greenfield' highway projects, the Ministry of
Transportation (MTO) as an example, applies an allowance of 10% for engineering, 10% for
contingencies and 7 – 15% for construction management. These allowances do not account for
the the agency‟s internal 'soft' costs associated with project management through the design and
construction phases of projects delivered conventionally (TD). It would not be unreasonable to
assume that the MTO's 'soft costs' currently approximate 40 – 45%, some 10 – 15% higher than
the owners' 'soft' costs reported in this report.
When compared to the conclusions arrived at in this report, it can be expected that even greater
savings are possible if major projects brought to market by agencies like MTO, were procured
using the AFP model.
Appendix A
tAbles
D16-011-03
Tables
Table 1 - AFP Transit Projects - (Hard Cost and Soft Cost Breakdown)
Contractor's Soft Costs Owner's Costs. Percentage of

TRANSIT PROJECTS HARD COST
Percentage of Hard Costs Bid Price (Hard and Soft Costs)
Design & Engineering

Target Profit Margin
Project Management
Total Owner's Cost

Total Contractor
Administrative
Construction
Management
Contingency
Contingency
Soft Cost *
Indirect
General &
PROJECT PROJECT PROJECT Typical
Risk
Contract Elements Contract Sub-Elements
1 2 3 Project
At grade guideway elements,

including all earthworks, retaining 1% 10% 3% 4% 6% 12% 5% 5% 8% 40% 2% 3% 1% 2% 8%
walls, roads, etc.
Elevated guideway structures

23% 12% 28% 25% 6% 12% 5% 7% 8% 43% 2% 3% 1% 2% 8%
(bridges, retaining structures)
Tunnels excavation, boring and

33% 21% 3% 23% 3% 4% 15% 12% 12% 52% 3% 3% 1% 8% 15%
construction including station area.
Track elements including rails,

Civil Construction fixation, switches, turnouts and 3% 15% 8% 7% 4% 5% 1% 3% 8% 22% 0% 3% 0% 2% 5%
crossovers
Station construction excluding

19% 21% 14% 14% 6% 13% 4% 6% 8% 41% 1% 3% 1% 0% 5%
guideway
Support facilities, including

administration and maintenance & 3% 0% 0% 4% 6% 13% 5% 6% 8% 43% 1% 3% 1% 2% 7%
operation buildings and yard
Tot.II Clvtl 82% 79% 57% 77% 5% 9% 7% 8% 9% 44% 2% 3% 1% 3% 9%
Vehicles 8% 10% 15% 12% 2% 3% 0% 10% 5% 21% 0% 0% 0% 0% 0%
Systems to include all elements

Vehicle and Systems associated with power supply, tra in 10% 11 % 28% 11% 4% 12% 2% 4% 8% 33% 0% 3% 1% 0% 4%
control, communications, etc.
Total Vehicle & Syttemt 18% 21% 43% 23% 3% 7% 1% 7% 6% 27% 0% 1% 0% 0% 2%
TOTAL 100% 100% 100% 100% 4% 9% 6% 8% 9% 40% 1% 3% 1% 3% 8%
'" Notes on Compounding % Non-Comp Non-Comp Comp first Comp first Comp on all Non-Comp Non-Comp Non-Comp Comp on all
D16 010-75
Table 2 - TD Transit Projects - Hard Cost and Soft Cost Breakdown
C o ntract o r's S oft Costs Owner' s Costs • Percentage of

TRANSIT PROJECTS HARD COST
Percentage of Hard Costs Bid Price (Hard and Soft Costs)
Design & Engineering

Target Profit Margin
Project Management
Total Owner's Cost

Total Contractor
Administrative
Contingency
Construction
Management
Contingency
Soft Cost *
Indirect
Typical
General &
Risk
Contract Elements Contract Sub-Elements Subw ay LRT BRT
Project
At grade guidew ay element s,

including all earthw orks. retaining 8% 23% 51% 4% 6% 6% 4% 4% 8% 31% 5% 8% 6% 5% 25%
wa ll s . roads, etc.
Elevated gurdeway structu res

(bridges , ret a1n1ng structures)
0% 7% 20% 25% 6% 6% 5% 5% 8% 33% 5% 8% 6% 5% 25%
Tunnels excavation. boring and

construction including station area
30% 0% 4% 23% 3% 3% 10% 10% 12% 42% 3% 8% 10% 15% 39%
Track elements including rail s.

Civil Construction fixation, switches, turnouts and 4% 9% 0% 7% 4% 3% 1% 2% 8% 19% 4% 8% 4% 2% 18%
crossovers
Station construction excluding
33% 2% 26% 14% 6% 8% 4% 4% 8% 33% 8% 8% 6% 7% 31%
guideway
Support facilities including
administration and maintenance & 5% 14% 0% 4% 6% 8% 5% 5% 8% 35% 8% 8% 6% 7% 31%
operation buildings and yard
Total Civil 80% 56% 100% 77% 5% 5% 6% 6% 9% 35% 5% 8% 7% 8% 30%
Vehicles 14% 29% 0% 12% 2% 0% 0% 10% 5% 18% 2% 3% 0% 0% 5%
Systems to include all elements

Vehicle and Systems associated with power supply, train 6% 15% 0% 11% 4% 10% 2% 2% 8% 28% 4% 8% 4% 2% 18%
control, communications, etc
Total Vehicle & Systems 20% 44% 0% 23% 3% 5% 1% 6% 6% 23% 3% 5% 2% 1% 11%
TOTAL 100% 100% 100% 100% 4% 5% 5% 6% 9% 32% 5% 7% 6% 7% 26%
Comp on first Comp on first

... Notes on Compounding % Non-Comp Non-Comp Comp on all Non-Comp Non- Comp Non -Comp Comp on all
2 2
Table 3 - Comparison of Transit AFP and Transit TD Soft Costs
TRANSIT PROJECTS AFP TD Comparison
Combined Surcharge
Combined Surcharge
(compounded)
(compounded)
TYPICAL
Soft Cost %
Soft Cost %
Soft Cost %
Contractor
Soft Cost %
Contractor
PROJECT
Owner
Owner
Benefit of
Contract Elements Contract Sub-Elements PROPORTION
AFPover TD
OF HARD
COST
At. grade guideway elements, including all earthworks ,

4% 40% 8% 52% 31% 25% 63% 12%
retaining walls, roads, etc.
Elevated guideway structures (bridges, retaining

25% 43% 8% 54% 33% 25% 66% 12%
structures)
Tunnels excavation, boring and construction including
23% 52% 16% 76% 42% 39% 98% 22%
station area.
Civil Construction Track elements including rails, fixation, switches,

turnouts and crossovers
7% 22% 5% 29% 19% 18% 41% 12%
station construction excluding guideway 14% 41% 5% 48% 33% 31% 74% 25%
Support facilities, including administration and

4% 43% 7% 53% 35% 31% 77% 24%
maintenance & operation buildings and yard.
Total Civil 77% 44% 9% 57% 35% 30% 75% 18%
Vehicles 12% 21% 0% 21% 18% 5% 24% 2%
Systems to include all elements associated with powe

Vehicle and Systems supply, train control , communications, etc.
11% 33% 4% 38% 28% 18% 52% 13%
Total Vehicle & Systems 23% 27% 2% 29% 23% 11% 37% 7%
TOTAL 100% 40% 8% 51% 32% 26% 66% 15%

D16 010-75
Transit Sector – Civil Elements Only
Alternate Financing Pro cure ment Traditional Delivery
Adjustment for Value Eng ineering Adjustment for Creep (Change Orders)
Multi plier factors
of Hard Cost No 'Hard' Cost VE 5% Benefit VE 10% Benefit No "Hard" Cost 5% Creep 10% Creep
'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1. 10
Contractor's
0.44 0.41 0.39 0.35 0.36 0.38
Soft Cost 1
Owner's
0.10 0.09 0.09 0.30 0.32 0.33
Soft Cost 1
1
Project Cost 1.54 1.45 1.38 1.65 1.73 1.81

Value for Mo ney Adjustment
% of TD Co st
No Creep 7.1% 13.8% 19.6%
5% Creep 12.3% 19.3% 25.4%
10% Creep 17.5% 24.8% 31.2%
Highway Sector

Adjustment for Value Engineering Adjustment fo r Creep (Change Orders)
Multiplier factors
of Hard Cost No 'Hard' Cost VE 5% Benefit VE 10% Benefit No "Hard' Cost 5% Creep 10% Creep
'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1.10
Contractor's
0.40 0.38 0.36 0.30 0.32 0.33
Soft Cost 1
Owner's
0.10 0.09 0.09 0.30 0.32 0.33
Soft Cost 1
1
Project Cost 1.50 1.42 1.35 1.60 1.69 1.76

Value for Money Adjustment
% of TD Cost
No Creep 6.7% 12.7% 18.5%
5% Creep 12.7% 19.0% 25.2%
10% Creep 17.3% 23.9% 30.4%
(1 ) Soft Costs Not Compounded

D16 010-75
Table 6 - Summary of Confidential Comments from the Contracting and Development Industry
Question Contractor Developer

A B C D A B C
3 On Major Transit Projects, do you consider that performance Yes Yes Yes Yes Yes Yes Yes
based specifications can result in capital cost savings versus the
use of standard agency specifications/practices?
5 On other Major Transportation Projects, do you consider that Yes Yes Yes Yes Yes Yes Yes
performance based specifications can result in capital cost (C1)
savings versus the use of standard agency
specifications/practices?
6 What would be the optimal level of design prepared by the owner, 10 - 20 (B1) 15 – 25 10 – 20 (E1) 20 10 – 15
which would leave sufficient room for innovation by the contractor (C2)
and hence provide savings and value to the project? (%)
7 What elements of a major transit project have the greatest Civil Civil Civil Civil Civil Civil Civil
opportunity for innovation and hence cost savings and value to Works Works Works Works Works Works Works
the owner; such as: Civil works (at grade, tunnels, structures), (B2) (G1)
Vehicles and Systems?
8 What are the potential margins for savings? (%) 10 - 15 10 - 15 10 10 - 15 10 – 20 10 20 – 30
9 Are there benefits to be achieved, in the way of design, Yes Yes Yes Yes Yes Yes Yes
construction and schedule efficiencies, by having a design team
working closely within a project office?
10 What would be the minimum 'threshold' project value of a project -DB: 50 100 100 50 N/A 100 50
to be of interest to bid on? -DBF: 100 250 300 100-200 N/C N/A 100
-DBFOM: 200 500 1,000 500 500 150 100
11 If we were to consider four project procurement methods for a DBF DBFO DBF DBFOM DBFOM DBF DBFOM
Major Transit project, such as: TD, DB, DBF and DBFOM; which DBFOM M DBFOM DBFOM
methods do you believe provides the greater level of (A1) (F1)
accountability on the contractor/concessionaire?
12 The delivery of major transit projects through AFP's (P3) has -Trad.: Yes Yes Yes Yes Yes Yes Yes
utilized a number of governance models, including traditional SPPC (G): Yes Yes Yes Yes Yes Yes Yes
government department/agencies; Special Purpose Project SPPC (P): No Yes No Yes Yes Yes Yes
Companies (with various government board staff/representatives)
and Special Purpose Project Companies (with both government
and private sector boards).
Have you had experience with any or all of these governance
models?
Question Contractor Developer
A B C D A B C
13 Considering the probable time frame to deliver a $2 billion dollar -TD: 6–8 7.5 – 8.5 7.5 – 8.5 7.33 – 7.5 – 8.5 6.5 – 8.5 6.5 – 8
-DB: 3.75 - 4.75 4.75 5.25 – 5.5 8.33 4.75 4.5 – 5.5 4.25 – 4.75
major transit project from that time of initiating the project to its -DBF: 3.75 – 4.75 4.75 5.25 – 5.5 5 4.75 4.5 – 5.5 4.25 – 4.75
construction completion, how would you compare the project -DBFOM: 3.75 – 4.75 4.75 5.25 – 5.5 5 4.75 4.5 – 5.5 4.25 – 4.75
schedules? (A2) 5
14 Looking forward to the next five years or so, what is your opinion 2% N/C 3% 2-3 N/C 2-3 3–5
in regards to the impact of inflation on construction industry prices
(in this field) in Canada and in particular Ontario? (%)
15 With the understanding that a contractor assumes a greater level Yes Yes Yes Yes Yes Yes 5 – 10
of risk in undertaking the construction of a major transit project as 5 – 10 10+ +10 10+ 10+ 10+ (G2)
DB, DBFOM or AFP (P3), do you find that your total “Soft” costs (A3) (B3) (D1)
on the project exceed what you would have anticipated in
conventionally delivered project (TD); and if so which elements of
the soft costs are affected and by what overall margin? (%)
16 Design costs in the delivery of a conventional major transit project Yes Yes Yes Yes N/C Yes Yes
budgeted by the agency's and subsequently bid and constructed (A4) (B4) (C3) (D2) (G3)
by a general contractor can run as high as 10% of the capital
costs. From your experience in the delivery of DB, DBOM or AFP
(P3) major transit projects can you confirm that these design
costs would be lower; and if so by what margin?
17 Do you find providing funding for a project creates any particular (A5) (B5) No No No No (G4)
challenges that would not have existed if all funding was provided (F2)
by an agency.
18 It has been said that when a contractor provides his own funding Yes Yes Yes Yes Yes Yes Yes
a greater discipline is created to achieve budget, do you agree (C4)
with this statement?
19 Are there any projects, in your opinion, that are not appropriate for Yes Yes Yes Yes (E2) Yes Yes
an AFP type delivery method, and what factors do you take into (A6) (B6) (C5) (D3) (F3) (G5)
consideration to form this opinion?
20 What do you consider to be the major advantage and (A7) (B7) (C6) (D4) (E3) (F4) (G6)
disadvantage of AFP type projects?
21 Do you have any other comments that may be of assistance to (A8) (B8) (C7) (D5) N/C N/C N/C
Infrastructure Ontario regarding the potential difference in capital
costs for major components of civil works and vehicle acquisition
that could be expected under different methods of procurement?
D16 010-75
Summary of Comments
Contractor A Comments
A1 As a privately owned construction company, Contractor A is often required to either finance or participate in the
financing of large infrastructure projects and as a consequence will bring a greater level of discipline to the project.
A2 With traditional delivery (TD), Contractor A's experience on construction schedules points to a larger overall schedule
as a consequence of change orders, etc.
A3 Principal elements would include allowance for greater transfer of risk to the private sector and obviously the inclusion
of the design cost by the contractor within the soft cost for alternate delivery.
A4 Contractor A is not prepared to comment on the margin between design costs associated with traditional delivery vs
alternate delivery.
A5 Contractor A has found that the contract terms can influence the ability to provide funding by the private sector on
alternate delivery projects.
A6 Factors that will influence this opinion include
1) Size of project
2) Extent of design completed by the government agency
3) Contractual conditions
4) Brownfield project with limited scope for innovation
A7 Advantages
1) Opportunity for innovation
2) Shorter overall schedule for delivery
3) More value for money invested
A8 No further comments other than the need to point out that on AFP projects, there are few if any change orders,
consequently the capital cost bid corresponds to the capital cost built (no creep) compared to traditional delivery
where anywhere from 3 – 4 % to upwards of 10% due to change orders and legitimate claims, etc.
Contractor B Comments
B1 Minimum level of design as possible. Means and methods of construction should be left to the Contractor, including
the provision of TBMs for tunneling.
B2 On the understanding that the transit vehicle operations are clearly defined (i.e. double tracking vs gauntlet tracking)
B3 Depending on the size of the project, principle elements would include an allowance for greater transfer of risk to the
Contractor and obviously the inclusion of the design cost by the Contractor within the soft cost for alternate delivery.
B4 Contractor B's experience would indicate that the margin could be as much as 5 to 6% (i.e. design costs of 4 – 5% vs
10%)
B5 None that cannot be reasonably negotiated
B6 Factors that will influence this opinion include

1) Size of project
B7 Advantages
1) Opportunity for innovation
2) Shorter overall schedule
3) More effective control during delivery of the project
4) More value for money invested
B8 No further comments
Contractor C Comments
C1 Based on experience with major transit projects
C2 Varies depending on complexity of the project:
 Subway projects  25%
 Busway  15%
C3 Contractor C is not prepared to comment on the margin.
C4 Contractor C is a privately owned major construction company that does invest its own funding in alternate delivery
infrastructure projects.
C5 Certainly the size of a project may influence whether the project is or is not appropriate for an AFP delivery model.
C6 Major Advantages
1) Opportunity for innovation on those projects that are not too “prescriptive” (design carried to 40 – 50% level for
example)
Major Disadvantages
1) On those projects involving not only civil works but also systems and vehicles, Contractor C has found it to be both
challenging and difficult to work effectively with the system and vehicle supplier
C7 No further comments
D16 010-75
Contractor D Comments
D1 Engineering included in soft cost
D2 50% + lower engineering cost
D3 1) Projects involving overly sensitive interface with government and consequently great difficulty in pricing the
interface
2) Size of project
3) Contractual terms
D4 1) Condensed schedule for delivery

2) Opportunity to innovate and deliver value for money
3) Transfer of risk to the private sector
D5 The civil works provide the component of the project most likely to deliver value for money to IO.
Developer A
E1 Minimum level of design as possible but adequate description of the project and understanding of the contract
requirements.
E2 1) Size
2) Projects on which the risk transfer is inappropriate
4) Financial feasibility where revenue risk is to be assumed by the private developer
E3 1) The ability to bring private equity to a project

2) The ability to access more debt
3) The transfer of risk to the private sector and the private sector's ability to manage risk
4) Lower net present value associated with the AFP delivery
Developer B
F1 Depending on contractual arrangements regarding the integration of systems and vehicles within the overall project.
F2 Depends on contractual terms and market penetration/commitment at the time.
F3 1) Size
3) Brownfield projects with little scope for innovation and difficult to assess level of risk
F4 1) Bring best minds in the room
2) Removes adverse position between engineers and contractors
3) 30 year warranty (life cycle)
4) Quality control by contractor
5) Opportunity to bring innovative solutions to the project
Developer C
G1 On the understanding that the integration of the civil works with the system components of the project is properly
understood.
G2 Where the Concessionaire and Contractor are corporately 'interlocked' there is a much better opportunity to 'merge'
the allowance for risk on the project hence the possibility to lower the total soft cost provision on DBFOM projects.
G3 By as much as 50%
G4 No (but it depends on the financial community marketplace and its capacity to respond to the industry needs)
G5 1) Size
3) Level of government commitment to the project
G6 1) The ability to bring innovation to the project

2) Emphasis on life cycle costing
3) Schedule
4) Attention to ensuring quality
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Appendix b
ContrACtor/developer
questionnAires
D16-011-03
CONFIDENTIAL COMMENTS
FROM THE CONTRACTING AND DEVELOPMENT INDUSTRY
Regarding Influences on Capital Costs in the Transit Sector
For Major Transit Projects

Delivered Conventionally versus
Alternative Finance Procurement methods.
Contractor A
For Infrastructure Ontario
March, 2010
Commentary Questions:
Study Introduction:
MMM Group is currently undertaking a study for Infrastructure Ontario. The purpose of the study
is to gain an understanding of the differences in the capital costs for major components of civil
works and vehicle acquisition that could be expected under different methods of procurement. As
part of this study, MMM believes it is very important to get some feedback from some of the major
participants in the Canadian AFP/P3 industry. In order to help guide the discussion we have
prepared a number of formal questions.
Note: MMM will not be identifying specific contractors/developers by name, only as contractor A,
B, C. Information will be presented in a summary format with special notation on specific findings.
1. Respondent:
Contractor A
Date: March 29, 2010
2. Experience in the delivery on Major Transit Projects:
No Yes
TD DB DBF DBFOM Concession
Canada
United States
International
3. On Major Transit Projects, do you consider that performance based specifications

can result in capital cost savings versus the use of standard agency
Yes: No:
Comments:
D16 010-75

4. Experience in the delivery of other Major Transportation Projects:
No Yes
Canada
United States
International
5. On other Major Transportation Projects, do you consider that performance based

specifications can result in capital cost savings versus the use of standard agency
Yes: No:
Comments:
6. What would be the optimal level of design prepared by the owner, which would
leave sufficient room for innovation by the contractor and hence provide savings
and value to the project?
Answer:
10 - 20% (maximum)
Comments:
7. What elements of a major transit project have the greatest opportunity for
innovation and hence cost savings and value to the owner; such as: Civil works (at
grade, tunnels, structures), Vehicles and Systems?
Answer:
Civil Works
Comments:
D16 010-75

8. What are the potential margins for savings?
Answer:
10 - 15%
Comments:
9. Are there benefits to be achieved, in the way of design, construction and schedule
efficiencies, by having a design team working closely within a project office?
Yes: No:
Comments:
10. What would be the minimum 'threshold' project value of a project to be of interest
to bid on?
BD: 50 millions
DBF: 100 millions
DBFOM: 200 millions
11. If we were to consider four project procurement methods for a Major Transit
project, such as: TD, DB, DBF and DBFOM; which methods do you believe provides
the greater level of accountability on the contractor/concessionaire?
Answer:
DBF, DBFOM
Comments:
As a privately owned construction company, Contractor A is often required to either
finance or participate in the financing of large infrastructure projects and as a
consequence will bring a greater level of discipline to the project.
D16 010-75

12. The delivery of major transit projects through AFP's (P3) has utilized a number of
governance models, including traditional government department/agencies; Special
Purpose Project Companies (with various government board staff/representatives)
and Special Purpose Project Companies (with both government and private sector
boards). Have you had experience with any or all of these governance models?
Yes No
Traditional Government Department/Agencies
Special Purpose Project Companies (Government Board)
Special Purpose Project Companies (Government/Private Sector Board)
Comments:
13. Considering the probable time frame to deliver a $2 billion dollar major transit
project from that time of initiating the project to its construction completion, how
would you compare the project schedules?
Bid (years) Design Build Total

(years) (years) (years)
TD 0.5 min 2-3 3.5 – 4.5 6–8
DB  0.25 (1) 3-4 3.75 – 4.75
DBF    
DBFOM    
Note: (1) To start of construction
Comments:
With traditional delivery (TD), Contractor A’s experience on construction schedules points
to a larger overall schedule as a consequence of change orders, etc.
14. Looking forward to the next five years or so, what is your opinion in regards to the
impact of inflation on construction industry prices (in this field) in Canada and in
particular Ontario?
Answer:
2 %
Comments:
No comments
D16 010-75

15. With the understanding that a contractor assumes a greater level of risk in
undertaking the construction of a major transit project as DB, DBFOM or AFP (P3),
do you find that your total “Soft” costs on the project exceed what you would have
anticipated in conventionally delivered project (TD); and if so which elements of the
soft costs are affected and by what overall margin?
Answer:
Yes, in the range of 10%.
Comments:
Principal elements would include allowance for greater transfer of risk to the private sector
and obviously the inclusion of the design cost by the contractor within the soft cost for
alternate delivery.
16. Design costs in the delivery of a conventional major transit project budgeted by the
agency's and subsequently bid and constructed by a general contractor can run as
high as 10% of the capital costs. From your experience in the delivery of DB,
DBOM or AFP (P3) major transit projects can you confirm that these design costs
would be lower; and if so by what margin?
Answer:
Yes
Comments:
Contractor A is not prepared to comment on the margin between design costs associated
with traditional delivery vs alternate delivery.
17. Do you find providing funding for a project creates any particular challenges that
would not have existed if all funding was provided by an agency.
Answer:
Comments:
Contractor A has found that the contract terms can influence the ability to provide funding
by the private sector on alternate delivery projects.
18. It has been said that when a contractor provides his own funding a greater
discipline is created to achieve budget, do you agree with this statement?
Answer:
Yes
Comments:
D16 010-75

19. Are there any projects, in your opinion, that are not appropriate for an AFP type
delivery method, and what factors do you take into consideration to form this
opinion?
Answer:
Yes
Comments:
Factors that will influence this opinion include:
1. Size of project
2. Extent of design completed by the government agency
3. Contractual conditions
4. Brownfield project with limited scope for innovation
20. What do you consider to be the major advantage and disadvantage of AFP type
projects?
Answer:
Comments:
Advantages:
1. Opportunity for innovation
2. Shorter overall schedule for delivery
3. More value for money invested
21. Do you have any other comments that may be of assistance to Infrastructure
Ontario regarding the potential difference in capital costs for major components of
civil works and vehicle acquisition that could be expected under different methods
of procurement?
Answer:
Comments:
No further comments other than the need to point out that on AFP projects, there are few
if any change orders, consequently the capital cost bid corresponds to the capital cost
built (no creep) compared to traditional delivery where anywhere from 3 – 4 % to upwards
of 10% due to change orders and legitimate claims, etc.
D16 010-75


Contractor B
March, 2010
Study Introduction:
1. Respondent:
Contractor B
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

No Yes
Canada
United States
International

Yes: No:
Comments:
Answer:
Comments:
Minimum level of design as possible. Means and methods of construction should be left
to the Contractor, including the provision of TBMs for tunneling.
Answer:
Civil Works
Comments:
On the understanding that the transit vehicle operations are clearly defined (i.e. double
tracking vs gauntlet tracking)
D16 010-75

Answer:
10 - 15 %
Comments:
Yes: No:
Comments:
to bid on?
BD: 100 millions
DBF: 250 millions
DBFOM: 500 millions
Answer:
DBFOM
Comments:
D16 010-75

Yes No
Comments:
Bid (years) Design Build Total (years)

(years) (years)
TD 0.5 min 2-3 5 7.5 – 8.5
DB  0.25 (1) 4 4.75
DBF    
DBFOM    
Note: (1) To start of construction
Comments:
particular Ontario?
Answer:
Comments:
No comment.
D16 010-75

Answer:
Yes, in the range of 10%
Comments:
Depending on the size of the project, principle elements would include an allowance for
greater transfer of risk to the Contractor and obviously the inclusion of the design cost by
the Contractor within the soft cost for alternate delivery.
Answer:
Yes
Comments:
Contractor B’s experience would indicate that the margin could be as much as 5 to 6%
(i.e. design costs of 4 – 5% vs 10%)
Answer:
Comments:
None that cannot be reasonably negotiated
Answer:
Yes
Comments:
D16 010-75

opinion?
Answer:
Yes
Comments:
Factors that will influence this opinion include:
1. Size of project
projects?
Answer:
Comments:
Advantages:
3. Opportunity for innovation
4. Shorter overall schedule
5. More effective control during delivery of the project
6. More value for money invested
of procurement?
Answer:
Comments:
No further comments
D16 010-75


Contractor C
March, 2010
Study Introduction:
1. Respondent:
Contractor C
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

Yes
No
Canada
United States
International

Yes: No:
Comments:
Based on experience with major transit projects
Answer:
Comments:
Varies depending on complexity of the project:
1. Subway projects  25%
2. Busway  15%.
Answer:
Civil Works
Comments:
D16 010-75

Answer:
10% +
Comments:
Yes: No:
Comments:
to bid on?
BD: 100 millions
DBF: 300 millions
DBFOM: 1000 millions
Answer:
DBF, DBFOM
Comments:
D16 010-75

Yes No
Comments:
Bid (years) Design Build Total (years)

(years) (years)
TD 0.5 min 2-3 5+ 7.5 – 8.5
DB  0.25 – 0.5 4.5 5.25 – 5.5
DBF    
DBFOM    
Comments:
particular Ontario?
Answer:
3% max
Comments:
No comment.
D16 010-75

Answer:
Yes, 10%
Comments:
Answer:
Yes
Comments:
Contractor C is not prepared to comment on the margin.
Answer:
No
Comments:
None that cannot be reasonably negotiated
Answer:
Yes
Comments:
Contractor C is a privately owned major construction company that does invest its own
funding in alternate delivery infrastructure projects.
D16 010-75

opinion?
Answer:
Yes
Comments:
Certainly the size of a project may influence whether the project is or is not appropriate for
an AFP delivery model.
projects?
Answer:
Comments:
Major Advantages:
1. Opportunity for innovation on those projects that are not too “prescriptive” (design
carried to 40 – 50% level for example)
Major Disadvantages:
1. On those projects involving not only civil works but also systems and vehicles,
Contractor C has found it to be both challenging and difficult to work effectively
with the system and vehicle supplier
of procurement?
Answer:
Comments:
No further comments
D16 010-75


Contractor D
March, 2010
Study Introduction:
1. Respondent:
Contractor D
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

Yes
No
Canada
United States
International

Yes: No:
Comments:
Based on experience with major transit projects
Answer:
10 – 20%
Comments:
Answer:
Civil Works
Comments:
D16 010-75

Answer:
10% - 15%
Comments:
Yes: No:
Comments:
to bid on?
BD: 50 millions
DBF: 100 - 200 millions
DBFOM: 500 millions
Answer:
DBFOM
Comments:
D16 010-75

Yes No
Comments:
Bid (years) Design (years) Build (years) Total (years)

TD 0.33 2-3 5 7.33 – 8.33
DB 0.5 0.5 4 5
DBF    
DBFOM    
Comments:
particular Ontario?
Answer:
2 - 3%
Comments:
D16 010-75

Answer:
Yes, 10%
Comments:
Engineering included in soft cost.
Answer:
Yes
Comments:
50% + lower engineering cost.
Answer:
No
Comments:
Answer:
Yes
Comments:
D16 010-75

opinion?
Answer:
Comments:
1. Projects involving overly sensitive interface with government and consequently
great difficulty in pricing the interface
2. Size of project
3. Contractual terms
projects?
Answer:
Comments:
1. Condensed schedule for delivery
2. Opportunity to innovate and deliver value for money
3. Transfer of risk to the private sector
of procurement?
Answer:
Comments:
The civil works provide the component of the project most likely to deliver value for money
to IO.
D16 010-75


Developer A
March, 2010
Study Introduction:
1. Respondent:
Developer A
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

Yes
No
Canada
United States
International

Yes: No:
Comments:
Answer:
Minimum level of design as possible but adequate description of the project and
understanding of the contract requirements.
Comments:
Answer:
Civil Works
Comments:
D16 010-75

Answer:
10% - 20%
Comments:
Yes: No:
Comments:
to bid on?
BD: N/A millions
DBF: no comment millions
DBFOM: 500 millions
Answer:
DBFOM
Comments:
D16 010-75

Yes No
Comments:

TD 0.5 minimum 2-3 5 7.5 – 8.5
(1)
DB  0.25 4 4.75
DBF   4 
DBFOM   4 
Comments:
particular Ontario?
Answer:
Comments:
No comments
D16 010-75

Answer:
Yes
Comments:
+10%
Answer:
Comments:
No comment
Answer:
No
Comments:
Answer:
Yes
Comments:
D16 010-75

opinion?
Answer:
Comments:
1. Size
2. Projects on which the risk transfer is inappropriate
4. Financial feasibility where revenue risk is to be assumed by the private developer
projects?
Answer:
Comments:
1. The ability to bring private equity to a project
2. The ability to access more debt
3. The transfer of risk to the private sector and the private sector’s ability to manage risk
4. Lower net present value associated with the AFP delivery
of procurement?
Answer:
Comments:
No comment
D16 010-75


Developer B
March, 2010
Study Introduction:
1. Respondent:
Developer B
Date: April 7, 2010
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

Yes
No
Canada
United States
International

Yes: No:
Comments:
Answer:
20%
Comments:
Answer:
Civil Works
Comments:
D16 010-75

Answer:
10%
Comments:
Yes: No:
Comments:
to bid on?
BD: 100 millions
DBF: N/A millions
DBFOM: 150 millions
Answer:
DBF, DBFOM
Comments:
Depending on contractual arrangements regarding the integration of systems and vehicles
within the overall project.
D16 010-75

Yes No
Comments:

TD 0.5 min 2-3 4.0 – 5.0 6.5 – 8.5
DB  0.5 3.5 – 4.5 4.5 – 5.5
DBF    
DBFOM    
Comments:
particular Ontario?
Answer:
2 – 3%
Comments:
No comments
D16 010-75

Answer:
Yes
Comments:
10% +
Answer:
Yes
Comments:
No comment
Answer:
No
Comments:
Depends on contractual terms and market penetration/commitment at the time.
Answer:
Yes
Comments:
D16 010-75

opinion?
Answer:
Yes
Comments:
1. Size
3. Brownfield projects with little scope for innovation and difficult to assess level of risk
projects?
Answer:
Comments:
1. Bring best minds in the room
2. Removes adverse position between engineers and contractors
3. 30 year warranty (life cycle)
4. Quality control by contractor
5. Opportunity to bring innovative solutions to the project
of procurement?
Answer:
Comments:
No comment
D16 010-75


Developer C
March, 2010
Study Introduction:
1. Respondent:
Developer C
Date: April 13, 2010
No Yes
Canada
United States
International

Yes: No:
Comments:
D16 010-75

Yes
No
Canada
United States
International

Yes: No:
Comments:
Answer:
10 – 15% (minimum as possible)
Comments:
Answer:
Civil Works
Comments:
On the understanding that the integration of the civil works with the system components of
the project is properly understood.
D16 010-75

Answer:
20 - 30% +
Comments:
Yes: No:
Comments:
to bid on?
BD: 50 millions
DBF: 100 millions
DBFOM: 100 millions
Answer:
DBFOM
Comments:
D16 010-75

Yes No
Comments:

TD 4.6 months 2-3 4.0 – 4.5 6.5 – 8.8
DB  3 months 3.5 – 4.0 4.25 – 4.75
DBF    
DBFOM    
Comments:
particular Ontario?
Answer:
3 - 5%
Comments:
D16 010-75

Answer:
5 – 10%
Comments:
Where the Concessionaire and Contractor are corporately ‘interlocked’ there is a much
better opportunity to ‘merge’ the allowance for risk on the project hence the possibility to
lower the total soft cost provision on DBFOM projects.
Answer:
Yes, (by as much as 50%)
Comments:
Answer:
No (but it depends on the financial community marketplace and its capacity to respond to
the industry needs)
Comments:
Answer:
Yes
Comments:
D16 010-75

opinion?
Answer:
Yes
Comments:
1. Size
3. Level of government commitment to the project
projects?
Answer:
Comments:
1. The ability to bring innovation to the project
2. Emphasis on life cycle costing
3. Schedule
4. Attention to ensuring quality
of procurement?
Answer:
No
Comments:
D16 010-75

BudgetingCapitalCosts MMM Group

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BUDGETING CAPITAL COSTS IN THE

TRANSIT AND HIGHWAY SECTOR:

Report prepared by MMM Group

A Word on Terms ......................................................................................................................... 3

Study Approach and Methodology for Highway Projects............................................................... 3

Highway Cost Estimating Process (TD) ........................................................................................ 3

Profile of Capital Costs in the Transit Sector................................................................................. 6

Contractor and Developer Questionnaire .................................................................................... 13

Differences between Design-Bid-Build and AFP Page i

Study Approach and Methodology for Highway Projects

Highway Cost Estimating Process (TD)

Figure 1 – Highway Projects – Major Item Breakdown

Hard vs. Soft Costs on Highway Projects

Figure 2 – Highway Projects – Contractor Soft Costs

Study Approach and Methodology for Transit Projects

Profile of Capital Costs in the Transit Sector

„Hard‟ Cost/Direct Cost

„Soft‟ Cost/ Indirect Cost

Profile of Transit Projects Procured Using AFP (PPP)

Breakdown of „Hard‟ Costs

Breakdown of „Soft‟ Costs

Breakdown of „Hard‟ Costs

Breakdown of „Soft‟ Costs

Comparison of AFP and TD Delivered Projects

Cost Distribution of a $1 billion Project

$1,000 Owner Soft Cost

Contractor and Developer Questionnaire

Questionnaire Responses and Findings

Factors Influencing the Ability to Deliver Better Value For

Environmental Assessment (EA) Planning Process

Prescriptive vs Non-Prescriptive Scoping

Innovation and Value Engineering

Fredericton to Moncton Highway Project (FHMP)

South East Anthony Henday Drive (SEAH) – Alberta

407 ETR Value Engineering Delivers $200 Million Savings to the

Canada Line – Vancouver, British Columbia

Life Cycle Benefits

Alternate Financing Procurement Traditional Delivery

'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1.10

Range of potential Savings of AFP over TD costs

No 'Ha rd' Cost VE 5% Benefit VE 10% Benefit

No Creep 7.1% 13.8% 19.6%

5% Creep 12.3 % 19.3% 25.4%

10% Creep 17.5% 24.8% 31 .2%

(1) Soft Costs Not Compounded

Alternate Financing Procurement Traditional Delivery

'Hard' Cost 1.00 0.95 0.90 1.00 1.05 1.10

Project Cost 1 1.50 1.42 1.35 1.60 1.69 1.76

Range of potential Savings of AFP over TD costs

No 'Hard' Cost VE 5% Benefit VE 10% Benefit

No Creep 6.7% 12.7% 18.5%

5% Creep 12.7% 19.0% 25.2%

10% Creep 17.3% 23.9% 30.4%

(1) Soft Costs Not Compounded

Contractor's Soft Costs Owner's Costs. Percentage of

Design & Engineering

Total Owner's Cost

At grade guideway elements,

Elevated guideway structures

Tunnels excavation, boring and

Track elements including rails,

Station construction excluding

Support facilities, including