Stave Lake Water and Supply and Treatment Project Business Case - April 15, 2011 PDF

Stave Lake Water
Supply and Treatment

Project
Business Case for P3 Canada
Fund Funding Request
April 15, 2011

Table of Contents
1 Introduction ............................................................................................................................................ 1
1.1 Project Name ................................................................................................................................. 1
1.2 Contact Information ...................................................................................................................... 1
1.3 Purpose of this Business Case....................................................................................................... 1
1.4 Limitations .................................................................................................................................... 1
2 Project Description and Investment Decision ........................................................................................ 2
2.1 Strategic Alignment and Priority .................................................................................................. 2
2.2 Project Description and Scope ...................................................................................................... 2
2.3 Summary of Needs Assessment .................................................................................................... 5
2.4 Summary of Feasibility Study....................................................................................................... 5
2.5 Project Goals ................................................................................................................................. 6
2.6 Social Benefits .............................................................................................................................. 7
2.7 Economic Benefits ........................................................................................................................ 7
2.8 Benefits Summary ......................................................................................................................... 8
2.9 Investment Decision...................................................................................................................... 8
3 Project Status .......................................................................................................................................... 9
3.1 Planning and Current Work .......................................................................................................... 9
3.2 Environmental Assessment ......................................................................................................... 11
3.3 Consultation with Stakeholders and the Public ........................................................................... 12
4 Procurement Decision .......................................................................................................................... 14
4.1 Project Delivery Options Analysis .............................................................................................. 14
4.2 Market Sounding ......................................................................................................................... 28
4.3 Financial Analysis ....................................................................................................................... 29
4.4 Recommended Procurement Model ............................................................................................ 48
4.5 Nomenclature for Recommended Procurement Model............................................................... 49
5 Funding and Affordability .................................................................................................................... 51
5.1 Provincial Funding ...................................................................................................................... 51
5.2 Federal Funding .......................................................................................................................... 51
5.3 Municipal Funding ...................................................................................................................... 51
5.4 Accounting Analysis ................................................................................................................... 51
5.5 Affordability ............................................................................................................................... 51
5.6 Funding Request from P3 Canada Fund ..................................................................................... 52
6 Indicative Procurement Strategy .......................................................................................................... 54
6.1 Recommended Procurement Process .......................................................................................... 54
6.2 Transaction Structure .................................................................................................................. 55
6.3 Approvals .................................................................................................................................... 56
April 15 2011 - Confidential

Deloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Request i
6.4 Project Team ............................................................................................................................... 57
6.5 Project Governance ..................................................................................................................... 58
6.6 Project Schedule.......................................................................................................................... 59
6.7 Key Documents ........................................................................................................................... 59
6.8 Implementation Plan / Next Steps ............................................................................................... 60
Figures
Figure 1 - Project Infrastructure Components and Key Plan ........................................................................ 4

Figure 2 - Water Supply vs. Maximum Day Demand .................................................................................. 5
Figure 3 - Project Development Process ..................................................................................................... 10
Figure 4 - Qualitative Risk Scale ................................................................................................................ 21
Figure 5 - Qualitative Risk Results ............................................................................................................. 23
Figure 6 - Procurement Schedules .............................................................................................................. 35
Figure 7 Bundle A Total Estimated Risk-Adjusted Project Cost Range (best/expected/worst cases) ..... 41
Figure 8 - Bundle B Total Estimated Risk-Adjusted Project Cost Range (best/expected/worst cases) ...... 43
Figure 9 Combined DBFO and Hybrid DBFO+DBO Total Estimated Risk-Adjusted Project Cost Range
(best/expected/worst cases) ......................................................................................................................... 45
Figure 10 - Transaction Structure ............................................................................................................... 55
Figure 11 - Project Governance .................................................................................................................. 58
Tables
Table 1 - Project Goals ................................................................................................................................. 6

Table 2 - Recent and Current Planning Work ............................................................................................... 9
Table 3 - Key Approvals to Date .................................................................................................................. 9
Table 4 - Procurement Objectives ............................................................................................................... 14
Table 5 - Characteristics of Major Project Infrastructure Components ...................................................... 15
Table 6 - Assessment of Term of Operating Period.................................................................................... 17
Table 7 - Project Delivery (Procurement) Models Under Consideration.................................................... 18
Table 8 - Unweighted Qualitative Risk Scores ........................................................................................... 24
Table 9 - Summary of Multiple Criteria Assessment Results ..................................................................... 25
Table 10 - Market Sounding Participants Project Roles and Project Interest ............................................ 28
Table 11 - Capital Cost Savings As Compared to DBB Estimate .............................................................. 30
Table 12 - Adjustment of O&M Cost Estimates for VFM Analysis ..................................................... 32
Table 13 - Summary of Base Cost Estimates ($2011) ................................................................................ 33
Table 14 Financial/Economic Assumptions ............................................................................................ 36
Table 15 - Short Term Debt Assumptions for DBO and DBFO ................................................................. 36
Table 16 Long-Term Financial Assumptions for DBFO ......................................................................... 37
Table 17 - Net Present Value of Quantified Risks (50th percentile expected value) ................................ 38
Table 18 - Total Estimated Risk Adjusted Project Costs for Bundle A ...................................................... 40
Table 19 - Value for Money Estimates for Bundle A ................................................................................. 40
Table 20 - Total Estimated Risk Adjusted Project Costs for Bundle B ...................................................... 42
Table 21 - Value for Money Estimates for Bundle B ................................................................................. 42
Table 22 - Total Estimated Risk Adjusted Project Costs for Combined Bundle Hybrid ............................ 43
Table 23 - Value for Money Estimates for Combined Bundle Hybrid ....................................................... 44
Table 24 - Total Estimated Risk Adjusted Project Costs for Combined Bundle A + Bundle B DBFO ..... 44
Table 25 - Value for Money Estimates for Combined Bundle A + Bundle B DBFO ................................ 44
Table 26 - VFM Comparison of Combined DBFO and Hybrid DBFO+DBO ........................................... 45
Table 27 - Sensitivity Analysis ................................................................................................................... 47
Table 28 - Sensitivity to P3 Efficiency Estimates....................................................................................... 47

Deloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Request ii
Table 29 - Estimated P3 Canada Fund Contribution for 25% of Eligible Costs ($millions, nominal as-
spent dollars) ............................................................................................................................................. 52
Table 30 - Incremental VFM to AMWSC from P3 Canada Fund Investment ........................................... 53
Table 31 Recommended Council Approvals ........................................................................................... 56
Table 32- Project Governance: Roles & Responsibilities ........................................................................... 58
Table 33 Project Steering Committee Membership .................................................................................. 58
Table 34 - Working Committee Membership ............................................................................................. 59
Appendices
A References
B Qualitative risk assessment workshop results
C Multi-criteria analysis workshop results
D Cost Estimate Summary
E Risk quantification results
F Value for money subcomponents

Deloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Request iii
1 Introduction
1.1 Project Name
Procuring Authority: The City of Abbotsford
Project Name: Stave Lake Water Supply and Treatment Project
1.2 Contact Information

Tracy Kyle, P.Eng.
Director of Water and Solid Waste
City of Abbotsford
32315 South Fraser Way
Abbotsford, BC V2T 1W7
604-864-5519
tkyle@abbotsford.ca
1.3 Purpose of this Business Case

The purpose of the business case is to summarize the analysis undertaken to determine whether the
Project may qualify for financial support from the P3 Canada Fund in Round Two. The document is
structured according to PPP Canadas guidance as provided in the document P3 Canada Fund - Program
Overview, Submission Guide & Project Submission Form: Round Two (May - June 2010). The
methodology used is guided by Partnerships BCs P3 analysis approach.
Broadly, the business case examines the suitability of the Project to be fulfilled through a Public-Private-
Partnership (P3, or PPP) delivery model.
1.4 Limitations
This report was prepared for the exclusive use of the City of Abbotsford, and is not intended for general
circulation or publication, nor is it to be reproduced or used without written permission of Deloitte with
the exception of its submission to PPP Canada for purposes of seeking financial support from the P3
Canada Fund. It relies on certain information provided by third parties, none of which Deloitte has
independently reviewed. No third party is entitled to rely, in any manner or for any purpose, on this
report. Deloittes services may include advice or recommendations, but all decisions in connection with
the implementation of such advice and recommendations shall be the responsibility of, and be made by,
the City of Abbotsford.

Deloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Request 1
2 Project Description and Investment
Decision
2.1 Strategic Alignment and Priority
The City of Abbotsford provides community water supply as one of its many municipal responsibilities
and services. The City obtains bulk potable water from a regional supply system, which it owns in
conjunction with the District of Mission and which is managed by the Abbotsford Mission Water &
Sewer Commission (AMWSC). The AMWSC is administered by the City, and the regional water system
infrastructure is operated by the City for the AMWSC.
Water supply is a fundamental municipal service that is crucial for human health, quality of life, fire
protection, and economic development. Due to continued growth in the communities, the AMWSC
expects that demand for water will exceed supply capacity from its existing three sources as early as
2015. The AMWSC is currently expanding its groundwater pumping capacity and implementing demand
management measures to meet immediate needs. However a completely new water source is required to
meet long term demand. The Stave Lake Water Supply and Treatment Project (the Project) will
provide this new water source.
Without the Project, the City will be unable to meet the projected water demand. The Project is therefore
in complete alignment with the municipal responsibilities and objectives of the City with regard to public
health and safety and community development. The Project, though owned 100% by the City and
therefore not a part of the regional water system, will be capable of supplying water to the regional water
system.
The Project is a very high priority given that the City will not be able to meet its fundamental objective of
water supply by as early as 2015 unless the Project is completed. Meeting water demand is mission-
critical for the City, and the residents and businesses served by the City water system and regional water
system.
2.2 Project Description and Scope
2.2.1 Infrastructure Description

The Project comprises the following major components (shown on Figure 1) which together will
provide the City with a new source of treated water tied into the existing water distribution system:
a water intake in Stave Lake;

a pump station on the east shore of Stave Lake;
a water treatment plant (WTP) north of the District of Mission;
a 6.6 km raw water transmission main from the pump station to the WTP; and
a 12.4 km treated water transmission main from the WTP through Mission, crossing the
Fraser River to a connection point on the existing transmission system in Abbotsford.
The ultimate water supply capacity of the project is 400 million litres per day (MLD). The Intake
& Pump Station superstructure will be sized for the ultimate capacity as it is impractical to develop
such facilities incrementally. The transmission main and WTP capacity will be developed in

phases, with the first phase expected to be approximately 150 MLD. The pump station capacity
may be developed in phases as well, by replacing or adding pumps within the superstructure.
2.2.2 Operation and Maintenance

In addition to the design and construction of the infrastructure, the Project comprises the ongoing
operation, maintenance, and rehabilitation of the infrastructure.
2.2.3 Project Term

Municipal water supply is a service that is required in perpetuity, and the Project therefore has a
very long term lifecycle horizon. Major civil components of the infrastructure (transmission mains,
concrete structures) can be expected to have useful lives of 100 years or longer, considerably longer
than any anticipated P3 operating term. Electrical and mechanical subcomponents within the
superstructures will be replaced periodically. There is no sunset envisioned for the Project, and
therefore it is not permissible to allow the asset to be run down in anticipation of a
decommissioning. Maintaining asset value over the long term is crucial.
2.2.4 Capacity Expansion

Expansion of water treatment capacity (and the corresponding increase in pump station pumping
capacity) could be required as early as 20221 but more likely between 20332 and 20463 according to
the current AMWSC 2010 Water Master Plan (WMP). Timing of the expansion will depend on
several factors including actual water demand, utilization of groundwater supplies, and expansion
of transmission capacity from the Norrish Creek WTP. The WMP will evolve and be optimized
over time, and therefore predicting the timing and sizing of future phases of Stave WTP expansion
is difficult. The ability to expand the pumping and treatment capacity of the Project is crucial.
1
If no demand reduction through conservation is realized, groundwater not used, no expansion of Norrish Creek capacity
2
If conservation demand is realized and groundwater is not utilized, no expansion of Norrish Creek capacity
3
If conservation demand is realized and groundwater use is maximized, no expansion of Norrish Creek capacity

Figure 1 - Project Infrastructure Components and Key Plan

2.3 Summary of Needs Assessment
The needs assessment was conducted under the auspices of the WMP. The WMP compared existing and
future water demands and supply capacity, as illustrated on Figure 2.
Figure 2 - Water Supply vs. Maximum Day Demand4
Approximately 88% of the growth in water demand shown is attributable to the City of Abbotsford.
The figure shows that:
the AMWSC was water-short as early as 2007, when supply and demand were approximately
equal;
the watering restrictions are expected to mitigate the supply shortfall until 2013; and
operation of the Bevan wells at 25 MLD5 is expected to mitigate the shortfall until 2017.
The need for an additional source of water for the communities is very clear, with demand exceeding
supply at some point between 2013 and 2017 assuming that watering restrictions remain as effective as
they have so far.
2.4 Summary of Feasibility Study

The WMP developed 17 options for meeting the anticipated water demand utilizing five potential water
sources. The Project as described in Section 2.2 was determined to be the lowest cost option that met the
water quality and quantity requirements of the AMWSC.
The Stave Lake Water Supply Conceptual Design report (the Conceptual Design) developed the Project to
a higher level of detail by examining permitting requirements, water rights, intake alternatives, treatment
4
Stave Lake Water Supply Conceptual Design, Figure E-1
5
the City is currently pursuing an environmental assessment certificate to operate the Bevan wells at 25 MLD

alternatives, and implementation planning. The Conceptual Design outlines a number of technical and
approval steps that must be taken to develop the Project, none of which are out of the ordinary and all of
which would be required to a similar degree regardless of the supply option selected. As such, the
feasibility of the Project was confirmed by the AMWSC.
2.5 Project Goals

The overarching goal of the Project is to supplement the City water supply with sufficient quantity and
quality of water such that the communities public health and safety, quality of life, and economic activity
can be sustained into the foreseeable future. Table 1 breaks this goal down into more specific objectives
that have been enumerated by the AMWSC. These objectives may not necessarily be relevant to the
selection of the Project delivery model.
Table 1 - Project Goals
Category Objectives Outcomes

Project in service prior to the summer Avoid a shortfall of water in the
of 2016 communities
Schedule Fraser River watermain crossing Reduced headloss in network and
available as soon as watermains additional capacity to convey water to
south of the river are completed south side of river (relatively minor
benefit)
Financially sustainable infrastructure
Minimize the life-cycle cost of the
and operations
Project
Lowest possible water costs
Maximize long term cost certainty (25-
Consistent, predictable costs
Financial 35 years)
Maximize costs covered by other
Lowest net cost to water users
levels of government
Preserve debt capacity for use on
Minimize municipal debt
other initiatives
Increased confidence in long-term
sustainability of water supply volume
Reduce reliance on groundwater
Increased confidence in long-term
raw water supply quality
Environmental Minimize per capita water use Improved water stewardship
Minimize carbon footprint of Project Meet terms of BC Climate Action
Create carbon credits if possible Charter for carbon neutrality
Meet regulations for residuals
Minimize impact of residuals
disposal
Supply sufficient quantity of water Public health and safety
Supply sufficient quality of water Maintain quality of life
Social/Economic
Economic sustainment and
development
Provide peaking capacity to Minimize overall water production
supplement Norrish Creek supply cost
Reduce reliance on groundwater
supply
Provide redundancy for Norrish Creek Public safety
supply (for fireflow and drinking water) Public health
Technical Optimize staging of WTP capacity Minimize life-cycle costs of Project
Avoid a shortfall of water in the
communities
Have ability to alter/adapt treated Respond to regulatory requirements
water quality over the long term
Respond to operational requirements
over the long term
Have ability to alter/adapt quantity Respond to regulatory requirements
and quality of residuals over the long term

Category Objectives Outcomes
Have ability to adapt to changes in Minimize energy costs
energy costs
Ability to adapt to (permanent) Meet treated water quality standards
changes in raw water quality
Ensure reliable (short term / day-to- Availability of quantity and quality of
day) water quality and quantity water as demanded by system
Ensure reliable water quality and Availability of quantity and quality of
quantity at/after handback (i.e. in 25 water as demanded by system
35 years)
Protect residual value of the assets Appropriate remaining life and
(i.e. in 25 - 35 years) condition of assets when they are
taken back
The benefits of the Project are best understood by considering the outcomes if the Project is not
completed. These may include:
Rationing of water;
Decline in quality of life;
Impairment of existing commercial/industrial activity;
Stifling of economic development;
Over-taxing of existing water sources (surface and groundwater) with attendant environmental
impacts and need for additional investment in treatment to deal with lower quality source water;
and
Risk to life and property due to lack of redundancy in fireflow supply.
This list provides the context to consider the social and economic benefits of the Project.
2.6 Social Benefits

There are fundamental social benefits that stem from the Project, namely:
Public health through provision of high quality drinking water;

Public safety through provision of sufficient fire protection water supply;
Reliable and robust water supply with redundant water sources; and
Facilitation of continued community development through population growth.
2.7 Economic Benefits

Referring to Figure 2, the increased demand for water in the coming years is due to expansion of
population and industry in the communities. Such development is contingent on adequate water supply.
If the supply is not expanded to match demand, existing residents and businesses will have to curtail their
use of water to allow continued community development. Alternately, development will have to be
curtailed.
Therefore, the key economic benefits stemming from the Project are:
Sustainment of current industrial/commercial activity;

Opportunity for economic development through expansion of industrial/commercial activity; and
Opportunity for population growth and the attendant economic and social development.
In addition, the Project itself is a significant size and will generate both construction and long term
operation and maintenance jobs.

The Project is also the lowest-cost option to provide the necessary quantity and quality of water.
Therefore, the Project has the benefit of minimizing the water rates that will be associated with provision
of a new water supply.
2.8 Benefits Summary

The benefits of the Project are fundamental to the continued success of the City in terms of its quality of
life and economic base. The Project will facilitate near-term and long-term economic and population
growth in a fashion with the least impact on the environment and is the most cost-effective option. The
Project fosters economic growth and strengthens the community.
2.9 Investment Decision

The AMWSC has taken key steps to reduce water demand. The City is already fully metered, with all
customers paying for water on a volumetric basis. Summertime watering restrictions have been in place
for many years and the AMWSC banned lawn sprinkling completely during August of 2009 and July and
August of 2010.
Despite these efficiency measures, the AMWSC has determined that an additional water supply is
required to support the City and District. It has further determined that the Project as described above is
the lowest cost option that meets the water quality and quantity requirements of the communities. The
City has therefore decided to move ahead with the Project, and is taking the steps necessary to have the
Project in service by the summer of 2016.

3 Project Status
3.1 Planning and Current Work
Although the investment decision for the Project, has been made by the City rather than the AMWSC, the
City and District have been collaborating on regional water system planning, including development of
this business case, through the AMWSC. The Project is advancing under a range of recent and ongoing
initiatives that including the following.
Table 2 - Recent and Current Planning Work
Initiative Key Purpose

Water Master Plan Established need for new water supply and identified best option (the Project)
Conceptual Design Following from the Master Plan, more detailed investigation and cost estimates for the
Project
EA Exemption Request Request to exempt Project from provincial environmental assessment review
Preliminary Engineering More advanced design concepts, more detailed cost estimates and design/construction
schedules for Intake, Pump Station, WTP, and Transmission
Water Quality Monitoring Establish the raw water quality in Stave Lake needed to design the water treatment
Program process train for the WTP
The following summarizes the key approvals that have advanced the Project to its current stage.
Table 3 - Key Approvals to Date
Budgeting Jan 2010, WSC 8-2010 - AMWSC approves 2010 Capital Budget to be sent to
municipal councils
Nov 2010, WSC 107-2010 - AMWSC approves 2011 Capital Budget to be sent to
municipal councils
Water Master Plan Jun 2008, UMC 43-2008 - AMWSC approves proceeding with update of 2006 version
Aug 2008, ENG 132-2008 - Award of Master Plan Study to AECOM
Apr 2010, WSC 34-2010 AMWSC approved master plan as a public document
Stake Lake Water Supply Oct 2008, UMC 2008-75 AMWSC Approval to award Stave Lake Conceptual Study
Conceptual Plan to AECOM
Project Development Dec 2009, UMC 105-2009 AMWSC Approval to Proceed with Preliminary Activities
to develop Stave Lake
Preliminary Engineering Mar 2010, WSC 18-2010 AMWSC Approval to Award of Transmission Main
Preliminary Design to Dayton & Knight
Apr 2010, WSC 28-2010 AMWSC Approval to Award of Intake & Pump Station
Preliminary Engineering to CH2M HILL
P3 Canada Fund Preliminary June 2010, District of Mission submitted Preliminary Submission Form for the Project
Submission to PPP Canada for Round 2 of the P3 Canada Fund on behalf of the AMWSC
P3 Feasibility Assessment / Oct 2010, ENG 173-2010 Approval to contract services with Partnership BC
Business Case for P3 Nov 2010, ENG 199-2010 Approval to have CH2M HILL provide Stave Lake WTP
Canada Fund Funding and Maclure Reservoir Cost Estimates
Request Nov 2010, ENG 201-2010 Approval to Award P3 Financial Advisor role to Deloitte
Dec 2010, ENG 210-2010 Approval to Award Owners Engineer to CH2M HILL
Figure 3 is the schedule for the overall project development. While this figure contemplates Traditional
project delivery for all components of the Project, the overall process would be similar if any components
are procured with P3 delivery models. As the land acquisition, water sampling, process piloting, and
water system integration planning proceed the Projects definition can be expected to be refined. The
schedule indicates that the City has identified and prioritized the key approval and technical activities and
planned for their completion to meet the Projects target in-service date.

Figure 3 - Project Development Process

3.2 Environmental Assessment
It is the Citys intent to secure any environmental assessment certificates that may be required prior to
commencing a procurement process and/or take responsibility for obtaining the certificates if the
assessment process and the procurement process overlap.
3.2.1 Overall Project

As a water management project, the Project is reviewable under the British Columbia
Environmental Assessment Act. The City has made a request to the British Columbia
Environmental Assessment Office (EAO) for the Project to be exempted from the provincial
environmental assessment review. Under Section 10(1)(b) of the BC Environmental Assessment
Act, a project may be exempted from review if the executive director considers that a reviewable
project will not have a significant adverse environmental, economic, social, heritage or health
effect, taking into account practical means of preventing or reducing to an acceptable level any
potential adverse effects of the project.
The outcome of this application is expected to be known in April 2011. If the exemption is not
granted, then the Project would be subject to review, a process that is expected to take at least one
year from the time the City is advised that an assessment is required.
If the Project receives federal funding support (from the P3 Canada Fund or other federal source),
the Project may be reviewable under the Canadian Environmental Assessment Act (CEAA). If
required, the time required to complete a CEAA assessment will depend on the CEAA level
(screening, comprehensive, mediation, panel review) that is required. The type of review that may
be required is not known at this time.
The timing and extent of environmental assessment(s) must be taken into account in the project
scheduling for all delivery models.
The component of the Project expected to be of greatest interest to the EAO is the lake intake given
its potential to interact with the aquatic environment. The exemption request is based on the lake
tap intake design. If an exemption (or approval) is obtained based on this type of intake, it is
likely that an additional approval would be required if a significantly different intake design is
proposed (i.e. by a P3 Proponent). Market sounding indicates that it is unlikely that a P3 Proponent
would deviate from an approved construction process.
3.2.2 River Crossing
Under section 5 of the Canadian Environmental Assessment Act, an environmental assessment is

required in relation to the watermain crossing of the Fraser River because Fisheries and Oceans
Canada may issue a permit or license under subsection 35(2) of the Fisheries Act. The City has
triggered a screening assessment6 of the watermain crossing of the Fraser River to be conducted by
Fisheries and Oceans Canada. The City will be seeking a certificate based on a drag/dredge/cover
construction method, and is planning to submit the project information in April 2011. It is not
known when the results of the assessment will be available.
If a certificate is obtained based on drag/dredge/cover construction, it is likely that an additional

approval would be required if a significantly different construction process is proposed (i.e. by a P3
6
CEA reference 10-01-59226

Proponent). Market sounding indicates that it is unlikely that a P3 Proponent would deviate from
an approved construction process.
3.3 Consultation with Stakeholders and the Public
3.3.1 Aboriginal Consultation

The Project area is located within the asserted traditional territory claimed by the Kwantlen First
Nation, Matsqui First Nation, St:l Nation Council, and St:l Tribal Council. Katzie First
Nation, Chehalis First Nation, Sumas First Nation, and In-SHUCK-ch Nation also have asserted
traditional territories located near the Project, or that accompany a portion of Stave Lake upstream
of the Project area.
To date, the City has discussed the Project with the Kwantlen First Nation, Matsqui First Nation,
and St:l Tribal Council. These First Nations have been provided copies of the Stave Lake Water
Supply Conceptual Design Report and the Stave Lake Intake & Pump Station Preliminary
Engineering Pre-Design Report for review.
The City plans to engage all relevant First Nations in consultation as the Project proceeds, and in
conjunction with the requirements of EAO, CEA Agency, and/or other permitting agencies. The
requirements of the environmental permitting processes will dictate the timelines and consultation
processes upcoming. These requirements are not yet known.
3.3.2 Public Consultation
The AMWSC has conducted a range of open houses on both the Master Plan (which established the
need for the Project and outlined its likely form) and the Intake & Pump Station preliminary
engineering, as follows:
Nov 19, 2008 Master Plan, Abbotsford

Nov 20, 2008 Master Plan, Mission
Nov 16, 2009 Master Plan, Abbotsford
Nov 17, 2009 Master Plan, Mission
Dec 2, 2010 Stave Lake Intake & Pump Station Preliminary Engineering
Plans for future public consultation as the Project proceeds include:
Stave Lake Transmission Mains

Stave Lake Water Treatment Plant Preliminary Design
Stave Lake Intake & Pump Station Design
In the event that a P3 delivery model is selected for the Project, the City will seek assent of the
electors by referendum on November 19th 2011 in conjunction with the municipal election.
The City has developed and implemented a communications plan that addresses the need for the
Project, Project description, and procurement models. The plan will keep the public informed and
provide background facts throughout the approvals phase (i.e. until the referendum is complete),
procurement phase, and construction phase of the Project.

3.3.3 Consultation Regarding Other Permits and Approvals
In addition to the environmental assessment requirements, the City is anticipated to require several
provincial permits, approvals, authorizations and licenses to construct and operate the Project7.
These are expected to include:
A licence under the Water Act to use part of the water that BC Hydro is authorized to store in
Stave Lake Reservoir to support its power generation purposes. The water licence granted to
the City would include a condition that the City and BC Hydro hold a valid agreement for the
City to use part of the stored water for the Project. BC Hydro and the City are working
towards finalizing this agreement by September 2011. The water licence application has been
prepared and will be submitted to the Comptroller of Water Rights at that time.
A Construction Permit and an Operation Permit from Fraser Health Authority (the drinking
water regulator); and
Crown land tenure (Licence of Occupation) from the BC Integrated Land Management Bureau
for Project facilities located on Crown Land.
With regard to these expected permitting requirements, the City has commenced consultation with
BC Hydro, BC Ministry of Environment Water Stewardship Division, Fraser Health Authority, and
BC Ministry of Tourism, Culture and the Arts (Archaeology Branch). These consultations and
permitting requirements are anticipated in the timeline presented on Figure 3 above.
For the most part, such permits approvals, authorizations and licenses will be obtained by the City
and in coordination with the procurement process for the Project. If a P3 delivery model is selected
for the Project, responsibility for certain approvals may be dependent on the P3 contractors designs
and construction, in which case responsibility for obtaining those approvals (only) will be
transferred to the P3 contractor (e.g. the Construction and Operation permits noted above, building
permits, etc.).
7
For more information, see Reference #4 (references are listed in Appendix A)

4 Procurement Decision
4.1 Project Delivery Options Analysis
4.1.1 Procurement Objectives

The City does not intend to deliver the Project completely in-house. At a minimum, design and
construction of the Project will be contracted to the private sector because the City does not
maintain the necessary resources in-house. Operations, maintenance, and financing may also be
supplied from the private sector. Procurement refers to how these various elements are purchased
in the marketplace. Procurement is therefore the means to an end.
Procurement objectives have been developed based on the Project objectives as shown on Table 4.
Table 4 - Procurement Objectives
Category Project Objectives Procurement Objectives
Project in service prior to the

Schedule Maximize certainty that 2016 target will be met
summer of 2016
Maximize scope for innovation and competition (e.g.
design, construction, operation)
Minimize the life-cycle cost Optimize the trade-offs between short term and long term
of the Project costs
Maximize long term cost
Maximize cost certainty in construction and operation
certainty (25 35 years)
Financial phases
Minimize unforeseen future
costs Maximize costs covered by other levels of government
Lowest net cost to water
users
Ensure a marketable and competitive process
Supply sufficient quantity of Supply sufficient quantity of water

water
Supply sufficient quality of
Supply sufficient quality of water
water
Ability to alter/adapt treated Ensure sufficient functionality and flexibility for adapting
water quality treated water quality at least cost
Ability to alter/adapt quantity Ensure sufficient functionality and flexibility for adapting
and quality of residuals residuals characteristics at least cost
Ability to adapt to changes in
Ability to adapt to changes in energy costs
energy costs
Social /
Ability to adapt to
Economic Ability to adapt to (permanent) changes in raw water
(permanent) changes in raw
quality
water quality
Reliable (short term) water
Availability of quantity and quality of water as demanded.
quality and quantity
Ability to operate and deliver quantity and quality of water
Reliable water quality and
as demanded (after handback in case of P3, at similar
quantity at/after handback
point in time in the case of Traditional).
Asset when handed back has had all necessary

Residual value
maintenance and is fit for purpose as specified.

Procurement alternatives are assessed against these objectives in the Multi-Criteria Analysis, and
many of the risks evaluated in the qualitative and quantitative risk assessment (Sections 4.1.5.2 and
4.1.5.1) reflect these objectives.
4.1.2 Procurement Considerations
4.1.2.1 Analysis Framework

Table 1 provides a high-level analysis of the major Project infrastructure components, comparing
design, construction, and operational characteristics to determine the bundling of components for
analysis.
Table 5 - Characteristics of Major Project Infrastructure Components
Intake & Pump Station Water Treatment Plant Transmission Mains

Construction Type Sitework, heavy civil, Sitework, heavy civil, Pipeline, utility crossings,
concrete, electrical / concrete, electrical / road and boulevard
mechanical equipment mechanical equipment restorations, traffic control
Electrical / mechanical, Electrical / mechanical, Minimal requirements
Operations Profile
realtime control, realtime control,
monitoring, planned and monitoring, planned and
reactive maintenance reactive maintenance
Potential operational Potential operational Availability needed for
Operation
integration with WTP integration with Pump other components to
Interdependencies
Station function
Potential design Potential design None other than location
Design
integration with WTP integration with Pump and timing
Interdependencies
Station
Bundle with WTP for Bundle with Intake & No strong reasons to
Market Feedback
design and operations Pump Station for design bundle with other
reasons and operations reasons components other than to
increase Project size and
coordinate construction
timing with Intake & PS
and WTP.
Capital size too small for a

standalone DBFO for most
participants.
Bundling Decision Bundle A Intake & Pump Station, Water Bundle B
for Analysis Treatment Plant Transmission Mains
As indicated in the last line of the table, the Project has been broken down and analyzed as two
separate sub-Project bundles as follows:
Bundle A - Intake & Pump Station, Water Treatment Plant; and

Bundle B Transmission Watermains.
This approach allows for the separate analysis of each Bundle and an overall bundling of both
Bundles to be undertaken to determine the preferred delivery model or combination of models for
the Project as a whole.
4.1.2.2 Expansion of Pumping and Treatment Capacity

As discussed in Section 2.2.4, expansion of pump station pumping capacity and water treatment
capacity must be accommodated during the likely term of a P3 delivery model. Consideration has
been given to a range of approaches to accommodating expansion, encompassing the extremes of

possible approaches (ranging from firm specification of sizing and staging by the City through to no
specification by the City with full risk of meeting demand transferred to the P3 contractor) and has
been tested through the market sounding exercise. It is concluded that:
The only practical and broadly marketable approach is for the City to specify the initial
pumping and water treatment capacity (i.e. 150 MLD) rather than leave it for proponents to
determine;
For the pump station, specify (as a compliance measure) expandability without alteration of
superstructure from 150 MLD to 400 MLD (e.g. by swapping pumps);
For the WTP, specify (as a compliance measure) that expansion of treatment capacity to 400
MLD be accommodated in the site layout and plant connectivity but not included in the
proposal pricing.
Through this approach, the City will retain the ability to add additional treatment capacity whenever
it deems necessary without necessarily being tied to using the P3 contractor.
4.1.2.3 Timing
The objective is to have the Project fully operational and in regular service by the summer peak
demand period of 2016. To commission the WTP, all upstream components (Intake & Pump
Station, raw water transmission mains) and the downstream treated water transmission mains must
be commissioned.
There is therefore an argument to combine Bundle A and Bundle B into one contract, to provide
single-point accountability for bringing the new water supply into service. Whether or not there is
value for money in combining the Bundles is assessed in Section 4.3.6.
4.1.2.4 Performance-based Specification for P3 Delivery Models

It is the Citys intent to specify any P3 with a performance/output based specification to the greatest
possible extent, including leaving the selection of water treatment process to proponents. Some
minimum prescriptive requirements can be expected in the specification, as well as compliance
requirements. The ability to specify the Project on a performance basis versus a prescriptive basis
varies across the Project infrastructure components there is high potential to specify the WTP on a
majority performance basis, and a low potential to prescribe the transmission mains on a
performance basis. The intake structure will be largely prescribed because the approval for the
intake will be contingent on the design submitted as the basis for approval, but the pump station has
no such restriction therefore the Intake & Pump Station has a moderate potential to be prescribed
on a performance basis.

4.1.2.5 Term of Operating Period
The typical operating term of a financed P3 project (e.g. DBFO) in Canada is 30 years. In the water
industry, DBO and O&M contracts tend to be for shorter terms, 15 to 20 years. For the Project, the
appropriate operating term has been selected by assessing the following.
Table 6 - Assessment of Term of Operating Period
Typically, the City would finance a major

City and District financing policy.
infrastructure project over 25 years.
As assessment on this basis for the Intake &
Pump Station and the WTP suggests that a 25-
The lifecycle of major replacement subcomponents of year term is sufficient, especially if the handback
the Project, to ensure that at least one refresh of each condition specification requires a minimum of five
is included within the term and thereby ensure that years of remaining service life for major
8
there is transfer of significant lifecycle cost risk in the subcomponents . The transmission mains do
P3 delivery models. not have any significant replacement
requirements within any potential P3 operating
term.
While the suitability of the process would likely
The operating term necessary to ensure that full
be known quite early, its long term performance
accountability for the performance of the water
can only be proven by the passing of time. On
treatment process is transferred to the P3 contractor.
this basis, a longer term is preferred.
Based on the market sounding, a term between
20 and 30 years was seen as attractive and
appropriate to market sounding participants for a
DBO or DBFO. It was suggested that the
shortest term that fully transfers performance risk
Acceptability to the market of service providers. was 20 years. 30 years was noted as the
maximum feasible term for financing given the
appetite of the bond markets. It was noted that
there are alternative models with long terms, up
to 50 years, such as Build-Own-Operate-
Transfer.
Given that expansion of treatment capacity could
th nd
be required any time between the 8 and 32
The potential ability to avoid an expansion of treatment
year of operation, this is not a governing criteria.
capacity within the term.
All else being equal, a shorter term is favoured
with respect to this criteria.
A shorter term will reduce total financing costs,
The cost of financing (in a DBFO). so a shorter term is favoured with respect to this
criteria.
Based on this assessment, a 25 year term is most appropriate, with the primary criteria being the
transfer of performance and lifecycle cost risk and the consistency with City policy. In the
remainder of this document, the operating term is deemed to be 25 years unless specifically
mentioned otherwise.
4.1.2.6 Handback Condition

At the end of a P3 operating period the P3 contractor must transfer control of the assets over to the
City in a specified handback condition. The handback condition may be performance-based (e.g.
8
The only sub-components not notionally covered with a 25 year term with five-year service life handback requirement are the
vertical turbine pumps in the Pump Station, and their associated electrical components. These elements have a 35 year life
expectancy. Some or all of the pumps would be replaced earlier than this as pumping capacity is expanded from initial through
ultimate sizing, so the service life of some or all of the pumps would effectively be longer than 35 years, well outside any
potential P3 operating term.

that certain elements of the infrastructure are in a condition fit for their purpose for a specified
additional time period) or prescriptive (e.g. that certain elements have been replaced with a
specified time period or meet specified quantitative measures such as pipe thickness, pumping
capacity, membrane flux, or other performance indicators). Handback conditions and their
enforcement ensure that the assets are well maintained during the operating period such that the
water supply can be taken back and reliably utilized by the City for a reasonable period of time
before additional investment is required.
4.1.3 Traditional Public Sector Procurement Approach

The Traditional public sector procurement approach for the Project is design-bid-build or DBB,
in which the City would first contract with an engineering consultant to design the Projects
components, tender the construction to the lowest qualified bidder, and operate and maintain the
infrastructure itself. This is the approach to capital projects most often used by the City.
In the Traditional delivery model, the construction contractor would be paid based on monthly
progress. The completed Project would be operated by the Commission with costs paid as they are
incurred for management, labour, materials, power, etc. Table 7 compares the bundling of project
responsibilities under Traditional and the P3 delivery models under consideration.
Table 7 - Project Delivery (Procurement) Models Under Consideration
Project Traditional Design-Bid- Design-Build-Operate Design-Build-Finance-

Responsibility Build (DBB) (DBO) Operate (DBFO)
Needs
Municipality Municipality Municipality
Assessment
Investment
Municipality Municipality Municipality
Decision
Project Planning Municipality Municipality Municipality
Consultant selected on
Design
qualifications and price
Qualified general
Construction contractor selected by
tender
Operation Municipal staff
Qualified special-purpose
Maintenance Municipal staff P3 contractor selected on Qualified special-purpose
design, O&M plan, and P3 contractor selected on
Municipal staff or design price. Typically a
Rehabilitation contract and tendered design, O&M plan, and
consortium of firms price. Typically a
construction contract organized into a Special consortium of firms
Design contract and Purpose Company (SPC). organized into Special
Expansion tendered construction Purpose Company (SPC).
contract
Generally not required
Construction
since municipality pays
(short-term)
general contractor for
Financing
construction progress
Financing (long Municipal Finance Municipal Finance

term) Authority Authority
Funding Municipality Municipality Municipality
Asset Ownership Municipality Municipality Municipality

4.1.4 Public-Private Partnership Models
A full range of public-private partnership (P3) models has been considered and screened down to
two for consideration: Design-Build-Operate (DBO) and Design-Build-Finance-Operate (DBFO).
These two are very similar as the names suggest and as illustrated in Table 7. Note that
Operations in these definitions covers all aspects of the operating period: operations, minor
maintenance, and major maintenance/rehabilitation.
Models screened out of consideration include those that transfer maintenance responsibility but not
operations responsibility (e.g. Design-Build-Maintain and Design-Build-Finance-Maintain as are
commonly used in hospital projects) because of the tightly integrated nature of operations and
maintenance of the Project infrastructure.
Also screened out of consideration are models that transfer long term financing responsibility
without a corresponding transfer of operating or maintenance responsibility (e.g. Design-Build-
Finance) because there is no long term benefit received in exchange for the higher cost of long term
private financing.
4.1.4.1 Design-Build-Operate (DBO)

Under DBO, the P3 contractor would be responsible to design and construct the Project
infrastructure, operate and maintain it to meet the performance specification, and hand control of
the assets over to the City at the end of the operating period in the specified handback condition.
Payment for the capital investment in a DBO is typically made at substantial completion or on an
interim milestone basis during construction. Milestone payments reduce the cost of the contractors
financing during construction, which in turn would be savings realized by the City.9 A milestone
approach has been assumed for the financial analysis in this funding request10.
Payment for operations and routine maintenance (O&M) would be made on a monthly basis
according to the schedule bid by the contractor in its proposal, which may include both a fixed
component and a variable component based on water production (for the WTP). It is envisioned
that the cost of chemicals and power would flow through to the City, however the contractor would
be responsible for the portion of power and chemical cost that is attributable to inefficient operation
of the WTP as compared to the benchmark efficiency factor included in its proposal. It is standard
practice to index O&M payments to the Consumer Price Index (CPI) or other relevant inflation
index.
Payment for major maintenance (rehabilitation) would be made on the schedule bid by the
contractor in its proposal. Alternatively the City could require a smooth annual payment for major
maintenance to be bid. The latter is less efficient for the contractor but a smooth payment schedule
may be desired by the City11. A lumpy schedule is assumed for analysis as it is most cost-effective.
9
Because a DBO is defined on a performance, or outcome, pure progress payments as used on Traditional DBB projects are
not suitable because they compensate the contractor for interim steps toward outcomes, rather than achievement of specified
outcomes.
10
Because milestone payments lag the contractors construction costs, the contractor must finance construction until it is paid in
full through the final milestone payment. Short-term private construction financing is therefore implied in the DBO model.
11
A smooth major maintenance payment means that the City would be paying for major maintenance in advance of its completion.
To protect the funds in such a situation, a trust account is often set up. Draws from the trust account by the contractor to
undertake rehabilitation would require approval of the City. This is a relatively common process, but requires that the City take a
more active role in major maintenance planning for a P3-procured asset then it may desire. It should be noted however that the
City has the expertise in-house to effectively fulfill such a role.

Security for the operating period would likely include:
an O&M performance bond (typically with limited value of one or two years of O&M
payments); and
a letter of credit or parent company guarantee.
The performance bond alone is not considered sufficient security for the handback obligation of the
contractor because the O&M payments may be relatively small compared to the major maintenance
requirements and relative to the cost of any corrective action required to ensure ongoing operational
performance.
Contractors may have different preferences for providing letters of credit versus parent company
guarantees, although the latter approach is apparently very common on water sector DBO projects
in the United States. We expect that requiring a substantial letter of credit to be posted for a 25 year
operating term (requiring annual renewal) is not likely to find favour with the market and therefore
that the parent company guarantee is the most likely form of security for a DBO. The City would
likely require a parent company guarantee in any case, to cover off the risk that the contractor
cannot renew its letter of credit at some point during the term.
4.1.4.2 Design Build-Finance-Operate (DBFO)

Under DBFO, the P3 contractor would be responsible to design and construct the Project
infrastructure, operate and maintain it to meet the performance specification, and hand control of
the assets over to the City at the end of the operating period in the specified handback condition. In
addition, the P3 contractor would finance a portion of the capital investment.
Payment for any unfinanced portion12 (capital contribution) of the capital investment in a DBFO
is typically made at substantial completion, on an interim milestone basis during construction, or on
a modified progress payment basis13. Milestone and modified progress payments reduce the cost of
the contractors financing during construction, which in turn would be savings realized by the City.
A milestone approach has been assumed for the financial analysis in this funding request.
Payment for the privately financed portion of the capital investment would be made over the
operating period, as capital payments which would include repayment of capital as well as
financing costs. The privately financed portion would be financed by the contractor using a non-
recourse project finance structure, typically made up of approximately 90% debt (invested by banks
or bondholders) and 10% equity (invested by one or more of the member firms of the contractor
team). The capital payments would be bid by the contractor in its proposal.
Payment for operations and routine maintenance (O&M) would be made on a monthly basis
according to the schedule bid by the contractor in its proposal, which may include both a fixed
12
In current markets, it is typically necessary that the government owner of a P3 project pay for a portion of the capital investment
during construction (typically in the range of 50%), leaving the balance to be privately financed. This reduces the cost of private
financing to the point where value for money is realized. The owner should not contribute capital to the point where the
privately financed amount becomes too small to interest the market and/or too small to provide adequate security for the
handback responsibility of the contractor. Most market sounding participants indicated that the minimum amount of private
financing required is approximately $110M although two participants had lower minimum requirements.
13
The modified progress payment approach makes payments to the contractor on a prorata basis (capital contribution/total capital
cost x % complete) on a scheduled basis during the construction period, but only after a threshold milestone has been reached
(e.g. 30% of project completion is required before any progress payments are made). This approach is suitable for a DBFO
because of the capital that has not been paid at the end of construction (i.e. the privately financed amount) which provides the
incentive to the contractor complete the project on time so that capital repayment can begin. The initial threshold milestone
protects the owner from paying for activity rather than outcomes.

component and a variable component based on water production (for the WTP). It is envisioned
that the cost of chemicals and power would flow through to the City, however the contractor would
be responsible for the portion of power and chemical cost that is attributable to inefficient operation
of the WTP as compared to the benchmark efficiency factor included in its proposal. It is standard
practice to index O&M payments to CPI or other relevant inflation index.
Payment for major maintenance (rehabilitation) would be made on the schedule bid by the
contractor in its proposal. Alternatively the City could require a smooth annual payment for major
maintenance to be bid. The latter is less efficient for the contractor but a smooth payment schedule
may be desired by the City. A lumpy schedule is assumed for analysis as it is most cost-effective.
The project agreement would allow for the City to hold back capital and rehabilitation payments in
the last few years of the operating term as security to ensure that the contractor is meeting its
handback obligation. Security for the operating period stems from the private financing that is at
risk of not being repaid if the contractor does not meet its obligations. The providers of equity and
debt financing, and debt in particular, will take steps to ensure that contractual obligations are met
so as not to risk their investment returns.
4.1.5 Qualitative Criteria and Scoring Method (MCA)
The delivery models under consideration were evaluated on a qualitative basis through two
different approaches:
A qualitative risk assessment which evaluated the overall risk profile of the Project when
delivered under each of the delivery models; and
A high-level multi-criteria analysis (MCA) which rated the traditional and P3 delivery models
on the extent to which they are believed to meet the objectives of the City for the Project.
The objective of these analyses was to determine if either of the P3 models could or should be
eliminated from further consideration. In addition, the results are used in concert with the Value for
Money (VFM) analysis results to assess the recommended procurement option.
4.1.5.1 Qualitative Risk Analysis

A qualitative risk workshop was conducted to assess Project risks under Traditional, DBO, and
DBFO delivery models. The workshop panel included representation from the City and District
engineering, operations, and finance departments, the Owners Engineer (CH2M HILL), and
Partnerships BC. For each delivery model, the probability of each risk occurring, and the impact of
the risk if it occurs was assessed by the panel. A qualitative scale was used, as shown in Figure 4.
Figure 4 - Qualitative Risk Scale

For each risk in the register, the risk was assessed by the workshop panel with due regard for the
party that is responsible for (i.e. allocated) each risk under each delivery model. Risk in this
assessment is the overall risk to the Project, which may be borne by the City, the private sector
contractor, or shared between the two. Bundle A was evaluated in the workshop setting. Bundle B
was evaluated by Deloitte and CH2M HILL by making relative adjustments to the consensus
evaluations for Bundle A to reflect the simpler different design, construction, and operational
characteristics of the transmission mains14.
Each risk has a calculated risk score that is the product of the probability and impact assessed.
Figure 5 illustrates the results, with a more readable version available in Appendix B. Each risks
score is provided, as well as a color-coding of the risks from lowest (green) to highest (red).
14
The bundling definitions used in the qualitative workshop were slightly different than those defined in this document because the
project analysis framework evolved during the analysis. For the qualitative risk assessment, Bundle A did not contain the
reservoir, but included a piece of transmission main. However the discussion, and hence the assessment, focused primarily on
the Intake & Pump Station and WTP and the swapping of one passive element (reservoir) for another passive element
(transmission main) is not considered to require the adjustments of the qualitative workshop findings. The reservoir was later
deleted from the Project scope, with any reservoir-specific risk quantification accordingly removed from the analysis.

Figure 5 - Qualitative Risk Results
Bundle A Intake/PS/WTP/Reservoir Bundle B Transmission Mains
The reservoir in Bundle A was later deleted from the Project scope.

As shown on Table 8, an unweighted15 total risk score is calculated for each delivery model. The
risk score reflects the risk from a project perspective, and does not distinguish between a risk that
is retained by the City and risks that are transferred to contractors.
Table 8 - Unweighted Qualitative Risk Scores
Bundle A Bundle B
DBB DBO DBFO DBB DBO DBFO
Risk Score 244 215 204 115 116 111
For Bundle A, the unweighted risk scores are interpreted to mean that the workshop panel believes
that Traditional DBB presents the highest project risk and DBFO presents the lowest project risk,
with DBO lying in between. The results reflect the theory behind the different models, which is
that by allocating more risks to the private sector contractor under DBO and DBFO (but only those
that the contractor is better able to mitigate than the City), the overall project risk can be reduced.
For Bundle B, the unweighted risk scores are nearly identical for all three delivery models. This
suggests that there are few risks that are better mitigated by the private sector contractor than the
City for the transmission mains, and/or that the Project if delivered by Traditional DBB is not
believed to be particularly risky.
These results reflect that compared to Bundle A, the transmission mains (Bundle B) have
considerably less risk to transfer, for at least two key reasons:
There is little to no operational responsibility associated with the transmission mains, they are
passive infrastructure. Since there is little responsibility to transfer, there is little risk to
transfer.
One of the biggest construction risks for a pipeline (with a long, linear site that can cross many
different geological formations) is geotechnical information risk. It is not believed possible to
transfer this risk to a contractor in any procurement model because conditions encountered are
beyond the contractors control and could vary significantly from the information available at
the time of procurement.
At this point in the analysis, what is key to note is that there may be a different degree of optimality
in terms of applying the P3 delivery models to Bundle A and Bundle B, but that the P3 models have
been assessed to be at least as good as the Traditional DBB model for both Bundles.
In addition to informing this business case analysis, the results of the qualitative risk analysis are
valuable for project management purposes as the Project is advanced. The findings identify risks
that need mitigating regardless of delivery model, and with respect to the P3 models, can form the
basis for the initial risk allocation that would guide development of the procurement
documentation.
4.1.5.2 MCA Analysis

A multi-criteria workshop was conducted with senior AMWSC staff to assess a range of
procurement criteria that were developed based on the Project objectives as listed in Table 4. The
objective of the multi-criteria analysis (MCA) is to assess the delivery models at a high level to
15
The scores are unweighted because the relative importance of each risk is not factored into the totals. The risk quantification
described in Section 4.3.5 takes into account the relative magnitude, or importance, of each risk.

determine how well each delivery model addresses the procurement criteria. Appendix C contains
the full record of the MCA workshop including the justification for the relative ranking of each
delivery model. Table 9 is a summary of the assessment for each criterion.
Table 9 - Summary of Multiple Criteria Assessment Results
Traditional
Procurement Criteria DBO DBFO
DBB
Maximize certainty that 2016 target will be met
Schedule
River Crossing available when Phase 1 water

mains (south of River) completed
Maximize scope for innovation and competition

(i.e. design, construction, operation)
Optimize the trade-offs between short term and

long term costs
Financial
Maximize cost certainty in construction, and

16
operation phases
Maximize costs covered by other levels of

government
Ensure a marketable and competitive process
Environ
mental
Meet regulations for residuals disposal
Supply sufficient quantity of water
Supply sufficient quality of water
Ensure sufficient functionality and flexibility for

adapting treated water quality at least cost
Ensure sufficient functionality and flexibility for

Social/ Economic
adapting residuals characteristics at least cost

Ability to adapt to changes in energy costs
Ability to adapt to (permanent) changes in raw

water quality
Availability of quantity and quality of water as

demanded.
Ability to operate and deliver quantity and quality
of water as demanded (after handback in case of

P3, at similar point in time in the case of
Traditional).
Asset when handed back has had all necessary

maintenance and is fit for purpose as specified.
Option fails to meet basic requirements of program and the City

Minimally meets requirements of program and the City
Adequately meets the requirements of program and the City
Provides a highly efficient and effective delivery solution for the City or program
requirements
16
Although not discussed or rated in the MCA workshop it should be noted that the DBO and DBFO models also provide cost
certainty earlier than Traditional DBB, which may be an advantage for the City. This would be at the time of award for Bundle A.
For Bundle B, with greater retained risk due to geotechnical conditions, cost certainty would be at the time of award for the fixed-
price portion of Bundle B.

All models score a single for one criterion, suggesting that all models fail to meet the basic
requirements. However none of the single scores is grounds to dismiss a delivery model from
consideration, due to the reasoning described below.
Traditional DBB fails to maximize costs covered by other levels of government because it is
not eligible for P3 Canada Fund funding which is the only known available source of senior
government funding for the Project. Traditional DBB scores only a single because it is
not a P3 model, but that does not make it an unsuitable model to deliver the Project.
DBO and DBFO fail to meet the criteria of having the river crossing available when the
transmission mains south of the river, which are being constructed in 2011, are completed.
However the benefit of being able to use the river crossing prior to the Stave Lake supply
being online is marginal (reduced headlosses for a period of time), and Traditional DBB only
minimally meets the requirement since the exact timing of the river crossing construction
under DBB is not known.
It is worthy of note that all three models scored with regard to delivering a sufficient
quality and quantity of water, which is the overarching goal of the Project. In other words, the
evaluation panel believes that any of the delivery models is broadly equally effective for meeting
the Citys water quality and quantity requirements.
Generally, the P3 models score highest with respect to innovation potential, long term cost
optimization, and time and cost certainty. DBFO scores better than DBO with respect to handback
quality at the end of the operating term and maximizes the costs covered by other levels of
government.
Traditional DBB scores highest with respect to long term adaptability and flexibility simply
because there is no contractual process that must be followed to make changes, and working with
the incumbent contractor by definition does not provide as much freedom as if the City is self-
performing17.
The MCA analysis reveals that the P3 delivery models require the City to give up unfettered control
of the Project components in exchange for cost certainty, cost minimization, major maintenance
certainty, and time certainty. This does not mean giving up total control, but it does mean that it
must work with the incumbent contractor and within the change processes built into the contract if
the need to make changes during the term of the contract arises.
4.1.5.3 Relative Quality of Long Term Performance Security in DBO and DBFO
In a DBFO, the long term performance of the contractor is secured by the direct investment in the
Project by the contractor. The security for the City arises from the ability, using the payment
mechanism, to hold back payments for non-performance, including if it becomes apparent that the
handback conditions are not likely to be met by the contractor. If the City needed to utilize its
security, it would not need to actively pursue the contractor or seek funds from a third party, it
would withhold payments as permitted by the contractual payment mechanism. This would either
17
It should be noted that it is standard practice for P3 project agreements to prescribe the process that is followed if capital
modifications are required to meet changes in the performance specification that result from regulatory requirements or simply
changes in the requirements of the owner. Generally, the process is for the contractor to develop a solution and price the
change, and for the owner to then decide whether to have the contractor proceed or whether to tender the work competitively.
Operating changes may be accommodated in a similar manner although it will generally not be practical for any party other than
the contractor to make operating changes, so an open-book or time-and-materials basis may be used.

spur the contractor to perform (including prodding from its equity and debt investors) or would
leave the City with the funds to self-perform18.
In a DBO, the long term performance of the contractor may be secured either by a letter of credit or
parent company guarantees from one or more of the contractor parent companies. If the contractor
provided a letter of credit, the City would need to seek the funds from the guaranteeing bank19. If
the contractor provided a parent company guarantee, the City would need to pursue the parent
company for performance and/or funds, and if the company did not respond appropriately, sue the
parent company.
The relative quality of the security in a DBFO is higher than in a DBO because the City is in
control of the funds needed to rectify non-performance. In a DBO, it is not in control of the funds,
and has to make a claim to third parties to rectify non-performance. A related concern with parent
company guarantees is the ability to fairly compare guarantees from different companies. In a
DBFO, there is a commitment to fund the project investment bound into the proposal. The ability
of the contractor and its debt and equity providers to fund the investment can be verified during the
procurement process and compared between bidders if needed. The availability of the security can
be determined objectively.
In a DBO using parent company guarantees as security there is no way to verify that the parent
company guarantee will be acted upon appropriately by the parent or its successor companies at the
time it may be needed, which could be 20 or more years hence. Therefore evaluating the backstop
quality of a parent company guarantee at bid time requires either speculation as to the future
financial and technical state of the parent company, or requires that the guarantee simply to be
taken at face value based on the reputation of the company and perhaps, if available and reliable, its
record of action on its parent guarantees. This would be a subjective appraisal.
On a related note, if there are any problems with the funding of the contractors investment in a
DBFO (and therefore with the availability of the security) it will be discovered early, during the
financial close period before design/construction begin.
This discussion should not be read as a dismissal of the value of a parent company guarantee or the
viability of DBOs, but rather a contrasting of the quality of security provided by a guarantee as
compared to a direct investment in a project as in a DBFO. If there is a choice between the two
delivery models for a project, this difference is an important consideration.
The importance of the long term performance security depends on the nature of the infrastructure
assets. For Bundle A that has significant electrical / mechanical components and is highly
operationally intensive, the performance security is very important. For Bundle B, for which
performance is largely certain as long as the assets are properly constructed, long term performance
security is much less important, and perhaps even unimportant.
4.1.6 Results Recommended P3 Model for VFM Analysis

The qualitative risk assessment revealed a potential difference in the applicability of DBO and
DBFO to Bundle A versus Bundle B, but did not rule out either model. The MCA Analysis
18
In such a situation, it is important that that amount of private financing be large enough that withholding of payments would
provide sufficient funds to rectify any handback non-performance. This is one consideration in determining the upper limit of
capital contribution by the owner that may be made during construction in a DBFO. The other consideration is that there needs
to be enough private financing in the project to interest the market of debt and equity providers.
19
It is unlikely that a letter of credit of sufficient size to provide the necessary security would be an attractive alternative for the
market, and therefore parent company guarantees are the most likely approach.

similarly did not rule out any model but highlighted the inherent trade-off in a P3 approach. The
importance of quality of the long term performance security is different for each Bundle.
Therefore, both the DBO and DBFO models are carried forward for VFM analysis so that the
assessment of the recommended procurement option can consider both qualitative and quantitative
assessments.
The public sector comparator (PSC) for the VFM analysis is the Traditional DBB delivery model.
There are two shadow bids for the VFM analysis: DBO, and DBFO.
4.2 Market Sounding

The views of relevant service providers in the DBO/DBFO market for the Project were consulted through
a market sounding exercise. There is a well-developed and highly specialized market of firms, both
Canadian and international, that undertake projects in the municipal water/wastewater sectors. The
delivery models employed by these firms include O&M, DB, DBO, occasional DBFO, and regulated
utility (private ownership) models. These firms were the primary focus of the market sounding, because
the views of P3 developers / equity investors outside of the water sector are well understood and do not
vary considerably from sector to sector, although a small number of such firms was included for
completeness. Table 10 summarizes the firms interviewed. The firms are not named because their input
was solicited in a confidential manner.
Table 10 - Market Sounding Participants Project Roles and Project Interest
Typical / Desired DBO/DBFO Roles Project Interest

Bid DBO DBFO
Design Build Operate Equity
Lead
Participant 1*
Participant 2*
Participant 3
Participant 4*
Participant 5*
Participant 6*
Participant 7
Participant 8
Participant 9*
Participant 10*
strong interest
* water / wastewater primary interest, key expertise of firm
preferred model of
service specialty firms secondary interest, has expertise but likely to partner to deliver
the two
It is evident that there is considerable market interest in the Project as either a DBO or DBFO. Each
company has a different outlook on the private financing component depending on their corporate focus
pure financial investors are only interested in the DBFO model. All of the companies interviewed
expressed their interest in the Project and would seriously consider an opportunity to participate in a
procurement process for a DBO or DBFO as indicated. This confirms the assessments made with respect
to marketability and competitiveness in the qualitative risk assessment and MCA analysis.
Other key findings of the market sounding are taken into consideration throughout this document, with
reference to the market of service providers or the market.

4.3 Financial Analysis
This section outlines the cost estimates, schedules, risk quantification, and financial modelling undertaken
to estimate the value for money offered by the DBO and DBFO delivery models. The methodology
used herein is consistent with that of Partnerships BC in calculating value for money of alternative
procurement models.
4.3.1 Project Costs
4.3.1.1 Intake & Pump Station

Cost estimates for the Intake & Pump Station were developed by CH2M HILL as described in the
December 2010 Stave Lake Intake & Pump Station Preliminary Engineering Pre-Design Report.
Costs in the report were developed assuming a Traditional DBB approach and include design and
tender costs, construction costs, engineering during construction, operation and maintenance costs,
and major rehabilitation costs. Costs for the DBO and DBFO delivery models are based on the
DBB cost estimates.
4.3.1.2 Water Treatment Plant

Cost estimates for the WTP were developed by CH2M HILL as described in the January 2011
technical memorandums Stave Lake Water Treatment Plant and Maclure Reservoir Expansion
Development Cost Estimate and Stave Lake Water Supply System Procurement Assessment
Alternative Delivery/P3 vs. Public Sector Comparator (PSC). Costs were developed assuming a
DB model in the first document, then modified to reflect a Traditional DBB approach in the second
document. Costs include design and tender costs, construction costs, engineering during
construction, operation and maintenance costs, and major rehabilitation costs.
4.3.1.3 Transmission Mains

Cost estimates for the transmission mains were developed by Dayton & Knight Ltd. / Opus
DaytonKnight on the basis of Traditional DBB procurement. Cost estimates include design &
tender, construction costs, engineering during construction, and operation and maintenance costs.
No major rehabilitation costs are anticipated during the term of the analysis herein.
4.3.1.4 Development of DBO and DBFO Cost Estimates
4.3.1.4.1 Capital Costs (Initial Capital and Major Rehabilitation)

The bundling of project responsibilities in the DBO and DBFO models (as described in Table 7)
combined with the competitive procurement process is believed to likely result in lower lifecycle
costs than if the Project is procured as a Traditional DBB. Table 11 provides some evidence of this
phenomenon based on Deloitte research.

Table 11 - Capital Cost Savings As Compared to DBB Estimate
As-Built Capital Cost

Project Owner PPP Type (1)
Capital Cost Savings
Dartmouth (New) Water Halifax Regional Water
DB $ 38 M 18 %
Treatment Plant Commission
New Wastewater Treatment
Town of Jasper, AB DBO $ 14 M 25 %
Plant
Wastewater Treatment Plant
Town of Okotoks, AB DBO $ 11 M 50 %
Upgrade
New Water Treatment Plant Town of Port Hardy, BC DBO $4M 38 %
New Wastewater System Town of Sooke, BC DBO $ 23 M 16 %
New Water Treatment Plant City of Moncton, NB DBFO $ 23 M 28 %
New Wastewater Treatment Province of BC (2)

DBFO $ 16 M 16 %
Plant (Britannia)
New Water Treatment Plant City of Seattle (Cedar) DBO $ 81 M 30 %
New Water Treatment Plant City of Seattle (Tolt) DBO $ 65 M 43 %
(1) Capital cost savings are as compared to owners estimate for traditional procurement,
information as made public by government owners of each project.
(2) Net present value savings over 21 year project life (i.e. capital and operating cost) is 31%.
Source: Partnerships BC.
The average capital cost savings in the above table is approximately 30%. Although the projects
listed are considerably smaller than the Stave Lake Water Supply and Treatment Project in terms of
total capital cost, it is difficult to anticipate whether the larger size would change the potential for
savings positively, negatively, or at all.
CH2M HILL has undertaken some confidential analysis of projects in which it has had involvement
as a DBO or DB + short-term O bidder, and has concluded the following with respect to the
potential savings as compared to owners Traditional DBB project cost estimates:
True performance-based procurements will most likely result in the greatest potential savings;
perhaps in the range of 15 to 25 percent.
A moderate approach, whereby allowable technologies are limited, will generally achieve less
significant savings; perhaps in the range of 5 to 15 percent.
A prescriptive procurement approach may not result in any project costs savings over the PSC
approach (i.e. DBB estimate).
Based on the above, and with reference to Section 4.1.2.4, the following efficiency estimates are
selected for use in the analysis, for translation of Traditional DBB cost estimates to DBO and
DBFO cost estimates20:
25% for the WTP, as it is expected that it will be specified primarily on a performance basis;
15% for the Intake & Pump Station, as it is expected that the specification for the intake
portion will be fairly prescriptive but less so for the pump station portion21; and
20
Efficiencies could be greater in a DBFO than a DBO since there may be a heightened level of competition for the equity returns,
and because the equity returns offer a cushion against higher costs that may allow capital and O&M pricing to be more
aggressive in a DBFO. However there is no basis for estimating what the difference in the efficiency levels may be.

5% for the transmission mains which will have limited scope for innovation even if specified
on a performance basis.
This results in an overall efficiency estimate of approximately 20% for Bundle A and 5% for
Bundle B based on the initial capital costs. These efficiency factors are considered conservative
(i.e. they do not set an unrealistically high expectation of savings through innovation and
competition). It is evident that higher savings are possible, but it would not be prudent to expect
such savings as the basis for selecting a delivery model. This efficiency estimate is applied to
capital and major rehabilitation costs to translate DBB estimates to DBO/DBFO estimates. This
estimate is also subject to sensitivity analysis.
4.3.1.4.2 Treatment of Capital Cost Contingencies in the Cost Estimates

Capital cost estimates for DBB included two contingencies as follows:
Construction Contingency (Change Orders) Allowance of 5% to cover the expected increase in

costs due to change orders during construction; and
Design Development and Pricing Contingency Allowance of 10% (WTP) and 15% (Intake and
Pump Station) to cover refinement of the designs, reflecting the early development stage of the
cost estimates.
The latter contingency is included in the base costs of the financial model (for all delivery models)
because it is essentially a budgeting allowance that is very likely to be utilized as the preliminary
designs and concept designs are further advanced (i.e., projects tend not to get cheaper as the design
level advances).
The former contingency is not included in the base costs of the financial model as it would be a
double-counting of costs that area accounted for in the risk quantification.
4.3.1.4.3 Operation and Maintenance Costs

O&M costs were developed on a bottom up basis by CH2M HILL for the Intake & Pump Station,
and WTP. O&M costs for the transmission mains were developed by Opus DaytonKnight in
consultation with the City. To utilize the estimates in the financial model, the adjustments in Table
12 have been made.
21
The intake is estimated to comprise approximately 22%, and the pump station approximately 78%, of the capital cost for the
Intake and Pump Station

Table 12 - Adjustment of O&M Cost Estimates for VFM Analysis
Adjustment for
Infrastructure Component Basis of Estimate Adjustment for PSC
Shadow Bids
Increased by a profit
margin, insurance and
Assuming operation by
Intake & Pump Station None overhead costs added
the City
to reflect an expected
bid price.
Staffing reduced by 4 Increased by a profit
to account for sharing margin, insurance and
WTP of responsibilities with overhead costs added
a contractor
existing City staff to reflect an expected
22
positions bid price.
Increased by a profit
margin, insurance and
Transmission Mains None overhead costs added
the City
to reflect an expected
bid price.
The O&M estimates used in the VFM analysis therefore reflect anticipated efficiencies for self-
delivery by the City in the PSC and profit margins and overhead costs for the O&M contractor in
the shadow bids. The profit margin used in the DBFO is slightly lower than the profit margin in the
DBO, as the market has indicated that the higher total return (equity return plus profit margin on
O&M) allows for lower margins.
The cost of power and water treatment chemicals are assumed to flow through to the City, so no
markup on these costs is included in the shadow bids.
4.3.1.4.4 Bid Costs and Running Costs

An estimate of the cost of participating in a DBO or DBFO procurement (bid costs) is added to
the capital cost estimates for DBO and DBFO. Similarly, an estimate of the annual running costs of
the P3 contractors special purpose company (inter-partner reporting, audit, tax compliance, etc.) is
added to the capital cost (during the construction period) and the operating cost (during the
operating period) for DBO and DBFO.
22
Labour positions eliminated for the PSC are 1 WTP Manager, 1 Maintenance Mechanic, and 2 Lead Operators.

4.3.1.5 Summary of Capital Cost Estimates
The following summarizes the base capital and fixed operating cost estimates developed as
described above.
Table 13 - Summary of Base Cost Estimates ($2011)
Appendix D contains more detail on the base cost estimates.
4.3.1.6 Elimination of DBFO from Consideration for Bundle B

Market feedback (both on this Project and other projects that Deloitte has recently discussed with
the market of P3 service providers) confirmed that there is a need for approximately $100M of
senior debt and $10M of equity to make a project attractive to the broadest range of potential
contractors, those that will finance with a combination of equity and third party debt. The $100M
lower limit is a rule of thumb that prevailed for DBFO before the financial crisis, and while the
limit sagged during the crisis, it is again in effect. As a standalone DBFO, Bundle B is not of
sufficient size to require anywhere near $100M of debt.
We are aware of two potential contractors in the market that may take a different view of the
project size because they have alternative approaches to securing financing and different investment
criteria that may allow them to fund a smaller amount of private financing. However, there does
not appear to be broad enough market appetite for Bundle B to be procured on its own
competitively (i.e. with three qualified bidders) as a DBFO.
As discussed in Section 4.1.5.3, the long term security benefit of a DBFO is not considered very
important for Bundle B, and so eliminating DBFO from consideration for Bundle B is of little
concern.
4.3.2 Procurement Schedules

Figure 6 shows the planned procurement schedules for Traditional DBB and the P3 delivery models
(there is no significant difference expected in the procurement schedules between DBO and
DBFO). The schedules define the timing of the payment of the estimated costs associated with
each delivery model, and are therefore key inputs to the financial model.
The schedules anticipate the Project being fully commissioned and in service at the end of March
2016, to meet the Project goals. The schedules have been developed in consultation with the
Owners Engineer and there is adequate time to procure the Project under either Traditional or P3
delivery models. In both schedules, the WTP is anticipated to require the longest design period,
and the longest construction period. The timing of the construction of the other elements is planned
around the WTP timing.

4.3.2.1 Traditional DBB Schedule
The timing of the construction of the Intake & Pump Station is delayed to avoid early completion.
Although it is believed that the Intake & Pump Station could be reasonably constructed in 12
months, the potential complexities of the intake tunnel have dictated making a 6 month contingency
allowance for a total of 18 months of construction. The end of the 18 month period coincides with
the completion of the WTP, thus ensuring that water is available for the testing and commissioning
of the WTP.
The sections of the transmission mains are constructed sequentially with minimal construction
intensity, and are completed a full year earlier than the planned completion of the WTP. This gives
significant contingency allowance.
The transmission main timing shows the river crossing being constructed early, so that the
AMWSC may avail itself of the (relatively minor) benefit of headloss reduction in the existing
transmission system as early as possible. This also provides three additional fisheries windows in
the schedule that may be utilized if the crossing construction is delayed by permitting issues or field
conditions.
4.3.2.2 P3 Schedule
The design-build of the WTP governs and there is sufficient but not an excessive amount of time
available assuming (reasonably) that contract close can be achieved by the April 2013. The design-
build of the other components of Bundle A are timed in relation to the WTP construction.
The watermains in Bundle B are shown on the schedule assuming that Bundle B is procured
separately from Bundle A. The assumption is that the City would dictate completion at the end of
2014 to provide significant contingency time to guarantee that the transmission mains would be in
place in time for WTP commissioning (and thus not interfere with the ability of the P3 contractor
on Bundle A to complete on time).
If Bundle A and Bundle B are procured under one P3 contract, the P3 contractor may decide to
delay transmission main construction to coincide more closely with the completion of the Intake &
Pump Station and WTP.
The schedule shows the river crossing being constructed in the winter of 2013/2014. This allows
for a contingency fisheries construction window in the winter of 2014/2015 in the event that there
are problems in the field or with environmental permitting, still preserving a margin of safety to
complete the crossing before the WTP is completed.

Figure 6 - Procurement Schedules

4.3.3 Financial Assumptions
Key financial assumptions used in the financial analysis are provided in Table 14. Where a
parameter is the subject of sensitivity testing23, the sensitivity range is documented as well.
Table 14 Financial/Economic Assumptions
Assumption Value Notes

Inflation 2.0% Applied during the construction and operating period.
Sensitivity testing range: +/- 1% during construction
only
Discount rate 6.0% and 7.5% 6.0% - Recommended by the City consistent with the
cost of capital charged to local area service projects
7.5% - Recommended by Partnerships BC given the
approach to risk analysis
HST paid by the City 1.8% Net HST payable by municipalities in BC (100% of
federal 5% portion and 75% of provincial 7% portion
is refunded)
4.3.4 Financing
In the DBO model, the contractor must finance the construction costs during construction to the
extent that the costs are not recovered by the milestone payments. A construction loan and its
associated costs must therefore be modelled in the DBO shadow bid. The key short term financial
assumptions, based on market conditions at the time of writing, are summarized below.
Table 15 - Short Term Debt Assumptions for DBO and DBFO

Base Rate 1.85% Two-year Govt of Canada benchmark bond yields as
at Feb 10 2011 used as a proxy for a risk-free rate
Spread 3.75% Spread required to achieve an all-in rate of 5.6%, an
all-in rate that reflects short term construction
borrowing rates on current P3 projects
Total Interest Rate 5.60% Sensitivity testing range: +/- 1%
Commitment Fee 40% of spread Typical observed upfront fee, applied against
estimate of maximum outstanding loan balance
during construction
Debt type Credit line Allowing for prepayment of principal as contractor
receives milestone payments
The financing assumptions used to model private financing in the DBFO model are based on
current market conditions as if the Project was being bid as of the time of writing. Sensitivity
analysis on the key elements of the financing assumptions is done to examine the potential impact
on value for money if market conditions change either positively or negatively between the time
23
The variables tested in sensitivity testing are those recommended by Partnerships BC

of writing and time of any actual receipt of DBFO proposals. The key financial assumptions are
summarized below.
Table 16 Long-Term Financial Assumptions for DBFO

Based on Government of Canada bond yields as of
Base rate 3.85% Feb 10, 2011, interpolated for the average loan life of
a 25 year term.
Proponents are not expected to be financially-led
Private placement teams, but rather technically-led and very unlikely to
Debt type bond financing with consider anything other than fixed rate debt over the
drawdown structure full term. Most likely long term solution is private
placement bond debt.
Based on market input and recent transactions,
Base spread 2.55% assuming an unrated non-public bond backed by a
Provincial credit.
The municipalities taxation authority and ability to set
water rates should provide lenders with comfort as to
the Citys credit worthiness but as neither entity has a
Municipal spread premium 0.15%
credit rating and there is no expectation of Provincial
backing a premium above Provincially-backed P3s is
expected.
A premium on the base spread for the monthly
drawdown structure on the bond. The drawdown
Drawdown spread premium 0.30% avoids the cost of negative carry associated with a
regular bond that advances the entire funded amount
upfront.
Higher than recent market precedents due to
Total spread 3.00%
municipal risk and drawdown spread premium
Sum of the base rate and the spreads above.
6.85%
Total interest rate
Sensitivity testing range: +/- 1%
Bond arrangement fee 2.25% Typical upfront cost for bond arranging
Minimum DSCR 1.22 times Typical requirement
Lenders may require more equity than the typical 10%
88% debt : 12%
Gearing due to perceived municipal risk or their lack of
equity
experience with water projects
Lenders typically want to be out of the Project six
Tail 6 months
months prior to the end of the operations period.
Equity return 13.0% Typical pre-tax equity return target
After short-term bank
Approach seen on several recent bond-financed
Equity injection loan and bond
DBFO/DBFM proposals
proceeds fully utilized
4.3.4.1 Honorariums
Honorariums are assumed to be paid to two Proponents in the financial model. The amount of the
honorarium is $250,000 for DBO, and $350,000 for DBFO. At this level, the honorariums are
expected to cover perhaps 20% of the actual cost of bidding. Market feedback on honorariums is
that while the contribution towards costs is helpful and can make a project more attractive if it is
being compared to projects not offering honorariums, the key benefit is that the honorarium
demonstrates commitment to the procurement process on behalf of the Owner. It also provides
some compensation for ideas that may be taken from non-winning proposals and utilized by the
Owner.

4.3.5 Quantitative Risk Analysis
A qualitative risk workshop was conducted to assess Project risks under Traditional, DBO, and
DBFO delivery models. The workshop panel included representation from the City and District
engineering, operations, and finance departments, CH2M HILL, PPP Canada, and Partnerships BC.
This workshop built on the results of the qualitative risk workshop described in Section 4.1.5.1 by
utilizing the same risk register and carrying forward the initial assessments of risk probability.
For each delivery model, the previously-determined risk was confirmed, and a consensus best-case,
worst-case, and expected or typical impact was established. The impacts were expressed as either a
percentage of a relevant base cost (e.g. construction cost, operations cost), as direct dollar figures,
as time delay estimates, or other metrics such as contract termination and re-tendering costs.
The risks are categorized as:
Retained by the City;

Transferred to the private sector contractor; or
Shared by the City and the contractor, with an assumption of 50% retained and 50%
transferred.
Risks that are transferred to the contractor are not without cost. However, the nature of the risk will
dictate whether the risk cost is added as a contingency to the contractors own budget (i.e. a
priced risk), whether it is ignored by the contractor due to competitive bid pressure or optimism
bias (i.e. an unpriced risk) or whether the risk cost would be absorbed by financing costs (equity
and/or debt) in a DBFO. Each transferred risk has been categorized as priced (in which case the
risk cost flows explicitly into the financial model) or unpriced. During the risk workshop there
were some risks that were determined to be transferred but unpriced and therefore the risk
quantification was not completed.
Table 17 presents a summary representation of the results of the risk quantification, which are
suitable for making some general observations regarding the risk profiles of the bundles and the
delivery models24.
Table 17 - Net Present Value of Quantified Risks (50th percentile expected value)
Bundle A Bundle B
25
NPV of: DBB DBO DBFO DBB DBO DBFO
Retained Risk $13.1 M $ 1.6 M $ 1.3 M $3.6 M $ 2.3 M $ 2.3 M
Transferred Risk $ 2.0 M $ 6.2 M $ 4.7 M $ 0.6 M $ 0.4 M $ 0.3 M
Total Risk $ 15.1 M $ 7.8 M $ 6.0 M $ 4.2 M $ 2.7 M $ 2.6 M
From these results, it is evident that:
for Bundle A, the majority of risk cost is transferred to the contractor in DBO and DBFO,
suggesting that there is value from risk transfer in the P3 models for Bundle A;
for Bundle B, the majority of risk cost is retained by the City in DBO and DBFO, suggesting
that value from risk transfer is limited in the P3 models for Bundle B; and
24
These numbers are an intermediate output of the financial model suitable for comparative purposes as shown above only. They
should not be deemed to be equivalent to the risk adjustments made to each model in the VFM analysis, as a portion of the
costs shown are subject to financing costs being added in the DBFO and DBO models.
25
Net present values shown are calculated using a 6% discount rate

for both Bundles, the DBO and DBFO models reduce retained risk and reduce total risk,
suggesting that there is value from alternative approaches to risk mitigation in the P3 models.
The table echoes the findings of the qualitative risk assessment in that the benefits of the P3 models
are more evident for Bundle A than Bundle B.
Appendix E provides a summary of the quantified risk costs resulting from the workshop.
4.3.6 Value for Money Assessment
4.3.6.1 Overview of VFM Methodology

The value for money concept in P3 analysis has a very specific definition. It is the difference in
risk-adjusted net present value costs between the Public Sector Comparator (in this case Traditional
DBB) and the Shadow Bids (in this case DBO and DBFO). If a shadow bid has a risk adjusted cost
that is less than the public sector comparator, then value for money is achieved.
The net present value of the base costs are calculated with a cashflow model that distributes the
procurement, design, construction, operation, maintenance, rehabilitation, and financing costs
according to the schedules appropriate for each model as shown in Figure 6. Risk costs, be they
retained or transferred, are also distributed according to the schedules and the timing of the risks.
Value for money has been calculated for Bundle A, Bundle B, and for a combined A+B. As
mentioned earlier, a standalone DBFO for Bundle B is not assessed. For the combined A+B, input
costs are adjusted to account for the savings attributable to running one procurement process rather
than two separate procurement processes.
The VFM methodology utilized is consistent with Partnerships BCs guidance on the quantitative
evaluation of procurement alternatives.
4.3.6.2 Influence of Capital Contribution on Value for Money

The primary lever that a government owner has in influencing the value for money offered by a
DBFO is the level of capital contribution made to construction. Contributions to construction
reduce the amount of private financing required, and can therefore improve value for money. As
mentioned elsewhere, there are two upper limits to the amount of capital contribution that can be
made to a project:
The contribution should not be so high as to reduce the amount of private debt financing
below $100M and the private equity financing below $10M; and
The contribution should not be so high as to make the private investment insignificant relative
to the performance and handback requirements the payments to the contractor need to be
large enough that withholding them will motivate the contractor to perform and/or provide the
City with the funds needed to undertake the necessary work itself.
Capital contributions on recent DBFO and DBFM projects in Canada have ranged from 30% to
60% of the capital cost of the Project. On two hospital projects in BC, capital contributions of
80% were made but the 20% private equity financing was not believed to provide sufficient
security on its own so additional security requirements were put in place this level of funding was
an extraordinary measure to address very high debt costs during the credit crisis.

Capital contributions tested in calculating value for money are as follows:
0%, reflecting a fully privately-financed DBFO; and

The maximum contribution that preserves approximately $110M for private financing, which
is approximately 35% for Bundle A26, and 55% for a project that combines Bundle A and
Bundle B27.
The 55% maximum contribution for the Bundle is considered to be near the upper limit of what an
owner may typically wish to contribute to a DBFO without potentially reducing the effectiveness of
the long term performance security.
4.3.6.3 Value for Money Estimates for Bundle A

Table 18 presents the NPV of total costs for Bundle A (Intake & Pump Station and WTP)
calculated using both discount rates described in Section 4.3.3. The total costs include the
quantified risks, using the 50th percentile (expected value) risk cost, and are the basis for calculating
VFM. Further detail on the makeup of the total cost for each delivery model is provided in
Appendix F.
Table 18 - Total Estimated Risk Adjusted Project Costs for Bundle A
NPV of Total Costs

($millions)
@ discount rate: 6.0% 7.5%
DBB 239.5 215.9
DBO 213.9 189.8
DBFO with 0% capital contribution 241.0 195.9
Table 19 presents the VFM estimates. VFM is presented both in dollar terms (NPV of cost savings
over the full term of the agreement28 as compared to DBB) and percentage terms (as compared to
DBB).
Table 19 - Value for Money Estimates for Bundle A

$millions % $millions %
DBO 25.6 10.7 26.0 12.0
DBFO with 0% capital contribution -1.5 -0.6 20.0 9.3
DBFO with 35% capital contribution 8.8 3.7 22.8 10.6
DBO shows positive VFM for Bundle A regardless of the discount rate used. DBFO shows
positive VFM for both discount rates as long as a capital contribution is made. Maximizing the
capital contribution to the DBFO, to 35%, is shown to improve value for money.
Figure 7 shows the full range of risk-adjusted project costs from best case to worst case29, reflecting
the range of estimated risk outcomes that is possible for each delivery model.
26
The 35% contribution for Bundle A is $60M, in nominal (as-spent over the construction period) dollars
27
The 55% contribution for Bundle A and B combined is $143.5M, in nominal (as-spent over the construction period) dollars
28
i.e. design-build period plus 25 year operating period
29
The best case is taken as the 5th percentile risk cost, and the worst case as the 95th percentile risk cost.

Figure 7 Bundle A Total Estimated Risk-Adjusted Project Cost Range (best/expected/worst cases)
Regardless of the discount rate used, the figure illustrates the greater cost certainty of the DBO and
DBFO models over DBB (i.e. they have a narrower range of outcomes) and the value for money of
the DBO and DBFO models over DBB (i.e. they are positioned to the left hand side of the figures).
Looking strictly at the VFM estimates, DBO is preferred over DBFO. However, qualitative factors
must also be considered when selecting the preferred procurement option. In considering DBO vs.
DBFO for Bundle A, the discussion in Section 4.1.5.3 is particularly relevant. All else being equal,
the long term performance security of a DBO is considered inferior to that of a DBFO, and given
the operationally intensive nature of the Intake & Pump Station and WTP, where the long term
security is particularly important, the additional cost of DBFO versus DBO has been determined by
the City through preliminary review of these results to be worth the additional cost30.
Although estimated to have a cost premium over DBO, with reference to Figure 7, DBFO is
preferential to DBB regardless of the discount rate used given the narrower range of potential
outcomes. Even at the 6% discount rate, which does not make DBFO as clear a choice over DBB
as the 7.5% rate does, it is evident that DBFO limits the downside risk to the City (i.e. the worst
case is lower for DBFO than DBB) and the expected costs are lower as well, offering positive
VFM.
DBFO is therefore carried forward as the preferred P3 delivery model for Bundle A.
30
Referring to Table 19, the additional cost of a DBFO over a DBO in NPV terms is estimated to be $19M at the 6% discount rate
or $4M at the 7.5% discount rate.

4.3.6.4 Value for Money Estimates for Bundle B
Table 20 presents the NPV of total costs for Bundle B (transmission mains) calculated using both
discount rates described in Section 4.3.3. The total costs include the quantified risks, using the 50th
percentile (expected value) risk cost, and are the basis for calculating VFM. Table 21 presents the
VFM estimate.
Table 20 - Total Estimated Risk Adjusted Project Costs for Bundle B
NPV of Total Costs

($millions)
DBB 83.1 79.5
DBO 78.2 73.6
DBFO with 0% capital contribution 95.1 78.6 Shown for illustrative purposes, DBFO not
DBFO with 55% capital contribution 86.3 76.3 expected to be marketable due to capital value
Table 21 - Value for Money Estimates for Bundle B

DBO 5.0 6.0 5.9 7.4
DBFO with 0% capital contribution -12.0 -14.4 0.9 1.1 DBFO shown for
DBFO with 55% capital contribution -3.1 -3.8 3.2 4.0 illustrative purposes
DBO shows positive VFM for Bundle B regardless of the discount rate used.
Although DBFO is not considered to be marketable, the results are shown to illustrate a difference
between Bundle A and Bundle B. Whereas Bundle A showed value from DBFO when calculated
with either discount rate, Bundle B does not show value at the 6% discount rate even with a much
higher capital contribution. This further illustrates the difference in the risk profiles of Bundle A
and Bundle B the value of the risk transfer of DBFO on Bundle B does not clearly overcome the
additional cost of DBFO as it does on Bundle A.
Figure 8 shows the full range of risk-adjusted project costs from best case to worst case, reflecting
the range of risk outcomes that is possible for DBB and DBO. DBFO is not shown as it is not
considered a marketable option.

Figure 8 - Bundle B Total Estimated Risk-Adjusted Project Cost Range (best/expected/worst cases)
Regardless of the discount rate used, the figure illustrates the greater cost certainty of DBO over
DBB (i.e. it has a narrower range of outcomes) and the value for money of DBO over DBB (i.e. it is
positioned to the left hand side of the figures).
Given that DBO was not considered the best choice for Bundle A, is it suitable for Bundle B? As
discussed in Section 4.1.5.3, Bundle Bs infrastructure is not operationally intensive, and requires
very minor preventative maintenance only the transmission mains are essentially static elements.
On this basis, the City through preliminary review of these results has determined that DBO is
suitable for Bundle B.
DBO is therefore carried forward as the preferred P3 delivery model for Bundle B.
4.3.6.5 Value for Money Estimates for Combined Bundle Hybrid DBFO+DBO
On a standalone basis, DBFO has been determined to be the preferred P3 model for Bundle A, and
DBO for Bundle B. The two bundles could be combined into a hybrid P3 model for the entire
Project, with one procurement process selecting a contractor to design, build, and operate both
bundles and partially finance Bundle A only. Table 22 presents the NPV of total costs for a single
procurement for a Hybrid DBFO+DBO. These costs take into account the savings of
approximately $2.75M associated with running one procurement that spans both bundles.
Table 23 presents the VFM estimates.
Table 22 - Total Estimated Risk Adjusted Project Costs for Combined Bundle Hybrid
NPV of Total Costs

($millions)
DBB 322.6 295.4
Hybrid with 35% capital contribution
304.2 262.4
to DBFO portion of hybrid

Table 23 - Value for Money Estimates for Combined Bundle Hybrid

18.4 5.7 33.0 11.2
There may be additional economies of scale and synergies that would improve VFM over what is
shown above, for example there may be no incremental labour cost for operation of Bundle B when
packaged with Bundle A as the effort is low enough not to require any additional staffing.
4.3.6.6 Value for Money Estimates for Combined Bundle A + Bundle B DBFO
On a standalone basis, DBFO has been determined to be the preferred P3 model for Bundle A, and
DBO for Bundle B. One of the limiting factors on the value for money achievable with DBFO on
Bundle A is the amount of capital contribution (approximately 35%) that can be made without
reducing the privately-financed portion below the marketable threshold. Combining Bundle A and
Bundle B in a DBFO increases the project size and allows a greater portion of the capital costs
(approximately 55%) to be covered by capital contributions from the City without reducing the
privately-financed portion below the marketable threshold.
A combined DBFO for Bundle A and Bundle B is therefore assessed to determine if it improves
value for money compared to the Hybrid DBFO+DBO. Table 24 presents the NPV of total costs
for a single procurement of the entire Project as a DBFO calculated using the discount rates
described in Section 4.3.3. These costs take into account the savings associated with running one
procurement that spans both bundles. Table 25 presents the VFM estimates.
Table 24 - Total Estimated Risk Adjusted Project Costs for Combined Bundle A + Bundle B DBFO
NPV of Total Costs

($millions)
DBB 322.6 295.4
Table 25 - Value for Money Estimates for Combined Bundle A + Bundle B DBFO

DBFO with 0% capital contribution -8.2 -2.5 25.7 8.7
With a capital contribution, there is positive value for money regardless of the discount rate used.
There may be additional economies of scale and synergies that would improve VFM over what is
shown above, for example there may be no incremental labour cost for operation of Bundle B when
packaged with Bundle A as the effort is low enough not to require any additional staffing.
Table 26 compares the VFM of the combined DBFO with that of the Hybrid DBFO+DBO.

Table 26 - VFM Comparison of Combined DBFO and Hybrid DBFO+DBO

18.4 5.7 33.0 11.2
The value for money of the Hybrid DBFO+DBO is for all intents and purposes identical to the
VFM for the combined DBFO with 55% contribution.
Figure 9 illustrates the similarity in VFM between the Hybrid DBFO+DBO and the combined
DBFO, as well as the advantage of either of the combined bundle alternatives as compared to DBB
(downside risk is limited by the P3 models and the expected costs are lower as well).
Figure 9 Combined DBFO and Hybrid DBFO+DBO Total Estimated Risk-Adjusted Project Cost
Range (best/expected/worst cases)
4.3.6.7 No Competitive Neutrality Adjustments Required

Competitive neutrality adjustments are often made when comparing the financial cost of a shadow
bid to a PSC to ensure a fair comparison. The two most common adjustments are for taxation and
insurance. A taxation adjustment is only relevant if the government project owner receives the
taxes paid by the shadow bid contractor in whole or in part, which is not the case for the City. An
insurance adjustment is only relevant if the government owner is self-insured and therefore pays no
insurance premiums, which is not the case for the City.

4.3.7 Supplementary Qualitative Analysis
Some supplementary analysis which was not explicitly addressed in either the qualitative risk or
MCA workshops is presented as follows.
4.3.7.1 Benefits of a Combined Bundle A + Bundle B Procurement

Combining Bundle A and Bundle B into a single procurement with one contractor offers several
benefits including the following:
Reduced coordination risk between the bundles (note: this risk is considered to be relatively
minor, both for construction and operations);
Single point of accountability for the entire Project;
Larger project size, which may marginally increase market interest;
Potential economies and efficiencies over and above those included in the VFM analysis; and
Lower procurement costs for the City.
Either the Combined DBFO or Hybrid DBFO+DBO could offer these incremental benefits.
4.3.7.2 Quality of Long Term Security

This criteria was not explicitly addressed in the qualitative or MCA workshops but has been
discussed extensively as sidebars to those workshops, and discussed with the City during
presentation of preliminary value for money results. The results of this assessment are:
For Bundle A, long term performance security is very important due to the nature of the assets
and to guarantee the risk transfer that the City would seek in exchange for prescribing the
Bundle on a performance basis. Therefore, DBFO is strongly preferred as the P3 model for
Bundle A with respect to this criteria.
For Bundle B, long term performance security is not very important as the specification will
be primarily prescriptive and there is little operation and maintenance risk to transfer given the
static nature of the assets. Therefore, DBO is preferred as the P3 model for Bundle B with
respect to this criteria because there would be little benefit received in exchange for the
premium paid for a DBFO.
4.3.7.3 Comparison of Combined Bundle DBFO and Hybrid DBFO+DBO

To preserve the risk transfer and long term performance security benefits that make DBFO the
preferred P3 option for Bundle A, in the Hybrid DBFO+DBO model it is assumed that the
contractual structure would segregate the DBFO and DBO so that the financing in the DBFO would
be exposed to the payment mechanism for Bundle A only. The DBO would utilize a parent
company guarantee, with the guarantee restricted to Bundle B only.
With a combined DBFO, the financing would be exposed to the payment mechanism of both
Bundle A and Bundle B. Despite the low likelihood of penalties being assessed on Bundle B,
lenders may view this structure as exposing their investment to a higher level of risk than in the
hybrid structure. Relative to the hybrid, the combined structure may therefore be less attractive to
the market, or lenders may require a higher percentage of equity investment than in the hybrid
which would reduce the VFM presented above, with the Hybrid DBFO+DBO offering better VFM
in comparison.

From the Citys perspective, a similar concern exists: the total amount of long term security
resulting from $110M of private financing could be needed to support deficient performance of
both Bundles in the combined DBFO, rather than just Bundle A in the hybrid, and there would be
no parent company guarantee available in the unlikely event that the entire payment stream was
needed to rectify non-performance on both bundles.
Based on this analysis, the Hybrid DBFO+DBO model offers some advantage over the combined
DBFO model and is preferred.
4.3.7.4 Sensitivity Analysis on Hybrid DBFO+DBO

Sensitivity analysis on several key inputs to the value for money model has been conducted to
determine the sensitivity of value for money of the preferred procurement option. Table 27
presents the results.
Table 27 - Sensitivity Analysis
Value for money remains positive within the range of sensitivity testing, with the exception of the
P3 efficiency factors. The sensitivity to the P3 efficiency estimates tested are as follows.
Table 28 - Sensitivity to P3 Efficiency Estimates
Efficiency Factors Hybrid DBFO+DBO VFM

Transmission @ 6.0% @ 7.5%
Intake & PS WTP
Mains discount rate discount rate
Base Case Efficiency 15.0% 25.0% 5.0% 5.7% 11.2%
Sensitivity: Zero Efficiency 0.0% 0.0% 0.0% -10.6% -3.5%
Sensitivity: Half Efficiency 7.5% 12.5% 2.5% -2.5% 3.8%
It is evident that the value for money estimated is dependent on the expectation that the DBFO and
DBO delivery models will result in capital cost savings over the DBB cost estimate. The
experience described in 4.3.1.4 and observations of other P3 projects suggests that these
expectations are not unreasonable. The base case efficiencies used are believed reasonable and the
analysis is somewhat conservative in that no expectation of operating efficiencies is included in the
VFM estimates.

4.4 Recommended Procurement Model
The recommended procurement model has been selected based on a distillation of the qualitative risk
analysis, MCA analysis, market sounding, VFM analysis (which integrates the quantitative risk
assessment), and supplementary qualitative risk analysis. The following offers a brief walk through of the
analysis, summarizing the salient points that lead to the recommended procurement model.
Qualitative Analysis
Bundle A is expected to benefit more from P3 models than Bundle B.

The P3 models offer similar (Bundle B) or lower (Bundle A) risk profiles than DBB.
Key Outcomes
Both DBO and DBFO may offer value to the City, but to different extents for Bundle A and Bundle
B.
MCA Analysis
All models are equally and well able to meet the overarching goal of the Project, which is to
deliver a sufficient quality and quantity of water.
The P3 models score highest with respect to innovation potential, long term cost optimization and
time and cost certainty. DBFO scores better than DBO with respect to handback quality at the end
of the operating term and maximizes the costs covered by other levels of government.
Traditional DBB scores highest with respect to long term adaptability and flexibility simply
because there is no contractual process that must be followed to make changes. However this
does not preclude changes from being made, and does not preclude competition on the cost of
capital changes.
The relative quality of the long term performance security is higher in a DBFO than a DBO. The
long term performance security is very important for Bundle A, and considerably less important
for Bundle B.
Key Outcomes
The P3 models are believed to offer cost, schedule, and performance advantages, with
acknowledgement that they lock the City into a relationship with a specific contractor for the long
term which by definition can limit ultimate flexibility. The additional cost of a DBFO is predicted to
be of little value for Bundle B.
Market Sounding
There is a market of potential bidders for the Project with strong background in water and
wastewater design, construction, and operations with DB, DBO and utility-type delivery models.
There is considerable market interest in the Project as either a DBO or DBFO.
Bundle A is large enough to be procured competitively as a DBFO, while Bundle B is too small
on its own.
Key Outcomes
DBFO and DBO may be considered for Bundle A and a combined Bundle A plus Bundle B. As a
standalone project, Bundle B is too small for DBFO.

Financial Analysis and Supplementary Qualitative Analysis
Both DBO and DBFO offer value for money for Bundle A. The higher cost of DBFO is deemed
worthwhile because of the higher quality long term performance security. DBFO is the preferred
procurement model for Bundle A as a standalone project.
Bundle B is too small to be marketable as a DBFO, which does not represent a lost opportunity
because the higher cost of a DBFO is not believed to be worthwhile for the transmission main
infrastructure due to its static nature, very long service life, and minimal O&M requirements. In
the event that Bundle B was procured as a DBFO, it was demonstrated that the determination of
whether or not value for money is achieved depends on the discount rate used, which illustrates
that the value of DBFO is not as compelling for Bundle B as Bundle A. DBO offers value for
money for Bundle B, and is the preferred procurement model for Bundle B as a standalone
project.
A hybrid consisting of a DBFO for Bundle A and a DBO for Bundle B offers better VFM than
two standalone procurements, due to cost savings in procurement. The incremental savings that
may accrue due to efficiencies from economies of scale may improve VFM further than what has
been estimated. A combined Bundle A and Bundle B DBFO procurement offers similar VFM as
the hybrid and may benefit from similar incremental economy of scale benefits but presents a
higher risk to lenders and equity investors that may reduce VFM relative to the hybrid, and has a
slightly lower quality of long term performance guarantee. The Hybrid DBFO+DBO is the
preferred procurement option overall.
The Hybrid DBFO+DBO procurement model with a 25 year operating term and 35% capital contribution
to the DBFO portion is the preferred procurement option because:
Value for money is estimated to be achieved regardless of the discount rate used

$millions $millions
% %
NPV NPV
31 18.4 5.7 33.0 11.2
It provides the City with the long term performance security required to confidently transfer the
responsibility and risk for designing, operating, and maintaining the Intake & Pump Station,
Water Treatment Plant, and Transmission mains.
4.5 Nomenclature for Recommended Procurement Model

The Hybrid DBFO+DBO nomenclature is used in this document to accurately reflect the analysis
process followed to determine the preferred procurement model, which was developed by combining the
models that were independently examined for each Bundle. The fundamental feature of the
recommended procurement model is the isolation of the long term private financing to Bundle A. The
nomenclature has the advantage of clearly indicating this feature, which will be helpful for the project
team in developing documentation for the procurement, and also for explaining the procurement model to
the public.
31
See Tables 5 and 6 in Appendix F for the PSC and shadow bid cost breakdowns that lead to the value for money results

Given the risk and responsibility transfer contemplated by the model, it may also accurately be described
as DBFO with partial and targeted private financing or a Hybrid DBFO+DBfO, where the lower-case
f denotes short term construction financing.

5 Funding and Affordability
5.1 Provincial Funding
The City will pursue provincial funding for the Project.
5.2 Federal Funding

Federal funding from the P3 Canada Fund of 25% of eligible costs is being requested through submission
of this funding request. No other federal funding is anticipated for the Project.
5.3 Municipal Funding

The City will fund Project costs through development cost charges and utility fees (water rates). The City
operates its water system on a cost-recovery basis and does not set rates and charges in order to earn a
return to the City.
Borrowing to fund capital costs, if necessary, will be through the Regional District which in turn would
borrow through the Municipal Finance Authority of BC (MFABC). The MFABC pools the borrowing
needs of most local governments in BC and maintains very strong credit ratings32.
5.4 Accounting Analysis

The City will account for the DBO and DBFO in general accordance with the practice guidelines issued
by the BC Office of the Comptroller General, which outlines the appropriate accounting treatment for P3
arrangements. Fundamental to these guidelines is that the assets and corresponding liabilities are
recognized, and there is no off balance sheet treatment.
5.5 Affordability
The Project is expected to proceed for the reasons outlined in Section 2. There is no pre-determined
ceiling that sets the affordability of the Project; however, a key objective is to minimize costs as
described in the Financial criteria of the MCA analysis (see Table 9). Minimizing costs will in turn
minimize borrowing requirements and water rates.
5.5.1 Debt Impact (assuming no P3 Canada Fund Investment)

The use of DBO for Bundle B should have a slightly lower impact on the overall municipal debt
levels than DBB due to the expected construction cost savings. The use of DBFO for Bundle A is
expected to have a considerably lower impact on the overall municipal debt levels than DBB due to
the expected construction cost savings, which are proportionately larger on Bundle A than on
Bundle B.
In terms of debt servicing (repayment of principal and interest), the use of DBO for Bundle B will
reduce debt servicing costs as compared to DBB due to the expected construction cost savings.
The use of DBFO for Bundle A will result in debt servicing costs being paid under two different
streams: to the MFABC for the City-financed portion (approximately 35% of the capital cost) and
to the P3 contractor for the privately-financed portion (approximately 65% of the capital cost). The
capital cost of Bundle A itself is expected to be approximately 20% less than if delivered as a DBB.
32
(2010 Ratings: Fitch: AAA; Moodys: Aaa; S&P: AAA)

The City has the debt capacity to support the Project through any delivery model.
5.5.2 Sources of Funding

The City will fund Project costs through development cost charges and utility fees (water rates).
5.6 Funding Request from P3 Canada Fund

It is recommended that the City make a funding request to PPP Canada from the P3 Canada Fund
for support in the form of a non-refundable contribution of 25% of the eligible costs of the Project
delivered through a P3 procurement model described as a Hybrid DBFO+DBO.
5.6.1 Eligible Costs

The eligible costs, based on a draft of Schedule B of the P3 Canada Fund agreement include
construction costs of the P3 contractor (reimbursed through milestone payments) and costs of the
City (incurred throughout the planning and procurement process). The latter have been categorized
in the financial model as Owners Costs. Table 29 outlines the eligible costs for the recommended
procurement option (Hybrid DBFO+DBO).
Table 29 - Estimated P3 Canada Fund Contribution for 25% of Eligible Costs ($millions, nominal as-
spent dollars)
DBFO DBO Total

Bundle A Bundle B Contribution
25% of Construction Costs 42.7 21.0 63.7
33
19% of Total Owners Costs 1.8 1.0 2.8
TOTAL CONTRIBUTION 66.5
A 25% contribution to eligible costs is estimated to amount to $66.5 M over the construction
period, with milestone contributions expected to be in the calendar years of 2014, 2015, and 2016.
5.6.2 Incrementality from P3 Canada Fund Investment

The recommended procurement option has been identified without direct consideration of the
impact that the requested P3 Canada Fund Investment (the Investment) will have on the Project.
The value for money and qualitative benefits outlined in the foregone analysis are present
regardless of the Investment. However, the Investment offers the City a significant incremental
value for money.
33
Total Owners Costs includes some costs (e.g. legal costs) that are not eligible costs for the P3 Canada Fund, therefore a 25%
contribution to eligible owners costs is equivalent to a 19% contribution to Total Owners Costs.

Table 30 - Incremental VFM to AMWSC from P3 Canada Fund Investment

$millions $millions
% %
NPV NPV
Without P3 Canada Fund Investment 18.4 5.7 33.0 11.2
With P3 Canada Fund Investment 70.6 21.9 82.0 27.8
Incremental VFM From P3 Canada
52.2 16.2 49.0 16.6
Fund Investment [Line 2 Line 1]
The Investment will improve VFM by approximately $50M, or 16%, by improving the affordability
of the Project. The improvement in affordability will translate to lower water rates, which in turn
make the communities more competitive and better able to sustain and develop their economies.

6 Indicative Procurement Strategy
6.1 Recommended Procurement Process
In accordance with best practice, the high-level steps in the procurement process are recommended as
follows:
Request for Qualifications

Shortlisting based on technical qualifications and financial capacity (likely to three proponents)
Request for Proposals to shortlisted proponents only (including draft form of Project Agreement)
Competitive dialogue during Proposal preparation period
o Confidential meetings (likely two rounds) on technical matters
o Confidential meetings (likely two rounds) on Project Agreement
Interim technical submissions
o Reviewed for compliance and responsiveness to specifications, with feedback to
proponents
Issuance of final form of Project Agreement
Receipt of technical proposals
Evaluation of technical proposals
Invitation to submit financial proposals
Evaluation of financial proposals
Selection of Preferred Proponent
Commercial/Financial Close
No negotiation of the issued final Project Agreement with the Preferred Proponent is contemplated.

6.2 Transaction Structure
Figure 10 illustrates the transaction structure, showing the relationship between the public sector parties,
the private sector parties, and the public/private sector interface.
Figure 10 - Transaction Structure
There are three agreements that span the public/private sector boundary, as follows:
The Project Agreement, setting out all terms and conditions for the Project in the design,
construction, and operations stages;
The Direct Agreement between the lenders (debt providers) to the project, generally required by
lenders to allow them to step in to ensure that continued satisfactory operation of Bundle A in
the event that the P3 Contractor or one of its subcontractors defaults; and
Parent Company Guarantee(s), which guarantee the long term performance of the transmission
mains (Bundle B).

6.3 Approvals
6.3.1 City and Council
Approval from City Council will be sought for authorization to proceed with the following key
activities. The recommended Council approvals are shown below.
Table 31 Recommended Council Approvals
Approval Purpose Timing Considerations

Allow development of RFQ, Pending P3 Canada Fund
RFP, and project funding decision from PPP
Procurement planning
agreements to meet the Canada, but could begin
procurement schedule earlier
Allow assent of the electors
to be solicited as required to Should be obtained during
Seek assent of the electors enter into the contemplated November 2011 election or
Hybrid DBFO+DBO as soon as possible after
agreement
Allow procurement to
Pending receipt of assent of
Commence procurement proceed, starting with
the electors
release of RFQ to the market
Execute contract at financial
Execute contract with preferred At the conclusion of the
close with the preferred
proponent procurement process
proponent
The approach to council approvals outlined, in particular the coordination with gaining the assent of
the electors, is key to minimizing procurement risk in the eyes of the market. As recommended
above, only one Council approval is required once the procurement process commences (the
contract execution). This requires combining what may typically be two separate steps (firstly
approving the selection of preferred proponent, and secondly contract execution).
The approach also seeks to obtain assent of the electors prior to engaging the market of service
providers (i.e. prior to issuing the RFQ). Without this, the market may view the procurement as
having high risk of cancellation and reduce the number of qualified participants.
6.3.2 Assent of the Electors

The BC Local Government Act and Community Charter require that approval of the electors be
obtained for certain proposed bylaws, agreements, and other matters. For the Project, assent is
required for both a borrowing bylaw and the long term P3 contract. The City will seek assent of the
electors by referendum on November 19th 2011 in conjunction with the municipal election.
6.3.3 Environmental Approvals

Responsibility for obtaining the major environmental approvals necessary to construct the Project
lies with the City and the current status is described in Section 3. All approvals need not be in place
in order to commence the procurement process, as long as the City commits to having the approvals
in place ahead of the anticipated start of construction.
There is a risk that environmental approvals may delay the Project, as construction cannot
commence until the approvals are in place, and it is not known at this time what types of
environmental review processes the Project faces. Even if the approval processes were known,
uncertainty would remain as to the time each process may take.

Looking back to the procurement schedules on Figure 6, approvals would need to be in place by
early 2013 to allow construction to commence. This allows approximately 2 years from time of
writing to secure approvals, which is believed to be achievable even in the event that full reviews
are required. Figure 3 contemplates receiving environmental assessment certificates in late 2012.
If full and/or lengthy environmental reviews are required, it is likely that the City will need to
release the RFP prior to obtaining the environmental certificates. However, by that time, there will
be a full understanding of the review processes and timelines, and the terms of the RFP will be
adjusted accordingly there will be no attempt to transfer environmental assessment risk to the
proponents.
6.4 Project Team

As demonstrated through the development of this business case document, the City is committed to
creating a project team with the appropriate internal and external expertise and resources to execute the
Project under the recommended procurement model. Team members are anticipated to include:
Planning and Procurement Stage

Director of Water and Solid Waste 25% time allocation
City planning engineers 1.5 full time equivalents
City project engineers 0.5 full time equivalents
City communications resource
City lawyer
External legal advisor
External business advisor (financial and process)
External fairness advisor
External owners engineer advisor
External P3 advisor
Construction Stage
Director of Water and Solid Waste 25% time allocation
Planning engineers 1 full time equivalents
External owners engineer advisor
The City has agreements in place to access financial, process, and owners engineer advisory services.

6.5 Project Governance
The City will govern the Project through a Project Steering Committee. A project manager (Chief Project
Officer) will be appointed by the steering committee for the day-to-day management of the planning and
procurement of the Project. The project manager will be supported by City staff and external advisors
who together will make up the Working Committee. The project manager will be responsible for
managing and monitoring the performance of the advisors.
Figure 11 - Project Governance
Table 32 outlines the recommended approval levels for the major steps of the procurement process.
Table 32- Project Governance: Roles & Responsibilities
Working Steering PPP

City Council 34
Committee Committee Canada
Develop RFQ Approval Information Approval
Short-list RFQ
Information Information
respondents
Develop RFP Approval Information Approval
Develop project
Approval
agreement
Develop Technical
Information
Specifications
Select preferred
Approval Information
proponent
Award contract /
Approval Approval
financial close
The following tables outline the anticipated membership of the steering and working committees.
Table 33 Project Steering Committee Membership
Name Title Organization

Jim Gordon GM Engineering & Regional Utilities City of Abbotsford
Patricia Soanes GM Corporate Services City of Abbotsford
Judy Lewis Director of Finance City of Abbotsford
34
It is assumed that as part of the funding agreement between PPP Canada and the City that PPP Canada will wish to approve
any mention of the P3 Canada Fund investment that may be present in the documents.

Table 34 - Working Committee Membership
Role Organization
Chief Project Officer City of Abbotsford
Business Advisor TBD
P3 Advisor TBD
Owners Engineer TBD
City Legal Advisor Murdy & McAllister
P3 Legal Advisor TBD
Communications Officer City of Abbotsford
Funding Stakeholder PPP Canada
Technical Staff City of Abbotsford
6.6 Project Schedule

The project schedule is discussed in Section 4.3.2.2 and presented on Figure 6. A summary on an annual
basis is as follows:
2011: procurement planning and technical investigations, obtain environmental approvals,

obtain assent of electors
2012: release RFQ, shortlist, release RFP
2013: award contract, design and construction
2014: design and construction
2015: construction
2016: commissioning
6.7 Key Documents

The key documents required to procure the Project under the recommended procurement option are as
follows:
Request for qualifications (RFQ);

Request for proposals; and
Project agreement including technical specifications.
The City should not develop these documents in isolation. Rather, it is recommended that the documents
be based on precedent documents from successful DBFO and DBO transactions in Canada, with
schedules and content specific to the Project added. This not only reduces effort and cost for the City, but
assists respondents and proponents in minimizing the cost of their responses since they or their advisors
will likely be familiar with the documentation. Using familiar documents also helps to reduce any
perceived procurement risk on the part of proponents.
The advisors utilized by the City on this business case are familiar with a range of appropriate base
documentation that may be used. The legal advisor retained should be one with strong P3 agreement
development and transaction experience.
The City intends to develop the necessary documents between April 2011 and January 2012, in
anticipation of release of the RFQ in January 2012 if assent of the electors is obtained.

6.7.1.1 Key Output Metrics
While the output specification is yet to be developed, key output metrics that will be required to
specify the Project and define payment are expected to include the following:
o Treated water quality - aesthetic, chemical, physical, radiological, and microbiological

standards and guidelines applicable to the City (Canadian Guidelines for Drinking Water
Quality, Fraser Health Authority standards, City objectives);
o Treated water quantity - the peak production capacity of the initial phase of the project
(150MLD) will be specified, contractor will be required to supply treated water at any
flow rate up to this level on demand;
o Water quality monitoring - online and grab sampling frequency, parameters, and
reporting requirements for both raw and treated water;
o Minimum activity frequencies - there may be certain operating or maintenance
activities that the City wishes to set to meet Health Authority or City requirements, in
addition to performance requirements;
o Water treatment chemical efficiency - the contractor will be held to a chemical use
efficiency specified in its proposal;
o Electricity efficiency - the contractor will be held to an electricity use efficiency
specified in its proposal;
o Weekly, monthly, and annual reporting - the contractor will be required to report on
operational performance, maintenance completed, upcoming projects, etc. on a regular
basis, with the reporting itself being a performance metric.
6.8 Implementation Plan / Next Steps

The City is already moving forward with the baseline planning required to advance the Project regardless
of the delivery model used, including preliminary planning and engineering, application for
environmental approvals, and commencement of a raw water quality monitoring program.
The next steps are as follows:
Obtain City Council approval of this business case and authorization to submit funding request to
PPP Canada;
Submit funding request to PPP Canada;
Commence procurement planning (development of documentation, etc.), this may commence
immediately or Council may wish to await PPP Canada funding decision; and
Seek assent of the electors.
Not until any required assent of the electors is obtained should the procurement process commence. The
first step of the procurement process is the release of the RFQ.

Appendix A References
1 Stave Lake Water Supply Conceptual Design AECOM March 2010
2 AMWSC Water Master Plan AECOM April 9, 2010
3 Power Generation and Energy Recovery Associated Engineering June 2010
Feasibility Study
4 Project Description Stave Lake Water Golder Associates September 22, 2010
Supply Project (for BCEA Office)
5 Stave Lake Intake & Pump Station Preliminary CH2M HILL December 2010
Engineering Pre-Design Report
6 Stave Lake Intake & Pump Station Preliminary CH2M HILL September 2, 2010
Engineering Proposed Design Concept
7 Norrish WTP Improvements for Turbidity CH2M HILL January 4, 2011
Strategic Plan for WTP Improvements
8 Stave Lake Water Treatment Plant and CH2M HILL January 7, 2011
Maclure Reservoir Expansion Development
Cost Estimates
9 Stave Lake Water Supply System Procurement CH2M HILL January 28, 2011
Assessment Alternative Delivery/P3 vs.
Public Sector Comparator (PSC)
10 Stave Lake Water Supply System Cost CH2M HILL January 28, 2011
Estimates Comparison (DB vs. DBB)
11 Stave Lake Water Transmission Main Phases Opus DaytonKnight December 2, 2010
2 and 3 Cost Estimate
12 AMWSC Water Transmission Main Stave Opus DaytonKnight December 2, 2010
Lake to Maclure

Deloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Request
Appendix B Qualitative Risk
Assessment Results

Bundle A Intake & Pump Station, WTP, Reservoir
The reservoir in Bundle A was later deleted from the Project scope.

Bundle B Transmission Mains

Appendix C Multi-Criteria Analysis
Workshop Results

Stave Lake Water Supply and Treatment Project
Procurement Objectives Criteria for MCA Analysis
January 11th MCA Workshop Findings
Criteria Rating Criteria Rating Criteria Rating

Category Project Objectives Desired Outcomes Procurement Criteria
Traditional DBO DBFO

Payment mechanism incents on-
time completion
Evidence from other Canadian P3
Payment mechanism incents on- projects is that they finish on time
Schedule is not particularly tight
time completion Less opportunity for AMWSC to
Contractors will be pre-qualified
Project in service prior to Evidence from other Canadian P3 interfere with project and cause
Avoid a shortfall of water in the 1. Maximize certainty that Compared to other models, the
the summer peak demand projects is that they finish on time delay
communities 2015 target will be met builder-AMWSC relationship is
period of 2016. Less opportunity for AMWSC to Lender typically wants to see
more adversarial and can lead to
interfere with project and cause completion well ahead of the target
delays
delay completion date to provide a buffer
Liquidated damages would be
Schedule Liquidated damages have potential and ensure on-time
limited in scope to construction, not
to be larger than Traditional due to commencement of capital
design
design-build scope payments
Liquidated damages have potential
to be larger than Traditional due to
design-build scope

Fraser River crossing
available as soon as 2. River Crossing available Can start the river crossing
Reduced headloss in network considerably earlier if it is not tied to Embedding the river crossing in a Embedding the river crossing in a
Phase 1 watermains when Phase 1 water mains
additional capacity to South an overall P3 project. P3 would delay its delivery until P3 would delay its delivery until
completed (relatively minor (south of River) completed
benefit) Funding is not committed which somewhat after the Phase 1 somewhat after the Phase 1
could cause delay as compared to watermains are complete. watermains are complete.
the technical ability to start

Scope is maximal: design, build,
operations, maintenance
Minimize the life-cycle cost Financially sustainable Competition is maximal: design,
of the Project infrastructure and operations 3. Maximize scope for build, operations, maintenance
Maximize long term cost Lowest possible water costs innovation and competition Design innovation is not driven by Scope is maximal: design, build, Lenders are not believed to improve
Financial
certainty (25 35 years) Consistent, predictable costs (i.e. design, construction, competitive process operations, maintenance innovation of technical solution
Lowest net cost to the Maximize costs covered by operation) Scope for innovation relatively Competition is maximal: design, Equity investors are likely to have
AMWSC other levels of government limited in a construction tender build, operations, maintenance water expertise (i.e. be operators)
and may spur further innovation
over and above DBO since there
are greater returns from a winning
DBFO bid
1

Trade-off is examined under Trade-off is examined under
competitive pressure and under competitive pressure and under
4. Optimize the trade-offs need to propose fixed long term need to propose fixed long term
Trade off is considered in the
between short term and pricing pricing
traditional design/planning process
long term costs A more intensive optimization A more intensive optimization
but not under competitive pressure
process is believed to occur process is believed to occur
Citys process is focussed more on
The horizon of optimization will be The horizon of optimization will be
capital costs than O&M costs
limited to the operations term, limited to the operations term,
which is shorter than true whole-of- which is shorter than true whole-of-
life term of the assets life term of the assets

Traditional tender is not fixed-price,
Need to provide firm fixed pricing Need to provide firm fixed pricing
5. Maximize cost certainty in has a small number of unit quantity
increases certainty (both to the increases certainty (both to the
construction, and operation, components.
Contractor, and the AMWSC) Contractor, and the AMWSC)
phases Builder has no responsibility for the
Requiring Contractors to bid a Requiring Contractors to bid a
design and will seek extras.
water treatment efficiency factor water treatment efficiency factor
O&M costs are not fixed ahead of brings near-maximum certainty on brings near-maximum certainty on
time, nor are any guarantees on operating costs to AMWSC operating costs to AMWSC
treatment plant efficiency obtained

Eligible for P3 Canada Fund
6. Maximize costs covered by contribution
other levels of government No senior government funding is All else being equal, the greater
Eligible for P3 Canada Fund
available for the project under this involvement of the private sector as
contribution
delivery model. compared to DBO increases the
chance of P3 Canada Fund
contribution

7. Ensure a marketable and Likely to be tendered as a number
competitive process of smaller projects At least 3 qualified consortiums are At least 3 qualified consortiums are
At least 3 qualified bidders are expected to pursue the project expected to pursue the project
expected to pursue each tender
Not relevant to procurement
Preserve debt capacity for use model selection as no
Minimize municipal debt - - -
on other initiatives procurement model obviates
debt or debt-like obligations.
Increased confidence in long-
term sustainability of water Not relevant to procurement
Reduce reliance on
Environmental supply volume model selection, depends on - - -
groundwater
Increased confidence in long- AMWSC operational rules
term raw water supply quality
2

Minimize per capita water
Improved water stewardship model selection, depends on - - -
use
AMWSC policies, rates, etc.
Meet terms of BC Climate
Minimize carbon footprint Requirements of the Charter in
Action Charter for carbon
of Project relation to the Project are not
neutrality - - -
Create carbon credits if sufficiently understood to
Maximize costs covered by develop a rate-able criteria.
possible
other levels of government

Minimize impact of 8. Meet regulations for Regulatory requirements will be met Regulatory requirements will be met
Compliance with regulations Penalties applied for non- Penalties applied for non-
residuals residuals disposal
Regulatory requirements will be met performance performance
Continual non-performance will lead Continual non-performance will lead
to default of the Contractor to default of the Contractor

9. Supply sufficient quantity of Requirements will be met Requirements will be met
water Penalties applied for non- Penalties applied for non-
Requirements will be met performance performance
Supply sufficient quantity Public health and safety Continual non-performance will lead Continual non-performance will lead
Social / of water Maintain quality of life to default of the Contractor to default of the Contractor
1
Economic Supply sufficient quality of Economic sustainment and
water development
10. Supply sufficient quality of Requirements will be met Requirements will be met
water Penalties applied for non- Penalties applied for non-
Requirements will be met performance performance
Continual non-performance will lead Continual non-performance will lead
to default of the Contractor to default of the Contractor
Provide peaking capacity
to supplement Norrish
Minimize overall water Not relevant to procurement
Creek supply - - -
production cost model selection
Reduce reliance on
groundwater supply
Technical Provide fireflow
redundancy for Norrish Public safety - - -
model selection
Creek supply
Ability to alter/adapt Respond to regulatory 11. Ensure sufficient
treated water quality requirements over the long functionality and flexibility
1
Quality = meeting Canadian and BC Requirements for quality and treatment
3
term for adapting treated water Project agreement can anticipate

Project agreement can anticipate
Respond to operational quality at least cost the need to change treated water
the need to expand and provide
requirements over the long quality and provide mechanisms for
mechanisms for it
term it
However, the contracted
However, the contracted
mechanism cannot be as flexible as
mechanism cannot be as flexible as
the lack of a contract under
the lack of a contract under
traditional
traditional
Since no contract governing Adaptation may cost more than
Adaptation may cost more than
operations, flexibility is maximal under Traditional delivery model
under Traditional delivery model
because although change
because although change
provisions in the contract can allow
provisions in the contract can allow
for competitive tender for
for competitive tender for
construction and supply, there
construction and supply, there
could be no competition for the
could be no competition for the
solution/design which would come
solution/design which would come
from the Contractor
from the Contractor

12. Ensure sufficient Adaptation may cost more than Adaptation may cost more than
functionality and flexibility under Traditional delivery model under Traditional delivery model
Ability to alter/adapt Respond to regulatory
for adapting the water because although change because although change
quantity and quality of requirements over the long
treatment plant to change provisions in the contract can allow provisions in the contract can allow
residuals term Since no contract governing
residuals characteristics at for competitive tender for for competitive tender for
operations, flexibility is maximal
least cost construction and supply, there construction and supply, there
could be no competition for the could be no competition for the
solution/design which would come solution/design which would come
from the Contractor from the Contractor

Ability to adapt to changes 13. Ability to adapt to changes Since no contract governing Since energy costs are expected to Since energy costs are expected to
Minimize energy costs operations, flexibility is maximal be mostly passed through to the be mostly passed through to the
in energy costs in energy costs
However, AMWSC could not follow AMWSC, the Contractor will not be AMWSC, the Contractor will not be
closely enough to maximize pace of as incented as the AMWSC to as incented as the AMWSC to
adaptation respond to energy costs respond to energy costs

Adaptation may cost more than Adaptation may cost more than
under Traditional delivery model under Traditional delivery model
Ability to adapt to 14. Ability to adapt to because although change because although change
Meet treated water quality
(permanent) changes in (permanent) changes in raw provisions in the contract can allow provisions in the contract can allow
standards Since no contract governing
raw water quality water quality for competitive tender for for competitive tender for
operations, flexibility is maximal
construction and supply, there construction and supply, there
could be no competition for the could be no competition for the
solution/design which would come solution/design which would come
from the Contractor from the Contractor
Reliable (short-term) water Short term water quantity
quality and quantity Short term water quality
15. e
4
Payment mechanism provides an

added incentive to respond to
Payment mechanism provides an
Redundancy is the norm but could events and may also ensure that
added incentive to respond to
be curtailed due to budget redundancy is given greater
events and may also ensure that
constraints and knowledge that attention
redundancy is given greater
wells are available May be slightly inferior to DBFO as
attention
the penalty regime cannot be as
aggressive in DBO
16. Ability to operate and
deliver quantity and quality

of water as demanded (after AMWSC would be taking over an AMWSC would be taking over an
handback in case of P3, at asset that it did not have full control asset that it did not have full control
Reliable water quality and Water quantity AMWSC would have had full control
similar point in time in the over during the operating period over during the operating period
quantity at/after handback Water quality over, and operating experience
case of Traditional) through However AMWSC would have the However AMWSC would have the
familiarity with the plant and with, the infrastructure during the
right to gain the necessary right to gain the necessary
equipment and operating operating period
familiarity towards the end of the familiarity towards the end of the
history operating period operating period

Contractual requirement for Contractual requirement for
17. Asset when handed back maintenance and handback maintenance and handback
Appropriate remaining life has had all necessary Yearly budgeting process allows
Residual value conditions conditions
when asset is taken back maintenance and is fit for opportunity to defer maintenance
Little ability to defer maintenance Little ability to defer maintenance
purpose as specified. Deferral of maintenance was
but less leverage through payment due to AMWSCs ability to hold
established as possible in the risk
mechanism to ensure no back capital and major
workshops.
maintenance is deferred as maintenance payments
compared to DBFO
Note: at the time of the workshop, the AMWSC (rather than the City) was contemplating undertaking the Project, hence reference to AMWSC as the project owner in the table.
5
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Stave Lake Water

Supply and Treatment

April 15, 2011

April 15 2011 - Confidential

Figure 1 - Project Infrastructure Components and Key Plan ........................................................................ 4

Table 1 - Project Goals ................................................................................................................................. 6

April 15 2011 - Confidential

April 15 2011 - Confidential

1.2 Contact Information

1.3 Purpose of this Business Case

April 15 2011 - Confidential

2.2 Project Description and Scope

2.2.1 Infrastructure Description

a water intake in Stave Lake;

April 15 2011 - Confidential

2.2.2 Operation and Maintenance

2.2.3 Project Term

2.2.4 Capacity Expansion

April 15 2011 - Confidential

April 15 2011 - Confidential

Figure 2 - Water Supply vs. Maximum Day Demand4

The figure shows that:

2.4 Summary of Feasibility Study

April 15 2011 - Confidential

2.5 Project Goals

Table 1 - Project Goals

Category Objectives Outcomes

April 15 2011 - Confidential

2.6 Social Benefits

Public health through provision of high quality drinking water;

2.7 Economic Benefits

Sustainment of current industrial/commercial activity;

April 15 2011 - Confidential

2.8 Benefits Summary

2.9 Investment Decision

April 15 2011 - Confidential

Table 2 - Recent and Current Planning Work

Initiative Key Purpose

Table 3 - Key Approvals to Date

April 15 2011 - Confidential

April 15 2011 - Confidential

3.2.1 Overall Project

3.2.2 River Crossing

Under section 5 of the Canadian Environmental Assessment Act, an environmental assessment is

If a certificate is obtained based on drag/dredge/cover construction, it is likely that an additional

April 15 2011 - Confidential

3.3 Consultation with Stakeholders and the Public

3.3.1 Aboriginal Consultation

3.3.2 Public Consultation

Nov 19, 2008 Master Plan, Abbotsford

Plans for future public consultation as the Project proceeds include:

Stave Lake Transmission Mains

April 15 2011 - Confidential

April 15 2011 - Confidential

4.1.1 Procurement Objectives

Table 4 - Procurement Objectives

Category Project Objectives Procurement Objectives

Project in service prior to the

Supply sufficient quantity of Supply sufficient quantity of water

Asset when handed back has had all necessary

April 15 2011 - Confidential

4.1.2 Procurement Considerations

4.1.2.1 Analysis Framework