Open for Business and Protecting Lives and Livelihoods: Key Takeaways from “The Brave New World of Infrastructure Unsolicited Proposals in Canada”

On June 23, 2021, McCarthy Tétrault hosted “The Brave New World of Infrastructure Unsolicited Proposals in Canada”, an industry-focused event to discuss the emergence of provincial frameworks to accept unsolicited proposals (USPs) in infrastructure.

The event considered of two panels: a Minister’s Panel and a Market Panel. The Minister’s Panel featured two current Ministers of Infrastructure: the Honourable Kinga Surma, newly appointed Ontario Minister of Infrastructure; and the Honourable Prasad Panda, Alberta Minister of Infrastructure. The Market Panel was made up of five market and industry experts. McCarthy Tétrault’s own Catherine Samuel, Brad Nicpon, and Robert Glasgow, as well as Sherena Hussain (Academic Director, Sustainable Infrastructure Fellowship Program, York University) and Lawren Green (Senior Vice President, Kiewit Development Company).

  1. What are USPs and USP Frameworks?

Typically, governments decide what infrastructure assets they want to build then go to the market to procure a private sector contractor to deliver such assets. An unsolicited infrastructure proposal is essentially the opposite of this – a proposal from a private sector proponent to build an infrastructure asset in a situation where the government had not requested proposals for such an asset through a procurement process.

When we talk about a “framework” for USPs, we are talking about the government policies and procedures that allow such proposals to be received and evaluated, and, if selected for delivery, proceed to an appropriate procurement process.

USP frameworks are relatively new in Canada. As such, they present new opportunities and benefits to governments, but also new risks to be managed.

  1. Why USPs?

The Governments of Alberta and Ontario have each launched their own USP frameworks (Ontario in 2019 and Alberta in 2020). Ministers Surma and Panda highlighted some of the goals that their respective Governments seek to achieve through these frameworks, foremost of which was promoting economic development and job creation. This goal is particularly important in the wake of the Covid-19 pandemic.

USP frameworks create a channel to harness innovation from the private sector, which can propose solutions to problems or identify weaknesses in public service delivery of which the government may not even be aware. The Ministers noted that the private sector has an important role to play in developing infrastructure proposals that can help people and communities. Proposals do not have to be large to be beneficial – a USP framework could enable the private sector to identify and address infrastructure gaps in smaller communities where those gaps may not be known to the Government, or may have been overlooked in the formal budget planning process.

The Ontario and Alberta USP frameworks were designed to provide transparency and accountability, reflecting each government’s commitment to protecting taxpayer’s dollars and ensuring fairness in the procurement process. Vigorous evaluation processes and criteria in both USP frameworks ensure that the public interest is at the forefront of every project.

Certain key principles guide the evaluation of USPs in Ontario and Alberta – first and foremost is the identification of a clear public benefit to the proposed project. Governments also pay close attention to the affordability of the proposal, the proposal’s alignment with government priorities, the economic benefits that derive from the proposal, whether the proposal addresses any known (or previously unidentified) infrastructure gaps and, if government funds are required to deliver the proposal, whether that investment yields clear value-for-money.

  1. Challenges facing USPs

Ensuring some degree of competitive tension in the procurement of a USP is a key challenge facing USP frameworks. Proponents of a USP usually expect to be able to deliver their own idea. However, governments are usually constrained in their ability to award a sole-source contract to the proponent. Such constraints include government procurement rules that limit sole-sourcing, the government’s responsibility to ensure the public interest is protected through competition, as well as obligations arising from international trade agreements. The Market Panel discussed different ways the government could ensure competitive tension features in USP procurements, while still rewarding the proponent for putting forward the proposal. A common means of addressing this challenge used globally is the deployment of a “Swiss Challenge” procurement model, in which the government puts the USP to the market and asks for competing bids. If no superior bids are received the original proponent may be awarded the right to deliver the proposal.  The proponent of a USP could also potentially be offered an honorarium for submitting the proposal, or be guaranteed the ability to participate in any competitive procurement of the project (such as by waiving them through the RFQ stage of a procurement).

Limitations on the government’s ability to award a sole-source deal to a USP proponent leads to another related challenge to USP frameworks: the management of intellectual property (IP) rights. USP proponents usually view the idea for an infrastructure asset at the core of their USP to be their intellectual property. However, if the government cannot award a sole-source deal to the proponent (for the reasons discussed above), such an IP claim would inhibit the ability of the USP framework to deliver projects. Accordingly, governments typically make it a condition of submission of a USP that proponents must permit the government to use any IP contained in the USP, even if the proponent is not awarded the right to deliver the project.

Another IP challenge facing USP frameworks concerns provincial Freedom of Information and Protection of Privacy (FIPPA) acts. Governments would typically act to protect sensitive commercial information submitted to it through a USP portal and such information should be clearly flagged in any proposal. However, notwithstanding such protections, there remains some risk that a third party could gain access to USP information through the applicable FIPPA. That said, our Market Panel observed that such risks already exist with respect to proposals from private sector parties in response to conventional public procurements. As such, the market is already well-acquainted with FIPPA risk.

Notwithstanding the pressure faced by proponents to protect their IP and their interest in delivering their own ideas, the panelists observed that there remains an overriding interest in new ideas being presented to government by way of USPs. An idea that is not submitted has no chance of becoming a real project, even if there is a risk that the proponent of the idea is not selected to deliver the project.

The panelists also noted that the timely resolution of disputes associated with procurement of USPs is critical to the success of both individual projects and the broader USP frameworks. Without a decisive and efficient dispute resolution process, there is a real and significant risk that complaints and challenges launched by disgruntled competitors and suppliers could derail and delay projects.

  1. The Future of USPs

USP frameworks present a unique and powerful opportunity for private-sector proponents to bring forward new and innovative infrastructure ideas that otherwise might not have seen the light of day. The Market Panel observed that some asset and project types are well-suited to be USPs, particularly those including a revenue stream, such as tolled highways, energy generation projects, transit projects, ports and ferries. Refurbishment or repurposing of operating-stage assets could also be good candidates for USPs, as they present less development-side risk  to proponents.

The Ministers Panel expressed optimism that their respective USP frameworks will encourage the private sector to participate in the process of meeting provincial infrastructure needs – and they further noted that there are already promising signs that this is happening. The Government of Alberta has received approximately 20 unsolicited proposals in the last six months, with six of these advancing and currently in the early evaluation stage. Since Ontario began accepting USPs in 2019, there are currently 30 projects at various stages of the procurement process. While there are uncertainties associated with USPs, one certainty is the message that Ministers Surma and Panda are sending: Ontario and Alberta are open for business and want to see more USPs from the private sector.

 

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