A $200,000 review of the controversial airport redevelopment deal has found that it was largely within market and industry norms but contained some “unusual” terms that makes it near impossible for Government to get a better deal for the taxpayer.
Premier and Finance Minister David Burt told the country at a press conference on Friday that terminating the airport development contract would come at a cost of $196 million and bankrupt the country.
And the former government negotiated an ‘unusual’ agreement that is legally impossible to vary, according to the consultants commissioned to review the deal.
But consultants LeighFisher say the financial aspects of the deal was within market norms for a public private partnership and have recommended a way forward that could claw back some $15 million in benefits for the taxpayer – an amount described by the Premier as “peanuts”.
And Aecon says that there is good reason for the absence of a variation clause.
At Friday’s press conference, Premier Burt lamented the fact that the contract could not be varied and the cost of termination would be $196 million, as well as damage to Bermuda’s reputation and job losses, and insisted that Bermuda was stuck with a “bad deal” negotiated by the former administration.
Meanwhile the developer/contractor has welcomed the report as vindication of the fairness of the deal.
The Premier has articulated various concerns and we will continue to work collaboratively through them. However, we are pleased to see that global independent P3 experts, Leigh Fisher, has found that the agreement is balanced and consistent with industry norms, that all key financial metrics are well within market range and that airport revenues are being appropriately managed and used strictly to pay for airport construction, operations and maintenance as well as the servicing of investments,” said Steven Nackan of Aecon Concessions the contractor for the new air terminal.
With regard to the noted absence of a variation procedure, as LeighFisher finds, the inherent difficulty in financing an airport with fewer than 1 million passengers and a history of traffic decline resulted in a complex financing structure which inhibited changes to the agreement. In any event, variation procedures in P3 contracts only exist to enable small, technical improvements that are paid for by the client.
The airport agreement provides a solid platform for us to continue making great progress in delivering a world-class airport Bermuda can be proud of.”
The deal handed Canadian construction company AECON the right to build, maintain and operate a new air terminal for Bermuda, with construction costs and timeline guaranteed by the Canadian Commercial Corporation. A new vehicle, Skyport, was created to perform AECON’s role, while Government created the Bermuda Airport Authority to oversee the deal on its behalf.
The Government carried out a review to determine whether it could: terminate the contract, and if we could not, then could we change the contract so Bermuda has more control of its own Airport. And finally, we wanted to know whether we could make the contract more beneficial for Bermudians; in short, we wanted “a better deal”, the Premier said.
He invited the public to review the Leigh Fisher report which has been posted on the government website.
The Premier added:
Some Bermudians, especially lawyers may find it interesting that the Agreement does not even have a section that addresses ‘early termination’ on the part of AECON; in other words, while the contract wholeheartedly defends AECON’s interests if the Government terminates the contract, it is woefully silent on Bermuda’s interests.
Without a clause that sets out how to make changes, and which ones can be made, the Government cannot change the contract at all. This one shameful and degrading failure by the OBA may be the most heinous aspect of the whole Agreement.
LeighFisher’s reference to the absence of a variation clause explains that it protects the project’s complex financing structure.
A Finance Ministry spokesperson confirmed this morning that the review – which began in October and was completed in December – cost the taxpayer $186,950.20.
While in Opposition, the Progressive Labour Party bitterly opposed the airport deal saying it should have been open to competitive bidding and that it was shrouded in secrecy. It also criticised the structure of the deal which would surrender airport revenues to the developers while government retained some of the costs. The review was in fulfilment of its election promise that it would get a better deal.
But LeighFisher says it is impossible to know given the specific circumstances at the time whether competition would have delivered better value for Bermuda.
A competitive procurement may have resulted in more attractive commercial terms, competitively priced bids and better value for the Government procuring authority. However, it is impossible to turn back the clock and make such an assessment,” the report says.
With regards to revenues, they may or may not have been better retained by theGovernment of Bermuda, but again, it is impossible to make such a determination as this was never market tested under a competitive procurement process.
Changing the terms and conditions of the Project Agreement at this juncture would present significant material challenges to Bermuda, as termination is the only change mechanism.
As part of the review process, LeighFisher facilitated a workshop aimed at establishing a framework for “optimizing’ the contract. The approach has been approved by both Skyport and the Bermuda Airport Authority, according to the consultants. Key elements are:
- increasing the proportion of Bermudians on the construction site from 60% as agreed in a project memorandum, to a new target of 65%.
- setting a target of 90% Bermudian jobs in airport operations
- implement a workforce development and training program – with a $6million spend during the 30 year concession period
- task force to monitor and reduce energy consumption, thereby reducing taxpayer costs
- an initial $1.3 million spend by Skyport to increase air traffic and enhance government’s share of the revenue
- A $4 million social investment program
- Skyport to provide office space for BAA within the old air terminal facilities – saving another $4 million over the concession period
Former premier Michael Dunkley was asked to comment for this story.
LeighFisher, an infrastructure consultancy, was peripherally involved in the airport project – delivering two due diligence reports.
This article belongs to Politica ! The original article can be found here: Airport deal meets industry and market standards – consultants
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