There was a time when the Canadian and U.S. project environments
differed significantly. Has the gap closed? Tara Mackay and Josh Van Deurzen compare notes from both sides
of the border and in the process discuss the growing importance of
broadband projects.
In this video, Tara and Josh explain:
- how P3 popularity is surging in the United States
- how more projects are embracing integrated project
delivery - why documentation in the U.S. is shifting from fragmented to
standardized - how both markets can narrow the urban-rural broadband
connectivity gap
Click here to see other videos in this
series.
Video transcript
Tara Mackay (00:08): Hi. I’m Tara Mackay,
Partner in the New York office and member of the Projects team at
Torys. I advise clients, mainly private sector developers and
lenders on infrastructure development projects in the U.S. and
Canada with a focus on P3 projects.
Josh Van Deurzen (00:26): I’m Josh Van
Deurzen, also a partner and member of the Projects team here at
Torys. I work with clients on a wide range of transformative
infrastructure projects, including in the broadband, transit and
transportation and water and wastewater sectors.
Tara Mackay (00:41): Today, we’ll be
talking about some recent trends in the projects market in North
America across a range of asset classes. And then we’ll focus
more specifically on broadband, a particular specialty of Josh, and
an area of increasing importance in both the U.S. and Canada.
Tara Mackay (01:07): We’ve seen relatively
robust activity in the U.S. P3 market over the past several years.
More and more U.S. jurisdictions and government agencies are
looking to use the P3 model or other concession-style models to
build new infrastructure. We’ve worked on deals involving all
levels of government in the U.S.: federal, state, county, municipal
governments. We’ve also worked on deals involving transit
agencies, airport authorities, universities, school
boards—the list goes on. In terms of asset class, there
continues to be good activity in the civil infrastructure space,
primarily transportation deals, but more recently a large flood
diversion project that we were involved in. There’s also been
more activity in the social infrastructure space, courthouses and
schools being two examples. We’ve also seen P3 projects
involving assets as diverse as street lighting, affordable housing,
wastewater, treatment facilities, fare collection systems and
football stadiums. In terms of market participants, many of the
same domestic and international developers that have been active in
the Canadian P3 market over the past couple of decades have found
success in the U.S.. Frequently, these developers team with local
contractors, but they’re also working with some of the big
Canadian contracting companies that have experience in the Canadian
P3 market.
Tara Mackay (02:46): In both the U.S. and
Canada. We’re seeing more experimentation with integrated
project delivery concepts. For example, a number of our recent
projects have involved some form of pre-development agreement,
which allowed the public and private sectors to begin working
together on the development of the project much earlier than would
be typical using a more traditional P3 procurement approach.
There’s also been a lot of discussion about the alliancing
model and whether it can be made to work for these projects. In
terms of hot-button risk allocation issues, for a period of time,
both the public and private sector were not surprisingly struggling
to figure out how to allocate risks related to the pandemic and
interruptions in infrastructure projects caused by the pandemic. I
would say more recently, allocation of risk related to price
inflation and supply chain disruptions have received much more
attention from both the public and private sector. We’re seeing
a fair bit of innovation on the financing side in the U.S. market.
There are a wide variety of financing options available, including
TIFIA, WIFIA, private activity bonds and other tax-exempt debt,
private placements and of course, a number of different types of
bank facilities. One last point, while the Canadian market has long
been relatively standardized from a documentation perspective,
it’s been a different story in the U.S. up until recently.
There are basically three main models in the Canadian market. The
Alberta model the B.C. model and the Ontario model, those have been
adopted by other Canadian jurisdictions undertaking P3 projects. In
the U.S. market, there’s been much more fragmentation. We have
seen more standardization in the U.S. market over the past several
years, and that’s been driven primarily by common advisors
being used by various public authorities that are undertaking these
projects. And we certainly see that as a positive development in
the U.S. market. Josh, do you want to talk a bit about what
you’re seeing in the broadband space?
Josh Van Deurzen (05:13): Definitely. Thanks a
lot, Tara. Broadband infrastructure development is an area with
substantial activity both in Canada and the U.S. The pandemic
really shone a light on how critical access to high-speed Internet
is to participation in the modern economy. And in response,
we’ve seen all levels of government making commitments to
support the expansion of critical broadband infrastructure to
unserved and underserved areas.
Josh Van Deurzen (05:47): For the most part,
underserved and unserved communities are in rural and remote areas
where affordable monthly fees for broadband service don’t
support a viable business case for building broadband
infrastructure. In these cases, a critical role for governments to
play is bridging the gap to make these otherwise uneconomical
projects viable. And we’re seeing various approaches to
accomplishing that on both sides of the border. First, governments
can provide subsidy funding to internet service providers to build
out their networks. In Canada, in addition to the federal
government’s $2.75 billion Universal Broadband Fund, we’re
seeing multiple provincial programs offering subsidy funding,
including the Province of Ontario’s $4 billion Ontario Connects
program. We see a similar approach in the U.S. with the Federal
Communication Commission’s $20 billion Rural Digital
Opportunity Fund, which has been supplemented by subsidy programs
at both the municipal and the state level. Second, governments can
build their own broadband infrastructure and make it available to
internet service providers. For instance, the Commonwealth of
Kentucky has constructed over 3,200 miles of fibre, spanning all
120 counties in Kentucky. Similarly, the Government in the
Northwest Territories has built the Mackenzie Valley Fibre Link to
connect northern communities. Both projects are backbone fiber
networks that internet service providers can leverage to provide
service to customers for a lower upfront capital cost than if the
ISPs had to construct their own backbone network. Finally, we see
governments using other tools and assets available to them to make
it easier and more efficient for ISPs to build broadband network
infrastructure. For example, many municipalities are making their
infrastructure available on an expedited basis for broadband
network development. And in 2021, the Province of Ontario passed
the Building Broadband Faster Act, which requires ISPs,
telecommunications companies and electricity distributors to work
cooperatively and move quickly to complete work required for the
deployment of provincially-significant broadband projects.
Josh Van Deurzen (08:05): I would highlight a
couple of important considerations that broadband project
proponents should bear in mind. First, government funding alone
will not bridge the gap. Governments simply do not have sufficient
funds to solve this issue on their own. Project proponents should
look to leverage their own resources through joint Public-Private
funding solutions. And second, I would say be creative, as
evidenced by some of the examples I cited earlier, there are levers
available other than subsidy funding to make broadband
infrastructure in remote areas commercially viable. I’m
confident we will continue to see novel structures for building,
funding and operating network infrastructure, which will ultimately
result in access to high-speed internet for everyone. For more
information on our projects work please head to www.torys.com.
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