Carillion closes on C$260m Ontario hospital build-finance contract

Vanbots, a division of Carillion Construction in Canada, has reached financial close on a C$260 million (€162 million; $208 million) contract to build and finance phase one of a redevelopment project at the Royal Victoria Hospital in Ontario.

The contract guarantees a fixed price and fixed completion date, with a four year construction period commencing this year. The Carillion-led project team will receive an interim portion of the contract price once it finishes the new-build phase of the project in 2011. The remainder of the C$260 million will be rewarded once it finishes renovations to the existing facilities in 2013.

Carillion arranged non-recourse debt financing for the project from Banco Espirito Santo de Investimento, National Australia Bank, Norddeutsche Landesbank Gironzentrale, Bank of Montreal, CIT Financial, National Bank of Canada and Toronto Dominion Bank. There is no Carillion equity component to the project, but the firm has placed construction performance securities in escrow as collateral to mitigate completion risk.

The Royal Victoria Hospital is Carillion’s fifth hospital project in Ontario and it’s second under a build-finance contract. It previously won three design-build-finance-maintain (DBFM) contracts for hospital facilities in Ontario and another design-finance for the Sunnybrook Hospital.

In a DBFM, the developer will deliver a project or service to the public sector and then operate it under a fixed-term concession, typically 30 years. Under a design-finance, the developer will only deliver the project to the public sector, which will then operate and manage it using its own resources, as with the Royal Victoria Hospital.

“The future, quite rightly, is not build-finance, but DBFMs . . . design is where the private sector brings in innovation,” said Simon Chapman, Executive Vice President of Infrastructure Development at Carillion.

The UK-headquartered firm has had a presence in Canada since 1954 as a general contractor active in marine, civil and residential engineering projects. Seven years ago, it turned its sights toward the PPP market, with a focus in social infrastructure. It has bid on healthcare facilities, courthouses, schools, prisons and roads. Last year it purchased Vanbots to augment its construction services platform for PPPs.

Since 2005, the province of Ontario has brought C$8 billion of projects to the market under its PPP scheme known as alternative financing and procurement (AFP). It has 22 AFP projects under construction and 12 in various stages of procurement, according to Infrastructure Ontario, the province’s AFP agency.