Owner's costs are project costs incurred by the project owner, and can include:
• Property acquisition,
• Owner's project team and governance costs, and
• Advisors: technical, legal and financial.
Since these costs are retained by the owner, the private sector does not account for them in their bids and, therefore, they do not appear directly in the financial models. They must be included in the overall project budget, however, to ensure it is complete.
The cash flow impact of the owner's costs on the overall project budget will differ depending on whether a project budget is based on a PSC or on a Shadow Bid. For a project based on the PSC model, the owner's costs are typically spread throughout the design and construction phases. In contrast, a project based on the Shadow Bid model will see a significant part of the owner's costs spent before the project starts construction as the owner will typically spend more during the procurement process, both in choosing the best proponent and in drafting a project agreement. Following financial close, however, until the end of the project agreement, budgeted owner's costs for a project based on Shadow Bid can be considerably lower as the owner is only required to manage a single contract (i.e., the project agreement).
Although the upfront procurement costs may be less for a project based on a PSC, the cost of ongoing contract administration is typically higher because the government is responsible for administering many different procurement contracts, and the ongoing contract management of these agreements and associated interfaces can be significant and costly. It should therefore not be assumed that the owner's net present cost (NPC) is greater for a project based on a Shadow Bid than for the same project based on a PSC.
To arrive at reasonable estimates for these costs, a bottom-up approach to developing budget estimates is typically used, based on an organization chart and schedule that identifies the individuals associated with the activities identified below, and their cost and utilization.
The owner's costs for a project under a PSC and Shadow Bid typically include:
Property | Property |
The cost of competitive selection for all contracts, including the selection of a designer, builder, operator and | The cost of the competitive selection process (Request for Qualifications through to Financial Close) |
maintenance provider |
|
Public sector project management costs through to the commencement of operations | An allowance for partial compensation, if applicable, for unsuccessful proponents |
The long-term cost (20 to 40 years) of managing operating contracts (i.e., plant maintenance and facilities management services) | Public sector project management costs through to the commencement of operations |
| The cost of monitoring and managing the project agreement |
In both the PSC and the Shadow Bid, owner's costs can be grouped according to the four main phases of a project in which they occur:
1. Business Case: Feasibility study through to the completion of the business case;
2. Procurement: Procurement costs, including indicative design costs incurred after completion of the business case, through to Treasury Board approval, and up to commencement of construction;
3. Construction: Construction management costs; and
4. Operations: Operations management costs.
Each of these phases is described in more detail below.