The Green Contract: The importance of addressing net-zero targets in P3 contracts

By Dominic Leadsom

(This article originally appeared in the May/June issue of ReNew Canada magazine.)

At COP26, the Canadian Federal Government pledged to target a net-zero economy by 2050, including a commitment to the enhanced Paris Agreement target to reduce Green House Gas (GHG) emissions by 40-45 per cent from 2005 levels by 2030.

Infrastructure must be an important part of this strategy with a UN global report finding infrastructure accounts for 79 per cent of all greenhouse gas emissions and 88 per cent of all adaptation costs. In Canada, the construction industry accounts for approximately 39 per cent of total GHG emissions annually.

According to the Canadian Council for Public Private Partnerships, there are currently 291 active P3 projects across Canada, with 39 of these in the pre-construction phase, 29 under construction, and 223 in operation. Some existing—and many future P3 projects—will face upgraded government targets before the end of their contracts, resulting in the need to review some design, construction, and operational considerations.

A decade ago, sustainability and carbon emissions were a topic, but emissions were seldom incorporated into the contract language or technical requirements. Since then, technology, carbon capture, and other emissions reduction techniques have evolved to a point where there are several examples of the private partner needing to embed GHG emission targets in project performance requirements.

Existing P3 contracts 

While P3 contracts vary in nature, they do contain mechanisms that address future change, including legal, regulatory, innovation, or client-driven change. Existing P3 contracts will need to use these change mechanisms to adopt improvements in GHG emission targets as part of the performance specifications during construction and/or operation.

Feedback from the industry suggests the impact on annual operations and maintenance (O&M) and the life cycle replacement costs is negligible, due to the need to comply with GHG emission targets. The impact is seen in the design and construction costs associated with making these changes and will need to be accounted for within the adopted change mechanism.

The next generation of P3 projects 

The next wave of P3 projects will need to consider implications for Canada’s emissions and net-zero targets. This includes upfront research to establish targets that can feasibly be met, not just within the technical requirements, but also in relation to energy usage, greenhouse gas emissions and the practical requirements of the vertical or horizontal infrastructure.

Library and Archives Canada’s new preservation storage facility built as part of the Gatineau 2 project is a perfect example of how GHG emission targets can be successfully included in a P3 project performance mechanism.

The Gatineau 2 project recently won the gold award for Infrastructure from the Canadian Council for Public Private Partnerships. It was the first P3 project subject to the Federal Government’s Greening Government strategy, which requires the use of carbon-free renewable energy sources for day-to-day operations to reduce the annual GHG emissions to close to zero.

The project’s 21,500 cubic metres of highly controlled environment for the protection of archives is the first net-zero preservation storage facility in the Americas, with the largest automated storage retrieval facility in the world.

Multiple changes were needed to meet the net-zero requirements, with the most crucial challenge being the wording in the request for proposals documentation to allow the bidders to propose an affordable solution to meet the requirements. Now the project has been completed on site, there are opportunities to learn that could change the way buildings operate. Solutions have been developed for the operations of the Gatineau 2 facility that could set a benchmark for other buildings in the future.

The P3 procurement model can provide innovative, on time and on budget solutions when used on the right projects. It is possible to meet the government’s future reduction in GHG emission targets within the construct of future P3 contracts when appropriate planning and controls are adopted.  

Lessons learned from the Gatineau 2 project for both future P3 projects and those using other procurement models: 

Set expectations from the start of the procurement process and include completing research to establish what can feasibly be achieved in terms of emissions targets and energy use in both the construction and operation phases. This should be included in the project business case prior to going to the market.

During procurement, open discussions with bidders are needed to clarify expectations, how performance will be measured and where risk is apportioned. Innovative solutions can be submitted as options with the RFP response.

During construction, commitment to the outcomes established in the procurement phase must be maintained. Change required during construction should not compromise the performance targets.

Throughout construction and operations, performance measurement and reporting must be established and maintained in accordance with the contract requirements.

Dominic Leadsom is a director, North America at Turner & Townsend.