COLUMN: Culture clash may have dashed New West's flirtation with a P3
The lack of a signed agreement, the risk of cost overruns and a flagging office market.
These are the reasons Uptown Property Group pulled out of a public-private partnership with the City of New Westminster to build a Downtown civic centre and office tower.
That's based upon letters between the two parties, the second batch released this week through a Freedom of Information request.
UPG pulled out last November and the city is now building the entire project, including the $33-million, nine-storey office tower, on its own.
And that cost will likely come in much higher, once all the bills are paid.
In sum, the new documents point to a clash of cultures between the public body and its private partner, and a game for which the city in particular was ill prepared.
Previous correspondence showed UPG was angered almost from the start when, unbeknownst to them, the city was hiring consultants before the two parties had a initial agreement.
The new letters show UPG growing increasingly nervous with the inability of the partners to nail down costs and sign a formal agreement.
A letter from UPG date-stamped March 23, 2011 refers to the "numerous occasions" the company stated its concerns that the MUCF (civic centre) design and program features will cost "$8 to $10 million in excess of DAC Funding of $35 million."
The letter goes on to say even this number could be inaccurate because certain costs had not been considered, such as parking for the retail and restaurant portion of the project.
And further, it states, "changes are still being made to fundamental components and to the parkade ramp… We have also discovered that the MUCF design has not allowed for loading dock access for the restaurant and the retail space, and for the office recycling and garbage removal…"
Perhaps these issues were later resolved, but the letter suggests two parties with two very different approaches—UPG eager to agree on costs so it can sign the papers, and the city about to dig an excavation to adhere to the project timeline required for provincial funding.
(The project had to be done by December 2013. It's since been extended to 2015)
The groundbreaking was September 2011, with no development agreement signed.
One wonders: was there a reluctance to firm up costs because they weren't looking good, and an election was in the offing?
The city should have signed a deal with UPG much earlier, after agreeing on a fair estimate of project costs and how they would be shared.
The March letter highlights UPG's growing anxiety: "The excavation and shoring contract is a dramatic illustration of the risks faced by both parties if we continue to fail to meet Project milestones and require extensions of timelines we have agreed to for the rollout of the various stages of the Project."
Just over a month after groundbreaking, on Nov. 3, 2011—more than two weeks before the election—the relationship was on the rocks.
A Nov. 3 letter from UPG "paused" its involvement in the project, so the formal withdrawal, by letter on Nov. 25, 2011, should not have been the surprise some at city hall have suggested it was.
"I am writing further to your letter of November 3, 2011," states a Nov. 4 letter from city manager Paul Daminato to UPG vice chairman Alan Leong. "Needless to say, the city is disappointed that UPG has decided to step back from the project at this time."
And though the UPG letter in question was not released, UPG's latest concern is that the city has suddenly decided to move the goalposts so late in the process—seeking more cash from UPG.
City manager Daminato's letter states: "The city is simply trying to ensure that it complies with its statutory obligation to receive fair market value for the disposition of the air space parcel to UPG. This is a fundamental term of the MOU that has been reinforced on many occasions."
Three days later, a terse letter from UPG's Leong implies Daminato's response was unsatisfactory, and that they are "unable to participate" in steering committee meetings.
"If you have a concrete proposal you wish to make, feel free to forward it to us and we will respond in due course," Leong wrote.
A day later, the city backed off on its increased demands.
"We are pleased to inform you that the City accepts UPG's proposed (deleted portion) for the air space parcel," wrote Daminato.
But it's too little, too late.
The letter from UPG formally terminating the partnership, dated Nov. 25, 2011, cites the risks related to the economy and the lack of a formal agreement as its reasons for breaking things off.
"During this period world economic markets have softened. Pre-leasing opportunities could not be seriously pursued, as we were unable to make a firm commitment to build when we still had not signed a Development Agreement. Our commercial risk for the Office Tower has escalated as a result of these factors and our Board of Directors has determined it can no longer accept such a high level of risk," the letter states.
So, what can be taken away from all this? Why did it all fall apart, and what can be learned?
Both parties were out of their element. Neither had participated in a public-private venture before, and though the city has talented and experienced senior managers, they were in unknown territory.
And what role did their political masters, city council, have? Did political hands cause delays as politicians had their own ideas about how things should be done?
And finally, the project faced a tight and inflexible project timeline that may have been unrealistic from the start.
• You can view the FOI correspondence here, or in the window viewer above.
• Chris Bryan is editor of the NewsLeader.
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