7.0 Infrastructure

Community public infrastructure refers to all the physical assets that a municipal government develops and uses to provide programs and services to its residents. Buildings, recreation facilities, garages, water and sewage systems, roads and mobile equipment (loaders, graders, trucks etc) are all examples of community public infrastructure.

LGAs should note that other types of public infrastructure, such as highways, airports, schools, hospitals, territorial parks etc., are the responsibility of the GNWT, not municipal governments.

A municipal government must take care of two key responsibilities in managing its infrastructure.

The first major responsibility is the maintenance and repair of existing infrastructure. A typical NWT community with a population of 500 people can easily have $10-$15 million (or more) invested in its existing community infrastructure, depending on its circumstances. Given the high cost to replace facilities and the fact that they are essential to providing programs and services to the public, it is extremely important that regular maintenance and periodic refurbishments be done to keep facilities and other assets in good working condition for as long as possible.

The second major responsibility that municipal governments have is to plan and construct new community infrastructure. This involves several steps including deciding what services are to be provided, identifying community needs, careful planning, determining priority investments, figuring out how to finance projects and good management to ensure projects are completed on time and on budget.

This section covers the basics of what a municipal government must do to manage its infrastructure over time.

Historically, the GNWT was responsible for determining what infrastructure would be built in NWT communities, including setting priorities and deciding on the scope of projects. Over time, this situation evolved to where municipalities were better able to decide and meet their infrastructure needs without direct GNWT involvement. As a result, the GNWT transferred the capital funding and the responsibility that accompanied it to the municipal governments.

On April 1, 2007, the GNWT began providing capital funding for infrastructure development directly to the municipal governments under the terms of the “New Deal for NWT Community Governments.“

In exchange for this funding, municipal governments assumed responsibility for the ownership, and management of community public infrastructure, including:

• establishing capital investment plans,
• making decisions about priority projects,
• determining the scope and timing of projects,
• determining how to finance them and
• managing the construction of new community infrastructure.

This new approach represents a major change in how communities do business and requires that Councils and their staff learn new skills.

Before discussing capital planning, it is helpful to first consider what is meant by a “capital asset”. Typically, a municipal government manages four types of assets, including land, infrastructure, buildings and equipment. Each type is considered a “capital” asset which means that it has the following characteristics:

• It is held for the purposes of delivering a program or service or to produce something.
• It is to be used on a continuing basis and is not intended for sale.
• It has a life expectancy of greater than one year.
• It has as a value greater than a certain minimum threshold (as established in a capitalization policy)

Common examples, such as buildings, land and mobile equipment, all meet these criteria and are considered capital assets from a planning and financial perspective.

Other types of expenses, such as salaries, purchased services (e.g. janitorial), consumable items (coffee, office supplies etc) or regular maintenance, do not meet these criteria and are categorized as expenses. These types of expenditures are paid for from operations budgets and must not be confused with capital spending.

Additional information on how a community can use its capital funding is available on the MACA web site.

For a municipal government to meet current and future needs in a community, it is very important that:

• existing infrastructure be maintained in good working order,
• future community needs are identified and prioritized and
• sufficient capital funding is available to service existing infrastructure and build new infrastructure.

To meet these challenges, municipal governments are required to develop and implement a long term Capital Plan. A Capital Plan is simply a process for making good decisions about the acquisition and management of land, buildings and equipment. The Council and key staff, such as the LGA, Works Foreman and Recreation Coordinator, all play a role in the process.

It should also be stressed that capital planning is not done in isolation from other types of planning processes and Council approved policies and programs. For example, any Council plan to do with housing, transportation, the environment, economic development, recreation etc. will involve infrastructure planning. Proper capital planning starts with a good understanding of the programs and services provided to residents and the infrastructure required for their delivery.

There are several basic steps in the capital planning process:

1. Identifying Services and Evaluating Community Needs
As noted earlier, capital planning starts with a good understanding of what the municipal government needs to do and what infrastructure it requires. Some key questions to consider include:

• What services need to be delivered to provide a good quality of life for community residents? Basic needs include survival, food and safety. More advanced needs include recreation, leisure and social development. Service decisions lead to infrastructure requirements. Examples include:
  • Fire protection – requires a fire hall and fire truck
  • Solid waste system – requires roads, landfill site, garbage truck and loader

• What is the condition of our existing facilities and equipment? To determine how much money should be allocated to existing infrastructure, the LGA and Works Foreman need to consider the following factors:
  • Inventory – keep an up-to-date inventory of all physical assets that the municipal government owns or manages including fixed assets (buildings, facilities etc) and mobile assets (heavy equipment, trucks, smaller equipment.)
  • Condition rating – complete an assessment of the condition of each significant asset and determine what needs to be repaired and when.
  • Upgrades – existing facilities may need to be upgraded to meet new standards or legislative requirements (i.e. water treatment plant) or to meet increasing demands due to population growth or new programming.

• What does the community need for new infrastructure? This can be a tricky subject to resolve as a Council and community residents may have very different opinions about what the community needs most. This stage of the process requires community consultation which can include meetings, surveys etc. One approach is to organize needs starting with the basics (survival, safety, shelter) and moving to more advanced needs (recreation, social / cultural, leisure). Once an initial list of potential projects is identified, it can be further refined on the basis of urgency:
  • Immediate or short term – these are needs that won’t wait such as water shortages, equipment breakdowns etc.
  • Predictable growth – these are needs driven by population growth and increasing demands on infrastructure that will need to be addressed in the next few years. Examples include housing supply, water treatment and delivery capacity, need for expanded recreation facilities etc.
  • Future – these are long term needs that will occur in the next 5-10 years, often as a result of priorities established in other community plans (Strategic Plan, Recreation Plan, Land Use Plan etc). An example may be the development of new residential lots or the refurbishment or replacement of an old building.

2. Project Substantiation
Some of the capital project ideas identified in step 1 (e.g. equipment purchases) will be well understood and may not require much additional work in order for a Council to consider them. However, some capital project ideas, such as the construction of a new building, will need to be “fleshed out” on paper so that a Council has some solid information on which to make a decision. This involves documenting the “what”, “why”, “when” and “how much” of a project starting with a conceptual idea or design and rough cost estimate which are then refined as more information is obtained.

This type of preliminary planning is referred to as project substantiation and can be very formal or informal depending on the circumstances. The information gathered is summarized in a document known as a Project Brief. A Project Brief will usually describe the type of facility, provide details on important design features, identify size or capacity requirements, note any relevant issues that need to be addressed and provide some type of cost estimate.

3. Prioritising Projects
Any proposed capital project is a response to an identified need. A big challenge that municipal governments face is figuring out what the priority projects should be as there is never enough money to satisfy all needs and wants. Things to think about when setting capital planning priorities include:

• Focusing on essential programs and services. Clearly, essential items such as water delivery or road maintenance or building houses should receive priority over other choices such recreational or cultural facilities.

• Legislative requirements or standards. Some projects must be done by a certain deadline to keep the community in compliance with applicable health or safety legislation, regulation or standards.

• Maximum benefits received. One way to set priorities is to consider the benefits that the community will receive for the amount of capital funding it will spend. Projects that yield the biggest “bang for the buck” should be considered first.

• Operating and maintenance expenses. One area that is often overlooked is the impact of new infrastructure on a municipal government’s current operating budget. Once a new facility is built, it usually requires additional operational spending also. Common examples include staff and other costs to deliver programs and basic operating expenses such as heat, power and general upkeep.

• Public support. To the extent possible, a Council should be focused on projects for which there is strong support from the public.

4. Developing Cost Estimates
Once a list of priority projects is established, the next step is to estimate the cost of acquiring or building the infrastructure and the operational costs associated with it:

• Capital costs – these typically include planning and design costs, material and equipment purchases, transportation costs, building costs and commissioning costs.

• Operations costs – these normally include utility costs (heat, power, water), maintenance costs, insurance costs etc. If the infrastructure will be used for the delivery of new programs and services, there may also be costs associated with increased staff levels, equipment and materials purchases etc. These costs will occur each year for the life of the asset.

The basic idea is to estimate as accurately as possible all related costs so that there are no surprises later once the project is done. Similar to the project substantiation stage, cost estimates may range from very preliminary to very advanced depending on the level of information available. Most project cost estimates are described as follows:

• Class A – this is the most precise type of estimate and is usually based on unit price estimates which require full specifications and working drawings. The accuracy expected is plus or minus 5-10%.

• Class B – this is usually based on a systems approach that reflects how a facility is constructed. The expected accuracy is plus or minus 10-15%.

• Class C – this is based on limited site knowledge and probable conditions such as costs per square foot. This type of estimate is accurate within plus or minus 15-20% and is often used for preliminary planning purposes.

• Class D – this is a very preliminary cost estimate that usually reflects little or no site information. It is considered a rough estimate only and may be accurate within plus or minus 25-35%.

5. Identifying Funding Sources Once the estimated cost of a capital project is known, the next step is to consider the funding sources available to the municipal government to pay for the project.

LGAs should be aware that different funding sources come with different rules on the types of projects and expenditures that are considered to be eligible.

Under the terms of the New Deal, municipal governments have several potential sources of funding for capital projects:

Community Public Infrastructure Funding – capital funding provided annually by MACA to support municipal governments with the provision of community public infrastructure required to deliver community programs and services. The following expenditures are considered eligible:

• Direct costs (materials, equipment and construction)
• Project management costs that are directly relevant to the project
• Crushing and stockpiling gravel materials for road maintenance (subject to some rules)
• Capital leases
• Community land use planning
• Feasibility, engineering or planning studies for community public infrastructure
• Purchase costs for water and sewer vehicles (subject to some rules)
• Land development projects.

Federal Gas Tax Funding – capital funding provided by the Government of Canada which must be used for environmentally sustainable community infrastructure, including:

• water and wastewater treatment and distribution,
• solid waste sites,
• active transportation infrastructure, including trails and sidewalks,
• dust control,
• community energy systems and
• capacity building.

Borrowing – with the legislative changes that were made when the New Deal was introduced, most municipal governments have the ability to borrow money to help finance capital projects. This ability to borrow and the fact that the CPI and Gas Tax funding is predictable provides a municipal government with the flexibility to pay for a capital project by using a combination of available funding and loans, thus spreading out the costs over a period of years.

Private/Public Partnerships – known as a P3 arrangement, this is a partnership between a municipal government and a private sector business that is established for the purposes of completing a capital project. P3s can take a variety of forms but the basic goal is to combine the strengths of both partners and share risks. Usually, the municipal government remains in control as the decision-maker on a project but relies on the private company to handle the commercial functions such as project design, construction, finance and operations. In return, the municipal government makes monthly payments to the company to enable it cover all capital and operating costs for the facility and earn a profit.

6. Preparing the Capital Plan
With the list of priority projects in hand, it is time to assemble the Capital Plan. Using the cost estimates and schedules developed for each project, an initial plan can be developed that summarizes the project work planned for each year. Projects in the near future will normally have much more precise cost estimates and project schedules while projects that are contemplated for 5-10 years in the future may be much less precise.

The basic purpose in assembling the plan is to make sure that the municipal government has the resources (money, staff, capacity) required to complete the amount of work involved. If not, some projects may need to be deferred or reduced in scope or even cancelled. Once the plan is done, it needs to be updated each year to reflect new information and new project ideas.

Once a Capital Plan is approved and in place, the municipal government needs to implement the projects in the plan. On occasion, a municipal government may also decide to proceed with a capital project that is not already included in the Capital Plan.

Completion of a specific capital project usually involves several stages including planning and design, tendering and contracting, managing construction and ensuring project completion. This overall process is referred to as project management.

In essence, project management involves directing and coordinating people and resources (materials and equipment) throughout the life of a project. Key skills involved in project management include:

• planning and scheduling,
• directing and managing people,
• having knowledge of the technical aspects of the project,
• being a good communicator and
• managing money.

Larger municipal governments often have internal staff that can manage capital projects. In smaller communities, a project manager or consultant is often hired to complete a capital project.

The LGA, finance staff and the Works Foreman all need to understand the project management process and how consultants and contractors work. This is best illustrated by looking at the different stages involved in a typical capital project. If a project is already included in the community’s Capital Plan, the first two steps should already be done and the project would start at the design step. If a capital project is not included in the Capital Plan, it is probably being started from scratch (i.e. just an idea with little or no planning having been done).

Project initiation occurs once a Council recognizes there is a need for something and decides to take action such as a building a new facility, expanding an existing building or repairing a road. This is basically the same point as step 1 in the capital planning process. Once a decision is made to proceed with a project, it then needs to be planned out to make sure it is a good idea that will achieve what Council intends.

Project planning is basically the same process as project substantiation. A consultant or architect or engineer is usually hired to develop the basic outline for the project including a description of what will be built, a schedule for completing it and an estimate of the total cost involved. This type of information is normally summarized in a document known as a Project Brief.

The Council, the LGA and the Works Foreman may all become involved during the planning step. For example, Council may have specific requirements on what is intended in terms of the project size, its functions and capability, where in the community it will be located, how much money should be spent and when it is to be completed. The Council may also want to make sure that the consultant is aware of certain local conditions or things that need to be respected. Once the intended building site is known, the LGA may have some responsibilities in ensuring that surveying, rezoning or any other matters involving site access are addressed. The Works Foreman may need to be involved with the consultant to deal with technical questions or issues involving integration of the new facility with the community’s existing infrastructure.

This is where the real action begins. Starting with the information contained in the Project Brief, the municipal government now needs to get a detailed design done and find a contractor to build the project (information on tendering and contract management is provided in section 7.5 below.)

There are several basic approaches that a municipal government can use to design and build a project:

Traditional Design-Tender
For many years, the traditional approach has been for a project owner to contract with an architect to produce a design. Once the design is done, design documents are produced and used to secure competitive bids from contractors. The project owner reviews the bids received and hires a contractor to build the project for an agreed-upon fixed cost.

There are a few things to be aware of using this approach. One is the fact that all design and construction details must be worked out in advance and recorded in complete contract documents (i.e. drawings, specifications and supporting information) before asking contractors to bid. Contractors must have a full understanding of the project prior to submitting a fixed price bid. Another potential problem is the fact that the designer and the contractor are hired separately.

Design-Build
The design-build approach has been described as the “best-value” project delivery model. Under this approach, the designer and builder work as an integrated team under a single contract with the owner which provides the owner with a single point of responsibility for the project.

The design-build approach reduces the amount of information needed at the outset and enables projects to be “fast-tracked” as the construction can start before all design work is finalized. Most design-build arrangements involve a fixed price for the completion of the design and construction of a facility.

Maximum Upset Price
A variation on the design-build approach that helps to reduce a project owner’s risk involves establishing a maximum upset price for the project at the start. Under this method, the design-build contractor provides the project owner with a maximum price and takes responsibility for any cost overruns. To provide an incentive for the contractor to carefully manage the costs, if the project is completed under budget, the savings may be shared between the project owner and the contractor.

Regardless of the approach used for the project, the LGA needs to work closely with the contractor or project manager during the construction phase. Key tasks for the LGA may include:

• Pre-construction meeting – the LGA should organize a meeting before construction starts to establish the ground rules that will be followed in administering the project. Items for discussion may include:
  • roles and responsibilities for all key players such as community government staff, contractor, consultant etc.,
  • lines of communication,
  • authorities for progress payments, change orders and extra work,
  • schedules and cash flow requirements,
  • payment procedures and timing,
  • safety procedures, site security, on-site requirements etc.

• Communications – the LGA needs to communicate regularly with the contractor or project manager to track progress. The LGA should keep a correspondence file with plans, sketches, notes to the project manager, copies of letters sent etc. The LGA should also provide Council with regular updates as the project is built.

• Documentation – either the project manager or the LGA should maintain a written record of what happened on the project. Components of good documentation include keeping notes for meetings and phone calls, updating drawings to illustrate changes, maintaining an accurate work plan and schedule and requiring the site superintendent to keep a daily diary of what is being done. All of this information may become critically important if problems occur on the project and there is a possibility of litigation.

• Budget Tracking – the LGA (or finance staff) should record actual project expenditures in a spreadsheet to compare the actual with what was budgeted. This should be done on a line item basis and in total. If the project is going over-budget, the LGA should inform Council and meet with the project manager or contractor to see what corrective actions can be taken to keep the project on budget.

Once a new facility or building has been constructed, it normally goes through a commissioning and start-up phase to ensure that all systems and components of the building have been correctly installed, have been tested and are operating properly in accordance with the owner’s requirements and expectations. A final inspection should be done to ensure there are no deficiencies. If problems or deficiencies are identified, these need to be fixed before the contractor receives final payment.

In addition, the municipal government should evaluate how well the project went during the design and construction process and identify any areas where improvements could be made, particularly if difficulties were experienced with the contractor or the project was not delivered on time or on budget.

With the implementation of the New Deal in 2007, municipal governments are responsible for managing the construction of community public infrastructure. This means that a Council and municipal staff, including the LGA, finance people and the Works Foreman all need to learn new skills related to procurement and contracting.

Good procurement and contracting practices are essential to managing capital projects.

Procurement is a general term that refers to the process by which the resources (goods and services) required for a project may be acquired.

The CPI funding used by municipal governments for capital projects is public money provided by taxpayers. It is important that good policies and procedures are in place to ensure municipal governments receive good value for the money spent. Many municipalities have a procurement by-law outlining their procurement and contracting procedures.

Following are some of the more important aspects of procurement that the LGA (and Council) should be aware of:

Competitive Bids
For projects over $5,000, GNWT rules stipulate that municipal governments should follow a competitive bidding process.

A competitive process involves seeking written bids in the form of tenders or proposals. This can be done in two different ways:

• Giving public notice of the opportunity to bid. This is an open process, any company or individual may bid. Different means of advertising that can be used include newspaper ads, public notices or the Internet.

• Inviting bids from certain firms. Using this approach, certain qualified proponents are contacted directly and invited to bid, and there is no public notice or advertisement. When this process is used, it is customary to seek at least three different bids.

Bids can be obtained in the form of a proposal or tender, depending on the nature of the project. A Request for Proposals (RFP) is used when the purchaser is looking for the best value solution to resolve a problem or acquire goods and services but isn’t sure how to achieve it. Examples of when the RFP method should be used include:

• if the good or service needed is not well defined,
• if there is no detailed material or performance specification,
• a general solution to a problem is sought or
• the bidders’ solutions are likely to be varied or difficult to evaluate.

An RFP is usually used to hire professionals such as an architect, engineer, lawyer or consultant.

Another process that is related to RFPs is a Request for Qualifications (RFQ). To avoid potentially struggling with a large number of proposals to evaluate, a municipal government can run a RFQ to pre-qualify proponents for a particular requirement. This is usually used when there are many contractors likely to bid and it would be helpful to quickly get to a short list of qualified proponents that could be invited to respond to a full RFP.

A tender is used when the purchaser knows exactly what good or service they want and is looking to acquire it for the best price. Tenders should be used when:

• the good or service required is clearly defined (e.g. equipment) or
• there is a detailed methodology, procedure or material and performance specification available.

It is important to note that there are legal obligations on a municipal government when it uses a tendering process. Once tenders come in, contracts are formed between the municipal government and the bidders. As a result, care must be taken by the municipal government to follow due process. An overview of the main steps in a typical tendering process is as follows:

• Preparing tender documents that contain detailed information regarding design and specifications.
• Placing ads and notices to solicit responses from contractors.
• Designating one official spokesperson to field bidders’ questions and ensure all relevant information is communicated to all bidders.
• Receiving tenders up to the closing date.
• Opening and reviewing the tenders. This should be done as soon as possible after the closing date.

In reviewing the tenders, the review committee should:

• make sure each tender contains all information requested,
• ensure that a bidder is qualified to provide the good or service,
• make sure the bids meet the specifications requested and
• evaluate the tenders to determine the lowest price quote that is responsive to the tender requirements.
• Award the contract to the lowest price bidder that was responsive to all tender specifications and requirements.

The complicated nature of tendering may require that community governments hire project managers to assist.

Sole Sourcing
Sole sourcing involves the direct awarding of a contract to one firm or individual without using a competitive bidding process. There are several instances where sole sourcing is considered acceptable:

• When a contract is worth less than $1,000.
• When the work is an emergency and there is no time to run a competitive bidding process.
• There is clearly only one qualified firm available.

Sole sourcing should not be used unless necessary. Potential negatives associated with sole sourcing include the possibility that the municipal government isn’t receiving good value for money (as there are no competing bids) and the possible perception by other firms that the municipal government is showing favouritism or bias towards one firm.

Contracting refers to the preparation and award of contracts and the activities involved in contract administration. A contract is considered to be in place and binding once it has been signed by authorized representatives from the contractor and the municipal government.

To help protect the municipal government, it is recommended that all procurement documents and activities be reviewed by an independent legal counsel retained by the municipal government.

Several items for the LGA to note regarding contract administration include:

• Have a pre-construction meeting (see section 7.4.3 above.)
• Ensure that any required securities and insurance certificates are in place.
• Payments to the contractor or consultant are usually made on a monthly basis and are referred to as Progress Payments.
• Changes in the scope of work for the project will result in change orders. A change order is a written agreement between the municipal government and the contractor to modify, add to or alter the work from that originally specified in the contract. When approved by both parties, a change order becomes part of the contract.
• Holdback funds. In accordance with the NWT Builder’s Lien Act, 10% of all construction contract payment is held back by the project owner. The holdback is released to the contractor 45 days after substantial completion of the project unless someone files a claim (i.e. a lien) for money owed to them.
• Completion certificates. Once the project is basically done, the contractor, an engineer and the LGA and Works Foreman typically conduct an inspection to note any uncompleted work or missing equipment. This is called an Interim Certificate of Completion. Once any deficiencies are corrected, the contractor will request that the municipal government do a final inspection which results in a final certificate of completion. After this is achieved, any holdback funds should be released to the contractor based on a final invoice and a statutory declaration that the contractor has paid all his obligations to sub-trades and suppliers.

The maintenance and upkeep of existing community infrastructure is vitally important. Without regular maintenance, municipal facilities, systems and equipment will not perform properly and will eventually need major repairs or replacement (at very high costs). To properly manage community infrastructure and assets, a municipal government should keep a working record of the following:

• the assets owned by the community,
• the location of each asset,
• the services delivered with that asset,
• the current replacement value of the community’s assets and
• the condition of the existing assets.

A key asset management practice that all municipalities across Canada must now comply with (effective January 1, 2009) is to report the value of their “tangible capital assets” on their Financial Statements. This is required by the Public Sector Accounting Board (see PS 3150) and was introduced to help ensure municipal governments publically recognize the assets they have and the condition that those assets are in.

The type of infrastructure or asset that a municipal government owns usually includes the following:

Mobile equipment - this may include heavy trucks (water, sewage, garbage, fire etc.), heavy equipment (dozer, loader, backhoe, bobcat etc.), light vehicles (ambulance, cars, pick-ups etc) and equipment (machinery, shop tools etc.)

Fixed assets - These include buildings (Community Government office, recreational facilities, fire hall, garages, warehouses, cultural centre, day care centre, staff housing etc.) and other assets such as the roads, ditches and culverts, street-lighting, solid waste site, sewage treatment facilities, gravel pit and crusher, docks etc.

Each asset owned and operated by a municipal government has its own distinct maintenance requirements, which are based on the level of service that the asset provides. For example, a water truck operating seven days a week needs more frequent maintenance than one operating a few days each week. Another example involves the components of a building – the boiler or furnace will require annual maintenance but usually lasts 20 years or more before needing replacement.

In summary, the LGA needs to work closely with the Public Works Foreman to ensure that the useful life and maintenance requirements of all assets are identified, kept track of (using a log book / calendar or computer software) and that regular maintenance and refurbishments are completed on schedule.