The Contract with 407 East Development Group General Partnership
The 407 East Development Group General Partnership has signed a contract with the Province to design, build, finance and maintain phase one of Highway 407 East. The consortium will receive annual payments from the Province over a 30-year period. These payments cover design, construction, lifecycle repair and renewal of the highway and project financing.
The contract with 407 East Development Group General Partnership is for a fixed price of $1 billion in today's dollars, to be delivered by a fixed completion date. The alternative financing and procurement model transfers most project risks to the private sector. For instance, the contract agreement makes 407 East Development Group General Partnership responsible for increases in costs due to design errors and omissions, project management and sub-contractor co-ordination, increases in construction material prices and labour costs, schedule and project completion delays, and other related constructions risks. In the past, many of these risks were the responsibility of the public sector.
The Province's 30-year maintenance agreement with 407 East Development Group General Partnership will ensure the highway will be kept in excellent working condition over the term of the agreement. The 407 East Development Group General Partnership is responsible for repair and renewal of the highway throughout the contract term. For example, it would be responsible for making repairs to the pavement or electrical systems if they need repairs. The public sector has built in a 30-year guarantee for these physical features.
Annual Payments
The Province will invest $1 billion toward the project, the value to deliver phase one of Highway 407 East today (also known as the net present value). 407 East Development Group General Partnership will receive annual payments from the Province. Over the 30-year life of the contract, when adjusted for inflation, the contract value is $1.6 billion (nominal cost). Annual payments to 407 East Development Group General Partnership are performance-based and these can be withheld by the Province if 407 East Development Group General Partnership does not meet the agreed-to performance standards, which are based on MTO's performance standards.