Minister: “Substantial Advantages” To Project

January 20, 2016

“There are substantial advantages to the Government’s course in this re-development project,” said Finance Minister Bob Richards, adding that “not the least of benefits is the ability to work with the Triple-A-rated Canadian Government and obtaining guarantees against cost over-runs, shoddy workmanship and time delays.”

The Ministry said, “The Airport Development Agreement [ADA] between the Bermuda Government and the Canadian Commercial Corporation has been published to the Bermuda Parliamentary website www.parliament.bm after being tabled in the House of Assembly by Deputy Premier and Finance Minister E. T. Richards last month.

“Signed last summer, the ADA signaled the start of a phase which could ultimately result in financial close of a development which would not add to Bermuda’s national debt.

“This re-development of the L.F. Wade International Airport is designed to replace an ageing and crumbling infrastructure with a purpose-built, 21st Century terminal for civilian air traffic.

“The project calls for the employment of hundreds of Bermudians initially and an increase in the number of long term jobs connected to the new facility, going forward.

“It also calls for an injection of hundreds of millions of dollars of foreign capital into the Bermuda economy.

“The modern facility will ensure global aviation safety standards required of air terminals well into the future, with contemporary jet bridges to protect embarking and disembarking passengers.

“The project allows the Bermuda Government to work with first class, experienced companies in the design, financing, building and operation of the airport, providing Bermudians and visitors with a safer, more comfortable and pleasant travelling experience.

Deputy Premier and Finance Minister Bob Richards said the “opportunity to work with prime contractor CCC and the experienced Aecon team is a bonus for Bermuda.”

He said, “There are substantial advantages to the Government’s course in this re-development project.

“Not the least of benefits is the ability to work with the Triple-A-rated Canadian Government and obtaining guarantees against cost over-runs, shoddy workmanship and time delays.

“These have been the biggest issues plaguing Bermuda’s history of infrastructure development. And it has cost the tax-payer hundreds of millions of dollars in unnecessary expenditure.

“It is time for that to stop. We are today, and for the foreseeable future, paying for the sins of the past.

“But we are on a course toward getting Bermuda back to the days of a balanced budget. Even then, our work will not be finished. We will still have to find additional revenues after that to pay off a multi-billion-dollar debt.

“This means it is crucial that we exercise prudence in our fiscal policy. This project is just one aspect of that strategy and notably, it does not impact the treasury and add millions of dollars more to the Government’s debt,” concluded Minister Richards.

The 34-page Airport Development Agreement follows below [PDF here]:

airplane click here copy (1)

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Comments (44)

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  1. Widget says:

    This project is a wi win for Bermuda. Let’s keep the course and build it.

    • Jus' Askin' says:

      It really is Not :-(

      “…obtaining guarantees against cost over-runs, shoddy workmanship and time delays…”

      No cost over-runs can only be guaranteed if we are paying WAY over the ACTUAL cost to build it. If I know a project cost $100 million to build and the client is willing to pay $375 million for it, I would guarantee no cost over-runs as well ;-)

      Shoddy workmanship may show years down the line, so that guarantee means nothing to me.

      Weather will determine time delays, not any guarantee :-D

      • Build a Better Bermuda says:

        But we won’t be on the hook for overruns, CCC will, that is the point of this contract. It will be on CCC/Aecon’s interest to make sure that it comes in online and budget. They will have a build to contract that they will have to meet as well, which is what is being developed right now. This contract is what will layout the expectation and standards that the build will have to meet, things like what systems will be installed (jetways, baggage handling…), HVAC capacity, lighting levels, power, backup power, data services, paint colours, lounges, airline desk capacity, international accreditation,… When you look at other recent airport builds and ours, we are right around where the cost would be expected for what we are trying to achieve, and it will all be on CCC/Aecon to achieve it for the price contracted. The only thing that would change the price on the contract, would be additions/changes/interference from government, outside of what the contract scopes.

        • Jus' Askin' says:

          Rising Oil prices will ;-)

        • archie says:

          we are on the hook for revenue guarantees tho – for 30 years!

          • Build a Better Bermuda says:

            Correction, we are on the hook for any shortfall that the revenues may not achieve for the designated payment that the revenues are expected to pay for.

      • SANDGROWNAN says:

        Didn’t take years for shoddy workmanship to appear at the cruise ship dock did it?

      • Old Age Person says:

        I think you are missing the point. We are not paying anything.

        • Jus' Askin' says:

          We will pay in the future, that I can Guarantee

        • archie says:

          Not directly – altough we are giving revenue guarantees and we are paying for the power – but we will pay. We will pay in terms of airport departure taxes, the price of coffee, parking….

      • Double S says:

        Well the PLP spent $3mn taxpayer dollars to architects to come up with potential designs and costs of the development of a new airport.

        Their cheapest option was just under $500bn while the most expensive was just shy of $1bn. The estimates came from HNTB, a United States civil engineering firm and Woodbourne Associates.

        So $250mn doesn’t sound so unreasonable at this point, especially when it has been noted that the previous mandatory cost ‘overruns’ and shoddy construction (see Dockyard Pier) will not be borne by the taxpayer in this instance.

    • Encyclopedia says:

      Yeah the new airport is going to bring the entire east coast of US to your door and they are going to fly in to see the “wonderful airport”?

      I bet a lot of hidden and fishy things going on, as is always the case with any large project without an RFP.

  2. Widget says:

    Sorry. Win win.

  3. Justin says:

    Under this agreement if the new airport doesn’t make money, are the Bermudian taxpayers going to make up the difference? Sounds good otherwise considering the airport hasn’t actually made money for a long time.

    • archie says:

      Agreed – and is there a limit to how much Govt will make up the shortfall? Or are we (the taxpayer) just giving them a blank check? Not much of an incentive is it?

  4. archie says:

    I am stil not convinced. We don’t know if other companies could have provided a better deal; do we know that we actually need a $200m airport – afterall, air arrivals are pretty stagnant; Aecon is not the only investor, there are hedge funds involvded – what is the guaranted rate of return being promised and what happens if we do not meet it? Aecon sold its share in its much publicsed Quito airport – could/would that happen here and are there safeguards in place if that happens? Are there any projections for airport revenue (if so, what are they); are there projections for air arrivals – is that something that can be done? If so, what are they – as they are going to be the primary source of revenue; are we going to get new bridges instead of the so-called temporary bridges that exist now or will exist soon (and at what cost?)
    And let’s face it, it will not add hundreds of jobs all at once, they will be in phases so there may be scores at any one time. What will happen to the old airport – Governments do not have a good track record of doing anything with old buildings. What is the total cost after repayment of the debt (remember, private companies borrow at a higher rate of interest than Governments), so many questions …..

    • Build a Better Bermuda says:

      Aecon isn’t the investor, they are the contractor. The investor is in fact the Canadian Government through the CCC, set up provide business opportunities to Canadian companies overseas, and I don’t think they utilize hedge funding. Now any company doing business he would have to have a local entity, so Aecon would have to partner or set up a local company. What we would see is that most likely, the majority of the materials and specialized skills required for the construction would be provided from Canadian manufactures, while Bermuda and Bermudians would provide the general labour force. Likely labour force on site during its peek to final phase would probably be around the 300 – 400 people.

      • archie says:

        They are utilising hedge funding – that came out at a public meeting. OK, CCC is the investor, points still stand.

        • Build a Better Bermuda says:

          The CCC is answerable to those hedge funds, not us

  5. bluebird says:

    Mr Richards,thank you for being the minister of finance,God only knows we do need you.

  6. bluebird says:

    @ archie,
    That is why Government is not doing this project and I understand that this will be the smallest job that this company has done.
    The Minister of Finance is looking ahead not behind.

  7. Juice says:

    I know we don’t all agree that this airport deal is the right way to go, but at least we did obtain guarantees against cost over runs, shoddy workmanship and time delays. For the life of me, i could never understand why these things were never covered in so many other capital projects. Anyway, now that its definitely happening, I hope for the best, because hoping for failure of this project is hoping for the failure of Bermuda.

  8. jt says:

    I’m in favour of the concept, as many are, but we should wait to see specific parameters relating to how Aecon is to recoup their cash before anyone should offer full support.

    • Matthew says:

      JT they will get their cash back on a set price. Lets say 23 million a year in revenue and they spend 20 million of the revenue on the running of the airport. That would mean they get a 3 million in profit to go back into their pot. However if they fall short of the set amount for the year lets say for the sake of things that the set amount is 20 million and the airport falls short of this like 2 million than the government has to pay that 2 million as kind of a penalty if you want to look at it that way.

      • archie says:

        penalty to who? The taxpayer for covering a private firm’s shortfall, really?

        • Matthew says:

          It wouldn’t e their short fall at this Airport is being leased. They are erecting the airport on the governments behalf if you want to look at it. Do we have the money for this no so they are investing in an infrastructure to make back a profit the way any business does. Try not paying your mortgage to the bank and see how fast they foreclose your house and sell it off to someone else.

          • jt says:

            If they are running the airport where is there any incentive for them to do so efficiently?

            • Build a Better Bermuda says:

              Services contract, they will be expected to maintain to a certifiable standard as the airport will be required to maintain its accreditation for flight handling

  9. rhonda says:

    Smdh

  10. Blown Tire says:

    Hmmmm like I told you all last year this is a scam!
    Let tally up the real cost: they pay no payroll tax, we pay for their electricity usage, if the revenues drop from falling volumes (almost guaranteed to happen in the next US recession or a downturn in IB here) we have to pay them the shortfall (they can’t take any risk cause they are from a much bigger more sophisticated country).This deal will see Bermuda close to 400 million deeper indebt in 15 years. Debt crisis for Bermy looms.

    • Build a Better Bermuda says:

      Little hard to cost us $400m if we are only on the hook for what would have been paid to build it, if there is a short fall on payment, we are only on the hook for that shortfall. Every year/month/day, whatever the final financial agreement states, $’x’ is expected to be paid from the revenues to CCC for the building. So if during one payment period the revenue is only $’y’ that I short of $’x’ by $’z', we would only be on the hook for $’z’ and not $’x’. At no time would we ever owe more than ‘x’ for a single payment, so unless there is something that say that there is an expected interest return of more than 100%, would we be owing some $400m in 15 years, as the contract payment for over 30 years for around $250m

  11. Blown Tire says:

    Anyone who thinks this is not debt to Bermuda must be illiterate or just old fashioned “dumb”. We are pledging an asset to someone for 30 year against debt that they are borrowing ($300 mil easlily. Why would you give someone your asset so that they can borrow money against it?? Why? Because as any banker knows they borrower is a “fronter” who is borrowing the funds on behalf of the asset owner for a fee! This is known as fronting. The debt is truly ours and we will see it come on to oour balance sheet in parcels ($10- 20 mil per year ??)over the next decade. Stop believing the ignorant and the deniers….we are still borrowing !300 mil per year. Debt crisis for Bermy looms! Do a Google search…Puerto Rico Debt Crisis….read the first 4 articles thoroughly…..and imagine your future!

  12. flikel says:

    The Government has to cover the developers for revenue shortfalls? As well as pay utility bills? Forgo the employer portion of payroll tax?

    It is a fallacy to think that Govt or the taxpayers are not on the hook for anything. If revenue is poor and Govt has to pay the developers for the lack of revenue….Govt could really be on the hook for the entire thing.

    • LiarLiar says:

      In all fairness the payroll tax exemption is only for the construction phase of the project. This makes sense as the additional tax would make the project more expensive and thus the revenue guarantee even higher.

      In relation to the revenue guarantee I would like to see the projections going forward and how they compare to current revenue levels.

  13. flikel says:

    One really has to smile at this entire fiasco. Supporters argue the airport does not make any money…hence why this is a good deal. It is good deal that our money loosing airport is being revamped with no cost to the Govt.

    But Govt has to cover revenue shortfalls…yikes. If our money loosing airport continues to loose money, Govt will have to foot the entire bill for this project!

  14. Coffee says:

    More self serving lies .

  15. Blown Tire says:

    Flikel, like I posited earlier….It is a SCAM!

    You will see $10 to 20$ mil per year of debt come on to the govt’s balance sheet tied directly to this deal and the lost revenue that results from pledging our airport (and its revenues) to another party! Bermuda is in deep denial about its economy. At the center of this denial is our Govt.’s refusal to accept our inability to turn tourism – the world’s most competitive business bar NONE – around. Tourism has shrunken from 75% of the economy in the 1960′s to 5%…yes 5%!! of the economy today!! Given the amount of competition, the cost of operations in Bermy, and Bermuda’s small size, the ability of the country to attract more than 300 thousand tourists per year is almost zero!

    The Airport project is front and center evidence of warped unrealistic thinking on the possibilities for tourism in Bermuda. We are desperate and our desperation is on full display with this way offside airport re-development project.

  16. mixitup says:

    Is this “cover of revenue shortfalls” for the entire 30+ years? If so what would be the incentive for this company to aggressively generate revenue? Why would I work overtime if I knew that if I fell short on my obligations, someone will fill that gap? Additionally, gov’t has already handed over 30 years worth of Departure Tax, Landing Fees, Rents, Parking fees and what ever else this Airport could generate which totals over 1/2 Billion to this company….Are we transfering the Minimum Rev. Guaratees we now pay the Airlines over to them also? Or will we continue to pay that too?? This is a GOLDEN deal for them… The title of this should ‘Be Substantial Advantages but many DisAdvantages!’ I bet you there was a much better deal out there…Oh right, we never checked did we?

  17. vang says:

    Build it NOW please

  18. Just a matter of time says:

    A guarantee against cost overruns simply translates to some hidden hedge in favour of CCC. And this guarantee translates to $100 $150 and over $200 departure tax fees for us to get a pretty airport. Mark my words these increases are coming. Just another OBA smoke and mirror tactic. Pay no attention to the Minister behind the curtain. By the way I did my own informal survey (has any been done by the way?) with some overseas guests I had recently. I apologized to them for our terribly run down airport. They looked at me like I just dropped from the sky. ‘Terrible how?’ was their reply. Smh.

  19. Make a new plan Stan says:

    I’m not sure about whether this is a good deal for Bermuda or not BUT I would love to get off the airplane without having to worry about the weather or those STUPID steps

  20. Sunfish says:

    The information on the airport project is out there for all to ponder and comment on.

    You all seem to forget the lack of such from 1998 to 2012!

    Build the thing ,get the people working!

  21. Navin Pooty Tang Johnson says:

    Coincidence that all of the PLP toadies want every project put out to tender? the majority of projects under the PLP came in nowhere near the tendered bid as overruns ran into the hundreds of millions but all of that is forgotten…