Editorial: Pondering P3s
By JIM BARNESInfrastructure Risk Management
One thing is for sure: whenever this publication covers a successful Public/Private Partnership project, we get a strong protest from the P3 naysayers.
Just to clarify – no, I am not the starry-eyed mouthpiece of Big Infrastructure. P3s are one alternative in project delivery that has advantages and disadvantages. I don’t have a bias here, beyond wanting to see projects getting completed and contractors getting paid.
P3s are predominant in delivering big infrastructure projects in Canada. In fact, the federal government is adamant that this delivery model be considered in detail for all the projects it is funding worth over $100 million. There’s a reason for that, and it doesn’t involve any conspiracies – despite what you may have read in the newspapers.
Trenchant criticism recently came from Ontario Auditor General Bonnie Lysyk. She identified a few P3 projects in Ontario that were late and over-budget, and involved more financial risk than was originally planned. Her comments are all verifiable… the particular projects she cites do have issues.
Nobody in the construction industry was surprised to hear that big projects can run into big problems. She also criticized the P3 model as involving higher interest rates, since the projects are financed privately rather than by government bonds. True enough, if only the government was willing to assume that debt. So does that invalidate the P3 concept?
Something of a rebuttal was issued by Infrastructure Ontario CEO Bert Clark. He noted that IO has saved billions of dollars by assigning financial and construction risks to the infrastructure consortia. If they don’t deliver, they don’t get paid, Clark pointed out.
That’s what is at the heart of the P3 concept: assigning construction risk to the party most capable of managing it.
Some laud the “good old days” of infrastructure investment, when government managed everything about a project, from cradle to grave. (Some of you who were active then might not remember them as being so good.)
Consider how infrastructure spending has changed for government. In its heyday, government completed a large number of successful projects. And for every one that was completed, a new demand for service, maintenance and operation was created. A huge chunk of government money now has to be allocated to managing those assets over their usable life spans, shrinking the pot for new projects. Budgets for infrastructure are growing exponentially, and not because new assets are being put in.
Things have reached a tipping point and Canadian governments simply can’t afford to operate as they did in the past. They are turning to private organizations to design, build, finance, maintain and operate such assets. If it weren’t for P3 consortia, some of these assets would be coming on stream much more slowly, or perhaps never be started at all.
P3s have had their share of issues, especially in the first-generation projects where government and industry were still feeling their way. On the whole, though, Canada is in an enviable position with regards to P3s, with a system that has attained a level of maturity.
In Public-Private Partnerships: What the World can Learn from Canada, a case is made that generally, the Canadian approach is working well.
The report, from the Canadian Council for Public-Private Partnerships, points out:
• a steady pipeline of well-structured projects;
• standardized procurement processes, including consistent project agreements and payment (read “transparency”);
• improved mechanisms, evaluation methodologies, and financing requirements;
• sharing of lessons learned among and within the provinces;
• a developing framework of trust between the public and private sectors, which has contributed to the development of a competitive supply market.
More than 200 P3 projects worth more than $70 billion have been signed in Canada. Besides the financial element, they have driven better performance in procurement.
The document is worth a look. Is the P3 system perfect? No. Is it the best method of delivery available for certain large infrastructure projects? Check the evidence and decide for yourself.