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By Duane Craig
October 16, 2017
Public private partnerships, or P3s, loom large in Canada as national, provincial, and municipal governments continue using them to ease their infrastructure woes. And Canada has become more than just a test bed for P3s.
Even though Canada's public infrastructure was worth about $30,000 per person at the end of 2014, it is still historically under-invested, according to the Canadian Centre for Economic Analysis. There is evidence that even after a greater investment in recent years, governments in Canada are not investing enough in infrastructure. That is not helped by the historical record of infrastructure mega-projects with their cost overruns, delays, and controversy. Canada has its share of those, including the Toronto-York Spadina Subway Extension and Labrador's Muskrat Falls hydroelectric project.
In the Pro Column
Enter the P3, a delivery method that transfers risk to the private sector, and one that Canada is as versed in as any other country in the world. In fact, Canada is a world leader in P3s. The country has even provincial and federal centers of excellence for the delivery method. Canada has 200 P3s finished or in stages of construction going back to 1993. All of those projects together return $3.60 for each dollar invested, according to the CANCEA. The largest number of Canada's P3s fall into the healthcare sector, followed by transportation, utilities, justice, and other.
Canadian P3 research cited by CANCEA shows P3s are highly effective at managing risks with value-for-money representing a "weighted average of 24 per cent of respective public sector comparators." It is those on the private side of the agreement that bear more risk than they would from traditional delivery methods. However, the private participants in a Canadian P3 consortia retain a lot of control over managing those risks, making it more likely that, with proper planning, they can mitigate or minimize risk aspects.
Canadian P3s get also credited for delivering infrastructure projects on time. The improved timing contributes to the economy by making it operate more efficiently. For example, transportation infrastructure moves people more quickly and efficiently, and healthcare infrastructure keeps people healthier. Nevertheless, the CANCEA cautiously notes that P3s "are relatively new and therefore relevant data are still too limited to support many conclusions definitively."
In the Con Column
There is a tendency to name features of well-maintained infrastructure items as benefits accruing to P3s. Proponents claim P3s eliminate delays in the procurement and inception stages. Opponents, however, say that any delivery method rendered without delay does the same, so that is not really an advantage unique to P3s.
Benefits of the finished projects often get thrown into the advantages column as well. Shorter commutes and better health outcomes, for example, are not the result of the delivery method, but rather simply the benefits of the infrastructure asset. And, it is popular to call P3s a new source of funding, but taxpayers still pay; they just pay on time as a consumer does with a credit card purchase.
Detractors say it is common for those advocating for P3s to use math of questionable real value. The Canadian Centre for Policy Alternatives claims that even "after 30 years of experience, governments rarely seem to get privatization right, and more often get it wrong with astonishingly regularity." CCPA cites many studies and books showing evidence that P3s cost more and deliver poorer service than traditional delivery methods. The organization also claims the only reason P3s have fared so well in Canada is because of powerful lobby groups like the Canadian Council for Public Private Partnerships made up of "construction companies and consulting companies."
Things to Consider for the Private Side of P3s
With P3s, Canadian contractors and developers face the usual challenges confronting any non-traditional project delivery method. However, there are also risks unique to P3s. The long-term risks of flagging public support and political winds that can shift unexpectedly are one of them. There is also the risk that projects will not get the use expected, reducing revenues the private entity might have banked on to recoup initial investment. A fourth potential trouble area for private P3 participants is escalating maintenance costs for finished projects, both as they age and as they get more public use.
It is clear that P3s are here to stay because as long as the public sector stays short of cash, the attraction of involving the private sector remains strong. For construction companies and developers, P3s offer a business-sustaining windfall or a mountain of headaches. It all depends on the very same aspects that influence any successful project — the long-term value of the asset, how the deal gets structured, and how wisely the risk is distributed.
P3s and Rebuilding America’s Infrastructure
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