January 19, 2007

Public-Private Partnerships

Study raises questions about actual costs

Opponents split ideologically

PETER KENTER

correspondent

Public-private partnerships in British Columbia have sparked $4.7 billion in construction projects since 2002, but critics say taxpayers may end up paying more than they bargained for in the long run.

Canadian Centre for Policy Alternatives (CCPA) officials say on the positive side the P3 model transfers cost overruns and performance risks to the private sector, but the cost of financing P3 projects privately makes them a bad deal.

A review of the province’s Sea-to-Sky highway project completed on the CCPA’s behalf by Marvin Shaffer, adjunct professor at Simon Fraser University’s Public Policy Program suggests the P3 construction project will cost taxpayers an additional $220 million over traditional financing models because borrowing costs were underestimated by Partnerships B.C.

The cost of public-private partnerships, such as the Sea to Sky Highway Improvement Project, are under scrutiny for efficiency after a new report released by the Canadian Centre for Policy Alternatives.

SEA-TO-SKY HIGHWAY IMPROVEMENT PROJECT

“Partnerships B.C.’s report exaggerated the cost to taxpayers under the public option and double-counted the benefits of the risks that the P3 will assume,” says Shaffer. “I think much of the risk transfer benefits could be achieved in design-build contracts with government financing. I think the reason industry is keen on them is because of the return they can realize on their financing. It is the marquee banks, not the construction companies, which benefit most.”

"The base case in British Columbia will be P3s unless Partnerships B.C. says there's a compelling reason to do otherwise."

Gordon Campbell

B.C. Premier

In October, B.C. Premier Gordon Campbell announced that public-private partnerships (P3s) would become the norm and not the exception on large construction projects.

“We’re going to be making that a condition of provincially funded capital projects over $20 million in the future,” said Campbell. “The base case in British Columbia will be P3s unless Partnerships B.C. says there’s a compelling reason to do otherwise.”

The disagreement merely points to a difference in philosophy between supporters and opponents of the P3 model, says Jennifer Davies, communications director with Partnerships B.C.

“From our perspective, the CCPA offers an ideological criticism of the public-private partnership model. In the case of the Sea-to-Sky project, the auditor general of British Columbia has concluded that the value-for-money report drafted by Partnerships B.C. on behalf of the Ministry of Transportation did fairly describe the assumptions context, decisions, procurement process and results to date of the project.”

The schism between views on P3s is based on an entrenchment of positions says Jonathan Huggett, an infrastructure consultant based in Surrey, B.C. who has worked on both traditional and P3 projects. “One group says that public sector services should be delivered in the traditional way because private businesses can’t be trusted; the other says private businesses are best capable of looking after these projects because the public sector is a bunch of idiots who go home early and make a mess of everything. People seem to be in one camp or another with law firms, accounting houses and banks on one side and public sector unions on the other. It’s tough to get agreement on the value of each approach.”

Huggett says the province’s construction and engineering sectors are also divided on P3s. “I think most of the construction companies would prefer traditional delivery,” he says.

“For 30 years road builders in B.C. have worked on a cost-plus-overhead basis and I think if they were honest they’d say they preferred it that way. Architects get fees that are substantially reduced as well.

“On the other hand, the larger companies who dominate P3 projects would say they favour them, because the small-to-medium-sized companies who are not prepared to take on the risk of a P3 project simply won’t compete.”

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