A P3 Powerhouse: Canada Leading Through Innovation
Development and Innovation How the P3 model can help build our nation's future and mititgate risk for tax payers.
Privatization can be a sometimes foreboding word to Canadians. Yet, at the same time, many of us grumble about government waste and mismanagement of infrastructure.
There’s a natural desire to bring the efficiency and flexibility of private enterprise to government projects, but there is no appetite for handing over ownership or control. Over the course of three decades of trying to crack this conundrum, Canada has become a world-leader in the class of projects known as P3s.
“In a general sense,” says Laith Qamheiah, Director in BMO Capital Markets’ Infrastructure Finance Group, “a P3 combines the design, construction, financing, and often maintenance of a project under a long-term contract with a private consortium. The advantage to the government is that they essentially contract out to the private sector certain risks, such as cost overruns, schedule delays, and ongoing maintenance concerns.”
The terms, degree of private involvement, and governance varied widely on early projects like the 407 Express Toll Route in Ontario and the Confederation Bridge, which links New Brunswick with Prince Edward Island.
A lot has changed since then. Now government bodies regulate the terms of P3 agreements under codified standard like the Alternative Financing and Procurement (AFP) model in Ontario, which brings the private sector on board to build, finance, and maintain infrastructure assets over a 25 to 30 year lifespan, while the government retains total ownership and oversight.
“Countries around the world are looking to Canada for insight and advice on how to structure their own P3 programs.”
In Toronto, a massive Forensic Services and Coroner’s Complex, packed full of CSI-style technology like ballistics analysis equipment and infectious disease containment wards, has just been completed using this model. BMO, one of the pioneers of the P3 financing model in Canada, was a key partner in this project. It’s the first time the model has been applied to a building of this type and, so far, it seems to be a huge success.
The private sector partners are responsible for the ongoing maintenance and operation of the complex for the next 30 years. If any part of the project falls short during regular inspections and reviews, the terms of the agreement provide financial penalties. In short, if the private sector doesn’t deliver, the public sector doesn’t pay. The result is a facility more meticulously maintained and efficiently operated than a government building has any right to be.
Advantages on many fronts
Lee Clayton, Vice President of Global Strategic Initiatives at PCL Construction, Canada’s largest construction contractor, is not shy about touting the advantages of the private sector when it comes to construction of large projects. “I don’t think it’s any secret that historically, public projects have overrun on both time on money.”
There are numerous recent and upcoming projects from PCL. There’s the new high-tech $1.2 billion headquarters in Ottawa for CSEC, one of Canada’s spy agencies. They built the Disraeli Bridge in Winnipeg. They’re bidding on a waste water treatment plant in Victoria. The list goes on.
It’s part of a growing trend to expand the use of the model across industries and levels of government. Mark Romoff, President of the Canadian Council for Public-Private Partnerships, believes that’s a good thing. He acknowledges that they aren’t a cure-all, “but where they do make sense, they have really delivered results.”
Savings to government from P3 projects over the last ten years are estimated at around $10 billion and the projects have contributed over $25 billion directly to GDP. With numbers like that it’s hardly a surprise that Montréal went with a P3 for their new Symphony Hall, or that the Nunavut government is embracing the model for the Iqaluit airport expansion.
Making a name internationally
In fact, success like this draws attention not just across provincial borders, but also across international ones. “Increasingly,” says Mr. Romoff, “countries around the world are looking to Canada for insight and advice on how to structure their own P3 programs in order to replicate the positive outcomes Canada has achieved.”
And Canadian companies, who have built a reputation on homegrown P3 projects, are now taking their experience and expertise global. Eventually, the trick of getting all the benefits of private sector involvement in infrastructure development without handing over control may turn out to be Canada’s most valuable export.