How P3s Are Making Cost-Effective, Quality Infrastructure Attainable For Canada
Development and Innovation P3 projects seen as best choice for future projects in Canada.
From collapsed bridges to crumbling overpasses, bad news about infrastructure makes headlines online and over the airwaves. But, when a Saskatoon city official appeared on CBC Radio in August, the news was positive. Catherine Gryba, General Manager, Corporate Performance, at the City of Saskatoon, revealed that the city had saved taxpayers $183 million in 2015, almost three times more than in the previous year.
The increased savings could be attributed to many factors, she said, but the biggest one was the use of public-private partnerships (P3s) to build infrastructure such as the North Commuter Parkway Bridge, the Traffic Bridge, and the Civic Operations Centre — saving taxpayers about $161 million.
“P3 is new to many municipalities in Canada and we were expecting savings, but that order of magnitude was much higher than we had anticipated,” said Gryba. She added that the P3 method might be the best choice for future projects.
Government officials across the country feel the same way: P3s are proving to be a cost-effective way to build superior infrastructure, from hospitals to highways.
Private competition for public success
In a P3, the government procures a project through a competitive process and then works in partnership with the successful company, or a consortium of companies, to deliver the infrastructure. The government agency establishes the project requirements and delivery terms and then oversees the process to ensure it’s on track, but the private companies take on one or more of the major responsibilities involved in the delivery, including design, construction, construction financing, and long-term maintenance.
"We’re building the best infrastructure we can because we’ll be maintaining it for 30 years”
The government doesn’t pay the private sector delivery partner until there is substantial completion of the project, and then over its decades-long lifespan. Governments hold back payment if the project doesn’t meet the design and construction requirements, and, during the longer term, have the ability to reduce service payments to the private partner if is not meeting maintenance or rehabilitation obligations. In addition, the private sector partner is responsible for cost overruns in construction and infrastructure maintenance and rehabilitation during the contract term. This arrangement gives them incentive to build a quality product designed for optimal performance, within the project requirements, on time and on budget.
Private sector has skin in the game
To raise the money needed to launch and deliver the project, the private sector partners turn to lenders and equity investors. Because these entities have skin in the game, they too monitor the process.
“We’re building the best infrastructure we can because we’ll be maintaining it for 30 years,” says Brad Baumle, Design Build Project Director for the North Commuter Parkway and Traffic Bridge, and Operations Manager at Graham. As a partner in several consortia, Graham is working on two transportation infrastructure projects and a health care facility in Saskatchewan. With the requirement to maintain the project during the 30-year term, the North Commuter Parkway and Traffic Bridge is designed and built for performance, which often results in project components and structures that are above government specifications, he says. To build the best road, for example, Graham’s design makes the pavement thicker than required by conventional government contracts.
“There is a great benefit to Saskatchewan companies and Saskatchewan workers”
The public also benefits from P3s in ways that are often overlooked, says Matt Dekkers, Vice President, Concessions at Graham. He explains that the companies involved in delivering the project hire subcontractors to handle important tasks such as earthworks and trucking.
“At the end of the day, the companies involved in this project need a lot of local contractors and workers to deliver the project in any location. This is a boost for the local economy,” he says.
In March, the Saskatchewan government said 20 companies based in the province had already been contracted to work on the Regina Bypass, a P3 project. City Mayor Michael Fougere added that the project would create more than 8,000 construction-related jobs.
“There is a great benefit to Saskatchewan companies and Saskatchewan workers,” said Nancy Heppner, provincial minister of highways and infrastructure. “And then when the bypass is completed, obviously [there is a great benefit] to the people who drive it every day.”