P3s a tool for government

P3s a tool for government

The Pallister government announced Tuesday that it’s considering the use of public private partnerships to build four new schools worth an estimated $100 million.

And despite strong evidence that the funding model has served taxpayers well over the years on a number of projects, the fearmongering by the NDP and their union partners has already begun.

Public private partnerships, or P3s as they’re called, have been around for more than two decades in Winnipeg. For the most part, they’ve been successful at shielding taxpayers from risks like cost overruns and unexpected infrastructure maintenance.

In fact, Winnipeg has been a leader on P3s, launching its first public private partnership in the mid-1990s with the construction of the Charleswood Bridge.

Under most P3s, private companies assume the responsibility of financing, building and maintaining an asset like a bridge, a roadway or a courthouse and they lease the asset back to government over an extended period of time, typically 30 years. Government still owns the asset, but they’re not responsible for maintenance or cost overruns. At the end of the lease period, the asset reverts back to government control.

That’s how the Disraeli Bridge was built. And according to a value for money report penned by Deloitte & Touche LLP for the city of Winnipeg, the P3 model for that project saved taxpayers nearly $48 million. That’s about 17% below what it would have cost had the city used the traditional procurement process, where government hires a contractor to do the job and borrows the money itself to finance it.

The Chief Peguis Trail Extension, which opened in 2011 a year ahead of schedule, was also built through a P3. And Bus Rapid Transit, notwithstanding its flawed design and mangled agenda, is also on budget through a P3 model.

P3s aren’t always successful, though. The city’s South District Police Station on Grant Avenue, which opened in 2013, was built through a P3. But because interest rates for the city dropped further than originally projected, it made more sense ultimately for the city to borrow the money itself and buy the station outright once it was 60% complete. But that’s because the projected benefits of a P3 in that case were extremely marginal to begin with and it probably wasn’t a suitable candidate for a P3.

Nevertheless, it is a P3 failure the political left is quick to pounce on as an example of why it’s “always” better to have government build things the traditional way, by borrowing the money itself and hiring a contractor. Naturally, the P3 critics conveniently ignore the P3 success stories, and there are many right across Canada.

The key to success with P3s, whether they’re considered for building schools, bridges, courthouses or roadways, is to not be ideologically opposed or wedded to them. P3s are not always suitable choices for the construction of public assets. But when they are, it would be irresponsible of government not to use them to reduce costs and mitigate risk for taxpayers.

At the end of the day, there has to be a strong business case made that weighs all the relevant factors of a P3, including the risks borne by the private contractor, the cost of borrowing, the length of the lease period and the agreed upon condition of the asset once its returned to government.

If a project like a school can be built through a P3 at a lower cost and with less risk than using the traditional procurement process, then why not?

Sadly, the political left’s opposition to P3s is driven largely by ideology. And they often use fearmongering to try to scare the public into believing P3s will ultimately lead to the privatization of public assets, which is utterly false. Used properly, P3s have proven to be highly effective ways of ensuring projects come in on time and on budget.

They’re just one of many options for government to use. 

Published at Tue, 02 May 2017 22:47:15 +0000