The P3 model is at risk of losing more major players and needs significant retooling, four panellists speaking at a recent Canadian Council for Public-Private Partnerships conference explained.
The four – Jonathan Wilkinson, president, infrastructure at SNC-Lavalin; Jody Becker, a senior vice-president with EllisDon; Jensen Clarke, director with Fengate Asset Management; and Dan Stoppenhagen, a vice-president with FLUOR – each expressed hesitation when moderator Sean Strickland, director of business development and industry relations for Pomerleau, used a poker analogy and asked if their firms were all-in, holding or folding on P3s.
All four said they were holding.
Wilkinson, Clarke, Becker and Stoppenhagen were asked to address the theme Should I Stay or Should I Go? Strengthening the P3 Model.
“What we’ve seen over the last five to seven years is that the risk-reward pendulum has swung too far,” said Wilkinson, whose firm has recently participated in such major projects such as Montreal’s Champlain Bridge, Toronto’s Eglinton Crosstown and Stage 2 of Ottawa’s LRT but now says it is backing off the sector for the time being.
Project owners are asking firms to accept risks they can’t control in contracts, that are outside of skill sets and experience, Wilkinson said. That creates uncertainty and an imbalance in the market, he said.
A key theme throughout the presentations was the need for owners to undertake significantly more consultation at the beginning of projects, and in the case of transit projects, to de-risk them by doing enabling works on such elements as utilities before handing the jobs over to private consortiums.
There needs to be more negotiation and collaboration at the beginning of the project procurement process – the way it used to be, Becker said, in the early days of P3s.
“When we got into these projects it was predicated on there being a thoughtful risk transfer,” she said, noting that if issues arose, there would be “thoughtful conversations” to deal with them.
Wilkinson reiterated that point, suggesting projects unfold more smoothly with more time spent considering project components up front – with more “realism” injected into discussions of schedules and systems, especially in larger projects such as LRTs with so much underground uncertainties.
The industry is full of lots of intelligent people, he said, so owners need to allow them to put their minds to use in those early-project discussions.
“We need more time up front,” Wilkinson suggested, with a model that allows bidders to come forward with new and better ideas.
Clarke, who said his firm would only invest in “vanilla” P3 projects that are not fraught with uncertainties, also said owners needed to undertake better discussions on project feasibility upfront, rather than handing “mysterious” projects to project teams to figure out themselves.
Both Wilkinson and Stoppenhagen noted that the P3 model had fallen out of favour in other jurisdictions with other procurement methods increasingly utilized.
In fact, said Wilkinson, P3s started to wane in the United Kingdom 10 years ago. There, he said, a procurement model known as the alliance, in which parties work under one unified agreement and share the benefits and risks, is finding favour. The model encourages greater collaboration and lets partners develop “win-win” situations.
“You can put a model out there that gives you more surety, more certainty, for all the parties,” he said.
In Texas, Stoppenhagen told the delegates, the poor execution of P3 projects led to a loss of public trust and now P3s are “off the table.”
Public trust is especially important for transit projects, he said, given that transit is about politics. The alternative solutions being increasingly used in Texas right now are design-build or DBOM.
“If we don’t get this right now, we lose public trust and political support,” said Stoppenhagen.
Infrastructure Ontario (IO) CEO and president Ehren Cory was asked about the participation issue just in advance of the panel. He argued that IO is continually striving to get the best value for taxpayers and that requires pushing the boundaries of risk transfer while driving a competitive procurement process.
“All of that has been through a model that’s has been balancing on an edge between effective risk transfer and getting the private sector to play their role the way they did in the past,” Cory said.
“It is an industry with delay and cost creep kind of endemic to it. So, our role, was to change that and we have changed that narrative. But you can’t go too far the other way, the other way being, pushing all the risk to the contractor, and forcing them into situations…that’s led to bankruptcies, to pretty massive restructuring of companies and even industries. We are trying to stay one step ahead of that.”