Report calls B.C. P3s a ‘costly mistake’

A new report on the efficiency and cost of public-private partnership (P3) projects in British Columbia is getting industry pushback.

The study from the Columbia Institute is calling the P3 model “a costly mistake” in many cases and drew from freedom of information requests which resulted in the study of 17 P3 projects worth $18.2 billion in multi-decade contracts from 2003 to 2016 that were undertaken by Partnerships BC. Information was not released for an additional 16 projects. 

“The cost of the 17 P3s is at least $3.7 billion higher than it would have been if the projects had been carried out through more traditional forms of procurement,” said Columbia Institute research associate and report author Keith Reynolds.

“While $3.7 billion may seem like an enormous amount of money — approximately $1,800 for every B.C. household — the number underestimates the additional cost B.C. will pay as a result of the P3 infrastructure projects currently on the books.”

But Canadian Council for Public-Private Partnerships (CCPPP) CEO Mark Romoff said P3s cost less and provide more than government-driven contracts.

“If you factor in that private sector takes on risk and responsibility and maintenance over the term and you factor in the cost of that maintenance, you’ll find the net present value or the cost today is less than the government would have incurred had they gone to market traditionally,” Romoff explained.

With traditionally procured projects, they consistently come in over budget, over schedule and governments don’t maintain them over time, he added.

“P3s are more transparent that traditional projects, as demonstrated by the fact that governments put their documents on the agency’s public website, and it’s all in the public domain, with redacted commercially competitive information,” Romoff said.

He added his organization would like to commission a study on P3 versus traditional projects, but “governments aren’t keeping information on traditional projects.”

Reynolds also pointed to the United Kingdom, where adoption of P3 procurement began, as a jurisdiction that is dialing back its use of the model, and stated in the report that the U.K.’s National Audit Office found “adjustments to value for money reports, such as ‘risk transfer,’ were not evidenced and increased the relative cost of the public sector comparator more than the private finance option,” adding there was little evidence that overall construction cost was lower under private finance initiatives (PFI), the British model.

Some British projects have since returned to the public sector, Reynolds said.

Romoff said similar concerns do not apply in Canadian P3 projects.

“The U.K. and Australia were the first out of the box and we studied their model to see what we could adopt in Canada,” Romoff said.

Some U.K. projects were mandated without the right conditions in place, he said, and “those are coming home to roost, to be honest.”

“The reality is that we in Canada have not had any of those failures. Today we have 237 P3 projects across the country, and for those that have reached financial close the value is $128 billion,” Romoff said.

Since 2002 Partnerships BC has advocated for the P3 model based on the private sector partner carrying the risk for a project.

Reynolds pointed to Partnerships BC’s dual role of advising the B.C. government on projects while themselves delivering projects is a conflict of interest. One of the report’s recommendations is to dissolve Partnerships BC and move its function to a ministry.

“It’s awkward when an organization delivers P3 projects and advises the government on it,” he said.

But Romoff defended Partnerships BC and said the organization has a strong track record.

“As a result of that, their model and approach are recognized as the best in the world. Partnerships BC is regularly approached by other jurisdictions looking to emulate their model,” Romoff said, citing the new terminal at Iqaluit airport in Nunavut as an example.

The Journal of Commerce requested to speak to Partnerships BC and the provincial government, but as of press deadline had not yet received a statement from either source.

Some of the report’s other recommendations include considering ending the use of long-term P3s, or at least putting a moratorium on such projects until the process has been reviewed by the auditor general; reviewing the impact of Partnership BC’s methodology; and examining the costs and benefits of buying back existing P3s.

Romoff said P3s are not a suitable model for every project, it is simply one method of procurement.

“Government can use traditional procurement, and for some projects, that’s fine. P3 is not a panacea,” he said, making clear that, “P3 is not privatization. In British Columbia and everywhere else, a P3 project is owned and controlled by the government.”