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CBAs only a sign of changing P3 contracts and industry

Jean Sorensen
CBAs only a sign of changing P3 contracts and industry

The Community Benefits Agreement (CBA) framework is only a signpost of a changing landscape in the way government is administering public-private partnership (P3) contracts and the Pattullo Bridge Replacement is the first project setting out those changes, according to industry watchers.

In general, the B.C. NDP are clawing back the financial control of projects to government rather than transferring cost to the private or corporate sector, as is common in P3s, but sending more dollars into labour and training as outlined in its CBA.

CBAs will add an extra $100 million to the $1.37-billion Pattullo Bridge Replacement procured through Partnerships BC (PBC), according to ministry officials. However, the P3 model opted for by the NDP curbs the contract cost from rising even higher. The design-build with some short-term financing reins in the extensive financing seen on other P3 projects shifted the financial burden onto the private sector over a long-term contract.

The NDP government claims the new bridge will be “delivered, funded and owned by the Province of B.C.” and is reiterated in its 2019 budget.     

“They (NDP) seem to be off long-term contracts,” said Columbia Institute public policy analyst Keith Reynolds, who wrote the critical report update in mid-2018 on P3s and found where P3 consortiums supplied financing over the long-term, costs spiked.   

Reynolds found from 2003 to 2016, B.C. committed $18.2 billion in multi-decade contracts to finance 17 public infrastructure projects through P3s. The cost of the 17 P3s was at least $3.7 billion higher, he estimated, than if the projects had been carried out through more traditional forms of procurement.

“Even when the Liberals were in, they seemed to start to go off them (private financing),” he said, pointing to the Evergreen Line construction and a 2014 Ministry of Finance report that questioned the P3 procurement process. 

The Canadian Council for Public-Private Partnerships (CCPPP) defines design-build as a traditional procurement method while build-finance (short-term) through to maintenance and operate including long-term financing as P3 procurements models with contracts reaching up to 30 years or more.

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The CCPPP acknowledges the higher cost of private borrowing on its website.

“While P3 transaction costs are higher than the traditional bid-build contracts and the private sector’s borrowing costs are higher than those available to the public sector, a well-structured P3 delivers better value for the public dollar and saves money,” it maintained, adding the cost-savings are realized in the maintenance contract over the project’s life-cycle.

Other P3 CBAs are rolling out. 

“The Community Benefits Agreement is being applied to a few projects that PBC is working on with the Ministry of Transportation including: Pattullo Bridge Replacement, Broadway Subway and Kicking Horse Canyon Project – Phase 4,” PBC said in an email to the Journal of Commerce.

The associated cost with the three P3 projects is estimated at $4.64 billion — only $1 billion more than the cost-savings that Reynolds outlined in his report if the P3s had gone to traditional forms of procurement.  

The trend Reynolds sees is that when there is a financial component stipulated in the P3 — as in the case of the Pattullo Bridge Replacement where the successful proponent will supply $300 million in financing — it is only during the construction phase. He said this approach also becomes common for other provinces to use as well since it shifts some of the financial onus, in the short term, onto the consortium undertaking the project. 

“It is like bonding,” he said.

After successful construction, the government repays the proponent.  

Despite the reduced cost of a project by reining in the financial cost in major P3 projects, Reynolds still believes PBC should be dissolved because of the conflict of interest that exists with the crown corporation advising ministries on whether a project should be a P3. 

PBC receives no grants but operates on fees generated from advising various ministries whether P3s are the best approach. Reynolds, in his report, has questioned the comparable figures used by the crown agency to justify P3s.

“If you have a situation where someone is advising on the delivery of a project, is participating in the delivery and the evaluation of it, you definitely have a conflict,” he said.

He recommends various ministries go back to administrating their own contracts with the help of an independent agency. 

“I do think an independent infrastructure agency with a repository of expertise would be better,” he said, adding an agency would look at projects and make more unbiased decisions.

Reynolds said he has not considered how CBAs will impact P3 projects.

However, Progressive Contractors Association of Canada president Paul de Jong has been vocal on his opposition to CBAs as they will increase the project cost by approximately seven per cent (on the labour) or $100 million in the case of the Pattullo Bridge since the designated labour unions will do the work. The NDP government also acknowledged the seven per cent figure.   

“We haven’t really determined how the intersection between the CBA and P3 model will be affected,” said de Jong, but acknowledged it is something his organization is “keeping an eye on.”

De Jong said his organization is more focused on the CBA’s labour model used.

“Is it an open or closed model for labour?” he said. “When you have a monopoly, your costs are going to go up.”

Chris Atchison of the B.C. Construction Association said his organization is also watching how the CBAs affect P3 contracts.

“We recognize the marketplace could be further impacted, but we just don’t have enough experience with CBAs to know, so we are keeping an eye on this as well.”

What is known is that P3 contracts being administered by government is changing with the introduction of a new crown corporation, BC Infrastructure Benefits Inc. (BCIB), which joins two others, PBC and the Transportation Investment Corporation (TI Corp.). 

“There is no question the procurement method for contracts is changing,” said Chris Gardner, president of the Independent Contractors and Businesses Association of B.C. (ICBA), as a contractor’s employees now become government employees and new crown corporation roles are entering into projects.  

In a press release naming the qualifying three Pattullo Bridge proponents, management is now split between the BCIB and TI Corp.

BCIB will take charge of recruiting, hiring, supporting and paying the workers on the project. Contractors will manage the workforce. TI Corp will manage the project.

“It will be delivered on behalf of the province by the TI Corp. With tolls now removed on the Port Mann Bridge, TI Corp. will provide oversight and management of the delivery of other major projects throughout the province,” the release said.

As the role of TI Corp. and BCIB evolve, the role of PBC has and will decline.

“It used to be very powerful,” said Reynolds.

In 2012, the BCCA raised concerns regarding its procurement procedures and conflict of interest issues. A forum was held regarding issues and attended by the BCCA and the ICBA in 2013, which led to a 2014 government review. According to Reynolds’ report the result was the removal of some of PBC’s decision-making powers.

“To a degree, Partnerships BC’s wings had been clipped,” he said in his report.

It’s a position that Gardner agrees with.

“Partnership BC’s days are numbered,” he said.

Gardner, like Atchison, said construction associations have long promoted many of the same objectives as CBAs, which include hiring Indigenous people, women and apprentices.

“The real problem has always been a shortage of skilled labour,” he said.

As well, Gardner said he is not aware of any long-term initiative that carries the government’s CBA principles of diversification of the workforce and accruing local benefits past the P3 contract life into the communities they are to benefit.     

Simon Fraser University economist and adjunct professor on public policy Marvin Shaffer, who has studied P3s, said via email the question boils down to what is the best deal for taxpayers.

“I think what is now required is greater focus on optimum procurement strategies to achieve the efficiencies and risk transfer/management benefits a P3 can provide while maximizing the benefit of low-cost government borrowing — as opposed to simply asking whether government should pursue a P3 or not.”

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