With Alberta set embrace public-private partnerships — or P3s — we look at what they are and why they’re used.
Premier Jason Kenney has promised his government will “aggressively” pursue public-private partnerships — or P3s — for infrastructure projects.
The P3 system is used all over the world, to varying degrees of success.
The federal Canadian government under Stephen Harper was so fond of P3s it established PPP Canada in 2009 — a federal agency to promote P3s and ensure their long-term viability.
The current federal government announced plans to wind down the agency in 2017, saying it had achieved its mandate.
Then there’s Britain, where a lack of transparency and oversight fuelled an overhaul of the nation’s P3 model. For the most part, such problems lead governments to examine their P3 processes and implement stricter quality controls.
With Alberta set embrace P3s, we look at what they are and why they’re used.
What’s a P3?
The idea of a P3 is to build infrastructure without incurring upfront public sector debt.
The model sees a government enter into an agreement with a private company, typically to build expensive infrastructure like roads, schools or hospitals. Sometimes the private company will design, build and run the infrastructure, sometimes it will hand back control.
Generally, a private contractor must meet specific targets before being paid. While P3 approaches differ around the globe, a robust contract with specific targets and penalties — and the political willpower to pursue contractors should they fall short — is key.
The pros and cons
Proponents of P3s often cite taxpayer savings driven by market competition, though some projects — like Ontario’s Highway 407 — end up incurring higher-than-expected user fees.
Supporters also point to more innovative builds and the benefits of the private sector shouldering project risks.
Opponents cite the lack of transparency around contractor selection and government value-for-money audits, and point to the fact private companies are driven by profit, not the public good.
Various independent auditors in Canada and other countries have also taken aim at governments overstating savings and benefits.
P3s across the globe
First let us look to Germany, where P3s have been used for decades. The government there enacted a PPP Acceleration Act in 2005 to help with tenders, and a federal task force tracks all P3 projects on the go. A government corporation called Partnerschaften Deutschland also provides information and advice on P3s.
Public-private partnerships have also been used in Britain for nearly 30 years but, in 2011, a raft of issues led to that country reviewing its model. It concluded the system had become “tarnished by its waste, inflexibility and lack of transparency.”
In response, Britain developed a new finance model with greater transparency, centralized buying and a structure that “curbs the ability of primary investors to generate excessive profits.”
Let’s head back to the Great White North. In 2017, as PPP Canada prepared to wrap up, more than 250 P3 projects were under construction or operational. The government cited savings of around $1.7 billion compared to traditional builds.
But it hasn’t all been smooth sailing. Take Nova Scotia, where a scathing 2010 report by the auditor concluded the province’s execution of P3 school builds was in chaos, citing gaps in contract management and a lack of checks and balances at all levels of the process.
Ultimately, he concluded the province could have saved $52 million had it stuck with traditional builds.
Public-private partnerships were something of a go-to for Alberta’s Progressive Conservative government.
A 2010 report by Alberta’s then-auditor general Merwan Saher found while the P3 approach for several new school builds provided value for money, “transparency to Albertans could be improved.” He also slapped government on the wrist for overstating — by about $20 million — the savings of the P3 project.
In late 2013, the province had to rethink its approach after only one firm bid for a tender to build 19 new schools. A few months later, a Deloitte review of the Alberta government’s P3 model called it “a mess.”
Alberta moved away from P3s in 2016 following an internal review by the NDP government, directed by then-infrastructure minister Brian Mason.
Mason said at the time the review raised “real questions about the overall benefit that is received by P3s.”
Kenney doesn’t agree.
“We think in the long run, the way we can get more job-creating infrastructure, to make Alberta’s economy more efficient, is through more public-private partnerships,” he said this week.