| Advocacy
P3 Myth Busters

 

MYTH 1: P3s are privatization

FACT: Under the current Canadian model, Public-Private Partnership (P3) projects are publicly owned, publicly controlled, and publicly accountable.

There is no transfer of ownership to the private sector.

A private sector company may enter into a service agreement with the public sector to maintain or operate a public asset or service. The public sector does not lease back the asset.

The fixed price contract ensures the asset is operated and maintained in an agreed upon condition over the lifecycle of the asset, (20-30 years).

 

MYTH 2: Auditors General across the country have criticized P3s

FACT: Auditors General (AGs) across Canada provide considered opinion and guidance that have played an important role in the evolution and improvement of the P3 model in Canada.  AGs have also highlighted the inherent value and savings benefits of P3 procurements.

P3s are highly scrutinized and monitored in progress – unlike traditionally procured projects.

It was the AGs role in British Columbia to review and sign off on the Value-for-Money (VfM) analysis of P3 projects. The Ontario AG’s recommendations over the years have led to updated VfM standards and increased accountability in the procurement process.

The 2015 AG Report in Ontario noted that there were no metrics designed to monitor how well traditionally procured projects were being managed. The province’s P3 model requires regular reviews – ensuring payments are made based on performance of the private sector partners and the availability of the asset.

It is generally agreed that the rigorous and disciplined due diligence that characterizes P3 projects is more or less absent in traditionally procured projects. That due diligence is key to realizing significant savings and efficiencies.

 

MYTH 3: Support for P3s drops once public is aware of AG criticisms

FACT: Surveys conducted by Nanos Research consistently indicate nearly 7 in 10 Canadians support government’s using public-private partnerships to procure large complex infrastructure.

That number typically increases in communities where residents have seen the benefits of a P3 project. Most understand that the project probably would not have been built if the P3 model hadn’t been used.

Nanos has also found that 60% of Canadian surveyed support the private sector investors playing a bigger role in financing and managing public infrastructure projects.


MYTH 4: P3s cost more than traditional procurement

FACT: A well-structured P3 delivers better value for the public dollar and saves money because the private sector is incentivized to perform.

The P3 model considers an asset’s whole life, which can affect many decisions on the project and lead to better value in design, construction, maintenance and operation.

British Columbia’s Auditor General, Jim Doyle, also noted in his 2012 Report that P3 consortia will use premium quality product in order to ensure overall, long term savings.

“Under a P3 contract, a contractor can choose to spend more on construction, knowing the benefits will likely be lower maintenance and rehabilitation costs later in the contract period.”

Including life-cycle costs in advance ensures the private sector sets aside money for maintenance and guarantees a higher standard of asset management.

Furthermore, because appropriate risks are transferred to the private sector, cost and time overruns are paid for by the private sector.

Other factors that contribute to better value:

  • The private sector is better and more experienced at managing construction and operational risks which result in savings to taxpayers.
  • Contractors are penalized if they go over budget, take longer than expected, or underperform.
  • Delivering projects on time provides better access to health care and public services sooner.
    • A recent report by the Canadian Centre for Economic Analysis determines a one year delay in delivering a complex infrastructure project reduces its value by nearly 10%.

 

MYTH 5: The Value-for-Money analysis inflates the cost of risks to favour P3s

FACT: A third party Value-for-Money (VFM) analysis is conducted in order to assess which procurement model is best suited for a given project.

P3 agencies use the best available information to calculate risk premiums, by participating in workshops with experts to identify risks and to develop economic models and simulations that consider possible outcomes of those risks.

These risks assessments are rarely considered for traditional government procurements, which often leads to traditional projects being delivered late and over budget.

Detailed financial information is available about P3 contracts because they are often financed through publicly rated bonds and information is also available in credit rating reports and government capital plans

 

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