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Taking the risk out of P3s
The tragic collapse of an overpass in Montreal earlier this month caused much speculation about the state of our country's infrastructure. It also set a backdrop for renewed discussion on public-private partnerships (P3s).
The general consensus is government—with its mandate to be fair and transparent in its spending—can't conduct purchasing fast enough, or economically enough, to keep pace with requirements. By contrast, the private sector is far more nimble, and makes liberal use of strategic sourcing and supplier metrics.
Logically then, it makes sense to recruit the help of the private sector to build, maintain and repair Canada's infrastructure. P3s also allow public purchasers to learn from their counterparts in the private sector, which will no doubt contribute to the betterment of government procurement.
But establishing a harmonious P3 is sometimes akin to brokering peace in the Middle East. Out in BC, where P3s have made substantial inroads, controversy is still brewing over the Sea-to-Sky Highway renewal project. An independent analysis shows it’s coming in $220 million higher than it should be—just because it's a P3.
Marvin Shaffer, who wrote the report for the Canadian Centre for Policy Alternatives, says the BC government understated the higher cost of borrowing in the private sector.
And it's not just about the money. Government and private sector organizations operate with completely different philosophies—one striving to achieve value for money on essential services; the other earning profits to keep shareholders happy. In Ontario, for instance, the provincial government had to fight a vigorous court battle after it sold the 407 toll highway to a private company. Usage rules set out by the private company were simply not in keeping with the province's vision.
So the question is, can the two mandates meet in the middle? Let's be optimistic and say yes. The Canadian Council for Public-Private Partnerships is quick to point out the potential for win/win situations. Despite higher costs of financing in the private sector, P3 arrangements often yield savings and efficiencies in other areas, and the projects are typically completed faster.
There are risks, certainly. But many can be mitigated by drafting a solid, detailed contract, ensuring the private partner is held responsible for cost overruns and service shortfalls.
The problem is P3s are fairly new to most purchasers in Canada. Many run the risk of jeopardizing the projects by conducting improper meetings with potential bidders, or failing to build in sufficient catch falls for multi-year deals.
Purchasing professionals who may become involved in a P3, or even an unusually long sourcing project, should use the current disagreements as an opportunity for lessons learned. As P3s continue to gain momentum, it's the purchaser who will play a pivotal role in minimizing the risks.
—Lisa Wichmann
Editor
Contact the editor at lisa.wichmann@pb2b.rogers.com
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