Public Private Partnerships: Impacts and perspectives

By Terry Hadley (March 06, 2008)

Venue: Fairmont Hotel Vancouver

Breakfast Keynote Speaker: Richard Abadie, global head PPP advisory group, PricewaterhouseCoopers, UK

Britain’s P3 Experience: The local economic impact

By Terry Hadley

Richard Abadie, global head PPP advisory group, PricewaterhouseCoopers, UK kicked off The Vancouver Board of Trade’s P3 Forum 2008 with a snapshot of the UK’s public- private partnerships (P3s).

Looking at both sides, having worked both with the private sector and in government from the taxpayers’ point of view, Abadie said that although the UK had doubled investment in public infrastructure over 12 years, only £5 billion was spent on P3 infrastructure in 2006 – just 10 to15 per cent of total public infrastructure investment.

"Whatever the exact figure, it means that 80 to 90 per cent of public infrastructure funding is going through the traditional route," he said.

However, year by year, the P3 trend has gone up. And the traditional argument that the "cost of private finance is more expensive than public finance," is being outweighed by P3 benefits.

Abadie said that an auditor general’s report showed that 90 per cent of P3 UK projects had been delivered on time, compared to just 30 per cent of government-financed deals.

Twenty per cent of P3s had indeed cost the government more than if they had been traditionally funded, but only because the government had made extra demands and changes after the contract had been signed. In comparison, more than 70 per cent of publicly funded projects had cost overruns.

Abadie said the key benefit of the P3 model is "the transference of construction risks over to the private sector and if there’s a blow-out, they’re responsible."

In the end, the goal is "to improve services to the user" which P3s do because they increase accountability; risks have to be carefully assessed to be sure of the feasibility of a project for the private sector to take on.

P3s also ensure funding for infrastructure maintenance when the private sector takes that over in the long-term. "This is usually the first thing the government cuts back on when there is a shortage of capital, only to return to the problem a few years later to find it’s got worse and will cost more to fix," he said.

Abadie stressed that P3s have become a global phenomenon, with major global contractors chasing strong PP3 markets, and that high construction costs are currently "a global phenomenon" and certainly not limited to British Columbia.

"It doesn’t matter where you go in the world, PPP is here to stay," he concluded, before a Q&A session with the audience.

View Richard Abadie's presentation

Morning Plenary

Speaker: Larry Blain, CEO, Partnerships BC

P3s and the B.C. experience

Once the sole responsibility of local and provincial taxpayers, major infrastructure projects such as roads, bridges and hospitals have now become public private partnerships in British Columbia.

While relatively new to B.C., the numbers are growing, and the provincial government’s high profile commitment to public private partnerships will make them the rule, rather than the exception, in the years ahead.

With a growing number of P3 projects underway, Larry Blain, the CEO of Partnerships BC, highlighted the British Columbia experience to date, and reviewed how local companies are faring on existing projects.

Blain outlined several major projects that have been undertaken as P3s, including the Sierra Yoyo Desan Resource Road in northern British Columbia, the William R. Bennett Bridge in Kelowna, the Kicking Horse Canyon highway improvement project and the Charles Jago Northern Sport Centre in Prince George.

Locally, projects include the Sea to Sky Highway, the Canada Line, the Golden Ears Bridge and the Abbotsford Regional Hospital and Cancer Centre.

“In every case, they’re on their budget, they have to be because they’re fixed-price contracts,” Blain said. “In every case, they’re either on schedule or ahead of schedule, and in every case, we expect that there will be value for money in the sense of a lower life cycle cost than if the government had done the procurement on its own.”

Blain added that the P3 model is gaining ground, both nationally and internationally. “In Canada, the popularity of PPP is definitely increasing; the last 12 months have seen some dramatic changes in Canada”,” he said, adding that Alberta, Ontario, Quebec, New Brunswick and Nova Scotia all have P3 markets. In addition, the federal government recently established a national P3 body.

View Larry Blain's presentation

Panel

P3 Perspectives: Options and opportunities

Moderator: Thomas W. Ross, associate dean (Research) and UPS Foundation professor of Regulation and Competition Policy, Sauder School of Business and co-director, UBC P3 Project

"Public private partnerships in British Columbia are certainly well past what you might call the teething stage. There are still a variety of views on the effects and impacts of P3s on local firms, labour and community. We often talk a lot about the major P3 players, but in fact there are significant impacts on the communities and small- and medium-sized businesses across this province as we go down the P3 path."

Panellists:

Jim Burke, Executive Vice-President, SNC Lavalin. View Jim Burke's presentation

Phil Hochstein, President, Independent Contractors & Business Association of BC. View Phil Hochstein's presentation

Bernie Magnan, Chief Economist, The Vancouver Board of Trade. View Bernie Magnan's presentation

"All significant projects carried out by the government are possible P3 projects, although not all projects can be built in this manner. Factors that affect the construction industry in the coming years are skills shortages and shortage by labour, exacerbated by the near full level of employment in the province, the increased cost of construction materials and possible shortages due to higher levels of demand. And project funding is also a potential issue, although the use of P3s to provide additional financing can provide some alleviation of this potential problem.

"Public private partnerships can help advance infrastructure projects by providing a financing alternative to help bring projects forward. As our first speakers mentioned this morning, it also helps that there is a high probability for P3 projects to be on time for delivery of projects and within budget costs."

Manley McLachlan, President & CEO, BC Construction Association. View Manley McLachan's presentation

Steve Small, Vice-President Development, Bilfinger Berger BOT. View Steve Small's presentation

Luncheon Keynote Speaker: Premier Gordon Campbell, Province of British Columbia

Public-private partnerships: Building the future of British Columbia

B.C. Premier Gordon Campbell was enthusiastic about the P3 model for B.C. And although he acknowledged it is "not the best tool for every kind of project," he was certain it has been the right choice for projects such as the Canada Line providing a 24-minute link from YVR to downtown Vancouver by the fall of 2009.

"What is the reason for not doing this? I can’t think of a reason," he said, after citing the benefits of using the expertise of the private sector, which in turn takes on the considerable risks involved in such sizeable projects.

Campbell said that when his government started the P3 initiative, one of the goals was to get the public to think about this transfer of risk from government to private sector.

Giving the P3 history of Abbotsford Regional Hospital, Campbell admitted it had undergone a complex procurement system, but that the process was necessary to ensure that accountability was outlined to all partners. The hospital, set to be delivered over to the Fraser Health Authority this spring, will be fully operational this fall, ahead in both time and budget.

State-of-the-art technology will also ensure better outcomes, resulting in $35 to $40 million in additional value over traditional government funding. "This may seem a small amount in terms of a project costing billions, but there are definite long-term improvement benefits," he said.

Among other examples, Campbell gave Kicking Horse Canyon Highway – another P3 completed 22 months early – "An example of what we can do working together."

Meanwhile, the Canada Line P3 has resulted in $92m in additional benefits, the W.R. Bennet Bridge in Kelowna $25 million, and the Sea-to-Sky Highway $130 million.

"We cannot afford not to pursue the objectives we’ve set through private-public partnerships," he said.

Campbell said B.C.’s progress and expertise in P3s is also something that can be sold. "We don’t have to be the biggest community in the world; we have to be the smartest community in the world," he said.

Accountability of the parties involved in P3s is also a definite advantage, according to the Premier. "Risk analysis is not something that flows naturally through governments!" he said.

Campbell concluded that B.C. is set to become the global centre and vehicle of P3s. "That P3 expertise is something we can sell to the world… let’s build more P3s!" he concluded to a standing ovation.