Canada warms up to public-private partnerships*

Canada’s P3 market is maturing but improvements are needed to propel further growth

* This is an expanded version of a summary that originally appeared in the March 2007 issue of CAmagazine.

By Tim Philpotts

Virtually all levels of Canadian government are reaching out to the private sector to help with large-scale public projects, according to a new report from Ernst &Young. But although these public-private partnerships can provide a good solution to the country’s growing infrastructure needs, there is apparently still room for improvement.

Under P3s, an innovative financing model introduced in the UK about 15 years ago, governments award long-term multiyear contracts to private sector companies — or a consortium of companies—to design, build, finance and maintain highways, schools, hospitals and other facilities. Though Canada’s P3 industry is still being developed and refined, several large-scale projects have been successfully executed. Still, the report says we have yet to develop a truly national, competitive and sustainable P3 market.

Issues Facing the Canadian P3 Market is the first report of its kind to examine the challenges inherent to the Canadian marketplace. It is based on interviews with 16 of the country’s leading P3 decision-makers.

P3 projects in operation or under construction include:

• In BC, the Sea-to-Sky Highway Improvement Project, Abbotsford Hospital, the Gordon & Leslie Diamond Health Care Centre and the William R. Bennett Bridge
• In Ontario, the Royal Ottawa Hospital, Oshawa Sports and Entertainment Complex and the John Labatt Centre
• In Alberta, the Canmore Water and Wastewater Treatment Plant
• In New Brunswick, the Fredericton-Moncton Highway.

The list of new P3 projects continues to grow, which is one reason survey participants would like to see the development of a vibrant national P3 market. Some desired improvements would include better coordination among the provincial agencies set up to expedite P3 procurement, standardized P3 agreements and a more predictable project pipeline.

National P3 market would improve Canada’s P3 capability
A national market, defined by consistency across jurisdictions, would help justify the investment governments and their private sector partners need to make to build the required expertise for delivering large-scale projects. With a predictable pipeline of projects, developers would be able to hire at the appropriate levels and dedicate the right resources, time and budgets to pursue complex projects. They would also have a clear picture of where new business opportunities are likely to arise.

A national market would help accelerate the standardization of procurement agreements. As things now stand, each provincial jurisdiction wants its own tendering process and documentation. Ultimately, a national market would stimulate competition and attract more competitive bids from the private sector.

In the Ernst & Young report, survey participants say they want to see procurement agencies in the country’s major P3 centres — notably Partnerships British Columbia, Infrastructure Ontario and l’Agence des partenariats public-privé du Québec — working closely together to help create this national market that will be instrumental in building the expertise that both public and private sector partners will need.

Political momentum on the rise
Since government is the ultimate decision-maker, participants say political momentum is critical to the creation of such a national P3 market.

There are indications that the federal government intends to smooth the way for more P3 development. Finance Minister Jim Flaherty recently unveiled his Advantage Canada plan, which includes a pledge to establish a federal P3 office that will “facilitate a broader use of P3s in Canadian infrastructure projects to ensure federal spending has maximum impact.”

According to the minister, “Greater use of P3s will also provide opportunities for Canadian pension funds and other investors to participate in infrastructure projects here in Canada rather than being forced to look abroad, as is often the case now.”

In the Ernst & Young report, participants express optimism that a sustainable P3 market will develop within five years, with the health care and transportation sectors showing the most promise. This positive nod from the federal government would seem to bode well for the industry, the report notes. But it also concludes that a national, competitive and sustainable P3 market is attainable only when governments work together to stabilize the flow of deals and attempt to standardize processes and documentation as much as possible. For its part, the private sector has an obligation to participate in the development of needed standards, to accept the consensus positions when they are developed; and, in the end, to deliver projects on time and on budget.

Tim Philpotts is a partner and Canadian leader of Ernst & Young’s P3 practice.