Cities Need A Strategy For Public-Private Partnerships

Rex Law

The federal government and a handful of provinces share a particular fondness for public-private partnerships. Now they are hoping that cities will share the same affection.

The affinity for public-private partnerships (P3s) comes from the benefits that P3s have over traditional procurement methods in the delivery of infrastructure: transferring of key risks to the private sector, project management and the ability to deliver on-budget and on-time, considerations over an asset’s lifecycle costs, and paying for performance only when the private sector has delivered.

The Ontario government currently uses P3s, or Alternative Financing and Procurement (AFP) as they call them, as the delivery model for its highways, hospitals, prisons, public transit, and sports arenas. Notable projects include the Highway 407 East extension, The Centre for Addictions and Mental Health (CAMH), Airport Rail Link and venues for the Pam Am 2015 games.

The federal government has been using P3s in similar capacities. Recent examples include the Canada Line in Vancouver and the Chief Pegius Trail expansion in Winnipeg.

Next week, on November 26 and 27, the case for P3s will be made to municipalities and First Nations communities when the Canadian Council for Public-Private Partnerships (CCPPP) hosts their 20th annual two-day conference in Toronto. CCPPP enlisted an all-star keynote speaker roster which includes two provincial Premiers, a United States Governor, First Nations Chief, and Canada’s Minister of Finance to tout the advantages for the use of P3s.

Despite the attraction, cities should beware – P3s, at least the current AFP models, are relatively new. Cities lack the expertise and experience which the province and the federal governments have developed over the years through the assistance of crown corporations that specialize in the use of public-private partnerships.

For Canadian cities, they are entering into uncharted waters. Yet the use of P3s cannot be ignored as cities need to build and replace infrastructure due to years of underinvestment.

Cities face a paradox. On the one hand, they face a severe infrastructure deficit, which requires a significant amount of investments and government spending. On the other, they are challenged with limited revenue tools to fund the necessary investments. Cities need support from the higher levels of government to repair crumbling infrastructure, invest in new projects, and reduce the infrastructure deficit.

Yet the heavy-handedness by the federal and the provincial governments to have cities deliver infrastructure through public-private partnerships means that cities have few options if they want federal and provincial funding contributions.

The inexperience of cities with public-private partnerships may subject them to difficulties in implementation. P3s are a contentious and divisive issue. They are often mistaken as a form of privatization and demonized by public sector unions for the fear that P3s will destroy public sector jobs in the name of private sector profits. Governments have difficulties justifying the use of public-private partnerships due to the politics and perceptions of P3s.

The municipal government of the City of Abbotsford, B.C., failed to deliver a much-needed water facility project because opposition groups were successful in framing the issue as “privatization” of water. The City needed a new water facility that would provide regional water to both Abbotsford and the District of Mission. Despite the project completing a business case that provided the evidence supporting the use of P3s, a federal funding commitment, and Mayor and City Council support, the project failed when it was voted on a referendum and lost. The necessary $345 million Stave Lake Water Facility project would have provided many benefits for residents, not to mention the ability to expand the regional water supply. The opportunity to deliver the infrastructure was lost when a new Mayor was elected and the federal funding grant was eventually surrendered.

The Abbotsford example, like many projects, lacked a strategy to implement the use of public-private partnerships. To avoid the pitfalls and to ensure the successful implementation of P3s, I suggest the following strategy for cities:

1)     Identify a Political Champion

The political champion will typically be the head elected official – the Mayor or Regional Chair. They will show support for the project, demonstrate the value for the infrastructure, and be the political spokesperson to the community and constituents. Responsibilities also include representing the municipality at the national setting such as with the Federation of Canadian Municipalities and lobbying to intergovernmental partners for funding commitments.

2)     Develop a Communications Plan

The Communications plan will outline the strategy used to approach stakeholders, elected officials, intergovernmental partners, media, special interest groups, citizen advocacy coalitions, and local businesses. Consistent messaging and establishing strong working relationships with the community is essential for project success.

3)     Conduct a P3 Business Case

Whether the public-private partnership model or the traditional Design-Bid-Build model should be used rests on the conclusions from the P3 Business Case. The case will conduct the necessary evaluations based on industry procurement standards and market sounding criteria. Included in the P3 Business Case will be the Value-for-Money assessment and all risks analyses.

4)     Work with the Provinces and Federal Government

As previously mentioned, a handful of provinces and the federal government have established crown agencies (Partnership B.C., Infrastructure Ontario, Infrastructure Quebec, Partnerships New Brunswick, Alberta Alternative Capital Financing Office, and PPP Canada) with the mandate of delivering public-private partnerships; providing technical, financial, and legal advisory services; and monetary support such as loans or grants. Cities will benefit from working with these commercial procurement leads that have an established market presence and strong working relationships with the private sector.

5)     Exercise Due Diligence

Ultimately cities will have to make the final decision on whether to procure using AFP or P3s. Staff should seek advice from consultants and understand the process. Public-private partnerships require significant upfront planning, are highly complex and have higher financing costs. Yet the benefits are many if implementation is successful.

If the early roundtable discussions of the Long-Term Infrastructure Plan are indicative of the federal government’s priorities, the use of P3s remains in the long-term strategic vision of the federal government. With the Building Canada Fund set to expire in 2014, the P3 Canada Fund – a $1.2 billion fund introduced in 2009 to provide monetary support to P3 projects, may be the only option for municipalities and First Nations communities to fund the building of new infrastructure.

With a strategy in place, cities will be able to navigate the intricacies of public-private partnerships. If cities can do that, they will be able to harness the potential that P3s offer in delivering the infrastructure that they desperately need.

Rex Law is a graduate of the MPP program (2012) at the School of Public Policy and Governance. He holds an Honours Bachelor of Arts from McMaster University. Rex’s policy interests are in infrastructure, public-private partnerships, transportation, and urban policy.

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