P3 myths and facts ahead of Premier’s address

April 26, 2017
Manitoba’s infrastructure needs aren’t shrinking, even as the provincial government works to tame an $840 million deficit. That’s why there’s renewed interest in an alternative method of providing the upfront cash infrastructure projects need to get off the ground: public-private partnerships.

On May 2 both Manitoba Premier Brian Pallister and Mayor of the City of Winnipeg Brian Bowman will share their thoughts on the future of P3s in our province at a conference presented by the Canadian Council for Public-Private Partnerships and hosted by The Winnipeg Chamber of Commerce. Tickets are available online to join the hundreds of business people, lawmakers and community leaders in attendance.

To have a constructive dialogue, it’s important to establish the facts around P3s and look at examples of how they’ve worked in other Canadian cities.

Myth: P3s are a form of privatization
Fact: Privatization involves the transfer of ownership of the asset or service. Public-Private Partnership (P3) projects are publicly owned, publicly controlled, and publicly accountable.

A private sector company may enter a lease/service agreement with the public sector to maintain or operate a public asset or service. Once the contract ends, the private sector must hand back the asset/service to the public sector in an agreed-upon condition. Underlying ownership always rests with the public sector even during the length of the agreement.
Myth: P3s cost more than traditional procurement

P3 transaction costs are higher than the traditional bid-build contracts and the private sector’s borrowing costs are higher than those available to the public sector. However, 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 makes sure funds are set aside for regular repair and maintenance – the single most important factor in keeping infrastructure costs down.1 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. Looking at life-cycle costs in advance ensures the private sector sets aside money for maintenance and repairs and protects it from being used for some other initiative.

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 helps provide better access to health care and public services sooner.

 

Myth: P3s create big private-sector profits using public money
​The private sector designs and builds both traditional and P3 infrastructure projects. Profit is being made in both models, but P3s are structured so that profitability (and loss) is tied to performance.

Canada has a very competitive P3 market, which ensures that the government gets the best bids and ultimately, the best value for money.