User:Mottezen/Public-private partnerships in Canada

Public-private partnerships in Canada, (PPP or P3) is a form of alternative service delivery (ASD) that involves a formal collaborative arrangement between the public and private sector in several initiatives. This process can be done by pooling resources together provide public services, or simply having the private sector focusing on carrying out specific societal responsibilities.

The history of P3 projects in Canada can be understood in two waves: the first wave (1990–2000) and the second wave (2000–present). Since its Canadian origins, over 220 projects have been facilitated. The first and most commonly known examples of P3 projects are Highway 407 in Ontario, The Royal Ottawa Hospital, and the Confederation Bridge linking New Brunswick and Prince Edward Island. Starting in the 1990s, there has been over 220 P3 projects that have been initiated in Canada. The provinces that started and have used P3s the most include Ontario, British Columbia, Alberta, and Quebec.

The original rationale of P3s was to provide cities with top quality infrastructure without creating more direct public sector debt; they allowed for governments to make off-balance-sheet investments in infrastructure. Advocates argue that P3s make use of the expertise and innovation of the private sector and the incentive of capital market to enhance public projects. They argue P3s provide better value for money than traditional methods of procurement because they transfer a project's risk from the public to the private sector. Indeed, under P3s, financial responsibility for projects can either be shared, or put upon the private sector. PPP Canada is a crown corporation developed by the government, with the duty of contracting out several services to the private sector, as well as provide funding on both federal and provincial levels.

P3s in Canada have received notable criticism from scholars, stakeholders, and the media. Complaints revolved around the issues of accountability, higher costs, loss of democratic control over public services and the user fee rates of some projects. Discrepancies between steering and rowing, level of public interest, labour relations, autonomy and accountability, and savings and performance are often topics of P3 debates. Critics question how some the conflicting values and operations of the independent public and private sector effect the ability to achieve desired goals efficiently. The most common debate is how the goal of economic gain in public sector values interacts with the public sector value of public good. Evidence in favor of P3s and against P3s are available.

History
The P3 projects can be categorized by breaking them up into two eras; wave one and wave two of P3s.

Wave one
The first wave of P3s in Canada were initiated and launched between the 1990s and early 2000s. The outcomes of first wave as a whole did not meet the public interest and was scrutinized by several groups including scholars, stakeholders, the media, and auditors. Several complaints revolved around topics such as complex concessions, lack of transparency and accountability, low quality and high costs. Even advocates of P3s agree that the projects from the first wave were disastrous.

The most notable projects from this time include the Highway 407 in the Greater Toronto Area, the Royal Ottawa Hospital in Ontario, the Brampton Civic Hospital in Ontario, and the Confederation Bridge linking Prince Edward Island and New Brunswick. The development of a significant number of schools in Nova Scotia and New Brunswick were also under the P3 BOOT model. At the end of the first wave, a lot of the new P3 projects included water treatment plants and municipal sport complexes across Canada.

Second wave
The Second wave of P3s can be categorized between the early 2000s till present day. The heavy scrutiny of the first wave of P3s lead to shaping this wave with a higher importance on meeting expectations and making P3s more politically acceptable with main stakeholder groups (especially the public). In 2002, British Columbia created the “Capital Asset Management” policy, with a framework that was adopted by other provincial governments, and spread across the country. The framework can be simply be stated as "P3 first" policies where the government should always consider using P3s for infrastructure projects when the cost reaches a specific threshold. It also states that a special PPP agencies should be created to advocate as well as deliver PPP projects in Canada. The provincial governments lead the P3 initiative in the second wave, using it to initiate projects such as healthcare facilities, justice facilities, roads, and bridges. In 2009, Steven Harper initiated the commitment of the federal government to P3 infrastructure by creating a crown corporation (PPP Canada Inc.). PPP Canada wishes to invest in public infrastructure though P3s to contribute to long term economic benefits, and maximum value to appeal to public interest. This corporation also has a “P3 Canada fund” where provinces, territories, and municipalities can apply for funding from the federal government. Since then, P3 projects have been more commonly used in areas such as Local road Infrastructure, public transit infrastructure and wastewater infrastructure. P3s have also been recently used in projects such as Brownfield Redevelopment Infrastructure, Core National Highway system infrastructure, Green Energy Infrastructure, regional and local airport infrastructure, water infrastructure, and solid waste management infrastructure.

In the 2003 Ontario general election, Dalton McGuinty's Liberal party won the majority of seats on a platform that included scrapping all existing P3 projects. This promise was rescinded after they discovered they inherited a surprise $5.6 billion deficit from the previous government, and that scrapping these deals would cost the government a penalty of $10 million(later revieled to be $2 million). "While these arguments do have some merit, the subsequent proliferation of P3 hospitals under the Liberals discredits any notion that they were not on board with P3s from the start." .

PPP Canada
The federal conservative government under Stephen Harper in Canada solidified its commitment to P3s with the creation of a crown corporation, P3 Canada Inc., in 2009. The Canadian vanguards for P3s have been provincial organizations, supported by the Canadian Council for Public–Private Partnerships established in 1993 (a member-sponsored organization with representatives from both the public and the private sectors). As a proponent of the concept of P3s, the Council conducts research, publishes findings, facilitates forums for discussion and sponsors an Annual Conference on relevant topics, both domestic and international. Each year the Council celebrates successful public–private partnerships through the National Awards Program held concurrently with the annual conference in November.

P3 debate in Canada
PPPs have been highly controversial as funding tools, largely over concerns that public return on investment is lower than returns for the private funder. The lack of a shared understanding of what a PPP is and the secrecy surrounding their financial details makes the process of evaluating whether PPPs have been successful complex. The rationales that are provided to promote P3s have changed over the years, leading some to ask if P3s are “A policy in search of a rationale?”. P3 advocates come from an ideological background which holds that private sector firms working in market conditions are more efficient, innovative and better at allocating resources than government. Under this paradigm, P3s are a way to reduce the role of the state in infrastructure projects.

Rationales and counterarguments
The first wave of P3s was implemented in multiple sectors across different provinces with little federal coordination. The rationales used for each project, sectors and regions varies, but there has been four main arguments used to promote them.

First of all, there is the argument that P3s bring new money for infrastructure. By granting a concession to the private investor in an infrastructure project, they bring the funding required to complete the project in the first place, and get a return on investment when the structure is operational. These returns on investments can either come from user fees or government payments. Toll roads and bridges had been uncommon in Canada until the advent of P3s. Critics of P3s have also pointed out that, for projects where user fees cannot be charged, P3s do not alleviate financial pressures on governments.

A second rationale is that P3s enable off balance sheet accounting of infrastructure. They allow governments to continue investing in infrastructure without adding to the public dept. This practice has been seriously criticized by auditor generals as an accounting fallacy, as the costs of the projects must still be paid in full by the government, but with deferred payments. These schemes can misallocate the risk between partners or increase projects costs for governments in the long run. In the second wave, P3s were all crafted on-balance-sheet.

A third argument is that P3s restructure the provision of public service. They decentralize infrastructure planning away from elected officials and toward independent agencies and consultants. This has been touted as a negative by critics, who point out that overreliance on these consultants leads to a privatization of public policy development. P3 advocates, however, see the introduction of market forces in infrastructure planning in a positive light, which bring about more innovation and better risk management. Critics disagree that these goals are achieved, as there is little competition in the P3 marketplace.

The final and nowadays most common argument for P3s is that they provide better value for money than a public delivery method. "Value for money" does not mean that the project is of better quality or lower costs. According to its advocates, drivers of Value for money in P3s are "stimulating innovation during the project planning process, encouraging lifecycle asset management, and transferring construction and operations risk to the private sector".

Of these, the transfer of risk is the most important driver of value-for-money in P3s. However, not all the risk of the project is transferred to the private sector; only the ones they can muster, as outlined in the contract. Auditor Generals of Quebec, Ontario and New Brunswick have publicly questioned P3 rationales based on a transfer of risk, the latter stating he was "unable to develop any substantive evidence supporting risk transfer decisions". Furthermore, many PPP concessions proved to be unstable and required to be renegotiated that favour the contractor.

There are several rationales behind having P3s in Canada as an alternative form of service delivery. Overall, Having P3s are meant to produce more gain rather than loss, whether economic or societal. The idea of having the private sector involved in infrastructure could result in a higher level of production quality without incurring further immediate debt directly to the government. In most projects, financial responsibility is put more on the private sector side of P3s, but in some instances, investment at the beginning of a project can be shared. Some P3 projects (ex. 407 highway in Ontario) have potential for user fee charges or other revenue related options, which could be used to pay back initial investment by the private sector. Another rational the private sector aspect of P3s would bring the core value of decentralization to the decision making and project planning process. This could result in a method that is more efficient due to less immediate control from public sector factors. Having the involvement of the private sector also brings new innovation and risk management tactics that are used in the private sector, as a result of private market forces involved. Having the private sector involved can create a lot more value for money in the public interest by blending public sector values with private sector values such as lifecycle asset management, private operation management, and private sector strategy. These were some of the original rationales for having P3 projects in Canada.

In some situations, the private sector would have better means of efficiently delivering a service to the public than the public sector. As the second wave of P3 projects started in the early 2000s, the rationale evolved as well as a response to criticism from the first wave. The rationale in the second wave evolved along with the political and economic environment as well. P3s were marketed as alternative to traditional service delivery because they would have enhanced upfront project planning, contracts that provide incentives to meet the budget and timely delivery, and innovative design that add value to the public’s experience. To respond to critics of the over political and lack of expertise in negation of the public sector between P3 agreements, six of the ten provinces created of PPP agencies. These agencies would enhance The P3 process by having staff that highly trained and specialized in areas such as business management, law, and finance. The creation of PPP Canada by the federal government furthers this rationale. PPP Canada explicitly outlines when P3s are the right alternative for certain projects. This crown corporation’s rationale for choosing P3s would be when the benefits are greater than the costs through calculation of risk, expectation, and value for money analysis. Value-for-money analysis is important because it compares the project cost by using the traditional public sector delivery to the P3 model to see if using P3 of an alternative is beneficial. It also states that when there is a major project that has a necessity for enhanced risk management and a chance to leverage private sector expertise P3s are a potential option. There is scholarly evidence supporting both sides of the P3 argument.

Criticism
The first wave resulted in several criticisms of P3s as an alternative service delivery model. Critics such as stakeholders and scholars, noticed potential risk of the P3 model as a whole in the Canadian context. One criticism is that the public interest can be hindered when the private sector is involved because of its profit driven goals. If the profit motive is not balanced with the public interest, too much emphasis is put on user responsiveness, and efforts are targeting the bottom line. Although these goals can benefit society, the government’s effort to further public interest may not be achieved efficiently. Another criticism is the potential loss of accountability. P3s in Canada offer service delivery from an “arm’s length” of the government for the more flexibility in different aspects of the service delivery process. The public sector has mechanisms to keep governmental actors accountable, but if something were to go wrong in a P3 project, accountability is blurred with actors between private and public entities. Labour relations with regards to nature of the workforce and service delivery of P3s also have potential issues. Using the P3 model usually replaces long-term workers with contract workers. Using a temporary workforce can result in very little loyalty to the employer and reduce the number of public sector workers needed. Most of the upfront financial funding is put upon the private sector. In some projects negotiations between the government and contractor have been unstable, usually resulting in renegotiation so that less of the financial burden is on the contractor. Although risk is transferred, if a contractor performs poorly, the government will ultimately result in loss.

Several contemporary criticism have been outlined after the second wave of P3s. The creation of P3 provincial agencies and PPP Canada inc., has also received criticism. These agency and the crown corporation have mandates to promote P3 services that may be structured in a bias way. There is also variants in the operation between provincial agencies, resulting in potential inconsistent results. The Ontario association of architects follow a mandate that puts more emphasis on minimizing risk, meeting expectations, and obtaining satisfactory results. In contrast, PPP Canada strives for exceptional results (creating value for high invested amounts of money) of its selected projects. This inconsistency could result in inefficiency and inability to meet expectations. On a more micro level, the public sector unions and certain political parties (usually centre-left) continue to criticize that it negatively effects wages and conditions for public servants. Finally, the private sector side of P3s usually involves the participation of Multinational companies which can take away from the local contractors available.

Researchers at the University of Toronto studied twenty-eight P3 projects developed in Ontario from 2002 to 2012, and found that "the base cost of delivering each project is invariably lower (on average 16% less) when delivered through a traditional procurement rather than a PPP".

Political, economic, and societal influence
Usually Canadian political parties that support neo-liberalism as well as more of a decentralized government favor P3 initiatives as a service delivery. Political ideology can be potentially seen as another one of the main reasons this alternative service delivery was created. Some research has been done on how the increase use of P3s in Canada effects public policy. A common public policy concern is environmental legislation. There is research supporting that traditionally the private sector has always put profit over environmental factors, so the introduction of P3s may lead to less concern for environmentally friendly projects. Environmental initiative projects are sometimes not as profitable. There is also supporting evidence that shows climate action plans are not constrained by P3 initiatives because of the capacity of public sector leadership to engage in contractual agreements outlining environmental policy priorities. Despite recent global economic issues that have been seen I the private sector, P3s have been able to maintain sufficient application. Other policies relating to the political economy restrict some of the freedom that may be necessary to improve on the social benefits of the P3 model. Consumers are paying for these projects either through taxes or through user fees. Support for P3s is always conflict between certain groups in the population based off individual’s political and societal values. There has been pressure in the past put on governments to “buy out” the P3 operators where at the same time non-user taxpayers have paid no attention to P3 predicaments. The P3 model is intertwined with issues surrounding politics, privatization, financial, and social welfare issues. It will continue to be an area of debate in the future.

2013 Regina Referendum on Wastewater Plant Funding
A city-wide referendum on a new waste water treatment facility was held in Regina, Saskatchewan on September 25th 2013. The issue of the referendum was whether the facility would be financed through a design-bid-build (DBB) approach or through a Public-private partnership (P3).

The "Yes" side was directed by the citizens' group Regina Water Watch, while the "No" campaign was ran by the City of Regina and was led by Regina Mayor Michael Fougere. The "Yes" campaign received assistance from the Canadian Union of Public Employees. They published the report "Flushing money away: Why the Privatization of Wastewater Treatment Plant is a bad idea", which estimates that a P3 funding scheme would cost the city $61 million more than a DBB. The "No" side received assistance from the Regina Chamber of Commerce and federal finance minister Jim Flaherty, who expressed support for the goal of the campaign in an op-ed entitled "Why I’m giving Regina $58.5 million", in reference to his government's promise of funding part of the costs of the plant if the P3 option was selected.

The result was 57% against the DBB approach, and the treatment plant ended up being financed by a P3.