Roads & Paving
Manitoba looks into value of P3s
May 5, 2017 – Premier Brian Pallister sent a clear sign his government is open for and to business this week, sending out a request for proposals for a business case on using P3s to construct four public schools across the province.
Pallister made the RFP announcement at a half-day conference on how P3s are most appropriately used, and their potential benefits to public sector entities.
The “Sowing the Seeds” conference, sponsored by the Canadian Council for Public-Private Partnerships, featured three session panels with industry, professional and infrastructure representatives to talk about their experience in P3s.
Once the province has the business case, which compares using P3s for the four schools against the traditional public tendering of such work, the Pallister government will decide which route to take for the schools’ construction, estimated to cost about $100 million.
Since 2012, Canada has seen 56 P3 projects worth $34 billion completed, only three of which were in Manitoba, the premier told about 400 people from the private and public sector, who attended the day’s kick-off breakfast at Fort Garry Place. Manitoba has to start making progress on its infrastructure investment deficit and that calls for innovative approaches, he noted.
“The private sector can play a valuable role here.”
P3s are seen as a way to improve the efficiency of very large public infrastructure projects, getting them done on time and on budget, although not all P3 projects in Canada have worked out as well. Governments like P3s, in which private consortiums bid for the design/build/finance and operation of infrastructure works for a set term (usually 25-30 years), because they transfer risk – design deficiencies, construction-cost overruns and maintenance and major-capital (lifecycle) repair cost overruns – to the private partners.
Typically, a P3 will see private consortiums, composed of legal, architectural, engineering and construction firms, bid on more complicated projects that are usually hundreds of millions of dollars in size.
The sessions held through the morning brought together those with experience with P3 projects, to share their insights. Panelists noted that after a decade or more of P3 projects, Canada now has expertise and best practice in across the spectrum of infrastructure assets.
Among the points made by the panelists were:
• Governments considering P3s need to do their homework, looking at the value-for-money comparison of what it would gain and how much money it would save by using the model, against the traditional tendering process;
• A P3 RFP produces real competition on the design end, frequently seeing multiple, unique proposals to choose from;
• The value of the P3 is derived from negotiations with firms proposing to bid, as conversations between private and public entities in that design period spur the innovations that focus on producing long-term value for the project – rather than the lowest cost;
• Experience shows cost savings to public entities ranges from 13% to 17%; Saskatchewan’s P3s for school construction saved about 13%
• The P3 benefits include the transfer of risk, the innovation it spurs as private bidders look to present projects of higher value that consider all structural/operational issues, as they will be responsible for operation and maintenance over many years before transferring ownership to the public entity;
• P3s are not for every project – typically for those valued at more than $200 million;
• P3s have unique costs – financing costs can be higher for private firms than for public entities;
• It is not reasonable to transfer all risk to the private partner; for example, the discovery of environmental contamination on site can present untenable remediation costs for a firm;
• Education campaigns are critical to ensure the public and workers, many of whom are unionized, understand what P3 projects are – they do not privatize public assets and they create jobs, not steal them.