Introduction
Over the past decade, Public Private Partnership agreements as a means of providing infrastructure such as public roads and buildings have increased significantly in Canada and around the world. The Province of British Columbia alone has completed or initiated 40 such projects in recent years, including 16 health care facilities.
For the purposes of the GNWT Policy, a Public Private Partnership is defined as a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks, and rewards.
This article provides an overview of the model as well as the GNWT’s process for determining whether or not projects are suited to a Public Private Partnership.
How the P3 Model Works
Often referred to as PPPs or P3s, this procurement model is a method of:
- Encouraging innovation, collaboration, and appropriate risk sharing with the private sector, drawing on the expertise and strengths of the public and private sectors.
- Maximizing value for money by considering life-cycle costs, opportunities for third party provision of ancillary services, e.g. caretaking, food service, etc., and third party revenue opportunities.
- Delivering infrastructure with certainty in terms of costs and schedule.
To be called a P3, the contract agreement must:
- Include one or more public (government) organizations.
- Include one or more private companies.
- Transfer some amount of risk from the public to the private entity.
Beyond this, there is a very wide range of agreement options. However, most are based on a project being completed and ready for use on time, on budget, and before the public partner makes any payments. In addition, many agreements also call for the private partner to provide ongoing services that are not part of the core business of the public partner.
Example
BC’s Abbotsford Regional Hospital and Cancer Centre (ARHCC) was developed as a public private partnership. Construction started in 2004 and opened to patients in August 2008.
Five private companies formed an umbrella organization called Access Health Abbotsford (AHA). AHA became responsible to design, construct, and operate the facility, providing building maintenance, laundry, housekeeping, and food services. Fraser Health and the BC Cancer Agency provide all medical services within the facility.
Benefits
According to Partnerships BC, “The [ARHCC] agreement specifies performance-based payments to the private sector at a cost that is estimated to be $39 million less than a traditional public sector procurement model.”
In 2010, The Conference Board of Canada published a report that also found significant cost savings.
Public-private partnerships (P3s) are an increasingly popular procurement vehicle for Canadian governments seeking to build or upgrade infrastructure assets. But is the enthusiasm warranted? Evidence from the latest wave of Canadian P3s suggests the answer is yes, provided governments pick the right projects for P3 procurement. For example, studies comparing what an infrastructure project would cost under a P3 and under a conventional contract show that Canadian P3s can deliver efficiency gains ranging from a few million dollars to $751 million (from 0.8 per cent to 61.2 per cent of the cost of a conventional procurement approach). In addition, the P3s that have completed the construction phase have delivered a high degree of cost and time certainty from financial close through to completion of construction. Factors driving P3 efficiency gains include optimal risk allocation between the public and private partners, upfront assessment of project costs, output-based contracts, and private financing.
(Click here to access the full report.)
Assessment
The GNWT has developed a rigorous process for determining projects best suited to a P3 arrangement. This process is summarized in the Corporate Capital Planning Process and detailed in the Public Private Partnerships (P3) Management Framework.
Briefly, there are three phases in the P3 assessment process:
Feasibility Analysis
An Opportunities Paper is prepared to provide evidence that the project has sufficient potential to provide value-for-money when compared to a traditional procurement and delivery process.
Business Case Analysis
If the feasibility analysis determines that there is sufficient potential, an in-depth business case analysis is undertaken to provide evidence that the project should proceed as a P3 project.
MLA Consultation
With approval from the Financial Management Board, the project is referred to Standing Committee for review and comment. This allows all MLAs to review the feasibility and business case documents as well as any other supporting documents, and provide comments and recommendations.
Upon completion of the consultation, and agreement of the Standing Committee, the P3 procurement process is initiated.
Frequently Asked Questions
When will the decision be made about using the P3 model for the Stanton Renewal?
The decision has been made to proceed with the project using a Public Private Partnership model.
If a building is developed using a P3 model, who owns it?
When the building is completed and turned over to the public partner, the public partner owns it in the same way that you own your home, even though you have a mortgage. However, until the building is turned over, the private company owns it. This means that the private company holds the risk of construction delays, cost increases, or damage from fire or storms.
Some P3 projects have resulted in “user fees” such as bridge tolls. If the Stanton Renewal is a P3, will patients have to pay to receive medical care at the hospital?
No. Medical services at Stanton will continue to be funded by government (through the GNWT Medical Services Plan) as they are now.
Will using a P3 model take longer for the renewal to be completed?
No. In fact, the experience in the GNWT and many other jurisdictions show that in most cases construction is completed with fewer delays than usual.
If the Stanton Project is a P3, will changes to the scope of the project be possible? For example, if there is new technology that becomes available a year after the P3 agreement is signed.
Yes. The P3 procurement model does not prevent changes to the scope of the project.
