When the business case supports its use, P3s are used to deliver an infrastructure project or multiple infrastructure facilities and services across a region.
In Canada, the public sector always owns the infrastructure created through a P3. The government determines when and where to build the project, its scope and its budget. The public sector also uses a competitive process to select the best team of private sector companies.
The P3 model integrates multiple project elements (design, build, finance, maintain and/or operate) into one performance-based contract.
The private sector determines its team members in the consortium to deliver the P3 infrastructure project.
This team forms a special purpose vehicle called a Project Company or a consortium to complete the project. Depending on the project’s scope and size, the consortium may include one or more developers, designers, constructors, lenders and financial institutions, and maintenance and operation providers.
World-class architectural firms design P3 projects and win awards for their innovation. When design services are integrated into a P3 contract, the consortium’s architects and contractors plan the project together.
In comparison, in a traditional delivery model design and construction activities are planned and developed separately. This approach increases the risks of design omissions and errors, and results in scope changes.
Oxford University Professor Bent Flyvbjerg’s research on infrastructure cost overruns across the globe found 90 per cent of megaprojects went over budget due to scope changes.
A main contractor is always one of the companies in a P3 consortium.
In P3 contracts, the contractor commits to:
Unlike a conventional delivery model that requires the public sector to fund a project throughout construction, a P3 consortium is responsible for financing a portion of or the entire capital cost of a P3 project during construction and/or design phases.
The consortium either borrows money (debt) and/or put up its own funds (equity that is repaid when construction is complete) to build the project. Having ‘skin in the game’ motivates a consortium to complete a project on time and on budget.
Why integrating financing risks improves the private sector’s performance:
Payment Structure
Projects without Operations and Maintenance (O&M) services:Transferring risks for service operations to the private sector commits it to operating or providing services for a period of time (i.e. 10, 20 or 30 years).
For example, a consortium may be contracted to operate a water treatment plant, to provide transit services or to collect road tolls. Despite having a private operator, in the Canadian context, the infrastructure remains publicly owned.
Why integrate service operations in a P3 project?
The private sector commits to:
Other benefits of integrating operations:
The private sector takes on the risks of maintaining and renewing the ‘bricks and mortar’ (also called ‘hard’ facilities management) of public infrastructure when the maintenance component is included in a P3 contract.
Although rare in Canadian jurisdictions, a maintenance provider may also take care of ‘soft’ facilities management, such as hospital cleaning.
Dedicated funds are set aside for long-term maintenance and life cycle costs when the private sector is contracted to manage maintenance services in P3 project agreements. That arrangement also provides a long-term warranty on the ‘hard facilities.’
In schools, hospital or a courthouse, the private sector may maintain and repair the heating and air conditioning system, elevators and escalators.
On roads and bridges, the private sector may be responsible for repairing potholes, pavement, or lighting systems.
For a transit system, the private sector may be responsible for maintaining the transit cars, rails, systems, stations and storage facilities.
Examples of life cycle renewal services:
Advantages of integrating maintenance
Throughout the contract term, the private sector:
