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.
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.
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.
The private sector's borrowing costs are higher than those available to the public sector, but the gap is decreasing due to Canada's strong P3 track record. P3s deliver better value for the public dollar and save money during construction and over the life of the asset because:
Project risks are allocated to the party best able to manage them, which outweighs the difference between public and private sector borrowing rates
Infrastructure projects are seen as strong, stable investments by lenders and investors
Lenders and investors, who partner with contractors to deliver a P3 project, continually monitor the project milestones because of their investments, providing additional oversight to keep the project on track
Canada's capital markets are competitive and considered to be very cost-effective
The private sector has “skin in the game” (i.e. significant investments and responsibilities) that creates the necessary incentives to provide on-time, on-budget, and high-quality infrastructure
FACT
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 governments get the best bids and ultimately, the best value for money.
FACT
The majority of companies working on P3 projects in Canada are Canadian.
Their successes in Canada have made them highly marketable around the world. International companies bring welcome expertise and capital funds that contribute to the success of Canadian infrastructure projects, and cements relationships between Canadian businesses and foreign markets – a win-win situation.
Canadian pension funds and insurance companies also invest in infrastructure, both at home and abroad. Canadians benefit from reliable income streams in their retirement years due to the success of the private-sector consortia in P3s everywhere.
Canadian companies are becoming increasingly successful at winning foreign bids, which is a major benefit to Canadian employees and Canadian governments that collect taxes from these companies.
FACT
Canada is considered a world leader in public-private partnerships. The procurement process is well refined and viewed globally as one of the shortest and most efficient.
Although procurement can take longer than traditional projects, this is due to the planning and analysis required to determine if P3 is the appropriate model, to engage stakeholders and to ensure performance is optimized over the life of the contract. The on-time construction record of P3s compared to traditional procurement more than makes up for the longer procurement time.
Under a P3 model, the private sector does not receive payment from the public sector until construction of an entire project is complete or it completes agreed-to construction milestones. This arrangement puts financial pressure on the private sector because it:
has taken out a loan to pay for the project’s design and construction
owes its lenders and must repay loan promptly upon project completion
will be penalized with additional financing costs if it misses the completion timeline
is on the hook for additional financing cost
So there are significant incentives, unlike traditional procurement, to deliver P3s on time.
FACT
Given the size and complexity of most P3 projects, not every company has the qualifications, experience and financial capabilities to take the lead role. However, Canadian companies play a dominant role in the P3 sector in Canada, just as they do in traditional projects.
Regardless of who leads the consortium, P3 projects employ many Canadian firms, particularly at the subcontracting level.
Jurisdictions such as Ontario have developed policies that require "local content" in large infrastructure projects, further incentivizing the participation of smaller and local contractors.
FACT
Labour unions routinely partner with the private sector to deliver Canadian infrastructure projects that generate highly desirable jobs.
LiUNA and the Carpenters Union are among the labour groups that are regularly involved in P3 projects and support them.
Collective agreements are usually maintained for public sector employees in P3s and provide equivalent wages and benefits. For example, City of Regina employees transferred to the private sector company contracted to operate the new wastewater treatment plant with their collective bargaining agreements remaining intact.
Significant investments in new and refurbished public infrastructure in Canada in recent years has resulted in hundreds of new jobs, many of them unionized.
FACT
The VFM analysis assesses which procurement model is best suited for a given project.
P3 agencies use the best available information to calculate risk premiums, by participating in workshops with experts to identify risks and to develop economic models and simulations that consider possible outcomes of those risks. These risks are rarely quantified for traditional government procurements, so P3s add an additional important level of analysis to ensure Value-for-Money.
Detailed financial information is available about P3 contracts because they are often financed through publicly rated bonds and information is also available in credit rating reports and government capital plans.
