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.[1][2] This process can be done by pooling resources together to meet a common goal, or simply having the private sector focusing on carrying out specific societal responsibilities.[1] There are several subcategories that P3s can be grouped into. The forms of P3s in Canada include: build–operate–transfer (BOOT), company-owned-government-operated (COGO), and government-owned-company-operated (GOCO).[1] Public–private partnerships are commonly known for being used for infrastructure projects.[3] [4]The history of P3 projects in Canada can be understood in two waves: the first wave (1990–2000) and the second wave (2000–present).[3] Since its Canadian origins, over 220 projects have been facilitated.[3] 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.[3]

The original rationale of P3s was to provide cities with top quality infrastructure without creating more direct public sector debt.[3] P3s work in theory because they make use of the expertise and innovation of the private sector and sometimes the incentive of capital market to enhance public projects.[5] In some situations, the private sector has better means than the public sector of delivering a service with efficiency. Having P3s are meant to produce more gain rather than loss, whether economic or societal.[1] A lot of the risk involved in different projects, one being financial responsibility can either be shared, or put upon the private sector.[5] 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.[5] P3s in Canada have received notable criticism from scholars, stakeholders, and the media.[3] The original complaints revolved around the issues of accountability, high up front cost, and the user fee rates of some projects.[3] Discrepancies between steering and rowing, level of public interest, labour relations, autonomy and accountability, and savings and performance are often topics of P3 debates.[1] Critics question how some the conflicting values and operations of the independent public and private sector effect the ability to achieve desired goals efficiently.[1] 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

Starting in the 1990s, there has been over two hundred and twenty P3 projects that have been initiated in Canada.[3] The provinces that started and have used P3s the most include Ontario, British Columbia, Alberta, and Quebec.[3] The P3 projects can be categorized by breaking them up into sections; wave one and wave two of P3s. The first wave of P3s in Canada were initiated and launched between the 1990s and early 2000s.[3] The most notable projects from this time include the Highway 407 in the Greater Toronto Area, the royal Ottawa Hospital in Ontario, the Brampton hospital in Ontario, and the confederation bridge linking Prince Edward Island and New Brunswick.[3] The development of a significant number of schools in Nova Scotia and New Brunswick were also under the P3 BOOT model.[5] At the end of the first wave, a lot of the new P3 projects included water treatment plants and municipal sport complexes across Canada.[3] 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.[3] Several complaints revolved around topics such as complex concessions, lack of transparency and accountability, high private financial costs, and so on (Go to the Criticism stub to read more).[3]

The Second wave of P3s can be categorized between the early 2000s till present day.[3] 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).[3] 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.[3] 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.[3] It also states that a special PPP agencies should be created to advocate as well as deliver PPP projects in Canada.[3] 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.[3] In 2009, Steven Harper initiated the commitment of the federal government to P3 infrastructure by creating a crown corporation (PPP Canada Inc.).[5] 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.[5] This corporation also has a “P3 Canada fund” where provinces, territories, and municipalities can apply for funding from the federal government.[5] The second wave was an improvement of the first. Since then, P3 projects have been more commonly used in areas such as Local road Infrastructure, public transit infrastructure and wastewater infrastructure.[5] 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.[5]

Rationale

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.[1] 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.[3] 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.[5] 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.[3] Another rational the private sector aspect of P3s would bring the core value of decentralization to the decision making and project planning process.[3] This could result in a method that is more efficient due to less immediate control from public sector factors.[3] 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.[3] 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.[3] 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.[3] [6]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.[3] These agencies would enhance The P3 process by having staff that highly trained and specialized in areas such as business management, law, and finance.[3] 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.[5] 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.[5] 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.[5] 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.[1] 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.[1] 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.[1] 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.[1] 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.[1] Using a temporary workforce can result in very little loyalty to the employer and reduce the number of public sector workers needed.[1] Most of the upfront financial funding is put upon the private sector.[3] 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.[3] Although risk is transferred, if a contractor performs poorly, the government will ultimately result in loss.[3]

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.[3] There is also variants in the operation between provincial agencies, resulting in potential inconsistent results.[3] The Ontario association of architects follow a mandate that puts more emphasis on minimizing risk, meeting expectations, and obtaining satisfactory results.[7] In contrast, PPP Canada strives for exceptional results (creating value for high invested amounts of money) of its selected projects.[5] This inconsistency could result in inefficiency and inability to meet expectations.[8] 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.[3] Finally, the private sector side of P3s usually involves the participation of Multinational companies which can take away from the local contractors available.[3]

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.[8] Political ideology can be potentially seen as another one of the main reasons this alternative service delivery was created.[8] 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.[9] Environmental initiative projects are sometimes not as profitable.[9] 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.[9] Despite recent global economic issues that have been seen I the private sector, P3s have been able to maintain sufficient application.[8] 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.[10] Consumers are paying for these projects either through taxes or through user fees.[10] 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.[10] 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.

References

  1. 1 2 3 4 5 6 7 8 9 10 11 12 13 Baker, Paul (2008). Public Administration In Canada: Brief Edition. Toronto, ON: Nelson Education Limited. pp. 107–139.
  2. ↑ Roehrich, Jens K.; Lewis, Michael A.; George, Gerard. "Are public–private partnerships a healthy option? A systematic literature review". Social Science & Medicine. 113: 110–119. doi:10.1016/j.socscimed.2014.03.037.
  3. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Siemiatycki, Matti (September 1, 2015). "Public-Private Partnerships in Canada: Reflections on twenty years of practice". Canadian Public Administration. 58 (3): 343–362. doi:10.1111/capa.12119. ISSN 1754-7121.
  4. ↑ Roehrich, Jens K.; Lewis, Michael A.; George, Gerard. "Are public–private partnerships a healthy option? A systematic literature review". Social Science & Medicine. 113: 110–119. doi:10.1016/j.socscimed.2014.03.037.
  5. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 "PPP Canada". www.p3canada.ca. Retrieved March 26, 2017.
  6. ↑ Caldwell, Nigel D.; Roehrich, Jens K.; George, Gerard (2017-09-01). "Social Value Creation and Relational Coordination in Public-Private Collaborations". Journal of Management Studies. 54 (6): 906–928. doi:10.1111/joms.12268. ISSN 1467-6486.
  7. ↑ "Letter to Glen Murray: minister of infrastructure and Transportation" (PDF). Retrieved March 26, 2017. |first1= missing |last1= in Authors list (help)
  8. 1 2 3 4 Whiteside, Heather (September 1, 2011). "Unhealthy policy: The political economy of Canadian public-private partnership hospitals". Health Sociology Review. 20 (3): 258–268. doi:10.5172/hesr.2011.20.3.258. ISSN 1446-1242.
  9. 1 2 3 Newman, Joshua; Perl, Anthony (June 1, 2014). "Partners in clime: Public-private partnerships and British Columbia's capacity to pursue climate policy objectives". Canadian Public Administration. 57 (2): 217–233. doi:10.1111/capa.12051. ISSN 1754-7121.
  10. 1 2 3 Boardman, A (2012). "The political economy of public-private partnerships and analysis of their social value". Annals of Public and Cooperative Economics. 2: 117–141.
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