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Common Cents  
... a no-nonsense look at public procurement and government business

P3s need policy push

by Gord McIntosh

Public-private partnerships are fast becoming significant for governments of the future, particularly municipal and provincial.

To their boosters, public-private partnerships (P3s) represent the one tangible hope of finding the money to repair this country's physical infrastructure and render it ready for the new economy - without relying on the deficit financing of the 1960s, '70s and '80s. To its detractors, a P3 represents a private sector threat to all that this country holds dear. And to the cynical, P3s are what the prime minister does around election time when he starts throwing around infrastructure dollars, on a proportional, regional basis, of course.

Amid all this confusion, Canada's tiny P3 sector is taking its first few baby steps toward acceptance by government and suspicious voters. Meantime, a threatened public sector is quick to pounce on any example it can find of P3 ventures that haven't lived up to their promise.

Everybody's favourite example of a screwed-up P3 is the school built in New Brunswick by private developers - for $750,000 more than had the province undertaken the construction, according to the provincial auditor general. Of these extra costs, $400,000 could be attributed to the fact that the developer paid full rate for financing even though the project was backed by 25 years of cashflow from the province in lease payments.

In Nova Scotia, a plan to open 50 P3 schools over several years came under fire because of leaseback conditions on the province. There is also controversy over such issues as whether community groups can use P3 schools after hours without paying fees to the developer.

In P3s not involving bricks and mortar, there have been disturbing reports of kids being forced to watch commercial videos in return for private interests buying computers and learning lab equipment for school boards. One school in Hamilton has been encouraging kids to eat at McDonalds in return for vouchers exchangeable for new equipment, without regard to dietary considerations.

Nobody can quarrel with the enormous potential that P3 represents for the public sector to renew itself going into the next century without increasing income taxes. The Confederation Bridge, linking Prince Edward Island to the mainland, likely would have had to wait another 100 years if the private sector had not built it. Air travellers in this country should be thanking providence that the air traffic control system has been taken from Transport Canada and given to NavCanada, a not-for-profit, private corporation.

Recently, the Department of National Defence signed a leaseback deal in which Bombardier provides trainer jets and facilities. The alternative to a P3 would probably be for DND to wait 20 more years for new trainer jets, just as it is still waiting for replacements for the infamous Sea King helicopters.

But as long as P3s represent an easy, tempting way for politicians to build schools today to appease voters while leaving full cost considerations until after elections there will be repeats of the New Brunswick school fiasco. Badly planned P3 projects will keep generating public hostility. Private sector developers will continue to bid for government P3 proposals rather than come up with their own ideas.

Instead of doling out P3 dollars as election candy, Ottawa and the provinces should be developing a national P3 policy that involves the municipalities and the private sector. The policy could be developed with specific targets such as patching up the Trans-Canada Highway system before it has to be completely rebuilt, by say 2010.

Financial markets could be induced, perhaps with tax laws, to give P3 developers a break on financing instead of treating government-signed leasebacks like just another shopping mall development.

Public institutions, particularly schools, need to codify P3 guidelines so that student diaries aren't sold as market research, as occurred at one school.

Voters and politicians need to educate themselves on the difference between good and bad P3 deals. If handled right, P3s represent the one chance Canada has to render itself ready for continued, healthy growth in the same fashion it did following the Second World War.

But all Canadians need to make sure P3s are done right.


Gord McIntosh is a freelance journalist based in Ottawa, Ontario. He worked for over 20 years with The Canadian Press specializing in trade and finance and has been published in The Economist and Canadian Business, among others.


 

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