Government Operations Committee on Oct. 16th, 2012

[The Chair, NDP, Pat Martin]

Good morning, ladies and gentlemen.

Thank you for being with us here today. We're opening the 56th meeting of the Standing Committee on Government Operations and Estimates.

This will be the first public session of a new study we're undertaking on public-private partnerships. We believe there's a great deal of interest on the part of the general public, and certainly of members present, to measure and examine the efficacy of the public-private partnership programs that governments are engaged in.

We're very pleased to welcome four knowledgeable witnesses to make representations today: from the C.D. Howe Institute, Mr. Finn Poschmann; from the Conference Board of Canada, Mr. Vijay Gill, associate director of public policy—welcome, Mr. Gill; from the Canadian Centre for Policy Alternatives, Hugh Mackenzie, research associate—welcome, Mr. Mackenzie; and from the Canadian Council for Public-Private Partnerships, Mr. Mark Romoff, president and CEO, and Mr. Michael Marasco, a member of the board of the administration.

Mr. Poschmann was to be the first presenter, but I think we're going to change the order up briefly and ask Mr. Gill if he will present first.

Normally, gentlemen, we ask people to limit their presentations to five to ten minutes. There are four of you today, and we want to have adequate time for the committee members to put their questions.

Mr. Gill, if you're ready, the floor is yours.

[Vijay Gill, Associate Director, Public Policy, Conference Board of Canada]

I'd like to thank you for having me today.

I'm from the Conference Board of Canada. We're a not-for-profit research think tank. We've published research on this very topic in the past, and continue to be interested in the topic, because we think infrastructure delivery and obviously infrastructure services have important implications for the competitiveness of the country.

In terms of the key mechanisms and the drivers of efficiencies for P3s relative to traditional procurement, I think there are a couple of things to flag. One is that there's been kind of an ongoing debate...or actually, the debate hasn't even been had on this: it's not always clear what is and what is not a P3.

I think the CCPPP has done pretty well in terms of defining, within the space of P3s, a whole degree of different types of projects, and different levels of risk transfer, and different types of bundling of operating and maintaining phases. I think anytime we're going to be involved in a discussion of what is optimal, we have to consider the specific structure of the P3 we're talking about.

Just briefly, there is also this issue of private financing. Obviously it's going to come up. You've probably heard about it already. I think this is also an ongoing debate in terms of how strong a mechanism private financing is in terms of providing some discipline to the project and how necessary it is for the P3 structure to succeed. I think you're going to see that there's obviously a debate raging about that now as well.

Just to back up a little bit, in general when we talk about infrastructure and when the public thinks about infrastructure, we often think about public infrastructure to begin with. But it's important to note that, if we look at total investment in fixed assets, the public sector portion is a small minority. Gross fixed capital formation in the country—public sector speaking—is 16% on an annual basis, approximately, in Canada. Even if we limit that infrastructure investment on the private side to non-residential fixed structures, the private sector investment in this is over twice of what the public sector investment is.

I think it's important to keep in mind, when we're looking at the maintenance record of public infrastructure, that there is something to be learned from the large investments that are ongoing in the private sector in terms of thinking about how we could capture some of those efficiencies. How we actually do it is one thing or another, but I think it's one point that's often lost.

I'll make just one point on the breadth of P3s in Canada. We've heard a lot about them over obviously the last 10 or 15 years. There's been a large shift in terms of P3 delivery in Canada.

Just to give you a rough idea of how large it is in terms of total government expenditures on capital, if we look at P3 transactions as a percentage of government spending on infrastructure or gross fixed capital formation, we're looking at roughly 12% to 14% a year. This isn't a 75% or 80% thing. You can take that information however you want, but that's just to give you a rough idea of what the scope is.

In terms of where we are internationally, this places us in the top handful of countries. Even trailblazers like the U.K. and Australia are at 15% or 18%. They're not at that 70% or 80% level and they never will be, primarily because we have, obviously, a large number of small projects that aggregate up to be a large portion of the whole.

I'll stop there for now. I'm looking forward to the discussion.

[The Chair, NDP, Pat Martin]

That's very good. Thank you very much, Mr. Gill.

Mr. Finn Poschmann has now arrived, the vice-president of research for the C.D. Howe Institute. Mr. Poschmann, if you are ready, you may give your views on public-private partnerships. We invite witnesses to speak for five to ten minutes.

Welcome.

[Finn Poschmann, Vice-President, Research, C.D. Howe Institute]

Thank you for your welcome. I am very glad to be here, and my apologies for being late. With that, I'll not apologize for the infrastructure between here and the airport. It's getting better all the time, I'm sure.

Good morning, Mr. Chairman, members of the committee. Thanks very much for inviting me to appear before you today. It is an absolute delight to speak on this important topic.

I'll not refer to numbers but rather to some first principles, and how we or I think about public-private partnerships.

First, by way of introduction and for those here who don't know me, I run the research and publications branch or division of the C.D. Howe Institute. We manage the research agenda. We are a public policy think-tank, a charity with an educational mandate. I'm here because of my interest in the topic, and I've written a number of articles and chapters in the field.

As we know, governments and their political leaders like public-private partnerships, P3s, for a number of reasons. First, P3s bring private sector capital, money, to the table, and even for governments, money can sometimes be in short supply.

Second, what comes attached to private sector money, assuming a well-written P3 contract, is an important element of risk sharing. Private partners to a P3 are expected to absorb a significant share of project completion and operational risk, the risk of failure, and because their own money is at stake, the private partner normally has, or should have, appropriate incentives to manage this risk well.

Third, P3s are more likely, as compared with traditional procurement, to be completed on time and on budget, and that tends to make political leaders pretty happy.

Those are some high-level reasons to be interested in P3s, but it's important to look at some of the specifics of the contracting process and the risk sharing embodied therein.

P3s are most commonly used for large infrastructure projects: highways, bridges, hospitals, schools, whatever. That's because these projects soak up capital, they tend to be long lived, and they embody risks of the sort that do not arise when governments procure a box of pencils or some new staplers or whatever. Large infrastructure projects involve financial risks, design risks, construction or building risks, and operational risks, among others. The idea underpinning a P3 is that the private partner undertakes some of these risks, in return for an appropriate financial reward.

It takes a good P3 contract to specify the division of risks and rewards. Contracts are necessarily imperfect and incomplete because they are human constructs. Contracts are entered into under conditions of risk and uncertainty, imperfect and asymmetric information, and potential moral hazard. That is what makes contracting, and getting it right as best we can, very important to the P3 process.

P3s have their limits, and we should be clear about those. I like to express this by using the old aerospace saying: faster, better, cheaper—choose any two.

Let's say a provincial or federal government wants to get an overpass built and puts out an ordinary tender that generally describes the overpass and awards the construction contract to the lowest bidder. The bridge will probably get built—probably—and built cheaply, but it might not be built on time and it might not be built terribly well. It might get done late, and bits of concrete might start falling down after a few years and hitting cars below. That's a bad outcome.

Suppose instead we write a contract that lays off some completion risk to the winning bidder. We have financial rewards for finishing early, financial penalties for finishing late. This is fairly standard procurement contracting in infrastructure, but now you're embodying within the contract some of the completion risk. The overpass will still get built, likely on time, and it will likely be built at relatively low cost, but you still don't know when or if chunks of concrete are going to fall off. It might be faster and cheaper, but not better.

Now consider a more complete contract that embodies more risk sharing. The private partner agrees to take on operational risks, say, that the overpass will maintain the capacity to move a certain number of vehicles per day for the next 20 years, and to transfer ownership of the overpass to the government, in good condition, after that time. In the last circumstance, the government is likely to produce an overpass that is delivered faster and works better than in the case of ordinary procurement. It is faster and better, but not necessarily cheaper, because the financing partner, the private partner, has taken on the completion risk, the operational risk, and the long-term financial risk. These are good risks for governments to lay off by way of contracting, but it takes money to manage those risks, and there's no guarantee that in that circumstance the project will be delivered cheaper, at least in the short or medium terms.

There's another risk too that government cannot easily lay off: the long-term financial risk the private partner takes on exposes it to the risk of bankruptcy. The project may fail and project proponents will lose their investment. Much of the cost of that failure will inevitably redound to government.

The key message is that P3s can do things faster, they can do things better, and they can do things cheaper than in the case of ordinary procurement, but they cannot likely achieve all those three goals. Governments can and should write good contracts that lay off risks in exchange for suitable rewards, but they cannot expect to lay off all risks. Governments should write good contracts and understand them, but they must also understand that contracts are necessarily imperfect because they are human endeavours and they cannot anticipate every circumstance. Generally, where governments can privatize, they should, because governments don't need to do everything. Where privatization is inappropriate, we should recognize that this is often the case. Governments can and should embrace P3s, but they should do so with open eyes and a firm grasp of the risks they retain.

Thanks for your time.

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Poschmann.

You made very good use of five minutes. Thank you for being so concise.

Next we have the Canadian Centre for Policy Alternatives, Hugh Mackenzie.

You have five to ten minutes, Hugh.

[Hugh Mackenzie, Research Associate, Canadian Centre for Policy Alternatives]

Thank you, Mr. Chairman, and thank you to the committee for the invitation to appear. Having reviewed the list of participants here, I think I'm the official skunk at this garden party. I'm going to try to play that role as best I can.

Let me start with a general proposition right off the top. First of all, I'll give a clarification of terms. We use the term “public-private partnerships”, which in itself is a little bit misleading because a partnership implies a confluence of interest between the parties. In fact, if you look at even the most sophisticated of the kinds of contracts that Finn has been talking about, there are two parties to these contracts, often multiple parties to these contracts, each of which have different interests. I think it's probably more accurate to call these things agreements rather than partnerships. That helps to centre it in a more neutral environment. Partnership implies something that doesn't really reflect the underlying business reality that's in operation here.

The second point I'd make is that I suspect people might be expecting me to spend most of my time talking about how much more noble it is to be doing everything in the public sector than in the private sector. That's not what I'm going to talk about. What I'm going to talk about is the economics. For me, the fundamental issue and the fundamental challenge that P3s have to meet comes to bear when you introduce the concept of private financing of public projects. The reason I say that is because these agreements work best when they take full advantage of the strengths of both parties to the agreement.

Let's think about what are the strengths that government brings to these kinds of arrangements. Probably the most important one is that governments can borrow money more cheaply than anybody else can in our society. This is not a philosophical proposition; this is an observation of market outcomes. If you look at the rates of interest that are paid on public borrowing as opposed to private borrowing, you see significant differences in the interest costs. Those differences, even a difference of 1% or 2%, can make a significant difference in the lifetime financing cost of a project. A rough example is that a 20-year project with a 1% difference in financing costs, which would be low for the difference between P3s and public, has an effect of about 15 percentage points on the lifetime financing cost of the project. Relatively small-sounding differences in borrowing costs can make a big difference.

The second advantage the public sector has in borrowing is that for some of the same reasons that are implied by Finn's comment about contracts, the transaction costs associated with public borrowing are substantially lower than the transaction costs associated with borrowing through P3s. My experience from looking at these things, and granted there's very little really useful information out there about the actual finances of public-private partnerships, is that the general rule of thumb is that somewhere between 3% and 4% of the total project cost per party is about what you pay to put the paper and the agreements and due diligence all together. That's kind of a dead weight cost. Just going into the gate, you've got pretty significant cost disadvantages on the financing side that a P3 project that includes financing will bear.

Another strength that governments have is because governments represent the entire population and are responsible one way or another for all of the infrastructure projects that are taking place in the public sector, they have a much broader base over which to pool risk than any private operator is going to have. Basic insurance principles tell you that the broader the universe over which you can spread the risk and the more diverse the universe over which you can spread the risk, the lower the cost is going to be of bearing that risk. So risk is going to be more expensive for private operators to bear than the public.

The third thing that governments do, and this is not a trivial point, is that governments are in principle best equipped to reflect the public interest. That translates in concrete terms to everything from the amount of information that's disclosed about how P3 projects actually work, right through to the other end of the telescope, where, for particular kinds of P3 projects, it becomes much more difficult for governments to enact changes in public policy because agreements lock them into a certain way of doing things and a certain provision of the service.

Some of the obvious complexities that you run into there are, for example, when you do a P3 for a garbage contract and then you try to implement a waste reduction program. You find yourself committed to pay for a certain volume of garbage, whether or not you're actually generating it.

My basic point, and I'm going to conclude with this, is that there are a lot of strengths that go with the implementation of infrastructure financing through P3s, but they have a lot more to do with forcing the public sector to be better project managers and a lot less to do with the particular form in which that's delivered. I think about, for example, the province I'm most familiar with, Ontario. Infrastructure Ontario does a fabulous job of project management. It does a much better job of managing a project for a hospital in Timmins or North Bay than the North Bay hospital board is going to be able to do or the Timmins hospital board is going to be able to do because Infrastructure Ontario is involved in literally dozens of projects. They get really good at it.

One of the things that people who are involved in delivering major projects in pretty much any organization will tell you is that project management is critical to getting what you want and when you want it.

My basic point is that I think it is possible to get those advantages, including many of the things Finn has been talking about, without throwing the baby out with the bathwater. In other words, we can negotiate better agreements, more comprehensive agreements, with the private sector without giving away the store in terms of the huge differentials in financing costs.

The last thing I would say, in conclusion, is that on the risk issue there's actually a fair amount that has been written. I think committee members will probably have seen the article that appeared in the “Report on Business” in the Globe and Mail yesterday, making reference to a study out of UBC that goes into risk issues in a fairly significant way.

Another study done by that well-known socialist body, the Institute of Chartered Accountants in England and Wales, has looked in detail at the issue of risk transfer in P3 projects in hospitals and roads in Britain. What they find is that in general in these contracts there is a lot less risk transfer taking place on a day-to-day basis than actually appears on the surface.

What is probably more important is this. The nature of the beast is that it creates a risk because the project is in the hands of a private operator that can fail, which didn't exist before. We see many examples of that in Canada.

Finn talks about incentives—and I'll conclude here. Because the government has an overriding commitment to provide the service, the government will ultimately always have to pick up the pieces if the project fails. What that means is that there's a strong incentive on P3 proponents to telescope the risk they bear and load it on to the back end, in other words to underprice the risk during the life of the contract, knowing that if they get caught in their underpricing, they have the ability to walk away.

I'll leave it at that. Thank you.

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Mackenzie.

Finally, we have the Canadian Council for Public-Private Partnerships, Mr. Mark Romoff and Michael Marasco. You have five to ten minutes, gentlemen.

[Mark Romoff, President and Chief Executive Officer, Canadian Council for Public-Private Partnerships]

Good morning, and thank you, Mr. Chair.

It's a pleasure for me, of course, to be here this morning to appear before this committee on behalf of the Canadian Council for Public-Private Partnerships and to speak a little bit about three things: I want to talk about the P3 market in Canada; I'd like to talk about the role of the council; and I want to talk about the opportunity to take Canada's growing P3 experience and expertise global.

As you mentioned, Mr. Chair, Michael Marasco is here with me. He is a director of the council and the CEO of Plenary Investments. He'll have a few minutes to speak in just a moment.

As you all know, today all countries of the world are facing large infrastructure deficits at a time when they're also confronting financial constraints. This is true, of course, in Canada as well. At the same time, sound and modern infrastructure is key to Canada's productivity and economic growth, and ultimately to a prosperous and globally competitive Canada.

With regard to public-private partnerships, or P3s, in particular, these are not new to Canada. Over the past 20 years, there has been more than $58 billion invested in more than 180 projects across Canada across a wide variety of sectors, notably in the areas of transportation and health. These projects are taking place right across Canada, although a great proportion of them are in Ontario, and after that British Columbia, Alberta, Quebec, and New Brunswick. Of the 180 projects, more than half are now operational. The remainder are either under construction or in procurement.

Over this time, this period of 20 years, Canada has become a global leader in P3s, attracting P3 developers and partners from around the world to invest in Canadian infrastructure. If you have a look at the landscape in Canada, you'll see a large number of companies from the United Kingdom, Australia, the U.S., Spain, France, and Japan. They are all attracted to the Canadian marketplace because of the nature of the Canadian infrastructure pipeline and the model that has been adopted in Canada. Over this period, we have developed a model that has incorporated best practices and lessons learned from around the world, and today the Canadian P3 model is recognized internationally as best in class. That's quite remarkable, given that this is an approach to infrastructure development that began in the U.K. and Australia. Today both those countries are coming to study the Canadian approach to learn how they might improve their own approaches to P3s.

The Canadian Council itself was formed in 1993, at the same time that the concept of P3s was being explored as an alternative to traditional procurement for infrastructure development. We will be celebrating our 20th anniversary at our annual conference this year in November in Toronto. Our conference, too, is recognized internationally as the premier gathering of the P3 community. Over 1,200 leaders from both the public sector and private sector across Canada and internationally, combining all the talent brought to bear on the P3 market, will be brought together.

With respect to the council itself, we are a not-for-profit, non-partisan, member-based organization. Some 450 organizations now make up the council. That includes broad representation from the public sector—governments at the federal, provincial, and municipal levels right across Canada. About 20% of our membership comes from the public sector. The remaining 80% reflect the cross-section of players in the construction sector: consulting engineers, the financial community, lawyers, architects. They reflect the full range of players in typical P3 projects.

The council conducts research, provides education, hosts events around the country, and also delivers on its mandate by promoting the successes that have been achieved by Canada in the P3 space.

With regard to research, I've brought some examples of what we have undertaken over the past year. I will leave them for the committee. As an example, I have a P3 guide for municipalities. You may be aware that municipalities across Canada are becoming increasingly interested in P3s, so we've produced this document and have distributed 1,200 copies across Canada.

We also produced a report in the last year on Canada's activity in the health sector, particularly in hospitals. Since 2004, 50 hospitals in Canada have been built using the public-private partnership model, for a value of some $18 billion.

We also undertake an annual survey of the general public to test their perceptions of P3s. In the last survey, conducted last November, 70% of those surveyed indicated support for the public-private partnership approach to infrastructure development.

Let me finish off, Mr. Chair, by saying that in our view, the P3 is an effective vehicle for renewing and growing infrastructure and for delivering strong value for money for Canadian taxpayers.

I think you'll appreciate Mike Marasco's comments now, because he will bring a private sector perspective to this important area.

Thank you again for your time and attention.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Romoff.

Mr. Marasco, you have about four to five minutes remaining, if you like.

[Michael Marasco, Member of the Board of Administration, Canadian Council for Public-Private Partnerships]

Thank you.

Unlike my colleagues who have spoken before me, I'm not a researcher; I'm a practitioner. I spent 26 years of my life in the public sector involved in real estate and large capital projects. I left five and a half years ago to become CEO of Plenary Concessions with the Plenary Group, and I now know why: when I was a loyal public servant, we couldn't possibly replicate what the private sector does.

What I want to share with you, as a starting point, is my tale of two projects. I was with the Province of B.C. at the time when these projects were done, on the public sector side, and had an in-depth knowledge of them. Subsequent to joining Plenary, I learned why and what the outcomes were and how they occurred. It's a practical demonstration. I think research is great, and a lot of it is done in theory and on spreadsheets, but the practical examples are the ones I want to draw your attention to.

These two projects were done in the same market at the same time in the greater Vancouver area. One was done using P3 procurement, a design, build, finance, maintain model. The other one was done using traditional construction management. The interesting part about these projects.... For the Vancouver trade and convention centre, which was done using traditional construction management, the government set up a very robust governance structure because they didn't want another failure, another embarrassment. They set up a separate corporation and appointed a board. Some of the best project managers in Canada were assigned to the project.

It started in 2004, at the same time that the Abbotsford hospital was started. The Abbotsford hospital was done as a design, build, finance, maintain project, and it finished on time and under budget. The Vancouver trade and convention centre was six months late and 55% over budget, despite all of the efforts from government. I know a lot of the people who were on the convention centre project—some of Canada's best talent.

Interestingly enough, and this is where the irony is, both of them had the same architect. Both projects had the same construction company. So you have to ask yourself how that could be—same market, same construction company, same architect. Having been brought in to look at those projects to try to help government resolve the issues, I have a good understanding of why. You can't replicate the alignment of interests that we bring to bear and the pressure that we bring on project partners to perform in the public sector. It just can't be done.

A lot of it is about risk transfer, clearly. You've heard my colleagues talk about that.

I want to take you on a little journey that's going to open your eyes to something that hasn't been talked about. That's with respect to the value for money. It goes well beyond risk transfer. I would also argue that public-private partnerships are not about finance. Finance is the catalyst for the risk transfer as well as what I'm about to share with you.

In a value proposition that any agency goes through...and this speaks to the point about strong project management offices. If you have them in place, you can actually balance these four bubbles: the capital expenditures, the maintenance and repair costs, the life-cycle refurbishment, and the utilities costs. I've sat on many project committees in my 26 years where we had the operators, we had all the partners at the table, with the objective of trying to optimize the whole-of-life costs. Then we got the capital cost estimates and we summarily dismissed the people who were there from the operations side, saying thank you, but we can't afford to spend that extra $20 million to achieve $100 million cost savings over 30 years because we're constrained by our capital cost inputs. Consequently, we went on and we derived a project solution that actually was more detrimental to taxpayers.

The objective and the value proposition around PPPs is to make that box smaller. This is the thinking about it. I'll draw your attention to the chart. If you look at the facility costs of operations over a 40-year period, you'll see that 8.7% of those costs relate to the cost of first-in construction costs; 29% relate to life-cycle refurbishment; and 58% to the ongoing operations and maintenance. I'd ask even the Government of Canada where they make all their decisions around capital budgeting. I'm sure they don't approve the 29% for life-cycle refurbishment at the time they approve a capital project.

In some cases, they may actually approve a one-year operating budget, but no one is looking at it as a whole. The whole focus and drive behind a DBFM are to optimize the size of this entire circle, not 8.7% of the total whole-of-life cost of that asset. Consequently, what happens is that typically as public servants we were always driven to dealing with deferred maintenance and all the aspects that run down Canada's infrastructure much more quickly.

Under the DBFM approach, the objective is to make the balls in the box smaller. As you can see by this example, the capital expenditures were more up front, but the ongoing maintenance and operations costs were reduced. The beauty of this is that the outcomes are guaranteed by the private partner because it is a performance-based contract. It isn't an exercise in theory of well-meaning people sitting around the table thinking about how to save money. We actually guarantee it. The financing returns are the vehicle that enforce that guarantee.

We talk about savings. These are examples of the P3 projects across Canada—I encourage you to look at the charts when you get them afterwards—and these are all from value-for-money reports, some of which have been reviewed by Auditor General, of the savings that have occurred in these projects. When you look at it on a percentage basis, you can see that the average savings are just under 20%.

I will conclude by saying that for the Vancouver trade and convention centre the government borrowed at 75 basis points over long-term Government of Canada bonds at the time. The Abbotsford hospital borrowing was somewhere in the neighbourhood of 195 basis points over long-term Government of Canada bonds. The difference is something like a 1.2% increase in costs, but the government had to borrow $365 million more for the Vancouver trade and convention centre, and because of the focus on first costs, the price is as yet unknown for the long-term whole-of-life costs and refurbishment.

Thank you very much.

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Marasco.

I know the committee members have many questions, so we'll jump right into it.

First, from the New Democratic Party, we have Linda Duncan for five minutes, please.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair. It's hard to do five minutes on such a large panel. I'll do my best.

In a number of papers, in particular the C.D. Howe one, which I skimmed and hope to read in greater depth—but thank you all for all the materials—the point was made that left-wing-leaning thinkers are against P3s for ideological reasons. I would ask you whether it is not equally the other way around, that those who are pro-P3 tend to lean towards private as always being better?

We've heard here about a number of examples of successes, including the one in the case study shown here, but we need only look through various articles written about studies to see lots of examples of how in fact P3s cost a lot more and about how in the end a lot of the costs were downsized.

I'll give another example. In British Columbia, for west coast highways, taxpayers had to pay $200 million more out of their pockets than was estimated.

We heard from the agency, the government P3 office that is managing these. They raised the point with us that part of the problem has been the varied expertise, ability, and capacity across federal agencies and departments to actually manage these projects, which in many cases got them into trouble when they were trying to manage or even write these contracts. So in theory the P3 office is now assisting with that.

You all seem to be raising the issue that projects are much better managed when you use P3s, but is it not equally possible that instead of having a P3 office, we could have an office that did the P3 work but also helped departments and agencies better manage these projects and determine how better to proceed with the project and costs? Essentially I'm still not convinced that the P3 is the only way to go. I guess my question is whether there are circumstances in which the government could also manage projects better rather than necessarily going to P3s.

[The Chair, NDP, Pat Martin]

Are you directing your question to a particular witness or just asking it generally?

[Linda Duncan, NDP, Edmonton Strathcona, AB]

It is directed to whoever would like to answer it.

[The Chair, NDP, Pat Martin]

Mr. Marasco, could we have a brief answer, please?

[Michael Marasco]

I think the best example of what we tried to do was in British Columbia, where we created that project office of excellence in the Vancouver trade and convention centre case. We had the best project managers in the country. We had a great governance model. Despite that, the inability to make timely decisions as a result of all of the concerns for political and public transparency, along with, I guess, the fear of making timely decisions, caused that project to end up where it did.

You couldn't ask for a better model in terms of governance and competency with respect to project managers. That would be my example.

[The Chair, NDP, Pat Martin]

Hugh, did you have your hand up to respond to that?

[Hugh Mackenzie]

I will.

As a general proposition, I would say, speaking to government, that if you can't manage a project yourself, you're probably not going to be successful at managing a P3 arrangement either. One point made, which I think is really important, is that a number of the arguments that are advanced for P3s identify really dumb ways governments go about running long-term infrastructure projects. Maybe I'll be generous and say that it's an open question as to whether government is capable of doing a better job of this or not.

As an example, managing over a life cycle, making provisions for life-cycle maintenance of a project that you built—those are the kinds of things that anybody, any home owner or anybody who has responsibility for an asset, automatically does.

Governments have a tendency to panic cyclically when it comes to their budgets. The first thing to go when the economy turns down is infrastructure spending; the second thing to go is maintenance. It's simply a matter of pushing those costs out into the future.

I guess I'm enough of an optimist about the ability of the public sector to fix itself to say that I don't think we should necessarily be prepared to pay the kind financial penalty that we end up paying simply because, as a public sector, we're not able to manage these large infrastructure assets sensibly.

[The Chair, NDP, Pat Martin]

We're out of time, but Mr. Romoff wanted a brief comment.

And then, Linda, I will give you a chance to do a supplementary if needed.

[Mark Romoff]

I just wanted to add that while the role of the council is to promote greater uptake of public-private partnerships and innovative approaches to infrastructure development and service delivery through public-private partnerships with all levels of government, the reality is that P3s are not the be-all and end-all. It's not the right approach in every instance. It is certainly a very valuable tool, an arrow in the quiver, if you like, of approaches to infrastructure development.

Value for money is a key factor in deciding whether you go down the P3 road or have traditional procurement. What I would add, too, is that if we could bring the same discipline and oversight to traditionally procured projects as is brought to P3s, I think you would find that those traditionally procured projects would also be far better delivered and with far better outcomes.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I have a quick follow-up question.

[The Chair, NDP, Pat Martin]

Be brief, please.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

It occurred to me, while I was sitting here listening to the presenters, that it appears that there are now...actually, you could call them lobbyists for P3s.

Obviously this is an area for business, where businessmen think they can make money. There are probably some projects that are ideally suited for that. In other words, certain corporate entities would like to get into some big projects.

A lot of the infrastructure deficit in this country right now is in the crumbling roads and sidewalks. I'm wondering if you could say if there are some areas where P3 works and others where it does not, and therefore the government should also be paying attention to how we can more effectively deliver the rest of the infrastructure.

[The Chair, NDP, Pat Martin]

Finn, would you like to participate?

[Finn Poschmann]

Thank you.

It's a very good question, Mr. Chairman and Madam.

P3s are probably unnecessary in a range of circumstances. Let's divide up projects into ones where you have a really good idea of how to specify how to do the thing. For example, I know how to make coffee cups. I know how to make coffee cups on an industrial scale.

It's really easy to specify. There aren't a lot of ways to go wrong once you have the general idea. The transaction costs associated with negotiating a contract and risk sharing and the production process—they're not really worth it. You can just specify that you want some coffee cups and I'll deliver them, so it's not a good P3.

Let's suppose you want to build a fairly complex system, like a hospital, and you don't know, as a public partner, the right mix of capital that should go in up front, how much you're going to have to set aside for operating costs down the road, what bits of machinery or operational repair, capital expenditures, or costs you're going to bear down the road—you don't know all of that stuff, and you don't have to. What you do know is that you want a running piece—a running building, a running hospital system—for x number of years. You can leave that to your private partner to deliver on, and to take on the risks of delivering. When you don't know a lot about how to get there but you know what you want, then you write the contract that specifies the outcome and let the partner manage the risks to get there.