Evidence of meeting #56 for Government Operations and Estimates in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was p3s.
A video is available from Parliament.
9:35 a.m.
NDP
The Chair NDP Pat Martin
Thank you very much, Mr. Poschmann.
We're well over time.
I'll be generous with all of the parties, with more like seven minutes or so, Jacques, if you would like.
Mr. Jacques Gourde, for the Conservatives.
9:35 a.m.
Conservative
Jacques Gourde Conservative Lotbinière—Chutes-de-la-Chaudière, QC
Thank you, Mr. Chair.
Thank you to the witnesses for being here this morning.
I have questions about public-private partnerships, P3s. I think there are advantages, as all of the witnesses say, when it comes to management and design. Witnesses have also said that Canada already has 20 years of expertise.
For my part, I have a question about long-term management expertise, after design, regarding the maintenance of the infrastructure. Year after year, new infrastructure managed by P3s are added, but do we have the necessary human resources to add more infrastructure that will require long-term maintenance? Over the first 20 years, expertise has been developed in human resources for long-term maintenance management, but new infrastructure is added year after year. In the future, there will be more new infrastructure. We know that expertise can always be developed, but do we have the capacity to do so in terms of human resources?
I would like to hear from the witnesses on that.
9:35 a.m.
Member of the Board of Administration, Canadian Council for Public-Private Partnerships
First of all, developing that expertise—there is a tremendous talent pool in Canada of people who have that long-term expertise. I think the challenge we often face in the public sector is this budget balancing exercise that you referred to. When you get into tight budget circumstances, the first thing that gets cut is maintenance. Once you get into that deferred maintenance cycle, it ends up costing taxpayers so much more money.
In our case, we have examples of projects where we've taken people out of the public sector who come to work for us to provide maintenance on the private sector side. We say, “Boy, it must be tough doing your job, because you're subject to abatement if you fail.” You know what they say? They say that actually it's the easiest job they've ever had because they have the resources available for them to do their maintenance on time and to ensure that the facility is going to operate at optimum performance.
We've been in business in Canada and Australia. We don't have any problem bringing those resources to bear to serve, develop, and maintain these assets for the long term.
9:35 a.m.
Research Associate, Canadian Centre for Policy Alternatives
I have just one quick comment. I would agree, but maybe cast it slightly differently. The issue that we confront in the long-term planning for infrastructure in Canada is not an issue related to the availability of financing and it's not an issue related to the availability of people; it's an organizational issue, a mindset issue.
The inevitable consequence of making your maintenance expenditures subject to the budgetary cycle, to the extremes that we have in this country at all three levels of government, is that you end up with maintenance backlogs that gradually evolve into infrastructure availability crises. We can see that; there are examples of that all over the country.
The issue for me is, what's the answer? We've identified a problem with the way the public sector operates. One answer is to give up on it and to pay an enormous price in terms of additional financing costs in order to get around that problem. The other is to look more carefully at the way we actually do these things in the public sector. I guess I'm an optimist. The second approach can address the fundamental structural problems in the way we've traditionally managed infrastructure in Canada, while at the same time avoiding paying these enormous penalties up front that we end up paying.
One of the observations that I'd make about P3s that is an unfortunate consequence—it's not anything that I think anybody who's promoting P3s is necessarily underlining—is they tend to reinforce this sense of unreality in people, that somehow we can get something for free, that if we have a project done through a P3, we're not paying for it; somebody else is paying for it.
I'll paraphrase my sometimes acquaintance, John Tory, who, some of you may know, made the observation—specifically with respect to public transit funding in the greater Toronto and Hamilton area—that politicians at all three levels of government have been in a state of denial when it comes to transit in Canada. They've been trying to pretend that there's some way of getting this stuff built without anybody paying for it. On that issue, I'm pretty small “c” conservative. I don't believe you can get stuff that you don't pay for. Any two-year-old knows that.
I actually don't think we're going to be able to succeed in coming to terms with this infrastructure funding and operation issue until we're able to confront the reality that we're going to have to ask people to pay for things.
9:40 a.m.
NDP
The Chair NDP Pat Martin
Mr. Romoff would like an opportunity to respond briefly, Jacques. You still have one or two minutes left.
9:40 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
I just wanted to pick up on Hugh's point that there are some who believe that it's good to go ahead with a P3 because they won't have to worry about the funding, but in fact that's very much the wrong reason to go ahead with a P3, and we would never encourage that.
When you move ahead with a public-private partnership, the debt obligation is on your books right from the outset. There is no off-book accounting here for P3s in Canada. The reality is that if you don't think you're going to have to pay for it, that reality will come home pretty quickly when you move ahead. All the more reason why it's critically important to understand at the outset the conditions around moving ahead with a P3.
That's one of the reasons we've had such tremendous uptake on the P3 guide; it tries to address some of these issues that have been subject to interpretation. People need to understand clearly what the rules are going forward in order to design and develop a truly “well-architected” partnership that will get the outcomes we're talking about as the derivatives of really successful P3 projects.
Thank you.
9:40 a.m.
NDP
The Chair NDP Pat Martin
Jacques, I'm afraid you're pretty much out of time.
Thank you very much.
Next, for the NDP, Kennedy Stewart. Welcome to the committee, Kennedy.
9:40 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
Thank you very much, and thank you to the witnesses.
I had the great pleasure of working in the U.K. for some time in units that were looking at private finance initiatives, PFIs, and P3s. They have a wealth of knowledge, so I'm glad we've referred to them here today. It's worth looking at their really mass experimentation with this model.
One thing I learned from being there, of course, is that it's not just contract conditions; it's monitoring. That's essential, and that's often where these projects seem to fall down. The contract conditions are probably not tight enough and the monitoring is also lax, and often companies are left to monitor themselves. But I know from my rational choice training that if monitoring costs more than doing the work yourself, then you probably shouldn't pursue these things at all. That's just my take on it.
Could I go back to your slide, Mr. Romoff, on the number of projects in Canada?
9:45 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
I think that will be possible.
9:45 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
I was struck by just how few projects you had on your slide.
9:45 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
There are 180 projects.
9:45 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
Right. We have the federal government and we have 10 provinces and three territories and 4,000 municipal governments in Canada. And we have how many projects?
9:45 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
We have 180 projects.
9:45 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
For me, the beauty of federalism is that it allows us to experiment. If we have that many governments, why do we have so few?
9:45 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
There are some governments that have been strong uptakers, if you like, of this particular model. What we're finding now is that the marketplace is growing. The provinces that have not been engaged in P3 approaches are now looking very seriously at this. Saskatchewan would be the most immediate case in point that is moving ahead with a number of P3 projects. You're also seeing greater interest from the territories in the north. For instance, you might know that Nunavut is going ahead with their airport in Iqaluit, and they've announced it as a P3 project.
Again, part of the role of the council is to heighten awareness of this approach to infrastructure development and service delivery and to enable those who are thinking about it to develop a level of confidence and understanding. It's a bit of a hockey stick. When you look at the past 20 years, the uptake at the outset was very modest, but over the last five years, the degree of interest in P3s has shot up quite significantly.
9:45 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
You have 180 projects out of all of these potential ones. What slice of all of the projects in Canada would be P3s?
I will ask Mr. Gill, through you, Mr. Chair.
9:45 a.m.
Associate Director, Public Policy, Conference Board of Canada
I alluded to this at the outset, and Mark said that certainly uptake has been increasing. It's never going to be 50% or 70% or 80% of all projects. Part of this is related to the transaction costs and the upfront costs, which are not fixed as a percentage of the project. They vary a bit with the percentage of the project's value. But essentially these transaction costs eventually have to make your minimum project size $30 million or $40 million or $50 million before it's even going to be on the radar for P3s.
You mentioned 4,000 municipalities. Many of the projects are obviously in the hundreds of thousands of dollars range. When you put them all together, municipalities spend about as much money as the provincial governments on infrastructure, but there are many smaller projects.
9:45 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
That's precisely my question. If this is something we should be seriously considering, why has there been so little uptake? I mean, there are political stripes of all different kinds in municipalities and at the provincial level. Why has there been such a low uptake?
9:45 a.m.
Member of the Board of Administration, Canadian Council for Public-Private Partnerships
It's already been mentioned. The issue is transaction costs related to these projects. They're very complex contracts. You're right, we call them partnerships, but they're in fact legal agreements. There's a critical size needed to make these projects viable so that the transaction costs don't overtake the value-for-money proposition. Generally, we're looking at projects north of $50 million. I would argue that, first of all, if you look at these 180 projects, the majority have been built over the last five years, as Mark has indicated. Second, I would say that the majority of them are north of $100 million. Most small municipal projects are not good candidates, and there are a lot of complex renovation projects that are not good candidates.
As Mark said, P3 is not a panacea for all project delivery. As was the case in the U.K., it probably covers only 10% or 11% of the total capital projects inventory. It's just one arrow in the quiver, and when properly applied, it produces strong value for taxpayers.
9:45 a.m.
Research Associate, Canadian Centre for Policy Alternatives
I don't disagree with any of that. It's an issue of scale. There needs to be a lot of money at play to make people interested in doing these things. But it does trigger a thought in my mind.
Take as a given structural issues, such as life-cycle management and ensuring that maintenance is actually done on time and that sort of thing. If we take that as a given, as a problem with the way the public sector in Canada manages infrastructure, and given the fact that P3s are never going to be more than maybe 10% or 15%, even if the fantasy world of the P3 proponents descends on us, the way the market works means that there aren't enough projects big enough to consume that much more. It just seems to me that there's an enormous return to the public as a whole for making the way we manage, maintain, and operate infrastructure over a life cycle more effective. Even if I were to concede that those projects that are of interest to P3 proponents are going to go the P3 way, that doesn't eliminate the need to address the issues that underlie the argument for P3s.
9:50 a.m.
NDP
The Chair NDP Pat Martin
Mr. Romoff has a very brief comment, and then I'll allow you a supplementary and we'll be done.
9:50 a.m.
President and Chief Executive Officer, Canadian Council for Public-Private Partnerships
I have just one final point. I think in the case of smaller projects there's also the opportunity to bundle them together, where it makes sense, so that in fact you do have a large enough overall project and a critical mass to enable you to go ahead with a traditional approach to P3s. I would add, and you may have seen this in the case of the U.K., that in fact it has had a number of very successful smaller P3s, smaller than the $50 million or $100 million we're talking about here. There is an opportunity here for us to explore how the U.K. has approached this in order to see whether there are lessons learned that we could bring back to our municipalities across Canada.
I think over time we're going to see a larger number of smaller projects looking to this approach, as to whether it's viable or not. I think that may also prompt a little bit of a recalibration of the traditional approach to P3s in Canada to enable that to happen.
9:50 a.m.
NDP
Kennedy Stewart NDP Burnaby—Douglas, BC
I don't know if I'll have another round or not, but I hope I do.
One thing I could ask you to think about is...we've heard a lot about the success side, but I'm wondering about the failure side, because that's also what we have to warn governments about. I'm wondering if in the next round perhaps we could look at a point where a contract has failed and the government has had to take over the entire contract on either an operational or a capital project.
Maybe I'll just let you think about that and we can come back.