Government Operations Committee on Oct. 16th, 2012

[Finn Poschmann]

I can field that if you like.

The governments and proponents both go through a learning process. Some time ago, I wrote a chapter with Boardman Vining where we looked at North American P3s, some successes and failures. An example was a toll highway that I believe was in North Carolina. It was written with a contract under the expectation that toll volumes would be much higher than they were. The private proponent got in a bind with respect to bond financing, tolls went up, traffic went down, and they got into a worse bind and had to walk away. The government was left with a very expensive highway that nobody really wanted to use much. This was a failure. It was a bad contract design, and the governments and the proponents got it wrong in how they managed the bond issues and the financing terms around them. You learn. If you say, “Doctor, it hurts when I do that”, don't do that. You learn and get better.

[The Chair, NDP, Pat Martin]

Thank you, Finn.

Mr. Marasco, comment very briefly, please.

[Michael Marasco]

In general terms, with respect to contract failures, I can give you some really good case study examples where when these projects fail, it's our equity at risk, it's the bond financing that's at risk. If that goes sideways, taxpayers are generally picking up an asset for cents on the dollar.

A good example is in Australia, Latrobe Hospital, where they did transfer revenue risk to the private partner, the private partner couldn't make it work, and after three years it went into receivership and bankruptcy. The government picked up a brand-new hospital that they said they needed—otherwise they wouldn't have procured it—for 85¢ on the dollar. That's not a bad deal for taxpayers. Yes, it was stressful for everybody, but generally that's what happens in these transactions.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Marasco.

Finally, we'll have Peter Braid for five minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair, and thank you to the panel of experts for being here this morning.

To start with you, Mr. Poschmann, I'm curious about this. In your estimation, are there any differences in the level of private sector job creation when comparing traditional government procurement infrastructure projects with P3s?

[Finn Poschmann]

That's a good question. Thank you, Mr. Braid.

I'm not sure I have a clear view on that. Certainly if you do an in-house procurement and all the facets to go along with that—for instance, some highways departments have their own repair/maintenance facilities. Some municipalities are even considering acquiring equipment for their own construction. A lot of in-house jobs are going to be associated with that. Is that a good idea? It doesn't strike me as likely, because this is an area where the private sector demonstrates that it's very good at doing something and the public sector contracting agency doesn't have to take on the risks of acquiring equipment, doesn't have to build the processes, the payroll, and the constituency that goes with it when you do this in-house. So whether there are more or fewer jobs, I'm relatively unconcerned. The idea is that the jobs should be done by the party best able to do them and best able to manage the risks.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Mr. Marasco.

[Michael Marasco]

I would argue that it ends up in the long run, because of the knock-on effect, generating more jobs. The case in point is when we develop this expertise in the private sector in Canada and are able to export that expertise abroad; it has a multiplier effect. The expertise, for example, that PCL developed in Canada around PPPs is exported to Australia, and likewise with other construction companies. They wouldn't have done that if these jobs had been performed in the public sector.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Mr. Romoff, you mentioned that the marketplace for P3s is growing. What's causing that?

[Mark Romoff]

I think at the heart of it is a large infrastructure deficit in Canada. That's prompting a really serious look at how to address that issue, and again we're in a time of fiscal challenge, so that requires a really good look at possible approaches. Which are the most innovative ones? That's prompted a lot more interest in the case of P3s.

As I mentioned earlier, I think you're seeing this growth in the market reflected in provinces that haven't historically been active in this space—Saskatchewan is a case in point—and a growing interest on the part of municipalities that are looking at this approach.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Mr. Gill, in your opening remarks I think you made reference to the fact that often with P3 projects there is bundling of the components. Why are the components of a P3 project typically bundled? What are the advantages and disadvantages of that?

[Vijay Gill]

I would say that they're not necessarily typically bundled, and this is the whole grey area of what a P3 is or is not. Many of the hospitals we're talking about in Ontario, for example, don't even have an ongoing operating or maintenance phase. There's simply the construction period. The reason we want to bundle the two is that if you are responsible for maintaining an asset for 30 years, you are probably going to take a little more care up front to make sure it lasts, so you will minimize your costs over the life cycle. The more you do that, the more you are probably going to pay up front, but the benefits should be stronger. I think we should be clear about what is and what is not bundled within a P3 space.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

My BlackBerry says it's 10:30.

[The Chair, NDP, Pat Martin]

Thank you very much, Peter, for sharing that with us.

We've had a very interesting debate.

I thank all of the witnesses for points well made and well argued. This opens the first meeting of many as we study this issue. We thank you very much for your time and your presentations today.

We will suspend briefly to allow the witnesses to leave, and we will return in camera.

[Proceedings continue in camera]