Government Operations Committee on Oct. 18th, 2012

[Toby Sanger]

I've worked under all governments—Liberal, Conservative, and NDP—at the provincial and territorial levels.

[Mike Wallace, Conservative, Burlington, ON]

Were you there when they started it in 2003?

[Toby Sanger]

No, I was working for the Ministry of Finance when the 407 was started. The rationale for that was clearly off-book accounting. They went the P3 route because they didn't want to show up the debt. I have to admit that. That was the case.

Public accounting standards have changed since then, and rationales for P3s have also changed since then. At that point, the 407 was not my file, but I probably got more calls from the private sector from people interested in getting the project than anything else, so that was kind of interesting.

[Mike Wallace, Conservative, Burlington, ON]

Am I out of time?

[The Chair, NDP, Pat Martin]

Perhaps you could wrap it up.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

The message we're getting is that they are working or have the potential to work. This is what I'm hearing: value for money needs to be cleared up, in terms of what that is; transparency is needed; and P3s are not for every project.

I just need a yes or no. Would you agree those are three of the main themes?

[Michael Atkinson]

Yes.

[Brock Carlton]

Yes, those three work.

I would also add the note that there should not be conditionality imposed on, in our case, the municipality, in terms of P3s or nothing. As I said earlier, it's a tool in a tool kit. Let's give the municipalities the capacity in terms of knowledge and fiscal capacity to use the tools appropriately, based on the local needs and conditions.

[The Chair, NDP, Pat Martin]

Let's not forget our long-distance guests.

Would you like to answer Mike's final comment?

[Edgar Schmidt]

We would agree with those themes as stated, and we appreciate the final comment on conditionality.

Although we're the recipients of the P3 schools, we know that looking at some flexible options with our provincial government is really an important relationship. We certainly would like to continue that and have more options available to us in the future when it comes to new school construction.

For right now, the P3s have helped us in a very dire situation of large-scale growth in certain parts of Edmonton, but we do recognize that there may need to be different kinds of options for us to consider into the future.

Thank you.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Wallace,

Thank you, Mr. Schmidt.

Now, for the NDP, we have Jean-François Larose.

I should just say at the beginning that this begins our second round. We're going to go as far as we can with it, but we do need to stop at about 9:50 because we have some in-camera business we need to talk about at well.

You have five minutes, Jean-François.

[Jean-François Larose, NDP, Repentigny, QC]

My thanks to our guests.

I am speaking to Mr. Sanger directly. I just want to sum up what has been discussed in several of our meetings up to this point.

Historically speaking, in Italy, the bridges that the public sector built are still in place. But a number of years ago, it was decided to call on the private sector, supposedly to save money. Look at the Charbonneau commission at the moment and you see more and more wrongdoing. Look at the Olympic stadium. Everywhere you look, you can see problems.

The private sector is in a bit of a panic. The solution that has been found is to come up with contracts that are more and more complicated, and that rely more and more on the private sector. That is the solution to the problem. The contracts have walk-away clauses. In those contracts, if there are unforeseen risks, the fees go up. All this is supposedly to save money, although private companies exist to make a profit. I have a bit of a hard time accepting that concept.

Look at the projects. There may be no failure, but there is no success either. We are still studying the situation. But the figures do not lie.

We are talking about the future Champlain Bridge at the moment, but they are keeping the toll bridge on Highway 25, supposedly in order not to increase the taxes people pay, which are already too high. At the same time, you have to pay $8.50 or so to cross the bridge. They say it will be fine when it is handed over to us, because the bridge built by the first company is holding up and people are happy.

Yes, there is long-term planning. But I find it hard to understand why the company that built the bridge is linked to the company maintaining the bridge. I do not see how the risk can be shared. As a concept, it is a little odd.

Do you have any alternatives to P3s? Are there other formulas? Are we looking at other things or do we still think that they are the only way to go?

[Toby Sanger]

Absolutely, there are other alternatives. The cost of borrowing for governments now is at a historical low, 2.5% over 30 years. It's never been that low. Traditional procurement may not sound sexy or new or innovative, but it works. It's simpler. It's less complex. You don't have to pay millions upon millions of dollars for lawyers and consultants and investment advisers to develop very complicated P3 contracts, which a lot of the people operating don't understand. Absolutely, there are alternatives.

You talked about bridges and tolls. The problem in Ontario with Highway 407 is the tolls on that. Also, the tolls on the Confederation Bridge have increased faster as P3 operations than they were expected to and faster than in the original agreement. The Ontario government actually tried to come in to see if they could reduce the tolls, but they have been unsuccessful in doing so.

[The Vice-Chair, Conservative, Mike Wallace]

Do you have another question?

[Jean-François Larose, NDP, Repentigny, QC]

I'll take the bridge as an example, but we could talk about any project. When we inherit the bridge in 25 or 30 years, do you feel it is going to be in mint condition and we're not going to end up with a bunch of problems? Are there any guarantees on that?

[Toby Sanger]

That's a big issue. Typically with P3 contracts, they will hand them over at the end of 30 years. We don't know. Perhaps we'll have to get it before those 30 years if there are problems with it.

[Jean-François Larose, NDP, Repentigny, QC]

What were the guarantees with traditional contracts versus P3 contracts? What was our level of intervention to make sure that, at the very least,

we would find any wrongdoing or any problems? In traditional contracts, did we not at least have a little more control? At the moment, my impression is that we are not seeing everything that is going on behind the scenes.

[Toby Sanger]

Absolutely there is more control under traditional contracts, but an important point has been brought up. I agree with what Michael has said: it is important to look at the life-cycle costs, make sure there is money in hand for maintenance and repairs, and make sure that these aren't starved simply to provide money for new capital projects.

Some of the proponents of P3s now admit they may cost more or admit that the risk isn't transferred, but they say, “But you're guaranteeing money for future years.” That's a current argument for P3s. I would say that if you're paying a 25% premium just to have your hand held, forcing future governments to pay these high amounts is an awfully expensive way of doing it.

Yes, you need to consider life-cycle costs in government, and that's a benefit from it, but you don't need to pay an outside party 25% or 50% more in order to do it.

[The Chair, NDP, Pat Martin]

We'll hear one last comment from Mr. Atkinson.

[Michael Atkinson]

I'd like to weigh in here.

The P3 option in those circumstances gives you the opportunity, as the public sector, to insist upon a certain quality standard of that asset all during its 35 years, and upon the standard of quality at its turn-back.

Mr. Wallace has said that one of the things that hamstrings governments is that “a long time” is the time of the next election. When the private sector is involved in managing an asset, it's not hamstrung by that. It has a 35-year asset that it must manage and turn over with a certain standard of quality.

I would not want anybody here to think that the reason we've seen neglect in our public infrastructure is poor private sector management. Come on, people.

[The Chair, NDP, Pat Martin]

Maybe I could ask you something just before we turn it over to Bernard.

You said that the life cycle is 35 to 40 years, but what has been the average for these P3s? My sense, coming from a construction background, is that there's not a great deal of maintenance in the first 20 years of a brand new building. There's not even a lot in the first 30 years.

Let me ask the Edmonton school board this question: what is the length of time for your P3s on these schools?

[John Nicoll]

Mr. Chairman, the contract is a 30-year contract.

Your observation is correct; however, for many of the items within a facility, 30 years is the end of their life cycle. One of the goals in our P3 project was to encourage the—

[The Chair, NDP, Pat Martin]

They'll send it back to you, because—

[John Nicoll]

I'm sorry...?

[The Chair, NDP, Pat Martin]

I'm saying that they are going to hand them back to you just at the time when they need all the work, even though you have paid for the maintenance during the life of that contract.