Thank you very much, Mr. Chair. We'd like to thank the committee for providing the Canadian Construction Association, the CCA, with the opportunity to appear before you today.
Our association represents the non-residential sector of the construction industry, so we, in fact, build Canada's infrastructure. We have more than 17,000 member firms from coast to coast to coast, many of which are small and medium-sized businesses. In fact, if you use the definition that Industry Canada uses of fewer than 100 employees making an SME, then 99% of the companies that operate in our sector of the construction industry are SMEs, so when you talk about small business, you're talking about us. Given the fact that the construction industry in total employs almost 1.5 million Canadians or about 10% of the workforce, the old saying that “as construction goes, so goes the Canadian economy” is not far off.
Your subject matter and your review are extremely timely. We have the current Building Canada fund running out on March 31, 2014. The consultations that have been ongoing over the last year or so with some of my colleagues here to create the new long-term infrastructure plan are absolutely key. It's absolutely key that that plan be announced in the next federal budget in order to ensure there is no gap in funding when the current Building Canada fund expires and to ensure we don't miss a construction season in those circumstances.
There will definitely be a role for the private sector in that plan if it has the kind of flexibility that's required to ensure we meet the needs of Canadian infrastructure at all levels of government from coast to coast to coast in Canada, so your review couldn't be more timely.
From CCA's perspective we're neither for nor against public-private partnerships. We see them as a potentially effective delivery methodology for construction projects in the right circumstances, not unlike design-build, construction management, and a whole host of other methodologies that we have for delivering infrastructure.
For us, P3s are an important tool in the tool box and should be used under the right circumstances. What are those right circumstances? They are those in which both parties, the public sector and the private sector, seek to take the best advantage of the particular skills and abilities both bring to the table. There are three Ps in public-private partnership, and the key one is the last one, partnership.
In the case of the private sector, what we bring to the table is often the innovative, out-of-the-box approach to a complex project. From the public sector, what we're seeking is your ability to manage and mitigate certain project risks that are best managed and kept with the public sector.
P3s can be an extremely effective method, especially on larger, complex projects in which the private sector's innovative approaches can bring solutions that would not be permitted, would not be practicable, or would be highly complicated if delivered in a traditional crown construct model.
P3s also allow for the opportunity to look at the development of infrastructure that may not even be on the government's radar screen. A perfect example of that is the P.E.I. bridge, the Northumberland Strait crossing. That project was not on the radar screen for Public Works and Government Services Canada, or any other federal department, and was very much a proposal, an idea, that came from the private sector.
However, as I mentioned earlier, P3s are not a panacea, nor should they be viewed simply as a solution to fiscal pressures. P3s invoke a complex, multi-party legal web of contracts that is an expensive proposition for would-be participants. Transactional costs are extremely high, making the P3 option really only viable on the larger projects, typically in the $50 million range and above. In our view, P3s should be used to leverage additional funding from the private sector and not used simply to replace traditional public sector commitments.
We should also be concerned, and we are concerned, about the arbitrary bundling of construction projects simply to create a critical mass for viability of a P3 approach. The main reason is, as I mentioned earlier, 99% of our members, of the construction companies active in our industry, are SMEs. If projects are being considered to be bundled to create that viable mass, we believe that one of the criteria that needs to be examined before making that decision is the impact it has on the local domestic supply chain in those circumstances.
Another consideration is to ensure that there is a level playing field for Canadian firms and Canadian-based firms. Where the lead concession or financier is foreign, which has been the case in a number of our P3 projects, Canadian contracting firms are often at a disadvantage when it comes to performance security. The reason for this is surety bonding.
The use of surety bonds is something that's unique to North America and unknown to Europe, for example. Many of our construction firms do not have the healthy balance sheets required to get letters of credit. They've used the surety bond vehicle to leverage their balance sheets by as much as a factor of times 15, times 20, but this is foreign for European concession-holders and financiers, and it's created a problem for participation by some—not all—of our Canadian and Canadian-based firms, in that foreign concessions will not accept surety bonds as performance security. They want the liquid property and a letter of credit, etc. This causes a problem for many of our firms.
What has been helpful is the domestic powers given to EDC, Export Development Canada, as part of the stimulus package. EDC has played a role in some projects in enabling Canadian-based firms to participate in P3 projects through the kinds of guarantees and financial instruments they have.
In trying to sum up, it would be foolish to completely cross out P3s as an option in your tool box. P3s can be an extremely effective tool, but they cannot be the only tool in the tool box. There are many circumstances in which P3s are just not the right tool or the best tool.
One of the clear benefits of the P3 approach, from our perspective, has been that it forces a consideration of the total life-cycle operation and maintenance of a project. It puts a certain regimen or discipline on the public sector to ensure it has thought out the entire life cycle of that project—not just where the initial capital cost is going to come from, but how it is going to fund this thing over its 30-, 35-, or 40-year life in terms of operation and maintenance. Perhaps we need to also import that kind of discipline for all our major complex projects, regardless of how they're funded.
In closing, we believe that the P3 option can be extremely effective, but it's not necessarily the best approach in every circumstance. It can be an effective delivery mechanism where appropriate and where it truly is a partnership, not simply an attempt to relay all of the risk to the private sector. That's not even a P2.
With that, Mr. Chair, I will conclude my opening remarks, and I certainly look forward to your questions and discussion.