Government Operations Committee on Oct. 23rd, 2012

[Sam Katz]

It would be my pleasure.

We all know that making sure that objective third parties are involved in the value-for-money analysis is paramount, as well as ensuring transparency.

We will put everything, other than the proprietary information that companies have access to, on the website to make sure that any citizen can access the information. I don't know how more transparent one can be than just putting it out there for the public. As I say, the exception is proprietary information, and I think anybody would understand that. To me, this is as open as you can possibly be.

[Costas Menegakis, Conservative, Richmond Hill, ON]

What are your thoughts on adding new rules to P3s, such as mandatory public consultations?

[Sam Katz]

I don't have a problem with public consultation. What I will tell you is that one of the advantages—and I think you heard it from the other speakers here today—is that P3s have the ability to move at a faster pace. The longer you draw out the process, the more negative the impact upon the value for money; I can tell you that right now.

If there are all sorts of bureaucratic hurdles.... I'm going through this right now; our provincial government is looking to do this. It's something that I, of course, am opposed to. I'm involved in it right now, and only because the narrower you make that value for money, the less likely and the more expensive you make getting to the finish line. That's exactly what would be accomplished.

From my point of view, we have public consultation. At any civic government, you can't have any more public consultation. It goes through two committees; it goes through executive policy committee, which is open to all the public; it then comes to the floor of council, where everybody can appear as a delegation and have five or ten minutes to speak their mind. It's pretty open to the public as is, to be very frank with you.

[Costas Menegakis, Conservative, Richmond Hill, ON]

Thank you.

Mr. Clark, Infrastructure Ontario highlights transparency and accountability as key principles for project delivery. Can you share with us some of your practices with respect to transparency?

[Bert Clark]

We have practices similar to those of the mayor. We're constantly updating the market and the public through press releases. Our value-for-money reports are posted on our website. RFP and project documents are also posted on our website. We have a constant stream of information.

[Costas Menegakis, Conservative, Richmond Hill, ON]

Thank you very much.

[The Chair, NDP, Pat Martin]

Thank you, Costas.

Next is Denis Blanchette, for the NDP.

You have five minutes, Denis.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you, Mr. Chair.

I would like to thank the witnesses for being here.

My first few questions are for Mr. Katz.

When we carry out projects, whether they use the traditional model or a P3, we usually use the same entrepreneurs. For example, there is the project to extend the Chief Peguis Trail. You are a municipal manager. In your opinion, why would this project be completed one year ahead of schedule and cost less in a P3, when you would use the same entrepreneur, whether it is a traditional model or a P3? I would like you to explain that to me. Does it have to do with contract management?

[Sam Katz]

It really has to do with who is responsible. We call it having skin in the game. In the situation of a P3, someone is putting in their own money, and they basically get rewarded by doing the job as efficiently and as quickly as possible.

I think we can all agree that very seldom have we heard of a project that was one year ahead of schedule. They marvelled at it; it was perfect—it came in on time.

It's a matter of motivating.

I've seen many projects in our city and other cities that have come in done the standard way. I'll give you an example in the City of Winnipeg. The floodway in the province of Manitoba came in $135 million over budget. It was done the standard way.

The reality is that you've eliminated any responsibility for the taxpayer to have to pay for any overages; that's what this is all about. Over and over again we hear of projects coming in, almost always in the public sector, that are those kinds of dollars over budget. You don't see that very often in the private sector, because no one else could possibly pay those kinds of bills.

The reality is that if you have the right people doing the job and they have their own investment, which they do, their reputation is on the line. But their money is on the line as well. That's how they get this done. And they get it done—I've given you real examples of successes.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Another thing is important when you are a municipal administrator, like any other public administrator, and that is financial resources left over, whether it is a P3 or a traditional model. In fact, you have long-term financial obligations in any event.

Has the City of Winnipeg evaluated its long-term financial obligations after carrying out its projects using P3, taking into account public loans to finance its projects? What is the financial availability in 25 years if you continue in this direction? Is it better or worse? Have you made any projections?

[Sam Katz]

First of all, as I mentioned right in the beginning, it's important to do your due diligence. What we did from day one is we put a cap on how much money the City of Winnipeg can allocate towards P3s. We will only allocate 20% of our capital funds. We can only go to a certain point, and we stop at that particular point so we won't get in over our heads.

Just to clarify, when you are making payments, that is debt. Let's not say anything other than that. It's definitely debt; it's debt over a long period of time. Just recently we actually financed our own project of fire and paramedic stations with CMHC. That is debt as well. A P3 is debt. What we've done is we've capped the amount of money we will direct towards these payments of P3s.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you very much.

My next question is for Mr. Clark.

You gave some examples of hospitals. There was a case where things did not go well using the traditional model and, all of a sudden, by adopting the P3 model, everything went well. In the traditional model, was there not a problem at the outset with contract management or contract issuance? Was the problem not in how the contracts were drafted and negotiated and not something else?

[Bert Clark]

I guess I'd say yes, there was a problem, in that they didn't transfer the risk the way a P3 does. In some ways we're making this distinction as if they're completely different beasts. They are different contracts, so yes, there was a problem.

I think there's also a problem of incentives. Under the traditional delivery model there isn't an incentive for a contractor to try to get the job done a year earlier or to contain costs. When they bid a precise schedule and they borrow money to do that, and they have banks or life insurance companies watching the project, there's a strong incentive for them to get the project done as quickly as possible and to hand it over to the public sector.

[The Chair, NDP, Pat Martin]

Thank you very much.

Thank you, Mr. Clark.

Next, for the Conservatives, also from quite a pretty spot in Canada, Mr. Ron Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Well, thank you, Mr. Chair.

To our honoured guests, and especially, Your Worship, yes, from the beautiful community of Kelowna—Lake Country in the Okanagan Valley.... I had the pleasure of serving nine years on city council.

Your Worship, I actually had a good meeting with our Mayor Gray on Friday, and I know that as a mayor you show great leadership. The City of Kelowna, when I was on council, actually was a leader in P3s. RG Properties developed an arena, about a 6,000-seat venue. They received the Canadian Council for Public-Private Partnerships' gold award for infrastructure. I know that one of the issues is working through this whole process. You have two years into your fourth term, so congratulations for all the great things you've done for your community.

In your opening comments you talked about the need for infrastructure. We've had FCM here reporting to the committee, and we're working with FCM on long-term infrastructure to supplement the 2014 Building Canada fund, because I know only 8¢ of the dollar goes to local governments. We have the $2 billion gas tax. Long-term, predictable, stable funding is very important for local governments.

As you work on your capital plan going forward, I just want to ask you to further expand.... In your comments you mentioned P3s are like an insurance policy: a premium is paid and the risk is transferred. When you do that risk analysis and the value-for-money analysis, what do you determine to ensure that P3 is the right choice for that project?

[Sam Katz]

First of all, I think you've hit the nail on the head: this is all about value for money. To be very frank with you, it's not the elected officials who are the experts in determining how to calculate the value for money. We obviously retain the expertise and they come in and assess the entire project. They come up with the numbers for value for money.

I have to be very frank with you. I'm not going to speak for other municipalities, but we're in a crisis situation when it comes to our infrastructure. At some point in time—and only because you mentioned this, because I wasn't going to say it—when 8¢ goes to a municipality, 65¢ of every tax dollar collected goes to the provincial government, and 27¢ goes to the federal government, and yet on many of these programs we're expected to match and maintain our aging infrastructure, it's impossible. We're going to dig ourselves such a hole that my great-grandchildren will not get out of it. When you see a tool such as P3s, which can help you solve some of your problems—it can't solve all your problems.

But to answer your question specifically, I do not do the calculations. We usually go to outside accounting firms and get fair, objective, and complete analysis of this. I don't want to give you an answer that I'm not an expert on.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much for your frank comments. I agree. There's only one taxpayer, and we need to work together.

I'm going to share my time with Ms. Block, but before I pass the mike over, here is one question for our friends from the Ontario government.

In your long-term infrastructure plan, the recommendation to the federal government is to promote the wider use of AFPs across federal infrastructure funding programs and jurisdictions, when appropriate, through strong incentives.

Could you clarify what you mean by appropriate, and what kinds of incentives are you thinking of?

[Drew Fagan]

Obviously the federal government, in thinking through this, will want to be more specific with regard to it.

Our experience at the provincial level has been essentially through the plan we released last year to set up a P3 screen, if you like—an AFP screen—so that all projects over a certain size are screened for whether or not there's value for money in pursuing the AFP model.

In Ontario, our experience was that we started in the AFP area with respect to social infrastructure. We have now moved into transportation, and now we're moving into agencies, such as colleges, with regard to AFP delivery.

The P3 Canada Fund was obviously a big step forward with regard to delivery of AFPs, but it's a dedicated fund. I think our recommendation in the submission was to broaden it, to look more broadly at where AFP can provide value potentially across the system.

[The Chair, NDP, Pat Martin]

Thank you.

There is just about one minute, Kelly. I'm sorry.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I will make this very quick.

I have the privilege of hailing from the Paris of the prairies.

[An hon. member]

Oh, oh!

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I had to mention that. I also served on council and was the mayor of probably one of the prettiest towns in Saskatchewan.

One of the questions I have may be for Mr. Clark or Mr. Fagan. It has to do with smaller municipalities. The town I was mayor of had about 1,000 people, so I was somewhat disappointed to hear what the threshold is for accessing P3 funding or entering into that kind of partnership.

I'm wondering whether you see the administrative costs of a P3 decreasing and their becoming more viable for smaller municipalities in the future.

[Drew Fagan]

Infrastructure Ontario in fact has been reaching out at the municipal level. I mentioned agencies at the provincial level. We've also been working with Waterloo region and the City of Ottawa with delivery of their transit projects.

One of the other matters that we mention in the submission to the federal government is perhaps providing seed money for municipalities to better understand the benefits of P3s, which can be complicated transactions. As we work with larger municipalities, we want to move towards mid-size municipalities as well, where there may be value for money, including through bundling projects.

We've been working with municipalities on various things, such as improving asset management and improving the understanding of P3s. We would encourage the federal government to do so, and we mention that specifically in the submission.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

[The Chair, NDP, Pat Martin]

Thank you, Kelly. That was a good use of your minute.

Next, for the Liberals, is John McCallum.

You have five minutes, John.