Government Operations Committee on Nov. 1st, 2012

[The Chair, NDP, Pat Martin]

That's exactly why I wanted you to flesh it out. Tank you for those specifics. That's very helpful. We should note, though, that the Canada Pension Plan used to lend money to municipalities, etc., at a nice low rate, too—like 2%—as a safe investment for our CPP.

But it's not my job to question witnesses, so we'll go to the NDP.

We'll thank Ms. Mullen for her time with us today. She has to run off to do some other business here in Ottawa, but she will leave her colleague to represent her.

Thank you very much for your testimony, Ms. Mullen.

Next, then, for the NDP, we have Christine Moore.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you very much, Mr. Chair.

My questions will mainly be for Mr. Lee.

My question may be theoretical, but I would like to know whether P3s can be implemented in rural areas and small municipalities. In my riding, several municipalities, which in some cases do not even have 1,000 inhabitants, have infrastructure deficits. In what conditions can P3s be effective in small municipalities? Are we looking for the same type of partners as for the biggest projects or is the profile different? Do these communities subsequently have the capacity to manage the contracts efficiently given their limited government resources?

[Prof. Ian Lee]

That's an excellent question. I'm going to answer it indirectly. Well, first off, I'll answer it very directly: I don't know.

The case studies in the peer-reviewed literature are typically of much larger P3s: $100 million, $500 million, and a billion and up. To respond to an earlier question, while we're dealing with this, most of the failures in P3s were in the so-called first wave of P3s in the 1980s and 1990s. In the so-called second wave that has occurred since then, the success rate has been much higher.

To come back to your question, all of the P3s I've looked at—and I will certainly defer to the two colleagues here—were much larger capital amounts. They typically attract very large companies, as the speaker from Toronto is suggesting. I can't even recall a P3 for small amounts of money in a small rural municipality.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Do you think P3s are a solution for small municipalities when projects are of smaller scope? Are they too complex for the scope of the project?

[Roger Légaré]

In light of what has happened in Lévis, for example, which I referred to a little earlier, there is a respectable amount of flexibility for the smallest projects. Our institute predicts that, in the coming years, there will be a lot fewer big projects and more smaller projects. We have to know how to reassure the municipalities in order to meet their needs. There will be a better partnership between the federal government and provincial governments. Funding is available for that, but as it is complicated to prepare supporting documents for a public-private partnership, those people will have to be supported.

I believe that Claude Dauphin, of the Federation of Canadian Municipalities, and Éric Forest, of the Union des municipalités du Québec, are mainly concerned with the assistance that the municipalities must receive in order to deal with that. There is a lot of room here because there are enormous needs. Once again, I am warning people: this is not the solution to all situations or the risks that should be taken in all municipalities. This does not meet all needs.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Given the limited managerial resources in a municipality of not even 1,000 inhabitants, this is not currently be an option that would seem reasonable to you since management resources are not available. Is that correct?

[Roger Légaré]

Not necessarily. I have just come back from Europe, where we had a meeting on public-private partnership projects for French-speaking parliamentarians. We said that we should group together by region when we want to provide services such as arenas, water controls or infrastructure projects. A small municipality of 1,000 inhabitants will no longer be able to work in isolation thinking that it can meet all the needs of its entire population with projects that will be extremely costly. Projects must really be grouped together so that they are cost-effective for everyone.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

What partner profile would we be looking for in the case of small municipalities?

[Roger Légaré]

It will be the same profile as for large municipalities. You need the necessary expertise for the project you want to start up. In Contrecoeur, for example, if we plan to establish a centre like the Quartier DIX30 in the Montreal area to provide services to the surrounding population, we will definitely choose a project that is like the Quartier DIX30, a public-private partnership project.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

That is fine.

[The Chair, NDP, Pat Martin]

Thank you, Christine. I'm afraid your time has expired.

If you are interested, there is an interesting catalogue of recent P3s. It's only available in one official language and therefore we can't circulate it, but you're welcome to pick it up. It's produced by the institute, and it has examples of small, medium and large P3s in various communities.

For the Conservatives, Mr. Peter Braid.

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

Thank you very much, Mr. Chair.

Thank you to the witnesses for being here today.

Let me begin with Professor Lee.

Professor, I certainly appreciated your analysis this morning on our P3 study. I would like to add that I appreciate and value your analysis on many topics.

You mentioned the Ottawa example. I don't want to have you elaborate on that, but on the flip side, you explain that there is a case for P3s because of the infrastructure deficit and because of the value that private sector management principles bring to this process. My question is, do you think there should be more P3s? If so, in what circumstances, and how can they be more effectively managed and administered?

[Prof. Ian Lee]

Thank you.

I know you don't want me to go into Lansdowne, and I won't get into the details. I'm not going to name names or that sort of thing, but my generic criticism was simply that there were too many moving parts. There were too many different businesses in the package, with different business risk horizons and different demands. There was a parking garage. There was a rink, a football stadium, and a shopping centre, and they were trying to put it all into one P3.

I'm trying to now answer your question. I'm referring to the Vining and Boardman studies on this. The most successful P3s are what I would call, for want of a better term, “single object”. There aren't multiple businesses in the one P3. It's a hospital, or it's a CSIS building, or it's a bridge to P.E.I. It doesn't involve a hotel sitting on the bridge, with a hockey arena.

What I'm getting at is, the more complex they are, in the sense of multiple businesses or strategic business units in the P3, the more cumbersome, the more difficult to manage, and more likely to fail they are.

To answer your question even more concretely: it seems that the most successful ones are those where the object is very clear—a highway, an airport building, a bridge, a hospital. First off, we've had a lot of experience in building these things in the past, so the risks are easier to evaluate and estimate. Of course, the private sector has had enormous experience in years and years of building these.

The role of government is to do a lot of due diligence up front with the private sector, to specify those risks, and to try to anticipate the unforeseen problems. We are going to need to have more P3s to address the infrastructure deficit, because as the population ages and there are these greater pressures on budgets, which you know about, there is going to be this need to find innovative ways to finance and address it.

Parallel to that, I hope that we move towards more tolls, where it's possible or feasible to have toll roads, toll highways, and user-pay policies on those infrastructural assets that are—quote—private goods; that is to say, they're divisible and you can exclude people from using them if they don't pay the toll.

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

Thank you.

This question isn't about P3s, per se, but I'm interested in hearing your answer. It's certainly relevant to your presentation. You explain that there are some concerns—inherent flaws, if you will—with traditional infrastructure projects. For those traditional infrastructure projects, how can government, politicians, and public servants better deal with and manage those?

[Prof. Ian Lee]

Are you referring to traditional procurement where the government owns the building?

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

Yes.

[Prof. Ian Lee]

I'm glad you asked that, because there is a trend that is occurring. Some of you may be aware of this trend in the private sector, where firms are selling.... For example, Scotiabank is selling their head office, and the Royal Bank is selling their head office, because they've realized that they're not in the property management business. They've sold the buildings and received a one-time capital gain. Then they rent or sign long-term leases with the developer or property manager for that building.

It suggests to me that if the private sector is doing it, it's because there's an efficiency there. There is a logic to it. It suggests, therefore, that government should be looking more closely at getting out of the property management business and at signing long-term leases with people who are expert at creating buildings: designing them, building them, and managing them. Then, at least with buildings, you've dealt with the maintenance problem, because the private company will maintain the asset. For that matter, bridges can be dealt with in that mode too. Bridges can be—theoretically—privatized. There are private bridges in this country. I believe there's one across the river to Detroit.

Again, it comes back to the proper role of government in steering versus rowing. There is an extremely important role for government as the referee of the hockey game, which is the metaphor I like to use all the time. That's a very important role. Regulating the banks, regulating whatever capital markets...but that doesn't mean the government should be in there playing on one of the hockey teams or telling the hockey players when, where, why, and how to score hockey goals.

[The Chair, NDP, Pat Martin]

Thank you. Your time has expired.

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

I want to thank Professor Lee for all his great Canadian hockey metaphors.

[Prof. Ian Lee]

I'm in withdrawal right now. There's no hockey.

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

As many of us are....

[The Chair, NDP, Pat Martin]

Very good.

Jean-François, go ahead.

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

Thank you for your answer, Mr. Légaré. I am pleased to know that your institution is considering other options. That is refreshing, as regards the relationship with NPOs.

My next question is in that area. Last time, we heard testimony about a highway in British Columbia. Previously, under conventional contracts, there were 100 inspectors, and now there are roughly 10 with P3s, but they at least do ad hoc checks. That is reassuring.

A little earlier, we talked about an NPO that played a specific role in management because there was less risk-related involvement. The project was also much smaller. So that was feasible. Millions of dollars are involved in conventional P3s. One of the current problems lies in citizens' perceptions, and they are important for us. In reality, transparency is important. Would there be a way of adding a partnership with cooperatives or NPOs that would have the role of checking, monitoring and consulting, that would have a much more active role? That would open the door to citizens being present when P3s are deployed over a number of years.

My question is for you, Mr. Légaré, but also for all the witnesses here today.

[Roger Légaré]

If we look at the legislation put in place for Quebec's Agence des partenariats public-privé and Infrastructure Québec, we see that restrictions have been placed on the project implementation method. Those restrictions include the obligation to know who the partners will be, when they will have to play a role and who will ensure the short- or medium-term monitoring of what we call the efficiency, performance or service delivery method to determine whether or not we pay. Ultimately, if we say that we are going to provide a service and it is not provided, the government can say that it will not pay because the services agreed upon have not been rendered.

To check this, public perception is not only important, it is of capital importance. We are talking about taxpayers. That is why I said that we had asked the public how it appreciated projects it knew had been carried out through P3s. The report sent to us by Léger Marketing states that 70% of the population was in favour of P3 projects for infrastructure or buildings. We are very pleased about that.

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

You are not answering my question.

You say we have the same opinion about the importance of citizen oversight. However, my question was quite clear.

Could we add another P to the P3s for the NPO or cooperative sectors? Their charters motivate them to be involved. That is the way it is for you. Under your charter, your own motivation is to be there and important. That is why you promote P3s. I think there could be a more permanent place within P3s. Is that correct?