Notwithstanding this appalling failure, I will argue that this failed P3 was due to poor decision-making by elected officials, and that does not invalidate P3s. Paradoxically, I will argue today that this failure validates my central or core thesis today: why P3s are an important tool in government procurement.
I'm going to jump to my slides now. I've already done the first disclosure. It has been said.... I have read the testimony of the witnesses who've appeared before your committee previously, so I'm aware of the debates you've been having. This is really just repetitive, but there's about $400 billion of present and deferred infrastructure in Canada, federally, provincially, and municipally.
I'm going to argue that the P3 is yet another tool to address this deficit of infrastructure, which I do think is a very serious problem in our country, both at the national level and right down to the micro level. For example, in the city of Ottawa, we have sewer mains that are over 100 years old and we're dumping raw sewage into the city of Ottawa.
I'm going to argue that P3s, in my view, really only apply to what I call capital-intensive, long-term physical assets called infrastructure. I do not believe they apply to all procurement. I think P3s really only apply to what I call single-purpose infrastructure: bridges, roads, airports, ports, and buildings. I'm staying away from prisons and university buildings simply because I haven't done any real study in those areas. A P3 can be a very important tool. So we're talking about 10% to 15%—and possibly up to 20%, depending on how you measure it—of all the procurement in Canada.
Just very quickly, I'll say that I rely much more extensively on the peer-reviewed literature. There is a very significant and burgeoning, peer-reviewed literature. Vining and Boardman from UBC have published extensively in some of the peer-reviewed journals, as has the World Bank. I'm really synthesizing quite a bit of this.
This has been implicit in the conversations that you've been having over the last two or three weeks, but there's a continuum, I argue, of procurement. I don't think that P3s are mysterious or exotic. There's the traditional procurement that governments everywhere have been doing for a very long time, where the government in question negotiates with a developer, a construction firm, to build the long-term asset under contract. It could be a building. It could be the bridge to P.E.I. It could be Highway 407. The government, in that context, is really playing the general contractor, who is providing contract management and of course acquires ownership and maintenance immediately upon completion.
We're also very familiar with the second model. A lot of downtown Ottawa was built on this model by Robert Campeau. The Place de Ville building, where Transport Canada lives, for many years was a long-term lease. In other words, the Government of Canada, through Public Works and Government Services, leased it and simply paid rent as a tenant.
Those are really the two alternatives: you build and own it or you rent it on a long-term basis. It's not very profound, but that's really what's going on. P3s are, I argue, simply a hybrid between A and B. This is a model that is a hybrid between owning it from the get-go versus leasing.
In this instance, in the shorter term of the P3, the government is somewhat analogous to a commercial tenant, with the developer, the contractor—the P3 firm—responsible for the construction and the long-term maintenance of the asset. At the end of the P3 contract, government gives back the asset, if you will, and gives the title to the government.... Unlike being a tenant, where, after paying rent for 20 years, you sign another lease to pay rent for yet another 20 years, in this instance you actually get the asset at the end of the contract.
What is needed for a P3 to be a right-fit choice? You need good contracts, where the risks are well defined between the public and private sectors. It has to be clear, and that means a lot of due diligence up front, a lot of transaction costs. There have to be strong political leadership, public support, and sufficient private-sector capital.
What are the advantages? I realize that I'm contradicting the Conference Board of Canada and some others who say that the latest generation of P3s are on the government books, but there is research showing that there are some countries and some governments where they're keeping P3s off the books, and that's one of the advantages. The second advantage is that the private sector is vastly more efficient at managing projects, in that hey do not allow politics and the political process to interfere because their money is on the line. Third, the P3s provide long-term, stable financing, including maintenance.
Governments everywhere, at all levels—and this is no disrespect to any of the elected officials here—are notorious for deferring maintenance and allowing bridges and roads to decay. That's my central argument today. As Pogo said, we've met the enemy, and it is us.
I only have two or three slides left.
Quickly on the disadvantages, there are disadvantages. There are externalities. Sometimes it's difficult to evaluate the risk, so there can be failures, but that just calls for greater diligence at the beginning of the contract. Moreover, you have to do the due diligence on the private sector to ensure that it has the capacity and the expertise to operate the asset, not just build it.
In summary, the principal advantage is not lower prices. I think this is a bogus argument. It isn't necessarily lower prices, although research and evidence in the peer-reviewed journals say that some of the P3s did produce a lower price. What's more important is that P3 takes the politics out of procurement. It takes the politics out of property management.
Elected officials do procurement very badly. They do it badly because it's too easy to defer the maintenance in the face of short-term budget exigencies. The P3s mean preferred, professional procurement. A P3 provides stability of funding and stability of management; they have skin in the game, whereas for elected officials and bureaucrats, it's Canadian Tire money, not real money—you don't have skin in the game.
Again, that's not to put down elected officials. I have enormous respect for you and for public servants. My late father was a public servant for 40 years.
But that really is the central advantage of P3s: it removes the politics and then you can have professional property management, not only in the design and build, but also in the maintenance and operation of the asset over its lifetime.
Thank you.