Transport Committee on May 12th, 2015

[Brock Carlton]

I can't see that graph to know the specific dip you are referring to. Our analysis is, as I mentioned earlier, that in the 1950s and 1960s there was significant investment, close to but not quite 5% of GDP all in; so all orders of government were investing in infrastructure to build a country that was going to be a powerhouse and a member of the G-7 with strength in the OECD, etc. Then somewhere in that period after the 1950s and1960s, into the 1970s, infrastructure investment across the country declined significantly. I wouldn't attach it to a specific era around 1995. It's more a longer-term dip in the infrastructure investment that spanned a few decades.

The point is that in that era when there was down to 2% GDP being invested in infrastructure, we were simply, as a country, not maintaining, not renewing, not rebuilding our infrastructure, so that the general state of infrastructure was in such decline that it became an economic constraint, a social constraint, and an environmental constraint. Thus, the infrastructure deficit conversations that began in 2007 and more recently are a result in part of the underinvestment by orders of government over many years.

[Jeff Watson, Conservative, Essex, ON]

I want to return to a comment you made.

I think you suggested that there was unclear direction with respect to funding for municipalities. Are you referring to the application-based programs? With the gas tax fund or the GST rebate or even the small communities fund, there's a significant amount of clarity, as well as funding given to municipalities with an enormous amount of flexibility on how they invest those particular funds. Did your comment refer only to the application-based programs?

[Brock Carlton]

Yes. The gas tax is something we've always said is the ideal model.

[Jeff Watson, Conservative, Essex, ON]

I'll turn to P3s for a moment. We heard in our last meeting about the rise of P3s. I think it was Mr. McBride from PPP Canada Inc. who testified and said the rise of P3s has come as a result of some of the problems seen with traditional procurement, and he laid out some of the factors that P3s actually solve.

At a project level, I believe, Mr. Romoff, you suggested that not every project, and in fact a fairly low percentage overall, not insignificant but low, is actually worthy of the P3 model.

Can you run through some examples of projects that would be more suited to traditional procurement versus P3? I don't mean on a massive scale for P3. I want to get it down to the point where municipalities might meaningfully be looking at this and saying, “P3 or not P3? We're not sure”. Can you give us clarity on where you draw that dividing line?

[Mark Romoff]

First of all, I don't think it's appropriate to say that there are only a small proportion of projects that are worthy of being P3s. What I said in my remarks is that 10% to 15% of all infrastructure projects in Canada are procured using the P3 methodology. Frankly, there's great opportunity to increase that percentage. Again, for that few number of projects, it gets incredible scrutiny at all levels, and not least of all in the media. In fact, if the more traditional approach to procurement were subject to the same kind of scrutiny, all project procurements would improve. That's just a comment on context.

With respect to whether a project should be procured as a P3 or in another way, it comes again to a few considerations.

The first one is being able to demonstrate value for money. This would be the overarching principle within P3 Canada, for sure. When assessing a project, they and government members of our association are always looking to ensure that you can get better value for taxpayers, better value for money, by going ahead with the project as a P3. That's one condition that we believe is critically important.

Second, no risk transfer, no real value to the model.... The key here is to be able to identify the risks in play and then allocate the risk to the party best able to assume it. Clearly in the case of political risk, that rests with government. In many cases, environmental risk also rests with government, but at the same time, design risk, construction risk, should clearly rest with the private sector.

One of the features of the P3 approach is that when you do transfer those risks and enter into a fixed price contract, if those projects go over budget, either because of a design fault or construction challenges, they are the responsibility of the private sector consortium. There are many examples of that. The challenge is that those examples aren't made public because the private sector isn't prepared to say that they said it would cost $10 million and it cost them $11 million. The most important feature is that government isn't responsible for assuming that extra $1 million. That's what really differentiates those projects.

It's really important that those kinds of considerations are in play, first and foremost.

Some also believe there is a minimum threshold that needs to be met in order for a project to go ahead as a P3. Traditionally, that has been the case. They tend to be more substantive in cost or estimated cost in order to lend themselves to that model. That's often driven by the financial community, which wants to ensure the project is of sufficient size that they can make a fair return on their equity investment.

The reality is that with municipalities, particularly small and medium-sized municipalities, many of their infrastructure challenges don't tend to have price tags as large as building a new hospital. I think what is beginning to happen now is a rethink by the P3 community about how they can be a little more innovative themselves with the P3 model, in order to see how it can be calibrated in a way to respond more effectively to projects of smaller value. There are some traditional ways. You'd be aware that oftentimes these projects are bundled, but again that's intended to get them up to a sufficient enough size that it will attract the private sector.

The reality is there are ways to rethink the P3 model to respond more effectively to smaller projects, and that's the approach now being adopted.

[The Chair, Conservative, Larry Miller]

Okay.

We're way over. I tried to be generous.

[Mark Romoff]

Sorry, was it me way over, or would it have been—

[The Chair, Conservative, Larry Miller]

It was an interesting response, so I wanted you to finish.

[Mark Romoff]

Thank you, Mr. Chair.

[The Chair, Conservative, Larry Miller]

We'll now move to Mr. Sullivan.

[Mike Sullivan, NDP, York South—Weston, ON]

Thank you to the witnesses.

Mr. Romoff, don't you worry that P3 models, where the risk is transferred, lead to cost cutting or cutting corners?

The example you gave of the Canada Line had huge corners cut. They brought in temporary foreign workers from Costa Rica at $4 an hour, which is well below the minimum wage in B.C. They got caught. Those workers had to go to court and ended up leaving the country before they could successfully sue the government, and the courts ruled that since they're out of the country, they can't sue.

Cambie Street was a disaster for three years because the proponent decided to change the method of construction from a tunnel, which wouldn't have disrupted the businesses, to a cut and cover. That's how they managed to get it in under budget, but they did it in a way that disrupted the community tremendously, and paid workers way less than they were entitled to be paid.

You sing its praises, and yet I think that's an example of a project gone bad.

[Mark Romoff]

Well, Mr. Sullivan, it's interesting. We undertook a series of focus group discussions across the country over the past couple of months.

We held two of them in Vancouver. Folks who were participating in those groups were asked to explain P3s. They did that quite well. Were they supportive? They were very strongly supportive. Could they name a successful P3 project? In every case for the two groups, the Canada Line was identified as that successful project.

When we talked about what would be some of the areas where there could be improvements made, the one comment made there and, quite frankly, right across the country, is that governments could communicate better when they're moving ahead with major infrastructure projects. We as a council would strongly endorse that as well. That's the nature of the conversation that we often have with governments which, as I say, are our members.

The reality is that for Canadians across the country, there is strong support for this approach to infrastructure development. As I say, we now have 223 projects in one stage or another across the country, across a variety of sectors and in virtually every region of the country. Those that are in operation have been successful, and those that are coming on line are on a similar path.

[Mike Sullivan, NDP, York South—Weston, ON]

In terms of the ones in Toronto, could you give me...? You mentioned a P3 community. What are the partnerships that you represent?

[Mark Romoff]

There are several. In the health sector, Bridgepoint hospital is a public-private partnership. It's a stunning example.

Governments own the hospital sites, so it's the Government of Ontario that owns Bridgepoint, but they did a complete redevelopment of that site by entering into an agreement with the private sector, which included PCL and some other developers, Plenary and others, which in fact redid that site, produced a terrific hospital through a design-build-finance-maintain approach, and at the same time took on the Don Jail that was right next door and in fact enabled the prisoners to move on to other maybe not any more luxurious accommodations, but to move on. That facility was redone and is now housing the CEO and executive team of the hospital. It's a great use of that facility.

If you look at the hospitals, period, in Ontario, you can see that CAMH, Women's College Hospital, and Bridgepoint are all great examples of the P3 approach.

The tunnel being built at the Toronto Island airport, for those of you who make use of it, is a P3. It'll be open in less than a month. It will be a stunning example both of architecture and of a facility that will certainly enhance the experience when you're trying to move from the runway to the city. The new—

[Mike Sullivan, NDP, York South—Weston, ON]

Is there public money in that? I thought that was private.

[Mark Romoff]

No, that's a public-private partnership, the Toronto port authority, the government entity, in partnership with the private sector.

Look at the Union Pearson Express. It will begin on June 6. For the first time in Toronto, you'll be able to get—

[Mike Sullivan, NDP, York South—Weston, ON]

Oh, don't get me started. What a disaster that thing is.

The trains aren't compatible. It was supposed to cost $300 million. It's now costing $1.4 billion, all of it from the taxpayer. There's no risk on the part of the third parties. There are no local jobs. There are no apprenticeships. They refused to allow apprenticeships. It's an absolutely awful project that was rushed to completion over the dead bodies of the communities around them. It's an awful, awful example. If that's your example of a private-public partnership, it's a disaster.

Mr. Carlton, I have one quick question for you. That's the—

[Mark Romoff]

I'll let your comments go uncommented on, only because you've chosen to move on.

[Mike Sullivan, NDP, York South—Weston, ON]

The people on Tuesday didn't want to comment either.

On the public-private partnership nature of future transit investments, the budget document appears to identify the upcoming $250 million, followed by $500 million, followed by $1 billion that will be a public transit fund and will be run through PPP Canada.

It's hard to tell, but it seems to indicate that therefore, only 25% of the funding will be federal, and it will require that future public transit projects be PPP, whether or not a municipality wants to do that. Is that something your association is in favour of? What do you think?

[Brock Carlton]

You've hit the nail on the head with respect to our concerns around the public transit fund with respect to P3s, not that it's being managed by PPP Canada; that's just a management framework for a funding mechanism. Our concern is to ensure that the municipality has the decision-making authority to determine the degree of private sector involvement and the kind of relationship with the private sector. We expect these projects to be of such scale that there will be private sector involvement just in the normal course of this kind of project. There is the concern about the municipal capacity for decision-making in that regard.

Also, absolutely, the 25% and 33% are a huge deal for us. Now, we're not assuming the negative, here, because we haven't finished the negotiations, and nothing has been made precise. We're involved in discussions with the federal government on those two very issues, but those are fundamental issues, and the 25% and 33% are a very big deal. If you just look at phase one of the Ottawa LRT, and you see the three partners in the public-private P3 framework, over the 30-year life of the project, at 25% the City of Ottawa would end up contributing 43.6% of the cost of that project. This is a big deal for us, and we will be pushing as hard as we can to bring that into line with other federal cost-share programs, so that it will be a full one-third.

[The Chair, Conservative, Larry Miller]

Thank you.

We'll now move to Mr. Yurdiga, for five minutes.

[David Yurdiga, Conservative, Fort McMurray—Athabasca, AB]

I want to thank all the witnesses for being here today.

Ms. Dedman, the CPWA believes there is an important role for the Government of Canada to play in promoting asset management. Could you elaborate on how the Government of Canada can promote asset management when 95% of the assets are owned by the provinces and municipalities?

[Kealy Dedman]

I think you may have misheard that. In fact, 60% of the assets are owned by municipalities across Canada. As a result of that, ensuring that there are good asset management practices across the country is very important for the federal government. It's important for all levels of government, but there's a role for the federal government to play as the leader in promoting and supporting asset management at the municipal level.

Asset management is the holistic approach to evaluating, investing, maintaining, and replacing your infrastructure to get the best value out of it. That requires resources of staff time and staff expertise. It requires tools and systems in order to get that in place, but in the long run it results in cost savings and is the best investment for the municipality.

In order to build that capacity at the local level, there does need to be some dedicated funding to support that. I hear concerns from my colleagues from all municipalities. We deal with prioritization of needs, and asset management is sometimes seen as something like a planning exercise. Just as an approach to how we're going to deal with our assets, it is not necessarily prioritized when it's put up against real life or the reality of a crumbling bridge, potholes on the road, or that type of thing. We really believe that a dedicated fund for capacity building and asset management is the key.

[David Yurdiga, Conservative, Fort McMurray—Athabasca, AB]

When I made reference to the 95%, I meant provincially and municipally. The provinces have a lot of assets, as do the municipalities.

You foresee the government creating a standardized program, so the municipalities and the provinces will be able to follow along, and everybody will be playing with the same deck of cards. Is that what I understand?

[Kealy Dedman]

With asset management planning, there's no one size fits all. It depends on the size and complexity of the organization.

For instance, in Ontario if it's a lower tier versus a single tier versus an upper tier municipality, there are different needs and requirements that may be taken into consideration. As a result of that, there are certain principles related to asset management that can certainly be promoted. We believe there's a role at the federal level for building the capacity, understanding it, and providing education around it.