Unequal partners: Power, profit and the public interest in P3s

Here we are again reviewing the evidence that private business can deliver essential public services and infrastructure at less cost and with better results than the public sector. With the recent federal government announcement of the public infrastructure bank public-private partnerships (p3s), it is now seeking to reassure Canadians that it can develop contracts that will protect the public interest. So far, we have only heard the same proclamations underpinned by faulty assumptions, ignoring decades of real life examples of how these ‘partnerships’ have gone wrong, despite assurances that they would get it right this time.

The CCPA has published numerous publications on the question of P3s because they have been so pervasive and so riddled with problems. There have been books written. Our organization has even published helpful guidelines outlining the 10 questions that should be asked AND fully answered before entering into these partnerships. Never are all of these questions asked and rarely are they fully answered.

In November of last year, one such report, Privatization Nation, chronicled some of the most egregious failures of privatization in Canada in recent years. We thought this to be conclusive evidence that despite 30 years of experience governments rarely seem to get privatization right, and more often get it wrong with astonishing regularity.

Despite this record, the potential bonanza awaiting private contractors through the federal government’s public infrastructure bank has brought many of the same, discredited arguments in favour of P3s back into public debate. The most pervasive of late appears to be the argument that P3 contracts provide the requisite discipline for all players to ensure on-time and on-budget completion, while constraining politicians from meddling in project design and management. However, a recent study in the UK by the Association of Certified Chartered Accountants  found no evidence that P3s were more successful at delivering projects on time because they were P3s; rather they succeeded because of the detailed way the contracts were written. There is no reason why the same sort of pre-negotiations and safeguards could not be applied to projects financed in the conventional public build model. Indeed, it begs the question of why such conditions were not previously made in traditional public procurement contracts.

Nevertheless, many P3 advocates argue that any past faults of P3 projects are invariably the result of poor contract design, as governments new to the P3 procurement model failed to sufficiently protect their interests. Such “bad contracts” are now thought to be a thing of the past, as governments “learn from their past mistakes.” Rarely considered is that certain governments may always be at a structural disadvantage when negotiating these often byzantine contracts that stretch over decades with powerful multi-national corporations. In particular, few municipal governments or even provincial governments for that matter possess the in-house, legal, technical, and financial expertise necessary to structure such a critical contract. In contrast, a number of large corporations—such as those with extensive P3 track records will have considerable expertise in this arena.

The big P3 firms have a bargaining advantage in drawing up P3 agreements because they have a wealth of previous experience within the industry. Often these firms have many existing agreements with other municipalities and they know what costs can be cut and where efficiencies can be gained. The municipality on the other hand may be at the mercy of cost estimates supplied by private consultants that may have a vested interest in promoting the P3 model. One Chicago Alderman described the power imbalance between that City’s council and the multinational corporations during a disastrous parking meter lease agreement as “like having little leaguers play the New York Yankees.” It may be wishful thinking to imagine that even the most careful government can protect the public interest when at such a distinct disadvantage in power, resources and expertise.

A CCPA Nova Scotia report, Private Profit at Public Price, released this past summer provides in-depth insight into how wrong these unequal ‘partnerships’ can go. It evaluates the province’s P3 schools program and finds a complete lack of evidence-based decision-making. The government did no kind of cost-benefit analysis prior to the initiation of the projects (indeed several schools were already under construction before contracts were even signed). Numerous auditor general reports have raised concerns about the schools (39 of which were built), the most recent AG report was in 2010. Examples of mismanagement of this P3 program, ranged from a lack of oversight by the province to safety violations that placed students at risk. There were no proven advantages to using P3s, and clear disadvantages emerged as they have with so many other P3s in Canada:

  • These P3 contracts didn’t bring new private money to build this infrastructure, rather they just delivered it in a more expensive form.
  • Risk transfer as a key advantage to using P3s was oversold and under-delivered.
  • The challenges of project management are more complex and expensive under P3s.

The extent to which public money helped maximize profit for private developers will never be known in the case of the P3 schools in Nova Scotia. We are getting a first real glimpse of just how expensive these leases are as our current government must now figure out what to do with the schools as contracts begin to expire.

In the case of the federal infrastructure P3 program, CCPA estimates that “taking the P3 route on $20 billion of the infrastructure bank money will result in an additional projected cost of $6.2 billion for cities.”

The bottom-line is this: public services and infrastructure are best financed and delivered by the public sector. Private industry has a key part to play in the design and construction of public infrastructure under contract. The ‘partnerships’ become much more complex and fraught when those contracts are expanded to include private financing and operations.

P3 contracts are by their nature undemocratic — commercial confidentiality and the protection of a private corporation’s private interests are convenient political tools used to trump the public interest EVERY TIME.

Simon Enoch is Director, Canadian Centre for Policy Alternatives in Saskatchewan. Christine Saulnier is Director, Canadian Centre for Policy Alternatives in Nova Scotia.

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