NS’ Auditor General’s P3 Report: More Questions than Answers

 By Chris Parsons and Christine Saulnier

Nova Scotia’s Auditor General Michael Pickup calls the government’s decision to use a P3 model (public-private partnership) for the $2 billion Queen Elizabeth II redevelopment  “reasonable and appropriate.” The problem is, we don’t know how he arrived at his conclusion.

At a minimum, the province’s public accounts committee should be able to ask the auditor general questions about his reasoning, but really the legislative assembly should be involved. Perhaps the most important unanswered question stemming from Pickup’s recent announcement is the question he said Nova Scotians should ask the government: “how does COVID-19 impact the business case and what is being done to assess its impact on the project?”

Methodology and Risk

According to the auditor general, while the P3 model itself is more expensive, given higher interest costs and higher transaction fees, there is a “significant advantage” in the transferral of the insurance premium to guard against risks including cost overruns during construction or delays to the project. Using a P3 to build the infrastructure was not assumed to be more efficient or innovative, as past governments have tried to claim. However, Pickup accepts that the contractor uses the problematic methodology of the now-defunct PPP Canada, created by the Harper government with an explicit mandate to promote P3s.

More broadly, the Auditor General inexplicably accepted the premise that P3 financing schemes transfer risk from the public to private investors. Given the recent history of P3s, such as the problems with the McGill University Hospital Centre in Montreal, the claim that modern P3 deals serve as insurance against risk remains a purely theoretical proposition.

We are told that the updated business case and costs will only go to the executive council. There is no plan to further engage stakeholders, and the ones that have been consulted have not included Nova Scotia residents who will use the facility. Were frontline workers unions consulted and will their feedback be considered important? We just don’t know.

Uncertainty and COVID-19

In response to the AG’s report, the government claims a pandemic impact assessment of the Bayers Lake Community Outpatient Centre has actually been done. The public has the right to see this assessment, but it has not even been mentioned prior to Pickups’s report today.

There are several COVID-related concerns with respect to P3 public health care infrastructure and the Auditor General’s report hints at but never explicitly asks an important question: What if the pandemic had hit after the QEII redevelopment had been completed? What will the contract say, in that case, about who is on the hook to deal with the impact—the private owners or the government? The fees and penalties make these contracts especially inflexible, as we learned in the P3 schools.

Negotiators do what they can to anticipate needs for the next 30 years, but we would be surprised if an unforeseen pandemic was on the list of foreseeable events in the lifespan of this contract. Locking us into 30-year P3 contracts right now, given what has just happened, is too risky.

Ultimately, our governments are responsible for the public health and well-being of their populace. Moreover, what does this really mean when critical decisions must be made?

A recent report on P3s in Saskatchewan adds to public concerns about the Nova Scotia projects. It revealed that having public sector workers doing some maintenance services, and P3 contractors (often different subcontractors, not sector specialists) doing others, often leads to time delays on important decisions and increased tensions as all the parties negotiate who is responsible for what. How is a hospital manager supposed to know the details of these complicated P3 contracts and who to call for what when they just want something cleaned? In the case of Saskatchewan, one worker cleaned the inside of the door and the contractor was responsible for the outside. Sound efficient to you?

How much control are we ceding to these private for-profit “partners” in the largest health care infrastructure investment in Nova Scotia? The Auditor General’s report does not address this issue.

The Price of Private Deals

These contracts will not ultimately save us money, in case that is why you thought the government chose the P3 model. A report on the QEII redevelopment published jointly by the CCPA-NS and Nova Scotia Health Coalition, concluded that the P3 model would cost 125% (more than double) what the same project would cost to finance through government borrowing. In the consultant’s costing assessment, the P3s would only save us money if the worst-case scenario played out in the public sector procurement model. Meanwhile, the only way to ensure that the P3 contractor takes on the risks is to invest in additional bureaucracy and administration, as well as engage in constant and costly surveillance.

Oversight of government procurement is important and should be strengthened. But it is a waste of money to have to put it toward watching P3 projects whose advantages are always overblown.

In the assessment of whether a P3 model should be used, risk is narrowly considered in terms of profit and not in terms of the public interest, lack of transparency or decrease in democratic oversight and community control.

Officials in the Nova Scotia Government underestimate the risk of locking into these 30-year contracts with a private for-profit contractor. Every dollar spent trying to enforce a secret contract, paying high private sector borrowing rates or overpaying for maintenance is a dollar not spent on frontline care.

Conclusion: The only thing we do know

We do not know any more about the potential P3 contract to redevelop the QEII than we did before this report was published. We still have not seen the Value for Money report. We still do not have evidence that a theoretical “risk transfer” has ever happened in the real world. We still don’t know which risks exactly will be borne by the government and which by its corporate partners. In the end, we are left with more questions, more assumptions and not nearly enough answers.

COVID-19 has spotlighted the need for a high level of control over our health facilities, which we get with fully public infrastructure and when services are provided by the public sector. The government should take this opportunity to take the 30-year maintenance contract off the table. This will likely mean the P3 model is no longer viable, but so be it.

The one thing we do know is that getting out of this P3 contract before we sign it would be in the public’s best interest. Anything else is just too risky.

Chris Parsons is the provincial coordinator of the Nova Scotia Health Coalition, and Christine Saulnier is the Nova Scotia Director of the CCPA.

 

One comment

  1. The $29 Million contract for the first segment of the QEII Next Generation Project has been issued, for the 512-car Summer Street Parkade.

    While this is not a P3 project, the Department of Transportation and Infrastructure Renewal (DTIR) RFP process was deeply flawed, in that the senior management’s opinion required the RFP to go forward with a buried little clause the disallowed consideration of any response that included automated (robotic) valet parking systems (ARVPS).

    In effect, this ill-informed private opinion will for thirty or more years impose avoidable costs (project externalities):
    • on the climate, by avoidable CO2 emissions
    • on the health of the users (especially regular users /commuting employees of NSHA et al),
    • on public health services that they’ll require after breathing the toxin-laced air inside
    • on publicly available green space on the Halifax Common lands
    • on the accessibility of parking spaces for mobility-impaired users
    • on users’ personal time
    • on users’ personal wallets, paying for the gas required to drive around the ramp-style parkade.

    Not only are these avoidable passed-on costs ignored, it is highly likely that ARVPS proposals would offer lower construction and operating costs than the accepted proposal.

    The “reasons” offered by John O’Conner for refusing to consider any ARVPS proposals are flimsy at best and easily rebutted.

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