Public,
private partnerships: A highway runs through it
By Lyle Jenish, BE Editor
VICTORIA - On the cusp of a large-scale launch, provincial
plans to partner with the private sector have a somewhat ignominious
start with the Coquihalla
Highway.
The Coquihalla Highway is considered the B.C. Liberal's
first stab at a significant public-private partnership (P3) agreement.
It has been a long time coming. In his Feb. 2002 budget
speech, Finance Minister Gary
Collins framed P3s as being central to future provincial development
plans.
"We're changing the way we develop public infrastructure
- opening up new opportunities for the private sector and opening up
government to creative new ideas for providing public services at a
cost we can afford," Collins said.
P3s were also a pivotal tenet in premier Gordon Campbell's
2001-election platform. However, halfway through his government's mandate,
save for some employment programs, little P3 substance has been introduced.
The Coquihalla Highway though, appears to signal a quickening
of the pace and could lead to Victoria and island-based P3 opportunities.
However, the Coquihalla Highway venture (which includes a 55-year agreement
and an initial 30 per cent toll increase) could also sour the public's
perception of the P3 model.
The B.C. Liberals extolled P3 as a means of off loading capital costs,
not
as a means for paying operating costs.
The
Coquihalla Highway's operating costs - much like the Island Highway's
- are supposedly covered by fuel taxes which, incidentally, the B.C.
Liberals just recently increased by 3.5 cents-per litre.
The B.C. Liberals are banking on a smooth execution of the Coquihalla
Highway transfer in order to realize other benefits an effective P3
program promises.
These benefits include: off-balance sheet financing costs for big projects;
sharing of project risk between both private and public bodies; and,
depending on the P3 and operational agreement, better defined cost and
operational control than in a public sector agency.
Victoria lawyer Gerald Smeltzer says there are many other 'motivations'
for government to get into long-term contracts with the private sector,
including realizing efficiencies they may otherwise be unable attain
in a purely public environment.
However, to realize these benefits both the private sector and taxpayer
must be convinced P3s are the way to go.
Partnerships British Columbia - the year-old, arms length commercial
agency created by the province to promote and implement P3s - will perform
much of the heavily lifting.
Partnerships BC president and chief executive officer Larry Blain, the
former managing director of RBC Capital Markets, will help government
ministries and agencies identify and implement P3 opportunities. In
the case of capital projects, Blain will also be responsible for reporting
on their progress to government.
Blain will put his investment banking background to good use, advising
on not only what the province should convert into a P3 or an alternative
service delivery (ASD) model, but in determining what has to be offered
to pique private interest while simultaneously looking out for the public
interest.
Smeltzer, through his Victoria firm National Education Consulting Inc.,
performs process monitoring for Partnerships BC and is also a 'fairness
advisor' on major procurements made through the B.C. Purchasing Commission
and Ministry of Management Services. He also offers contract management
training seminars for government and the private sector.
"There are contracting laws that apply to the RFP [request for
proposal] process. When a public or private body runs a contracting
competition they have to follow the rules," Smeltzer says. "There
are instances in Canada where unsuccessful bodies have sued and claimed
damages."
While the Coquihalla Highway P3 will not be in place until December,
the offering has already generated a lot of interest - even the Teamsters
have indicated interest in the 135-kilometre stretch of highway. According
to Teamsters Local 213 president Don McGill, managers of the membership's
$200 million pension fund see a solid, secure, long-term investment
when they look at the Coquihalla Highway P3.
However, previous B.C. P3s have not been so enthusiastically received
by the private sector. The province's 2002 stab at enticing private
operators to take over management of numerous heritage properties under
provincial tutelage did not generate as enthusiastic a reception as
was first hoped.
In 2002 the province took receipt of RFPs from private businesses, groups
and individuals interested in taking over operation of 12 provincial
heritage sites. Included in this number were Victoria's Craigflower
Manor, Craigflower Schoolhouse, Point Ellice House, Emily Carr House
and Campbell River's Haig-Brown House.
While property management companies such as Victoria's Complete Asset
Management initially expressed interest in the commercial viability
of the properties, most reconsidered once the opportunities were more
closely examined.
"A lot of things government does is because the private sector
can't or won't do it," said Kevin Pirie, an agent with Complete
Asset Management.
"Maintaining a heritage value, which may be intrinsic and latent,
is not something you can really milk in a commercial sense." Packaging
current or future assets, infrastructure or services as being commercially
viable for private operators is the challenge for Blain and the B.C.
Liberals. Time is also of the essence as Campbell's self-imposed deadline
for balancing the 2004-05 provincial budget is less than a year away.
At publication, Partnerships BC's on-line inventory of "business
opportunities" totalled three: the Coquihalla Highway; the New
Fraser River Crossing Project; and the province seeking a private partnership
for development and operation of the Abbotsford Hospital and Cancer
Centre.
Suromitra Sanatani, Partnerships BC's vice president corporate relations,
says the number of P3 opportunities will increase by the end of May.
Sanatani laughed when asked whether the Coquihalla Highway was a poor
selection to initiate a larger P3 program. She says other P3 projects.
Partnerships BC is working on are more of the development, capital intensive
variety the public has come to expect.
"When we are an adviser to the Ministry of Health or Transportation,
the department makes the decision to build a road or hospital and then
we advise them on whether it would be suitable to be a P3," Sanatani
says. "On some projects, such as the Abottsford Hospital, we are
the project manager. Others we will simply do the financial modeling."
Lawyer Smeltzer suggests Victoria business not be distracted by "headline
grabbing, big, capital intensive projects" and consider smaller,
service delivery P3s and ASD opportunities, some of which have been
around for years.
"In the last 10 years in Canada there have been quite a few changes
in the delivery of government services involving the private sector,"
Smeltzer says. "There are projects that do not require multi-million
dollar investments, but instead tap into the abilities of the private
sector."
Smeltzer admits that while P3s are the current buzzword in B.C., they
are neither particularly new nor unique.
"The Ministry of Human Resources" Job Placement Program [JobWave
and Destinations] and BC Parks has completed some major processes and
contracts involving the private sector," Smeltzer says. "For
the last decade BC Parks have been working with private sector campground
operators and quality has been high."
According to Sanatani, current and pending Vancouver Island P3s are
primarily municipal-run projects. She says municipalities can consult
Partnerships BC for help in assessing P3 potential but are under no
obligation to do so.
BC's municipal governments and regional districts have had more P3 experience
than the province. Over the last five years, along with the current
P3 struck between the City of Victoria and RG Properties, there are
a number of other notable partnerships:
- In January 2000, the provincial government, through the Ministry of
Social Development and Economic Security, partnered with Victoria's
West Coast Group and Grant Thornton, creating JobWaveBC and Destinations.
The private partners are responsible for finding prospective employers,
interviewing participants to determine program suitability, and providing
employment counselling and follow-up. Originally a two-year pilot program,
longer-term P3 agreements were struck with both companies in 2002.
- In May 1999, the province struck a 10-year P3 operating agreement
with
MacDonald, Dettwiler and Associates Ltd. to operate BC OnLine. Services
include information on property assessments, companies, gas/electrical
permits, land titles, manufactured homes, personal property, taxes,
wills and site environmental information. MDA receives a performance-based
development fee and a per transaction fee. Meanwhile, the province receive
fees and royalties.
- In 1999, Port Hardy signed a 20-year performance contract with EPCOR
(then Aqualta) to design, build and operate a water treatment facility
and related waterworks infrastructure. The first P3 for a water utility
in B.C., EPCOR is responsible for all technological performance and
has underwritten the risks related to water quality regulatory changes
over the first five years of the contract. The company provided a cost
guarantee for the life of the contract and receives incentives for operating
cost savings. The District of Port Hardy is responsible for revenue
collection. The cost of plant construction was $3.67 million, which
is less than the estimated $6 million price tag had the project been
delivered in-house. Victoria architect Bradley W. Shuya has public (Comox's
St. Joseph's General Hospital, Vancouver Island Housing Association
for the Physically Disabled, Greater Victoria School Districts #61 and
#63) and private clients.
"We are all waiting with baited breath for the P3 opportunities
to come out and for a formal process," Shuya says.
Shuya says he is aware of alliances beginning to form among Victoria
construction companies, adjutant suppliers and specialists in anticipation
of P3 opportunities.
"We are aligning with a couple of potential partners in the construction
and development sector. But until something really comes up, we have
not really solidified any relationships," Shuya says.
Asked whether a P3 project would present unique design challenges, Shuya
says there are standards within the Ministries of Health and Education
restricting 'deviation' from certain requirements. He suspects these
standards will remain in-place. He believes however that private partners
will approach the projects under pressure to economize and create higher
efficiency ratios.
"Of course there will be cost cutting exercises, trying to come
in with a lower bottom line-that will be the real competition measure,"
Shuya says.
Bill Wood, principal of Belleville Street's Matrix Planning Associates,
says that while there is eager anticipation in the private sector to
see how the provincial P3 process will play out, there is also some
ambivalence.
A veteran of numerous public and private projects, Woods senses reluctance
among different companies to come together and combine resources and
expertise on a RFP. He says while sure of their abilities, many consider
other individuals and firms unknown quantities, making the RFP cost-benefit
analysis all the more difficult. "As a result, government may not
get the level of competition they had hoped for," Wood says.
Echoing Shuya's assessment, Wood says that while incorporating efficiencies
into a P3 construction project are essential, past experience indicates
project design elements are so "tied down and tightly controlled"
design flexibility is limited.
"There is still not a great deal of appetite for serious rethinking
of operations of facilities. People are quite prepared to find a different
way to deliver the building but are not prepared to rethink their requirements,"
Wood says.