13 years on, BC Finance Ministry finds big problems with its public private partnership program
The BC Finance Ministry has produced a report much more critical of Partnerships BC and its activities around public private partnerships (P3s) than might have been expected by a province so committed to the practice. It raises issues of conflict of interest, dubious practices and questionable assumptions in the multi- billion dollar program. The story has received no media coverage.
While it is likely the province will continue to push P3s with undiminished enthusiasm for large projects, the report and surrounding documents acknowledge many of the criticisms of P3s raised by other groups including both the Canadian Centre for Policy Alternatives and the BC Construction Association.
The results of the Partnerships BC study were announced in a December 16 press release in which the government promised to carry out the recommendations in the report as well as further recommendations contained in observations from the report’s steering committee. If the government carries out this commitment it will mean Partnerships BC will lose some of its autonomy in the way P3s are delivered.
The study arises from a commitment in the 2011 Throne Speech that the province was going to take a hard look at is Crown corporations “to ensure taxpayers and families are protected and the interests of all British Columbians are well served.” The studies are being conducted by the Ministry of Finance’s Internal Audit and Advisory Services branch (IAAS).
Among the biggest issues in the report is conflict of interest. The report states:
There is a concern that Partnerships BC is potentially biased towards certain procurement methodologies because it is mandated to be both a self-sustaining organization and an advisor to government. This creates the perception that Partnerships BC’s advice may be biased towards revenue generating opportunities for the organization.
In a letter from the report’s Steering Committee to the Minister of Finance containing “additional observations” the Committee recommends taking some decision making power away from Partnerships BC. The Committee recommends:
To ensure the determination of work directed to Partnerships BC is unbiased, it is recommended that the initial screening of all new capital projects for P3 viability be conducted by the Ministry of Finance under the direction of the Deputy Minister.
The report also identifies (although it dismisses) the potential conflict of interest of hiring of the former PBC Chief Executive Officer, Larry Blain, as its Board Chair and then contracting with him to provide other services. However, the report also says:
A sample of fourteen consultant and contractor files, representing 23% of total files, was also reviewed. More than half of the contract files reviewed did not contain adequate documentation.
The report does not say whether or not Blain’s contracts were among these deficient files. Since the IAAS review began both Blain and the woman who replaced him as administrative head of the agency, Sarah Clark, have left Partnerships BC.
While the report specifically says it did not examine the methodology that justifies the use of P3s some of its findings touch on this methodology. For example, Partnerships BC says it bases its decision on whether or not to use a P3 by comparing the cost of a P3 with a public sector comparator. However, PBC frequently uses what it considers to be the most expensive possible method of public procurement (Design/Bid/Build), ignoring less expensive methods of public procurement such as Design/Build, which even the Canadian Council for Public Private Partnerships (C2P3) considers public procurement.
The report says:
In many instances, PBC has used DBB (Design Bid Build) procurement as the benchmark. However this is not always understood by the project owner to be the most likely alternative as the project owner might choose to do DB (Design Build) procurement if a P3 does not generate value for money. Consideration should be given to using the most likely alternative that the project owner would use, to ensure that value for money is correctly stated and is understood by all parties.
The report states that there is an inherent uncertainty in the assumptions used by Partnerships BC to justify P3s and recommends that:
Given the inherent uncertainty of the assumptions made in the value for money calculations, at least one jurisdiction in Canada has set a minimum value for money threshold (5%) that is required to go forward as a P3, and the government could consider doing the same.
The report examines “bundling,” a practice by which smaller projects are linked to provide a large enough contract for a P3. This has been a particular bugbear for the BC Construction Association which finds many of its members are too small to participate in such projects.
The report finds this is not a common practice, but despite this, the Steering Committee for the report recommended to the Minister of Finance that “government strongly restrict the use of bundling and provide clear guidance on what is considered acceptable bundling.”
The report recommends that the trigger threshold for using a P3 be raised from $50 million to $100 million saying, “Stakeholders believe that this threshold needs to be raised to ensure greater cost/benefit returns on these complex and costly projects.” This being said the report suggests loopholes be left open should the government want a P3 for a smaller project.
The Steering Committee makes another recommendation which may undermine PBC’s involvement saying:
For local government and associated entities within BC, allowing Partnerships BC to provide services only through direct invitation (on a government to government basis) provided there is a positive return to the Crown Corporation.
If followed through on this may reduce pressure on local governments to use PBC for projects.
A significant portion of the report focuses on the possibility of PBC competing with the private sector which might be delivering these services instead of a government agency. Major consulting firms, and smaller ones as well, could have delivered many of the services provided by Partnerships BC.
In 2002 when Larry Blain, who had also served on Gordon Campbell’s transition team when he became Premier, was appointed as head of Partnerships BC, the agency seemed largely untouchable. This seems to be changing.
In a final irony, the report itself may be a conflict of interest. Partnerships BC is a private company owned by the Ministry of Finance, thus the Ministry of Finance is reviewing its own agency which raises its own conflict of interest issues.