Jan 12, 2011

Lib leadership contender ill informed or misleading on P3s


George Abbott has become the first of the BC Liberal leadership contenders to talk about the use of Public Private Partnerships (P3s) to deliver public facilities and services.  Unfortunately, Abbott’s comments suggest either that he doesn’t understand how these projects are being imposed or he is misleading the interviewer. 

The government’s preferred P3 model is Design Build Finance Operate (DBFM).  With a DBFM a private company or a consortium puts up the financing for all or part of the project and gets a lucrative contract to operate or maintain the project for 30 or 35 years.

The problem is that government can borrow much more cheaply than private companies.  This gap grew even wider during the financial collapse meaning that P3s were enormously more expensive than traditional procurement.

The government claims that P3s are still a better deal, an argument Abbott repeats, because they deliver things “on time and one budget.”

However, the whole justification for the projects rests on complex “value for money” reports that claim to compare the cost of public and private delivery.  Here is where Abbott gets into trouble with his remarks.

Abbott says the government has to compare a DBFM P3 with a form of traditional procurement called Design Build.  A Design Build project offers virtually everything the government promotes with a P3 but does it more cheaply using government borrowing and without locking in a 35 year contract. 

Here are Abbott’s exact words.

What we have to commit ourselves to is getting the best deal for the taxpayer possible and if that best deal involves Design Build vs. public private partnership then I’m glad to look at that. I think that we should subject ourselves as a government to that same rigor around what’s a best approach to construction and operation what’s the best approach; we should subject ourselves to the same rigor as we would subject potential partners in a P3 deal.

These are fine words from Abbott but unfortunately this is exactly what the government doesn’t do.  The Value for Money report on the Fort St. John Hospital P3 states explicitly that Partnerships BC, the government’s privatization agency, refused to consider the use of a Design Build methodology to compare with a possible P3.  Instead Partnerships BC compared a P3 only with the most traditional kind of procurement.  They assume using traditional procurement that no risk at all can be transferred to private contractors.

Ontario’s Auditor General said this selective sort of comparison was completely unacceptable when he examined Ontario’s Brampton hospital P3.  He called for a wider range of options to be compared saying:

With a contract of this size, best practices call for a business case to assess the costs and benefits of a range of alternative procurement models, to allow the option that offers the best value for money to be chosen. One approach is a value-for-money assessment that captures the total estimated cost of the traditional public-sector delivery of an infrastructure project through a design-build approach and compares that to the estimated delivery cost of the same project using a P3 model

The rigor Abbott claims, a true comparison between public and private costs, just doesn’t happen.  Instead we have a rigged process that makes sure we get costly 35 year contracts with corporate friends of the government.