May 12, 2010

Problems for the South Fraser Perimeter Road P3?


There are some interesting recent developments on the South Fraser Perimeter Road (SFPR) public private partnership project.  A press release issued Friday afternoon announced the successful bidder in response to a Requests for Proposal.  The results may not be what we were led to expect.

The SFPR project is part of the Province’s Gateway project and is planned as a 40 km, four-lane divided highway on the south side of the Fraser River. 

In July 2008 the Ministry of Transportation and Partnerships BC, the government’s privatization agency, issued a Request for Qualifications.  The RFQ makes clear that the project was one of Partnerships BC’s preferred P3 models – Design/Build/Finance/Operate.  The RFQ said:

The Concessionaire will be responsible for arranging and delivering the financing required to complete the Project.

A press release issued at the same time said

Construction under this contract will begin in 2009 with completion in 2012.

In April 2009 a Request for Proposals was issued to a short list of three consortia.  Again, the accompanying release promised completion in 2012, but this time the financial details for the project were withheld from the RFP on Partnerships BC’s website.

Friday’s announcement raises three issues.  First, the timeline for the project has been delayed a year.  Construction will now begin in 2010 with completion predicted for 2013.  So much for P3s being on time and on budget.  Also, The ACS Group, one of the consortium partners says on its web site that construction will take 45 months making even this published timeline questionable. 

Second, there has also been a change in the makeup of the winning consortium.  Ledcor was not listed as a member of the consortium in 2009.  It is now listed and appears to have replaced Zachry American Infrastructure as an equity partner.  Although the RFP does allow for the possibility of changing members of a bidding consortium in mid bid it is not a usual practice and it required the consent of the government.

Third, although it was not announced, it seems likely the financial model for the project has also changed.  The RFP issued in 2009 came just months after the collapse of the Port Mann Bridge P3.  During the recent economic troubles borrowing by private companies became so much more expensive than borrowing by governments that having private companies finance a public project became obviously ridiculous.

Documents obtained from Partnerships BC under Freedom of Information show that in July 2009, three months after the RFP was issued to the bidders, Partnerships BC was still discussing what financial model to use for the project.  The subject of the memo was “SFPR: Amount of Private Finance.”  The memo compared the original base case with funding provided by the private company with a “wide equity model” which basically lets the private sector off the hook for most of the funding.  This is the model being used for the Fort St. John Hospital P3.  All of the models for the SFPR assume the private company will still get a long term contract to manage the project no matter how much money they put in.

The press release on Friday has no comment on why the project has been delayed, why the partners in the consortium changed and whether or not the funding model has been changed from that originally proposed in the RFQ and RFP.

All of these things suggest there may be serious problems with the project that don’t get mentioned in a press release snuck out on a Friday afternoon.

Aside from the financial and contractual issues, Gateway and the SFPR are also controversial for environmental and planning reason.  The Livable Region blog has examined these issues.  The Sunbury Neighborhood Association has also questioned the project.

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