Expensive systems — privatization in other public sectors should be a warning for health care

Health care is not the only public service to experience reckless ventures into private delivery of key components.

The Auditor General of Ontario (AG) raises numerous questions about costly private delivery of public services in his recent review of Metrolinx, the regional transportation planning body in the Greater Toronto Area.

Among the findings in Jim McCarter’s 2012 annual report –

• Metrolinx’s Presto Card is among the most expensive transit fare card systems in the world, yet it does little more than substitute as a fare purse.
• The airport-downtown rail link was delayed after the private partner in the public-private partnership (P3) had to pull out due to questions raised by its financial backers over optimistic ridership projections. The projected high cost of fares is anticipated to weaken ridership. The P3 was eventually abandoned.
• Cost have dramatically increased on the Union Station revitalization project – the construction being handled by Vanbots, a division of Carillion Construction, one of the consortium partners presently bidding on the new Kingston hospital to replace that city’s aging mental health facilities.
• Metrolinx is using the P3 model for a three kilometre spur line that connects to the GO line from the airport. The auditor notes that the P3 option was $22 million more expensive, justified by the now familiar “risk” calculation of $42 million on a $128.6 million project. Like the William Osler Hospital, the auditor raises questions about the methodology used to calculate such risk and justify the more costly option.
• The consulting firm used to evaluate the risk on the spur line project won the bid to provide engineering and technical advisory services to support planning and procurement for the project.

By now this mess is all beginning to sound very familiar.  

Dalton McGuinty initially ran an election in opposition to Tory plans to build two P3 hospitals in Brampton and Ottawa. In power, he not only signed off on those deals with only superficial changes, but he embarked on more than 30 more such projects in the hospital sector alone. Ontario now represents more than half of all P3 projects in Canada.

While the province touts the benefits of competitive bidding for such P3 projects, the ability to seek competitive tenders later on becomes hamstrung by these long-term contracts.

Nowhere is this clearer than in the Presto card system. The Presto cards were to be the first step in a fare integration project that never really happened. Instead the cards are no more than a purse that one fills up with cash and then taps for debit when using the transit system. For this privilege, one is charged $6 for the card and riders are inconvenienced in their ability to access too few locations where they can load such cards. In some municipalities, there is only one place to do this.

Of course, it turned out to be not such a privilege when you sunk your cash into the card and found it didn’t work.

The transit systems were peeved that they couldn’t tender the repairs to such equipment given it was proprietary. What the contractor decided to charge would be the price given there was nothing in the contract that stipulated what that price would be. Municipal transit agencies told the auditor that quotes on such repairs were “unreasonably high.”

Rather than buy such a system off the shelf, the provincial Ministry of Transportation signed a 10-year $250 million contract in 2006 to design, develop and operate the Presto-based system – basically a P3 set up. Since 2006, the AG’s report notes there were 330 change requests on top of the $250 million, adding $146 million to total costs. Many of these costly change orders were related to defects in the system’s original development and led to Presto Next Generation (PNG).

The auditor raised concerns that Metrolinx shouldn’t be paying to fix flaws in the system, although Metrolinx contends the charges were only for “system enhancements,” not defects. Metrolinx is shockingly unrepentant in most of its response to the AG.

However, the AG noted that the contractor had failed to meet a third the “reliability” measures in the contract but Metrolinx never sought to remedy such failures. Among the measures is the reliability of the equipment which neither side has bothered to track.

Ten years is a very long time for a technology contract and PNG added another $496 million to the tab, making it what the AG called “one of the most expensive fare card systems in the world.”

After this incredible outlay, ownership of the system remains unclear.  The contractor maintains that it owns the system. The AG warns “if ownership and marketing rights of the system are not resolved, Metrolinx risks losing key components of the Presto base and PNG systems at contract termination, which would render the rest of the systems inoperable (emphasis added).”

So who was minding the store? Turns out it was other contractors. The AG noted that $4.2 million was paid to independent contractors who were used in senior positions with signing authority to supervise other consultants. This is in direct violation of the government’s procurement directive, which specifies “consultants must not perform functions normally assumed by management, including supervising and hiring staff and other consultants.”

While other transit systems have successfully migrated to cashless systems, the Presto card is only used by 18 per cent of riders in the municipalities it operates in. For some municipalities, like Durham and Hamilton, that number drops to just three per cent.

For citizens in Kingston, who are being asked to contribute funding to the new P3 hospital in their city, they should look very closely at such debacles and ask some hard questions.

While politicians ridiculously treat P3s as if they represented free money, the truth is the public always pays the bill in the end.