P3s deserve to be an election issue even if nobody wants to talk about it

“We have a responsibility to taxpayers … to build schools at a reasonable cost. That absolutely rules out P3s.” – Jane Purves, Nova Scotia Education Minister (PC) 2001 

As the coming Ontario election unfolds, it is unlikely the opposition parties will go after the dozens of public-private partnership (P3) deals signed by the McGuinty government.

The darling of governments of all stripes who want to move debt off-book, P3s have been a costly boondoggle across Canada. At a time when the public is bracing for cuts to public services, the lack of debate over the squandering of billions on such enterprises is sadly missing.

The Maritime Provinces were early adopters of so-called “public-private partnerships” to build and operate public infrastructure.

The Confederation Bridge betweenPrince Edward Island and New Brunswick was one of the first mega projects developed under the model, while Nova Scotia embarked on an ambitious program to privately build and operate public schools.

The Nova Scotia government of Russell McLellan lost an election over the P3 issue after the news media jumped all over scandals involving costly public schools built and operated under such contracts.

Secrecy, or what the corporations like to call “proprietary information,” has kept watch dogs and even government itself from prying too closely into these deals.

Remarkably, Rosalind Penfound, Nova Scotia’s deputy minister of education said of the deals in 2010: “The P3 contracts don’t allow us the ability to audit some of the provisions of the contract, so that significantly hampers some of the monitoring that we can do.”

In PEI the Federal government put strict conditions on the privatization of the Confederation Bridge project. The Federal subsidy was not to exceed the cost of its support to the former ferry service, and that tolls to the public must not exceed charges from the former ferry crossing. These rules did allow for toll adjustments based on 75 per cent of the consumer price index, and the Federal subsidy was also indexed.

In 1988 the auditor estimated the ferry subsidy amounted to between $26.7 million and $36.9 million. The subsidy to the P3 consortium was set at the high end of that scale — $35.3 million annually. In addition the Federal government also incurred direct costs: $41 million for highway improvements leading to and from the bridge, $46 million for project development, and $15 million for regional development in PEI and New Brunswick.

While P3 promoters boast they bring projects in on time and on budget, it took 10 years to discover there was a $330 million cost overrun on the $1 billion bridge.

That overrun, combined with higher than expected maintenance costs, may mean that the rules may change, a bailout may have to take place, or the Federal government may have to assume ownership – and related financial obligations — of the bridge.

The bond ratings agencies lowered Strait Crossing Ltd – the P3 operator – to a BBB (lower medium grade) in 2010.

This is what the Dominion Bond Rating Agency had to say a year ago: “Limited operating flexibility is left to weather potential future shocks or a protracted period of soft economic conditions, which prevents DBRS from restoring the stable trend on the rating prior to its discontinuation.”

Discontinuation? Yes, the company actually asked to be taken off the bond rating service.

Two major projects, two major failures.

Ontarians deserve to know what’s in all the McGuinty P3 deals for hospitals, court houses and other infrastructure development. The Ontario Health Coalition and a consortium of  unions  – including OPSEU – spent more than two years in court to get most of the details of the William Osler Hospital deal– the first privatized general hospital to open in Canada.

What we found was a terrible deal for the public. The Ontario auditor later confirmed what we already knew – the Osler cost nearly $500 million more than had the project been undertaken as a traditional public procurement.

With impending delays and high costs associated with the Osler, the government decided to make a showcase of the Royal Ottawa Hospital when it opened as a P3 in October 2006.

The project was touted as on time and on budget, but neither was true.

The hospital was originally scheduled to open in July, not October. Even in October the Royal Ottawa wasn’t ready. Fire alarms didn’t work. The wireless environment was so dysfunctional the hospital later spent $1 million hard wiring the building. Magnetic doors failed. Personal alarms were absent, putting staff at risk. To make a point about the efficiency of P3s, the hospital was occupied anyway.

The Royal Ottawa was originally planned in 2004 as a 284-bed facility at a cost of $95 million. Instead it opened as a 188 bed facility that cost $146 million.

This election, politicians of all stripes should be asked about these privatization deals.

The auditor has already warned us that health care is facing considerable austerity under the Liberal plan. The Tories are offering even less in funding.

Can we really afford to squander billions more on these boondoggles while our hospitals and community-based health providers struggle? The William Osler and Royal Ottawa are only two out of more than 150 hospital corporations in Ontario. There are more than 30 hospital P3 projects in various stages of development. And that’s just health care.

This needs to be an election issue, even if all three parties are reluctant to talk about it.

3 responses to “P3s deserve to be an election issue even if nobody wants to talk about it

  1. rennie Marshall

    I have coached negotiation for the past 12 years and what this has taught me is that regardless of whether it is P3, Private or Public the devil is in the detail as it is in any contractual agreement. These things failed because not enough thought was given to the negotiation of the agreements. Too often people reach the deal without ever examining the details and fully examining potential impacts and consequences. This is true across all sectors. We agree to partner and split profits, costs but what about losses never enters it. Contracts can be pages long and still not address all the potential details. We need to improve the quality of negotiation and move beyond the agreement in principal stage in all our agreements not just the p3. This is also true of labour – take job security – what does that mean – it mean something quite different to management than it does to labour – the devil is in the detail and we have to take the time to flesh out what that detail means to all concerned. PRHC wasn’t a P3 but has also been something of a disaster – problems aren’t unique to Osler and we are all guilty of assuming too much when we enter into agreements.

  2. Sorry — having followed this issue for years, I have to say you are dead wrong. Your argument is one used by Liberals, Tories and other PPP advocates: if only the deal were better negotiated. Always the next deal will be better negotiated. Its the next deal where we learn from our mistakes. Yet when the situation goes south, the public always ends up holding the bag regardless of what is in that contract. We either overpay from the public treasury, or overpay through exhorbitant users fees, such as the 407 highway. And it takes us years to find out what the true story is on these projects — the PPPs always insist their deal be kept secret — everything in them is proprietary — and they will fight in the courts to keep it so. 10 years to find out about cost overruns on Strait Crossing. Years to find out the truth on the William Osler. How can you maintain effective accountability under such circumstances? Cost of borrowing is always higher in the private sector, driving the costs of these things into the stratosphere. The difference in borrowing costs alone on the Osler was $200 million. Yet to hear Tories and Liberals talk about this, you’d think private sector money was free. These things are nothing but costly boondoggles. McGuinty has signed dozens of these deals, and will leave us with a legacy of some very expensive infrastructure for decades to come.

  3. Pingback: Assemblée publique sur le nouveau P3 pour l’Hôpital St. Mary’s et l’Hôpital psychiatrique de Kingston | DiaBlogue

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