Infrastructure Ontario CEO Bert Clark says the $8 billion premium the government spent to build public infrastructure under the public-private partnership model doesn’t tell the whole story.
He’s right, but likely not in the way he’s suggesting.
Remarkably Tuesday night Clark clung to the $14 billion in savings Infrastructure Ontario says is made possible through the privatized model of infrastructure development even though the Auditor General made it clear that figure is based on flawed comparisons and a lack of empirical data to support it. In today’s Toronto Star he downgraded it to $6 billion.
Infrastructure Ontario was not so brazen in its initial response to Auditor General Bonnie Lysyk’s recommendations. Most of their responses in the AG’s report make minor admissions and rely on “third party experts” to justify the rest.
As we stated Tuesday afternoon, just two errors in cost allocation identified by the AG is enough to suddenly swing 18 privatized projects into the public column, saving the public treasury $350 million. Did their “third party experts” notice these errors?
In yesterday’s Star Clark highlights the Union Station renovation and the subway extension to York University as counter examples of public procurement projects that have experienced cost overruns and delays.
By contrast Lysyk points out there were in fact eight P3 projects that were delayed longer than 60 days – the longest more than a year off schedule. For six of those projects the contractor did face financial consequences, but in two they did not. That’s eight out of 38.
Did they all come in exactly on budget? According the AG, no. Of those 38 projects completed to date, the average cost overruns are about three per cent.
Nor does “on time and on budget” reflect the length of time it takes to overcome construction deficiencies after a new building becomes occupied. The AG notes that deficiencies are supposed to be rectified between 45 and 120 days after substantial completion. The average time to rectify such deficiencies was in fact 13 months, and two hospital projects had not reached financial close for three years because of unresolved problems and a dispute between members of the P3 consortium.
While much is made about price security, a P3 seldom offers any guarantee that costs won’t rise. When looking at cost overruns, there are usually a variety of reasons for them, including change or completion of the design after the contract was awarded, unexpected site conditions, adverse weather conditions and work stoppages (sometimes following a worker death). Often these associated costs remain with the public sector even under a P3 contract.
The rise in cost in the Union Station project has been blamed on a number of these factors, including inaccurate or missing documents detailing the station’s condition. It is hard to believe that any P3 consortium would not have passed on those related costs to the public given the circumstances.
Despite the claims of being on time and on budget, the AG notes that “budgeted costs for the projects did not agree with their most recent budgets, and the list of change orders related to certain projects was not complete.”
Basic record keeping was also an issue. Lysyk noted that information on projects was not centrally stored. Incredibly, some of it was exclusively kept in the personal computers and e-mails of staff.
“In one instance, Infrastructure Ontario was unable to explain to us the rationale behind decisions for a particular project, since all personnel who had worked on this project were no longer with the agency,” the AG report states.
Is this really how we manage billions of dollars in public infrastructure contracts?
The report makes numerous recommendations around how Infrastructure Ontario can clean up its processes; however, the AG also makes it clear that it isn’t necessary to utilize P3s to reach the government’s objective of bringing projects in on time and on budget.
“A properly structured contract under public-sector procurement may also be able to manage risks considered to have been mitigated or transferred under AFPs (P3s),” the report states. “Public-sector contracts can be structured so that many of the risks are with the contractor, and projects can be planned and managed so that their sponsors do not put in late changes that add to project costs.”
Given there have been more than 100 public and privately procured hospital projects alone since 2003, surely Infrastructure Ontario must know by now how to procure large projects without having to pay the high risk premiums that are part of the P3 profile.
Curiously, while the proponents of P3s frequently talk about public sector cost-overruns, there has been no public reporting on the track record of Infrastructure Ontario on these public projects. If they really are five times as risky as the P3s, show us the data.
There is much in the way of disturbing evidence in Lysyk’s report on Infrastructure Ontario’s P3 procurement process. The fact that no value for money comparison has ever come out on the side of public procurement tells us a lot about how this process is skewed to favour the private sector consortiums. It significantly raises the question of trust.
Kathleen Wynne told the Star yesterday that P3s are the only way government can afford to forge ahead. Clearly the stunning evidence in the AG’s report is irrelevant to this government. This tells us if they have learned anything from the gas plants, ORNGE and e-Health, it’s to deny, deny, deny.