The Conference Board of Canada just released a new report on public-private partnerships (P3s). The study, called Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments, found that the second wave of P3s, those executed by specialized government procurement agencies, are being delivered on or ahead of schedule.
“P3s are providing cost certainty to the public sector, in that governments have not been compelled to channel additional funds midway through a project, ” says Gilles Rhéaume, VP of public policy at the Conference Board.
Rhéaume says, “The two major benefits of P3s are cost-savings and time-savings. When all the project risks that the public sector bears are fully costed and included in the total cost of the project—and transferred in part to the private sector partners—cost and time savings can be achieved.”
Interesting, since most people working with the project delivery model would say risk transfer is the major benefit of P3s.
The study assessed the benefits and drawbacks of P3 procurements based on recent Canadian evidence and found efficiency to be the main pro and higher costs to be the con (didn’t we just hear that the major benefit of P3s is “cost savings?”)
According to the report savings on P3 projects ranged between a few million dollars for some projects and more than $750 million in the case of the Autoroute 30 project south of Montreal.
But they also caution that private partners charge a risk premium for assuming project risks that are borne by the public sector under conventional projects. Private financing costs are higher than the financing available to governments, and the transaction costs of developing and monitoring P3 contracts are higher than for conventional procurements.
Basically, only certain types of projects will benefit from the lower costs that come from private-sector efficiency.
“In some cases, the risk premium demanded by private partners, combined with the incremental transaction costs and the additional private financing costs, may more than offset the efficiency gains. For this reason, each infrastructure project should undergo a rigourous value for money assessment beforehand, to determine if a P3 offers better value than conventional procurement,” said Rhéaume.
Not exactly earth shattering – haven’t we all agreed on this already? P3s: good for some projects, wrong for others. Oh, and the report also points out that P3s do not equal privatization of public assets. But I think we knew that already, too.
