Private School

In September 2008, the government of Alberta awarded a public-private partnership (P3) contract to BBPP Alberta Schools Limited for its Alberta Schools Alternative Procurement Phase I project (ranked 33 on this year’s Top 100 list). This project consists of building 18 schools, nine in Edmonton and nine in Calgary.

But critics question whether a P3 provides the best value for taxpayers and whether it is the best approach for the 30-year term of the contract.

The provincial government weighed BBPP’s and other proponents’ proposals against a Public Sector Comparator to determine if the bids would provide value. Tracy Larsen with Alberta Infrastructure says the estimate included input from an independent cost consultant, an independent financial advisor, as well as economic and financial data provided by Alberta Finance and Enterprise and from the government’s own experiences with building and maintaining schools.

Larsen says based on the analysis, it was determined the P3 model, which includes 30-year maintenance for all schools, would save taxpayers about $100 million (in 2008 dollars). “BBPP’s bid was $634 million Net Present Value (NPV). The same work through traditional delivery methods would have cost taxpayers $752 million NPV. Additionally, the 18 schools would be open two years earlier (September 2010) than would be possible through traditional delivery methods wherein schools would likely be phased in over a three-year period.”

Tim Heavenor, president of Gracorp Capital Advisors Ltd., one of the sponsors for BBPP, says part of the savings come from economy of scale. “It costs less to build multiple, identical schools on a coordinated schedule than to contract each one separately.”

Heavenor says the P3 model also allowed the government to transfer risk to the contractor. “Right now is a good time for government to be transferring risk to the private sector because construction costs are a lot lower this year and companies are still willing to accept these risks.”

But Gil McGowan, president of the Alberta Federation of Labour, says, “P3 systems are a financial shell game. By getting the private developer to do the financing, the costs are moved off the government’s books, but the taxpayer is still on the hook. In fact, because no one can get better financing rates than the government, and because private developers have to build in a profit margin, it always costs more to go with a P3 model.”

McGowan says P3 developers often lowball their bids and end up coming back to government asking for bigger payments even after the contracts have been signed. “Governments are then held over a barrel because politically they can’t afford to have a school close, so they pay up.”

McGowan refers to CUPE Alberta’s 2007 study, Doing the Math: Why P3s for Alberta Schools Don’t Add Up, which bases some of its analysis on using the P3 model for the ASAP I project. The report found that for every two schools financed using the P3 model, an additional school could be built if they were all financed using conventional public sector financing.

Another contract flaw is the restrictions for the uses of the schools. “The contract is very strict in what the communities can use these schools for,” says McGowan. “They can only be used for students during the day. That eliminates the rest of the uses such as night school, a meeting place for the community, health clinics to administer flu shots, or voting stations. Had these 18 schools been built using a traditional procurement approach, then the community would be allowed to use the schools for other purposes. As it stands, the government or the developer will decide who can use the schools and for what purposes.”

Wendy Cooper, chief executive officer, Consulting Engineers of Alberta, says P3s like the ASAP I project also eliminate small and medium sized companies from competing. The honorarium the government pays to companies for preparing a request for proposals (RFP) doesn’t come close to what they might have paid to prepare their RFP. “In some cases, it can take almost a year and cost $1 million to prepare an RFP for a P3 project, and if the team loses, they don’t get that time or money back,” says Cooper. “Only the large, usually multi-national companies can afford to compete.”

Cooper also says the government needs to be careful about which financing model it uses to build infrastructure. “If the government only chooses the P3 model from now on, they have to be careful how many projects they have to make payments on for the terms of the contracts.  They can only make so many payments out of their yearly operating budget. Once they run out of money, how can they afford to build any new projects?”

The ASAP I project is the first infrastructure project for which the government of Alberta has used the P3 model. Only in 30 years time will we know if this model is successful. But one current indication of its success or failure may be the fact that the ASAP II project—14 new schools for rural Alberta—will not be a repeat of ASAP I. Due to the economic collapse of 2008 and a lack of major contractors in Alberta, the government has decided to use the P3 model only to build the ten K-9 schools and a design-build model to build the four high schools.  

Diane L.M. Cook is a Calgary-based freelance writer and editor.