Your P3 Policy Framework

The next decade will be a period of significant public-policy and program-delivery transformation as governments—particularly municipal governments—balance the public’s expectation for high-quality, responsive, and affordable services with the fiscal realities that will come with continued sluggish economic growth. Gone are the days of when municipal managers and councils could depend on a growing tax base to maintain or increase service levels and invest in infrastructure.

In our 24/7 consumer culture, citizens are expecting services and infrastructure to be delivered through multiple different channels—and they expect costs to remain stable.

So, in understanding this context, how do municipal councils and managers balance service quality and infrastructure improvements with unprecedented fiscal constraints? Part of the answer lies in partnerships with the private and non-profit sectors, also known as public-private partnerships (P3s), by developing a robust policy framework to help work through where, when, and how to partner with others to deliver the best possible services to residents.

Partnerships are neither revolutionary nor novel in the municipal sector. However, there exists a concern that many municipalities still overlook the benefits due to a lack of institutional and political support. To be clear, this isn’t privatization; it’s a contractual relationship between municipal governments and partners where the partner delivers a project that shares risk and makes payments based on performance. Under this model, ownership of public services and infrastructure remains with the public sector.

Elements of a policy framework: Municipalities that are successfully using partnerships have in place policy frameworks that help council and management think strategically about where, when, and how to deploy partnerships. A robust partnership policy framework takes into consideration four important elements:

• protecting and promoting the public interest;
• optimizing value for taxpayers’ dollars;
• clear and transparent processes for decision-making and maximizing competition; and
• ensuring ongoing public engagement and accountability.

Protecting and promoting the public interest: A common perception is that the purpose of a partnership is to achieve a lower-cost project or delivery of service. While cost is an important factor, it shouldn’t be the sole consideration for a partnership. Promoting the public interest is multi-dimensional and requires that municipal infrastructure and services consistently achieve policy objectives over time; that services are accessible to the client group; and that the overall well-being of the community is enhanced. To put this more plainly, the public interest is defined by the role that a piece of infrastructure or a particular service plays in residents’ daily lives. The more visible, accessible, and important a service or piece of infrastructure is to a resident’s quality of life, the higher the public interest. A partnership policy framework is the right place in which to be absolutely clear about how government will protect and promote the public interest.

Optimizing value for taxpayers’ dollars: “Value for money” is a very important concept, but it means a very different thing to municipalities than it does to other orders of government. There are two important dimensions to the concept of value in partnerships that a policy framework must explicitly address.

1. Fairness: The public is prepared to accept partnerships where the infrastructure or service is financed through a user-pay system as opposed to indirect taxation. If a service in the municipality was originally financed by aggregate municipal taxes, and it’s then partnered with the introduction of new user fees on top of already levied taxes, the public is rightly left with the impression that they are paying twice for the infrastructure or service. The sources and uses of the funds necessary to make a partnership work must be clearly spelled out both in policy and in contract, including how prices under a partnership will be regulated over time.
2. Value: Partnerships, particularly where risk transfer is involved, may actually be more expensive on a cash basis than traditionally delivered infrastructure or services. Value includes an assessment of both cost and the achievement of other business objectives such as policy objectives, service levels, performance, and innovation. Therefore, it’s important for municipal decision-makers and the public to develop an understanding of the difference between value for money “savings” and the cash costs of a partnership.

Transparent processes for decision-making and maximizing competition: Private-sector companies and investors are excited about the potential for municipal infrastructure and service delivery partnerships. However, this excitement is tempered by perceived and real political risks associated with municipal decision-making. Partnerships require clear, transparent, and stable decision-making processes that give partners comfort that they can invest in bidding and winning real opportunities. Municipal council decisions can, and often are, revisited—and most matters, no matter how big or how small, go to council for approval which can create complications for the timely management of partnership procurement processes and contracts. How councils and municipal staff manage decision-making processes for both policy formulation and the actual procurement and management of partnerships must be clearly articulated in a policy framework.

Ensuring ongoing public engagement and accountability: The public has a very good understanding of the role services play in the quality and safety of their daily lives. Therefore, in pursuing a partnership, the public must be able to help shape the partnership from the very beginning. This means carving out clear processes, milestones, and communications and engagement approaches in a partnership policy framework. Ontario did this in their Building a Better Tomorrow infrastructure policy framework and it guides Infrastructure Ontario’s public engagement and accountability approach for provincial P3 projects. There are many best practices to be drawn on in this respect.

In short, partnerships for municipal infrastructure projects and services can be very beneficial for municipalities and their residents. Municipalities that invest the time of council, staff, and residents in defining a partnership policy framework will be the ones who are most successful in navigating expected massive transformational change in public policy and service delivery over the next decade. 

Chris Loreto is the consulting practice leader and Dave McCleary is a senior consultant with StrategyCorp in Toronto.