Canadian Manufacturing

Public-private partnerships important option for improving Canada’s infrastructure: report

Benefits come from improved incentives for private-sector partner to provide timely, high-quality results

VANCOUVER—A new report from a Canadian think-tank says governments across the country should increasingly consider public-private partnerships to improve the nation’s aging infrastructure.

The Fraser Institute report, Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada, argues such partnerships can outperform the conventional process and measures how often they are currently used in Canada.

“Canadian and international evidence shows that (public-private partnerships) tend to be built on time and on budget, and they typically outperform conventional infrastructure projects,” Fraser Institute associate director and report co-author Charles Lammam said in a statement.

“(They) also provide greater value for money and opportunities for innovation, allowing Canadians to benefit from higher quality infrastructure and often at a reduced cost to taxpayers.”

In a public-private (P3) infrastructure project, a single private-sector partner is responsible for two or more of the following tasks: design, build, finance, operation and/or maintenance.

The report says the project usually lasts several decades.

“P3s are not a form of privatization. The public sector sets the project goals and retains ownership, while the role of the private sector is to meet the government’s quantity and quality requirements-things like highway safety or traffic flow,” Lammam said.

The report notes that the benefits of P3s come from improved incentives for the private-sector partner to provide timely and high-quality results.

A key feature of P3s is that the private-sector partner takes on some of the project’s risks that would otherwise have been borne by taxpayers.

For example, if the risks of construction delays are assigned to the private partner, then the private partner has a stronger incentive to finish the project on time; if not, it loses out on some profit.

“P3 projects that include private financing for up-front capital costs motivate positive performance since the private-sector partner has its own money at risk,” Lammam said.

“With payment conditional on meeting the public sector’s preset criteria and penalties levied otherwise, the private-sector partner has a strong incentive to deliver favourable results.”

According to the report, assigning multiple tasks to a single private-sector partner also encourages increased quality and efficiency throughout the project’s life.

The report concludes that to ensure successful outcomes, P3s should be used selectively and employed with proper care on the part of government.

“Rather than blindly encourage the adoption of P3s, governments should focus on establishing a framework in which P3 projects have the ability to succeed and create value for money,” Lammam said.

The report notes that from 1985 to January 2013, Canada had cumulatively planned, started or completed 59.5 transportation P3 projects (three of which are shared with the United States) at a total cost of $44.4-billion.

Approximately 60 per cent of those projects occurred in British Columbia and Ontario.

“British Columbia and Ontario are leaders in terms of using the P3 model, but more widespread adoption could improve the design, quality and overall management of Canada’s vast transportation systems.,” Lammam said.

To view the report, log on to the Fraser Institute website.

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