If you want to know what a mature, effective federal and state P3 policy can look like, we need not look very far beyond our U.S. borders. Two Canadian provinces, Ontario and British Columbia, provide us a road map for building successful, sustainable P3 programs and policies.
At the International Bridge Conference in Pittsburgh last month, panelists for a workshop on P3s, including Len Kozachuk with Infrastructure Ontario (IO), described the essential features of this agency and its alternative financing and procurement program. The contrast with how our federal and state policy makers view P3s was striking:
- All three major political parties in Ontario support the use of P3s. They do so because the track record proves the benefits of P3s. The woeful experience in the U.S. is that if one party supports it in a particular state, usually the other party opposes it.
- IO has plenary province-level authority over P3 procurements for all forms of transportation and social infrastructure. It is a center of expertise. We are aware of no state entity with comparable procurement powers or expertise. Virginia is making an effort in this direction with its recently announced Office of Transportation Public-Private Partnerships.
- IO handles a wide range of project types, from transportation to social infrastructure such as hospitals, courts, schools and water projects. It is a rarity in the U.S. to find any state even considering use of P3s for social infrastructure, and only a handful of states have transportation projects under active consideration for P3s.
- IO is staffed with a strong group of financial, technical and legal professionals and analysts. IO carefully screen projects for P3 suitability and does not hesitate to reject those that are not ready or suitable. They then run the procurement, and negotiate and administer the contracts. In most states, we witness P3 offices in state DOT’s formed as an afterthought, often understaffed, with insufficient prior training and experience and inadequate support from other DOT divisions.
- IO is dedicated to maintaining a pipeline of P3 projects - over 50, worth $23 billion, since 2005. Compare this to 96 projects throughout the entire U.S., worth $54.3 billion in transportation P3 contracts, over the past 22 years, a bunch of which are design-build only (see Public Works Financing, May 2011 issue, p. 4-5). And IO has something like 20 more projects concurrently under active procurements, dwarfing any U.S. state effort.
- When IO folks commence a P3 procurement, they finish it, because they have the political support, authority, analysis, staffing and funding to do so. This track record has bred credibility for the IO in the P3 industry. In most states, the use of P3s is decided on a project-by-project basis, with little promise of a steady stream of opportunity. Delayed, prolonged procurements, and too many failed procurements, undercut acceptance of P3s and industry confidence.
- Every Ontario infrastructure project with estimated capital costs of $50 million or more must be analyzed for P3 suitability. This is the law for any project seeking Canadian federal support. Indeed, IO’s working presumption is that P3 will be the preferred method of project delivery for such projects. In the U.S., nowhere do we find a presumption in favor of P3s for significant projects, much less a standing policy to evaluate for P3 suitability. P3s are usually viewed as a last resort, when no other means to close a funding gap can be identified.
- The driver behind the presumption favoring P3s in Ontario is life cycle cost efficiency. We believe this model — with the inherent private-sector efficiencies — will create an overall lower cost for taxpayers than if the government financed projects directly. [From website] Time and again IO has found that P3s produce the best value for money over the useful life of large, complex projects. While cost effectiveness should be the central reason for using a P3 (see Public Works Financing, May 2011 issue, p. 24), the driver for using P3s in the U.S. is lack of traditional financing. If the necessary capital can be raised through any non-P3 means, that is usually the choice, even though a P3 approach can delivery quality assets and performance at a lower life cycle cost.
The story is the same in British Columbia, where Partnerships British Columbia has successfully pursued P3s for dozens of transportation and social infrastructure projects. It analyzes projects for P3 suitability and manages the P3 procurements for provincial and municipal government owners. All projects of $50+ million are considered first … to be built as public-private partnerships (PPPs) unless there is a compelling reason to do otherwise. It delivered 35 PPP projects between 2002 and 2010, worth $12.5 billion. P3s are expected to meet 10-20% of the province’s infrastructure capital needs. P3 market share in the U.S. since 2008 is about 2% (see Public Works Financing, May 2011 issue, p. 6).
In a nutshell, the Ontario and B.C. governments champion P3s, because they know they produce the best value for the public when applied to the right projects in the right way. We need many more states with well-positioned elected and executive officials steadfastly advocating a change from episodic to programmatic P3 decision making (see TR News Magazine May-June 2011, p.23). Our northern cousins are showing us how.
During his 45 years with the Firm, Fred Kessler has gained national recognition as a guiding force for public agencies in the field of transportation public-private partnerships (P3s). Clients benefit from his vast experience with ...
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