21 JUN 2018
Like most countries in the world, Canada has a large infrastructure deficit, estimated at approximately $570 billion, according to the Canadian Council for Public-Private Partnerships. This is an issue that must be addressed in order to enhance global competitiveness and it will create more jobs and generate economic wealth in the process.
For this reason, several governing bodies across Canada have long-term plans to invest in infrastructure. The federal government for example, developed a plan to invest 186 billion dollars over next 10 years in infrastructure through initiatives like the Canada Infrastructure Bank and the Canada Smart Cities Challenge.
The average citizen wants infrastructure built better, cheaper and faster, which forces governments to think about more innovative ways to invest.
However, federal and provincial governments face fiscal challenges while implementing these plans. The average citizen wants infrastructure built better, cheaper and faster, which forces governments to think about more innovative ways to invest in infrastructure. One of these approaches are the P3s: Public-Private Partnerships.
P3s have been in Canada for 25 years, and there have been 276 projects completed across the country following this procurement model. The sectors where these projects have been the most prominent are transportation and health, while their most established markets in Canada are Ontario, Alberta and British Columbia.
However, there are P3 projects being developed all across the country. Provinces like Newfoundland and Labrador, Nova Scotia and Manitoba are becoming more interested in a model like the one Infrastructure Ontario (IO) has adopted. IO has its own P3 model which has allowed projects to be delivered far more on time and far more on budget than traditional P3 models. At the same time, this model also transfers the project risks from the taxpayers to the party with the expertise and ability to handle that risk best.
The name of this model is Alternative Financing and Procurement, and under an AFP project owners establish the scope and purpose of a project, while design and construction work is financed and carried out by the private sector. An innovative and more sophisticated model of AFP is the Design-Build-Finance-Maintain (DBFM) model, in which all aspects of the project performance are integrated and assigned to the designated private sector project company.
There are currently around 100 AFP projects in Ontario, and 40 of those are DBFMs. As the project pipeline grows so does the expertise on how to properly manage project lifecycles. For example, in the first projects, the transitions from the construction stage to the operating stage were not planned and no safe measures were taken. Now there are more robust processes of transition.
Another lesson-learned by Infrastructure Ontario was to enforce the contract where it matters, and make sure they hold the project company accountable for their performance. Gaps between the contractor and the finance-management companies are very common, but the DBFM model allows for only one point of accountability.
Even though significant progress has been made in terms of P3 Project Delivery in the province of Ontario, we are still not far enough into these concessions. Only time will tell what will happen during the hand back of these assets, and what risks will arise in the final stages of the project’s lifecycle. However, governments should continue their due diligence and pursue the continuous improvement in their P3 project delivery models in order to shape the future of infrastructure in our country in a positive way.