The changing shape of public-private partnerships
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Five schools for the price of four — that was the deal the Pallister government got when it abandoned the plan to build schools through a Public-Private-Partnership (P3) model and used the usual public model instead. The government built five schools for the same cost using the regular process. In addition to being more expensive, P3s have been criticized for excluding local contractors, lack of transparency and loss of public control over taxpayer-funded assets.
So why is Manitoba looking at the P3 model again in 2023?
In growing communities, the need for new schools is strong and will be an important talking point on doorsteps in the upcoming provincial election. Voters may not know the risks of P3 models, but Manitobans need to prepare for more P3 proposals. Alongside the nine P3 schools announced last month, the province tendered an RFP to pre-approve consultants for work on P3 infrastructure projects across the Manitoba government.
The usual public model involves several contracts with the local private sector: architects, engineers and construction firms. The government then either pays for the infrastructure through general revenues or borrows money by issuing bonds to pay for it. When construction is done, the government owns and operates the infrastructure — a highway, a school, or a hospital.
With P3s, one large private sector firm is generally contracted to build, finance, maintain, and operate the project. The government leases the infrastructure back for public services, while the private company maintains ownership.
The Pallister government retained KPMG to do a study on using the P3 model for schools in 2018. KPMG recommended against it. The overwhelming evidence of costly problems related to P3s has not changed since then.
Manitoba’s ostensible reasons for returning to P3s for schools are speed and cost. Public Service Minister James Teitsma argued that by bundling the construction and maintenance costs, the contractor would spend more up front to keep major maintenance costs low. But there is no reason why the Manitoba government could not also build better schools to save maintenance costs in the lifetime of the school. P3 projects do not take less time, they take longer to get started due to complex — and expensive — contract negotiations.
As the Pallister and then Stefanson governments have slashed taxes and revenue by $1.5 billion per year, one strategic reason for the Stefanson government to bring back P3s is that P3s cost governments less now but more later, after these politicians are long gone.
Governments borrow at much lower interest rates as they own significant assets and are low-risk. Evidence from the UK finds a P3 repayment typically exceeds the cost of publicly financed projects after 15 years and is 40 per cent more expensive than publicly financed projects over the project’s lifetime, because borrowing costs for private financing are high. The UK Auditor General found interest rates for P3s were two- to five per cent higher. On Manitoba’s previous proposed P3 schools’ $100 million project, interest payments over 30 years at a four per cent interest rate would be $73 million versus $166 million at eight per cent — more than double. Taxpayers would bear the cost of repaying these higher financing costs.
The UK is one of the first countries to see the long-term impacts of using the P3 model on the public purse. These were so significant that the UK decided to abandon the P3 model altogether, citing its “significant fiscal risk for government.”
In Canada, Auditor Generals in five provinces have released reports heavily critiquing P3s for the high expense to the public purse and taxpayers: New Brunswick, Quebec, Ontario, Saskatchewan and British Columbia. The Auditor General of Canada found the value-for-money analysis done to justify P3 projects downplayed their costs while inflating the cost of the traditional model.
P3 contracts are not available to the public, so public interest groups cannot review past P3 projects to assess costs. Minister Teitsma argued that Manitoba’s P3 contract would be improved from other jurisdictions and control costs and public-school access. The public, however, won’t have access to the contract to assess the exact agreement. These are held as confidential due to corporate interests.
So again, why P3s now? Many high-profile corporate leaders sit on the Canada Council for Public-Private-Partnerships. They are a powerful group and will continue to push and “shapeshift ” procurement processes across Canada in favour of the P3 model as it represents a massive opportunity for profit to the private sector at taxpayers’ expense.
Molly McCracken is the Manitoba director, and Niall Harney is the Errol Black Chair in Labour Issues, for the Canadian Centre for Policy Alternatives.