Monday, 29 April 2019


When candidates from either political party engage the public in this General Election, they might hear exasperation over the financial state of the province. Now that the Government has discovered a (relatively) new financing tool, Public Private Partnerships (P3s), with which to fund capital projects like hospitals and long-term care centres, everyone needs reminding that this new credit card has to be paid, too.

In 2017, Mary Shortall, Federation of Labour and CUPE local President, vigorously opposed the idea and issued her position following Ball’s announcement that the Corner Brook hospital would be built via P3. Unfortunately, her concerns sounded far too self-serving and the subject went quiet.

In the two years since, the Ball Government has taken a deep dive into the locally-untried P3 arena. Employed on occasion by most provinces, it is a scheme in which private contractors design, construct, maintain and finance facilities, often for a 30-year term. Typically, the government takes ownership of the facility when the contract ends.

The Province is now committed to P3 projects having a value of around $700 million — nothing like jumping in with both feet before the success of the first P3 is even tested.

As it stands, the Government is committed to a $227 million hospital and seniors ‘ long-term care complex for Corner Brook, long-term care facilities in Gander and Grand Falls-Windsor (cost unknown), the Waterford Hospital replacement for St. John’s ($200 million) and, most recently, a new Adult Correctional Centre replacing the HMP ($200 million).
Premier Dwight Ball unveils Corner Brook Hospital using Public Private Partnership
What is the allure of the P3 concept? Conveniently, governments argue that the scheme transfers much of the construction risk to the private developer, winning lower costs. The theory sounds plausible if only because most project costs exceed the budgets even using traditional approaches to construction like “Bid, Build” (BB) or “Design, Bid, Build” (DBB). 

P3s: Government Not Ready and They Are Not Risk Free

Missing from the argument is that government is its own worst enemy. Costly change orders as well as poor oversight are the bane of budgeting. Some of it is due to political interference, too, when construction deficiencies are resolved at the political level, rather than under the hammer of inspectors hired for the purpose. You can bet your booties that this problem won’t go away under P3s.

The big attraction, however, is that the cost of those projects won’t show up on the government’s balance sheet. Meanwhile it funds projects through the Capital Account, too. This issue is important because government’s debt burden has reached a critical level.

Knowing this, politicians are still unwilling to either curb voters’ appetites or re-establish priorities. In an election, is any Opposition Party going to object or show how fiscal room should be made (i.e. what cuts to program funding do they propose) when seniors’ care, hospitals, and prisons are deemed a social and political priority?  

The very structure of the P3 requires that the full amortized costs — capital and operating — will be included in the Government’s annual Current Account expenses. Having committed itself to Budget balance by 2022-23, the costs associated with $600 million of public private partnerships — along with the operating costs of the new facilities that are not replacements — are all part of that budget balancing act. Of course, no one takes the promise seriously.

There are other questions, too. Is the P3 concept the best way to employ public money when the planning and construction of such facilities lie exactly within the government’s wheelhouse? Doesn’t it make more sense to employ a “partnership” when skills not available in-house are found though the P3? Is such an approach too rational when the scheme is of a kind that relates chiefly to the exigencies of partisan politics?

Let’s not kid ourselves. P3s do not represent a slavish fealty to the concept of “lowest cost”. If that were the case, they would be more carefully pursued. P3s are a convenience for a government in a financial pickle. Debt by any other name is still debt.

Prior to selecting the P3 model for the new HMP, the Ball Government employed the services of EY, a Consultancy, to advise regarding procurement options. It reported that that the Government should adopt the Design Build Finance Maintain (“DBFM”) or P3 model “instead of the traditional DBB (Design, Bid, Build) procurement methodology.” EY suggested that the DBFM would provide greater VFM (Value For Money). They quantified the advantage by suggesting that, on a Net Present Value basis, costs would be reduced by 11.9%.

Unfortunately, what the public actually gets to see of the EY analysis is pretty thin gruel. Not even the basic data used is included in the report, making third-party scrutiny impossible. That is one issue.

Another is this: anyone having observed the Muskrat Falls Inquiry these past few months ought to be suitably jaded by the claims of consultants. Not all consultants — but many — were found to be unwilling to disappoint a customer. They even allowed Nalcor to edit their final reports.

All the issues noted bear on the questionable wisdom of P3s, except in unique circumstances, but none so much as the fact that the NL Government has no expertise managing a P3 from start to finish.

That was the case when the P3 model was discussed in 2017 and there is no evidence — whatsoever — that the Ball Government now has, within the key Departments of Finance, Justice and Works, Services and Transportation, a core group possessing of the knowledge and expertise to either write the contracts or manage them.

On the other hand, we can be reasonably certain that the private sector entities entering into P3s won’t be risking their money quite so unwisely. For P3s to work to public advantage, the real challenge is in the construction not just of the standards of the facility but, critically, of the thoroughness of the 30-year agreement — which could kill a good deal right from the start. One professional watching is especially doubtful of the state of the buildings Government will inherit when the 30-year P3 contract expires. 

In her 2017 comments, Mary Shortall expressed the concern that the private sector would earn a profit on P3s. She said, “So it's either less workers doing the same amount of work or less wages.” Had Ms Shortall prefaced her apprehension over “profit” with the word “unwarranted” she might have attracted a bevy of free-enterprisers to her point of view, too.

To be fair, CUPE did put some work into gathering analysis of the results of P3s undertaken from Nova Scotia to B.C. by Federal and Provincial Auditors General who gave several a failing grade. CUPE's research, wittingly or otherwise, included none that were successful.

In this Province, given the emphasis on the projects to be funded rather on the process used to enable them, the public might just conclude that P3s are just another way of doing business. As unfortunate as that fact is, it still doesn't change the reality that, when it comes to P3s, the Government likely doesn’t know what it is doing. And for that reason, they represent a costly risk to Ms. Shortall’s membership and to the public, too.