Who wins at the P3 game?

At the October meeting of the Union of B.C. Municipalities, Premier Gordon Campbell announced that all future municipal infrastructure projects over $20 million that are funded by the province will have to be considered as private-public partnerships. For those wishing to contemplate the implications of this enforced privatization of water-treatment plants, sewage treatment, recreation centres, and hospitals, it might be instructive to cast your minds back a few weeks to when you were boiling water or buying it in bulk.

What’s the connection? Well, had the GVRD not wasted nearly four years in the tremendously complicated process of trying to make the Seymour water-filtration plant a P3 (it was eventually done the conventional way), it would already be up and running. It would have simply filtered out all the fine silt, and with it any bacteria. The cloudy water would not even have made the news, let alone your taps.

The boil-water fiasco revealed one of the real ironies of P3s. Many of their original benefit claims have been quietly abandoned as the evidence has poured in to refute them. They don’t save money, and they don’t keep debt off the books, because auditors general have exposed this as a sleight of hand.

Promoters are still claiming that the efficient private-sector operators beat the old way of doing things by getting projects built “on time”. But that leads to the question of how you define on time. The fact is that these P3 contracts are among the most complicated in the business world, and contract negotiations can be interminable and are a world apart from the conventional approach.

With P3s, you first negotiate a contract with the consortium that won the bid, itself often an extremely ?complex entity made up of financiers and multiple transnational contractors. That’s just the beginning, as every other service provider (let’s take hospitals as an example) contracted by the consortium, all the nonmedical services, has to have its piece of the action negotiated: laundry, food services, ?maintenance, cleaning, insurance, and security. This is where many of the huge cost increases in P3 projects come from, but it is also the source of endless negotiating.

The Abbotsford hospital P3 took so long to negotiate that legal and consulting fees alone hit a staggering $23.4 million. That facility, before it was P3’d, was slated to be completed by 2005. Now it won’t open until 2008, extending the time that citizens in the region have to wait for an adequate facility and adding at least $68 million in inflationary costs to the project.

There are countless examples of such extremely long periods of negotiating for P3s. Another B.C. example, as reported in the Georgia Straight in December 2005, was the 10 Mile Bridge project in Kicking Horse Canyon near Golden. The province’s aggressive P3 agency, Partnerships BC, got involved after the public financing was in place in March 2003.

After three years of missed deadlines and tens of millions in increased costs, the project is now scheduled to be done by 2009.

The “on time” myth has been thoroughly debunked in Britain, too, as the government’s Treasury Department reported in its 2004 Value for Money Assessment Guide: “[A P3] involves negotiations with a range of commercial practitioners and financial institutions, all of whom are likely to have their own legal and financial advisers. Consequently, procurement timetables and transaction costs can be significantly in excess of those normally incurred with other procurement options.”

Municipalities, already faced with deteriorating infrastructure and inadequate taxing powers, are being bullied into expensive P3s. There are currently 25 B.C. communities with more than 500 residents that need water-treatment plants and that are enduring boil-water advisories. Even if provincial money becomes available, P3s would add many months, and possibly years, to their waiting.

In a further irony, even the companies doing the actual building of infrastructure are getting tired of the complexity and cost of the bidding process. P3s with only two or three bidders are common; in the case of the Abbotsford hospital, there was just one—something that has become commonplace in Britain, the country with the longest experience of P3s. So much for the advantages of vigorous competition, another alleged benefit of these privatization schemes.

So, if municipalities don’t want them, if they cost more, if services are delayed and the contractors are backing away, just who actually benefits? If you guessed the banks (and lawyers and consultants), you’d be right. Larry Blain, the head of Partnerships BC (the government agency promoting P3s), told the Vancouver Sun last week: “Wall Street banks, pension funds, and insurance companies have more than $100-billion themselves to pour into projects.”

If you wondered why you were boiling water for 11 days, it was just the price of helping the banks make more money. I feel better already.