- Barrie McKenna discusses the cost of public-private partnerships:
Disturbing new research highlights some serious flaws in how governments tally the benefits of public-private partnerships versus conventional projects. Too little is known about how these contracts work, who benefits and who pays.And even McKenna's concerns miss another obvious weakness in nominally transferring risk to a private party.
This week, public-private partnerships will take centre stage when the House of Commons operations committee resumes a series of hearings on P3s, stacked with witnesses who like them.
A P3 works essentially like leasing a car or TV, rather than paying cash up front. At the end of the day, governments pay substantially more, but if something goes wrong, someone else is responsible.
Based on a new study of 28 Ontario P3 projects worth more than $7-billion, University of Toronto assistant professor Matti Siemiatycki and researcher Naeem Farooqi found that public-private partnerships cost an average of 16 per cent more than conventional tendered contracts. That’s mainly because private borrowers typically pay higher interest rates than governments. Transaction costs for lawyers and consultants also add about 3 per cent to the final bill.
Without putting a fair price on risk, taxpayers will never know whether P3s are any cheaper than building things the conventional way.
Set the value too high, and P3s become vehicles for governments to subsidize inflated profits of powerful and well-connected contractors and financial institutions.
Notwithstanding these red flags, Ottawa and the provinces continue to embrace the public-private model. P3 Canada Inc., Ottawa’s $1.24-billion P3 fund, has sunk more than $300-million into various projects since the summer, including a GO Transit maintenance yard in Whitby, Ont., an airport in Iqaluit and Edmonton’s ring-road. This week’s hearings are likely aimed at building a case for spending even more in the next budget.
Lost in the fog is the real risk that current and future taxpayers are paying way too much for vital public infrastructure.
It's well and good to say that a third party is responsible for completing a project, but that party may well see it as efficient to breach the contract if costs prove higher than expected. Which means that while P3s add to the price tag up front and provide a ready source of privatized profits if everything goes as planned, they don't guarantee for a second that the public won't be on the hook to complete a project.
- Meanwhile, False Positive rightly rebuts the dubious claim that the failure to outlaw for-profit health care in the Canada Health Act somehow serves as reason to prefer private to public delivery.
- Following up on last week's column, we shouldn't be too surprised to learn that the Koch brothers are pushing the boundaries in eliminating employees' civil rights - not only through forced indoctrination and speech suppression, but also through more straightforward abuses such as kidnapping. But I'm sure it's all in the interest of limiting the heavy hand of the state.
- Finally, pogge offers up the right answer as to how regulators should deal with businesses who play games rather than showing any willingness to consider public health and safety.