THE EVIDENCE BASE FOR CANADIAN P3s

The infrastructure projects that provide the evidence base for this report are listed in Table 2.9 They are in the four Canadian jurisdictions that have been most active in using a P3 procurement model for the delivery of infrastructure facilities and subsequent maintenance services-Alberta, British Columbia, Ontario, and Quebec. Only projects that had reached financial close as of the end of November 2009 are included.10 The earliest of the 55 projects listed reached financial close in 2004 under the guidance of Partnerships BC, the first of the P3 agencies. Most of these projects (32) provide facilities for the health and long-term care sector, 14 are in the transportation sector, 8 relate to other social infrastructure (such as schools, data centres, a courthouse, a sports centre, and a concert hall), and 1 is for a water treatment plant. The projects include three fixed-price design-build projects, which share many of the attributes of P3s but do not include private project-specific debt and equity financing.

The projects are at various stages of completion. About one-third of the projects (19) have reached their respective substantial completion date, that is, the date by which the new facility should be built and soon available to be put in service as stipulated in the P3 partnership agreement. One other project-the Ottawa Hospital Regional Cancer Centre (Queensway Carleton Hospital)-is expected to reach substantial completion by the end of 2009. Only 12 of the projects have already entered their operational phase, where the private consortium is responsible for maintaining the infrastructure.11 This suggests that although Canada has been among the most active jurisdictions in initiating P3 projects, it is still rather early to evaluate the operational or service phase outcomes of the second wave of P3 projects in Canada; such an evaluation is more easily carried out in pioneering jurisdictions such as the United Kingdom and Australia.12

The cost savings arising from P3 procurements are estimated in the first instance in the VIM studies that compare the total costs of P3 versus conventional procurement methods before the start of each P3 project. Table 2 shows that these savings can vary from just a few million dollars per project, as in the case of Edmonton's Anthony Henday Drive Southeast Leg Ring Road or Vancouver's Golden Ears Bridge, through to $751 million in the case of the Autoroute 30 project just south of the Montréal area. When expressed as a proportion of the potential costs for procuring the projects through conventional contracting methods (i.e., in terms of the PSC), the savings range from 0.8 per cent through to 61.2 per cent of the PSC for each project.

These VfM estimates are a gauge of the cost savings expected at the outset of a project. For both procurement approaches, the total costs are estimated ex ante (i.e., before the costs are incurred by the government and private sector partners). The estimates are based on high-level comparisons with projects delivered through similar procurement methods as well as detailed cost analysis undertaken by the procurement authority and its advisors. Whether the actual savings match the expected savings by the end of the P3 project depends on the degree of cost and time certainty of P3 projects, as discussed below.

We now examine the cost and time performance of the above transactions on an ex post basis. This performance is assessed by identifying whether projects have had contract variations after financial close (i.e., any changes to contract deliverables, such as the specifications of the facility) and by determining whether the projects have remained within their approved P3 budgets. Contract variations are relatively common in both P3s and conventional contracts, and can be initiated either by the private partner or by the public sector owner. The cost is usually incurred by the party that requests the change, subject to the terms of the contract. However, the main point here is to identify whether the cost impact of the contract variations on the public sector owner's P3 project budget exceeds the provisions for retained risks in the budget. Another indicator of whether the ex ante VfM cost savings are achieved is whether there are any successful claims by the P3 partner (or by any third parties) and whether the impact of such claims exceeds the public sector's P3 budget. With regard to time performance, or time certainty, we identify whether the P3 partner has met the substantial completion date target stipulated by the project agreement.

Of the four Alberta P3 projects, two were completed on schedule and are now in the service phase, and the two other projects are under construction. Three of the four projects have had contract variations either for changes requested by the public sector or in order to address items for which the public sector retained the risks under the project agreement. The fourth project-the Anthony Henday Drive Southeast Leg Ring Road, which was Alberta's first project in the second wave of P3s in Canada-had no contract variations or successful claims against the public sector owner. All four projects remain within their public sector P3 budgets.

British Columbia initiated the second wave of P3 projects in Canada. It has the most completed P3 projects and a very strong record to date in the time and cost certainty of its P3 projects. Of the 16 projects listed in Table 2, 11 have reached substantial completion, and in 6 cases the project (or a component thereof) reached substantial completion earlier than the date specified in the project agreement (the other 5 projects were delivered on time).13 Of the nine P3 projects where construction is complete (i.e., excluding the Charles Jago Northern Sport Centre and the Pitt River Bridge and Mary Hill Interchange), five experienced contract variations; however, we are not aware of any case where the financial impact of the variations resulted in additional costs in excess of the public sector's approved P3 capital budget.14 There have also been contract variations in two of the five P3 projects where construction is not yet complete, but these are apparently minor changes, with no impact on costs. Finally, two of the projects have experienced a successful claim against the public sector owner.

In the case of Ontario, 30 AFP projects have reached financial close under the auspices of Infrastructure Ontario as the procurement authority. Most of these are build-finance hospital projects, and many are currently under construction. Six projects had reached substantial completion as of the end of November 2009. The Trillium Health Centre (Mississauga only) was delivered two months late due to a one-month province-wide labour dispute and a one-month schedule adjustment by the public sector owner allowed for within the contract. The financial impact of the delay was shared between the public and private sector parties. The Roy McMurtry Youth Centre was also completed approximately two months behind schedule, but the financial impact of the delays was borne by the respective private sector partner. The four other projects reached substantial completion either early or on schedule. All six projects were completed within the approved public sector budgets. One other project-the Ottawa Hospital Regional Cancer Program (Queensway Carleton Hospital)-is expected to reach substantial completion by the end of 2009, approximately two months behind schedule. Twenty-three of the 30 AFP projects have experienced contract variations to date, but any cost impact from these variations has remained within the approved AFP capital budgets. Three of the 30 projects have resulted in a successful claim against the public sector owner, with all the claims arising in relation to risks retained by the public sector in the respective project agreements.

Quebec is the most recent province to have set up a specialized infrastructure agency. The five P3 projects listed for Quebec in Table 2 are expected to reach substantial completion beginning in 2010. One of them-the Autoroute 25 project-has experienced contract variations and claims against the public sector. The variations were due to soil contamination levels greater than those the private partner had agreed to cover in the project agreement and to changes requested by the City of Montréal (i.e., all the variations related to risks retained by the public sector). However, the cost impact of these variations remains within the limits of the approved P3 budget.

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9  In Table 2, the Trillium Health Care Centre in Ontario counts as one project, although it has two components.

10  This refers to the date when the partnership agreement with the private sector consortium is signed and takes effect.

11  In a few cases, the consortium is also responsible for the operation of the facility, as in the case of the Britannia Mine Water Treatment Plant.

12  Over 900 P3 projects or "private finance initiatives" were initiated in the United Kingdom between 1987 and 2007, according to IFSL Research, "PFI in the UK."

13  Two of the projects-the Charles Jago Northern Sport Centre and the Port Mann / Highway 1 Project-were originally intended as P3 procurements but were executed as a fixed-price design build projects.

14  In one of the five cases, the Abbotsford Regional Hospital and Cancer Centre, the variations had no impact on public sector capital costs.