Most of the Canadian jurisdictions active in P3s have published specific guidelines to help public sector bodies determine whether a P3 is worth considering as an appropriate delivery mechanism.6 These guidelines typically include:
◆ the feasibility of developing output specifications and performance requirements for the project, without which effective risk transfer to the private partner is unlikely;
◆ a deal size, including construction and operations and maintenance costs, that exceeds a minimum threshold, which varies between $40 million and $100 million, depending on the jurisdiction;
◆ sufficient project complexity in the design, construction, or operations and maintenance phases, which can allow for more cost-effective risk transfer to the private partner because of opportunities for innovation, including potential synergies from integrating the work across the different phases of the project; and
◆ a competitive market that is likely to produce at least three bids for the project.
If any one of these guidelines is not met, a P3 procurement is unlikely to generate any value for money and could indeed do the opposite. For example, the United Kingdom has ruled out PFI projects covering information technology (IT) assets because of the difficulty of specifying output-based performance requirements over long periods when technology is changing rapidly. The U.K. experience with P3 projects in the IT sector was characterized by relatively high transaction costs because of this performance measurement problem. Other infrastructure projects that are also typically rejected for P3 procurement are those where renovation work constitutes a substantial share of construction costs or where construction would interfere with existing operations. Performance measurement is also an issue in such projects because of the relatively high levels of latent risk associated with the existing structure and design.
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The preliminary choice of P3 projects is neither arbitrary nor ad hoc Early screening is supported by explicit criteria that are applied to potential projects. |
However, one criterion that is seldom considered is whether there is project and policy certainty over the 20- to 30-year period of the contract term.7 By this we mean that governments tend to change policies and the public at large can also change preferences. As discussed in Chapter 2, if the project requirement is particularly sensitive to a change in policy over the contract term, this can lead to substantial unanticipated costs under a P3 (but not necessarily under a conventional contract). An example would be the costs of early termination.
Our review of P3 screening practices by each of the Canadian jurisdictions active in this type of procurement has found several examples of projects that were initially considered for P3 treatment but were subsequently rejected because they failed to meet one of the above guidelines. This suggests that the preliminary choice of P3 projects is not an arbitrary or ad hoc process. Early screening is supported in most cases by explicit criteria that are applied to potential infrastructure projects.
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6 See the following documents for the specific guidelines: Partnerships BC, "Capital Project Public Private Partnership"; Government of Quebec, Public-Private Partnerships Framework Policy, p. 2; and Alberta Infrastructure and Transportation, Management Framework, p. 12. Ontario also has initial screening criteria that are shared directly with public sector entities.
7 This potential obstacle to P3s is raised by Murphy in "The Case for Public-Private Partnerships."