Risk evaluation - a critical first step

At the fabric of any P3 process should be a mandate that any public body contemplating a public-private venture must first develop a public sector comparator (PSC) model based on a highly prescriptive process. The PSC is a critical tool in assessing and comparing P3 options with traditional public procurement models, which begins and ends with a rigorous examination of the "in-house" costs of implementing a project and assigning the various types of risks to the appropriate party that can best handle them.39 This exercise essentially establishes benchmarks against which options are compared and value for money is assessed, thereby providing government bodies clearer guidance on whether or not to use internal or alternative financing for an infrastructure project. The PSC is not a perfect tool by any means, as it is complex to administer and does not easily accommodate non-financial factors. There is also the potential for a public body to overstate its project needs, akin to wanting the Cadillac of facilities instead of budgeting for an equally functional Buick. Nevertheless, the importance of a national PSC standard cannot be overstated, as it is a necessary step that imposes rigorous financial and costing discipline on the public sector, requires a full life-cycle approach and compels consideration and management of risks. Simply put, it imposes stringent accountability and transparency on the P3 decision-making process.

Unfortunately, there is no national standard in Canada to help the public sector evaluate whether a private venture would represent the best value for taxpayers. As it stands, Industry Canada has noted that while most projects would pass the scrutiny of a PSC test, there remains a lack of consistency in value measurement, with everything from internal costing to non-financial considerations weighing into decisions at varying degrees. And in some cases, decisions are made without having completed a thorough assessment of the costs that would be incurred if the public sector delivered the infrastructure and ancillary services.40 With all levels of government competing for the same taxpayer dollar, measures need to be in place to hold the government accountable to the approach and benchmarks used in determining the best bang for the taxpayer buck. Although Industry Canada did release a self-help guide in May of 2003 that provides a general framework for government bodies to evaluate and compare private sector proposals with public models, it has not been adopted nationally, nor it is meant to be a comprehensive step-by-step guide of a public sector comparator (PSC) model.