Public-Private Partnerships (P3s) are increasingly being pursued by all orders of government as an alternative financing source and delivery model for infrastructure and services. While P3s can provide some significant benefits, there are some significant risks that arise with P3s.
The City is facing over $18 billion in identified capital needs over the next decade, over half of which is unfunded. Growth needs alone represent almost $12 billion of this total, with only $5 billion currently funded. While the majority of P3 projects tend to be focused on new growth infrastructure, there may also be some opportunities to evaluate P3s for some of The City's lifecycle needs.
With such large capital needs and funding gaps, there is a need to investigate all sources of funding for infrastructure and services. P3s should be considered one option for delivering infrastructure and services. In some cases, access to grants from the other orders of government (such as the Federal Government's Building Canada Fund) may be contingent on the project considering a P3 as a method of delivery.
However, not all infrastructure and services are suited to P3s, and other factors such as market conditions will impact the viability of P3s for that infrastructure and services which would normally provide opportunities for successful P3s. Great care needs to be taken in the evaluation and structure of any P3 The City undertakes in order to ensure the maximum benefit accrues to The City, while minimizing the risks. It is also necessary to clearly articulate the goals of the P3 and how the performance of the P3 will be measured. The goal of the P3 policy is to set out the criteria for considering P3s and the evaluation process that will be applied consistently throughout the corporation.
This process involves three levels of assessment for P3 delivery. The screening assessment is the comparison of capital projects against relevant high-level criteria to determine if a project is a candidate for a P3 delivery model. The strategic assessment may be thought of as a preliminary delivery model business case. The value for money assessment attempts to quantify the difference in risk-adjusted cost to The City between traditional procurement (i.e. the public sector comparator) and P3 procurement and builds on the strategic assessment.
The evaluation of potential P3s involves a number of complex tasks that require resources from multiple Business Units and disciplines. A clear governance structure is therefore necessary in order to perform these evaluations in a consistent manner that minimizes the potential risks to The City. While there are significant differences in the governance structure among other governments, one unifying factor is a dedicated role for a P3 function that assists in the evaluation of all (or most) P3 projects. An administration policy will be developed that will address the internal governance structure.
P3 delivery models should be considered as an alternative to traditional procurement, with suitability determined on a project by project basis. It is important for The City to ensure consistency in its approach to P3 procurement across all Business Units, and establish a reputation as a reliable and "bankable" sponsor of P3 projects, so that projects will attract competition from the market of service providers. It is important to avoid failed P3 procurements, which typically occur because insufficient analysis and consensus-building among stakeholders has been done prior to initiating the process. Failed procurements can increase the private sector's perceived riskiness of partnering, which will ultimately result in a higher risk premium and thus higher cost of P3s.