One size does not fit all

The Canadian infrastructure world has been shaken by the impact of Public Private Partnerships. New hospitals, long term care homes, schools, arenas, energy generation, roads, bridges, water and wastewater plants, and prisons have been built using this formerly European model. Much of this infrastructure replaces older failing infrastructure, while others are new Greenfield projects. The overarching theme is that many of these projects would not have been built in our traditional model.

Public Private Partnerships for projects

The term PPP (or P3) may be new, but using a different set of letters, it is not necessarily a new project delivery method. While many Canadian construction projects are built using a process where the owner engages designers to prepare a design and then tenders out the construction (generally called design-bid-build, or “DBB”, many other projects are built using design-build (or “DB”) where the owner hires a single entity to design and construct the project. Acronyms are rife in the construction sector, as “DBFs” (design-build-finance, where the design-builder financing the project through to completion), “DBOs” (design-build-operate) and others have also been used. A PPP is actually a design-build-finance-operate (or maintain), or “DBFO” or “DBFM,” for you acronym junkies. 

The challenge for all owners is determining the best way to successfully deliver a project.  These newer methods add one other question: how do we best maintain the asset once it is constructed so that it does not become part of the next generation’s infrastructure deficit? Traditional methods rely on the owner’s consultants to verify that the owner is getting what it is paying for, but in a PPP (or DBFO), the company that is hired to perform all of these functions over a long term, together with the bank that has lent the money, have an equal or greater interest in making sure that the asset is properly designed, constructed, and maintained. Of course, this is of particular interest to public sector owners, where ribbon cuttings were traditionally followed by continually slashed maintenance budgets. Five year governments maintaining fifty year assets are mismatched from the start.

Are PPPs a panacea? The choice of delivery methods needs to be carefully matched to the needs of the owner and the peculiarities of the project. One size definitely does not fit all. 

Government agencies

Many of the larger provinces have agencies dedicated to the delivery of infrastructure, and these agencies (such as Infrastructure Ontario, Infrastructure Québec and Partnerships BC) are all now delivering projects on a broader basis than just Public Private Partnerships. This means that companies who were not interested or able to participate in PPP now have the prospect of seeing these agencies in other delivery modes.

Added to this mix is PPP Canada, which is a federal agency that is targeting PPP projects.  Its mandate is to support the development of PPP projects and facilitate the development of the Canadian PPP market. To accomplish this goal, PPP Canada has a fund (the P3 Canada Fund) that is a merit-based program that can be accessed by provincial, territorial, municipal governments, First Nations and other public authorities. In addition to the fund, PPP Canada offers consultancy services to these same groups, as well as to other federal government agencies.

In addition to federal and provincial agencies, there appears to be increased interest in PPP project delivery in municipalities, both large and small. Some of the larger municipalities such as Toronto and Winnipeg have already been involved in PPP projects, while others such as Calgary and Victoria have appeared interested. Smaller municipalities have also been the source of some projects, but project size, constrained municipal resources, and lack of education have appeared to be problematic. The latter is an area of interest for PPP Canada.

Infrastructure sectors

The needs of each government have driven the sectors in which PPPs have been used in Canada. In British Columbia, hospitals, highways, and energy generation have led the way. In Alberta, schools and highways have been the principal targets. In Ontario, healthcare was the clear priority, with highways now following suit. In Quebec, highways and now healthcare have been the primary sectors. In the other provinces, such as New Brunswick, it is a mixture of many sectors.

There does not appear to be a clear sectoral winner for the future. It appears that healthcare (both hospitals and long term care) remains strong, as does the highway sector.  There appears to be some room for growth in schools, particularly in the provinces that have not been active yet. 

Energy continues to be a strong player. The ever increasing appetite of Canadians for power has led to numerous calls for new power, many of which have been done on a PPP or quasi-PPP basis. Additionally, maintenance budgets for existing power generation facilities have not escaped the politician’s guillotine, resulting in a significant need for refurbishment. While much of that refurbishment is being done on a traditional basis, there appears to be some appetite for PPPs in the refurbishment sector.

The areas that have seen some projects, but that appear to be in the “moderately strong” category are prisons, police stations, water and wastewater, and transit.  Each of these sectors has prospects for growth.

The final categories are project areas that have had less press, but that could be poised for some increased activity. These sectors include recreational facilities (such as ice rinks and auditoriums), ports, waste (including energy from waste), and miscellaneous other government facilities such as maintenance facilities. Each of these sectors has had some activity, but there appears to be a prospect for growth in each sector.

Exports of Canadian expertise

When Partnerships BC and others first solicited work, the project professionals had foreign accents, mostly Australian and British, reflecting their nations’ PPP head start. The bankers came mostly from Europe and the U.S., and Canadian professionals were brought in only for our local knowledge. But Canadian professionals learned quickly, and now others are seeking Canadian expertise. Entering this market after the Australian and British trailblazers, Canadians have learned from their mistakes and built on their successes. 

Canadians have a tremendous history of success abroad, and are playing an important role in the development of PPPs on all continents (with the potential exception of Antarctica, although Public Penguin Partnerships cannot be far from occurring).  This trend is likely to continue as PPPs have spread to developing countries around the world.

The future

The only constant is change. New models will develop and current models will adapt.  PPPs survived the recession, and the need for infrastructure creation and rehabilitation continues to increase. There is no perfect project delivery model, but PPPs appear to have found a home in Canada.

 

 

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Robert Shouldice, also a BLG Vancouver partner, practices in Corporate Commercial as well as Energy Law. Doug can be reached at 604-640-4128 or [email protected] Robert can be reached at 604-640-4145 or [email protected]

 

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