Carillion collapse shows perils of P3 contracts

Public-private partnerships are costly to taxpayers, says Sandra Seitz

For years, the Saskatchewan Party government has been championing the benefits of public private partnerships (P3s) as a way to build public infrastructure. It has used the P3 model to build four major projects in the province, including the controversial Regina bypass and the new Saskatchewan Hospital in North Battleford.

Our government has been surprisingly quiet, however, after news that Carillion, a major U.K.-based construction company involved in P3 projects worldwide, went belly up last week — leaving the British government scrambling to provide payroll and replace public services for projects that had been outsourced to Carillion.

How does this affect us in Saskatchewan? Carillion’s Canadian subsidiary is a partner in the $407-million contract to finance, build and maintain the new Saskatchewan Hospital North Battleford. Carillion Private Finance Ltd., based in the U.K., provided 50 per cent of the equity to the P3 hospital.

The response from our government, through Sask-Builds, was surprisingly nonchalant: “The hospital project is not affected but, if it is, we can find another partner.” But it appears the project is affected: The day after Carillion collapsed, Moody’s Investors Service changed the rating outlook on this project from “stable” to “negative.”

Saskatchewan residents should be concerned, however, about financing capital projects through P3s. Not only is there the risk private companies go bankrupt, but they are more expensive to build and maintain. Carillion was the lead company in the consortium that built the P3 Brampton Civic Hospital, a project the Ontario auditor general found to have cost $200 million more than if the province had borrowed to build it publicly. A more recent auditor’s report found that 74 P3 projects cost that province $8 billion more than if they had been procured publicly.

Already we are paying quadruple the original estimated cost for the mental health facility. In August 2011, when Premier Brad Wall first announced the Saskatchewan Hospital would be rebuilt, he said the price tag would be $100 million. Less than three years later when the government issued the request for quotation for the facility, the construction cost had jumped to between $175 and $250 million. When the contract was signed in 2015, the costs had ballooned to $407 million.

One of the reasons the price tag for this P3 is so inflated is because we are on the hook to pay $185 million to Carillion (or its replacement) and Graham to operate and maintain the facility over 30 years. That’s $6.2 million per year — for one facility. It is hard to imagine why the operating and maintenance costs would be so high, considering the former health region used to spend $3.1 million annually for all its facilities.

The government claims that 30-year maintenance contracts are critical to keep the building in tip-top shape over its life cycle. Moody’s assessment of the facility, however, is that “the range of services to be delivered (in the facility) is quite narrow … the asset is quite small and somewhat simple to operate,” and it only needs 11 full-time positions to operate. Why would we pay over $6 million per year to operate the new Saskatchewan Hospital if only 11 people are needed?

I do not understand how the government can hand over hundreds of millions of dollars to private companies but say the cupboard is bare when it comes to funding more front-line staff in health care or resources for the classroom. It appears the government has locked us into expensive 30-year contracts so it can plead poverty and cut public services.

There is a simple solution. The government should cancel this overpriced and risky P3 contract and take over the maintenance of the building as it has always been done — by using public sector workers. This would save millions of dollars that could be invested in much-needed public services.