City eyes private sector for bigger role in building transit
Public-private partnerships (P3s) are like car insurance, says Infrastructure Ontario (IO) CEO Bert Clark. It costs more up front but when things go wrong you don’t have to worry about paying for the repairs.
Ontario’s agency in charge of public-private partnerships has used various private-sector financing, project management, design and maintenance arrangements to build dozens of Ontario hospitals, courthouses and other public facilities. The majority have been delivered on time and on budget.
All of those assets — and Clark stresses this because he says it’s a key misconception about P3s — remain publicly owned.
Now, at a time when Toronto-area politicians and residents are feeling stung by overdue, over-budget projects such as the Spadina subway extension and Union Station, IO is casting its sights on the transportation sector. Premier Kathleen Wynne and Mayor John Tory are both focused on transit expansion.
“It doesn’t take a political genius to anticipate there will be quite a bit of infrastructure investment over the next five to 10 years and it will likely be in heavy rail or transit,” said Clark.
If the TTC had used a P3 to build Spadina, would the subway still be more than two years behind schedule and more than $150 million over its $2.63-billion budget? Could a P3 ensure the Scarborough subway doesn’t suffer similar setbacks?
The questions have to be asked, say some city councillors, including TTC chair Josh Colle.
Through contracts that offer penalties and incentives to private companies to meet construction targets, the government arranges for the private sector to take on the risk of a project going over-budget or over-schedule. In exchange, the public pays an upfront premium to make sure it doesn’t get stuck with a bigger bill in the end.
Not everyone believes it’s a worthwhile proposition. Last fall, Ontario’s auditor general reported that the Liberal government’s P3 contracts cost taxpayers $8 billion more than if the public sector had properly managed those projects itself.
That’s a big “if,” say P3 advocates, given the preponderance of overbudget, overdue public projects.
The Ontario government’s commitment to the model doesn’t necessar.ily mean it makes sense for the city either, said Councillor Shelley Carroll, a former Toronto budget committee chair, who sits on the TTC board.
“There are still people who will say, ‘I don’t like P3s because it is privatization.’ ” BERT CLARK INFRASTRUCTURE ONTARIO CEO
She says she’s not wedded to public management of large capital projects.
“But I’m not seeing the P3 payoff,” said Carroll, particularly in terms of financing.
The city already has excellent borrowing capacity and a 30-year private financing arrangement on a project like the Scarborough subway could just add to the long-term burden of building the infrastructure, she said.
It’s the project-management side “that’s the real piece” for the city, said Carroll, who says she’s never seen an exhaustive evaluation of public- versus private-sector project management (the scheduling, supplying and subcontracting of the project).
Once that’s determined you can have an ideological discussion about whether control should remain in the public sector or whether it makes sense to contract out management, operations and maintenance of the project, she said.
According to IO’s Clark, ideology — the belief that the public sector should own every aspect of a project that belongs to the taxpayers — is the only reason anyone wouldn’t consider a P3 on capital works in the billion-dollar range.
“This is an entirely pragmatic project management approach to delivering infrastructure. But there are still people who will say, ‘I don’t like P3s because it is privatization.’
“We say, ‘What about this is privatization?’ We have the same architectural firms designing it, the same guys designing it in the past, the same guys building it, those guys built it in the past. We’re now holding those guys accountable for the work they do. It’s still a public asset. If you walk into a public hospital we built you will not notice anything other than it’s a very well-maintained building. In terms of your experience as a user of the public service in there — zero difference,” he said.
Clark wouldn’t discuss specifically whether a P3 is the right solution for the Scarborough subway. He would only say that it needs to be considered for any large project — large meaning anything in the billion-dollar range.
While P3 transit projects are relatively rare in North America, IO has already dipped its toe into the multibillion-dollar sector. Its provincial P3 on Metrolinx’s $5.3-billion Eglinton Crosstown LRT, is out to tender.
It is also spreading the P3 gospel at the municipal level, helping Waterloo and Ottawa procure their LRTs.
In Ontario, P3s have been less about tapping into private-sector financing than managing construction and cost overruns, something the public sector hasn’t always done well, said Matti Siemiatycki, assistant professor of geography and program planning at University of Toronto.
Whether it’s a good idea to use a public-private partnership for transit depends on many factors because they are complex in different ways than a hospital or courthouse, he said.
Transit i nfrastructure runs through changing communities with the constraints of neighbourhood concerns and traffic considerations. Tunnelling adds more risk in terms of what the engineers find in the soil and utilities.
There’s no reason the public sector can’t use IO-style contracts with all the same incentives and penalties, said Siemiatycki.
“Why can’t Infrastructure Ontario manage traditional jobs? Then you remove that potential view that public-private partnerships are the only game in town and you open up their set of skills to traditional build projects. Why can’t we structure traditional projects a bit more like P3s in terms of who’s managing the projects?”