Top construction CEOs give thumbs up to public-private partnerships

Faced with the challenge of funding billions of dollars in critical infrastructure projects— new highways, bridges, and hospitals, governments across Canada are turning to public-private partnerships, or P3s as they are commonly referred.

We talked to three of this country’s top construction bosses for their assessment on this increasingly popular method for building large infrastructure projects. While formidable competitors in the boardroom, they all agree that P3s are good for government—and by extension the public— and also for the industries involved in the financing, design, construction, and operation of these projects.

An evolution

While there have been a proliferation of P3 projects in recent years, they aren’t really new. In fact, crude forms of public-private partnerships existed more than a century ago when private companies ensured a water supply to citizens in France, and many of the first highways in the US were private toll roads. “It’s been an evolution for sure,” says Paul Douglas, CEO of PCL, one of Canada’s largest construction companies, commenting on more than 20 years of P3 development in Canada. “There have been successes and failures with this model in other parts of the world and enough successes in Canada that they’ve deemed to be effective.” He adds that they offer the best value for money, and are a sure way of delivering infrastructure that gets paid over time.

Mitigating risk

P3s transfer a major share of the risk in the construction and operation of large projects from government to the private sector. Not unlike the mortgage on your house, the government enters into a lease back agreement, covering 25-30 years.The public is guaranteed cost and operational certainty, because the private sector assumes the risk for delays and cost overruns, along with the operation and maintenance of the facility, bridge or highway.

“P3s are the right solution because without being critical of government, getting things done isn’t necessarily their strength. The private sector in contrast is more performance and results driven and can’t afford cost overruns and delays. This adds discipline to the execution of the project and final cost”

“It’s okay for us to take on the risk,” says Geoff Smith, CEO, EllisDon. “We’ve learned that we need to pay a lot of attention to the details. P3s have taken our company to a different level, and we can be successful if we don’t screw up.”

EllisDon has been involved in P3s for about nine years, and keeps raising the bar and broadening their capabilities because competition in this business is intense. Smith’s credo is that the company has to be better than it was the previous year. EllisDon has pursued 64 P3 projects and won 25. “Our goal is to win 1 in 3,” says Smith. “Because the bid process can cost up to $2 million in out of pocket expenses, you have to start winning or you’ll be out of the game.”

Aecon’s top executive, John Beck, says P3s are the right solution because without being critical of government, getting things done isn’t necessarily their strength. The private sector in contrast is more performance and results driven and can’t afford cost overruns and delays. This adds discipline to the execution of the project and final cost.

“There is a cost to government to build this way, but that’s easily mitigated by the performance you get not only from the design and construction but also in the operation,” says Beck. “It’s one less headache for government if they manage the process properly. They can even reduce staff in transportation and health departments.” He adds that Canada is a leader and admired globally for its P3 model. Lots of countries are looking at what’s been done here.

Unanimous conclusion

All three executives were unanimous in their conclusion that Canada suffers from a huge infrastructure deficit. We haven’t been investing in new roads, bridges, and hospitals. How can P3s help? They allow us to build more now because the cost is amortized over 25 or 30 years. Governments wouldn’t be able to afford all of the projects needed if they were expensed all at once. The public benefits by having new facilities built and operated with the discipline of the private sector.

Not unlike easy access to capital for individuals to make large purchases, such as homes and cars, P3s can make it too easy for government to take on lots of debt. “You still need to count on good fiscal leadership and discipline from the public sector,” says Douglas. “You can’t mortgage the future so the future can’t afford to pay.”