Infrastructure models to meet public needs
The use of public-private partnerships (P3s) to deliver infrastructure in Canada is not new. Various forms of P3s have been employed in Canada for many years, and it is reported that over 150 infrastructure projects have been procured using P3s since the early 1990s. Most industry analysts acknowledge that a ‘second wave’ of P3s has occurred in Canada since 2004.
P3s are a valid form of project delivery when used in the appropriate situations. In ideal circumstances, they can allow public sector entities to access capital, offer integrated project delivery (one stop shopping in the eyes of the owner),promise some degree of cost and schedule certainty and incentivize some degree of lifecycle discipline. P3s are not a panacea, however. Owners must carefully assess each project to determine whether a conventional delivery model like “design bid build” or a P3 will deliver greatest value for money.
Importance of credibility
Use of P3s on a project where it is not the most appropriate delivery model or where it will not deliver best value for money, or executing a P3 poorly, risks the credibility of P3 as a process. It can also have serious negative consequences for the public owner and its project, end-users and the public, as well as the private sector P3 partner and its team, including the consulting engineer. This could have a negative effect on the entire design and construction industry.
It is also worth noting that conventional delivery models, when properly and competently executed, can offer many of the benefits of P3s. For example, the use by public owners of Qualification Based Selection (QBS) to procure consulting engineering services will result in innovation and high quality engineering, delivering optimum value for money in infrastructure projects.
“The public owner can benefit from efficiencies and innovations brought to the project by the private sector partner as well as cost certainty over the term of the contract”
A long term investment
Experience in Canada shows that the greatest benefit for both the public owner and the private sector P3 partner generally occurs when the private sector is contracted to maintain and operate the asset for 25 or more years in addition to designing, building and providing the financing for the asset.The public owner can benefit from efficiencies and innovations brought to the project by the private sector partner as well as cost certainty over the term of the contract. Meanwhile, the private sector partner can rely on a long-term source of revenue that is reasonably secure.
In any form of project delivery, including P3s, the best results are achieved when there is a fair sharing of risk and reward among the parties–including the consulting engineer — and when risk is allocated to the party best able to manage that risk.
Consulting engineers and other design professionals must understand that there are risks specific to P3 projects that are very different from those encountered in conventional delivery models. Principal among those risks are very high pursuit costs which are typically not compensated at the engineer’s usual rates, and a strategy on the part of the public owner to transfer its risks to the private sector P3 partner. The private sector partner will in turn seek to transfer those risks to its team, including the consulting engineer.
Design professionals must be prepared to negotiate reasonable limits on the risk they assume and ensure appropriate compensation for those risks they choose to accept.
Careful consideration
Ultimately, the success of a P3 is highly dependent upon the team that the private sector P3 partners assemble to fulfill their obligations to the public owner.All parties must carefully consider the qualifications and expertise of all others on the team before deciding to participate. Underperformance by one member of the team will have serious negative consequences for others on the project team, for the public owner and for the end-users.
The owner relies heavily on the team to design and deliver an asset that best meets its needs based on the requirements in the project agreement. Owners must be very diligent in assessing the qualifications of the private sector team, and must recognize that they are making a ‘leap of faith’ in the selection of their private sector partner on a P3 project.