Scathing report red flags N.L.'s increasing use of P3 projects

As Newfoundland and Labrador increases its use of public-private partnerships to turn major infrastructure projects into reality, a new report into that trend warns of red flags and calls for a halt to pursuing any further such contracts.

The Many Dangers of Public-Private Partnerships (P3s) in Newfoundland and Labrador, released by the Canadian Centre for Policy Alternatives on Oct. 6, is a scathing indictment of the model, which involves governments contracting out the building and operation of large-scale projects like hospitals into private hands.

It's often touted as a way to spend less taxpayer money up front, with private companies cited as being more efficient with the cash available and better at meeting building deadlines.

"Something that sounds too good to be true is likely too good to be true, and that's really what the research has told us," Christine Saulnier, the author of the report, told CBC Radio's On The Go.

Newfoundland and Labrador's first P3 project, the new long-term-care home in Corner Brook, opened its doors in June. That P3 involved the Corner Brook Care Partnership, a consortium that includes no less than half a dozen private companies.

Practically every significant health-care infrastructure investment on the horizon has followed suit, including the new mental health hospital in St. John's, long-term-care homes in Gander and Grand Falls-Windsor, and the Corner Brook hospital, the construction site of which Premier Andrew Furey visited Friday morning.

"This is an example of a P3 that, to date, is still scheduled to be on time, and on budget," Furey told reporters.

Questioning private efficiency

Furey's comment points to a key point proponents of P3s make — that private hands are more inherently quicker and cheaper at the work than governments are.

Saulnier said she questioned why pointing to flaws in the public system translates to abandoning it.

"You say that the public sector will inevitably be inefficient and over cost and all these things will go wrong. But you never then actually say, well, could we make that process better?" she said.

"We know from the Muskrat Falls inquiry that there's lots of recommendations for how you can make that better."

• Read the entire P3 report here

As for such contracts being cheaper to the government, they are, she said — if you don't look past the next provincial budget.

"There is a political advantage, there isn't a financial advantage. The political advantage is you are spreading those costs over the time of the contract," she said.

The province is in a cash crunch, with a projected $1.84-billion deficit and little ability to foot entire major infrastructure bills on its own.

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The Centre for Policy Alternative's report tallies the province's P3 contracts at $1.5 billion so far.

Those contracts are shrouded in mystery, she said, and her group was largely stonewalled trying to get details about the one involving Corner Brook's long-term-care home.

But there are a few basic points, she said, that suggest greater expense: private companies can't borrow money at the same low rates that governments can, such complex contracts require increased lawyer expenses, and P3 consortiums can add profit margins to their fees.

"At the end of the day, these inevitably cost more. What we can't do is prove exactly how much, because they don't release the information. So one of the real red flags here is there's a real lack of transparency," she said.

More gov't management required

Between numerous companies involved in lengthy contracts — the Corner Brook long-term-care home's lasts for 30 years — Saulnier said the P3 model creates a level of complexity that then requires increased spending from government to oversee the system and ensure the private companies at hand are being held to task.

Her report questions the province's ability to police the use of public funds, pointing to the mishandling of the Muskrat Falls megaproject as proof the government "has poorly developed mechanisms of accountability."

The Ontario and British Columbia governments both have Crown agencies that oversee P3s, noted the report.

"What I don't want to do is go down the road where your government now has to build this whole other machinery part of  government that oversees these contracts," Saulnier said.

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At the new hospital site, Furey said keeping the P3 model focused on public benefits is on the provincial government's radar.

"We're looking forward to making the accountability, of course, more robust into the future," he said.

In an emailed statement, a spokesperson for the Department of Transportation and Infrastructure said the province "stands on its record for delivering on large-scale, critical infrastructure projects on time and on budget."

The P3 model has come under criticism before, from other jurisdictions in Canada with a lengthier history of them: from a delayed light-rail transit system in Ottawa, to a hospital in Saskatchewan rife with design flaws, to an auditor general report in Ontario citing high costs.

The Department of Transportation and Infrastructure said other jurisdictions have "learned from their early experiences and we have incorporated that information into our projects."

While the province is committed to almost all of its P3 contracts, Saulnier urged the government to reconsider the very last one, not yet as far along as the others: a replacement facility for Her Majesty's Penitentiary.

"We do recommend that they put a freeze on this, and that they do build that publicly, but go to the federal government and get at least a loan guarantee to do that," she said.

That corrections facility does not yet have a timeline for construction.

The Department of Transportation and Infrastructure said that project is being procured as a P3, and the province will consider using the model again if analysis shows it to be a cheaper option for taxpayers.

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