In this month's Industry Leaders Blog, we'll be introducing a new feature entitled Bloggin' with the Board. This month we'll be speaking with Graeme Silvera, a NAIOP Vancouver member since 1999 and a long serving member of our Board of Directors, presently serving as Vice President of the Chapter for 2012. Graeme's employer, Plenary Group Canada, is Canada's largest development firm with a sole focus on Public Private Partnerships or P3's.
This month we'll be discussing the form of project delivery known as Public Private Partnership, or P3. I'll be asking Graeme a series of questions that focus on the key principles behind this unique method of project delivery, as well as some of the more common myths about P3's. We hope you'll find it interesting and learn something about this growing method of project delivery.
What constitutes a P3 or Public Private Partnership?
The term "P3" is used quite loosely throughout the marketplace, and there are many projects that involve financing using private capital and involve the private sector which fall under the wide "P3" banner. However, to those involved directly in the Industry and who focus exclusively on this type of procurement, a "true" P3 has to involve the following 4 elements, all of which have to be present to leverage the maximum benefits from this unique structure:
- Private capital to provide a significant portion of the funding for the project; this would include both equity and debt;
- A Design-Build Contract where the private sector designs the project to meet well defined performance and operational requirements;
- A long term (15-30 years) Operate and Maintain Contract where the private sector operates and maintains the asset inclusive of life cycle replacement requirements over the term of the Contract;
- The transfer of risk from the Public Sector to the Private Sector across various elements of the Contracts including Design, Construction, Financing, Maintenance and Operational Risk.
But aren't public-private partnerships all about the privatization of public assets?
No, it's a misconception. P3s in Canada are not about the privatization of public assets. Ownership of new infrastructure facilities always remains with the public sector. Moreover, the public sector retains full control of the infrastructure and the outcomes of the project. The public sector owner also retains the right to make changes to the project requirements (i.e., change orders), including termination of the P3 agreement, and retains full accountability to taxpayers for the project.
So if P3's aren't about privatizing our hospitals and roads, what are opponents to this type of project delivery objecting to?
Here are a few of the more common refrains we often hear from opponents to P3 projects:
- "Due to the higher cost of private capital, P3's cost far more than traditional methods of tendering to the lowest bidder"
- "All services will be 'contracted out' to the private sector, replacing high-paying public sector jobs with low-wage entry level jobs"
- "P3's are not a 'sustainable' method of delivering projects; only governments care about the environment"
What are your thoughts on P3's? Is this the new wave of project delivery in BC, or a system that needs to be reconsidered? Share all of your thoughts in the comments below, as well as any additional questions you might have for Graeme.
Make sure to join our discussion next week, as we dig deeper into the issues of cost for P3 projects in Bloggin' with the Board.