April 25, 2007

Partnerships

A report card for public private partnerships

BRIAN MARTIN

correspondent

In little more than a mere decade B.C. has seen public private partnerships go from being considered experimental to being accepted as the preferred method of providing provincial infrastructure.

In fact, B.C. is generally considered the Canadian pioneer province in developing what are commonly simply called P3 projects. Ontario and Alberta are also coming on fast. To emphasize his province’s commitment to the process Premier Gordon Campbell recently announced that any project worth more than $20 million must be studied to see if it would make a suitable P3 project before any provincial funding can be considered.

To help bring the industry up to date on P3s the Public Construction Council of B.C. (PCC) held a seminar called “A Report Card for Public Private Partnerships” on April 17 at Vancouver’s Plaza 500 Hotel. Ironically seminar speakers had to compete with the roaring and banging of the province’s largest P3 – the extension of TransLink’s rapid transit line currently being built on Cambie Street right outside the windows of the seminar room.

The PCC is a group of government and industry representatives who meet quarterly to discuss common challenges and issues facing the construction sector.

Speaking at the seminar were Dale Burghall, manager of business development with PCL Constructors Westcoast Inc, one of the leading construction firms involved in P3s; Rick Steele, assistant vice-president with Partnerships B.C., the agency formed by the provincial government to assess projects for their P3 suitability and Phil Dreaver, a director with The Plenary Group, an international firm that specializes in creating and investing in public private partnerships. Moderator was John Haythorne, of the legal firm Bull, Housser & Tupper LLB. Close to 60 attended the gathering. They represented a cross section of general contractors, trade contractors, bonding and insurance firms and the design professions.

A few themes kept appearing. One was exactly what the word “partnership” implies: Anyone getting involved with P3s needs a strong team. In advising people on how to get involved Rick Steele emphasized the need to identify potential teammates right at the start.

“Develop long term relationships,” he said. Most people want to work with people they know they can trust.” Successful construction projects, whether P3 projects or conventional jobs, have always required good partnerships of people working together, he said. With a P3 that is more important than ever.

It was something Dale Burghall, also emphasized from PCL’s point of view. PCL is currently working on the new $350 million hospital and cancer centre in Abbotsford and last year completed the $95 million Gordon and Leslie Diamond Health Care Centre adjacent to Vancouver General Hospital. They expect to bid soon on the new outpatient hospital planned for Surrey.

The company is playing for high stakes on P3s, he pointed out. Competing for a P3 is a long and very expensive business. “We know we’re in a competitive situation. If we lose, we lose big”. He said PCL wants to work with people “we know all the way down the food chain”. He explained that means they don’t want to simply know the companies they will be working with, they want to know each separate individual.

As one of the people in the business of investing in P3s and pulling teams together Phil Dreaver of The Plenary Group also has a keen interest in knowing and trusting all the partners. At the end of the day it is his company that will be left holding the bag if a project goes south.

Those teams will include major trade contractors, specifically the mechanical contractors and the electrical contractors. Those trade contractors will be part of the group right from the start and will be sharing the financial risk of the project. Risk transfer is what P3s are largely all about. With a P3 there is no option, the panel agreed, to being on time and on budget. The financial penalties for missing those targets can be ruinous and amount to hundreds of thousands of dollars per day. The incentive created by that combined with the flexibility of private management is among the greatest strengths of P3s.

Dale Burghall told the meeting there is no doubt the Abbotsford Hospital will be delivered on time and on budget. Given the current difficult construction era that has included the rapid escalation of material costs Burghall said he could assure the meeting the final tab for the hospital would have been millions of dollars over budget had it been built using traditional procurement methods.

Plenary’s Phil Dreaver also pointed out another theme – P3s are not for the small player. “You need big players with big balance sheets,” he said. PCL, for example, did some $5 billion worth of construction last year and is now the largest general contractor in Canada by a factor of four.

Most often P3s will be large projects – commonly more than $100 million. They also involve long-term management and maintenance components. The Abbotsford Hospital is typical. The P3 covers not just the construction. It covers operating and maintaining the physical plant for the next 30 years. Proponents of P3s argue this guarantees quality work as well as ongoing maintenance. On going maintenance is something at which publicly operated facilities are notoriously lax.

The fact that P3 projects tend to be huge doesn’t rule out small companies completely Phil Dreaver said. Many trade contractors and suppliers are required. There was also a feeling that smaller companies may likely band together to get in on the P3 action. It was also felt that particularly in outlying areas the big players in the industry will need to partner with smaller local firms to access the labour they will require.

There is no doubt P3s have made a huge impact on the provincial landscape. So far more than a dozen have been completed and there are a considerable number of new ones on the horizon.

Among the major P3s currently being considered are the new outpatient hospital at Surrey as well as new hospital facilities in Fort St John, Kelowna/Vernon, a replacement St Paul’s Hospital in Vancouver and all the highways and bridges associated with the Pacific Gateway Program in the Lower Mainland.

Rick Steele of Partnerships B.C. summed up the future of P3s very clearly and left no doubt: “P3s are the way we are going to deliver big projects in British Columbia unless there is a very good reason not to,” he said.

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