November 11, 2009
Public-private partnership system in British Columbia keeps evolving
Private/public partnerships (P3s) continue to evolve in British Columbia. The system is not remaining static. That was among the messages that Larry Blain brought to the Vancouver Regional Construction Association (VRCA) last week.
Blain is chief executive officer of Partnerships B.C., the government agency that oversees proposed P3s in the province.
Part of the evolution involves government putting a cap on the cost of proposals right from the get-go.
Originally when they called for proposals, the government would sit back and wait to see what might come in.
Now, however, they are more inclined to pick a price and ask the industry to bid to it.
In other words, they want to know how much road, bridge or hospital, for example, they will be able to get for a pre-determined price.
He referred to it as an affordability line.
It is a line beyond which the government is not prepared to go.
“With that structure there is no way you can have a cost over-run,” he pointed out.
This was the system used on the Sea-to-Sky Highway and it has since been incorporated in building projects.
“We are starting to use the concept in the health structure now with very good results,” Blain said
“It has taken a couple of projects for everybody to sort of realize we mean business. When we define this line, you cannot got over it. You will have to adjust the scope or whatever to get under the line”.
Public/private partnerships also had to adjust to the financial situation, which hit worldwide about a year ago.
Tight money and high interest rates slammed the affordability of most projects.
This lead the government to try a new approach that included private proponents taking larger equity in projects – often going from 10 per cent to 20 per cent – and governments at different levels lending the rest.
Although the financial scene is starting to stabilize, P3s are still likely to involve innovative financing.
The South Fraser Perimeter Road and proposed additions to Surrey Memorial Hospital would fit into that category.
An often overlooked advantage to P3s is deferred maintenance.
This can be ignored even by government agencies as there is nothing politically glamorous about fixing the plumbing or maintaining the furnace.
With a P3, the private consortium involved in building it is also responsible for operating it for many years.
It is to their advantage to make sure the building, the road or the bridge is maintained in good shape.
In the long run, Blain pointed out, it is much less expensive to maintain existing facilities than to build new ones.
Another main advantage he explained involves that old familiar construction challenge – risk.
With a public/private partnership, the government transfers the risk from its own shoulders to the successful private consortium that won the right to build and operate the facility.
Blain pointed to two projects, that were not P3s, where the risk came back to haunt the public owners – the Olympic Athletes’ Village in Vancouver and the billion dollar upgrades to metro Vancouver’s Seymour reservoir system.
Both are well over budget and both have splashed back on taxpayers.
Blain also touched on a the province’s controversial Wood First policy.
In an attempt to aid B.C.’s ailing forest industry, Victoria recently announced it will be mandating that provincial buildings must involve wood construction.
Just what type of projects will be impacted isn’t yet clear.
When it does, Blain said that Partnerships B.C. will be required to incorporate the policy in its requests for proposals.
“The regulations have not been developed yet,” he said.
“When they are, people will be required to bid to what those regulations are. From our point of view, whatever the policy of government is it becomes part of our request for proposal process.”
In conclusion, Blain insisted the P3s involve more than a handful of giant construction companies.
He cited the example of the Canada Line, which involved about 700 local contractors.
He invited construction companies to visit the Partnerships B.C. office and said he would be happy to provide help and advice in dealing with public/private projects.
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