December 11, 2013

Auditor generals weigh in on value of P3s

Auditor generals are the last line of defense for citizens who want to be certain their tax money is being spent wisely.

However, the complexity of public private partnerships (P3s) has made it more challenging to determine whether P3s have lived up to their promise, particularly in comparison to traditional project delivery.

Three auditors shared their insights at the recent 21st annual >National Conference of the Canadian Council for Public-Private Partnerships in Toronto.

Michael Ferguson, Auditor General of Canada, noted that Canadian P3s have evolved significantly since their inception.

“Originally a lot of P3s in Canada were undertaken to get something off the balance sheet, even though it was going to cost more over the long run,” he said.

“I think that’s very much less the case now and an example where putting some light on these projects has caused some changes in behaviour.”

Ferguson stressed that public sector owners should ensure they possess a good base reference case for each project, so there’s a clear understanding of which risks are being transferred when comparing traditional delivery models to P3s.

“What it comes down to is how much of a premium you’re paying, and whether the risks that you’re shedding are worth the premium you’re paying,” he said.

Ferguson pointed out that audits aren’t intended to influence the public sector’s choice of project delivery models.

“When we identify issues with the way something happened, the intention is not that this will be used to say, ‘never do it again,’” he said.

“This is a way to understand what needs to be improved in order to do it better in the future.”

Bonnie Lysyk, Auditor General of Ontario, agreed, pointing out that jurisdictions incorporating lessons learned from auditor criticisms of their P3 efforts tended to fare better in future P3s.

In 2008, for example, then-current Ontario Auditor General Jim McCarter released a detailed report on the province’s first P3 project, Brampton Civic Hospital.

“To Infrastructure Ontario’s credit, they incorporated the recommendations from the auditor’s report into their Value for Money approach for P3s,” said Lysyk.

“When there are projects that are comparable to projects completed under a P3, we think it’s very important to take available information into account.

A good example is the spur line from Pearson to Union Station where our audit commented that they hadn’t incorporated the learnings from building GO Transit spur lines and that this was all a theoretical risk-based assessment.”

She also stressed that the public sector must ensure that private sector partners possess the skills required to achieve project objectives that procurement offers a competitive, fair and transparent process and that advance planning minimizes change orders.

“The highest risk for the public sector is cost overruns on projects that have been put forward by the private sector,” she said.

In light of the extended length of many P3 contracts, some critics have compared auditors to those who attempt to shut the barn door after the horse has bolted.

Ed Humpherson, executive lead of the U.K. National Audit Office says he disagrees with the analogy.

“It implies that a bad thing has happened,” he said. “Most P3 projects are on time and on budget and deliver the expected benefits. In a stable, each horse has its own door and it would be pretty silly if the horse had in fact bolted and you didn’t say, ‘let’s check the other barn doors.’ If you learn something from the first horse, that will prevent subsequent horses from bolting.”

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