It’s no secret that P3s – so-called public-private partnerships – are at best a lousy public investment and at worst a disaster for citizens and taxpayers.
Still, they’re a great way for governments to subsidize big businesses with friends in high places while pretending to prudently manage public funds, so despite their higher costs, lack of transparency and accountability, vulnerability to business failures, and the exaggerated claims of their proponents, they’ve been enduringly popular with so-called conservative governments in Canada.
So it came as a genuine surprise to many of us on Boxing Day when the CBC reported that Infrastructure Minister Nathan Neudorf had announced the United Conservative Party Government of Premier Danielle Smith will no longer be using P3s build new schools.
Say what?
After all, it was only in 2019 that then-Premier Jason Kenney, a month after his election victory over the NDP, was promising to aggressively pursue P3s to build infrastructure projects in this province.
“We think in the long run, the way we can get more job-creating infrastructure, to make Alberta’s economy more efficient, is through more public-private partnerships,” Mr. Kenney pontificated to reporters.
Former prime minister Stephen Harper’s Conservative federal government, which Mr. Kenney served as a senior cabinet minister, loved P3s. In 2009, it even set up a Crown corporation to encourage the use of P3s when federal money was earmarked for local projects.
It is no small irony, I suppose, that when the Liberal Government led by Prime Minister Justin Trudeau that replaced Mr. Harper’s Conservatives shut down PPP Canada in 2018, it was infrastructure minister Amarjeet Sohi who pulled the plug. Mr. Sohi, of course, is now the progressive mayor of Edmonton.
In 2016 Alberta’s NDP infrastructure minister Brian Mason had announced that Premier Rachel Notley’s government would stick with traditional (and cheaper) government methods of financing infrastructure projects. “I think there are real questions about the overall benefit that is received by P3s,” he diplomatically said at the time.
So Mr. Kenney may have been influenced both by the fact his former boss in Ottawa loved P3s, and his Trump-like need to tear down everything the NDP had done just to show who was boss. (Who can forget his “summer of repeal”?)
Which brings us back to Mr. Neudorf’s revelation to the CBC, of which he said, rather murkily, that “money, though very important, is not the only consideration.”
Well, we’re not privy to everything he told the CBC, presumably, but he apparently has the notion P3s only make sense for projects over $100 million. He seems to have presented no justification as to why P3s would make more sense on bigger projects than smaller ones when the same basic flaws exist regardless of the project size.
A report on P3s done for the Canadian Union of Public Employees in 2020 concluded that:
– P3s are nothing more than a covert form of long-term debt
– Private borrowing is more expensive than public financing, so the public pays more
– If a project fails, taxpayers and citizens end up holding the bag anyway
– P3 claims of “value for money” are based on shoddy math intentionally biased against public enterprises
– The drive to cut costs in P3 contracts leads to corner-cutting and poor quality
– P3s are often late and over budget – despite the claims of their promoters
– P3 contracts are shrouded in secrecy, so there is little accountability
– P3s distort public policy, including which projects are chosen and where public funds are spent
It would seem school boards and staff responsible for some of the P3 schools built for the Kenney Government discovered other operational problems as well.
“Sometimes, a private company’s control over the buildings is so restrictive, children have sweated in classrooms while Edmonton school staff had no control over the thermostat,” the CBC story said. “Some of the 40 P3 schools built by the former Progressive Conservative government were left with muddy fields fenced off and inaccessible for years while school boards were powerless to fix the problem.”
School trustees cheered when Education Minister Adriana LaGrange hinted last month at an Alberta School Boards Association meeting there would be no more school P3s.
So why, it must be asked, did the Smith Government move now to curtail school P3s?
It’s probably that looming general election.
Back in 2008, Alberta’s PC Government had a scare when a key partner in a P3 to build schools suffered a huge loss in stock value and laid off staff, raising the prospect of the deal falling apart.
In 2010, a report by Albert’s provincial auditor general chastised the PC government for overstating by about $20 million its supposed savings on a P3 project.
In 2013, a consultant’s review called a PC scheme to use P3s to build 50 new schools “a mess” and said the schools would never be built on time. Building contractors were unenthusiastic about bidding on those P3s.
The 2023 election won’t be a cake walk for Premier Smith and the UCP – which is why an election in 2023 is no sure thing, notwithstanding Alberta’s constitutionally meaningless fixed-election-date statute.
The thought of noisy opposition from school boards, advice from senior civil servants, and the reminder of recent and not-so-recent problems with P3s likely added up to Mr. Neudorf’s decision to back off this bad idea for the time being.
Plus, of course, Premier Smith would really rather see more private and charter schools, and fewer public schools, anyway.
P3s are particularly appealing to governments struggling with deficits or debts. Its a neat accounting thing to get the debt for large projects off the government books, while still building infrastructure. Of course, the obligations for contractual payments for rent or whatever are really not that different than say interest or loan payments. They just allow politicians to pretend they are not running up obligations, while in fact they still are.
Of course they may also cost more, as private companies can not borrow at as low rates as governments and there is a profit component or mark up for the private companies. They are not charities or doing it only for the public good, as much as their PR may try to imply otherwise at times.
Smith seems not that closely aligned with traditional fiscal and business Conservatives, at least not at the moment. So, it is not too surprising some P3s are out of favour, at least until after the election. She doesn’t seem to be too much of a social conservative either, but perhaps this could be a round about way to try to appeal to them. If she builds fewer public schools that may open the door to more private and religious schools.
I’m not sure the supposed P3 moratorium helps the UCP much, but it could take an issue off the table that could hurt them politically. The Wildrose always railed against the cronyism of their PC opponents, although one suspects the outrage was mainly due to them not being in on the deals. In any event this is perhaps just another example how the UCP is headed further back to its Wildrose roots.
Conservatives hate everything Ottawa when they’re not in power: Laurentian élites, Trudeau, appointed senators and so on. Oddly they haven’t mentioned one giant mess in our nation’s capital: Ottawa’s infamous LRT project. Pierre Poilievre (hmmmm, two Ps) is mum on this subject. Wait until he’s PM.
Sadly I think you hit the nail on the head with the last sentence. Private and charter schools are even better! Then you don’t have to build anything at all and still get to throw chunks of red meat to your base
“Political risk? Unhappy school boards? UCP unexpectedly turns against P3s to build new schools” You’re so polite! pogo says it should read: “Caught with their pants down and your pockets turned inside out? Dani does a donut in a shopping cart at the Walmart parking lot, trying to cage votes, because she thinks everybody is stupid but her and her guys only a dumby would trust!”
Political risk you say? Such a pity! Sir Percival Gosh-Offley here! When did our provincial potentates descend into their sinecures with such relish? Good grief! 2022? Ahh.. aye, ’twas a nice constitutional monarchy while it lasted! Why must the provincials establish their own sticky fingered aristocracy? A beggary of intelligence I say! Burn it down, profit from the chaos, and the devil take the hindmost! Happy New Year!
Technically, most major public infrastructure projects are “P3”, since they partner with a private contractor to build the project rather than having it built by an army of publicly-employed construction workers. Witness, for instance, Alberta’s newest hospital, in Grande Prairie, open for just a year this month, built over a seemingly endless 10 years from announcement to opening — with a change of general contractor occurring during the NDP’s time in government due to delays and issues with subcontractors getting paid on time (certainly not a strong argument for traditional design-build contracts, but there you go lol … )
https://albertapolitics.ca/2018/08/the-grande-prairie-hospital-saga-pc-political-motives-terrible-planning-and-past-ministerial-meddling-haunt-project/
But the kind of “public-private partnership” we’re talking about here is when the public purse is paying for infrastructure projects owned, and often operated, by a private business, instead of being an asset owned by whatever government or public agency is building it. In a P3, the asset shows up on the private owner’s books, but the liability shows up on the government’s balance sheet.
Aside from shifting costs and benefits to the detriment of taxpayers and the benefit of the private owner’s shareholders, the only way a project like this is attractive to the private partner is if it can be built and run at a profit. To do that, you either have to constrain costs by using shoddy materials and materials, or ratchet up charges to the government to create a profit margin. How anyone can think this is a good deal is beyond me.
jerrymacgp, I wouldn’t call the hospitals (there were four more, as DJC’s blog reported) “P3” projects. These were merely guv’mint contracts, far more rushed than usual, and too politically visible to just be abandoned quietly after the need disappeared (i.e., after the Wildrose Party lost the 2012 election).
A few years earlier, under Ed Stelmach I think, the Alberta Research Council had a near-miss with a similar political project. We saw surveying stakes on the western side of the grounds, which (we learned later) marked the site of a new biotechnology facility, right beside the original one. That was all we ever saw, though. The story later emerged that, after the initial tendering process, contract bids were about three times higher than the Old Tories had expected. A round of frantic downgrading was unsuccessful; the second round of bids was no less expensive, apparently due to rising construction costs.
The project was quietly abandoned. It seems the Tory government wasn’t threatened with defeat by the lack of a lab.
This makes me wonder what political hole-in-the-ground will result from Danielle Smith’s need to buy votes.
You’re right. The cost and risk of none profit depreciating assets will always land on the tax base. The profit from schools, universities and hospitals, along with utilities, transportation infrastructure and many other public “utilities” is notional. It’s really supposed to be “our” vision of a society and be subject to the skills of long term management select and empower to act in our best interests. From my point of view, the most egregious insult to injury in the saga of Alberta’s and Canada’s mismanagement by proxy of those kinds of assets/liabilities is the covid debacle in congregant and long term care. When the death toll pointed to private for profit care homes as the main source of preventable deaths? The UCP stepped in and saved the operators as harmless, thus preventing inconvenient class action law suits that would have most certainly named the government and it’s laissez-faire out sourcing. When they’re in control of the consequences? I’d say accountability is a lost concept!
I’d guess “rural” schools aren’t attractive to P3 builders, and thus not attractive to MLAs trying to attract rural voters.
My neighbours and I are currently living the P3 life as Edmonton’s P3 contracted Valley Line LRT construction drags on and on.
Nathan Neudorf may feel P3s only make sense on projects over 100 million dollars, but Edmonton Councilor Tim Cartmell, who is conservative enough to be appointed by the UCP government to the task force on Edmonton social issues and addiction, similarly feels the P3 model is not a good fit for the LRT.
https://www.cbc.ca/news/canada/edmonton/edmonton-city-council-valley-line-southeast-lrt-1.6550441
In the article linked above, Mr. Cartmell tries to make the point that the type of contract awarded has nothing to do with the Valley Line delays, but I really am not convinced. My civil engineer brother*, whose company bids on a lot of government jobs, told me that part of the P3 process is giving constructing companies more latitude on the design of the infrastructure, in hopes of finding efficiencies. Assuming this is true, I do wonder if the cracked piers that have caused the latest Valley Line delays are a result of efficiencies that weren’t so efficient after all.
When Edmonton’s Walterdale Bridge was replaced, the project that was supposed to take 2 years took 4, and the contractor was facing $10 million in late construction fees. I do recall some discussion about how much of that $10 million the city should actually assess; the concern was that if they were too strict it would deter other contractors from bidding on future jobs. Because of privacy clauses in the contract, the amount of penalties actually assessed was never released, despite promises to do so, but the city ultimately paid $155 million for the bridge, which was the original contracted amount. It is a classic example of privatize the profit and socialize the risk.
https://globalnews.ca/news/7602891/edmonton-walterdale-bridge-cost/
https://canada.constructconnect.com/joc/news/infrastructure/2018/09/edmontons-walterdale-bridge-still-mired-controversy
There is no doubt in my mind that TransEd, the consortium that is building the Valley Line has already started lobbying city council about being forgiven for the late construction that has occurred. I had assumed TransEd would also be hoping the UCP was still in power when the Valley Line was finally built, so they could lobby them as well, but given the Smith government’s attitude, I suspect they will not get as sympathetic an audience as they would have from Jason Kenney.
There was an interesting comment in the comment section of the CBC story David linked to. The person writing was presumably a teacher in a P3 built school. He/she told how the woodworking shop has retractable extension cords that occasionally slip and go right up to the ceiling. He/she then claimed that they are in contract violation to get out a ladder and climb up to pull them down; instead they are to call Honeywell, one of the P3 partners, to come out and do it. The charge for coming out is $150.
This could, of course, be total internet bollocks, but it would be interesting to know for sure.
Nice precusor to an election — start looking sensible, then once you’re in, go nuts again. Alberta voters are the biggest idiots on earth and they will never learn.
Those of us from the world of finance knew P3 doubled the cost of projects and was nothing more than a clever scheme to pad the pockets of friends of governments. Of course helping the rich steal the peoples oil and tax wealth is no different, by slashing taxes and royalties . The stupid idea that privatization makes the costs cheaper was no different. After Klein promised privatization of our power industry would make our power bills a lot cheaper and the idiots believed him . Even though electrical engineers and my power plant engineer father were telling them it was a lie, they soon found out that the liar was Klein. All it does it cut out costs to the governments and their friends and dump it onto the backs of the public, just like Klein did with the orphan wells clean up mess, yet some of these senior idiots still claim Klein was our hero.
Alan K. Spiller: Absolutely. We still have Albertans trying to blame Rachel Notley for increased power and utility prices, when she wasn’t responsible for this. Ralph Klein, Murray Smith and Steve West are to blame. We went from having the cheapest utility costs in North America, to the most expensive. What’s more, is that Danielle Smith is ensuring that Albertans will have to pay the very large sum of $260 billion to deal with the abandoned oil well cleanup in Alberta. People are still being duped by these pretend conservatives and Reformers, which is so unfortunate.
O/T – Is Alberta ‘misclassifying’ Covid deaths? Alberta is reporting about 8% fewer deaths this year (2045) than last year (2186) – the only province or territory to do so.
https://www.thestar.com/news/analysis/2022/12/27/why-in-ontario-and-in-canada-this-became-covids-deadliest-year.html
The numbers they’re reporting are frightening enough anyway.
In the five years before Covid-19, flu deaths in Alberta didn’t exceed 100 per year. (AHS used to have a summary table, but it disappeared. You have to dig for annual reports now.)
Recently, Covid-19 deaths have been over 40 per WEEK. Yet nobody seems to care anymore. This is why I still wear KN-95 masks whenever I go shopping. (It’s also one reason I’m glad I don’t have kids, but that’s a whole different topic.)
Another prime example of why P3 deals are so bad is the current mess with Edmonton LRT Valley line, although in this case we are assured that Edmonton citizens will not be holding the bag for all the delays. We shall see…
Hi Dave,
Another cost of having things built by P3 is that the companies doing the building also include the cost of “risk”, and apparently it is pretty easy to inflate the cost of that, which is added into the list of costs in the contract. Maintenance of the building, operating the building etc. can be included in the contract, often for a hefty and profitable fee. The Canadian Centre for Policy Alternatives has a study on this issue dated June 24, 2020. you can download it here. https://policyalternatives.ca/publications/reports/partnership-name-only-0
My experience of charter schools is that they holed up in buildings once used by public schools, after a “consultation” process that found the public school enrollment had dropped to unsustainable levels under the provincial funding formula. Other reasons were also were found to repurpose schools as charters. One such school was reported to public school parents as unsafe for their children due to asbestos. The students were transferred to another school of similar vintage, which also had asbestos. (The transfer rendered the “new” school overenrolled, so excess students cascaded through a further series of catchment boundary changes and transfers over the years. The CBE excelled at upheaval.) The original school sat unused and idle for the requisite time, whereupon a charter school took up the space, without asbestos remediation. How very early 21st century CBE!
So what will happen if new schools are not built to house the growing population? Surely charter schools will have no more old public schools in which to take up residency. At that point Alberta taxpayers will build brand new schools for them, which the charter school entities will own outright. If such schools ever go out of favor, the charter schools could sell them at a profit to the highest bidder, such as a private school or even public interests. Or how about condo developments?
Whatever is up, it’s reasonable to assume that none of this will benefit public schools or the public purse. Charter and private interests will be getting free real estate, thanks to Albertans.
Why now? Why has the UCP guv’mint backed away from P3 construction projects? Somehow, I doubt that taxpayer-funded costs are any deterrent for Smith.
In 2013, “[b]uilding contractors were unenthusiastic about bidding on [school] P3s.” I’m pretty sure that’s the most important point. Try to protect the public from contract-padding and price-gouging, and businessmen suddenly decide public-private partnerships aren’t beneficial enough for the private guys.
DJC has also, I think, identified the second-most-important reason: “Premier Smith would really rather see more private and charter schools, and fewer public schools, anyway.” Anyone want to bet the Alberta government will build the schools for them?
It’s one more in a growing number of reasons that Smith and the UCP have to go.
P3s never, ever save money. They also create a bunch of unwanted grief for everyone, and the taxpayers are the ones who become the losers. The UCP are in an election mode, and this is why they are changing their minds on this matter, which they still support, like their hero Ralph Klein did.
Privatizing anything makes it more expensive as there now has to be profit involved. I fail to see how it would be cheaper in the long to use PPP for anything. Health care, schools, highways, utilities, insurance … to name a few.