Governments increasing use of private-public partnerships as risk transfer mechanisms

Municipal and provincial governments are increasingly using public-private partnerships (P3s) as risk transfer mechanisms to build infrastructure, delegates of the RIMS Canada Conference in Edmonton heard.Chris Baisley of Deloitte Touche in Calgary, Alberta explained that P3 projects are much more predictable and not as volatile as traditional projects. They allow the government to retain much less risk, while reducing the total cost of construction.P3s differ from traditional delivery of infrastructure in that the different components of the project are bundled together into one contract. In contrast, in traditional projects, a tender is put out and the government hires contractors independently of one another.”P3s require a consortium of designers, constructors, financiers and operators already in place for the bidding process,” he said. “Procurement can take as long as a year, and the stakes are quite high for bidders.”The “high pursuit cost” for bidders is based on the fact that in P3s, a bid must:• include a complete design of the project; • show a 30-year operating plan; • show the financing is in place for the construction; and• have all contracts in place for the construction of the project.P3s have a fixed opening date, with no delays for weather, funding or scheduling. The project also has a fixed cost, mitigating against cost overruns and scope creep. Most importantly, the government does not pay for the project until it is completed, which protects against delays. “As a result, delivery tends to be much faster, sometimes years earlier than traditional projects,” Baisley said. “For example, in Alberta a P3 project delivered 18 schools in 1.5 years – a task that would have taken double or triple that time period with traditional contracts.”