By Steve Lafleur
(WINNIPEG, ON) – Mayor Katz’s tenure has been notable for significant infrastructure successes and failures. On the one hand, we have the fire hall land swap deal and the new police headquarters. On the other hand, we have the immensely successful Chief Peguis Trail and Disraeli Bridges projects. The former group involved cost overruns, schedule delays, and shady backroom deals with political insiders. The latter were expedited, on budget, and transparent. Those projects were successful because they were delivered through a more predictable, accountable delivery mechanism: public-private partnerships (P3).
The contrast between these two pairs of projects is unsurprising. Traditional infrastructure procurement involves governments purchasing and financing projects, bearing long term responsibility for maintenance. Cost overruns are typically born by the government, which gives contractors little incentive to stay on budget, let alone on time. This process is all the more volatile in cases like the fire hall and the public safety building, where the contracts were not subjected to a rigorous competitive process. Without speculating on backroom dealings, it is usually a bad sign when politically connected developers receive contracts on a non-competitive basis.
P3s, supported by organizations ranging from the United Nations and the OECD, are often incorrectly portrayed as privatization. Critics argue they give private companies control over public services. In reality, they give governments more control over private contractors. P3 contracts include penalties for late delivery, and put the onus for cost overruns onto private partners. Crucially, P3s make it easier to sue non-performing contractors. Private partners have strong incentives to deliver on contractual obligations. Shifting the financial burden to the private sector requires bidders to submit realistic bids, since they cannot simply ask for public money to cover overruns.
Under traditional procurement, it is common for governments to present a proposal to voters then vote later for costly design changes. That was the case with the new police headquarters. The initial estimate was $135 million, but ballooned until the city capped the cost at $194 million. Despite that “cap,” the final cost came in at $210 million. It turns out the initial estimate was based on a design that was only 30% complete. Design changes weren’t covered by the “guaranteed maximum price.” This is all in addition to the $19 million the city allocated to renovating the old public safety building, before realizing that the cost of doing so would be prohibitive. Since the City isn’t legally permitted to sell the land, it will have no choice but to spend $39.2 million on renovations regardless. The public is on the hook for every single dime.
Were this project undertaken with a P3, the initial price tag might have been higher than $130 million, but any cost overruns would have been paid for by the private sector. Additionally, they would have been penalized for the schedule delays. Had it been financed through a P3, Winnipeg would have had a new police headquarters years ago.
Without getting into the well known details of the fire hall land swap deal, the project came in $3.2 million over budget. Even assuming there was no malfeasance, the process was imperfect to say the least. This case is the subject of an on-going libel suit, so it’s not prudent to rehash the allegations.
Unlike the fire hall and police headquarters, the Disraeli Bridges and Chief Peguis Trail projects were completed ahead of schedule and on budget. The projects saved the city $47.7 million and $10.4 million, respectively. The Disraeli Bridges project garnered national attention for winning a national award for excellence in public private partnerships, while the fire hall land swap garnered national attention for the wrong reasons. The contrast is stark.
Unfortunately, Manitoba’s provincial government passed legislation ostensibly to increase transparency and accountability into P3 projects, but which is in reality a covert assault on P3s. The Manitoba Heavy Construction Association claims that the new public consultation requirements will take one or two years to complete, which will add administrative costs and dissuade many municipalities from even assessing the P3 option. Moreover, the disclosure requirements are unrealistic. As a Free Press Editorial pointed out:
“There are actually legitimate reasons why the private sector insists on confidentiality when bidding on public contracts. It wants to protect trade secrets, unique financing arrangements, labour-management issues and other factors that are considered proprietary.”
Rather than simply getting angry over revelations of mismanagement, Winnipeggers should take the opportunity to learn from mistakes. Greater use of public-private partnerships can avoid cost overruns, scheduling delays, and potential political favouritism.