Alternative ApproachThe Saskatchewan Plan for Growth provided SaskBuilds with direction “to drive innovation in infrastructure financing, design and delivery, including public-private partnerships.” SaskBuilds is exploring alternative; procurement and financing mechanisms, including public-private partnerships (P3), to help meet infrastructure needs in Saskatchewan.
Addressing the Infrastructure Gap
Governments everywhere are facing inadequate or failing public infrastructure – such as roads, bridges, highways and hospitals – with a limited ability to address the inadequacies in a timely manner with current resources. Governments are recognizing that while they are the best bodies to set public policy and regulate performance, their traditional building approaches are not always the most efficient for large and complex infrastructure projects. As a result, more Canadian governments are choosing to partner with the private sector to make strategic investments that foster innovation and achieve greater efficiencies.
A P3 is a partnership arrangement in the form of a long-term performance-based agreement between the public sector (any level of government) and the private sector (usually a team of private sector companies working together) to deliver public infrastructure (hospital, school or bridge or highway, or a new government building) for citizens.
P3s in Saskatchewan
In a P3, taxpayers pay for the project, but only once the facility is built and ready to use, and then the payments are based on performance. P3s must demonstrate that the public interest will be served and value for money can be achieved, otherwise a P3 does not proceed. P3s must provide some mix of the following benefits in order to deliver good value to citizens:
- Timely Delivery – By taking advantage of private sector financing, government can build the infrastructure that Saskatchewan needs when it is needed.
- Risk Transfer – In conventional government construction projects, contractors regularly pass along cost increases from schedule delays and overruns on materials and labour and design specifications. Government must also pay to repair problems with ongoing operations and maintenance. In a P3 ─ especially those in which the private sector commits to maintain a new facility for a fixed period ─ the contractor, not government, is liable for those cost risks. If contractors don’t deliver, they don’t get paid.
- Innovation – Private companies that are responsible for overruns have a greater incentive to innovate at every stage: through design, financing, construction methodology, and in maintenance and operations if included. That innovation accounts for a good part of the overall savings and value to government and results in better products and services.
- Maintenance and Renewal Period –The infrastructure will be maintained in good condition for the life of the agreement (typically 30 years). The P3 agreement transfers maintenance of the infrastructure from the public sector authority to the private partner. This effectively gives the public sector authority a 30-year warranty, with no deferred maintenance at the end of the 30 years.
Serving the Public Interest
In all projects, the government retains ownership, control and responsibility. By setting standards through agreements and legislation. By closely monitoring product service and delivery, the government ensures that the public’s needs are met and the public’s interests are served. Prior to considering a partnership option, due diligence is completed to consider lifecycle costs of the various procurement options. Lifecycle costs include not only the capital costs of building and constructing an asset, but also the ongoing maintenance costs, the costs of major upgrades and rehabilitation over time, and the costs associated with decommissioning or disposing of the asset at the end of its useful life. Undertaking a lifecycle cost analysis presents an accurate picture of project costs.