Ontario Provincial Auditor Throws P3s in the Trash

In her 2014 report, Ontario’s Provincial Auditor has published a damning assessment of the cost effectiveness of Ontario’s large and growing P3 program for public infrastructure. Looking at 75 P3 projects, it found a cost disadvantage for P3 procurement compared with conventional government contracting of $8 billion. More important for P3 advocates, it found that the risk transfer to the P3 operator that supposedly offset higher P3 financing costs is either wildly overstated or non-existent.

Four headlines from the report give a flavour for the its conclusions on the incorporation of risk into its analysis.

“No empirical data supports the valuation of the costs of the risks”

“Some risks considered transferred to the private sector are not supported by project agreements”

“Two significant risks on the public-sector comparator side should not have been included”

The Auditor noted that an addition is made to the public sector alternative’s costs in Infrastructure Ontario’s comparative analysis to offset the benefit to the public sector as a non-taxable entity. In addition to the absurdity of effectively defining the tax not paid by governments as a cost of public procurement, this adjustment ignores the fact that while public project sponsors are not taxable, all of the entities that do the work — from designers to contractors — are themselves taxable.

The Auditor also blew the whistle on a new adjustment planned by Infrastructure Ontario that would award an arbitrary and unsupported  “innovation” bonus to the private side of the comparison, thereby tilting the comparison even further towards the P3 option.

None of this is new, of course.

As far back as 2004 the Association of Chartered Certified Accountants in the United Kingdom issued a massive report debunking the claim that risk was actually transferred in P3 projects and questioning the basis for the valuation of such supposed risk transfers.

Pam Edwards, Jean Shaoul, Anne Stafford and Lorna Arblaster, “Evaluating the operation of PFI in roads and hospitals”, Research Report No. 84, Association of Chartered Certified Accountants, Certified Accountants Educational Trust, 2004

That report actually went further, concluding not only that very little risk was actually transferred to private P3 operators but also that, in the process a significant new risk — the risk that the P3 operator would fail — was created.

I’ve explored this issue in several reports on Canadian P3s. One dealing with P3s for elementary and secondary schools in Alberta; one dealing with privatization of water treatment in Regina; and one dealing with the construction of a new hospital in North Bay Ontario.

Alberta

http://www.cupe.bc.ca/sites/default/files/cupe_alberta_doing_the_math_0.pdf

Regina

http://d3n8a8pro7vhmx.cloudfront.net/reginawaterwatch/pages/20/attachments/original/1375213383/Regina_Waste_Water_Treatment_Plant_Report.pdf?1375213383

and North Bay for the Ontario Health Coalition.

Canadians are paying an enormous price for the ideological predispositions of P3 advocates in provincial governments across Canada and in the Federal government. P3 projects cost more. A lot more. And to add insult to injury, much of the advocacy for this ridiculously expensive approach to financing public infrastructure is, you guessed it, publicly funded via Federal Government funding for P3 Canada.

So not only are we the victims of “don’t confuse me with facts” P3 advocacy, we’re paying for it.

 

About hugh@HMA

Freelance consulting progressive economist.
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