Early experience with public-private partnerships have enabled this nation’s deal makers and builders to exploit the global trend
- By: Paul Gallant
- From: Business without Borders
- Date: Monday April 30th, 2012
(INSERT: From the top of the webpage:
- “CONTENT PROVIDED BY (logos) Canadian Business, (Globe&Mail’s) Report on Business, (The Economist) Economist Intelligence Unit”.
- “BROUGHT TO YOU BY HSBC”)
Canadian public-private partnerships have come a long way since 1992, when the federal government inked a deal with Strait Crossing Incorporated to design, build and, for 35 years, maintain and operate a bridge between Prince Edward Island and the mainland. Opened in 1997, the $840 million Confederation Bridge was a turning point for public-private partnerships (PPPs or P3s) in this country.
(Photo: Walter Bibikow)
Since then, governments at all levels have been increasingly relying on P3s to reduce public risk, speed up construction timelines, improve efficiencies and give private enterprise an opportunity to innovate on major infrastructure projects like bridges, roads, hospitals and schools. Partnerships BC was founded in 2002, Infrastructure Ontario in 2005, Infrastructure Quebec in 2010 and Partnerships New Brunswick in 2011, while the federal Crown corporation PPP Canada was created in 2009. The Canadian Council for Public-Private Partnership lists 169 P3 projects in Canada, with 49 now under construction. Now, key players are leveraging that experience to take the Canadian P3 model global.
“Canada has developed a mature market with a robust deal pipeline,” says Matti Siemiatycki, an assistant professor of Geography and Planning at the University of Toronto, who has authored several papers on Canadian P3s. ”When the Council [for Public-Private Partnerships] hosts its fall conference, the whole world is at that conference.”
Since financing, contract negotiations and procurement are increasingly taking place on a global playing field, national borders matter much less. Robert Shouldice, a partner in the Vancouver office of Borden Ladner Gervais, is currently working for a Canadian client on a light-rail project in India and last year worked on a light-rail project in Istanbul, both P3 initiatives by local governments. Shouldice’s associate, Doug Saunders, has represented a German company negotiating a P3 in Norway.
“These projects are, from a legal perspective, 95% to 98% commercial contract negotiation. Local law really has very little impact on those negotiations,” says Shouldice. “In fact, a lot of times, for international projects, the parties will choose to have the contracts governed by a different law, just to have the dispute-resolution procedure something other than the local courts.”
Each P3 deal is unique, complicated and, in many cases, expected to spell out the roles of the public and the private partners for decades. The private partner may just design and build a project, or, like with the Confederation Bridge, might also maintain, operate and own it before transferring the property back to the government. With a relatively early start compared to other countries, Canadian players have built a solid P3 reputation.
“The deal history gives us a database of solutions,” says Saunders. “The same experience we’ve gained in terms of the Canadian model is also applicable to those Canadian companies who have understood and gotten involved in the model here. So when they see a P3 project in another jurisdiction, it’s an easy entrée because they know that 95% to 98% of the deal will be the same.”
Mark Romoff, president and CEO of the Canadian Council for Public-Private Partnerships, says Canada has become known for P3 projects that are transparent, fair and good value for money.
“As the Canadian model gets adopted internationally, then it puts in place provisions that should enable Canadian companies to at least compete on a level footing in those jurisdictions,” says Romoff. For example, working with the Canadian Commercial Corporation, Toronto-based construction and infrastructure giant Aecon was chosen as lead contractor for the US$700 million project to design, build, finance, operate and maintain the new airport in Quito, Ecuador (the facility is scheduled to be complete in October 2012).
P3s are often associated with large, elite finance, engineering and construction companies. That was a point of contention when Saunders met recently with British Columbia’s Independent Contractors and Businesses Association, an organization that represents mostly small- and medium-sized contractors. But the finance side and the construction side are different animals. “The reality is that if you look at someone like Macquarie [the large Australia-based provider of banking, financial and investment services], they don’t have one person that has a hammer. Many of these companies coming from overseas are bringing managerial expertise. You’re still going to need local labour, local content for the physical construction.”
Siemiatycki says there is some potential for second-tier Canadian companies to gain access to P3 projects around the world, but it’s not easy. “Because of the way these deals are structured, because part of it is about transferring more risk to the private sector, you need to be a relatively large and relatively well established firm to play in this market. From an export perspective, that raises questions about whether Canadian firms are big enough to participate at that scale. What I have observed is that international firms moving into local markets will partner with domestic firms that have a reputation within the industry already and have networks already in place.”
Canada is not the world leader in P3s. The United Kingdom holds that title and its Partnerships UK, founded in 1999, was a model for Partnerships BC and Infrastructure Ontario. Partnerships UK even earns revenue by advising on P3 deals for non-UK projects, working with more than 14 governments, according to a 2008 working paper out of Stanford University, which looked at similarities and differences between some of the major P3 agencies worldwide.
Perhaps surprisingly, the U.S. has lagged behind the Canada, the U.K., Australia, Spain, France and Portugal.
“In the U.S., this model continues to be controversial and is still going through lots of debate and is still being resisted at a number of different government levels,” says Shouldice. “The P3 model hasn’t caught on there like it’s caught on here and in Europe.” Early toll-road projects in the U.S. were unpopular, says Saunders, giving P3s a bad reputation. Many jurisdictions are still reluctant to change legislation to allow them.
Although Canada’s P3 agencies and contract templates are attracting attention, no P3 model is likely to be one-size-fits all. “It would be misleading to think that an agency designed to fit the rules, codes and conventions of Canada, France or Portugal could be transplanted, say, to the United States, without considerable reinterpretation and recontextualization,” states the Standford working paper. “One important lesson that emerged during the course of this study was that there is no global best practice for agency set-up.”