Procurement
May 7, 2012

Fitting P3s into public procurement

In most democracies public procurement is expected to be fair, transparent and provide equal opportunity. “Old boys club” back room deals that might be more easily concealed in the private sector as “just business” are instead exposed as scandals in the public realm.

So what happens to public procurement processes when public organizations and private businesses work together to fund public projects? The growing popularity of public-private partnerships (P3s or PPPs) has added a new level of complexity to the future of public procurement.  

Taxpayers will agree that politicians, and through them public servants, have a responsibility to ensure integrity and efficiency in allocating contracts and public money. It has always been a balancing act to ensure accountability and efficiency when granting public contracts. Yet in the last decade or so more often governments have turned to P3s to provide expensive infrastructure. 

The Canadian Council for Public Private Partnership defines these arrangements as “a cooperative venture between the public and private sectors, built on the expertise of each partner, which best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

P3s take on many different forms depending on the nature of the project, ranging from strait contracting out of a service or building development to complete privatization. 

Proponents of P3s argue they effectively bring together the strengths of both sectors and provide much needed capital to finance government projects and services. This creates opportunities to complete projects that would not otherwise be affordable and at the same time transfers certain risks to the private sector.  

However, there is a serious concern about how this mingling with the private sector affects the procurement process. It seems only reasonable for one to assume that with the transfer of risk there is a loss of control over the quality and cost of service delivery. The treasured transparency and accountability that taxpayers demand in public affairs is now clouded by the world of private business. And yet, the Canadian Council for P3s lists over 160 current or successfully completed P3 projects across Canada and the government of Canada has developed a $1.3 billion fund available to provinces and municipalities to encourage the development of these relationships. 

Despite its critics – and there are many – P3s are becoming a significant part of the public procurement process. Therefore it becomes imperative to develop systems to ensure that this new form of procurement maintains the transparency, accountability and fairness of more traditional processes. 

It is essential to be careful when choosing to enter into such an agreement. It is tempting for governments to jump at any new source of funding, but it is important to consider the needs of the community not only when choosing to use a P3 but also when negotiating the structure of that agreement. To avoid possible negative outcomes, a detailed “value for money” analysis is required to assess whether the costs exceed the benefits.  

Further, much has been learned from previous P3 projects across Canada that highlights the importance of the negotiation process. Issues that must be incorporated into such contracts include:

  • End-product ownership: this is especially true when a municipality pays the capital debt but does not own the buildings;
  • Maintenance of responsibilities: audits should be performed regularly to ensure proper upkeep of assets;
  • A long-term vision: P3s often involve big infrastructure projects that should not only serve immediate purposes but also plan for the future needs of growing communities; and
  • Agreement on the structure: while there are several structures that P3s have taken, the most popular by far is a design-build-finance-operate approach, where the public sector retains ownership, or agrees to purchase the facility and land for the sum of $1 at the end of the fixed-term contract. The private sector is responsible for the rest. Choosing an appropriate structure may be the most crucial aspect of a successful agreement. 

Public-private partnerships offer many communities a breadth of exciting possibilities yet have called into question traditional procurement processes. Can the same level of accountability be promised in these new contracts? The truth is that like any procurement, the transparency and integrity of the contract lies in the integrity of those entering into the agreement.  

 

Carly Gasparini is a Masters of Public Service candidate at the University of Waterloo. She is completing her internship as a policy intern at the City of Greater Sudbury. 

 

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