To P3 or Not to P3: That is the Question (Part I)

In a “classical” [private-public-partnership or P3], a government typically uses a consortium of private sector firms to finance, design, construct, operate and maintain some new physical public infrastructure. Despite the increasing use of [P3]s, evidence shows that many [P3]s have produced unsatisfactory outcomes, including high transaction costs and project bankruptcy. We argue that many of these problems ultimately stem from the conflicting goals and motivations of governmental actors and their private sector “partners”. Furthermore, although society must delegate operational authority to governments, governments are not society. Governments (being a mix of politicians and bureaucrats) can act in their own interest, often in ways that are antithetical to the interests of society as a whole. Additionally, private sector firms have their own self-interests, which are rarely congruent with the interests of society. (Vining and Boardman 2014)

I’ve been reading a number of papers written by Aidan R. Vining, a professor emeritus at Simon Fraser University’s Beedie School of Business, and Anthony E. Boardman, a professor at the University of British Columbia’s Sauder School of Business, who (often in collaboration with other academics and always with reference to other academic research) seem to have generated the bulk of the independent research on private-public-partnership (PPP or P3) projects in Canada. Of the many informative things they have to say on the subject, that quote I’ve opened with seems the most worth keeping in mind while evaluating Nova Scotia’s decision to fund the bulk of a $2 billion project it’s calling the QEII New Generation project via a P3 agreement rather than through what is known, variously, as a design-bid-build approach or a government-led approach or a public-sector alternative (PSA).

I’m going to try to evaluate what little we know about the QEII plan based on what I’ve learned from Vining and Boardman. But first, here is that little we know, based on Nova Scotia Premier Stephen McNeil’s October 4 announcement of the project.

 

The Plan

On Thursday, McNeil announced next steps for the redevelopment of the QEII Health Sciences Centre in Halifax, which is part of the QEII New Generation project that includes the renovation of operating rooms at the Hants Community Hospital in Windsor, NS (completed in February); renovations to the Dartmouth General Hospital (now underway); and the construction of a community outpatient center in Bayers Lake (also to be funded via a P3 model).

The QEII Health Sciences Centre project is a big deal in and of itself because the QEII Health Sciences Centre is a big deal, encompassing “10 buildings on two sites” (the Halifax Infirmary and the Victoria General) with 700 physicians and 7,000 staff members.

In 2016, the Liberal government awarded the $1.9 million contract for the QEII master planning and programming to Kasian Architecture of Toronto, which was to work with “seven Nova Scotia consulting firms” on the project.

What Kasian proposed (and what the Liberals plan to do) is replace three of those 10 buildings — the  Centennial, Victoria and Dickson on the Victoria General site — through a “major expansion” of the Halifax Infirmary site. (The official term is not “replace” but “decant” which makes it sound like all the services from these buildings are going to be poured into a large carafe, although I’m quite sure this is not the case.)

 

According to the government press release, that expansion will include:

  • a new QEII Cancer Centre that provides all cancer care services in one location. Services will be relocated from the VG site to the Halifax Infirmary site.
  • an expanded inpatient care centre with over 600 hospital beds, 28 operating rooms, 33 intensive care beds and 15 intermediate care beds.
  • a new outpatient centre that will deliver services that do not require an overnight stay in the hospital, bringing clinics together in one location, and be home to the QEII Eye Care Centre. [To be built on the site of the old CBC building on Bell Road.]
  • a new innovation and learning centre that will see three learning and training labs together under one roof to support distance education and strengthen the QEII Health Sciences Centre’s research and teaching mandate.

The province paid the consulting firm Deloitte $500,000 to explore “public and private sector-led options to help determine the best approach to design, construct and maintain” the new buildings that would replace the Victoria and Centennial buildings in Halifax (the Dickson building was added to the list later). It would appear the report came down in favor of the P3 model — although I can’t say for sure because the McNeil government is refusing to release the report — because the P3 model is what the government chose:

Funding for construction to expand the Halifax Infirmary site and develop the community outpatient centre in Bayers Lake will be through a public-private-partnership (P3) using the design-build-finance-maintain model. A request for qualifications will be issued this fall for a partner to do the design build, finance and maintenance of the project over a 30-year period.

The estimated cost for everything — including the work already done — is about $2 billion, although “it will be a while before the project has an exact cost,” according to the premier.

According to the CBC’s Michael Gorman and Jean Laroche:

The province will pay 50% of the cost of the project when it reaches “substantial completion” then pay the balance in regular payments to the private partner over the course of the 30-year agreement.

According to an addendum to the Request for Qualified Suppliers (RFQS) won by Deloitte, the government hopes work on the QEII redevelopment will be completed by 2022.

The government this week approved spending $151 million for “more detailed planning and pre-construction work” which brings the total spending approved on the QEII New Generation project to date to $350 million.

 

The P3 rationale

Here is what the premier said in announcing the decision to use a P3 approach to the QEII Health Sciences Centre revamp, according to media reports (specifically this CBC story and and this one):

  1. “We have not built something like this in our province in a very long time, if ever.” It’s one of the key reasons the government opted to go with the P3 model, said McNeil. The government believes it gives the greatest certainty for work to be done on budget and as ordered.
  2. The premier said P3 also gives the government more flexibility for continuing with the rest of its capital plan for projects such as schools and roads.
  3.  Inside government…officials are working with outside consultants. The government wants to make sure, unlike the school contracts, the details are spelled out and responsibilities are crystal clear — down to the exact size and speed of hospital elevators.
  4. [An official closely associated with the project]…said the job of monitoring the maintenance contract, to ensure promises made were kept, would fall to one of three government entities — either the Nova Scotia Health Authority, Nova Scotia Lands or the Department of Transportation and Infrastructure Renewal.

And here’s what David Jackson, a spokesperson for the Premier’s Office, told me when I asked what the reasoning behind the choice was:

The P3 approach will ensure greater cost certainty by putting the responsibility for any cost overruns with the private sector, not the province.

In part II of this article, I will try to evaluate those reasons.

 

 

 

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