Minister Gordon Wyant was in town on June 25 to talk about infrastructure and public-private partnerships (P3) during the Humboldt & District Chamber of Commerce luncheon.
His talk focused on how the province is building new schools and undertaking new building projects including public traffic expansion. He also spoke about how SaskBuilds is supporting Priority Saskatchewan and the positive impact of P3s.
“SaskBuilds is a Treasury Board Crown (corporation) and it’s really responsible at least in initial stages of dealing with P3 procurement in executive government, so that’s really our focus,” said Wyant, the Minister of Justice and Minister responsible for SaskBuilds. “We’re also working on an integrated capital plan for capital development across government. So really the genesis of it was our P3 procurement arm, but generally to advise government on procurement issues and construction generally.”
The Saskatchewan government created SaskBuilds in October 2012 to evaluate traditional and alternative procurement options such as P3s. According to their website, P3s are a “long-term performance-based agreement between government and business to deliver public infrastructure such as roads, bridges, schools and health care facilities.” In other words, the government contracts public service work out to the private sector who, in exchange for bearing the risks of associated costs, also get the security of long term contracts. The strength of this partnership is based on the accountability of the private sector to deliver high quality standards in exchange for funding.
Despite the potential, the provincial government’s reliance on P3s has come under fire from the public and the opposition considering the massively expensive disasters they had been in other provinces such as British Columbia’s Golden Ears Bridge, Alberta’s schools, Quebec’s university, and Ontario’s hospitals. There were delays caused by legal negotiations and colossal cost increases due to increased values of risk.
According to Wyant, there are risks in any project of it going over budget, not being built on time, etc. So SaskBuilds has developed a “risk register” and assigned values to those risks, which allows them to calculate value for money. Using that calculation and other inherent costs such as interest rates that will be accrued over the term of the contract, the government designates a final number for the contract.
“This is a great time to be borrowing money, of course,” said Wyant. “It’s true there is a different interest rate between the government interest rate that the government can borrow that money for and what a commercial entity can borrow that money for, but it is taken into account when we calculate what the value to the taxpayer is.”
The concerns in this case lie with the fact that there is no solid data to verify the values assigned to risks, which can inflate project costs if calculated improperly. The lack of communication from the government in evidence supporting these numbers was pointed out in Volume 1 of the 2015 Provincial Auditor Report. Nevertheless, the provincial auditor also declared the evaluation process as a whole to be sound.
Wyant reassured the public that they’ve addressed those other areas of concern regarding delays and expenses. According to the recommendation made by the provincial auditor, they will be delivering the value for money reports within 120 days subsequent to the financial close. The private contractor also carries the bulk of the risk since any budget overruns or delays will come out of their pocket via financial penalties if necessary.
Also, since the contracts are 30-year terms, the government will make payments over that span of time. Should proper maintenance and operation not be performed at any time, the government is at liberty to withhold funding.
“So there’s significant incentive for them to uphold the terms of the contract or they’re not going to get paid,” said Wyant. “That’s where the insurance comes from.”
Of course, there is the question of what happens should those contractors encounter financial bankruptcy. Therein lies that last bit of risk that can never fully be transferred to the private consortium. If problems arise, there exists the possibility that the taxpayer is left holding a very steep tab.
However, according to SaskBuilds’ website, “If the private partner doesn’t perform, then the financial firms will step in and find qualified resources to complete the project.” Where these “qualified resources” can be found is as yet unknown, but the hope is that that outcome will be avoided by having a predetermined budget.
Thus far, SaskBuilds has gotten as far as awarding the project for the nine P3 schools in the province to Joint Use Mutual Partnership (JUMP). They are currently in the process of negotiating, after which the money for value report will be made public. Though the decision process cannot be made public, Wyant says the company was awarded the contract because they had “the best program, the lowest cost to taxpayers, and the highest value for money while complying with all the requirements the government had with regard to the project and the amenities within that project.” Along with the publishing of the value for money report, the amount the government will be paying in the contract will also be made public.
“There’s full disclosure in terms of how those numbers are calculated, full disclosure as to where the numbers come from, and what the assignment of risk is,” said Wyant. “People may give the argument that they’re more expensive, but they’re not. We believe they do deliver value for taxpayers and the reports show that.”
At the end of the 30-year term when the contract ends, the school will have to be in a particular condition for the private consortium to have fulfilled their side of the contract. Of course, SaskBuilds will be monitoring their progress through the 30 years, but conditions will need to be maintained by the time of the final inspection. Also, despite accusations the P3 will make these facilities private, the Saskatchewan government has promised that the school boards (or health boards, depending on the facility in question) will own and operate the facility.
“There are a lot of lessons that we learn from P3s translated into traditional procurement, so that’s part of our model as well,” said Wyant. “We’re also responsible for Priority Saskatchewan, whose primary responsibility is to shepherd the procurement transformation plan that we’re moving forward with the government on.”
