Golden Ears Bridge - Associated Engineering worked with the Owner, Translink, during the concept development, P3 procurement phase, and implementation

ViewPoint

Alternative project delivery methods - can they solve the infrastructure deficit in Canada?

There is no clear definition of what constitutes an alternate project delivery method but anything that is not strictly traditional design/bid/build could be included, such as value engineering and design/build. In this ViewPoints, we will examine public/private partnerships (P3s). The public-private continuum covers a range of contracting forms from fully public to fully private.

But first, what is a Public/Private Partnership? Again there are many definitions, but one from Partnerships BC captures the spirit of a P3:

A public/private partnership is a legally-binding contract between government and business for the provision of assets and the delivery of services that allocates responsibilities and business risks among the various partners.(from Partnerships BC – www.partnershipsbc.ca)

In any form of project delivery, the best outcome is when risk is allocated to the party best able to manage that risk. Provided that the risks can be quantified and priced, the private sector is more than willing to assume responsibility for risks. The challenge in the process is the allocation of these risks. An example in your private life is car insurance – you can buy a policy that has a zero deducible for glass and tires, but can you afford the premium for this level of coverage? Instead, you do some risk management, even subconsciously, by thinking about the number of windshields and tires you have replaced previously and the likelihood you are going to be driving in a location that will increase this sort of damage. The same analysis applies to P3s.

This type of analysis is included in a value-for-money analysis – often called a public sector comparator. What will it cost to deliver the project as a P3 over the term of the contract, compared to what it would cost as a traditional design/bid/build project with operations and maintenance included in the way they are normally provided? The challenge is that risks have not normally been included in project analyses, so identifying and quantifying project risks is a whole new challenge for most engineering staff in government agencies.

P3’s have been described as a panacea for the infrastructure deficit in Canada – but are they really? In most cases there is no new money generated, so the advantages of a P3 must come in other ways, such as more effective solutions that can come from having the designer, contractor, and operator all working together. It is important to remember that a P3 creates long-term financial obligations – in most ways, it’s no different than borrowing the money.

Probably the greatest factor for success is the ability to clearly define the project – through all of its phases. As in design/build, “wants” and “needs” should be clarified. “Needs” are minimum performance requirements, such as the number of lanes on a highway. “Wants” are essentially prescribed preferences, such as the colour of the handrails, and have no place in the overall P3 process. A P3 needs to be performance-based; just because that is the way you have done it for 50 years is not sufficient. There is a loss of flexibility to adapt to changes in the environment of the project. Changes can be made, but unless contemplated by the Concession Agreement, they can be difficult to negotiate and price. Since the term of the agreement will often be 30 or more years, there may be a certain level of clairvoyance needed to adequately scope the project. Projects are cost driven so they will be designed and constructed to a level that provides minimum compliance. For transportation projects, changes in functionality or capacity can usually be accommodated over the life of the project, but for water supply or treatment facilities, capacity or regulatory changes may be much more difficult to make.

Under most P3s, the asset reverts to public ownership at the conclusion of the operating period. After 30 years, most of these assets are only in mid-life and should continue to provide continuing value to the taxpayers. Hand-back criteria are included in the P3 to capture the residual value at the end of the concession period. No one wants to get back an asset which is physically worn-out and requires significant rehabilitation to realize the remainder of its useful life. However, there is also a cost associated with setting overly onerous hand-back standards. For the current round of P3s, the design/build phase appears to have been relatively successful, but we will really only know in 30 years time, at handback of the infrastructure, whether they were truly successful and delivered value to the taxpayer.

Associated Engineering has experience in evaluating, specifying, and monitoring P3s through our roles on projects ranging from proponent team member, Owner’s Engineer, Owner’s technical consultant, Independent Certifier, and Lender’s technical advisory team member.

About the author:

John Fussell, P.Eng. is a Senior Bridge Engineer and Project Manager. He has managed a wide variety of transportation projects, delivered conventionally and through alternate delivery processes. As Vice President, Transportation, John is involved in all alternative delivery transportation projects undertaken by Associated Engineering.