Public-private partnerships are still the best way to build: David Caplan

The public has saved billions by sharing risk with the private sector

 
Toronto’s Skydome under construction in 1988
Toronto’s Skydome under construction in 1988, with Toronto Star sports editor Gerry Hall. (David Cooper/Toronto Star/Getty)

In 1989, Toronto unveiled what many heralded as the stadium of the future. A glorious dome with a retractable roof, conveniently located right in the heart of the city and home for the World Series Winning Blue Jays. Although Toronto’s SkyDome was a marvel of structural engineering, it is an all too familiar reminder of flawed financial and project planning for major infrastructure in the public sector.

The SkyDome was originally intended to cost $225 million but by the time the first baseball was hit, the cost had ballooned to over $650 million (almost $1 billion in today’s money). For Canadians the SkyDome became a monument to the inability of the public sector to deliver large scale infrastructure projects on time and on budget.

For a long time we were stuck in a position where confidence in any government’s ability to deliver any sort of major infrastructure project was virtually non-existent, and this had forced us into a spiral of never-ending feasibility studies, and chronic underinvestment. The legacy of that period is the $200 billion infrastructure gap we currently have in Canada. To get out of this rut in Ontario we needed to try something new, and that is where alternative financing procurement (AFP) played a role.

Alternative financing procurement—better known outside of Ontario as public-private partnerships—allow the public sector to pass on risks of delays and cost overruns to the private sector, in return for a small premium.

AFPs have changed the landscape considerably to an extent that we are now looked at enviously around the world as an example to follow. Innovative minds and persistent efforts have led to unprecedented collaboration between the public and private sectors, resulting in the successful completion of important infrastructure projects that otherwise would have been unaffordable.

The headlines from this year’s Report from Ontario’s Auditor General effectively wrote themselves. The standout line being that Ontario’s taxpayers had paid $8 billion more using alternative financing procurements than if the public sector could manage projects successfully by itself.

That is a very large, SkyDome-shaped “if.” There are many very capable public servants—but not many with experience of delivering multibillion-dollar transit projects, hospitals or stadiums. Although empirical evidence may be thin on the ground in Ontario, international research highlights the problem. Bent Flyvbjerg, an economist from Oxford University, estimates that of 258 major transportation infrastructure projects across the world, 90% had cost overruns—most of which were 28% higher than accounted for in the original budget. By using an AFP delivery model, the public sector can shed this risk to the private sector and thus safeguard the public from unavoidable cost overruns. Infrastructure Ontario estimates that this has shielded the tax payer from a potential $14.6 billion in additional costs.

Another consideration with the $8 billion figure is that although the Auditor General has included the cost of long-term maintenance, this assumes the public sector does not defer repairs. But in the world of tight government budgets, small repairs have historically been put off to save money in the short term, which add up to much bigger costs down the road.

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AFP contracts ensure that public assets are not left to deteriorate by themselves over time—think Toronto’s Gardiner Expressway. This requirement ensures that taxpayer money is not dumped into an asset and forgotten, but rather maintained for decades. Project proponents must ensure that 20 years hence, their hospital, highway or police station will be just as sound as they were at the ribbon-cutting.

AFPs are not the solution for every infrastructure project. There will always be examples of where the model hasn’t been the right fit. Infrastructure Ontario has now delivered 36 out of 37 projects on time and on budget. Even the World Series–winning Blue Jays would have taken that record.

David Caplan is a Vice-Chairman at Global Public Affairs and former Ontario Minister of Public Infrastructure Renewal.

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