P3 projects, or public-private partnerships, are arrangements between a public sector and a private consortium (a group of businesses) in which the public owns a project but rids itself of the majority of risk and expense by hiring out the work. Types of P3 projects vary in the amount of control the public sector retains.
In the case of the Regina Bypass, the public sector is our provincial government and the private consortium is a list of twelve companies called Regina Bypass Partners. As the bypass is a Design-Build-Maintain-Operate-Finance (DBFOM) project, the Saskatchewan government will retain ownership of it. However, this means that the consortium will be responsible for nearly every other aspect.
Because the private sector is handling most aspects of the project, many details about the project are not publicly available. These details include financial risk calculations and communications between partners.
CHOOSING THE PRIVATE PARTNER:
To become the Preferred Proponent, or winning bid, the candidate consortiums had to pass through two rounds:
- Request for Qualifications - May to July 2014:
Groups of companies banded together to create consortiums that put forth bids to the provincial government, in hopes of being awarded the Bypass project.
- Request for Proposals – April to May 2015
Three candidate consortiums were shortlisted:
Queen City Infrastructure Group, Wascana Development Partners, and Sasklink Global Transportation Partners.
A fairness advisor, P1 Consulting Inc., evaluated each of these stages.
Sasklink Global Transportation Partners would be chosen in May 2015. Once chosen, it rebranded itself as “Regina Bypass Partners.”
Regina Bypass Partners consists of:
- Graham Infrastructure Ltd.
- Parsons Canada Ltd.
- VINCI Infrastructure Canada Ltd.
- Parsons Canada Ltd.
- GraCorp Capital Partners LP
- Carmacks Enterprises Ltd.
- Urban Systems
- Buckland and Taylor
- EXP Services Ltd.
- Clifton Associats
- Delcan Corporation
Parsons, Graham, and Vinci are considered the project’s leads.
More information on the individual partners can be found here. (LINK TO BRANDON’S ARTICLE ON PROFILES)
The Project Agreement between the provincial government and Regina Bypass Partners was signed in July 2015. Construction began the following month. The Project Agreement is 34 years in length, the first four of which is the time construction will take.
Scheduled for completion in 2019, the project will then enter the second portion of the agreement, which consists of maintenance, operation, and rehabilitation of the project.
As the route was decided by the Ministry of Highways and Infrastructure prior to opening the bid, they accordingly retain all responsibility for any errors or omissions in the design. They will also handle any permits for the project and changes in legislation that affect the project.
Regina Bypass Partners, the winning private consortium, is responsible for the majority of risks, such as site and environmental conditions and activity, owner-initiated construction delays, traffic and safety management, construction errors or omissions, resource availability (including equipment, materials, and labour), and owner-initiated cost overruns.
The Ministry and Regina Bypass Partners will share responsibility the relocation of utilities and railway services and any already-existing defects in current infrastructure.
Leigh Fisher Canada Inc. is a company that has been jointly funded to monitor project’s development and evaluate completion checkpoints. This is in addition to oversight committees of representatives from both the public and private parties. The PPP Canada Fund Management Committee will meet semi-annually to monitor the project and receive reports from the Ministry on its progress.
Payments to Regina Bypass Partners may change if the group’s performance is inadequate and payments are indexed by the Canadian consumer price index. An “Initial Cash Allowance Amount” was set aside by Regina Bypass Partners at the start of the design and construction phase to fund the utilities costs as they are responsible for managing utility conflict. However, should the costs exceed the money set aside, the Ministry must share the excess costs. If there is a balance remaining at the end of the design and construction phase, the Ministry will receive a financial credit for that amount. If legislation affects Regina Bypass Partners’ ability to deliver on the agreement’s obligations, the monthly payments will be adjusted so that Regina Bypass Partners is left in a position that would be the same had the law change not happened.
A $1.88 BILLION PRICE TAG
A “Value for Money” report, or a comparison of the costs associated with both the P3 model and a traditional build, was done by Ernst & Young LLP. The report was prepared on instructions from SaskBuilds (Crown corporation that assesses procurement options regarding high-cost provincial infrastructure projects.)
The VFM report found that the public build would cost an estimated $2.26 billion, while the P3 option only had a price tag of $1.88 billion.
From the chart above, you can see that the the that the construction, operating, and rehabilitation cost in the public model would cost $1.65 billion dollars, while to pay the private sector for the same work would cost $1.79 billion in the P3 model. Comparing only these expenses, the government could do the work cheaper.
However, the P3 option becomes less expensive when the element of risk is factored into each model.Risk is, in a nutshell, the potential costs of what could go wrong with the project. In the traditional build model, the provincial government would retain all risk since they are responsible for the work. When the work is transferred to the private sector, like it is in the P3 model, the risk is similarly transferred. This is why the risk factor changes from $476.9 million in the traditional model to $49.4 million in the P3.
By going with the the P3 option, the provincial government will save $380 million.
In other words, what the government would pay to build and maintain the bypass is paid to the hired consortium, and what government would potentially pay in risk is handled by the private party.
The fourth p – problem – in these public-private partnerships is that no justification of the risk calculations is offered. Until the risk cost is added to each model, the public build is a cheaper project. Ultimately, the provincial government has chosen to build P3 because while they could build the bypass for cheaper, or a similar price, they have chosen not to handle the risk element that could potentially develop. And how that risk element was calculated is unknown.