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Why private-public infrastructure projects haven’t always lived up to the hype



Seen from the clarifying distance of a decade, the hyped-up promises weren’t just cringeworthy but so far off the mark as to be mere guesswork.

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NADA HAYEK/The Globe and Mail

In the early 2010s, when Infrastructure Ontario (IO) and Metrolinx, two provincial agencies, embarked on a historic public-private partnership (P3) to build the 26-kilometre Eglinton Crosstown LRT in Toronto, officials promised to spend about $8.2 billion and finish the massive undertaking by 2020. “Over the last six years, IO has done 52 projects worth about $21 billion,” the Liberal cabinet minister in charge of IO boasted at the time. “Virtually every one has been on time, under budget.”

Reality, however, bit, and bit hard. The Crosstown, which is being built by a consortium of globe-trotting engineering giants, is more than $4 billion over budget and has blown through repeated project deadlines. Untold millions have been wasted on legal battles between the consortium, its own members and the province. Metrolinx officials, in turn, have been reduced to calling press conferences to announce they have no news about when the line will actually open.

Once upon a time, government agencies built infrastructure themselves, with design and construction departments overseeing everything from bridges to subways to schools. Of course, these bureaucracies hired private contractors to carry out the different pieces of big projects, but the overall planning, management and ownership remained with the public sector.

By the early 1990s, however, debt-laden governments began leaning into neo-liberal policies of all flavours—including outsourcing large works projects. The private sector was seen to be far more adept at managing risk and innovating than hidebound state bureaucracies, and the consortia that built these projects would face financial penalties for running late.

While large institutional funds clamoured for reliable revenue-generating infrastructure assets, the case for P3s got a further boost from Danish geographer Bent Flyvbjerg, a professor at the University of Oxford’s Saïd Business School. His groundbreaking research on public sector megaprojects showed they often failed to meet early political promises about cost and timing, which tended to be overly optimistic so as to secure public approval.

The categories of P3-worthy projects expanded steadily to include highways, hospitals, court houses, airport terminals and colleges. They came in all permutations: design-build, design-build-finance, design-build-operate-and-maintain and so on. Governments, eager to move big-dollar ventures off their balance sheets, established agencies to tender and manage P3s, and then eventually required P3s to become the default approach. “P3s became the only game in town,” says Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto, where he is a professor of geography and planning.

But three decades on, it’s become increasingly difficult to argue for the infallibility of the market when it comes to building complex public projects. A 2020 study commissioned by the Residential and Civil Construction Alliance of Ontario (RCCAO) concluded that the per-kilometre cost of rapid transit projects in the Greater Toronto Area has continued to skyrocket, despite the use of the P3 model favoured by IO and Metrolinx. The city’s latest conventionally built subway, the Toronto-York Spadina Subway Extension, cost $384 million per kilometre (in 2019 inflation-adjusted dollars) and was completed in just eight years. All the subsequent subway projects in the GTA, which used the P3 model, are nowhere close to being finished and will cost almost twice as much per kilometre.

And this isn’t a local problem. Many other large-scale public-private ventures have been dogged by delays and eye-watering overruns, including the Crossrail subway in London, the Samuel De Champlain Bridge in Montreal and California’s epically delayed high-speed rail scheme.

The assumption that the private sector can always do a better job ignores a host of X factors—such as permitting delays, labour disruptions, geological surprises and inconveniently located older public infrastructure—which generate additional costs that are completely beyond the control of the P3 investors, experts say.

“There are all these other interfaces that need to be dealt with,” says Eric Goldwyn, a program director at New York University’s Marron Institute of Urban Management and a clinical assistant professor in transportation and land use. “If there’s geological risk or permitting risk or act-of-God risk, no private entity can shoulder that burden, right? It’s not reasonable or fair.”

What’s more, big projects often suffer from mission creep, and the commercial interests of P3 consortium members may be far less aligned with politicians than it seemed during the halcyon moments of the obligatory ribbon-cutting. Goldwyn cites the case of Maryland’s Purple Line, a 25-kilometre LRT project, in which the P3 partner quit three years in because of conflicts over cost overruns, mid-stream changes in environmental regulations, and use of a freight rail corridor. “There’s nothing that the private sector can do to insulate itself from those kinds of challenges,” he says.

The fact that these giant P3s involve so much risk has prompted agencies like IO to significantly overpay, as Ontario’s auditor-general found in 2014. Large institutional fund or asset managers are much more interested in buying existing infrastructure than investing in new-build ventures, Siemiatycki says, adding that many P3 deals in Canada are simply too small to interest big pension funds. As the number of bidders have dwindled, agencies that commission P3s face a narrower range of options when awarding a contract.

Italy has partly figured out how to mitigate the risks involved with large P3s, by ensuring that the projects are overseen by dedicated public agencies with the expertise to manage such complex ventures, says Marco Chitti, an urban planner and post-doctoral researcher at NYU. “They have very strong in-house engineering departments, which helped avoid this kind of thing where you just outsource to a chain of consultants,” he says.

Another approach: the way the Quebec government structured a deal to build a new commuter rail service, REM, connecting Montreal to the south and north shores, as well as the more remote ends of the island. The $7.95-billion project, initially announced in 2016, will grow to include three other lines extending 67 kilometres. CDPQ Infra, a subsidiary of Quebec’s pension plan, is building and operating the network, the first leg of which opened this past summer. CDPQ retains fare revenues and enjoys a legal right to develop real estate along the line to both boost ridership and offset capital costs, which have risen by 26% from 2018 cost estimates.

In other forward-looking jurisdictions, officials overseeing these megaprojects have sought to take a collaborative, problem-solving approach, as opposed to the highly legalistic and fundamentally transactional deals that characterized first- and second-wave P3s. “What they’ve learned is that the deal structure alone is not powerful enough, when things really go wrong, to avoid negative outcomes,” says Siemiatycki.

This so-called “alliance model” has been used in British Columbia for a hospital development project being built by Infrastructure BC, and it seems to be the way the federal government is thinking about the long-bruited high-speed rail service linking Windsor and Quebec City, he adds.

It wouldn’t be the first time governments rebranded P3s. The federal Liberals and the former Ontario Liberal government used the term “alternative financing and procurement,” although the activity is basically the same. Siemiatycki acknowledges that it’s too soon to say whether new thinking will yield better results: “Does the word ‘alliance’ just replace the word partnership? Or is this something that’s a more meaningful transition?”

Despite their huge size, multibillion-dollar infrastructure projects still turn on the people, and whether relationships between the various public and private entities is healthy or combative, Siemiatycki stresses. The result—late, acrimonious and over-budget or on-time and lovely—is determined not by “the relationship on the first day, where everyone shakes hand and puts the novelty shovels in the ground,” he says. “It’s what happens when things really start to go wrong, which they invariably will on big projects.”

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