A P3 replacement for the Victoria General is very much on the agenda

Seven companies with offices across Canada and a few global companies with offices around the world have submitted their proposals to manage the ambitious, multi-million dollar project to replace the crumbling Victoria General Hospital.

Cannon Design is headquartered in the United States. HOK is an international firm that has built the Rogers Arena in Edmonton and Humber River Hospital in Ontario. The company that did previous studies worth $1.5 million for the NS Health Authority — William Nycum & Associates —is also among the hopefuls. The other bidders for Phase 2 of the QE2 Redevelopment are Stantec, Kasian Architecture Ontario, Ibi Group Architects Atlantic, and the Resource Planning Group.

The Department of Infrastructure will short list three firms after they have supplied the credentials for every person on the ten-member project team and provided detailed descriptions of three projects on which they have Public-Private Partnership (P3) experience.

The P3 approach is under active consideration as a means to finance and build big-ticket expansions at hospitals as well as brand-new clinics.

“We haven’t committed to the P3 model,” Premier McNeil told CBC Radio last month, “but it would be irresponsible of us not to look at it.”

“Once the requirements for new and renovated infrastructure are known, the province will use industry-recognized processes to evaluate whether a P3 model is appropriate here,” Brian Taylor, spokesperson for the Department of Transportation and Infrastructure Renewal tells the Examiner.

The province will probably follow a “mix-and-match” path rather than a one-size-fits-all approach to finance and build different elements of the VG replacement, according to Terry Smith-Lamothe, the senior  architect on the project for the department. As examples, he says the province could choose a “turn-key” approach and pay a company to both design and build an expansion or a new clinic.

Or it could hire a construction manager to renovate a second, unused operating room at Windsor’s Hants Community Hospital to carry out as many as 800 outpatient surgeries a year. A tender will go out this fall.

But when it comes to spending hundreds of millions of dollars to add  ten operating rooms and 168 beds to the Halifax Infirmary site, Smith-Lamothe figures this cash-strapped province can’t help but consider partnering with a private company that would put the dollars upfront.

“We aren’t re-inventing the wheel here,” says Smith-Lamothe. “There have been several P3 healthcare projects in both BC and Ontario that have proven to be successful — these include the BC Children’s Hospital and BC Women’s Health Centre, as well as new hospitals built six years ago in North Bay, Sault-Ste-Marie and Sudbury. We will look at all the financing options — P3 is one of them — but it has to make sense financially and operationally.”

“Under a P3 model, risks such as cost overruns and late delivery are transferred to the private sector, who are better able to mitigate and manage them,” says Bert Clark, the CEO of Infrastructure Ontario. Of the 45 P3 projects managed by Infrastructure Ontario, he says 44 have been built within budget. Clark says that’s partly because the company does not get paid until after the hospital is built and leased to the province. “Governments are able to procure more health care projects sooner by using private sector money,” he says.

But others don’t see P3 as a magic wand.

“I don’t want to rent my hospital; I want to own it,” says Nan McFadgen, president of CUPE Nova Scotia. “We would definitely have reservations about using P3 partnerships to build hospitals. For example, would a hospital that cost 10 dollars to build today wind up costing taxpayers 50 dollars over time?” she asks. “We need a hospital, but if you choose to finance it with a private partner, all you are doing is deferring the debt to the next generation — much like what happened with the P3 schools the government had built here in Nova Scotia.”

The province’s decision in the 1990s to pay private developers to build, finance, and in some cases maintain schools for a 20-year period remains controversial. Thirty-nine schools got built quickly and many are in good shape today. Opposition politicians were critical of the $726 million price tag to build and lease them (the Canadian Centre for Policy Alternatives estimates the total cost of the contracts exceeds a billion dollars), because at the end of the lease, the province does not own the buildings. Now, over the next two years, it must decide whether to give them back (surrender the lease), keep renting, or negotiate with the developer to buy the building.

So far, the McNeil government has chosen to spend $13 million to buy back two schools: an elementary school in Porters Lake and Riverside Education Centre, a Grades 6-8 school in Milford, Colchester County. That leaves 37 more difficult decisions and multi-million-dollar negotiations to come.

“Those P3 schools were built almost 20 years ago — a generation ago — and we’ve learned a lot since then,” says Smith-Lamothe. “We will rely on the advice from the independent funding consultant who will be hired under a separate contract to tell us which financing option, including P3, represents the best value for money when it comes to doing renovations or new builds.”

The RFP for the Funding Consultant has yet to go out. But if the Auditor-General doesn’t have the expertise to evaluate which financial option offers taxpayers best value for money before the province signs on the dotted line, it seems a reasonable idea to hire oversight for a project that will certainly run into the hundreds of millions of dollars,  if not $1 billion territory.

Ontario’s policy on Public Private Partnerships stands in stark contrast to Nova Scotia’s 1990s agreements to build P3 schools. In Ontario, hospitals and water treatment plants must continue to be publicly-owned, even when private developers are hired to finance, build, and often maintain them. In North Bay, a private developer called Plenary Group built a new hospital and mental health centre in just over three years at a cost of $551 million dollars in 2010. Ontario taxpayers will make monthly lease payments for 30 years, similar to mortgage payments on a house. A third party independent assessment by PriceWaterhouse on the cost of the contract estimated taxpayers saved $56 million by using a P3 approach rather than hiring a traditional contractor.

The Plenary Group has been “closely tracking” the Nova Scotia process and plans to bid at a later stage in conjunction with a local partner once the QE2 redevelopment is better defined, according to Olivia MacAngus, Vice-President of Corporate Development for the Plenary Group.

Using public-private-partnerships to finance urgently needed health care facilities is not the answer to the problem, says one Nova Scotia group.

“We believe that these new P3 arrangements are a new way of dressing up a funding model which has been a proven failure,” says Chris Parsons, co-ordinator of the Nova Scotia Health Coalition which advocates for protecting and expanding the public health system. “Ontario’s Auditor General was highly critical of private funding models for public infrastructure in his 2014 report. The claims made by proponents of the new private model are the exact same as the claims made in the 1990s when P3 models were sold to the public. Not only have they ended up costing more, but they have failed to either produce higher quality buildings or actually displace risk.

“Having private companies front the money and then entering into a rent-to-own scheme with them is essentially an accounting trick, not a sustainable funding model,” continues Parsons. “Provincial governments are able to borrow money at rates that are lower than private corporations and in private funding schemes, the company financing and building the hospital needs to make sure they get their cut. Anyone who has ever gone shopping for a couch knows that rent-to-buy schemes are great for seller and terrible for the renter — they might make you feel like you’re saving money up front but you pay more in the long term.

“In addition, they are highly secretive. When journalists or the public want to access information about a publicly funded and operated hospital, they are able to access that information through freedom of information requests. These private contracts are almost always considered to be proprietary information and the public is kept in the dark about them.”

A Nanos Research poll conducted after last spring’s federal budget for the Canadian Council for Private-Public Partnerships — a “non-profit, non-partisan organization that promotes the use of public-private partnerships” — found that two-thirds of Canadians it surveyed  “supported” (27 per cent)  or “somewhat supported” (39 per cent) P3 arrangements to build new infrastructure provided that the buildings remained owned by the government. The polling question was conditional on the buildings staying in public hands. Roughly the same percentage of those surveyed cited cost overruns on previous projects managed by government (think military helicopters, the Yarmouth ferry, Muskrat Falls in Labrador) as a reason for their conditional support for some combo of private-public partnerships.

Asked if CUPE Nova Scotia could support a P3 model for health care similar to what has been used in Ontario, McFadgen replied:

If the building is publicly owned, it is not a P3. For the relationship to be a P3, ownership remains in the private owner’s hands. It is always more cost efficient for the public sector to own and run because there is no profit motive. CUPE NS remains opposed to profit in our public service delivery.

The province expects to name its choice to manage the planning and replacement of the worn out VG later this month. What will be one of the province’s largest infrastructure projects in decades is destined to outlive those who helped launch it. Deputy Health Minister Peter Vaughan is leaving this fall and Terry Smith-Lamothe, the building design team leader, is due to retire before the 2022 target date to re-locate most VG in-patients and clinical services.