“Private Deals, Public Failures” is the slogan of a campaign running on TV and social media this week launched by the Nova Scotia Health Coalition. The non-profit group which defends public health care is worried the McNeil government may choose a private company to handover the financing, building, and ownership of health-care facilities to replace the deteriorating Victoria General Hospital site.
The premier has said that although the Province is “not committed” to a Public-Private-Partnership (P3) model to replace the VG Hospital, it is one approach being considered. In a Request For Proposals issued by the Department of Transportation, Infrastructure and Renewal to hire a consultant to manage the construction planning process, each bidder must include and describe previous P3 projects on which their company worked.
The P3 model usually sees a private company provide the money upfront and assume the risk of cost overruns and project delays on large, complex projects. The developer makes a profit through the lease or mortgage payments and often through an additional contract to maintain or manage the building.
In a news release to kick off public discussion about P3 financing for schools and hospitals, the Nova Scotia Health Coalition says deals with private companies cost taxpayers more in the long run than if the government put up the money and supervised the job.
As an example, the release from the Coalition highlights the 39 schools the province built with several private partners in the 1990s. The government paid $726-million to lease them and after 20 years, it now must decide whether to buy them, close them or keep renting. A study by the Canadian Centre for Policy Alternatives last July estimated it would cost this Province an additional $230 million to buy all 39 schools. So far it has spent $13 million to pay for two schools in Milford and Porter’s Lake and another $1.8 million to extend the lease of three schools in the Canso Strait area for a year while their future is being weighed. Dozens of more decisions are yet to come.
“We are calling on politicians from all parties to reject a funding model which has proven to be inefficient, secretive and which removes control and ownership from Nova Scotians and hands it over to for-profit corporations,” said Chris Parsons, the co-ordinator of the Nova Scotia Health Coalition.
Asked if the province is considering using a P3 model to build new schools in the future, Transportation, Infrastructure, and Renewal Minister Geoff MacLellan ducked the question. “We will continue to explore possible partnerships where it makes sense and make decisions based on what is most beneficial to Nova Scotians,” he wrote in an email to the Halifax Examiner.
In Ontario, legislation requires the ownership of hospitals and waste water treatment plants to remain with the province even if private partners are hired to finance and build them. In the last five years, a number of Ontario hospitals have been built under this newer variation of P3 in which the public still owns the hospital.
Asked if Nova Scotia is considering a similar approach, MacLellan was once again non-committal. “P3 partnerships can allow for necessary infrastructure to be completed in a timely manner in a way that is affordable to taxpayers,” he wrote. “Not all P3 projects are the same. The merits of each partnership depends on the deals that are negotiated.”
The Nova Scotia Health Coalition says the profit private companies have made in Ontario building hospitals would be better spent providing front-line health care for patients. Chris Parsons of the Coalition points to a 2014 report by Ontario Auditor General Bonnie Lysyk. She found that between 2005 and 2014, it cost Ontario taxpayers an extra $8 billion to pay private companies to finance and build hospitals, court houses, and jails than if the government had put up the money. The trade-off for taxpayers was that nearly all of the dozens of projects managed by Infrastructure Ontario came in on time and on budget.
Ontario’s auditor general acknowledged that fact — and timeliness is a virtue when it comes to replacing the VG — but Lysyk’s report was critical of the way “value for money” was calculated when comparing funding for projects worth more than $50 million. She wrote:
While we acknowledge that there are examples of recent projects delivered by the public sector that have experienced cost overruns, there is no empirical data supporting the key assumptions used by Infrastructure Ontario to assign costs to specific risks. Instead, the agency relies on the professional judgment and experience of external advisers to make these cost assignments, making them difficult to verify. In this regard, we noted that often the delivery of projects by the public sector was cast in a negative light, resulting in significant differences in the assumptions used.
Based on our audit work and review of the Alternate Financing Project (AFP) model, achieving value for money under public-sector project delivery would be possible if contracts for public-sector projects had strong provisions to manage risk and provide incentives for contractors to complete projects on time and on budget, and if there is a willingness and ability on the part of the public sector to manage the contractor relationship and enforce the provisions when needed. Total costs for these projects could be lower than under an AFP, and no risk premium would need to be paid.
In other words, it all comes down to the ability of governments to manage the work that needs to be done — something that so far has failed to inspire much confidence in Nova Scotians, considering a replacement for the VG hospital site is now years overdue, as well as being a complex project with dozens of moving parts and a price tag in the hundreds of millions of dollars.
Lack of expertise — or “capacity” — may explain why the McNeil government is contracting out the planning job to replace the VG Hospital.
But that doesn’t let the politicians off the hook when it comes to deciding whether it’s a better deal for taxpayers to pay the money upfront (the government can borrow at a lower rate of interest than companies can) or stretch out payments over 30 years (with interest) to a private developer. That seems worthy of more public discussion than wait-and-see.
Health Minister Leo Glavine promised a plan to replace services at the VG would be unveiled last January. That won’t emerge until late in 2017, specifically, a year from when the construction planning consultant is hired. That choice may come later this October — the seven national and international firms that responded to the Request For Proposals in August will be whittled to three next week. The winning firm will have 12 months to come up with a plan, a budget, and a schedule to sequence the work. By next October, an RFP for architectural drawings will go out and once they are ready, construction will be able to start. The year 2022 is the current target for moving patients and demolishing the VG and Centennial Buildings.