This is the last installment in my series on building project delivery options. If you find yourself here and have not read the preceding related blog posts, I would encourage you to do so. It may offer some clarity, and at least you will gain an appreciation of how our provincial government has, over the course of many years, managed to bungle the lot. Which leads me to consider Public Private Partnerships or P3s.
This is the flavor of the month for our current government. As usual, the accepted national model of P3 was not quite suitable for Newfoundland and Labrador so our political leaders decided on a somewhat bastardized version of the typical. The nature of public/private partnerships is to tackle massive and costly infrastructure projects by having multi-national engineering / construction / property management companies bankroll a project up front instead of taxpayers. So a loose performance-based program of what is required is developed and proposals are called. It is often a two-stage process in which the initial stage is simply used to determine eligibility – a pre-qualification to assure government that a given interested firm actually has the capacity and capability to carry out the scope.
The scope is formidable. The winning contractor will design, finance, construct, commission, operate and maintain the building for an extended period, typically twenty to thirty years, for a set fee of X dollars per month or year. It’s akin to a mortgage I suppose. All the expenses are leveled out into one easy agreed payment. That takes all the pain away.
Our political leaders have embraced P3 as the means to deliver much needed health care facilities, not the least of which are an acute care hospital for Corner Brook, a new mental health hospital in St. John’s, and a number of (much needed) long-term care facilities across the province.
Now when operations go private sector, we can expect reduced cost. That’s the nature of competition. However, because our government appears to be terrified of unions, they decided to remove operations from the P3 scope. The only thing that taxpayers are therefore protected from, is a large burp in expenditure due to construction.
The minister looks good. By the time anyone figures out how much more this project delivery method actually costs as compared to more traditional methodologies, he or she will be long retired on a fat pension (also courtesy of the taxpayer). And given that health care operations are no longer in the formula, one can expect that the cost savings are ultimately non-existent or worse.
The long term benefits and losses won’t be established for a long time to come – that’s around the time that our children and grandchildren will be paying for these projects. At the moment, the general public won’t care about a different aspect inherent in the P3 process: direct loss to local design professionals and construction companies, but that’s why I am compelled to write about P3s.
There are many amply qualified architects and engineers struggling to be profitable in this province given the meagre construction potential. None can afford to specialize. All have to take on whatever comes their way to keep the doors open. So when a large multi-national company takes on a P3, invariably they don’t come calling to solicit local design expertise. Why risk the schedule? There are plenty of architectural and engineering firms in Toronto (and other major cities) that do nothing but crank out health care building designs. They do LEED and LEAN and BIM and QA/QC and all that other crap that bureaucrats adore as a matter of course. The assembly line does not have to be retooled. They are going to cost effective (i.e. really cheap) even though the design cost is typically less than 0.5% of the total P3 scope.
So all the architects and engineers – even those with considerable local health care experience – won’t get so much as a look-in. The ones that live on your street. The ones that spend their incomes locally. The ones that ultimately contribute to paying for these P3 projects with their tax dollars. Not one of them. They will be forced to scrounge a living outside major public sector projects.
Where is the justice in that?
Only one or two local construction companies could possibly take on a P3. Ninety-nine percent of the remaining, through no fault of their own, have neither the capability nor capacity to undertake P3 projects. Most are simply builders. They don’t have the ability (or desire) to finance, maintain and operate. So the construction portion, representing typically five to ten percent of the total scope, is out of reach. These contractors are also our neighbours, and will, just like the designers, pay for these P3 projects with their tax dollars.
The Government of NL has paid big bucks to Ernst & Young LLP (EY) to come up with a glossy rationalization for their P3 choices. These have been publicly released and are available on the Design and Construction webpage at http://ow.ly/p6c030eCWIA. Their “analysis” for the Corner Brook acute care project for example concluded that there is a seven per cent savings using the method outlined. Now I don’t know if the three page online report represents only a summary of EY’s work dumbed down for feeble-minded taxpayers, but I have written more in depth reports for colour selection on sheds. Let’s hope there was a massive amount of study and computer modelling behind the conclusions.
There’s a good deal more fluff on the Corner Brook Long Term Care project. I noted in particular the “Risk Allocation Summary”. The long list of items in which risk is transferred to the project (as opposed to taken on by the taxpayer) is largely composed of things that have gone completely south due to bureaucratic bungling of other delivery methodologies and the oppressive yoke of the public tendering system. So in summary, the gist of this is that they could not possibly do any worse.
All that aside, and even if the predictions of 7% overall savings prove to be real (as opposed to rationalized accounting fantasy) our friends at EY did not consider the impact on the local design and construction community.
So now it’s time to explain the photo illustration presented as click bait at the top of this post.
· The track represents the direction which spending in this province continues to run, fast and unrestrained.
· The train is the Government of Newfoundland and Labrador. It is filled with politicians and utterly clueless bureaucrats.
· At the helm is the train’s conductor, EY.
· The vehicle is the local design and construction community. It was driven by an architect.
Ouch.