September 29, 2008

Canadian Construction Association Board Meeting

Public-private partnership model risks squeezing out smaller firms, delegates say

RICHARD GILBERT

staff writer

The public-private partnership (P3) procurement model for major infrastructure projects in B.C. is negatively impacting small- and medium-sized contractors.

This topic was brought to light at the Canadian Construction Association (CCA) board meetings in Winnipeg.

During a meeting of the International Business Committee, members discussed the use of P3s by provincial governments and the increased competition in the domestic market due to the participation of foreign firms.

“We have recognized that the P3 process is one that works for the government’s needs on major infrastructure projects,” Manley McLachlan, president of the British Columbia Construction Association (BCCA) later said.

“Many of our members are deeply involved in these projects. The dilemma is that we see P3 projects as a potential benefit as a delivery model, but we are concerned about the impact on local contractors.”

The B.C. and Yukon Territory Building and Construction Trades Council (BCYT-BCTC) agrees with the BCCA about the benefits and risks associated with P3 projects.

The trades council recently submitted a report to provincial Finance Minister Colin Hansen stating that they support P3 construction projects because the model provides investment capital for public projects that would have otherwise been difficult to finance.

However, they oppose strategies used by some foreign project managers that restrict B.C. companies from participating in the tender bid process.

“When the prime contractor refuses to break down large construction projects into manageable packages, small and medium B.C. companies are left on the sidelines,” Wayne Peppard, BCYT-BCTC executive director said in the report.

“When it takes a minimum of $100 million to bid on component projects, the small or medium-sized contractors are frozen out. When construction managers tender through the back door to their friends or associate off-shore companies, how does this promote B.C. business?”

Peppard, in an interview, said the critical issue is that construction project packages are so large that when the Request for Proposal goes out, it precludes local and regional contractors from competing.

“This often means that the larger off-shore companies are the only ones that can afford to bid on these large P3 projects,” Peppard said.

“They come in a management position and then they decide if they are going to direct hire or subcontract the work. The guidelines are very weak at this point and this is when abuse occurs, such as bid shopping.”

Another concern about Public Private Partnerships is that the dollar threshold above which P3s are considered viable has dropped from $100 million to $20 million.

Projects that have never been considered for a partnership are now going through the P3 evaluation process.

“Our members became concerned about P3 projects with the announcement of the $20 million dollar threshold,” said McLachlan.

“This triggered a few alarm bells because $20 million is not a major project. This threshold was a bit too close to home for a number of our small and medium-sized firms interested in pursuing these types of projects.”

Smaller firms may have the bonding capacity for a $20 million dollar project, but not the finances to deal with a 30-year time frame.

Another problem with the lower threshold is that public clients will bundle a number of smaller projects together to create a viable P3.

McLachlan said he’s had assurances from Partnerships BC that they won’t bundle projects.

However, the B.C. government announced late last month that a construction contract for the expansion of the Kelowna and Vernon Hospitals has been awarded to Infusion Health Services.

The bundled bid by the Infusion team was led by two European construction giants, John Laing and Bilfinger Berger Project Investments.

There is a significant impact on smaller contractors, who rely on projects from local health authorities, because these firms can no longer compete in the local P3 market.

“What we are asking for is public policy that requires fair and open tendering on all construction projects, public and private,” said Peppard in the report.

“If PPPs are used by multi-national construction companies as a vehicle to avoid open tendering, then it’s a corruption of the PPP model, not of PPPs in and of themselves.”

The trades council is recommending that small and medium size companies be provided with security to bid for tendered projects under a fair process.

“Contractor licensing is a good way to go to ensure contractors and workers are qualified and licensed,” said Peppard.

“In tendering, there should be screens and filters for projects based on safety, employment standards and apprenticeship. This will weed out the bad players that feed the underground economy.”

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