May 18, 2009

Public-Private Partnerships

Role of P3 procurement grows in Quebec

IRWIN RAPOPORT

correspondent

A recent announcement that $100 million of iron and steel will be purchased by the consortium building the 42-kilometre stretch of highway to complete the beltway project around the Island of Montreal emphasizes the growing role of P3 procurement in Quebec.

Premier Jean Charest’s administration established Private-Public Partnership Quebec (PPP Quebec) in 2005.

The agency’s main role is to advise the government on which projects should be considered for P3s and to supervise the process.

In addition to the $1.5 billion Highway 30 project, the province has also signed a $225 million contract with Concession A25 for the extension of Highway 25, a combination of a highway and a bridge across Riviére des Prairies, the $1.5 billion replacement of the Turcot interchange (contract not awarded yet) and another contract with Immostar to maintain existing rest areas along the highway network and to build new ones.

The province will also be employing the P3 model to build a new concert hall in downtown Montreal (expected to cost around $266 million) and the two megahospitals in the city: the McGill University Health Centre (MUHC) and the Centre hospitalier de l’Universite de Montréal (CHUM), with costs currently estimated at $5.2 billion.

The Turcot project, intended to replace a system of elevated expressways and roads with ground-based roads, is still in the public hearings stage.

“We should launch the call for qualifications to qualify bidders in June and in November, the request for proposals,” said Hugo Delaney, director of communications for PPP Quebec.

Having witnessed the development and implementation of P3s in the U.K., Ontario and British Columbia, Quebec has embarked on P3s at its own pace to take advantage of lessons learned in other jurisdictions.

“We have learned from other people’s mistakes,” said Delaney.

“That is the luxury of being the last kids on the block.”

Delaney said the government is committed to employing P3s in appropriate situations, noting that Charest recently committed the province to using a P3 model for the CHUM project and others during a press conference.

“Potential P3 projects have to prove themselves by realizing savings for the government – reducing costs and ensuring timeline certainty compared to conventional construction,” he said.

Most current P3 contracts used in Quebec have the consortium hand over the building or highway to the government following the termination of the contract.

Delaney said that future governments could extend contracts upon their expiration.

The government’s primary criteria for considering a P3 are that:

• The project must exceed $40 million.

• There is a significant savings when compared to the cost of conventional procurement and/or that the completion date is accelerated.

• The project be relatively complex, a sufficient risk is transferred to the consortium and the risk is separable and measurable.

Some P3 critics say that if the government avoids the delays in selecting a consortium, it could undertake construction in a conventional manner much quicker.

“You have to look at the track record of conventional projects and how long it takes to complete,” said Delaney.

“It’s true that you can start a project right away, but the question is how quickly can you finish it and with P3s, because when we choose the bidder, everything is decided — all the plans have been made and the project is thought out for the lifespan of the contract.”

“You can save time by using a P3 as we have seen for Highways 25 and 30,” he added.

“Both are slated to be completed two years before they would have been.”

While many P3 projects are international in scope, local general contractors could stand to profit by becoming partners with consortium bidders or by securing subcontracts.

“Local construction firms are involved with our bidders and they want to be players in the local P3 market,” said Delaney. But he noted that it does take firms of a certain size to be involved.

While the government would incur penalties for cancelling or altering a P3 contract, a contract also ensures that consortiums will fulfill their contracts to ensure they are paid and secure future contracts.

“There are penalties — that is the beauty of P3s,” said Delaney. “They get paid every month (if) they meet all the standards. If they don’t, they don’t get paid as much that month.”

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