Ontario’s private-sector gamble is another sucker’s bet
TheStar.com – Opinion/Commentary – After being burned on ORNGE and eHealth, the Ontario government is risking more on questionable private-sector partnerships, says MPP Rosario Marchese.
Dec 23 2013. By: Rosario Marchese
After being burned with ORNGE, eHealth and the gas plant scandal, you might think the Ontario government would shy away from further risky and wasteful private sector misadventures.
But instead the government is doubling down. Its fall economic update proposed a major expansion of the latest fad from the world of finance: Alternative Financing and Procurement (AFP), also known as Public-Private Partnerships (P3s).
AFP is like an insurance policy. It caps potential cost overruns by transferring ownership, and therefore risk, from the public to the private sector. Since the private partner owns and controls the project, it bears the costs if things go wrong.
Great idea, except no one can prove this insurance is worth the huge price the government is paying.
Last year, University of Toronto professor Matti Siemiatycki found that the government paid a premium of 15 per cent, or about $1 billion, above the cost of traditional public procurement on its first 26 AFP projects.
That’s a huge insurance bill. But the government insists P3s are a great deal. And it uses a very curious argument: its own incompetence.
Here’s how it works: the government calculates how much a project should cost. Then it guesses how badly it might screw up the job, typically adding a 40-60 per cent “risk assessment” on top of the project’s base cost. If a “Value-For-Money” (VFM) comparison shows that a hypothetical private partner can beat this inflated public comparator, then AFP it is!
People should worry when their government bets on its own incompetence. Such governments tend to win that bet, and it is the public who pays out.
Incompetent governments love P3s because they can pay private consortia to take the blame when things go wrong, while hiding behind third-party confidentiality to avoid transparency and accountability.
Best of all, since P3 price tags already include potential cost overruns, the government can usually boast they are delivered “on budget,” and the public has no way of knowing exactly how much it overpaid.
Former premier Dalton McGuinty established Infrastructure Ontario seven years ago to promote and oversee P3s for the Ontario government. He also put it in charge of performing these dodgy VFM comparisons.
Obviously, an arms-length agency whose existence depends on a steady stream of AFP projects has a powerful incentive to make P3s look like a great deal and exaggerate the riskiness of public procurement.
Indeed, the province’s auditors have regularly raised red flags at the lack of independent assessments of AFP.
In 2008, the Ontario Auditor General found serious flaws in the Brampton Civic Hospital procurement, where the government ran a second value-for-money comparison after the first failed to recommend AFP. In 2012, the A-G slammed the P3 procurements for the Union-Pearson Express and for Presto, which is poised to become one of the most expensive payment systems of its kind in the world.
Larry Blain, the former president of British Columbia’s equivalent to Infrastructure Ontario, gave away the game when he told a group of financiers in 2003: “I can make the public sector comparator as bad as we want to, in order to make the private sector look good.”
The government insists it has learned its lessons after these scathing audits, and asks that we trust that their VFM comparisons are now “evidence-based.” But if this process is really “evidence-based,” why does the government keep hiding the key to the evidence locker?
Economist Toby Sanger has studied the VFM templates posted on Infrastructure Ontario’s website and says they are “frankly embarrassing.” And when Sanger asked the government for information proving they contain anything other than made-up numbers, he was told this information was “proprietary” and confidential.
It’s a recipe for spending scandals.
P3s are a reasonable option when a government lacks the experience and resources to manage a large, risky or novel project.
But the Ontario government now sees AFP as a magic cure-all for all ministries, including the Ministry of Transportation, which has more than a century’s worth of experience building large and complex infrastructure projects. If this ministry can’t do its job, it should smarten up rather than waste money outsourcing a core business of government to the private sector.
Which brings us to the “AFP paradox”: The information needed perform an accurate value-for-money comparison is the same information that would show how to improve public sector performance. Either this information is real, and the government knows how to shape up; or this information is bogus, and so is the justification for AFP.
Either way, the government’s AFP gamble is a sucker’s bet.
Rosario Marchese is the MPP for Trinity-Spadina riding in Toronto. He is a member of the New Democratic Party.
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