What is a P3?

As Canada’s existing public infrastructure continues to age and the requirements for replacement and new infrastructure increase, governments must find ways of stretching their infrastructure dollars further. Across Canada, governments have begun to recognize the value of engaging private-sector innovation to build more for less, where possible, and deliver savings that will help to fill the infrastructure gap.

P3s are a long-term performance-based approach for procuring public infrastructure where the private sector assumes a major share of the responsibility in terms of risk and financing for the delivery and the performance of the infrastructure, from design and structural planning, to long-term maintenance.

Public-private partnerships address the following challenges faced by governments in managing large, complex capital infrastructure projects:

• Lack of pricing of capital and risk: capital budgeting and execution is generally done with no reference to cost of capital.
• Lack of capacity: there is an inability to develop and retain internal expertise to manage large projects.
• Inadequate consideration of whole life-cycle costs: governments tend to manage the design, construction, operation and maintenance as separate processes, without considering the interactions between them.
• Inadequate incentives and contractual discipline: contracts often do not include sufficient incentives for scope and cost discipline; cost-based contracts can, in fact, create perverse incentives for contractors to encourage change orders and cost increases.

P3s provide on-time, on-budget projects which deliver effective infrastructure over their useful lives.

They have demonstrated their value in Canada and internationally. In fact, most advanced economies (26 European countries and significant number of Asian countries) are increasingly employing P3s to address their infrastructure needs. The creation of government agencies in the United Kingdom, Australia and across Europe has further supported the implementation of P3 procurements in those countries.