Infrastructure projects have a strong track record of boosting productivity and economic activity when countries need it most. However, from our perspective in Canada, it appears that U.S. federal, state, and municipal governments have been much less comfortable executing new investments that merge private enterprise with the public sector, preferring instead to focus on public investment or the privatization of assets.

Tough times often lead to a new way of viewing common problems: how to create jobs, for example, and how to keep the economic machine moving. The American Recovery and Reinvestment Act of 2009 is just one of several indicators suggesting that the U.S. government is seriously considering the need to look to novel programs to both update crumbling infrastructure and stimulate the economy. These alternatives may be all the more attractive when the public sector is faced with more and more debt and competing priorities for borrowing capacity.

In Canada, we have “been there and done that,” having already embraced public-private partnerships (P3s) or alternative financing and procurement (AFPs, as that term is used in Ontario) as fiscally responsible ways to deliver public infrastructure and services, and get value for money and keep government spending lower by combining the resources available to public entities and to private corporations.

In fact, P3s originally arose in central Canada after our own economic woes in the early 1990s, when a recession demanded a reconfigured approach to developing infrastructure and providing public services. It was in Ontario that the most fertile ground for P3s was formed. By 1995, increased government spending and higher taxes had taken their toll on the province, and a new government was elected — one willing to consider the prospect of P3s as a way to manage public finances and deliver infrastructure and services. The result was several well-known Ontario projects — including the major Highway 407 all-electronic toll road project — as well as early public-private initiatives in other sectors like courthouses, correctional facilities, and hospitals.

During the last decade, governments in other Canadian provinces, some municipalities, and the current Ontario government, have been particularly effective in developing new models for public-private project delivery in many sectors. As evidence of the overwhelming changes brought about since the early deals, we in Canada now have a yearly national awards ceremony, sponsored by the Canadian Council for Public-Private Partnerships at its annual conference, in which the top P3 and AFP projects receive honors for their ingenuity, cost-effectiveness, and benefits to the public. Details of one such project — Autoroute 25 in Quebec — are on page 15.

Above all, healthy infrastructure is essential for a nation’s overall prosperity and output. Before the current global economic crisis began, governments around the world were finding ways to address shortfalls in infrastructure financing and P3 projects, which are now a viable and proven solution to investing in infrastructure, while reducing reliance on already strained public funds.

Why use public-private partnerships?
In traditional delivery models, governments manage or bear the risk of the bulk of construction and maintenance activities. Alternatively, in a P3 or AFP arrangement, a privatesector company (or companies) generally funds the capital investment and operates the service with (or for) the government, according to government’s rigorous outcome specifications and contractual requirements, often over a lengthy period such as 30 years. In Canada the government’s role in such infrastructure has shifted from project management to supervising and enforcing the public interest, ensuring that the quality of work, materials, design, and other services continually meets pre-determined markers.

After more than a decade of successful P3-type projects in Canada, and taking note of other successes around the globe, the following are among the trends that have emerged:

• More value for money. P3s have generally cost less than traditional delivery models. A study commissioned by the U.K. Treasury revealed that the P3 model resulted in an average savings of 17 percent compared with traditional models.
• Effective transfer of risk. The P3 model transfers from taxpayers to the private sector some of the risk inherent in any project, which the private sector is better equipped to handle. The private sector, for example, bears responsibility for cost and schedule overruns, potentially reducing their occurrence, and consequently, project costs.
• Greater leverage for public money and large projects. By combining public resources with private dollars, governments can launch more projects and create more jobs — crucial for recovery from an economic slump. Without such private-sector involvement, government dollars would not go as far.
• Established best practices. Examples of successful P3 projects are available from Canada and other jurisdictions, such as the United Kingdom, Australia, and Europe, for a wide range of infrastructure, including waterworks, roads, bridges, utilities, runways, seaports, schools, hospitals, railways, energy, and other sectors. Best practices and document templates have been developed for procurement, contracts, and project delivery.

Canada’s international reputation
Canada has emerged as a leader in P3 expertise during the last decade. Provincial governments of all political stripes have looked, in particular, to the United Kingdom and Australia for guidance on upgrading much-needed infrastructure and delivering public services better, faster and cheaper, without unnecessary deficit spending. Early projects focused on transportation areas, such as airport, road, and bridge construction, followed by social infrastructure, such as hospitals and schools.

Provincial governments have become incubators for P3 and AFP modernization, with each province’s best practices and methodologies often drawing upon, and contributing to, the experience in other provinces. Several provinces, and Canada’s national government, have established central agencies for public-private project delivery.

From our firm’s experience across Canada some of the basic lessons learned for any entity wishing to undertake a P3 project successfully include the following:

Lesson 1: A firm project timeline is critical
One of the reasons for choosing the P3 model is to eliminate project delays and cost overruns. However, for these benefits to be realized, the project timeline must be fixed and predictable both during procurement and thereafter; the time between selection of the preferred proponent and financial close must be minimized. These and other measures will prevent proponents from having to commit to financing for an excessive period of time, which can significantly raise project costs and threaten project viability, particularly in the current credit markets.

To eliminate such gaps, sponsors and their advisors must establish efficient evaluation teams with all the required advice and expertise, and must proactively identify any policy decisions that need to be made before issuing any request for proposals and, preferably, any request for qualifications or for expressions of interest. Questions to ask include:

• Will a new road be toll or not?
• Will a new toll road have open access or a toll gate?
• What is the scope of services that will, and will not, be provided by the project company, and how does this affect employees?

Lesson 2: P3s work best for brand new infrastructure
The public automatically perceives more value for taxpayer money when something new is built. The benefits of P3s are less clear to the public when connected to financing existing infrastructure, making P3s harder to justify. As a result, it is much easier to attract and maintain support for new-build projects or expansions than for financing existing infrastructure. Also, new projects more visibly create jobs, a key justification for engaging in infrastructure activity.

Lesson 3: Partnerships offer flexibility, risk transfer for infra-structure projects
The goal in any construction project is to allocate risk to the party best able to manage it. In traditional delivery models, governments assume most or all risk. In a P3 or AFP, risk is shared by private-sector parties, where they are better equipped to manage it and assume the risk for a reasonable return on investment.

With P3s, there is no “one-size-fits-all” approach. This flexibility adds to the attractiveness of P3s for infrastructure projects. Sponsors and their advisors can choose from a spectrum of P3 models.

The flexibility of P3s allows for transfer of different degrees of risk depending on a number of factors, including:

• project type — road, bridge, hospital, school, public transit system, airport, prison, courthouse, port facility, waterway, water treatment plant, etc.;
• amount of public and private funding available;
• number of private-sector parties; and
• required state (U.S.) or provincial (Canada) regulations.

Lesson 4: P3s promote public accountability
A P3 contract clearly defines performance standards and outcomes for the project life cycle, binding the private sector parties to service obligations and setting out what the public can expect. These expectations also give proponents incentive to complete and manage projects on time and on budget.

Conclusion
U.S. government entities, facing a recession and a public demand for both jobs and improvements to infrastructure, would do well to take some lessons from Canada when it comes to project delivery.

P3-type projects have the power to combine fiscal realism with the desire to promote good public works in a way that may appeal to many in the United States.

The bottom line: if the United States wants to achieve its vast and wide infrastructure goals, U.S. decision-makers looking for new and innovative ways to benefit all sectors of the economy would do well to look north, to time-tested methods of public-private project delivery — using P3s and AFPs.

Can they work? Yes, they can. Canada can vouch for that.

P3 Terminology Design Build (DB): The private sector is responsible for design and construction. Financing and operations/maintenance are the responsibility of the public sector. Design Build Finance (DBF): The private sector is responsible for design, construction, and financing throughout the construction period. The public sector handles the cost of long-term operations and maintenance. Design Build Finance Maintain (DBFM): The private sector is responsible for design, construction, financing, and facility maintenance (potentially with payment upon substantial completion of construction and for availability during the project’s term). This is typically considered for large projects involving construction, and is being used increasingly in Canada. Proponent: A party that submits a development proposal in response to an RFQ or RFP for an infrastructure project.

Autoroute 25 Autoroute 25, one of the first public-private partnerships of its kind in the province of Québec, consists of a 7.2-kilometer (4.4-mile) stretch of toll highway at the east end of Montreal, crossing the Des Praires River. After a process that included a request for qualifications followed by a request for proposals to three qualified international candidates, the Québec Minister for Transport (represented by a team from Fasken Martineau) entered into an agreement with Concession A25, S.E.C., a consortium that includes private enterprises Macquarie Infrastructure Partners, Construction Kiewit Cie, Genivar, S.E.C. as well as St. Lawrence Cement Inc. and Parsons Overseas Company of Canada. According to Transports Québec, the government funded C$207 million (US$199 million) toward the project, aimed at helping further develop the eastern portion of Montreal, and linking the cities of Montreal and Laval. According to calculations by the Ministry for Transport, the project represented $226 million in savings over 35 years compared with a conventional construction approach. The project helped to free-up traffic flows in Montreal’s northern highway belt by offering a new thoroughway for commuters. In dividing responsibilities for the project, Concession A25 was tasked with: The design and construction of the highway Setting up and implementing a financing package to ensure the project’s completion Maintenance and operation of the infrastructure and rehabilitation of the structures Inspection and correction of structures Implementing the toll system; and release of the structures after 35 years. The government, meanwhile, undertook obligations including compensating the private partner through payments for construction and other items. In addition, Concession A25 and the government agreed to equally share remittance associated with toll income, according to the Québec Minister of Transport. The Autoroute 25 project was awarded a Silver Award by the Canadian Council for Public-Private Partnerships for its Project Financing.

W. Thomas Barlow is a Toronto-based partner with Fasken Martineau, one of Canada’s largest national and international law firms. Barlow is director of Fasken’s infrastructure and public-private partnerships group, and a founding member of Fasken’s government relations and ethics practice. Barlow can be reached at 416-868-3403 or tbarlow@fasken.com.