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P3 Implementation in Canada
Public-private partnerships are business relationships
between public and private entities that offer alternatives
to traditional means of delivering service. The potential
benefits of using P3s include: gaining access to privatesector
capital and expertise; improving efficiency and
life-cycle cost proformas; completing projects faster than
with traditional models; and optimizing construction and
performance risk-sharing. In the Canadian P3 model,
funds for infrastructure projects are generally guaranteed
by the government, making the risk-balance structure
attractive to private companies and allowing the government
to spread capital spending over a number of years.
The private entity usually is not compensated until construction
is complete; the onus of the construction performance
is on the design-builder; and the private entity
receives the balance of its payment from the government
over a defined period during which the private company
provides operations and maintenance for the project.
With Canadian transportation projects, P3s have been
implemented through the design, build, finance and
maintain model, wherein the capital cost is paid out over
a 10- to 20-year period. The Canadian P3 model is well
established, is well funded, and has proven successes in
transportation and healthcare infrastructure.
CH2M HILL’s P3 experience in Canada includes partnering
on numerous P3 contracts for transit and transportation
projects, and work on the planning stages for
water P3s. As Canadian water P3s move from planning
to implementation, they are expected to set precedents
for the evolution of P3s in the United States.
P3 Opportunities and Challenges
In both the Canadian and U.S. water markets, P3s can
present utilities with opportunities and challenges. The
challenges often involve real or perceived threats to the
basic institutions that have served customers well over the
years. In the United States, for instance, great success has
been achieved with design, build and operate (DBO) projects
for water infrastructure. In Canada, however, resistance
to private-sector operation of water infrastructure is
an issue that must be addressed for water P3s, as long-term
operations and maintenance is an essential element of the
P3 model.
If P3s in North America are to be successful, it is important
to recognize the unique aspects of water service delivery
and risk, such as:
• Project definition takes considerable engineering
investment
Owners must maintain control over specifications and
technology selection
Performance requirements are unique to each project
• Technology solutions can be complex and site-specific
Water facilities are unique
Technology solutions must be carefully considered;
for example, defining reliable treatment
processes requires extensive water quality data,
and an understanding of how raw water quality
can change over time
• Demonstrating performance takes time and expertise
Developing appropriate metrics can be challenging
Asset management and preventive maintenance are
critical, and expectations must be carefully defined
Operator skill is critical; control of operations is
essential
Seasonal adjustments are considerable
Performance criteria are a blend of short-term “pass/
fail” criteria and long-term averages
A useful P3 model may be a hybrid of Canadian and
U.S. delivery approaches, wherein the U.S. DBO model
is applied in Canada and elements of the Canadian
finance model are applied in the United States.
Though government support is by no means required
for the successful implementation of water P3s, the U.S.
government is considering ways to approach funding for
infrastructure projects. There are a variety of federallevel
policy proposals currently under consideration
aimed at increasing infrastructure investment and,
thereby, creating jobs. The proposal most frequently
cited by the Obama administration is an “infrastructure
bank” (IBank), whereby a relatively modest federal
investment of $10 billion would yield issue loans and
loan guarantees to eligible water, transportation and
energy projects of up to 50 percent of a project’s total
cost. Loans would use approximately the same interest
rate as U.S. Treasury securities and could be extended
up to 35 years. Congress is deliberating on the president’s
“American Jobs Act,” which includes the IBank
proposal and a number of other ideas.
While it is receiving less attention on the national
radar, private activity bond legislation is another vehicle
that would leverage a minimal cost by the federal government
to create greater private sector investment and
job growth in water infrastructure. Both ideas are bipartisan
and each deserves serious consideration as the U.S.
Congress works to keep pace with other governments in
a global marketplace.
However the P3 model evolves, we will continue to
work with clients to deliver work under a variety of contractual
and organizational models. In evaluating delivery
alternatives, the optimal alternative is the one that
best meets stakeholders’ goals for that project. The wide
variety of alternative delivery methods offer owners
choices that are good for our industry; every delivery
method has its place on the continuum.
Bob Bailey is the President of the Water Business Group for
CH2M Hill. In this role, he has worldwide responsibility for
the development, project performance, and risk management
of all CH2M Hill water, wastewater and water resource
projects.
Peter Nicol is the Global Business Development Director for
CH2M Hill’s Water Business Group. Nicol is a Professional
Engineer with 30 years of experience, and has played key
roles on some of the most significant water and wastewater
treatment projects in Canada.
November/December 2011 Water Utility Infrastructure Management 33