Corporations, lobbyists, consultants, investment advisors, and some Canadian governments, are promoting privatizing public infrastructure and services through public-private “partnerships,” also known as P3s.
P3s are privatization, pure and simple. There are many reasons public works best to build and maintain long-term care facilities, hospitals, water and wastewater treatment facilities, schools, transit systems, roads, bridges and other vital assets.
P3s cost more than public projects
P3s are like using a credit card instead of a low-cost mortgage to finance the construction of public facilities. P3s are more expensive than publicly financed and operated projects because governments and other public sector bodies can borrow money much more cheaply than the private sector.
Beyond expensive private financing, transaction costs are another reason for the high P3 price tag. This includes the cost of all the lawyers and consultants involved in brokering P3 deals, which are far more complex than public contracts to design and build infrastructure, as well as ongoing public sector monitoring and enforcement over the decades-long life of P3 contracts.
P3s download costs to future generations and limit policy options for future governments. Future generations that had no say in the decisions end up locked into paying the extra costs of privatization decades into the future, leaving less money for public services and other community priorities.
Auditors don’t buy the financial case for P3s
P3s are usually justified with secret reports from private consultants that place a dollar value on supposed risks being taken over by the private sector from the public sector. Consultants present the dollar value of risk being transferred as higher than the cost of privatization, and therefore worthwhile. But the numbers don’t stand up to scrutiny.
Federal and provincial auditors general and other independent experts have called out these calculations as biased and one-sided. In Ontario, the provincial auditor found every single provincial P3 was justified by claims of risk transfer. But the audit found no evidence to back up the calculations assigning a dollar value to corporations assuming risks. The entire P3 industry is based on this flawed model, with pivotal decisions being made on unsubstantiated opinions, not facts.
P3s can fail
Major P3s can – and do – fall apart. Ultimately, governments are responsible for infrastructure that’s providing an essential public service. When a corporation goes bankrupt and walks away from a contract, governments must pick up the pieces, leaving the public stuck with the bill. Whether or not corporations actually take responsibility for the risk of a project failing, P3 contracts always include hefty charges known as a “risk premium.”
P3s don’t deliver “on time and on budget”
P3s may be delivered “on time” within the terms of a contract, but they take much longer to deliver than conventionally procured projects because of lengthy and complex legal work and contract negotiation. And virtually every P3 project has risen in cost substantially between the time of its announcement and the financial close of the project, making “on budget” claims questionable at best.
P3 projects can claim to be “on time and on budget” only because the completion date gets set after the lengthy lead time – usually years – it takes to reach the contract stage for P3s. Experience shows budget goalposts also shift to meet whatever the privatized contract costs.
P3s hurt workers
P3 contracts often outsource good public sector jobs to for-profit operators. This can involve all jobs or some types such as cleaning, maintenance or food preparation. Corporations want to maximize profits by doing more work with fewer workers, which has led to environmental problems and workplace health and safety violations with some P3s. Privatization often leads to lower-paid jobs with fewer benefits, which has a harmful economic and social impact on communities.
There are no guarantees jobs will be protected over a 30-year P3, even if there are initial promises. Hundreds of jobs and dozens of beds have been cut since a P3 hospital in North Bay, Ontario, opened in 2011. CUPE members working in Regina’s P3 wastewater treatment facility have faced shrinking staff levels and rising workload since the operations transferred from public to private hands, as well as a struggle for fair wages.
P3s are secretive and unaccountable
Privatization keeps details about financing and operations hidden from the public. P3 contracts involve lengthy and complex negotiations behind closed doors, and key financial and contract information is kept secret. Unlike governments, private corporations are not subject to freedom of information or access to information laws mandating disclosure.
The high degree of secrecy surrounding P3s leaves elected officials and residents in the dark, while corporations make key decisions about services and facilities. It’s a significant loss of public control that blurs the lines of accountability and responsibility. Private corporations answer to shareholders – not residents and elected officials. The mandate of shareholders is to ensure profitable and growing businesses. Our governments answer to the public. Basic public services like health care, water and wastewater treatment should be controlled by public representatives and respond to the priorities of the people that rely on them, not the profit motives of shareholders.
P3s aren’t good for local economies
Governments have always relied on private, home-grown companies to design and build public infrastructure. P3 contracts price small and medium-sized companies out of the game. Only large corporations can provide the up-front financial backing the deals demand and engage in complex P3 negotiations. This means local design and construction firms can’t bid on projects. It also means, in the long term, that many decisions about local services are being made in corporate head offices, not in communities.
Public services generate good, community-supporting jobs for local residents. The jobs provide opportunities to train and enhance the skills and experience of residents, and in turn strengthen the area’s resiliency. This is crucial in tough economic times. P3s rely on external investment and expertise, and often source materials from outside the community. Money that could be returned to the local economy and tax base goes elsewhere. In addition, a growing number of Canadian P3s are owned by companies that avoid taxes by being headquartered in tax havens, depriving governments of tax revenue that private operators should be paying.
P3s don’t guarantee quality
A 2016 report from the University of Calgary School of Public Policy study found that “iconic architecture and design has not been a common feature of PPPs in Canada or globally. The evidence on the architecture of PPPs suggests that PPPs tend to deliver functional, if mediocre architecture, with very few PPP projects globally winning major awards for architectural merit.” P3 schools in Alberta drew criticism from school officials for a cookie-cutter approach to design and construction.
Even basic design and construction has proven difficult to deliver with some P3s. The P3 Saskatchewan Hospital North Battleford and CHUM hospital in Montreal have had serious deficiencies. Ottawa’s P3 light rail line has had serious system-wide problems that have caused chaos for transit users.
P3s are bad public policy
The Calgary School of Public Policy report suggests that elected officials implement P3s for political reasons, not because they are good public policy or benefit society. This report by mainstream economists and policy experts underlines that the supposed benefits of P3s are non-existent or highly questionable, that P3s have significant disadvantages, and that the P3 model and policy framework used in Canada and elsewhere are deeply flawed.
Numerous other Canadian and international studies have documented the many problems with P3s. Fully public projects are a wise use of public funds, and are the most reliable, accountable and cost-effective way to deliver and operate the facilities and services we all depend on.
CUPE has more resources on the problems with P3s and the value of public services at cupe.ca/privatization, including:
- Asking the right questions: A guide for municipalities considering P3s
- Solid foundation: A COVID-19 recovery built on public infrastructure
- Backgrounder on P3 schools
- What provincial auditors have said about P3s
- CUPE news and analysis about the Canada Infrastructure Bank
This fact sheet is part of the CUPE toolkit Keep our pensions out of privatization: A guide for CUPE members, trustees and other pension representatives.