Public-private partnerships in other provinces offer lessons for Manitoba about what not to do

Rising rental fees for the use of school gymnasiums, insufficient construction standards and inflexible contracts are among the pitfalls of public-private partnerships used to build schools in Canada, critics say.

As Manitoba moves cautiously toward building four schools using public-private partnerships, experts, proponents and critics all say there are lessons to be learned from failures in other provinces.

On Tuesday, Premier Brian Pallister called for proposals to develop a business case for public-private partnerships — a funding model which would see private companies design, build, finance and maintain the facilities — to build three schools in Winnipeg and one in Brandon.

The government estimates the four new schools built under this model will cost more than $100 million.

The announcement raised a red flag for people who have watched such deals run into trouble in Nova Scotia and Alberta.

Nova Scotia signed a contract to build more than two dozen schools using public-private partnerships in 1999.

After mismanagement, a lack of checks and balances and a lack of maintenance work, in 2010 the provincial auditor also found the province could have saved $52 million if it had just gone the traditional route to build the schools.

"These contracts represent significant expenditures with costs of well over $800 million over their term," the auditor wrote at the time.

"In my opinion, the department has not met its duty, to taxpayers or to students, to manage the contracts appropriately."

More than half a decade after that report, the contracts continued to rack up bills in the maritime province. In 2016, the government paid $1.5 million to extend the leases of three of the schools, while deciding whether to renew the leases long-term, walk away altogether or buy the schools, which is kind of like buying a car at the end of a lease. Two schools were purchased in 2016 for $12.9 million.

When it comes to public-private partnerships, the "devil is in the details," said Aidan Vining, professor of business and public policy at Simon Fraser University, in an email to CBC News.

"Some P3s [public-private partnerships] are fairly close to traditional procurement, while others are very different," he said.

While he couldn't speak to Manitoba's proposal requirements, Vining said that it's time to ignore the message of "on time and on budget," because proposals are sometimes inflated to cover risk. The big potential benefits of a public-private partnership are the assumption of real risk by the private sector.

"In general, most business people like to avoid risk (sensible) and it is hard to get them to really take it, so, see the devil is in the details," he wrote in his email.

'Cost the public more and deliver poorer service'

When you look to any region, the details always hold a cost — particularly to taxpayers, said Lynne Fernandez, the Errol Black chair in labour issues at the Canadian Centre for Policy Alternatives.

The Winnipeg-based economist said it wasn't surprising to hear the Progressive Conservative government was moving toward the funding model, but she doesn't understand why.

"There is all kinds of empirical evidence out there that P3s are more likely to cost the public more and deliver poorer service," she said. "We don't understand why all this research seems to go under the radar."

When it comes to shifting the risk to the private sector, Fernandez said businesses and corporations only get involved for one reason — profit. The private sector has to borrow money at a higher interest rate than the government, which can result in poorer quality of construction and materials, and downward pressure on wages, Fernandez said.

In Nova Scotia, the provincial auditor found that financial pressures meant that many staff contracted to work on the schools by developers had not cleared criminal or child abuse checks as was required by the contracts. Fire inspections, for the most part, had not been carried out, according to the auditor's report.

Not for every project

While Nova Scotia is still dealing with the debacle, the public-private partnership world has changed a lot since the province signed its contracts, said Dave Trafford, the communications director of the Canadian Council for Public-Private Partnerships.

"Quite frankly, situations like the Nova Scotia schools are a good example of what we've learned for now. You would not build a school that is leased back from the private-sector consortium," he said.

Trafford was at a conference on public-private partnerships in Winnipeg on Tuesday where Pallister spoke about the call for proposals for public-private partnerships. Many of the more than 350 people who were in the audience work in construction, design, accounting and legal sectors, and so could potentially play roles in the government's use of such partnerships.

Trafford praised Pallister for doing due diligence by calling for proposals to develop a business case for the public-private partnerships.

"The council applauds that, in terms of making sure you do these projects for the right reasons and making sure it's the right project," he said.

The funding model doesn't work for every project, Trafford said, but if it can provide real value for money, it should be pursued.

"I think there is an interest in being more innovative in how business and government together approach those projects and makes the best use of whether it's taxpayer money or resources," he said.

'Don't go down the road that Alberta did'

Pallister pointed to Saskatchewan's program to use public-private partnerships to build 18 public schools, which are set to open in September 2017. While those schools are just about to welcome students, one province further west has experience with public-private partnership schools that stretches back much further.

"Don't go down the road that Alberta did with P3 schools. It will end up costing the government and the taxpayers money," said Marle Roberts, president of the Alberta local of the the Canadian Union of Public Employees.

In 2007, Alberta announced 18 new schools would be built as public-private partnerships. But three years later the province's auditor general, Merwan Saher, said the government's claim that $118 million would be saved under the partnerships, versus traditional builds, was overstated by about $20 million.

Roberts said 10 years on, those schools "are not doing well" and there are a number of issues, particularly surrounding escalating costs and adapting to growing neighbourhoods.

"The pricing for the school to use the gyms was contractual and the prices have gone up," she said.

"Children have to be bused to other schools because the schools are full and they can't add on because of the contract," she added.

A few years later, Alberta once again looked at the possibility of public-private partnership schools, but ended up scrapping the idea.

Lessons for Manitoba

But public-private partnerships haven't been written off in Alberta, said Jyoti Gondek, director of the Westman Centre for Real Estate Studies at the University of Calgary.

But she said the approach needs to change.

"What we really should be doing is looking at a true public-private partnership to see where we can leverage strengths and opportunities better," she said.

"So instead of a contractor type of relationship, how can we involve the private sector earlier on to see if we can maybe design the school better, maybe do a mixed-use concept, if there's a better way to engage the two sectors."

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Roberts said if Manitoba does go the public-private partnership route for new schools, it's essential to take the lessons from other regions. In Alberta's case, Roberts said the province learned it's important that the contractual information is open and transparent before anything is signed.

The lessons from Nova Scotia's experience are similar, Fernandez said. She said it's important there is an "arm's-length, transparent way of looking at the deal."

While each partnership is different, Trafford agreed — take lessons on what not to do from your predecessors.