Saturday, 7 March 2015

Spadina Subway Extension Shows the Value of Ontario's P3 Process

By Jösé (CC)
This week, news broke that the Toronto York Spadina Subway Extension was $400 million overbudget. The original estimate was $1.5 billion, and that had already ballooned to $2.6 billion. Also, it was to be completed for the fall of this year. That has been pushed back to fall 2016, and now it appears it could push into 2017 now.

Upon release of the news, Mayor John Tory stated he was "furious" about it. He was also quick to distance himself from any responsibility for it. Kathleene Wynne was also quick to denounce it too, although I don't believe she can speak much on her record of transit management.

It was disappointing to hear Tory to point the finger at “an entrenched culture of nonaccountability at city hall.”  Wynne and the Minister of Transportation hit the nail on the head in highlighting the Ontario government's version of a public-private partnership (P3), known as the Alternative Financing and Procurement (AFP) model. With the oversight of Infrastructure Ontario, the AFP model is currently used in a variety of projects, including hospitals and health care facilities, Pan Am Games venues, jails, and highways.

In fact, it is even used on the Union Pearson Express Airport Spur right now. Have you heard of cost or time overruns for that? It's progressing on time and on budget.

The key advantage of the AFP process is that the risk of cost increases and schedule delays is transferred to the contractor. It helps keep projects on time and on budget. And it has successfully delivered $42 billion in projects to date.

But that decreased risk comes at a premium. This is what generated controversy when the Auditor General of Ontario released her report finding that this premium was $8 billion. Many accounts of that report from the media and interested groups (notably public sector unions), and even the presser comments of the Auditor General herself, seemed to imply that this meant that the government was handing out $8 billion more that it had to.

“If the public sector could manage projects successfully, on time and on budget, there is taxpayer money to be saved,” Bonnie Lysyk said on December 9, 2014.

IF projects could be manage projects successfully. That was the caveat that was missed in all the outrage over the report. Clearly, in the case of the Spadina Subway Extension, it is not being managed successfully. 15.4% overbudget so far (from $2.6 billion) and 1 year late (maybe more).

AshtonPal (CC)
Ms. Lysyk's alternative for the AFP model? The government should "get better at building infrastructure." Yeah, we can wish it to happen, that's a plan.

The only fair criticism of the AFP model was that Infrastructure Ontario had not provided adequate empirical data to back up its assumption that the AFP model delivered better on-time, on-budget performance. On the same token, is it very feasible to estimate schedule and cost overruns? It's not like they're foreseen very well. Again, Exhibit A: Spadina Subway Extension.

So enough rhetoric about private-sector partnerships being a waste of money, and how we need more accountability. The TTC and the City got what it asked for, by giving a large complex project the likes of which hasn't been done in over 10 years (Sheppard line) to the lowest bidder.

If you want all of the accountability and none of the risk, buy yourself some insurance. The AFP model will give you that.