Canadian Lawyer InHouse

31 canadianlawyermag.com/inhouse february 2015 I n d u s t r y S p o t l i g h t budgeted, and the risk was not properly shared with the state." Porter says Ontario's auditor general's report is correct that the government can borrow money at lower rates than the private sector, but that isn't the whole story. In the right circumstances, the P3 model can provide savings and non-financial benefits that will offset the higher finance costs, such as risk transfer, deferral of cost over the life of the asset, and providing a mechanism to ensure that operation and maintenance of the asset is properly budgeted for to preserve the value of the asset over its life. "The suggestion that the province should bring large project expertise in-house and use traditional procurement methods across the board seems a bit misguided. It ignores the fact that the province already has a great pool of procurement expertise in Infrastructure Ontario, and it assumes that a one-size-fits-all procurement approach will work for all projects, which isn't correct," he says. Dunsky allows that P3s are not necessarily cheaper than conventional projects — in fact, they can be more expensive given the contractual requirement on the private partner to operate and maintain the infrastructure for 30 years or so — a significant expense not always included in budgets for conventional, government-led projects. That said, the biggest advantage to governments of a P3 are the risks (cost overruns, time delays, poor maintenance) shifted to the private operator. "I don't know of many conventional projects that are completed on-time and on-budget," he says, noting that often they cost substantially more than budgeted, and in a conventional project that extra cost is generally picked up by the taxpayer. "In a P3, absent a change in the project specifications or an excusing event such as a force majeure, it is the private operator who bears the loss. In its conclusions, particularly that Ontario spent $8 billion more on its P3 infrastructure projects than necessary, the report appears to be based on a comparison of the actual cost of PPPs to the budgeted cost of similar conventional projects. Perhaps that was necessary, since a project developed as a P3 cannot, by definition, have an actual cost as a conventional project. But to my mind that vitiates the validity of the conclusion, because it seems to fail to take into account the cost overruns and delays incurred by many conventional projects which add significantly to their cost," says Dunsky. A project size between $50 million and $100 million, is generally viewed as the smallest viable for a P3 model, while the ceiling depends on how much the private sector can finance. "For a real P3 with all the bells and whistles, $100 million is probably a fair threshold, but I've worked on projects that are much smaller," says Dunsky. "In terms of too big, the upper limit is the amount of financing available for any particular project. If you went to the market with a $10-billion project there might not be enough money for one single project." IH LEXPERT.ca is the online destination for authoritative information about Canada's business of law. COMING EARLY 2015! THE NEW AND ENHANCED Bookmark the new LEXPERT.ca for updates on Big Deals/Suits, People Moves and articles of interest appearing in Lexpert ® Magazine. Find information about Canada's leading Lexpert-ranked lawyers and law firms through the site's enhanced navigation and search functionality. Visit LEXPERT.ca Untitled-1 1 2015-01-14 10:51 AM

• Cover