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Public-Private Partnerships: The Better Way?

Jane Bird, the former CEO of Canada Line Rapid Transit Inc., talks about the public-private partnership that built Vancouver's Canada Line and whether the same approach could work in Toronto.

Vancouver's Canada Line under construction.

Last week, council dealt a crushing blow to Mayor Rob Ford’s tireless campaign to build subways along Sheppard Avenue. The plan failed, in part, because even the mayor’s allies could not see a feasible funding strategy for the subway plan. It’s no secret that Mayor Ford is a fan of smaller government and more private-sector involvement, and to the mayor, building transit is simple: just ask the private sector to do it. Others suspect that it may not be so easy.

So we asked Jane Bird, the former CEO of Canada Line Rapid Transit Inc., about the private sector’s involvement in Vancouver’s Canada Line—a 19-kilometre LRT line that was built there in advance of the 2010 Olympics. And if there is one thing that was clear from our discussion, it’s that public-private partnerships are complicated.

Were there concerns from the public about involving private partners in the Canada Line project?

I think it’s fair to say there was a pretty healthy debate at the time. There’s always a discussion about big transit projects. But there was a healthy discussion about whether there was a role, not so much on the construction side, because the private sector’s been building transit infrastructure since the turn of the century, but whether there was a longer-term role for the private sector to operate the line.

At the end of the day I think most people and the elected officials approved the project because it appeared that there was value to the public sector and the taxpayers by going this way. And I think we’ve had significant success and it’s sort of proven itself to be true.

Because the Canada Line is a free-standing line, was it easier to bring in private sector operation?

Absolutely, because it’s not interlined [with the rest of Vancouver's transit system]. As a result, we could do a proposal to the markets that said, ‘We want this service on this north-south line and it doesn’t matter if the technology is common to the other line.’

We weren’t restricted to one technology or one brand, we could have a broad competition between anybody providing technology that would get us the service requirements that we want. So we asked for a system that would be about 19 km, we wanted to get people from downtown Vancouver to Richmond in 24 minutes, we wanted a train every three minutes, we wanted it run from x-hour in the morning to x-hour at night, we wanted 16 stations, we wanted airport service. This is our recipe. And we asked the market for their best response to that requirement.

But you can imagine if you had a lot more restrictions on that, in terms of interlining with other technologies, that there would not have been as broad a procurement as we were able to do.

What can the private sector offer, besides money?

I think there’s a real role for the business community in support of how and when we’re going to do infrastructure renewal, whether it’s transportation, or roads, or water, or sewer, or ports, anything. Because the business community has a very significant interest, as do we all, in a strong infrastructure to support the economy.

What can the private sector do for public transit that government can’t?

In Canada Line’s case, structuring the contract as we did enforced a discipline and a rigour of thinking about the project that I don’t think government often does as well as they should. That approach to understanding what it is you want to do and what you intend to accomplish is an important conversation that we don’t give as much attention in the government as we should.

The second thing is, the private sector can provide a level of innovation through a competitive process that sometimes government can’t do. The competitive process involves companies that have worked all over the world, so they’ve done rapid transit in Barcelona, or Istanbul, or Berlin. So they bring all the innovation and all the design ideas that they’ve gathered working all over the world, so you get the benefit of what everybody’s doing rather than what locally or provincially we think is the solution. In the case of Canada Line, there were many instances where we had anticipated solutions to a problem, and SNC-Lavalin came up with solutions that were much better, no doubt as a function of some of the work they were doing elsewhere. Because government doesn’t always know the answer, so if you can create a design competition or a way to solve an engineering problem with the benefit of many minds with experience worldwide, that is a good thing.

And generally speaking, I think the private sector does a better job of managing risk than the government does. When the private sector takes a risk, they almost have to do a better job of understanding what that risk is, the likelihood of it occurring, and the cost if it were to occur. Government doesn’t do as good a job of that, historically. Because when things go wrong in government, usually the consequences are spread among thousands if not millions of taxpayers. So the consequences of mismanaging a risk for government are smaller than for the private sector, generally speaking.

So when you involve the private sector, you have to figure out what the risks are in a project and then figure out whether the government or the private sector is better able to manage it. In most cases, it’s better to transfer the risk to the private sector and pay a little to do that. Not all risks. If you look at Canada Line, environmental permitting risks were something that the government ended up keeping. So the consequences of not getting a permit would be on government. The cost of acquiring property for the line was a risk that we kept. But virtually all the rest of the risk, whether it be schedule risk, or ground condition risk, or overall construction or material cost risk, we transferred that to the private sector.

[Private sector involvement] secured more certainty for the project. The fact that the Canada Line was delivered early and under budget was in part due to the fact that the private sector was managing that risk.

Also, in our case, effectively the same company that designed and built the line is the same one that had to maintain and operate it for 30 years. So I think there’s a symmetry to that. It creates a commercial incentive to design and build something well if you have to bear the cost of operating and maintaining it over time. I think that is a benefit for government, because it’s a question of looking at the whole cost of the line for 30 years. If the private sector has to bear the cost of maintaining it, whether it’s cleaning the tiles or maintaining the trains, they’re more likely to invest up front in a quality product.

Were you generally in favour of public-private partnerships before the Canada Line project?

I think I’ve always felt that there is a place for the government and the private sector in most things. Each does certain things well. The art is to figure out where the government’s role should be and stop and where the private sector’s role should be and stop.

I think some of the confusion that arises, is that it’s not as easy as one-size-fits-all. What does it mean, public-private partnerships? It could mean anything. But it has the potential to work well if the government owners ask, ‘Is there a role, and what role would best suit the project that we’re trying to build or the objectives that we have?’ Rather than start from a preconception that private sector’s going to be involved.

Where do you see room for the private sector to get involved in Toronto’s transit system?

It would certainly be worthwhile to look and see if the transit projects that are currently under discussion would benefit from private sector participation. I think that would be a worthy piece of work to do. And then if one concluded there was a role, then define exactly what that role would be. Is it designing and building the line? Is it just financing the line, and what would that look like? What that role might be and what it might look like for that project, because it’s a project by project thing, I couldn’t comment, because it’s a pretty detailed piece of work.

Jane Bird shared her experiences with public-private partnership to build Vancouver’s Canada Line as part of The Munk School’s Moving Our Region speaker series yesterday afternoon.

Comments

  • Jacob

    I can hear the comments now. “Vancouver’s building a subway! Why can’t we!” So, two things about that photo you used:

    1) That appears to be a high-density, urban area.

    2) They have to close the entire street and dig the whole thing out. That’s even more disruptive than closing one side of the street at a time for LRT construction.

    • http://twitter.com/joedrew Joe Drew

      This cut-and-cover construction style was, in fact, not Vancouver’s preferred construction method, but because it was a P3, SNC-Lavalin was allowed to do more or less what they wanted.

  • Steve

    I think it’s important to note that many of the cost-efficiencies purportedly provided by the private sector stem from the fact that it is accountable to far fewer stakeholders and therefore generally subject to much less scrutiny than the public sector.

    For example, what the interviewee did not mention about SNC-Lavalin’s participation in the Canada-Line is that it was found by the British Columbia Human Rights Tribunal to have discriminated against it’s Latin American employees by, among other things, paying them a fraction of what it paid it’s Europeean-born employees who were working on the same line. In defense of it’s actions SNC-Lavalin argued that it considered all of it’s European employees, irrespective of what positions they actually occupied, to be managers and supervisors of it’s Latin American employees. Effectively the company argued that it’s Latin-American foremen were subordinate to it’s Europeen general labourers solely on the basis of their respective ethnicities.

    It’s hard to imagine the public sector pursuing cost-efficiencies in this way.

    http://canlii.ca/t/21rh6

  • http://paul.kishimoto.name Paul Kishimoto

    Great interview!

    not so much on the construction side, because the private sector’s been building transit infrastructure since the turn of the century

    This is an important point. Because this type of relationship has existed for a long time, the way they work is generally understood. Governments, for their part, know how to design bids and manage contracts to get the outcomes they want. (There are risks from overly close relationships with contractors, and it sometimes seems as if there is a “on spec, on time or on budget: pick one” proposition, but that’s beside the point.)

    The risk to the public from the newer kind of public-private partnership is that as more aspects of a project are covered, and there is more variety in the types of relationships (are operations public, or private? What about maintenance? Management? Same firm, or multiple firms?) then government finds itself less sure of its ability to ensure overall projects meet service, budget and time goals.

    I don’t think anyone should be afraid of a well-managed partnership, but there’s more to that than an assertion that it will be managed well. The public should have confidence that government retains enough oversight and authority to control the project. Not to put too fine a point on it, I don’t believe that Rob Ford and his inner circle have any interest in learning how to do this.

    • Anonymous

      Since the interview failed to bring up the aspect that Steve mentions in the comment posted directly before yours, then it wasn’t a “great interview”.

      We must also consider other, possibly criminal malfeasance of SNC-Lavalin that has come under scrutiny more recently, in evaluating their fitness to provide any useful insights — unless we should countenance rampant bribery, and ripping-off “guest workers” by our private partners, in order to get that great transit experience we all crave..

      • http://paul.kishimoto.name Paul Kishimoto

        Are you saying there’s a correspondence between the antics of some executives who felt sexy jetting around the Middle East with briefcases of cash, and the technical acumen of lower-level SNC-Lavalin engineers and planners in separate business units? I find that dubious.

        My comment was to the point that governments, in soliciting proposals and advice from firms, should be in a position to second-guess that information, and also to asset control if they later find they’ve been hoodwinked. So long as that capacity is there, why turn away useful insights?

        To cover Steve’s point, I suppose I should have said “service, budget, time, safety, pay equity and other goals.” I think “legality goals” goes without saying.

        Anyway I’m much happier to read long responses from Ms Bird than the opinions of, say, Gordon Chong. If the questions were asked in the order presented, the interviewer also didn’t let her dodge the “besides money” question.

        • Anonymous

          “Antics” ?

  • http://twitter.com/torkevo Kevin

    Furthering Jacob’s comments, if the city wanted a PPP to build a downtown relief line, either as an underground LRT or HRT (“real” subway), they’d most likely get backers because the current ridership can support it already, there’s high density, and it connects to a massive employment centre. These are all things that Sheppard doesn’t have and will not come close to having for, at minimum, 50 years (and therefore continue to lose money for >50 years).

    One positive of private participation that wasn’t mentioned was that stupid schemes like the money-losing Sheppard subway would’ve never happened if it were built by a company. Successful subway lines are usually preceded by overcrowded streetcar and (or nowadays) LRT lines (i.e. Yonge, Bloor, many subways in Manhattan, etc.).

  • http://piorkowski.ca qviri

    And when time comes – maybe about 25 years from now? – to build a parallel line under Granville or Main because the stations built now are tiny and non-extendable and the line can’t fit more than 400 people on a train every three minutes, you can be sure the private sector will be up for building and operating the new new line for 30 years.

  • Anonymous

    Private partnerships = Private control over public assets or at the very least, a louder voice in the sea of democracy.

  • http://www.facebook.com/people/Vote-Ndp/547678963 Vote Ndp

    We’ve seen how private partnerships can ruin a city and here’s why.
    1) Private sector companies are only interested if they know they’ll make a profit. If no profit or endures losses then the private sector is going to back away from the project. So what will they do: cut corners or raise fees.
    2) Private sector operators are known to insert clauses in contracts that will only benefit them and not the public.

  • glenn storey

    it doesn’t matter who builds it. without the density, it’s unjustified.

  • Roger

    The claim that risk was transferred from public to private sector is false.
    http://www.straight.com/article-247732/canada-line-subsidy-will-be-felt-years-come
    Because of commercial confidentiality the government can’t disclose the details of it’s agreement which came out years later after freedom of information requests. SNC Lavalin, part of the 407 consortium which bailed on Toronto’s pearson airport line when it couldn’t shift more risk to the government, worked out a deal where taxpayers pay a fine to SNC Lavalin to operate the Vancouver line for each year that it does not average 100,000 people a day or more which it hasn’t except for a brief period during the olympics which wasn’t enough.
    SNC charges $5 to use the airport stations which wasn’t announced until it opened, just as we still don’t know how much the air-rail link will cost.
    Vancouver has gerrymandered bus routes to meet with the Airport RAV line to try to boost ridership for SNC which causes complaints for riders that now have significantly longer trips.
    In order to give non-Bombardier competitors an equal chance, technology had to be open during competition leading to a unique mini-subway being built, which can not be interlined and will lead to higher costs and less flexibility in the future.