Kingston P3 For-Profit Hospital Briefing Notes
Myth: P3’s save money
A 2012 study published in the Journal of the American Planning Association studied P3s in Ontario and found on average they coast 16% more than a public option would have cost. Ontario’s Auditor General in the most fully evaluated P3 in Ontario found that the William Osler hospital in Brampton cost 200 million dollar more than a public option on a 750 million dollar project, or 27% more. The main reason for the increased cost is increased financing costs, though operational inefficiencies, consultants and lawyers, are also a significant reason for the cost increase.
Myth: “Value for money audit” justifies extra cost.
Those if favour of P3s generally agree that on paper that P3s cost more but justify the increase in cost by saying that they get better value for money from using the private sector so in fact P3 cost less. Ontario’s Auditor General in 2008 found that the value for money audit at Brampton “was not based on a full analysis of all relevant factors”. SIEMIATYCKI and FAROOQI in the 2012 study said that “No empirical evidence is provided to substantiate the risk allocation, making it difficult to assess their accuracy of validity.”
The value for money audits that have been released to the public are based on information provided by the P3 advocates and so little information is made public that it is impossible to independently verify the conclusions. Price Waterhouse, who often does value for money audits, often starts out their conclusions with a disclaimer that reads:
“We did not audit or attempt to independently verify the accuracy or completeness of the information or assumptions underlying the PSC [public sector comparator], which were provided by IO [Infrastructure Ontario], and/or the successful proponent’s final offer, nor have we audited or reviewed the successful proponent’s financial model.”
Myth: In a P3 the private sector assumes all the risk, so we know what we will pay and any cost over runs, delays and poor construction are their problem.
This argument misses the point. Historically the private sector has designed and built hospitals. The protection for the public’s money in this process is as good as the contracts negotiated and we support negotiating tight contracts. The private sector should be on the hook for not meeting their contractual obligations.
Also, the more obligations, the more expensive the contract will be. If the private contractor knows they are responsible, they will price the risk into the final contract price.
In the end, the public is always the hook. These hospitals are too important to fail. If the private sector contractors go bankrupt, or say that they cannot finish the job for a set price, or for any other excuse, in the end the government will have to take over the job because we need the hospital. A recent Ontario example is that is 2009 when the Niagara P3 hospital when the arrangement between the private consortium and the Duesche bank became less viable in the banking crisis the government stepped with extra money to keep the deal alive.
Myth: There is no public money
This assertion is another red herring. All the money for these projects will come from the same places, international finance companies and large pension funds. The only question is how much we pay for that money. Private consortiums will pay between 5-7% to borrow that money while provincial government bonds will be bought for around 3%. On a 25 year 350 million dollar debt this extra 2% interest is a huge added cost. The money comes from the same place we are only discussing how to get the best price for that money.
Second point, whether it is a long term contract to repay a private consortium or a public bond issue, the public in Ontario is on the hook for the money.
If we do not agree to the P3 financing, or make a public stink about the project, we will lose the new hospital. It is all about getting better services for patients.
Besides that fact that bullying and threats are not a productive way to conduct a public debate about the best way to build new hospitals the Request for Proposals (RFP) could be altered to include only the design and build of the hospitals. If this is done soon, there will be no extra costs and limited opportunity for the consortiums to come after the government fro lost money. Either way two of the three consortiums will not win the RFP and all the bidders are being paid public money to prepare their bid. If the government acts quickly, the RFP can be done more quickly, and significant money can be saved.
If it is all about the patients it would be better to spend 100 million dollars on the many unmet patient needs in Kingston rather than waste a 100 million public health care dollars on extra payments to for international private finance consortiums.