Public-private partnerships (P3s) in the water sector are used increasingly as a means for addressing infrastructure around the globe. In fact, government agencies have been created in the United Kingdom, Australia, across Europe and in Canada to support various forms of P3 implementation. Currently, Canada is seeing particularly strong growth in P3s. While P3s have been implemented in Canada for years, in 2009 the federal government created a the $1.25 billion P3 Canada Fund, which has contributed to increased use of P3s for infrastructure delivery. To date, the Canadian P3 model has been used for successful delivery of many health care, transportation, transit and building projects, and several water P3s are in the planning stage.
P3 Implementation in Canada
Public-private partnerships are business relationships between public and private entities that offer alternatives to traditional means of delivering service. The potential benefits of using P3s include: gaining access to private-sector capital and expertise; improving efficiency and life-cycle cost proformas; completing projects faster than with traditional models; and optimizing construction and performance risk-sharing. In the Canadian P3 model, funds for infrastructure projects are generally guaranteed by the government, making the risk-balance structure attractive to private companies and allowing the government to spread capital spending over a number of years. The private entity usually is not compensated until construction is complete; the onus of the construction performance is on the design-builder; and the private entity receives the balance of its payment from the government over a defined period during which the private company provides operations and maintenance for the project. With Canadian transportation projects, P3s have been implemented through the design, build, finance and maintain model, wherein the capital cost is paid out over a 10- to 20-year period. The Canadian P3 model is well established, is well funded, and has proven successes in transportation and healthcare infrastructure.
CH2M?HILL?s P3 experience in Canada includes partnering on numerous P3 contracts for transit and transportation projects, and work on the planning stages for water P3s. As Canadian water P3s move from planning to implementation, they are expected to set precedents for the evolution of P3s in the United States.
P3 Opportunities and Challenges
In both the Canadian and U.S. water markets, P3s can present utilities with opportunities and challenges. The challenges often involve real or perceived threats to the basic institutions that have served customers well over the years. In the United States, for instance, great success has been achieved with design, build and operate (DBO) projects for water infrastructure. In Canada, however, resistance to private-sector operation of water infrastructure is an issue that must be addressed for water P3s, as long-term operations and maintenance is an essential element of the P3 model.
If P3s in North America are to be successful, it is important to recognize the unique aspects of water service delivery and risk, such as:
- Project definition takes considerable engineering investment
- Owners must maintain control over specifications and technology selection
- Performance requirements are unique to each project
- Technology solutions can be complex and site-specific
- Water facilities are unique
- Technology solutions must be carefully considered; for example, defining reliable treatment processes requires extensive water quality data, and an understanding of how raw water quality can change over time
- Demonstrating performance takes time and expertise
- Developing appropriate metrics can be challenging
- Asset management and preventive maintenance are critical, and expectations must be carefully defined
- Operator skill is critical; control of operations is essential
- Seasonal adjustments are considerable
- Performance criteria are a blend of short-term ?pass/fail? criteria and long-term averages
A useful P3 model may be a hybrid of Canadian and U.S. delivery approaches, wherein the U.S. DBO model is applied in Canada and elements of the Canadian finance model are applied in the United States.
Though government support is by no means required for the successful implementation of water P3s, the U.S. government is considering ways to approach funding for infrastructure projects. There are a variety of federal-level policy proposals currently under consideration aimed at increasing infrastructure investment and, thereby, creating jobs. The proposal most frequently cited by the Obama administration is an ?infrastructure bank? (IBank), whereby a relatively modest federal investment of $10 billion would yield issue loans and loan guarantees to eligible water, transportation and energy projects of up to 50 percent of a project?s total cost. Loans would use approximately the same interest rate as U.S. Treasury securities and could be extended up to 35 years. Congress is deliberating on the president?s ?American Jobs Act,? which includes the IBank proposal and a number of other ideas.
While it is receiving less attention on the national radar, private activity bond legislation is another vehicle that would leverage a minimal cost by the federal government to create greater private sector investment and job growth in water infrastructure. Both ideas are bipartisan and each deserves serious consideration as the U.S. Congress works to keep pace with other governments in a global marketplace.
However the P3 model evolves, we will continue to work with clients to deliver work under a variety of contractual and organizational models. In evaluating delivery alternatives, the optimal alternative is the one that best meets stakeholders? goals for that project. The wide variety of alternative delivery methods offer owners choices that are good for our industry; every delivery method has its place on the continuum.
Bob Bailey is the President of the Water Business Group for CH2M Hill. In this role, he has worldwide responsibility for the development, project performance, and risk management of all CH2M Hill water, wastewater and water resource projects.
Peter Nicol is the Global Business Development Director for CH2M Hill?s Water Business Group. Nicol is a Professional Engineer with 30 years of experience, and has played key roles on some of the most significant water and wastewater treatment projects in Canada.
