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“In our view, the value-for-money analyses were of little use to decision makers because they contained many flaws favouring the P3 model.” – Office of the Auditor General of Canada
Ottawa (07June 2018) — In his report last month, Michael Ferguson, the Auditor General of Canada, found that inaccurate assumptions were used in the reports produced to justify a P3 privatization scheme. The report into the Champlain Bridge P3 privatization scheme in Montreal found that assumptions used in the 2 value-for-money reports for the project pushed up the cost of public procurement or downplayed the costs of using P3 privatization schemes.
The problems with the value-for-money reports were serious enough that the Office of the Auditor General concluded that, “in our view, the value-for-money analyses were of little use to decision makers because they contained many flaws favouring the P3 model.”
Five provincial auditors general have found issues in reports used to justify P3s
Ferguson is only the latest auditor general to find that value-for-money reports artificially inflated the cost of public procurement to make P3 privatization schemes seem better value than they really are. Auditors general in New Brunswick, Quebec, Ontario, Saskatchewan and British Columbia have encountered similar problems.
Biased reports mean public paying too much for infrastructure projects
Generally, auditors general have found that, if the numbers hadn’t been manipulated, public procurement would have been cheaper than using P3 privatization schemes. This means that, because of the questionable assumptions used in value-for-money reports, the public are paying more than they should for infrastructure.
A 2014 audit of 74 P3 privatization schemes by Ontario’s auditor general provides a sense of how much. Bonnie Lysyk's repor estimated that using P3s for the 74 projects added $8 billion to the cost.
Value-for-money report for Champlain Bridge P3 features most of the usual tricks
The ways figures were manipulated in the value-for-money report for the Champlain Bridge P3 privatization scheme are similar to the methods used in questionable reports for provincial projects. These ways include using unrealistic assumptions about how much will be saved by transferring the risk of construction problems or cost overruns to the private sector when using a P3 and by inflating the discount rate. According to the Auditor General’s report both methods were used in the value-for-money reports for the Champlain Bridge P3.
Another way the numbers were manipulated was by assuming that the use of private sector efficiency and expertise with a P3 privatization scheme would generate efficiency savings of 10 per cent. Even PPP Canada, an agency whose goal is to promote the use of P3 privatization schemes, believes that a savings of only 5 per cent is possible.
Problems with value-for-money reports a symptom of a bigger problem
The problems with the value-for-money reports for P3 privatization schemes aren’t a case of a few consultants doing sloppy work. They are a symptom of an underlying problem facing the privatization industry, that is, how do you justify something that costs more, harms quality, and means services people rely on are unaccountable and shrouded in secrecy.
In the vast majority of cases, value-for-money reports are prepared by consulting firms that make a lot of money from the privatization industry. It’s not a surprise that those firms find ways to make P3 privatization schemes appear better value than they really are. But as reports from auditors general on P3s make clear, the assumptions used by these consulting firms often don’t stand up to scrutiny.