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One of the more disturbing findings of the Auditor General’s report is that even when it was clear that privatization was more expensive the government still privatized highway maintenance work.
Ottawa (13 June 2019) – In Volume 1 of her 2019 report, Kim MacPherson, New Brunswick’s Auditor General, reported that the decision to privatize some highway maintenance work has pushed up costs. MacPherson also raised concerns that the increase in privatization could leave the province overly dependent on a small number of private contractors.
Work privatized even when the government knew privatization more expensive
One of the more disturbing findings of the Auditor General’s report is that even when it was clear that privatization was more expensive the government still privatized highway maintenance work.
The provincial government was warned that it was cheaper for public sector workers to do chipsealing work, but went ahead and privatized it. As a result, the public paid an extra $1.7 million over two years.
A pilot project found that it was 10 per cent cheaper to build snow plough trucks at the Department of Transportation and Infrastructure’s (DTI) central repair shops than to contract out the work. Yet DTI still had another 30 trucks built by private contractors. Using private contractors to build 30 snow plough trucks, plus the 10 they built in the pilot project added $1 million to the cost – enough to pay for 4 more trucks.
New Brunswick at risk of becoming overly dependent on a few contractors
The Auditor General also found that privatization could leave New Brunswick at risk of becoming too dependent on a handful private contractors. For 55 contracts, with a total value of $46 million, there was only one bidder.
When governments are overly dependent on a few private contractors, costs are higher. It also means that if a company operating a privatized service goes bankrupt, public services could suffer. The example used in the report was the impact of the collapse of Carillion, a British outsourcing company in 2018. In Alberta, one of the two provinces that had contracted out highway maintenance to Carillion, the Alberta government had to provide funding to avoid a service disruption. While dollar figures weren’t released, Ontario also had to sign a new agreement with Carillion to ensure highways continued to be maintained.
There is also a danger that, when governments rely on a few contractors, it won’t be possible to deal with shoddy service or other problems. The ultimate example of this happened in Britain after two companies operating privatized services over-charged the British government by more than £180 million (about $305 million). Even though the two companies are still under investigation by the Serious Fraud Squad, they are being allowed to bid for more contracts to operate privatized services.
Privatization, a “philosophical decision” rather than in the public interest
When privatizing highway maintenance services in New Brunswick, the government attempted to justify its actions by saying that sometimes privatization should be a “philosophical decision” rather than based on a “business case analysis.” In practice, privatization is almost always based on political philosophy rather than what’s best for the public, but it’s unusual for privatization supporters to admit that.
While it’s surprising to see a government being that honest about why it’s privatizing public services, it’s also worrying that a government feels that a philosophical decision is sufficient grounds to proceed with privatization. When the public has more information about privatization schemes, they are more likely to oppose them. There is a danger that some of the attitudes the New Brunswick Auditor General suggests were behind the privatization of highway maintenance could encourage governments to be even more secretive about privatization than they are now.