Realizing the Benefits of Public-Private Venture

This past March, the Saint John Common Council voted to develop a new water treatment facility in partnership with the private sector, a policy route some observers argue would save the City of Saint John several million dollars. Likewise, Moncton entered into a similar agreement in 1999, which Public-Private Partnerships Canada (PPP Canada) believes will save the city $9 million in capital costs and $12 million in operating costs over the contract’s twenty-year term.

These policies align with the broader trend of delivering services to taxpayers in an efficient and less-costly manner, which, in the current economic climate of fiscal restraint, is necessary. Taxpayers, however, will rightfully continue to expect quality service, which presents a dilemma for government.

To sustain quality service, governments can look to collaborating with the private sector (in many cases, the private sector is better equipped to deliver services in a more efficient manner than its public sector counterpart, depending, of course, on the nature of the service).

Saint John, for example, is seeking to create a public-private partnership (P3), which is an arrangement whereby the government announces the delivery of a service and, rather than providing the service itself, contracts the private sector. Not to be confused with privatization–wherein the public sector gives control of a service wholesale to the private sector–P3s allow the government to maintain control over a service while capitalizing on the private sector’s efficiency.

The greatest benefit of collaborating with the private sector is the latter’s capacity to provide services in a more timely and cost-effective manner.

In a 2008 article published in the Journal of Canadian Public Administration, for example, Timothy Murphy provides strong arguments for why the private sector is better equipped to provide services than the public sector. One such arguments is a case study performed by the United Kingdom’s (UK) National Audit Office (NAO), which found that projects funded using the 3P model (formally titled ‘privately financed initiatives’ in the UK) were completed on-time and on-budget 76% and 78% of the time, respectively (compared to non-privately funded initiatives, which reported 30% and 27%, respectively).

Saint John, as well as other governments considering P3 initiatives, however, ought to keep in mind some lessons from Moncton’s 1999 public-private venture. Moncton, for instance, maintained ownership of its water supply and remains responsible for setting water rates and quality standards. Furthermore, the municipal government also transferred risk to the private sector by including strict maintenance and operating requirements that, if not meant, resulted in penalization. These factors allowed Moncton access to the private sector and its accolades, without entirely surrendering control over its service delivery.

Given these caveats, it is evident that P3s can be an important tool for governments throughout Canada that are seeking ways to improve services, while lowering costs and maximizing efficiency. Other governments, therefore, could benefit from pursuing private sector alternatives (certainly when the public sector alternative is untenable) as a policy option for delivering services to taxpayers in the most competent manner possible.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

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