In the world of public-private partnerships, it really does take two to tango. By teaming up, governments and businesses work in harmony to provide long-term solutions for the benefit of the people. While a perfect dance duo can also have its own missteps every now and then, there’s nothing that cannot be solved by cooperation, transparency, and balance.
In this article, we’ll discuss how a public-private partnership works, and some of the important considerations when the two sectors come into this relationship.
What is a public-private partnership?
A public-private partnership (also called PPP or P3) is a collaborative effort between the government and a private business for the development and implementation of a project. This can either be through a partnership agreement, a contract, a venture, or any variation of these. Infrastructure projects that are usually entered in a PPP or P3 are those in the following sectors, among others:
- education
- environmental protection
- culture and heritage
- healthcare
- justice system
- recreation
- public transportation
Governments resort to PPPs because of two main things:
- funding for large scale hard projects
- expertise in executing and eventually running these projects
This is recognizing the government’s need to bring in the technology from the private sector to ensure the project’s success.
On the other hand, private corporations involve themselves in P3s because of the potential revenue that these can generate once completed. In some cases, ownership of the project may be transferred to the private entity, according to the partnership’s terms.
Here’s a video that summarizes how public-private partnerships start and some of its essential considerations:
We’ll explain more about these details below. You can also use our directory of the best lawyers in Canada if you need help learning more about PPPs. This directory can be filtered according to province, city, and the lawyers’ practice area.
How do public-private partnerships work?
The process of entering a public-private partnership involves years of hard work, including several actors from the two sectors. In Canada, both the federal and provincial governments engage in public-private partnerships, according to their own strategies, framework or models, after considering the applicable laws.
At the start of the negotiations for the PPP, the delineation of the scope of work and obligations between the two sectors is first determined. In most cases, a PPP is pictured this way:
These are just general divisions of the work between the two sectors in public-private partnerships, since these will all depend on the negotiations. After all, a PPP is still a contract between two parties, when stripped of all its complications.
Types of public-private partnerships in Canada
While there are many of types of public-private partnerships, there three common types that are usually entered in Canada:
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build–operate–transfer (BOOT): while the construction and operations are completely done by the private sector, its operations will be wholly transferred to the government after a pre-determined period (e.g., after 20 or 30 years)
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company–owned government–operated (COGO): the private sector endeavours to build the project, which it will eventually own, but it’s the government that actually operates it after completion
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government–owned company–operated (GOCO): basically, a reverse of the COGO, where the project built by the private sector is owned by the government after its completion, but is operated by the private sector
The Canadian Council for Public-Private Partnerships (CCPPP) also classifies PPPs under these four models:
- Design-Build-Finance-Operate-Maintain (DBFOM)
- Design-Build-Finance-Maintain (DBFM)
- Progressive P3s
- Concession agreements
What are examples of public-private partnerships?
PPPs have been a part of Canada’s history, ranging from roads and schools to infrastructure projects. Some of the notable PPPs in Canada are the:
- Abbotsford Hospital and Cancer Centre
- Disraeli Freeway & Bridges Project
- Saint John Safe Clean Drinking Water Project
- Ontario Highway 407
- Wetaskiwin Wastewater Treatment Facility
The Réseau express métropolitain
Another famous example of a public-private partnership is the Réseau express métropolitain (REM). This is a new, integrated, fully automated transportation network linking Montréal, the South Shore, the West Island, the North Shore and the airport. It’s the largest public transportation infrastructure project in Montréal since the Métro was inaugurated in 1966.
In July 2023, its first five stations opened. This was between Central Station and Brossard. More stations are expected to be opened, starting in 2024 until 2027, if things go as planned. When fully completed, the 26-station, 67-kilometre-long network will be one of the largest automated transportation systems in the world.
Driving the REM is a P3, perhaps not as a P3 model that Canada has come to know, but still a PPP nonetheless. The brainchild of the Caisse de dépôt et placement du Québec (CDPQ) and its subsidiary CDPQ Infra, the REM brings a new P3 model to the market.
Operating under a unique P3 model
What makes the REM model unique is that CDPQ Infra is taking on the entire risk of the project, mitigating it only by hiving off interests to other investors. No portion of the project resides on government balance sheets.
But the government has an important role, serving as guardian of the public interest by identifying the public’s infrastructure needs. Once the government does so, it is the private sector that does the initial planning and investigation to determine the project’s commercial viability. It then proposes alternatives to the government, which decides on the proposal that suits its purposes best.
Costs of completing the REM
The Caisse has committed $2.95 billion to the project. The Québec government and the federal government are each investing $1.283 billion in the project. Hydro-Québec will contribute $295 million to cover the fixed equipment needed to electrify the REM. In 2021, there was an increase of $350 million to the project cost, due to the impacts of the COVID-19 pandemic.
Watch this video from Canadian Lawyer Magazine, one of our sister publications. The video talks about navigating PPPs, along with some of the law’s perspective:
Lawyers in the practice area of project finance can also help you navigate PPPs and the laws surrounding them. To help your search, check out this directory of the best project finance lawyers in Canada as ranked by Lexpert.
What are the advantages and challenges of public-private partnerships?
Governments give out a lot of benefits for the private entities that engage in public-private partnerships. Examples of the most common benefits include:
- tax breaks or lower taxation rates
- liability protection arising from legal disputes against the project
- project ownership, after the project’s lifetime and/or depending on its conditions
A tool to meet the government’s infrastructure problems
The REM demonstrates that governments need to keep an open mind to meet the infrastructure challenges they face, explained Mark Romoff, the former president and CEO of the CCPPP.
“Governments should not be prescriptive about how to achieve their goals, and they should keep all options on the table when examining funding and financing alternatives,” he said. “They need to be clear about the outcomes they are seeking and then let the private sector innovate to achieve those outcomes in the best way possible.”
To be sure, Romoff doesn’t see P3s as the be all and end all to Canada’s infrastructure conundrum. “P3s are one tool that can successfully achieve outcomes, but they are not a panacea.”
If mainstream acceptance reflects a mature market, however, there’s no question that public-private partnerships have made the grade as reliable delivery mechanisms for public infrastructure projects.
“Canada is a mature P3 market now, recognized as a best-in-class jurisdiction globally,” Romoff said.
Innovation as a constant for P3s
But as demand evolves, so must P3s. If the past is any guide to the future — and if the REM is any indication — they will. The PPP delivery system “provides unique innovation opportunities that traditional delivery models cannot support.” This is according to a 2016 study by the Ryerson Institute for Infrastructure Innovation entitled Understanding the Effect of Public Private Partnerships on Innovation in Canadian Infrastructure Projects. To add, the authors conclude that it is the private sector that has initiated a majority of public infrastructure project innovations.
“Innovation is at the heart of P3s,” Romoff said. “By making the private sector responsible for the design, build, finance, and operations and maintenance of an asset over the long term, the private sector is not only able to bring expertise to the table, but it is incentivized to ensure the asset is built to last at a high quality, given that the sector remains responsible for its long-term maintenance.”
P3s as a sustainable development model
There are other reasons to believe that P3s are a sustainable model. A 2016 study, entitled Why building infrastructure ‘on time’ matters, was conducted by the Canadian Centre for Economic Analysis (CANCEA) and commissioned by the CCPPP. Here, they found that in the 200 P3 projects they surveyed that P3s:
- save as high as $27 billion for the government
- tend to be completed one year more quickly than traditional projects
- create 115,000 jobs annually
- add $4 billion to GDP and $5 billion to wages
“It’s these kinds of numbers that have driven the greater uptake of P3s by politicians,” Romoff said.
They’ve also driven uptake in the financial markets. “P3s are now viewed as a traditional procurement methodology,” according to Doug Sanders, a partner in Borden Ladner Gervais LLP’s Vancouver office. “So much so that we’re seeing some traditionally conservative Canadian players, like insurance companies, come into the market.”
PPPs to develop certain sectors
Although there are changing trends with regards to the sectors which the government has a lot of PPPs for, there are those that are consistent over the years. Among these are:
- transportation
- healthcare
- public utilities
Transit, of course, is key to infrastructure planning and development because of population growth. It is also critical to the phenomenon known as “compact development,” which dominates government thinking these days.
PPPs and compact development
Compact development aims for a more efficient use of land through higher-density development or redevelopment, such as infill or brownfield projects. The benefits of compact development are said to include:
- reducing sprawl and the need for private transportation
- encouraging people to walk
- increasing efficiency in delivering urban services
“Practically speaking, compact growth means lower costs on water, sewer, electricity, and roads because these services will traverse shorter distances,” Romoff said. “This means that there are untapped opportunities in the municipal sphere.”
Development in the municipalities
Infrastructure gap reports point to municipal services as most wanting. This is what Catherine Doyle, a partner at McMillan LLP, pointed out.
“Municipalities can tax property and impose development charges and levies, but they can’t tax income,” she said. “That has left them hamstrung for a long time, but they’re starting to realize that P3s — especially revenue-based models — are one way in which they can begin bridging the gap.”
The upshot is that municipalities, which are receiving many of the benefits of these projects, are increasingly involved from the outset.
“They’re not only having input into the project, they are actually participating in the development,” said Sean Muggah, a partner at Borden Ladner in Vancouver.
Compact development also embraces the validation of suburbia as a place to live and work.
“What Metrolinx [the Crown agency that manages and integrates road and public transport in Ontario’s Golden Horseshoe region] is doing, for example, can be transformative to suburbia because it envisages point-to-point commuting not only to and from Toronto but to and from areas outside Toronto,” Doyle said.
As Romoff sees it, infrastructure can be leveraged to support compact development. Indeed, much compact development is possible because smaller P3 projects are becoming ever more viable.
“There are some 40 to 80 municipalities working on downsized P3s, and we’re going to see more of them because we now have the expertise and the models that are necessary to achieve that,” said David Kauffman, counsel at De Grandpré Chait LLP in Montréal.
“It’s a fairly new phenomenon that’s about five years old, and it’s being driven by the federal government encouraging provinces, municipalities, and Aboriginal communities to adopt the P3 model.”
Smaller projects in PPPs
In Québec, a focus has also emerged on building and repairing schools.
“There is a movement toward maintaining Infrastructure that already exists,” said Clementine Sallée, now a Global Director – Transaction Advisory at CPCS. “That doesn’t mean megaprojects, like transit, won’t continue, but smaller projects are finding their own momentum.”
Public-private partnerships: rising to the challenge of innovation
Public-private partnerships in Canada continue to grow and is not posed to stop any further. By combining the strengths of both the public and private sectors, these partnerships can tackle complex challenges and create solutions for the people. While the saying "it takes two to tango" usually connotes negativity when two entities merge forces, this is not usually the same for public-private partnerships.
Check our page on the Largest Law Firms in Canada if you’re looking for the best counsel to help you in your current or future public-private partnerships.
The personalities and lawyers quoted in this updated article were first interviewed by Lexpert for a 2018 article titled “The Evolution of P3s.”