The Art Of The Deal

This shouldn’t be considered some nyah, nyah, nyah, I-told-you-so. hahaWhile I remain sceptical about the magical powers of public-private partnerships to heal our infrastructure deficit, pending a definitive study to prove/disprove their rationale beyond simply a case-by-case basis, I’ll keep my mind as open as I ideologically can toward the possibility that an argument can be made for the P3s’ merits. After all, the private sector blah, blah, blah, am I right?

But this, this, “First-of-its-kind condo deal…mired in financial troubles”, does little to engender much feeling of goodwill toward the concept. I know, I know. Why emphasize the one deal gone wrong when so many have gone right but the same thing might be said about those purely public projects that make so much noise when they go over budget and/or face significant delays. This one’s significant because Metrolinx, the provincial agency directed to get Ontario moving with a proposed massive public transit build over the next quarter century, has stressed the importance of P3s as an integral component of a successful implementation of that plan.

The lack of one being in place was cited as a reason for the recent and ongoing woes of the Yonge-Univesity-Spadina subway extension. The premier wagged her finger at the city. toogoodtobetrureThe TTC chair put forth a motion to ensure P3s were on the table going forward with future transit projects. No more opportunities would be lost in accruing the obvious benefits that come with bringing private sector expertise into building better public facilities.

Yet, it’s hard not to look at this particular deal, an attempt to integrate the concept of intensification with transit hubs, and not come away with the sense that the real expertise the private sector provides is assuring its own best outcomes. In a nutshell, a developer of some property near the Mimico GO station got official approval and rezoning for additional height of a condo project which would be directly connected to the GO station in return for building additional parking spaces specifically for the use of the GO station. Things went south, financially speaking, the development company had a little solvency problem, it seems, and Metrolinx had second thoughts.

“Some information had come to our attention that made this a less than desirable agreement to enter so we pulled out of that agreement,” a Metrolinx spokesperson told the CBC. This was back in 2012. No harm, no foul. Live and learn. Onward and upward. Metrolinx will renovate the GO station and build the extra parking spaces on its own.

But here’s the real kicker, in my opinion.ripupcontract

Despite the cancelling of the agreement, and no connection between the proposed condo development and the Mimico GO station, no additional GO parking provided, the developer still gets to keep the increased height for the project. Rebuffed by the city’s Committee of Adjustment after the deal went sour, the OMB swopped in to save the day, OKing the 7 extra stories. Private sector benefits 1, obligations nil.

This is where my dubious disposition toward P3s stems from. Private enterprise looks out for number one. That is the foundation it is built on, is it not? Self-interest. Emerging with a net gain is the key to survival.

How the public sector arrives at a win-win situation in a relationship with a private partner is therefore tricky at best. Is it possible to maximize profits at the same time as maximizing the public good? That’s the pounding sound of constantly trying to square a circle.

Governments just have to make sure contracts are signed tightly, all the eyes are dotted and tees crossed, risk fully and properly assessed, managed and allocated. Make the right deal and watch the magic happen. It all just makes such sound, intuitive, fiscal sense for everyone involved.

Except that there’s one fundamental disparity in this relationship that makes it ultimately unequal. The private sector can just walk away from any deal that becomes unworkable for them. leftholdingthebagContract signed? So, sue me. To think that any P3 agreement doesn’t include that kind of assessment built into it is probably naïve, the definitive out clause.

Public projects are ultimately the responsibility of the public sector. Failure to deliver a transit stop, for example, is not an option for them. One way or another, over budget or not, on time or not, it must come to pass. It’s the key bargaining chip a private sector partner always has in its back pocket, moral hazard a friend.

It’s difficult to imagine any cost or efficiency savings enough to trump that advantage the private sector always brings to the negotiating table.

side-eyely submitted by Cityslikr

2 Responses to The Art Of The Deal

  1. Ned says:

    CitySlicker, I’ve been thinking a lot about PPPs lately myself, even so much as to clash with family members and the editor of P3 Planet. It seems that the private sector does exactly as you say it does — it looks to make a profit. And there’s nothing wrong with that IMHO. But they’re trying to pick off the profitable parts of the government economy while leaving the money-losing propositions to the taxpayer. As for the assertion that pro-PPP’ers always make that we would be availing ourselves of the best expertise the private sector has to offer, that is misleading. Eventually the private sector gets involved no matter what, but it should wait until the big decisions (and the public financing) are in place, because only the municipality has the big picture of what the wider community needs. And when tax revenue starts rolling in down the line from well thought-out, long-term infrastructure projects (an LRT or subway stop, eg) then the city — read community — gets the profit. Only profit is defined differently in this case, because it isn’t just flowing into the a private sector big cats’ pockets. Instead, the profits go into things that benefit the community, like paying for the so-called “money-losing” necessities that people depend on like transit and parks and all the other things that go to benefit the community at large. That is the profit that PPPs take away!

  2. Roger B says:

    Many politicians would like you to believe that government (they) can’t be trusted to manage a project without screwing it up. These same pols want you to believe that, after receiving reelection funds and being lobbied by the private sector, they can write up an iron clad agreement for these companies, and hold them to account afterwards.
    As for GO. its focus on surrounding its stations with free parking, and expecting developers to replace that parking for free, is one of the main reasons why their stations do not attract development. Too bad free parking is the main benefit that GO (Government of Ontario) requests when it comes to transit oriented developments.

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