When a massive sinkhole opened up in the core of London, Ont., last Halloween, it was a terrifying look into the future for public authorities across Canada.
Buildings and a high school were closed around the 10-metre-wide hole, as the area was flooded with gushing water.
These events are happening regularly across the country, especially in older, established cities, as the infrastructure of watermain and sewage pipes reach the end of their lifecycle and fail.
The London incident was a replay of a similar eight-metre sinkhole north of Toronto in March 2007. The hole at the intersection of Major Mackenzie Drive and Jane Street forced road closures and created traffic chaos for a week. Again, the culprit was a corroded 18-inch watermain that burst.
Sewers and watermains may not be the most glamorous of civic infrastructure projects but building experts say they are as essential as roads, bridges, highways, transit lines, hospitals and schools.
They also serve as a constant reminder of the overall attitude to the growing infrastructure gap: Out of sight, out of mind - until something happens.
That's just what happened in Laval, Que., when a bridge overpass collapsed in September 2006, killing five people and injuring six others.
A design defect - exacerbated by construction techniques and poor concrete quality - was blamed, along with improper maintenance. This year, Quebec will spend $3 billion on its infrastructure renewal, demolishing 28 bridges and overpasses and rebuilding 25 of them. Another 25 will undergo major repairs.
But Quebec is not alone in facing this massive expense.
"Last fall, a report to the federal government showed - not including maintenance and municipal areas of responsibility - there was $123 billion needed just for upgrades and to maintain what we have in place," said Jeff Morrison, director of governmental relations and communications for the Canadian Construction Association (CCA).
Add in the demands for expansion and the shortfall in other jurisdictions, and it's another $125-billion requirement.
Obviously, says Morrison, no single level of government has that kind of money, even over 10 to 20 years.
But the money is starting to flow. Highway capital budgets for 10 provinces will rise more than 16 per cent in 2008-09, says The Road and Infrastructure Program of Canada (TRIP Canada), part of the CCA.
TRIP Canada figures provincial highway capital budgets will hit $8.934 billion in 2008-09, six being record-high budgets coming on top of a combined increase of 26 per cent in 2007-08.
Only British Columbia is expected to see a decrease in its capital highway budget.
But the longer the delay, the more it's going to cost, says Morrison, adding the last time the infrastructure gap was quantified, it was half the amount estimated today.
As infrastructure fails, it has an impact on economic growth in terms of lost productivity and wasted resources, Morrison says.
At the same time, not expanding infrastructure to meet demands also costs the economy money through lost GDP growth when ports don't get built or projects are diverted because of a lack of supporting infrastructure.
That huge gap translates into a business opportunity, says Morrison, and since funding the work is the key stumbling block, it opens the door for a discussion around public-private partnerships, also known as P3 projects.
The concept is simple enough: Private enterprise borrows the money, using the government's leverage to access lower interest rates. They build the project and then operate it at prescribed standards for a set period of time. At the end of the contract, the private sector hands it back to public hands. The backers make their money leasing the facilities to the government for that set time, or tolls in the case of highways and bridges or user fees for ports and airports.
No private entity has taken over water and sewer operations in Canada, but in Europe, particularly England, the private sector sets and collects the water rates over a set period.
That's not likely to happen in Canada, says Frank Zechner, executive director of the Ontario Sewer Watermain Construction Association, the business association that represents contractors bidding on work in the sector: "Canadians have no appetite for private ownership of public facilities."
P3s became an emotionally charged issue when they were first introduced in Ontario to build hospitals, says Jane Peatch, executive director for the Canadian Council for Public-Private Partnerships.
"There were all kinds of suggestions - much of it coming from outside Canada - that we would be putting public facilities like hospitals in private hands," says Peatch. "But the controversy is fading now, there are no examples of people forced to pay for health care with their credit cards."
Morrison agrees, adding P3s are an under-utilized tool, especially when compared to Europe. "There's still a lot of nervousness. As soon as you say (P3), politicians back off."
Peatch says P3s work because there's a fundamental difference in the way government bodies approach projects and how private industry tackles them.
"In government - and all of us here came from government, two former ministers of finance and I was at Metro Toronto - we'd build a swimming pool and then hope we could go away for eight or nine years before the manager of the pool started complaining about maintenance and upgrades," she says.
In the private sector, she says, money is put away every year for lifecycle cost.
While governments are hesitant to accrue more money from the tax base than it spends on operations, "studies have shown that a $1 in maintenance deferred becomes a $3 expense and then $7," she says.
Again, watermains and sewer systems are a classic example: Until recently, many municipalities set their water rates nowhere near what it actually cost them to treat and deliver water, as well as to maintain and replace the aging infrastructure.
With that infrastructure now failing, the true costs are starting to add up. Toronto has recently embarked on a three-year plan to raise rates by 10 per cent and account for the costs of operating sewage-treatment plants by charging a sewer levy of 50 per cent of the water consumed.
Governments and business must get smart about how they approach the issue, Zechner adds, noting road-building and water and sewer replacement should go hand in hand.
"Half the cost is ripping up the road, so it's a good time to replace the road. You don't want to repave a road and then rip it up for sewers a year later. Utilities like the gas and telephone should also be told they can replace their systems at the same time, or pay a higher premium later."
While the opportunities exist for healthy P3s, a fine balance is required, says Rob Bradford, secretary-treasurer of the Ontario Road Builders' Association.
Last year, for example, the Ontario Ministry of Transportation floated a plan to have firms bid to maintain and repair specific sections of roads. Winning bidders would agree to keep roads and bridges at specific standards for smoothness and integrity.
However, how they managed it, how often they paved and how they paved or repaired surfaces would be up to the companies themselves as long as they met the standards. Contracts would be as long as 25 years.
The plan has since gone into limbo, in part because of a pushback by large and small paving contractors. The smaller companies complained the scope was beyond them, while the larger contractors feared it would open the door for even larger multinational firms.
"We're not opposed to P3s," says Bradford. "But we have concerns about taking all the liability."
Still, to fill in the greater part of the infrastructure gap, P3s look to many like the only game in town.
"Certainly there have been pockets of resistance, even here in B.C. from time to time where P3s have been around for a while," says John Haythorne a Vancouver engineer-turned-lawyer at Bull, Housser & Tupper LLP, which specializes in P3 contracts.
"But at the end of the day, nothing really changes. The public - that is government - still owns the project. And, as we've seen, the Sea-To-Sky highway is a showpiece and they're starting testing on the Canada Line (light-rail system for the Vancouver 2010 Olympics) so people can see it's working well and on schedule."
Putting P3 projects into play also puts money into the local economy, he says, and that provides a wider benefit to retailers and other non-construction businesses.
In a larger sense, the growth of P3 contracts and the acceleration of infrastructure projects is not without some irony, Haythorne adds.
The demand for engineers and technicians and other skilled trades is such that a labour shortfall, not the supply of funding, may be the one factor that checks both growth and opportunities.
(Ian Harvey can be reached at harvey@businessedge.ca)
