Construction is now under way on a $355 million public-private partnership (P3) hospital in the Fraser Valley, but a major union is claiming taxpayers will be on the hook for more than $1.4 billion in lease payments to the project manager.

Project manager Access Health Abbotsford Ltd. - composed of several well-known multinational companies and several B.C. government health agencies - claims the Abbotsford Regional Hospital and Cancer Centre Project will save taxpayers $30 million and see the 300-bed facility returned to the province in 30 years at no cost.

But the Hospital Employees' Union (HEU) says capital costs on the project have jumped from $211 million in 2001 to the current $355 million, a 68.2-per-cent increase. The HEU says the $1.4-billion figure is based on a union-commissioned analysis of the project. "As a result of increased construction costs, payments to the consortium . . . will likely increase," the HEU says.

Access Health Abbotsford maintains the higher costs are due to the addition of new and expanded facilities that were not part of the original proposal.

The Abbotsford Regional Hospital and Cancer Centre in the Fraser Valley finds itself in the crosshairs of a difference of opinion about P3 projects.

The bank behind the deal says it has plenty of experience with such projects, although this is the first integrated hospital-cancer facility it has done in Canada.

"We are the deal facilitator and we have done more than 30 public-private projects worth $6 billion around the world," says Paul Dunstan, managing director of infrastructure capital for the Dutch bank ABN AMRO, the 10th largest bank in Europe.

"We have the ability to put together such a complex deal with a bunch of operators from around the world."

ABN AMRO lent the consortium the debt equity for the project, covering both the construction and long-term operating phases. "The market in Canada for such deals is still in its infancy, but we expect it to grow," adds Dunstan. "This is a good deal for taxpayers. The United Kingdom, Spain and Italy are heading toward these type of (P3s) on major infrastructure developments."

Other private-sector partners working on the B.C. hospital project include PCL Constructors Westcoast, a member of the PCL family of companies, MCM/Silver Thomas Hanley, Johnson Controls and Sodexho.

The companies are in partnership with the B.C. Ministry of Health, the provincial Health Service Authority, the B.C. Cancer Agency, Fraser Health and the Fraser Valley Regional Hospital District.

Under the umbrella of AHA, the private sector will design, build, finance and maintain the new hospital and cancer centre, while the Fraser Health Authority and B.C. Cancer Agency will deliver all public health services.

"P3 is a very intelligent way to build new infrastructure. It is far more likely to be built on time and far less likely to incur cost overruns," says Nadeem Esmail, senior health policy analyst of the Fraser Institute, a think tank based in Vancouver.

"International experience indicates that this is the way to build new infrastructure," Esmail adds. "The experience in the U.K. certainly has been that these projects are built more quickly, there are no cost overruns and the facilities are much better. The lease payments to the developers of these P3 projects only start when the facility opens."

But the HEU notes that a research study by the Association of Chartered Accountants in the U.K. concluded that privately financed hospitals ultimately aren't affordable.

"The study found that annual capital costs were more than $105 million Cdn higher in privately financed hospitals than in those directly financed by government, and that the de facto costs of borrowing for private consortiums were double," the HEU says.

Mike Old, director of communications for the union, adds the international experience with P3s "is they are unaccountable, subject to cost overrun and the least efficient way to provide health-care infrastructure."

But Jennifer Davies, a member of the project team at Partnerships B.C. - the provincially owned company charged with bringing together private companies, government agencies and ministries for developing P3s - says the partnership concept came about "because there is a real crisis in Canada to build infrastructure."

"In the Fraser Valley they have been looking to build a new hospital for 20 years," she says.

Four companies put forth proposals, but Abbotsford came out well ahead, Davies adds.

Partnerships B.C. was formed after the B.C. government decided it was more efficient and cost effective to build new costly infrastructure in B.C. using the P3 model. Under the terms of the deal, the private companies put up the capital and are paid a licence fee.

There are many risks posed by P3s that are not part of a regular project, says Jim Mitchell, vice- president of capital projects for PCL Constructors, a key player in negotiating the hospital deal for his company.

"Two key risk factors in a P3 project are that there is no guaranteed cost and no guaranteed time. Putting a proposal together for a P3 project takes a significant effort and you need more senior management to understand and manage the risk. It's all about transferring the risk to people who know how to manage it," he says But, Mitchell notes, "there has to be a steady diet of these types of projects to maintain the competency of the people involved."

Other partners are equally optimistic about the new hospital's potential.

Maarten Galesloot, vice-president of finance for Sodexho, Canada, a subsidiary of the worldwide Sodexho group of companies, says there haven't been a lot of new hospitals built in Canada in the last 10 years.

"We are very excited about this project," says Galesloot of Sodexho, which is responsible for food services, housekeeping, help desk, linen and laundry, and moving patients around. "We see this project as a good start for us in Canada and hope there will be more projects following."

Galesloot says his company will take the fresh approach to food service, with chefs on site and all food prepared at the hospital. "We will not use a commissary or central kitchen."

Sodexho has gained a lot of experience over the past 10 years with P3 projects in the U.K., but Galesloot notes that so far, the P3 experience in Canada is time-consuming and costly. "In the U.K. they have developed a standardized approach and that makes it a lot easier," he says.

During the construction period, 500-600 workers will be building the 60,000-sq.-m hospital, which is scheduled to open in 2008. Once completed, more than 1,000 new jobs will be created, double that of what the existing hospital employs in the area.

(George Froehlich can be reached at george@businessedge.ca)