Public-private partnerships (P3s) offer plenty of opportunities for Canada's small and medium-sized businesses - despite concerns smaller firms may be excluded from the process, says the head of a P3 advocacy group.

Jane Peatch, executive-director of the Toronto-based Canadian Council for Public-Private Partnerships (CCPPP), says small contractors shouldn't feel threatened by large global firms that may serve as P3 project leaders.

"The reason (P3s) are benefiting the public in B.C., Alberta and the other provinces that are doing it, is because you're trying to take the risk of being over time and over budget - which is quite typical in conventional projects - and pass it over to the private sector," Peatch says.

"(Small contractors) would find that the discipline is quite different, because you've got a group of investors who will pay - every day - for a project that goes over budget. In the conventional project, there's no such discipline. You could be working on a cost-plus basis. If you're on a conventional project, you don't care if the project gets done or not."

Photos courtesy of Vancouver Board of Trade
ICBA president Philip Hochstein worries about small contractors.

But bigger isn't necessarily better, says Philip Hochstein, president of the Independent Contractors and Businesses Association (ICBA) of B.C.

Hochstein was one of the speakers at the recent P3 Forum in Vancouver, where business leaders and B.C.

Premier Gordon Campbell predicted public-private partnerships will increase in coming years as governments strive to reduce risk and avoid debt.

Hochstein says while the construction industry supports the principle of more private-sector involvement in infrastructure projects, the P3 model has changed the market for the small contractor because it has created a more subjective tendering process.

"The small companies are worried that, if the government ... wants everything to be bigger and packages the projects so that they're big, they'll be excluded from the process," says Hochstein.

However, Peatch says, such concerns are often typical when a P3 is proposed.

"I don't know what league these guys think they're playing in, but if you're doing the Sea-to-Sky Highway (expansion between West Vancouver and Whistler), you're not going to use a smaller construction company as a lead because you have to finance the project," she says.

"In my mind, they wouldn't want to be doing that - even if they could - because they'd be too small to carry the risk that gets transferred in these kinds of projects."

The CCPPP website lists about 70 projects under development across Canada, but the group indicates many more are likely in the works.

Sandford Borins, a public-management professor in the University of Toronto's Rotman School of Business, agrees small and medium-sized enterprises (SMEs) are probably at a disadvantage on construction-based P3s, because governments want to establish a relationship with one large contractor to reduce transaction costs.

Steve Small

"The best an SME could do would be to become part of a larger consortium, recognizing, of course, that the big fish in the consortium are likely to profit most," says Borins.

Peatch also advises small companies to sub-contract to global players on large projects. But the ICBA's Hochstein says such arrangements are not practical in the construction sector.

"That's good in theory, but that misunderstands how the construction industry operates," he says, adding 95 per cent of companies have fewer than 20 employees. "You need to put a lot of those 20-person companies together to put on a $100-million project."

Thomas Ross, a business professor who co-ordinates the P3 study program at the University of British Columbia, says small firms are often fearful because they don't know how to participate in P3 projects.

"The rules are a little different, the structure's a little different and they need to adjust," says Ross, who moderated the forum session in which Hochstein and others spoke.

"Quite often, it's going to mean joining some sort of consortium team or signing as a sub-contractor for someone that they wouldn't normally work under, but nevertheless there are going to be great opportunities. So maybe we need to increase the information flow."

He adds that larger firms such as SNC-Lavalin and Bilfinger Biloten, which have built several P3 projects in Canada, should be encouraged to source labour locally. "There's a lot of talent here."

Jim Burke, executive vice-president for SNC-Lavalin, which is building the Canada Line rapid-transit project between Vancouver's airport and downtown, told the conference that P3s already provide opportunities for many local firms.

"We hear that we're bidding on these big global projects and we're not leaving much on the table for the local guys," said Burke. "One of the things I want to point out is that we are the local company. We've been here in B.C. for over 40 years. We have over 360 people in our (Vancouver) office ... and there's 570 permanent full-time staff in B.C."

On the Canada Line, he said, SNC-Lavalin has contracted locally with 19 engineering and architectural firms, 84 construction companies, 483 suppliers, 103 service operators and 93 consultants.

Steve Small, vice-president of development for Bilfinger Berger BOT Inc., the Canadian subsidiary of a German parent that is building the Golden Ears Bridge in the Vancouver area as well as the highway expansion in B.C.'s Kicking Horse Canyon and Calgary's ringroad, also emphasized his firm's local contracts.

On the Golden Ears Bridge, Bilfinger has contracted with 15 engineering companies and 62 construction firms, while also employing local trades and those from Europe, the United Kingdom, Australia, Panama, Thailand and the Philippines.

The CCPPP's Peatch says most governments only want to develop 15 to 20 per cent of infrastructure as P3s, and "social infrastructure" projects such as hospitals, long-term care facilities and schools provide a natural niche for homebuilders.

But she adds contractors must realize that a P3 contract is not awarded only on the basis of construction. A P3 can consist of several different models that include construction, financing and operations, while participants may hold both equity and non-equity positions.

Larry Blain, CEO of Partnerships BC, a provincial agency that develops P3s, told the conference they allow governments to transfer design, construction and life-cycle costs over the long term, usually 30 or 40 years. He added many investors are eager to invest in P3s, as returns on equity have ranged between 10 and 12 per cent, and the province can expect to retain ownership.

He also pointed to newly announced P3s in Ontario, Alberta, Quebec, New Brunswick and Nova Scotia and the opening of a federal P3 office in Ottawa and agreement to allow P3s to access federal infrastructure funds, as a sign that public-private partnerships are dramatically increasing across Canada.

(Monte Stewart can be reached at monte@businessedge.ca)