Ottawa LRT inquiry exposes problems with P3 privatization schemes

Ottawa (07 Dec. 2022) — The Final Report of the Ottawa Light Rail Transit (OLRT) Public Inquiry exposes a number of problems with P3 privatization schemes. With the veil of secrecy surrounding P3s and other privatization schemes key details about them are usually kept from the public. While a lot of information about the OLRT P3 is still not public, the inquiry report does provide some information that the privatization industry may not be keen on us having. 

The inquiry may have been about a transit P3, but the problems will be all too familiar to people working in other sectors where P3 privatization schemes have been used.

Using a P3 contributed to problems with Ottawa LRT

According to the inquiry report, one of the problems with the OLRT project was the use of a P3 privatization scheme that “relied on the private sector to build and maintain the OLRT1.” The report stated that using a P3 “led to a situation where the parties’ attention was diverted to protecting their legal rights instead of opening a reliable LRT.”

It is also hard to separate the 2 deliberate failures identified in the inquiry report from the secrecy that surrounds P3 privatization schemes. One failure was the private consortium deliberately providing the City of Ottawa with inaccurate information about when the project would be finished. And the other failure was that senior City officials, including the Mayor and Chair of the Transit Commission, failed to tell council that the light rail system hadn’t met the original testing requirements. 

Ontario government appeared to be pushing P3s

A problem that occurs regularly is the federal government and provincial governments make funding for infrastructure projects conditional on using P3 privatization schemes. The Harper Conservatives formalized this process when they set up PPP Canada and, according to the inquiry report, the Wynne Liberals also pushed P3s on communities. According to the inquiry report, “City staff believed that the provincial contribution was at risk if the City did not adopt a P3 approach.”

Use of a P3 limited choice of LRT vehicles 

One of the biggest problems with the OLRT has been the use of an untested light rail vehicle and the resulting teething problems. A big reason an untested vehicle was chosen was because of the decision to use a P3 privatization scheme. 

Only 3 vehicle suppliers met the requirements for the project: Alstrom, Bombardier, and Siemens. Bombardier and Siemens both have experience building light rail vehicles for use in Canadian cities. 

However, because Bombardier and Siemens had exclusive agreements with consortia that bid unsuccessfully for the project, they were legally unable to supply vehicles. That left Alstrom, which was proposing a completely new vehicle.

If a P3 privatization scheme hadn't been used, it would have been possible to pick the best available vehicle.

Privatization of policy-making played a role in problems

Increasingly, policy-making is being privatized. Policies and recommendations that were once drawn up by public employees are now being drawn up by consulting firms, some of which are multinational operations with revenues in the billions. Because these companies profit from privatization, they have a huge stake in whether governments privatize more services. Their reports generally recommend various forms of privatization, like P3 privatization schemes.

Deloitte, 1 of 4 global consulting and accounting companies, was hired by the City of Ottawa to advise on procurement and financing. Not surprisingly, Deloitte recommended using a P3. 

The inquiry found that Deloitte’s report “did not fully consider the disadvantages associated with a P3 model for the delivery of the OLRT1,” and that “the downsides of proceeding with a P3 were not thoroughly analyzed.” Of particular concern was the impact of including maintenance in the P3 and that a P3 would mean complex negotiations to make changes to the light rail system.

Role of investor profits, commercial confidentiality in P3s not examined

The Public Inquiry into the problems with phase one of Ottawa’s LRT system was looking at what went wrong with a specific project and how to fix it. With that in mind, it’s not surprising that the inquiry didn’t consider the role that investors’ profits and commercial confidentiality play in P3 privatization schemes. But, if the inquiry had looked at those issues, the report may have been far more negative about P3s.

Investors putting money into P3 privatization schemes are doing so to make a profit. And they expect those managing the project to do everything possible to maximize the returns on their investments. That means that there will always be pressure on corporations involved in P3s to cut corners to increase profits.

Another feature of P3 privatization schemes is the way “commercial confidentiality” is used to justify a high level of secrecy. Even when things work as they are meant to, key details about P3 projects are kept from the public. Commercial confidentiality is used to justify redacting or blacking out the most important information if contracts and other documents are made public.

Given that investor profits and secrecy are at the core of the P3 model, it is hard to see how the inquiry recommendation that the public interest take priority can be implemented when P3 privatization schemes are used.

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