Public could be on the hook as private service operator seeks liquidation

The failure of Carillion is yet another example of how the myth that P3 privatization schemes save the public money by transferring risk to the private sector doesn't reflect reality.

Ottawa (16 Jan. 2018) — The filing for liquidation by Carillion Plc, a company heavily involved in P3 privatization schemes, could leave the public with a large bill.

Carillion Plc’s Canadian subsidy, Carillion Canada Inc is a major player in the privatization industry in Canada. According to its profile on the website of the Canadian Council for Public-Private Partnerships, “Carillion provides services and capabilities across virtually all the active sectors of the Canadian PPP industry, including health care, defence, road maintenance, power transmission and rail.”

Carillion running privatized public services in Ontario, Saskatchewan and Alberta

The P3 privatization schemes Carillion Canada runs include 10 hospitals in 2 provinces and one territory. These include the Saskatchewan Hospital in North Battleford, the Royal Ottawa Mental Health Centre, and the Brampton Civic Hospital. Like too many privatization schemes, there were problems with a number of privatized services controlled by Carillion.

The Brampton Civic Hospital P3 privatization scheme was found to have cost $394.4 million, or 64 per cent, more than originally budgeted. Just to be allowed to see key information about the P3 privatization scheme, OPSEU/NUPGE and other organizations needed to get a court order.

Carillion Canada also has contracts for highway maintenance for large parts of Alberta and Ontario. Carillion was fined $900,000 for poor winter highway maintenance in 2014, while the 2015 Ontario Audito General’s report linked privatization of winter highway maintenance to unsafe road conditions.

None of these problems prevented Carillion from receiving more contracts for P3 privatization schemes or other privatized services.

It's a myth that P3 privatization schemes transfer risk to the private sector

The failure of Carillion is yet another example of how the myth that P3 privatization schemes save the public money by transferring risk to the private sector doesn't reflect reality. When a company operating privatized services fails, it’s the public sector that has to fix the problem. Whether it’s bailing out the private company, finding another private sector service provider, or taking the service in house, there’s a cost involved — particularly as arrangements have to be made with little time to prepare.

It’s still not clear what the effect will be in Canada, but in Britain the government is already having to commit funds to cover the costs of services that were contracted out to Carillion.

Carillion debts likely to push up cost of  borrowing in P3 privatization schemes

Borrowing costs for P3 privatization schemes are already significantly higher than when public procurement is used. With the Carillion liquidation, those costs are likely to increase. Banks stand to lose £1.5 billion that they loaned to Carillion. It is safe to assume the banks will respond to this loss by viewing loans for privatization schemes as riskier and charging higher interest rates.

Workers take hit, while executives keep bonuses

At best, workers employed by Carillion face uncertainty about whether they will still have jobs, even though the services they provide are paid with public funds. Workers with a pension plan are worried their pensions will be cut. But one group of Carillion employees will be protected. In 2016, just before the company ran into financial trouble, rules were changed to protect executive bonuses.

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The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 390,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. — NUPGE