Private companies violate public contracts

Saskatchewan’s provincial and municipal governments are increasingly turning to public-private partnerships, or P3s, to build and maintain important infrastructure. The argument goes that efficiency can be increased, and costs reduced, by having private businesses take on the public sector’s work. But in two recent examples, turning important tasks over to the private sector instead resulted in lost time, wasted money, and a lack of accountability for mistakes.

• In a September 8 story by CBC’s investigative team, it was revealed that the provincial government abandoned a $9.9 million low-income housing complex in Regina after the private developer asked the province to help cover cost overruns.
  When Deveraux Developments realized it had underestimated the cost of building the complex’s basements by about $400,000, it asked the Saskatchewan Housing Corporation to pay half that cost – even though the contract specified a fixed price, and the company admitted it was their mistake. The province refused to set the precedent of paying to fix private developers’ errors. It was also unwilling to face what the minister responsible called the “legal hassle” of enforcing the contract in court. As a result, Deveraux was allowed to return the $2 million start-up it had already been paid, and keep the finished complex.
  What was intended as low-income housing, with monthly rents starting at $326, will now be rented out at $1200 and up. The low-income housing project, which the government has already begun selling older low-income housing to pay for – will be delayed by two and a half to three years.
• Another CBC investigative story, from September 10, showed that Regina taxpayers had spent a year paying a private business for recycling services that weren’t actually being provided.
  Since July 2013, Regina homeowners have paid for blue-bin recycling services. A portion of their fees was passed on to Emterra, which is paid by the tonne to recycle materials –including glass. But Emterra had no plan for recycling glass food containers, and simply dumped such containers in the city landfill.
  For weeks, the city manager responsible for the recycling program gave CBC incorrect and ever-changing explanations, before it was finally admitted that Emterra was dumping the glass food containers it took in.
  CBC also found that most household glass collected by Loraas Recycle, which is paid by the City of Saskatoon to recycle it, ends up at the dump as well. While city officials told CBC that “a significant amount of glass” was being stockpiled and reused, Loraas explained that most of it ends up broken and is buried.

One of the main arguments used by P3 proponents is that prices are locked in at the outset, and cost overruns are borne by the private partner – but as the Deveraux case shows, that isn’t always true. Supporters also claim that oversight and accountability don’t suffer when infrastructure is built and operated through a P3 – but when Regina handed its recycling work to a private business, the city couldn’t or wouldn’t tell the media that a service was being paid for but not performed. Saskatoon officials similarly couldn’t deliver correct answers about their city’s recycling program.

Before Saskatchewan’s governments arrange for more megaprojects – like the $1.2-billion Regina Bypass – to be build and maintained through P3s, they should consider how the private sector performed in relatively small deals like the ones above.