European audit finds P3s have “widespread shortcomings and limited benefits”

European audit finds P3s have “widespread shortcomings and limited benefits”

An audit has found European P3s “suffer from widespread shortcomings and limited benefits.” The European Court of Auditors report concludes P3s “cannot be regarded as an economically viable option for delivering public infrastructure.”

The European Union’s financial watchdog looked at 12 projects involving roads and information technology in France, Greece, Ireland and Spain. The review found P3s wasted money, underwent “inadequate analysis,” did not speed up project delivery, lacked transparency, and didn’t always transfer risk to private corporations. Detailed findings include:

  • $2.41 billion in “inefficient and ineffective spending;”
  • a lack of competition for large contracts, which put public authorities in a weak negotiating position;
  • projects going ahead as P3s without showing privatization was better value for money than a fully public project;
  • significant delays in projects getting underway, due to complex P3 contract negotiations; and
  • “major” cost overruns and construction delays of up to four years for completed projects.

The European Court of Auditors (ECA) also warns that decades-long P3s are “poorly suited to the rapid pace of technological change,” locking future governments into contracts that are expensive to change or cancel.

The ECA report notes that governments may be tempted to use P3s to keep project costs off their balance sheets, biasing governments in favour of privatization even if the long-term costs are higher for the public. CUPE has highlighted this problem and is calling for changes to accounting rules in Canada.

The UK’s National Audit Office (NAO) also flagged the short-term accounting incentives for governments to use P3s, in a wide-ranging review of P3s published in January 2018.

Despite 700 P3 projects, the NAO found “a lack of data available on the benefits” of this mass privatization. The report also reiterates earlier criticism that “value for money” assessments of UK P3s are biased in favour of privatization.

The audit, released as British privatization giant Carillion was collapsing, concluded that “on budget” claims of UK P3s, known as PFIs, did not mean construction costs were lower than for public projects. Construction costs can still climb from initial estimates to the final P3 contract being signed – as the NAO found with P3 housing projects.

The NAO found “no evidence of operational efficiency” in UK P3 hospitals. In fact, it found the cost of cleaning and other services in some hospitals was higher.

The report also questions the claim that only privatization can deliver higher-quality maintenance of public facilities. P3 hospitals spend more on maintenance because long-term contracts lock in the funds. That’s not a private sector innovation, it’s just planning. The public sector can plan and budget for long-term maintenance of public assets, where governments have the political will to do so.

The criticism of P3s from government spending watchdogs is piling up. The landmark 2014 audit of Ontario’s P3 program identified many of the same systemic problems as the ECA and NAO reports. A 2017 follow-up report found many problems persisted, and uncovered new issues with P3 hospital maintenance.

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