Q4 | Torys QuarterlyFall 2022

Economic infrastructure: the increasing collaboration between private and public sectors

Collaboration has always been a basic ingredient to complete any successful economic infrastructure project. To adapt a well-known phrase, it takes a village to build a village.

What has changed through the years is the extent of collaboration among project participants, and the model they choose to deliver these projects. The challenge of balancing public and private priorities and realities is arguably more acute with economic infrastructure projects than with other types of projects.

The next wave of economic infrastructure projects will demand next-level strategy but will ultimately navigate the public-private relationship more collaboratively—and will change the way public and private players approach project finance and delivery of these types of projects.

Modernizing P3

Projects in Canada have not always enlisted both public and private stakeholders. Railroads stand out as an asset delivered purely by the private sector, and power systems have traditionally been delivered primarily, if not exclusively, by the public sector and public authorities.

The most common collaborative approach in the space is the P3 model. Project participants have implemented P3s successfully in Canada—over 400 to date—and increasingly in the United States as well. Depending on the project, they have adapted P3 project development and finance approaches to best fit participants’ project mandates, their business needs and the project environment.

P3s may be deployed and adapted with greater frequency to support increased collaboration. However, while P3 projects have indeed proved successful, procurement approaches and contract terms have been progressively tightened, even in the context of emerging challenges including inflation, supply chain constraints and other market stresses. (For more on procurement, read “Bidder beware: the stakes are rising in government procurements”). As a result, parties have at times struggled to balance timelines, innovation and efficient transfer of risk on their P3 projects.

Part of the reason for greater collaboration between public and private sectors is the enhanced complexity of projects. Increasingly, projects need to layer in public policy imperatives that don’t necessarily drive economic activity by themselves.

Public and private sectors will need to collaborate in new ways. Procurement approaches and contractual models will build on the success of P3s while incorporating aspects of right-for-the- times models including co-development, alliances, integrated project delivery and joint ventures. At the same time, they may also design entirely new models to support all stages of the project lifecycle.

The impact of public policy complexity

Part of the reason for greater collaboration between public and private sectors is the enhanced complexity of projects. Increasingly, projects need to layer in public policy imperatives that don’t necessarily drive economic activity by themselves. Energy transition projects are one obvious example. Taxpayers, rather than project participants, may need to subsidize these broader societal goals. Two key public policy considerations raising the complexity profile of economic infrastructure projects are green infrastructure and Indigenous economic reconciliation.

Canada has committed to reach net-zero emissions by 2050, and this focus on climate change is keeping energy transition on the agenda of companies across industries. Economic infrastructure is leading the way among infrastructure asset classes for two reasons. One, power is both a key economic infrastructure category and an area of focus for net-zero concerns. Additionally, because infrastructure is built to last, the project decisions made today—including everything from how emissions are handled in the development stage to how a project is powered once it is completed—will impact the long term—to 2050 and beyond.

The historical model for working with Indigenous peoples has also evolved. Projects have shifted from the traditional model of consultation to one of empowerment. The general principles of consultation remain the same: to know the communities involved and understand their realities. But their application has shifted to offer a greater stake to Indigenous communities—in governance, planning and in acquiring equity.

Public-private collaboration at a critical time

The trend to increased collaboration comes as economic infrastructure projects are on the rise, another key trend shaping the future of the sector.

As the economy emerged from the shock of COVID-19, economic infrastructure loomed as a source of great opportunity. Both in Canada and the United States, industry insiders identified this asset class as a shortcut to pivot from COVID recovery to post-pandemic prosperity. Governments are also constrained economically and fiscally, one reason why they have become more open to user-pay projects.

These two economic factors amplify one another. Success in public and private sectors’ ramping up of economic infrastructure will work to increase economic prosperity as countries look to stabilize their economies—while also fueling the social infrastructure and the social programs that support all members of society.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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