Potential Pitfalls of LRT P3

This Tuesday at 6pm is the staff presentation and public meeting on LRT procurement and delivery — or, how much of the project is going to be in the hands of the private sector, and for how long. Details on time, location, and how to sign up to present are available here. Whether or not you wish to present at the public meeting, consider contacting Councillors directly or through our web form to let them know what you think.

In the recent Kitchener Post, TriTAG’s Tim Mollison brought up some of the issues that need to be considered prior to a decision for an extensive 30-year design-build-finance-operate-maintain (DBFOM) contract. I’ll discuss some more here.

Probably the biggest problem with a P3 arrangement for Waterloo Region’s LRT is that it would result in higher barriers to expansion of the system in various ways. This applies to the extension to Cambridge and especially to other lines. Extensions are not far-fetched in the slightest, as shown by the success new LRT systems have had in growing North American cities. Moreover, the Region is not only growing, but engaged in some of North America’s most stringent growth management and reurbanization policy. On top of that, demographics, gas prices, new technology (read: smartphones), and a new-found taste for urbanism are changing the attitude to transit in general. Which is to say, the Region will want to expand the system, so we better make sure we’re not committing now to make that expansion difficult or expensive.

Having two operators on the first phase and on the extension to Cambridge would be untenable. So it already becomes a difficult question of how to ensure that builder / operator of Phase 1 do not force the Region into accepting an expensive contract for the second section, and whether this is really possible. Some of the possible approaches were referenced in last Tuesday’s Deloitte presentation. If a second company built the Cambridge extension, a second maintenance facility would apparently be required to satisfy the contract with the first company. This is rather wasteful, as maintenance could be handled more efficiently by expansion of the initial facility. Requirements like this artificially increase the cost of expansion.

On the one hand, using private companies to build and operate the line ostensibly means that expertise can be brought in when needed, and only when needed. On the other hand, this means that expertise in LRT construction, operation, and efficiencies thereof will never be gained by Waterloo Region. If we’re in for the long haul, we’re going to be building more than one line and we would benefit from developing in-house expertise in LRT construction, maintenance, and operation. The more of that there is, the easier and cheaper it is to add to the LRT network later. If we remain dependent on the private sector to do it all for us, this is effectively deciding that we don’t plan on building much LRT.

Private operation as a 30-year contract is problematic because it locks us into one operator who can make extension difficult, and a contract which may become uncompetitive ten years down the line. Shortening the operating contract length to 5 year increments is one way to address this. But any private operation of LRT has one certain downside, which is the separate labour pool between the LRT and Grand River Transit. Were the Region to operate both systems, it would be able to train some drivers to drive buses and trains, allowing it to have a smaller reserve of spare drivers. This is an efficiency not possible otherwise. Given the consultant’s suggestion that a private operator’s labour rates could be set by the Region, it really is not clear that private operation would be a good deal for taxpayers.

Given all the flexibility Waterloo Region says it wants to build into any contract to set its own schedules, headways, and so on, it’s not clear whether there is much room for that mystical private sector efficiency to be found — particularly since the ultimate price needs to include profit and the higher cost of private sector financing. Deloitte’s “value-for-money” analysis which motivates the Regional staff P3 recommendation has not and will not be publicly released, and thus is not open to public inquiry. We have no way of verifying that DBFOM really is a good deal, and neither does Council.

Will the Region retain control over advertising (or the lack thereof) on vehicles? (Or will we find out that our system has been turned into a billboard on steel wheels to profit a private company?) Just how much control will the Region have over schedules and headways? Even more importantly, how easily (and at what cost) will the Region be able to increase frequency and add new trains into the system?

These are not easy questions to answer, but every single aspect needs to be built into any contract, or else we get taken advantage of — maybe 5, maybe 15, or maybe 30 years down the line. And while long-term transit P3’s may work in theory (and fail in certain cases, claimed to be avoidable), there really are very few examples out there for whether they really deliver on all the promises by the end of the contract. We don’t know exactly what can go wrong, or what loophole might be found in the contract.

And this is one reason why the Region’s LRT time frame doesn’t have any shovels in the ground for another two years. That’s how long it will take to (very carefully!) write out contract requirements, have consortia form and bid on them, meticulously determine a winner, and only then proceed with any work. And it might even be ambitious. But dragging it out until the next municipal election is dangerous territory.

This is where a more traditional scope of private sector involvement could pay off. If the Region only needs to specify what needs to be done now, not how to protect itself from a 30-year contract going bad, it could get shovels in the ground next year, and start learning what it needs to know to keep on building after the first LRT phase starts running.