Document No.

Public-Private Partnerships
(P3s):
Against the Public Interest
Public services and the public good

1. As some governments remain committed to

privatizing the work of the public sector, the
Canadian Labour Congress (CLC) reasserts the
important contribution the public sector makes to
building a strong Canadian society. The labour
movement is opposed to privatization, including
public-private partnerships, because it undermines
both the values and ethos of the public sector, and
the goal of enhancing the public good.

2. Based on principles of accountability, democracy,

and solidarity, quality public services raise living
standards, thus improving the quality of life for all
Canadians, especially working class people. Public
services are critical to the economic and social
equality of Canadians who have experienced
disadvantage — women, people of colour, Aboriginal
peoples, and people with a disability.

3. The public sector plays an integral role in the

Canadian economy by generating jobs and public
wealth which contributes to a healthy, growing
economy. It contributes to sustainable, healthy
communities. Business benefits from the public
sector as a result of a healthy, well-educated

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workforce, and an efficient administrative, regulatory

and legal framework. Quite simply, a dynamic
economy is dependent on a system of public services.
The ability of the public sector to meet broad social,
economic, and equality goals is dependent on a
strong economy.

4. The public sector is a good source of unionized jobs.

Unionized workers benefit from higher wages,
benefits and pensions, greater job security, and
protection from discriminatory treatment. It is an
important source of better paid jobs for women.
Women working in the private sector earn less, and
bear the greatest burden of the growing trend
towards poorly paid, part-time, contingent work. The
high degree of unionization in the public sector
strengthens the entire labour movement.

5. Investment in public infrastructure and public

services meets important social and economic needs
of Canadians. Yet, the effectiveness of this approach
to our economic and social well-being is being
abandoned by governments as they increasingly turn
delivery, control, and ownership of public assets and
services over to the private sector.

Minimizing the social responsibility of

government

6. Over the last 2 decades, the federal and many

provincial governments reduced the role of
government in the economy through downsizing,
privatization, and contracting-out public sector work.

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In doing so, elected politicians relinquished their

social responsibility for the well-being of citizens.

7. Public policies of deficit and debt reduction in the

1990s led to under-investment in public
infrastructure and cuts to social programs. A parallel
policy of personal and corporate tax cuts reduced
government revenues, diminishing the capacity to
address these urgent needs. Deepening poverty and
inequality reflect the social deficit created by those
policies.

8. The motivation behind privatization is linked to the

goals of corporate-driven, government-supported
neo-liberalism. Multi-national corporations are
determined to orchestrate the transfer of public
sector work to the private sector because they view
the expenditure of public funds as a source of
massive profits. This is purely an ideological choice.
Governments could choose to rebuild and expand
public infrastructure and social programs in ways
which maintain public ownership and control over
public assets and public delivery of services.

Public-private partnerships: what they are

9. The private sector has always played a role in

government procurement for the building of public
infrastructure such as schools, hospitals, and roads.
Traditionally, governments financed the project from
its revenues or public borrowing, but ownership and
providing the service was kept in public hands.

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10. Public-private partnerships (P3s) between business

and government are very different. They transfer
public control over services or infrastructure to
private hands. Even ownership can be transferred. In
all cases, democratic accountability is lost. Any
public service is fair game, including health care,
water, education, transportation, and a wide array of
municipal and social services.

11. The most unique element of P3s is private financing

in which the private partner, rather than the
government, borrows the money to finance the
initiative. While the private sector borrows the
money, governments and the public must pay back
the private partner for the principal sum and all the
borrowing costs. P3s are so attractive to the private
sector because they provide a stream of guaranteed
revenue and profit. In return, the public gets reduced
access to poorer services.

P3s undermine democracy and good

governance

12. Transparency and accountability are central to

democracy, but P3s undermine these principles.
Democratic values and the public interest are
subverted to investor and shareholder requirements.
Rather than speaking about the public good, the
language of P3s speaks to investor confidence,
confidentiality, and profit.

13. On the basis of commercial confidentiality, the public

is denied information before and after contracts are

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signed, including the full costs to be paid by

governments. Regional authorities, auditors-general,
and even elected politicians are denied access to the
information held by the private ‘partner’. The degree
of secrecy prevents public participation in the
decision-making process and makes it impossible to
evaluate the performance of the private partner.
Canadians have no way of knowing if they are getting
value for their tax dollar.

14. P3 contracts range from 25 to 40 years in length.

Some are as long as 99 years. Locking control of
public services in the hands of private business
means even future governments may be prevented
from changing the terms of the contract without
paying expensive penalties. Transferring the cost of
investment to future generations while limiting
democratic choice is profoundly undemocratic.

15. International trade deals undermine democracy. A

legal opinion prepared for Canadian Union of Public
Employees showed that local governments cannot
craft a P3 agreement that would be exempt from the
obligations in trade agreements such as the North
American Free Trade Agreement (NAFTA) and the
General Agreement on Trade and Services (GATS).
The rules protecting “investor’s rights” limit the
rights of public authorities and open the door to
backroom, undemocratic investor dispute processes.
Any government wishing to end a P3 would be able to
do so only by paying exorbitant compensation to the
private partners.

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16. P3s create relationships between governments and

the corporate sector that can undermine good
governance. The dynamics of capitalism regularly pit
the interests of businesses against the interests of
other groups in society, such as labour,
equality-seeking groups, or environmentalists. If
governments are business partners with a range of
business interests, they cannot be counted on to act
in the public interest. A large body of evidence shows
that P3s have led to fraud and corruption.

P3s are bad economics

17. Governments claim that they do not have the money

to make the much needed investment in public
infrastructure and public services. They say they are
unable to increase government debt and pretend that
P3s make investments possible without incurring
debt.

18. Debt is not avoided through P3 arrangements.

Private financing is government debt. It’s money
owed by government and the public to private
investors. What governments are doing is hiding the
debt by keeping it off the balance sheet. The
disguising of public debt this way has been criticized
by the International Monetary Fund (IMF). The IMF
has said that P3s create risk for government. When
this happens, it’s a public activity and should not be
outside the public sector budget.

19. In countries where P3s have become the norm for

delivering public services, including Canada,

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evidence shows that these partnerships cost the

tax-paying public much more than if the government
borrowed the money. Governments can borrow
money more cheaply than can private business.
Private shareholders expect a return on their
investment of up to 15% which increases overall
costs. Recently, a study commissioned by the Quebec
government concluded that it would cost $14 million
less to build and manage one long-term care home
publicly than to use a P3 arrangement.

20. P3 contracts are incredibly expensive to negotiate

which benefits mostly lawyers and consultants. They
often contain financial guarantees by government
which expose it to hidden costs. Contract re-openers,
for example, result in more public payment than
provided for in the original contract. The long-term
nature of P3s makes it almost impossible to conclude
a contract that anticipates future circumstances and
changing service needs. Any required change will be
far more expensive to negotiate than adapting
publicly owned and delivered services.

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21. Businesses receive tax breaks on public assets they

own, including assets owned for a defined period of
time. The capital cost allowance is one example.
Avoiding taxes on income earned with public money
benefits business, but the public loses.

22. Governments argue that P3s transfer the financial

risk associated with infrastructure or services to the
private sector. This has proven not to be the case.
Evidence shows that governments, workers, and the
public are left on the hook for cost overruns,
bankruptcy, incompetence, and inefficiency. When
180 million litres of sewage backed up into homes
and businesses in Hamilton, Ontario, the
government and the public paid the cost of the
clean-up, not the private partner. Last year, a
company named Ballast involved in building P3
schools in Scotland went bankrupt. It left behind
unfinished schools, unpaid workers, and a debt of
£164 million. Half of the debt is owed to workers’
pension plans.

23. Governments cannot transfer the responsibility for

the public interest. When a P3 fails, the government
must step in to secure important outcomes such as
patient care, clean water, sufficient electricity, and
safe roads. Corporations can just walk away, and
they do – leaving behind debt and dysfunctional
services.

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The quality of and access to public services

is reduced

24. The evidence is overwhelming that P3s cost the

public more, yet deliver poorer quality services. The
long-term nature of the contracts diminishes
accountability, providing an incentive for private
partners to maximize profit while minimizing
expenditure on service. Under public control,
responding to public concern or criticism is much
more likely to occur since politicians can be held
accountable to the public.

25. To maximize profits, private operators must find cost

savings, such as cutting corners in the building of
infrastructure. In a British P3 hospital, a “meals and
linen” clause requires the hospital to pay the private
operators extra if more than the stipulated number of
meals are eaten or bed sheets used. Lower staffing
ratios and multi-tasking has meant higher staff
turnover which inevitably weakens the quality of
service.

26. Where P3 contracts have been awarded in schools

and hospitals, lack of cleanliness has been a
problem, as has reduced levels of repairs and
maintenance in facilities. In one British hospital, it
was discovered that the ventilation system had never
been hooked up, creating the potential for serious
spread of infectious diseases.

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In Nova Scotia, which tried and abandoned P3

schools, it was reported that student drinking
fountains were dirty, as were halls and classrooms.

27. Where P3s have implications for public health, such

as in hospitals or water treatment, low quality of
service could have disastrous results. The tainted
water tragedy in Walkerton, Ontario, is a stark
example of what can go wrong when public services
are in private hands and high quality service is
compromised for profit.

28. Equality of access to services is a fundamental

principle, but some P3 contracts allow the private
operator to charge user fees. Those who need
services the most but who can least afford to pay out
of pocket for them bear the greatest burden of user
fees.

P3s are bad for workers

29. Internationally, unions and academic researchers

have documented the impact of P3s on public sector
workers. The evidence is compelling. P3
arrangements result in job loss, lower pay and
benefits, reduced pension protection, poorer working
conditions, fewer opportunities for training, and
more overtime. Evidence shows that workers are
being exposed to far greater health and safety risks.

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30. Public sector jobs have tended to be better paid in

terms of wages, benefits, and pensions primarily due
to the high rate of unionization. Women are
especially hurt when public sector jobs become
private sector jobs. This leads to increases in the
already onerous burden of women’s unpaid, domestic
labour.

31. Unions in the United Kingdom are fighting the

emergence of a two-tier workforce in which new
hirees are paid less and receive fewer benefits. When
contracts are renegotiated, there is immense
pressure to reduce the wages and benefits of the
workers previously transferred from the public sector
under the P3 deal.

32. The CLC stands for fair wages, pensions, and decent
working conditions. P3s undermine gains we have
made and make further gains more difficult. They
jeopardize equality gains in terms of pay and
employment equity, and respect for human rights.
Governments will be pressured by their business
partners to reduce employment standards and
collective bargaining legislation.

P3s and workers’ pensions

33. The large pool of capital in pension funds is already

being used as a source of financing for P3 contracts.
As such, the pension funds of working people are
being used to fund the privatization of public services
and infrastructure, and are directly contributing to
the loss of better paid, unionized public sector jobs.

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34. P3s can be lucrative investments for pension funds

for precisely the reason that they are bad public
finance and policy. They involve governments in
securing monopoly profits for private investors in
economic sectors where there is little or no direct
competition. To the extent that pension funds extract
money from taxpayers and the payers of user fees as
a result of P3 arrangements, the funds stand to do
well by their investments.

35. Pension funds usually approach these investments

as high risk parts of their portfolio because of a lack
of certainty. New governments might demand new
contract terms which make the relationship less
valuable to pension funds. While this may not be
good for pension funds, the labour movement
believes governments ought to be able to make
changes when it is in the public interest to do so.
Similarly, the public is well within its rights to
demand that governments end P3 deals which are
proving more costly and providing poor service, as
happened with P3 schools in Nova Scotia.

36. P3s are motivated in part by a desire to circumvent

union contracts. This contributes to downward
pressure on wages and salaries. Gaining a fractional
improvement in the rate of return for a pension fund
is easily offset if wage growth is limited in the process
or if jobs are lost before retirement.
37. Pension funds properly rely heavily on government
bonds to provide a secure, stable source of income.
P3s can reduce the supply of long-term government
bonds and undermine their value. If governments

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want to create investment opportunities for pension

funds, issuing more real return bonds would be far
more helpful than creating P3s, and control over
public services is kept in public hands.

Public services in public hands

38. We live in a world characterized by a drive to the

bottom in terms of wages and worker protection, and
a corporate desire to weaken human rights and the
rights of unions. The challenges ahead for both
human and economic development require a
strengthened and expanded public sector, not one
subverted by and beholden to business interests.
Public services in public hands is the only hope for
future development in which the public interest is
served and workers share the benefits.

39. The CLC is opposed to public-private partnerships

and demands that all levels of government reject
their use. The labour movement will fight the use of
P3s in every province and every community because
they undermine democracy and weaken the social
and economic rights of citizens.

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40. The labour movement sets out the following vision for
the kind of public services which will enhance the
public good:

• high quality services which meet the social

and economic needs of the public;
• full public participation in the
decision-making process;
• the highest standard of accountability to the
public;
• public money for services, not for profit;
• the promotion of equality goals through equal
access to services;
• the development of sustainable communities;
• maintaining public wealth and assets;
• decent pay, benefits and pensions, and
healthy working conditions; and
• ownership and delivery of public services
reside in public hands.

Cope 225

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