BC’s Auditor highlights big differences between the Evergreen and Canada Lines

With all of the uproar over the British Columbia Auditor General’s report on the Pacific Carbon Trust in late March there was a second report that didn’t get as much attention as it deserves.

The AG issued his report on the Evergreen Line being built through Coquitlam and Port Moody on March 28th.  Compared to the earlier report, this report didn’t seem terribly controversial finding, as it did, that the choice of a SkyTrain system for the line and the way it was being built probably made sense.

However, the report gets more interesting if you compare its findings with the way Vancouver’s $2 billion Canada Line was built.

The Canada Line was built as a Design/Build/Finance/Operate public private partnership.  The private partner put up roughly $700 million for the project and will be paid back over the 30 years that the private partner operates the line.  The Canada Line uses different technology than the rest of the SkyTrains in the lower mainland.  Trains cannot run on each other’s tracks and there is a different control system.  As is usual in P3s, the $700 million in private financing comes at a significantly higher cost than if the government had just borrowed the money itself.

The arrangements for the $1.4 billion Evergreen Line are starkly different.  It is being described as a public private partnership but the operation of the line will be integrated into the rest of the system, with the exception of the Canada Line.  There is private money involved, but it is only for the duration of construction and will be paid off as the line is completed.

The Auditor General approved of the arrangement saying:

The procurement decision was simplified because it did not make economic sense to operate and maintain the Evergreen Line as a long-term P3 separately from the rest of the SkyTrain network.

And

We found that MOTI (Ministry of Transportation and Infrastructure) and PBC (Partnerships BC) demonstrated that a short-term P3 arrangement, covering the designing, building and financing of the Evergreen Line, best meets government’s policy objectives.

The expected costs and risks of building, operating and maintaining a SkyTrain extension were clearly presented and provided a solid basis for government’s decision to:

•  reject a longer-term P3 arrangement, including operations and maintenance, because of the integration and efficiency benefits of having one operator across the entire SkyTrain system

Now consider how this compares with the Canada Line.  Does it make sense to operate the Canada Line as a long term P3 separate from the rest of the system?  Where are the “the integration and efficiency benefits of having one operator across the entire SkyTrain system?”

And then there are the literally hundreds of millions of dollars we will pay for the additional cost of having the private sector finance $700 million of the Canada Line over the life of the contract that could have been saved using the same short term arrangement now being used for the Evergreen Line.

Back in 2004 the provincial government pressured the TransLink Board into going with the long term P3 on the Canada Line.  The decision to reject that model today says a lot about how well that is working out for them.

By the way, just because the Auditor General approved the outcome of the Evergreen Line process does not mean he was happy with everything.  He also said:

The business cases used to inform decisions should have included a well-developed framework describing the project outcomes and how agencies intended to measure and report on these. For Evergreen, the performance framework was underdeveloped at the time government made these key decisions.

And

Despite these gaps and weaknesses, we also concluded that the preferred SkyTrain option is likely the best one to meet government’s objectives. However, this conclusion relied on information that was not presented or adequately explained in the submission to Treasury Board.

Getting this right despite the information shortfalls is not a cause for complacency. Relying on the same approach in future capital asset projects puts government at risk of making decisions that would have been modified had government understood the full costs, benefits and risks. In the case of the Evergreen Line, we found that neither business case informed government decision-makers about the ridership risks or how they would be managed.

One other curious thing.  Partnerships BC’s March 2013 Value for Money Report on the Evergreen Line states:

The project is expected to achieve significant value for taxpayer dollars.  In financial terms, the value for money is estimated at $134 million (net present cost) when compared to the Design Build Comparator.

In other words, the Partnerships BC report says using the Design/Build/Finance P3 will be about ten per cent cheaper than straight public procurement using a Design/Build model.

However, the Auditor General’s report, also issued in March 2013, says in fact the costs were very similar.  He continues that the Ministry of Transportation and Infrastructure and Partnerships BC

Estimated that the discounted, risk weighted cost of the P3 option would be $25 million (or 1.75 percent) below the equivalent cost of design-build procurement.

Leaving aside the dubious assumptions about risk that always end up justifying a P3, the question remains: How did the difference in cost fall from ten per cent to less than two per cent for two reports issued in the same month?

Here’s another question: is this any way to run a railroad?

Topics: Provincial budget & finance