Why Aren’t The Capitalists Backing Regina Water Watch? An Interview With Mayor Michael Fougere

Regina Water War - Referendum 2013Hey Regina. How’re things? I’ve been on holidays. Sorry, booked them long before you decided to kick your autumn off with a “referendum.” Mind you, I left detailed instructions with our esteemed editor, S. Whitworth Esq., about stuff that needed covering on the waste water sewage P3 vote but apparently he fukken ignored them.

In my absence, I hear Chad Novak has been scooping the hell out of us on the referendum front. I wouldn’t know. My first week of holiday was spent in the Narrow Hills without any access to the internet. I read a book. It was a great experience. These books they make out of paper nowadays are awesome. I predict they’re totally going to overtake laptops and iWhatsits as text readers. I can’t believe I used to do all my reading on a backlit screen.

How primitive.

Anyway, since I got back to civilization — such as it is — I’ve been doing the domestic bliss thing, paying exclusive attention to first days of Grade Two and waffle making. And as for the internet, if it was about something other than comic books, I didn’t read it.

Then the other day, our next door neighbour put up a “Vote Yes” sign on their lawn and I thought, “Ah shit, right. Referendum. I should write something about that.”

Fortunately, I had something in the can all ready to put on the web and here it is! An interview with our mayor, Michael Fougere about P3s, private companies and profit margins returns on investment.

But first, a bit of background… For our Labour Day issue, I did a couple pieces on the waste water sewage P3 and spoke with the mayor about the possibility of other funding sources  if the Yes side wins and the P3 doesn’t happen. (Spoilers: He says there aren’t any. We hear that things might not be so clear cut.)

I asked him a couple other questions that were off topic for that article and thus didn’t write about them then.

First of all, I was wondering, if this public-private partnership is such an awesome deal for the city and so superior to the traditional way of procuring a project of this size, why aren’t all those waste water treatment corporations secretly funding Regina Water Watch? (And as far as I’ve been able to determine, they aren’t.)

I mean, if the P3 deal is so slanted in our favour — as it appears to be, based on the city’s media campaign — surely the Forces of Capitalism would be doing everything in their power to undermine the No side? That way, they could bid on a traditional Design Bid Build contract, charge us whateverthefuck they want, finish the project wheneverthefuck they wish and make off with buckets of risk-free cash.

So I asked him about that… leaving out the “whateverthefucks” of course. I could tell by his answer to my first question that Fougere was trying to decide if I’m an idiot or just pretending to be an idiot.

To be honest, I’m not sure which it is either.

I was also curious about how exactly water rates will be set so as to compensate the private partner and also about the process by which the private partner will communicate with council. As you’ll find if you read to the end of the interview, he suggests that I talk to deputy city manager Brent Sjoberg to get details about all that.

Now a gung-ho stallion of a city hall reporter would have tracked down this “Brent Sjoberg” and kept him on the phone for half-an-hour then chained his sorry ass — the sorry ass of the gung-ho stallion of a city hall reporter, that is — to a chair this weekend and typed up a verbatim transcript of that interview intent on posting it shortly to this website, unconcerned by the fact that nearly no one in this city will ever even know that this interview exists, let alone bother to read it.

Sadly, I am no gung-ho stallion of a city hall reporter. I’m a lazy toad.

But now, without further off-topic, caffeine-fueled blather, here’s an interview with your mayor from three weeks ago…

* * * * *

Prairie Dog: We hear how with the P3 the risk of the project is transferred to the private company, they’ll have to eat any cost overruns. It sounds like a “get our cake and eat it too” situation for us. Why would a private company want to enter into a P3? What are they getting out of it? 

Mayor Michael Fougere: [long pause] What do you think they’re getting out of it?

PD: That’s kind of my point.

MF: They get a return on their investment. They get a return. They also have a contract for 28 years to 30 years to maintain and operate it. That’s a long term [inaudible].

PD: Right. But their return on investment in a Design Bid Build [DBB] wouldn’t include risk transfer. I would think private corporations would be funding Regina Water Watch on this referendum but they’re not.

MF: But if you look at the the DBB one, there is no cost containment on there. You’ll never be able to cap a cost because it’s cost plus. They can come in at a higher bid. There’s cost plus this as you go along. What the Chamber [of Commerce] mentioned and I tend to agree with this is that seven per cent of public sector construction is over budget on traditional tendering. That’s a concern. I’d be very concerned that DBB would be higher at the end of the day than what you get at the beginning. So that’s a big issue. The rate of return who knows what it could be 20%, 30%, who knows? You never know because you don’t have that agreement to say that this price to build it if you want assurances that you will cover the costs if you’re over budget or over time. And that I think is a prudent way for government can have that that’s great.

PD: But from where I’m standing, private companies are losing a lot, taking on risk, losing control…

MF: No they’re not losing anything. I don’t know why there’s this assumption that they’re going to lose. They wouldn’t bid if they were going to lose. The point is that there’s significant amount of interest from companies to build this.

PD: Maybe what I’m saying is they’re taking on more responsibility on this while arguably their ability to recover their investment goes down.

MF: They’ll determine their profitability by the competitive process. They’ll determine how much they’re going to want a rate of return, and they’re going to say what to build this into. They do a DBB or this, there’s always a rate of return, they have to have that. There’s going to be a competitive process knowing there’s a cap on the overall project. The construction. They’re going to be able to make that determination themselves. They just need to know that they’re going to have to find innovation, they’re going to have be efficient in building it so the return is there. But they’re going to have a cap on it.

On the other one, there is no cap. So where is the discipline for them to do that? There’s no discipline.

Very important distinction. That’s why we didn’t go with a DBB because there isn’t a cap, there isn’t assurances ont hat one. There is risk transfer for us. yeah, we’re certainly going to contain them with what they’re doing, but we also have the cap on the cost.

PD: The return on investment is built into the costs of how much they’re going to build the plant for?

MF: Yeah. I’m assuming that’s what they’re going to be doing. They want a return, they want the profitability. That’s based on their bid process, what they want to receive for a term. But they also know there’s more companies out there bidding on this as well so they have to sharpen their pencils and say what do we need here?

PD: And there’s a return on investment built into the rates that are set for water pricing?

MF: Yeah, there is a scheme for that. I don’t have that detail. i can get that for you. There is way but we set the rates so they can’t say to us that the rates are wrong because you want something else because we set the rates they won’t do that.

PD: But when you set the rates, you’ll be doing that in consultation with whoever is in control of the plant?

MF: We’ll be watching, we’ll be monitoring them. No doubt about that. We’ll be monitoring what they’re doing.We’ll be ensuring that they’re doing the work they’re supposed to be doing both maintenance and operating it. And that they’re actually following the emissions standards that are set by the province. If they’re not doing that or they’re showing things that are improper or that are not following what we want, we have the right to remove them as well.

PD: When it’s time to set water rates and do budgets, would it be done similar to the way that the library board comes forward with an annual report. Would the waste water consortium do the same thing for council?

MF: It would be different in one sense. But probably I could get Brent Sjoberg to call you. He can probably give you more details on how that looks. But essentially, we will be watching what they’re doing, so we’re not just turning a blind eye. We’ll be watching what they’re doing and the rates will be set based on what’s in the contract and what’s there and you know all those things from rehabilitation, replacing parts that are built into the modelling and they have to follow it or they don’t get that. We set the rates, we have the authority for that.

Author: Paul Dechene

Paul Dechene is 5'10'' tall and he was born in a place. He's not there now. He's sitting in front of his computer writing his bio for this blog. He has a song stuck in his head. It's "Girl From Ipanema", thanks for asking. You can follow Paul on Twitter at @pauldechene and get live updates during city council meetings and other city events at @PDcityhall.

16 thoughts on “Why Aren’t The Capitalists Backing Regina Water Watch? An Interview With Mayor Michael Fougere”

  1. “they’re going to have to find innovation”…I didn’t know it was that easy. Why doesn’t everyone “find innovation”; is substandard building innovation, or paying your employee shit innovation, or finding ways to charge more for a basic city service innovation? Since, from what I know, all those things have been done before and are not innovative. Innovative would include R&D and perhaps social structures that have not been tried before. None of this sounds innovative to me.

  2. I’m going to address this to Mr. Fougere, hoping against hope that he actually reads this.

    Firstly, I wish I could ask you this in person, so that you would know that I am genuinely interested and curious about your answers and not being facetious or smartass in any way.

    It appears to me that everything you’ve said supports Dechene’s question and doesn’t really answer it. From a purely business standpoint, it appears that the traditional DBB method is a tremendously better option for the contractor. Effectively, what you’ve said regarding that is as follows:

    The winning contractor bid $25 to do a job, but after he’s started the job, decides that he’s not making as much money as he wants, so he has to charge $30, and is able to do so. This continues until completion, whereupon the city discovers that the final charge is $125 for what should have been a $25 job. The contractor makes WAY more and the city can’t do much about it.

    Going about it the P3 way, the winning contractor has bid $25. After the job has begun, he decides he can’t make the amount of money he thought he could so he tries to charge us $30. The city says “NO WAY, JOSE!” and the contractor has to eat it.

    Is that sorta kinda the way it works? If so, what business in its right mind would participate? I’m sure that there will be allowances for cost overruns and such…negotiated and decided upon by all concerned, etc., etc. but it sounds to me like there is a huge risk to the private contractor that, if his material costs go through the roof unexpectedly, he risks going broke on this job.

  3. Fougere’s responses are all bafflegab nonsense.

    Either he doesn’t even understand the full implication of the p3 deal, or else he does and he wants to make damn sure nobody else ever does.

    Capping the construction cost is just a distraction. P3 or no P3, we can have a fixed cost build.

    Of course nobody mentions that fixed cost just means “higher price” to protect whoever is actually responsible for obeying the cap.

  4. I wish you’d questioned Fougere regarding the city’s most evil tactic, their widespread threat of higher water bills in the form of “vote no to paying $276 more for water”

    This voodoo fee is a devilishly calculated tactic to buy no votes from the same people who are fed up with the being gouged for the last 10 years to help building up a massive water plant surplus that was supposed to pay for this thing.

    Where did that money go? Why are we bending over for a private corporation to build us a plant when we already saved up more than enough? Where did that money go (cough, stadium, cough)

    But even though the $276 is a hollow threat, the worst case scenario is it goes away in 3-4 years.

    But the p3 option will mean upcharges on water bills that will last for 30 years, and probably longer.

    What’s better? Paying $276 for 4 years to keep our water bills low, or paying $276+ every year for the rest of eternity to feed a private water corporation’s profit column?

  5. The mayor’s responses have always been bafflegab to me, and I’ve never figured out if it’s actual bafflegab or I’m just slow on the uptake. I can’t understand why a company would enter into an agreement in which the construction costs are capped and overruns absorbed by them, and the other party owns the plant and sets the rates that they can charge for operations. Yet that seems to be what he says every time. Obviously I don’t understand what he’s saying, and that’s my fault, but then he sort of talks fast and mumbles too, so that’s his fault.

  6. Paul – wish you would have asked Fougere about the hidden issue that his plan is to kill the jobs, shifting them to the private operator. Never mind the workers who will be harmed when their jobs get degraded, the other city workers will also suffer as their pension gets sliced yet again when water workers get outsourced.

    We’ve already had a taste of how Fougere’s privatization method works when he privatized half the garbage division by letting Loraas start doing for-profit blue bin pickups.

    The City “manages” that too, and somehow our reycling fees are twice as much as they should be.

    Watch your local green and blue bin pickups for a vivid example. The garbage drivers are quick and skilled, while the Loraas blue bin drivers are terrible.

    Guess what? Loraas hires low skill drivers for low pay, yet gets to charge us top dollar thanks to Fougere and the city giving them a sweetheart profit-based monopoly recycling contract.

    Experienced truck drivers can’t even apply to Loraas because they use the TFW loophole to make sure the jobs stay low pay and low benefits, and that nobody contributes to the city pension fund.

    Sounds exactly like how Fougere wants to outsource half the water division… worse service at a higher price.

    Everybody’s been duped into talking about insignificant stuff like whether the building will come in a couple million over or under budget, meanwhile some private company is looking at booking a hundred million or more if they get to be the Loraas of the the water department’s job killing p3 exercise.

  7. Here’s what I think about the city setting the rates. The city gets to set the rates they charge the citizens, the operating company gets to set the rates they charge the city. I think the city will make sure to cover the cost.

    Paul, did he really say that seven percent of public sector construction comes in over budget? Because that means that 93% comes in at or under budget, which is an A+ by most reckoning. Maybe he meant to say 70% but mumbled.

    I wonder what private sector construction budget versus actual costs are. I’ll bet they’re worse, and I’ll bet we’ll never know.

  8. Glenn – Not sure if you knew this, but Fougere’s main job is president of the construction association. Yes, he still kept his old job while his industry’s donations and votes bought his positions as councillor and now mayor.

    Being the mayor is kind of his side gig, so he makes sure that he still does everything possible to protect construction companies interests and keep their profits flowing.

    The mayor’s promise to “manage” the private profit water fees is hollow.

    Look at how they “managed” our recycling fees to be the highest in Canada. And instead of providing good City jobs to do recycling, now a private company Loraas makes a huge profit off all of us thanks to their monopoly and bylaws that forbid anyone from opting out.

    I’ve heard some rumours of who is behind Loraas, the private company that’s now making profits off our increased garbage fees, but I’d like the Prairie Dog to confirm those.

    Nobody should care who owns the water building, because that too is a smokescreen. It’s like hiring a construction company to build you a house, and fighting over who gets to own the table saw at then end when it’s all worn out.

    Fougere’s plan will make water a private profit center for some company just like he did with our garbage.

    Taxpayers would be be far better off if we keep our garbage, water, and other city services non-profit.

  9. Glenn – no matter what construction association president Michael Fougere says, the water rates will have to be set with a fat profit margin for his private corporation buddies.

    If we don’t, they’ll simply walk away and leave us holding the bag. That’s what happened in various other P3 water fiascos. It won’t happen here though, because Fougere and this council will cheerfully grant them fat profit margins. Those are some of the numbers they are refusing to release until after the vote.

    They already proved this with how they did the recycling fees.

  10. Riandras – you are sort of correct with how fixed price works. Except the bid for $25 job isn’t $25 when a fixed price is required. The bid is for $30. That way the contractor knows that even if the $25 job goes a bit over, they have built in a nice cushion.

    On the surface, everybody is happy (except the taxpayer). The contractor makes extra unearned profits, and the politicians get to brag that the job came in “on time, on budget” – even though the reality is that the public was overcharged.

    What can also happen is “innovation” by the contractor in the form of shortcuts which can sometimes be dangerous. Use some cheap pipes instead of expensive ones. Use 5 nails per shingle instead of 10. Nobody will know, and the contractor pockets the difference. Any issues that develop will be somebody else’s problem, in the future.

    The city is slashing the jobs, so there will no longer be anybody on staff that actually knows about water treatment, so the private operator can BS us all they like over the next 30 years.

    That’s how fixed price builds work.

  11. There’s skillful political bafflegab, then there’s the pompous, head-shaking “whatever, pls just shut up” bafflegab we get from Regina/Saskatchewan public figures, wanna-bes and failing miserably at it (and they don’t even know it). That said, I find less random BS in this interview than normal from MF, less of repeating your question or statement back to you in the form of a supposedly original thought and/or supposed answer than usual and less just straight-up mumbo-jumbo. He sounds more defensive than usual.

    If Brad Wall ever faced anything besides good fortune on the international resource markets I’m sure we wouldn’t think he was such a sweetheart either.

  12. What would compel a private company to “assume all the risk” (lets not fool ourselves; rate payers will remain ever on the hook)? I’m guessing an interest fee surcharge to the client. Ie – the bank charges 5% interest on the corporate loan. Meanwhile, the private corp charges 7% to the client. Conjecture on my part, yes, but I do own a small, incorporated business, and this setup is how I would establish the venture.

  13. Reader, Mayor Fougere is no longer president of the SCA. That role belongs to a Mr. Mark Cooper. http://www.dcnonl.com/article/id54659

    Having said that, I’d be very surprised if there wasn’t a red phone between the two offices.

    Having said that(!), Mr. Cooper has publically expressed reservations about P3s.

    So, make of it all what you will.

  14. Hey everybody,

    I’m working on stuff so I don’t have time to read every comment (especially the brutally long ones… Reader, I’m looking at you). But I was scanning down the page to see what kind of discussion was developing and noted at the end pc asking, “What would compel a private company to “assume all the risk?”

    Well, the private partner won’t be assuming ALL the risk, as it turns out.

    In a follow up interview I just posted, city manager, Brent Sjoberg, discusses what kinds of risks the private partner will be taking on and what risks the city will retain.

    http://www.prairiedogmag.com/no-really-capitalists-should-totally-be-backing-the-yes-side-amirite-an-interview-with-brent-sjoberg/

  15. pc – thanks for the update regarding Michael Fougere.

    Has he actually left their employ completely?

    Excuse my skepticism, but considering he was taking Construction Association pay while also voting on numerous conflict of interest items on council for 5 terms.

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