Commentary: Million here, billion there, infrastructure cost overruns add up

by Dermod Travis,

 

Something is amiss when infrastructure projects routinely overshoot their original estimates by millions – and sometimes – billions of dollars in B.C.

It isn’t rounding errors. It’s sloppy estimating, bad procurement, ill-conceived plans and often a lack of a boss where the buck stops on some projects.

Back in January 2009, the B.C. government announced that it had reached “an agreement-in-principle for a public-private partnership with Connect BC Development Group to expand the Port Mann crossing and widen Highway 1.”

The government reserved the right to enter directly into contracts with “consortium members should a privately financed arrangement not be concluded.”

On February 27, the government disclosed it had been “unable to reach definitive agreement on final terms” with Connect BC and instead had entered into a “fixed-price” contract with Peter Kiewit & Sons and Flatiron Canada to design and build the new bridge and highway improvements.

The province also engaged “Macquarie Group to provide advisory services.”

Other winners in the deal: CH2M Hill who provided “procurement, technical advice and program engineering,” MMM Group who – in a joint venture – was “responsible for the onshore design,” and BA Blacktop who was the “designated paving subcontractor.”

In a remarkable coincidence, 10-days before the government made its announcement, the B.C. Liberal party reported receiving – on the exact same day – cheques of $5,000 each from the following companies: Peter Kiewit & Sons, Flatiron Canada, Macquarie Group, CH2M Hill, MMM Group and BA Blacktop.

On its website, Kiewit writes that the old “Port Mann Bridge was the primary route across the (Fraser) river, serving more than 800,000 vehicles in a single week,” but it “couldn’t keep pace with the growing needs of the region.”

They solved that problem. So far in 2015, the “world’s widest bridge” has carried less than 685,000 vehicles per week.

The bridge was part of the government’s Gateway plan announced in 2006.

The original estimate was $3 billion, which included $800 million for the Port Mann Bridge replacement, $500 million for widening Highway 1, $400 million for the North Fraser Perimeter Road and $800 million for the South Fraser Perimeter Road.

Estimates the government was still using 21-months later.

There was even a $300 million contingency in case of cost overruns. May have been a typo, the projects overshot those estimates by more than $2 billion.

Call it cost creep.

The Port Mann was budgeted at $800 million. Then highway improvements were tacked on and it became a $1.4 billion project, then $1.6 billion and up it went to $2.7 billion, $3.1 billion and, finally, to $3.32 billion.

And the government boasted it had signed a “fixed-price” contract.

The Crown corporation that owns and operates the bridge – the Transportation Investment Corporation – is today $3.61 billion in debt or $610 million more than the original estimate for the entire Gateway plan (including that $300 million contingency).

It’s not the only infrastructure project to overshoot its budget.

Of eighteen projects announced by the B.C. government since 2003 – all with initial cost estimates of more than $150 million – nine hospital projects have already exceeded their original estimates by 12.6 per cent, seven transportation projects are running 59.2 per cent over budget, and the Vancouver Convention Centre and BC Place re-roofing together came in 68.1 per cent over first estimates.

More worrisome? One of the seven transportation projects isn’t finished yet and it’s not looking good.

The Evergreen Line is beset with mechanical problems. There may be smiles all round in public, but behind the scenes officials are gritting their teeth, because the boring machine isn’t gritting its.

Yet – despite all the cost overruns – the same companies keep showing up on job after job.

One company – MMM Group – ended up working on all seven of the transportation projects, CH2M Hill and Kiewit who worked on three each.

MMM Group, recently acquired by WSP Global, is now the government’s engineer on the Massey Tunnel replacement project.

So why not more uproar?

Might have a bit to do with the government treating “on budget” as a moving target by continuously revising them to make them so.

Isn’t really cricket though.

And those fixed-price contracts, they’re not so fixed after all, at least on price.

 

 

Dermod Travis is the executive director of IntegrityBC. www.integritybc.ca

 

 

September 8, 2015