The largest infrastructure project in Calgary’s history is undergoing pressures of cost escalations due to a volatile market, according to project management.
The city’s executive committee received a first quarter update on progress on the Green Line LRT project on Tuesday.
According to a presentation from Green Line board chair Don Fairbairn, the project is mostly on schedule so far, but there are concerns over costs and schedule updates.
Fairbairn told committee that there have been delays with procurement for the utility relocation project in the Beltline and downtown core to make way for a tunnel.
In terms of cost escalation, Fairbairn told committee that every half a per cent increase is the equivalent of $100 million.
The $5.5-billion project has been divided into stages, with the first stage set to run from Shepard in the city’s southeast, under the downtown core and bridging over the river to 16 Ave N.
However, Stage 1 has been split into phases, and cost escalation risks have raised concerns about the city’s ability to build the second phase across the river from Eau Claire.
“We have a low level of confidence in our ability to deliver all of Stage 1 within our available funding,” Fairbairn told committee. “We are committed to managing costs and risks and to building phase one from Shepard to Eau Claire, and if possible, from Eau Claire to 16 Ave N.”
According to the project’s CEO, Darshpreet Bhatti, the main concerns with escalations are due to a “volatile market” due to a higher cost of materials and labour, but also projects in Ontario, Quebec, B.C, and the City of Edmonton that are ready to bid on contracts.
Although the project’s budget has “conservative assumptions” of cost escalations baked in, Bhatti said they’ve noticed some of the smaller contracts for utility relocation have cost more than originally anticipated.
“We’re hoping that it is a blip,” Bhatti said. “However, if it does continue, it does pose a serious risk not just for our project but, as you can appreciate, for every other project that’s being planned right now.”
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A report into the matter also showed financial pressures increasing on underground stations following discussions with property owners, but Bhatti told committee there is no evidence to suggest the downtown tunnel can’t be delivered.
More than $706 million has been spent on the project so far, including more than $88 million spent within the last year.
Fairbairn urged councillors to “stay grounded” upon hearing of the risk of cost escalations, and that there there is a focus on getting a “clear understanding” of costs before any changes are made to the scope of the project or alternatives.
“We really won’t have enough concrete information around a budget forecast until we receive prices from proponents,” he said.
Committee heard the next contract would be released for bids at the end of the first quarter of this year.
Calgary’s mayor said it is “troubling” to hear of potential risks of cost overruns due to market conditions, but Jyoti Gondek said she remains “confident that we have the right people in place to bring this project about.”
Committee heard there is mitigation work underway including managing financing to lower borrowing costs, value engineering, and evaluating parts of the project that aren’t a high priority.
While the latest update on the project didn’t come as a surprise to the Crescent Heights Village BIA, there is concern about uncertainty for the business community along the future route of the train line.
“This uncertainty is is problematic. It’s had a real impact on the small businesses here at Crescent Village,” the BIA’s executive director Camie Laird told Global News.
“Not knowing means not being able to plan for your future, and sometimes that’s retirement or selling your building, or all of these things that they just can’t move forward on until they know.”
Several councillors expressed concerns with the potential for cost overruns on the project, asking questions about when council needs to make a decision about the project moving forward.
“I still remain pretty concerned about this project,” Ward 13 Councillor Dan McLean said. “It’s been about $1 billon almost and not a track has been laid.”
Fairbairn told committee that council would get an update and options available if there are significant cost concerns or unfunded costs.
Green Line advocacy group LRT on the Green said it hopes to see council and project officials shape confidence and stability in delivering the project.
“Anything that stems the progress or stems the momentum forces us to go back to the drawing table. That’s actually what contributes to an upward pressure on the costs,” LRT on the Green board member Sabrina Grover told Global News. “The more we stop and go, the more likely we’re seeing those costs rise.”
Project management also faced questions about the drop in ridership due to the COVID-19 pandemic and high vacancy rate downtown, and if there’s expectations ridership will return to pre-pandemic levels.
While administration said it is confident of a return to normal ridership levels, Bhatti said the city will still need infrastructure like the Green Line as the city grows.
“If we look at it from a long-term vision, I think investments in Green Line and projects like Green Line is still a need,” Bhatti said. “I don’t think we can walk away from investing in projects of this nature over one metric, which is ridership alone… We have to look long-term for this investment rather than what we’re facing today.”
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