Green Line cost escalation due to market volatility could pose “a serious risk” to the $5.5 billion transit line, but mitigation measures are in place, said the project CEO.
Calgary’s Executive Committee got a Green Line Q1 board update Tuesday and heard from both the Green Line board chair Don Fairbairn, and CEO Darshpreet Bhatti on Tuesday.
Fairbairn provided an update that showed the project is generally on schedule thus far. There are concerns about cost escalation, however. Cost escalations already shelved Calgary’s Event Centre and Fairbairn said each half per cent of escalation means $100 million added to the Green Line budget.
If inflation remains around four per cent, that could mean an additional $800 million over the long term.
Other projects in development across Canada and other related increases have impacted the projected budget. Fairbairn said they’re in the same position as other infrastructure projects in development.
“As a consequence, we can say nothing other than that we have a low level of confidence in our ability to deliver all of stage one within available funding,” Fairbairn said.
“We are committed to managing costs and risks and to building phase one from Shepard to Eau Claire.”
Stage 1 is from Shepard to 16 Avenue N. It’s been divided into two phases: Phase 1 – Shepard to Eau Claire, and Phase 2 – Eau Claire to 16 Avenue N.
Fairbairn said that it might concern people to hear him say “low level of confidence.”
“I think really what you’re hearing me say is, we are really focusing hard, engaging in a clear understanding of how we move forward,” Fairbairn said.
Attempts at mitigation
Both Fairbairn and Bhatti said they won’t have the full cost impact until contracts go out. Bhatti said that smaller contracts they’re awarding for the Beltline utility relocations are coming in higher than their escalation assumptions.
“We’re hoping that it is a blip. However, if it does continue, it does pose a serious risk, not just for our project, but as you can appreciate on every other project that’s being planned right now,” said Bhatti
“If that continues for another six, seven months, it may not be an issue. But if it continues for the next six years, that is definitely an issue and that’s hard for us to assess at this point.”
They are taking steps to mitigate some of the escalations. One is to examine how the project is financed to ensure borrowing costs remain low.
The other area, Bhatti said, is through value engineering. They’re looking at changing the procurement approach, leaving it open to innovation from bidders. The team is also evaluating certain components that don’t necessarily need to be done.
Bhatti and Fairbairn said they’ll continue using that process as the project meets certain construction stage gates.
Coun. Sonya Sharp asked when potential options would be brought to council given the expected cost escalation.
Bhatti said they’re constantly monitoring to see where the market is trending. He said any decision made would be scrutinized by the board with appropriate due diligence.
A ‘future of Calgary’ project
Sharp also asked about ridership numbers and projected ridership for the Green Line. Particularly given the situation around the pandemic and the state of Calgary’s downtown.
Bhatti said a recent analysis hasn’t been done. Though, it’s not a project for today or the next several years, he said.
“As you can appreciate this project is for the future of Calgary,” Bhatti said.
“Even if Covid materializes into a much longer duration than we’re expecting, you’re still going to need investments in infrastructure like transit to support that. The development will always be there.”
Bhatti said they couldn’t walk away from investing in projects of this nature over one metric.
Transportation GM Doug Morgan also said that when Calgary’s south transit line opened in the 1980s, it was during the National Energy Program. Calgary’s downtown was hurting and over the long term, the LRT was a success.
Mayor Jyoti Gondek remained confident the project could be delivered.
“At this particular point in time, we have no reason to believe that anything will be sacrificed,” she told reporters.
“We remain committed to building out the project as it was approved.”
She said they’re in contact with federal and provincial partners on the project to ensure that any funding opportunities flow through to the city.
“I don’t think this was a surprise to anyone,” she said.