Auditor-general’s report says government knew about cost overruns 18 months ago
Derrick Penner and Jonathan Fowlie
Sun
The provincial government knew 18 months ago there were “significant cost pressures” that could push the Vancouver convention centre expansion over the $615-million budget approved for the project at the time, according to a B.C. auditor-general’s report on the project.
Yet project and provincial officials publicly stuck to the $615-million figure until February, when Ken Dobell, then chairman of the Vancouver Convention Centre Expansion Project (VCCEP) Corp., told The Vancouver Sun the actual cost would be “in the range of $800 million.”
In July, cabinet approved a final $883-million budget, but acting auditor-general Errol Price said Thursday he can’t provide an assurance the project will come in at that amount because its “estimates of future costs are built on assumptions” that there will be no further changes before completion.
In a report released Thursday, Price said in April 2006, VCCEP briefed Minister of Tourism, Sports and the Arts Stan Hagen and Treasury Board chairwoman Carole Taylor on the cost pressures the project faced after Treasury Board’s approval of the $615-million budget in July 2005.
VCCEP’s construction manager, PCL Constructors Westcoast Inc., had called for bids on significant parts of the project as part of its attempts to nail down a specific cost for a fixed-price contract, and those bids came in about 25 per cent over budget. The first negotiations for a fixed-price contract failed.
In an interview, Price said he “would hesitate to say” government knew VCCEP was going to blow its budget.
“What we do say is that it was clear to all, including to the shareholder [Hagen‘s ministry] that there were significant cost pressures,” Price said in the interview.
Price added that VCCEP’s monthly progress reports “presented a rosier picture [of the project’s cost] than was actually the case.”
That’s because VCCEP only included information about contracts for work that had already been let, and estimates that fell within the budgets that had already been approved rather than estimates of actual cost escalation.
In his report, requested in late February by the VCCEP board to review the project’s governance and risk management, he made only one recommendation. It was that the corporation ensure monthly project reports include estimated costs to complete the project rather than forecasts “that only go to the approved project budget.”
He said the corporation should include details about assumptions that underlie the estimates, status of the significant risk factors that it is managing and a range of cost estimates if assumptions were to vary from the project plan.
Hagen, the minister responsible for the project, was attending to a family matter Thursday and was absent from the legislature.
It fell to Taylor, also finance minister, to answer questions on the project. She said government has “had flags up” about cost pressures on the project the entire time she has been finance minister, and pressed VCCEP to “to really get them to focus on making the budget work.
“I believe we were doing our due diligence by constantly sending [VCCEP] back [to look] for options and not accepting that there wasn’t something that could be done about it and pushing for fixed contracts and pushing them to get assurances on supplies,” Taylor said.
She added that government has confidence in David Podmore, a prominent Vancouver developer, who was named to chair VCCEP’s board in April. He replaced Ken Dobell, Premier Gordon Campbell’s former deputy minister and until recently a special adviser to the premier’s office.
“At this point, with [Podmore] in charge and with the [tourism] minister working very closely with him, we are confident the budget that has now been before treasury board and cabinet, and approved, will be the budget that gets the job done,” she said.
New Democratic Party leader Carole James called the project a “boondoggle,” saying the auditor-general’s report proves the Liberal government has made a mess of the project.
“The auditor-general points very clearly to the premier and this government who mismanaged this entire project,” James said. “They didn’t have a design and yet they started building the project. There was no clear management of this project.
“From the start, this has been mismanaged and the government can point fingers everywhere it wants but the auditor- general was very clear — the finger points directly at the premier and this government.”
James also seized on the auditor-general’s statement that there is no guarantee $883.2 million will be the final cost.
“It’s impossible for us to believe anyone from this government when they stand up and tell us anything to do with this project,” James said in question period. “The premier and every minister on that side have lost credibility on this entire project on behalf of the taxpayers of British Columbia.”
Maureen Bader, B.C. director for the Canadian Taxpayers Federation, was also critical of government’s management of the convention centre project, saying “politically motivated building changes and the rush to finish were important contributors to out-of-control costs.”
Price said the purpose of his review was not to assign blame for the convention centre expansion’s massive cost overrun, but rather to objectively detail what happened to increase costs and why.
In his report, Price said VCCEP “used appropriate governance and project-management frameworks,” although the formal project reporting has been incomplete.
His report said VCCEP faced a “perfect storm” of conditions that caused the project’s costs to skyrocket:
– A tight timeline to have the convention centre expansion completed prior to the 2010 Olympics, which compelled VCCEP to start construction before a detailed design was complete.
– Changes to include additional public amenities that increased the scope and budget of the project.
– Construction-cost inflation of 11 per cent a year during the project, almost triple the four-per-cent estimate in the project’s first $565-million and subsequent $615-million budgets.
In a response to Price’s report, Podmore wrote that VCCEP has made several changes, including adding experienced construction-sector representatives to the corporation’s board and reorganizing aspects of its management.
He also noted that the new board has concluded a fixed-price contract covering 85 per cent of the project.
Podmore said he has done a full review of the budgets and schedules, and is confident the project will come in on the new budget.
“I have a very high level of confidence in the budget, but it is going to require constant vigilance and attention by myself and the new owners reps I’ve put into place,” he said.
The centre is scheduled to open in March 2009.
© The Vancouver Sun 2007