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Who'll pay for the 'twin white elephant'?

Decision on finding $2 million to cover arena costs coming in June

Nathan VanderKlippe
Northern News Services

Yellowknife (May 29/02) - Backs firmly against the wall, city councillors are confused and angry with a lack of information about escalating costs of the arena.

NNSL Photo

A worker walks atop the roof of the new arena, which will take form all summer until its completion this September. - Merle Robillard/NNSL photo



A looming September deadline for completing the first pad of the arena, meanwhile, has some members fearing they will end up rubber-stamping crucial decisions on the project, with reasoned debate replaced by rhetoric.

Coun. Dave Ramsay is calling the arena a "twin white elephant" while Dave McCann prefers "seamless monolith."

Council has met twice on the matter in the past week: once at a special meeting last Friday and once at its normal meeting this Monday.

The city budgeted $11.3 million for the twin-pad arena, which is being constructed next to the Yellowknife Correctional Centre.

But after reviewing an April 30 round of tenders, staff announced it was at least $2 million over budget.

To sum up recent developments:

Despite the actions, council still has more questions than answers. Where did the cost overruns happen? How did the arena get so far over budget? Did the market push these figures up, or are there other reasons? Could this have been foreseen? Should the city have hired a construction manager for the arena?

If Friday's tenders only amount to $366,816 overbudget, where did the $2-million figure come from? How is it possible to just pull $1.2 million out of this year's budget?

Answers to at least some of these questions will come June 10, when administration has pledged a breakdown of costs so far. Late in June, councillors will square off over the most important question: how to pay for the overruns.

"I'm disappointed about this, and I think there's disappointment in the community as well, from what I'm hearing," said McCann.

Ramsay said the city should have foreseen the costs.

"Before we went into this we knew the young offender's unit was over budget," he said. "I don't know if all the planning was done."

"I realize the market does rule, but our well-paid consultants are expected to at least get a handle on some of this stuff," said McCann.

Coun. Robert Hawkins said he is concerned about the timing of some of the information given councillors.

"I wish our backs didn't have to be against the wall to find things out," he said.

Councillors have been hamstrung throughout arena discussions by the style of project construction. The arena is being built using a sequential tendering process, meaning that some components are erected as others are still designed and sent out for tender.

This makes it virtually impossible to draft substantial changes now, as construction workers have already laid the foundation and erected the structural steel.

And councillors are being cautious about cutting too deep into the project -- if at all.

"I don't want to start hacking and slashing so we wind up with an inferior product," said Coun. Alan Woytuik. "The building's going to be around for 50 years."

Gambling on the arena

Not surprisingly, councillors are using terms like "gambling" and "risks" as they try to use their decision-making power to mitigate losses.

For example, at the Monday meeting, council discussed one contentious contract. When the dust had settled, council voted 5-3 to award an estimated $1.14-million contract to PCL Contractors Northern for concrete work inside the arena. Councillors Dave Ramsay, Dave McCann and Blake Lyons opposed the contract.

What forced a council debate was the nature of the contract, which was awarded on a "cost-plus" basis. That means the city pays for the actual materials and labour used in pouring concrete, plus a markup.

The difference between a tender and "cost-plus" is that a tender price is guaranteed, since the contractor assumes the risk that the project might cost more than anticipated. In a "cost-plus" arrangement, the city shoulders that risk.

PCL was the only firm to bid on the concrete work. The company's tender bid was for $1.28 million. The company factored in a $140,000 "risk fund" into that figure.

Hoping to save costs, councillors opted for the cheaper route of "cost-plus," which allows it to drop the $140,000 "risk fund." In making the decision, the city says the cost of materials and labour should not change during the summer.

However, the amount of concrete needed could change. If it does, the city could find itself with a few more dollars in savings, or deeper in the hole.

"We gambled in going down this route (by choosing a construction manager for the arena). To look for insurance now is kind of pointless," said Coun. Alan Woytuik.

Selecting PCL for this contract brings with it a slew of questions. City staff says PCL was the only company to submit a tender, despite efforts to solicit bids from other companies.

However, PCL is also the construction manager for the arena. That means it set the budget for the arena construction. It also awards most of the tenders, except those involving itself, which are handled by PSAV Architects. Of note is that the PCL tender cost exceeded the PCL budget estimate.

Some councillors are crying conflict of interest, while others said this is par for the course in a small city.