August 24, 2006

Cost increases complicate projects

PETER MITHAM

correspondent

VANCOUVER

Western Canada’s hot construction sector is putting the heat on government planners crunching the numbers for major new projects, such as the RCMP E Division headquarters planned for Surrey.

The federal government purchased a 34.5-acre site for $5.75 million from the province in 2005. The facility will consolidate 1,800 employees in one location with up to 770,000 square feet.

Construction of the new headquarters is slated to begin next year and complete in 2010, but cost increases are complicating planning, said Terrence Tetreault, Pacific region director, accommodation and portfolio development, Public Works and Government Services Canada.

“The private sector probably gets a project done faster than we do.”

Terrence Tetreault, PWGSC

“It is certainly a very significant factor that we are citing in our approval documents when we’re requesting final approval for the project,” Tetreault explained. “We are putting the yellow lights on, in effect, saying there are highly inflationary escalations in construction costs, particularly in Western Canada.”

The pressures will influence whether or not the building is Crown-owned, built on a lease-to-own basis or simply leased from a private landlord.

“Traditionally, the view has been that it’s cheaper for us to do a Crown-owned development than a lease or lease purchase,” Tetreault said. “You do have a lot more control. It doesn’t mean you can control prices in the marketplace, but it means you could have a little more negotiation ability and you have the option of reducing the scope of your project where you can’t get flexibility on prices.”

A lease-purchase arrangement, by contrast, reduces government involvement but leaves it open to rising rents.

Tetreault said the last major federal office project built in the Lower Mainland, 401 Burrard, was initially conceived on a lease-purchase basis. Ottawa eventually found funding to develop and own the building, completed in 2002.

A longer development cycle — sometimes three to five years in length — complicates estimates of development costs, and the choice the government takes with development and ownership.

“The private sector probably gets a project done faster than we do,” he said. “So if our project cycle is longer than theirs, that just introduces more uncertainty with respect to ultimate costs.”

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