West Kelowna wants to continue building despite legacy cost overruns | iNFOnews | Thompson-Okanagan's News Source

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West Kelowna wants to continue building despite legacy cost overruns

Artist's rendering of new West Kelowna City Hall.
Image Credit: Submitted/City of West Kelowna

West Kelowna has a sad history of cost escalations when it comes to big building projects.

Royal LePage Place was finished in 2007 at more than four times what taxpayers agreed to fund in a referendum. In 2019, City of West Kelowna opened a soccer dome with a $4.1 million price tag. Its budget was a mere $1 million only two years earlier.

By the end of this year, the $75 million Rose Valley Water Treatment Plant is expected to be fully operational. Back in 2017, it was forecast to cost a mere $49.4 million.

In the next two to three months West Kelowna hopes to open its new city hall, more than a year behind schedule and, at $22.4 million. That’s $4.4 million over budget.

Early next year the city will also be running an alternative approval process hoping 10% of West Kelowna voters don’t petition against an $8 million loan to help fund a $14.3 million firehall/community centre in Lakeview Heights.

So, why should voters believe that, after major cost increases on these three big projects, the firehall can be built on budget with no new tax increases?

Well, there are lots of explanations as to why these other projects cost way more than first expected.

The soccer dome cost increase was put down to things like site grading, replacing a water main, parking and washrooms.

READ MORE: Cost of West Kelowna's inflatable soccer dome keeps inflating

The water treatment plant cost estimates went up, in part, because the area it will serve was expanded.

A bigger reason was the fact that the city originally hoped to build it on provincially owned land. When the province refused, West Kelowna had to find new land to buy. That increased the cost of blasting, grading and piping and it was on land that is lower in elevation than originally anticipated so more pumping is required.

READ MORE: New $75M West Kelowna water treatment will only cost users $34 more annually on tax bill

When it did finally go to tender in 2020, the expected cost was $75 million and that budget is being met.

City Hall, which was originally expected to open in December 2022, is a different story in that it is coming in well over what was awarded to contractors through $18 million worth of tenders.

It ran into major problems when Structurlam, the winner of the bid for the mass timber structure, imploded.

“In May of 2022, we were supposed to have all the product and have it up,” West Kelowna CAO Paul Gipps told iNFOnews.ca. “We were supposed to get the last product in July and we got the last product in December, 2022.

“In a construction project, that pushes everything back. There are only so many things you can do in the ground so you can start building. All the contractors that you had slated for certain times couldn’t come so they got pushed out and they said 'well no, we can’t hold our prices’ in some cases. In other cases, they said ‘we don’t have the labour now.' We suffered a lot of challenges with contractors not being able to provide enough person-power to complete the contracts within the timeline they had given us.”

That also came at a time when COVID triggered major supply chain delays and inflation, especially for construction materials, went through the roof.

Last spring, Structurlam filed for bankruptcy protection in a U.S. court so it’s unclear what, if anything, West Kelowna will be able to recover from the delays.

READ MORE: Penticton mass timber producer Structurlam sold for more than $80M

Gipps did not have a breakdown on how much of the $4.4 million cost overrun was due to those delays.

There were other costly problems.

The mechanical-electrical tender came in at $2.4 million over budget so time, and money, was needed to bring that cost down.

Another $600,000 was added on because the electrical designer drew the BC Hydro lines as coming in via a right-of-way the City had through Westbank First Nations land.

But that was a temporary vehicle right-of-way so it was not suitable for permanent hydro lines. That meant the added time and cost of not only redesigning the route for the power lines but the additional work to take them around the building.

The city is still waiting for BC Hydro to confirm when those lines can be “energized,” which may impact the hall’s opening date.

“I don’t know of any other time when we had so many things pushing against us at the same time,” Gipps said.

Part of the problem was the city hall project was given a budget before the final design work was done so things kept changing, including the addition of things like space for an Okanagan Regional Library branch.

The water treatment plant, on the other hand, was designed first then a single contractor did most of the work.

It was also started before the COVID pandemic.

“Because the design was in place, the city took advantage and ordered a bunch of that hard-to-get equipment well in advance,” Gipps said.

The process for building the firehall – if the funding is accepted by voters – is a new structure that is gaining traction throughout the province.

It's called progressive design-build and has the contractor and architect working as a team and bid on the project. That will result in the city getting a price guarantee.

In this case Chandos Construction LP, will build the firehall and, if something goes wrong, it’s on the hook for any cost overruns.

Chandos is such a large firm that it has the capacity to deal with potential problems, Gipps said.

While progressive design-build may lock in the construction costs, those aren't yet final.

Chandos has only provided a schematic design at this point and a "Class C" cost estimate. Once funding is approved, it will finalize that design and move to a "Class A" estimate, which should be the final cost.

Gipps say the $4.4 million city hall cost overrun will not add to taxes and, even if the firehall is approved, it will not add any additional taxes either.

The $4.4 million shortfall is being covered mostly from two sources.

One is to take just over $1.5 million from the city’s operating surplus fund. That’s money that accumulates every year from various departments. Even after spending $1.5 million there will still be $4.2 million left in that reserve.

Another $1.9 million is coming from the city hall reserve fund. That was started a few years ago at $700,000 per year and, because of the 2.5-year delay, an extra $1.9 million is available.

The actual loan won’t be taken out until late this year or early next year by which time, Gipps hopes, interest rates will have dropped a bit.

In the meantime, a short-term construction loan at a lower interest rate is being used to pay contractors.

That annual $700,000 contribution is expected to cover the loan payments on the $11 million loan in coming years.

The rest of the shortfall will come from parks development cost charges ($395,342) and the fact that the original cost estimate called for the loan to only be $10.4 million. That will now be $11 million.

The cost of the firehall and community centre is expected to be $14.3 million but only $8 million will be borrowed.

The city will take $3.8 million from reserves, $1.2 million from parks development cost charges, $1.2 from operating surpluses and $150,000 from developer contributions.

The city started setting aside $520,000 a year in a firehall reserve fund in 2022 to help pay for the new firehall and that’s expected to cover the loan costs into the future. The loan is not expected to be taken out until 2026.

While Gipps assures no new tax increases because of either of these projects, the reality is that taxpayers are already paying $1.2 million a year to build a new city hall and firehall.

To contact a reporter for this story, email Rob Munro or call 250-808-0143 or email the editor. You can also submit photos, videos or news tips to the newsroom and be entered to win a monthly prize draw.

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