“If the cost of construction has been underestimated, this most likely will result in additional debt required by the City.”
Published Jun 21, 2024 • Last updated 3 hours ago • 3 minute read
An artist’s rendering showing an aerial view of Lansdowne 2.0. Photo by City of Ottawa/OSEG /Handout
Lansdowne 2.0 could now cost the City of Ottawa close to $500 million due to delayed construction timelines and increased costs, its auditor general says.
Under a partnership with the Ottawa Sports and Entertainment Group, the City of Ottawa is responsible for the cost of building a new 5,000-seat event centre and new north-side stadium stands for the redevelopment project, which city council approved in December. The plan was then estimated to cost $419 million.
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However, Nathalie Gougeon, the city’s auditor general, said construction cost estimates could be understated by $73.4 million for the new event centre and north-side stands, while costs for the new parking structure could be underestimated by $2.7 million.
“Given the inherent risks related to construction, including the delayed construction horizon and already increasing construction costs, we believe this approach has resulted in some construction estimates that are optimistic,” says the report that will be presented to the city’s audit committee this coming week.
A memo from city staff sent to council on Thursday said the city was confident in its cost estimates given its “extensive experience” in owning and operating Lansdowne Park, which was why the city erred on the lower end of estimates for some contingency costs.
“To facilitate the most accurate information informed the business case assumptions and associated projections before council for consideration, staff have applied this allowance to the Lansdowne 2.0 through various due diligence exercises, including planning reports and studies, additional cost estimating and advancement in design elements,” the memo said. “This was done to provide council with a high degree of reasonableness and certainty in the cost estimating.”
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The memo said city staff agreed with two recommendations from the report, which said the city should review and update its Project Delivery Review and Cost Estimating Guide, in order to “clarify expectations on how to apply the ranges of estimates, including contingencies, based on specific risk factors,” and to consider “recent actual partnership results and modest future assumptions in order to update the pro forma projections related to the Partnership with OSEG.”
But, the memo says, “it is evident that further clarity is needed with respect to what can be perceived as a disconnect between the auditor general’s approach to the cost estimate calculations and the estimates presented to city council in recent reports.”
The audit scrutinized “key assumptions” for Lansdowne 2.0, including expected proceeds from the sale of air rights, event ticket revenue, parking revenue and more, as well as associated project costs, including construction costs and operating expenditures.
City of Ottawa Auditor General Nathalie Gougeon. Photo by Tony Caldwell /Postmedia
The report concluded the city did its due diligence in determining the financial projections, and put in “a significant effort to engage sufficient and appropriate expertise to validate significant financial assumptions and projections for Lansdowne 2.0.”
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Furthermore, Gougeon said, “we noted that many of the assumptions that supported the financial information were reasonable and were supported by detailed analysis and evidence.”
But, the report says, the cost estimates for the new event centre and the north-side stands were on the “lower end of the city acceptable ranges for contingencies and utilities construction cost.
The report also cautioned that the city may see a $10-million to $30-million decrease in waterfall distribution over the life of the partnership with the OSEG, due to specific assumptions for revenue, including Ottawa Redblacks revenue growth and overall expense growth.
“The bottom line is that the city is responsible for the cost of construction for Lansdowne 2.0 and any cost overruns,” Gougeon wrote, noting the funding strategy required Ottawa to cover costs in the short-term, primarily through debt, with revenue “only anticipated to be realized in the later years of the partnership agreement, increasing the risk and uncertainty of these revenues,” through the waterfall distribution agreement.
“If the cost of construction has been underestimated, this most likely will result in additional debt required by the city.”
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