LRT inquiry: Rail projects are a gamble with unfavorable odds for project owners, commissioner hears

According to one researcher, 80 years of data have indicated that two out of 1,000 rail projects deliver on budget, schedule and benefits, and there’s a 70-per-cent risk that a rail project will exceed the budget

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Perhaps the City of Ottawa was doomed from the start of planning a new LRT system.

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“If you decide to build rail projects, you have the odds against you,” Bent Flyvbjerg, an expert in mega-projects, told the LRT inquiry commissioner during a panel discussion on Thursday.

Justice William Hourigan heard presentations from three experts on the subject of contracting projects as he gathered more information about the circumstances that have led to breakdowns on the Confederation Line.

The panel was the last scheduled session for the inquiry before participants put forward their closing submissions to the commission and Hourigan writes his final report.

Flyvbjerg, a researcher and author, has been an adviser to governments and businesses. He’s a teacher at the University of Oxford’s Saïd Business School and the IT University of Copenhagen.

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According to Flyvbjerg, 80 years of data have indicated that two out of 1,000 rail projects deliver on budget, schedule and benefits. He said there’s a 70-per-cent risk that a rail project will exceed the budget.

Flyvbjerg said challenges exist for both government and private companies under traditional procurement models and public-private partnerships (P3).

The LRT inquiry commission has dug into the procurement rationale for Ottawa’s $2.2-billion Stage 1 LRT system, whose design, construction and maintenance program is based on a P3 model with the Rideau Transit Group (RTG).

RTG’s parent companies are ACS Infrastructure, SNC-Lavalin and EllisDon.

The inquiry commissioner has heard the city’s original $2.1-billion budget for Stage 1 set in 2009 didn’t take into account inflation. The city changed the design, especially with the downtown tunnel, to protect the budget.

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There has been $115 million in council-approved contingency spending on the project, increasing the cost to $2.245 billion for Stage 1. The railway was contracted to be done in May 2018, but it didn’t open until September 2019 after a significant construction delay . A sinkhole swallowed part of Rideau Street above the LRT tunnel in 2016.

Flyvbjerg said project planners in general often assume there will be no geological problems and they underestimate risks. Some assume theirs is a “unique” project that can’t be compared with any other, so nothing can be learned from other projects, he said.

Following a review of the sinkhole incident in 2017, the city’s then-rail construction director Steve Cripps said in an interview the soft ground conditions in that area were intimately known by tunneling experts with RTG.

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“There was a lot of geotechnical investigation in that area. Everyone knew this. RTG knew this. They took appropriate precautions. (RTG has) world-class tunneling experts as part of that team. They took appropriate steps, but there are risks with tunneling and these things happen,” Cripps said.

Flyvbjerg also criticized using “bespoke” elements that haven’t been used in other projects during the discussion Thursday.

The Alstom Citadis Spirit train was designed for the Ottawa LRT.

There has been heavy scrutiny during the inquiry on the P3 approach to procuring the LRT project. The model required RTG to secure financing and meet milestones to unlock payments from the city. The contract continues during the maintenance period, with RTG’s maintenance affiliate receiving payments from the city based on LRT availability.

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Matti Siemiatycki said P3s have been used in Canada for 30 years, noting they were created to address the problem of “misaligned interests” in procurement.

Siemiatycki, the University of Toronto dDirector of the Infrastructure Institute at the School of Cities, said P3 models usually cost more money, yet governments like to use the P3s so risks of a project are transferred to the private-sector organization. Governments pay more upfront so the private sector can assume the risks.

“It’s rather like having an insurance policy against materializing risks,” Siemiatycki said.

The P3 risk transfer and the “fixed-price” contract were a big selling point for the LRT project in Ottawa.

Siemiatycki described the emerging “alliance” model for contracts where a joint organization is created between the public and private organizations and the team works together in the same office.

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Anne Stafford, an accounting and finance professor at the Alliance Manchester Business School at the University of Manchester, said the public sector still bears significant costs in P3s, even if it thinks all the risks are transferred to the private-sector partner.

Stafford said accountability in a P3 is often muddied because a private organization is most accountable to its shareholders, not the public. The project finances are less transparent to the public, especially since the private partner requires commercial confidentiality, Stafford said.

“The project as a whole is straddling the boundary between the public and the private sectors and therefore we have a lack of clarity on public accountability,” Stafford said.

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