Net building cost analysis: Centre Block project due diligence report: Cost report

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Net building cost analysis

The Net Building Cost of Construction is defined as the expenditures associated with the materials and labour required to deliver the work onsite. For the Centre Block Rehabilitation Program this encompasses a vast number of undertakings, including: masonry rehabilitation, window replacements, excavation and structural foundation and seismic upgrades, heritage conservation (Centre Block only), interior construction and finishes, and a complete upgrade of all building electrical and mechanical systems along with its infrastructure: heating, cooling, ventilation, fire safety, plumbing, electrical, as well as elevators. There is a strong focus on sustainability that will help transform the building into a carbon-neutral facility.

After careful review of the 90% design scope and design refinement endorsed by the Royal Architectural Institute of Canada’s Independent Design Review Panel, Turner & Townsend is of the opinion that the net building cost is sufficient to deliver the scope defined with the following observations:

General requirements analysis

Of note, PSPC is using a Construction Manager (CM) contract mechanism to deliver the program. The associated costs are reflected in the Cost Breakdown table under general requirements, expenses incurred at the jobsite to facilitate the overall work; construction management fees, costs associated with professional services provided by the contractor to oversee the planning, design and construction of the project; and insurance and bonds costs paid to the Contractor to protect against disruptions or financial loss should the Contractor fail to meet project specifications and objectives. In the case of the Centre Block rehabilitation, this delivery approach is recommended given the complexity of the program, the high level of risk given the heritage nature of the project, and the approach of commencing construction before the detailed design has been finalized. Concurrent construction activities allow PSPC to advance certain areas of the design (for example, excavation) and minimize additional costs related to escalation if the project was procured all at once. The CM model also provides greater flexibility and enables visibility over amounts payable to sub-contractors, reducing potential costs related to trade claims, funded through the insurance and bonds budget bucket.

Contingency analysis

The use of design and construction contingency is an established project management best practice whereby a dedicated amount of funds is added to the base cost estimate early in the project to address expected cost changes as both the design and construction matures. The amount of contingency established for any given project is based upon the project’s complexity and stage of design and is usually a percentage of the Net Building Costs (total construction costs excluding CM fees, insurances, general requirements, contingencies, and escalation).

Accessibility and inclusive design

The Accessible Canada Act (Bill C-81), which received Royal Assent in June 2019, provides the legislative framework to guide the Centre Block’s inclusive design strategy.

PSPC and its partners in Parliament are working together to identify barriers and potential solutions that balance the intersection of heritage preservation and modernization. An Accessibility Advisory Panel composed of members from a number of accessibility organizations (see image below) provides expert advice to the development of the Universal Accessibility Review and Action Plan related to projects for the built environment led by PSPC.

1 in 7 Canadians identify as having a disability and our population is aging and living longer, which means more and more Canadians will be living with disabilities.
Source: Rick Hansen Fondation

Accessibility Advisory Panel

PSPC has established an Accessibility Advisory Panel (AAP) composed of key partners and stakeholders.

Internal partners
Accessibility Advisory Panel

Provide subject matter expert advice and direction to the development of the Universal Accessibility Review and Action Plan (UARAP) as well as several accessibility related projects for the built environment within the Parliamentary Precinct and Real Property Services.

External partners

Design contingency

As the project progresses and the level of design detail increases, design contingency, costs associated to resolve unforeseen issues from schematic design through to completion of detailed design, is used as required to address the associated cost to complete the current project scope. Examples of this would be costs associated with design coordination between design disciplines prior to tender or design adjustments to fully meet parliamentary requirements or the integration of mechanical and electrical components into the heritage building.

The amount of design contingency carried by PSPC for the Centre Block and Parliament Welcome Centre, 25% and 15% respectively, is appropriate based on the Net Building Cost, and when benchmarked against other similar projects within the Precinct. A higher rate of design contingency for the Centre Block is directly related to its higher level of design complexity. Design contingency will be drawn down as required throughout the design development phase of the program to support design refinement. Typically, the amount of contingency is highest when the level of design detailing is at a conceptual stage (low detail). As the design progresses through schematic design and detailed design, it is expected that the contingency will be used to support scope development (for example, adjustments to structural beam sizes, and, or conduit routing) until the design is fully tendered. As the design progresses, the certainty of costs increases. For Design Development to be successful a robust change control process must be implemented so the contingency spend can be actively managed. Turner & Townsend recommends that the expenditures of design contingency be tracked and reported on a regular basis. This will help to ensure that budget limits are respected and the contingency is drawn down appropriately, in accordance with the Program Execution plan developed for the project.

Design contingency is not intended to cover new items of work and, or additional scope to be added to the program. Any new scope element would be funded externally, either from the risk allowance if the change is required to meet an existing identified functional requirement or from the external partner who wishes to incorporate the changes for newly-identified functionality.

Centre Block’s iconic Peace Tower

At almost 100 meters tall, the iconic Peace Tower forms the centrepiece of Canadian democracy. At the heart of the Peace Tower, the Carillon houses fifty-three bells ranging in size from 10,090 kilograms to 4.5 kilograms, dedicated in remembrance to the sacrifices and service of Canadians in the First World War.

Modernization of this important Canadian symbol includes base isolation and significant structural enhancements to meet modern code requirements. The masonry will be rejuvenated; as well the sculptures and carved stones will be carefully inspected and restored by the Dominion Sculptor.

As part of the broader Universal Accessibility strategy, there will now be a direct, universally-accessible path of travel from the Centennial Flame to the Peace Tower’s Ceremonial Entrance, Memorial Chamber and Observation Deck, which will remain a key visitor platform for those visiting Parliament.

Centre Block

Centre Block. Image credit: Public Services and Procurement Canada.

Construction contingency

In general, construction contingency is money allocated to cover additional or unexpected works during the construction phase of a project. This protects the project from any unexpected problems or issues and prevents cost overruns. Construction contingency will be drawn down to support works on site as and when any unforeseen issues arise. Examples of construction drawdowns for Centre Block could include costs associated to repair poorer than anticipated structural steel that is located behind the existing masonry façade or costs associated with relocating cabling and wiring when found to conflict with other elements within the wall. Other examples of construction contingency usage are scope clarifications during construction, costs associated to schedule prolongation or acceleration or costs associated to abnormal weather conditions.

The amount of construction contingency carried by PSPC for the Centre Block and Parliament Welcome Centre is 20% and 10% respectively and is appropriate based on the Net Building Cost, and when benchmarked against other similar projects within the Precinct. For construction contingency management to be successful, a robust change control process must be implemented so the contingency spend can be actively managed. Similar to management of the design contingency, Turner & Townsend recommends that the expenditures of construction contingency be tracked and reported on a regular basis. This will help to ensure that budget limits are respected and the contingency is drawn down appropriately, in accordance with the Program Execution plan developed for the project. Like design contingency, construction contingency does not cover costs associated for new scope.

From a construction contingency perspective, 20% for the Centre Block and 10% for the Parliament Welcome Centre is reasonable when benchmarked against other comparable projects within the Precinct. The lower construction contingency compared to the design contingency is appropriate given PSPC’s implementation of the Design-Assist strategy of engaging directly with Trade Contractors during the design phase of the project to inform the design process with the intent of avoiding costly downstream changes and reducing costly design clarification during construction. Based on this, the levels of construction contingency are appropriately established, to reflect this collaborative design process. Further, the construction contingency for the Parliament Welcome Centre is significantly lower in comparison to the Centre Block due to the nature of the new build construction with considerably less complexity on a relative scale. Again, based on relative complexity levels, the Parliament Welcome Centre is slightly lower than the average within the Precinct and the Centre Block is higher than the average, but is well aligned with the West Block, for example, based on the increased scale and heritage complexity of the building.

Sustainability

A priority for the Centre Block Rehabilitation Program is to demonstrate leadership in sustainability. The Centre Block will be transformed from one of PSPC’s worst performing and highest greenhouse gas emitting assets to a carbon neutral facility. Energy consumption will be reduced by over 75% and water consumption by over 50%.

A holistic design approach has been taken to achieve best value for Canadians, with goals of demonstrating exceptional leadership in sustainability in a heritage context, achieving carbon neutrality, and attaining a high level of energy efficiency. These actions require a combination of integrated building and design decisions, sustainable site planning, innovative technology choices, and behavioural changes supporting health and well-being.

The Centre Block Rehabilitation Program has developed an all-encompassing vision that aligns with many existing Government strategies.

Holistic Vision of the Centre Block Rehabilitation Program
Illustration depicting the elements factored into the Holistic Vision of the Centre Block Rehabilitation Program. See the long description below:
Long description of Holistic Vision of the Centre Block Rehabilitation Program

The words “holistic vision” in a circle surrounded by the following terms: Heritage, Precinct/Community Integration, Climate Resilience, Environmental Stewardship, Occupant Centric Intelligent Building, Health & Wellness, Resource Stewardship and Carbon Neutrality.

Escalation analysis

Escalation refers to fluctuations in the cost or price of specific goods or services in a given economy over a period of time. Cost increases usually occur because of market forces and reflect increases in the cost of labour, materials, and equipment that are required for the project to be delivered. Some causes may be specific to individual construction trades only (for example, ironworkers) or materials ( for example, cement or lumber prices). Alternatively, some markets, such as Ottawa at present, experience increases in escalation due to the execution of multiple large complex projects, all competing for the same materials and labour. Currently, because of impacts to the world economy linked to COVID-19, escalation is challenging to predict, and escalation rates are currently high. The expectation on the Centre Block Rehabilitation Program is that over time, escalation rates will normalize. The program allowances have been calculated based on inflation indices by region and industry, published by the Conference Board of Canada. Turner & Townsend supports the escalation rates included within the hard cost estimates included within this report and endorse the use of the risk allowance to accommodate unknown fluctuations within the market. Any increases of escalation above and beyond this will necessarily be funded from the risk allowance. A risk allowance for these types of potential events is prudent, as there is typically a level of uncertainty related to the construction industry escalation rates, making it challenging to accurately forecast the future cost of labour and materials included within the hard construction cost.

Risk

In addition to design and construction contingencies, the use of a risk allowance, at the program level, to address a range of items from changing scope to difficult to forecast factors such as escalation is a project management best practice. Turner & Townsend has completed a statistical analysis to determine if the current risk allowance was adequate, given the current known risks on the program (escalation, scope changes, etc.). The results of the analysis determined that the risk allowance being carried by PSPC (between 15% to 35%) is adequate based upon the following factors, including but not limited to: incomplete scope as a result of outstanding key decisions; construction for both the Centre Block and Parliament Welcome Centre, while progressing on track, is in the early stages of execution; escalation is difficult to predict typically and is exacerbated by the pandemic; and the overall, magnitude and complexity of the program is significant. Furthermore, the use of Design-Assist, employing direct engagement with trade contractors during the design phase of the project will help to reduce the risks of site instructions and design adjustments during the subsequent construction phase.

Considering the aforementioned factors, Turner & Townsend is of the opinion that PSPC is carrying an appropriate risk envelope for the nature of this project and is consistent with other projects within the Parliamentary Precinct including the West Block and Senate of Canada Building which carried a risk reserve of approximately 25% and 15%, respectively. Based on industry standards, the level of maturity and complexity of the program, and benchmarking analysis, Turner & Townsend endorses the risk range carried by PSPC. Of note, Turner & Townsend strongly recommends continued efforts with PSPC to follow a robust risk management framework to ensure the risk allowances are efficiently and effectively managed and that all risk dollars are allocated and tracked appropriately throughout the duration of the program as per industry best practice standards.

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