Reflecting on two years of pricing craziness

This past month, the Ottawa Police Services (OPS) announced they had awarded the contract to build their new South Facility, which has been on the planning boards for 15 years, to Broccolini Construction. The 17,000-square-metre building will be located on a 15-acre property at Woodroffe Avenue and Prince of Wales Drive.

Broccolini had the lowest compliant bid of $107,398,000 edging out both Pomerleau and EBC, the two other prequalified general contractors. The overall cost of the project is $193.7 million.

?It’s great news for Broccolini and the local construction community that this project is finally going ahead. Even more so given that we are starting to see signs of slipping construction demand due to the impact of rising interest rates and construction price escalation.

?This brings me to my commentary. The past couple of years have been unprecedented and I can only imagine how difficult it was for the OPS Board of Directors and the entire consultant team back in the spring of 2021 when they decided to pause this project.

Readers may have forgotten, but this project was previously on the market in late 2020 – square in the midst of the COVID pandemic. The project closed in February 2021 with PCL Constructors having the lowest compliant bid of $85 million. Unfortunately, the bid was over the OPS budget, leading to the eventual cancellation of the project despite several weeks of the parties trying to find savings.

The spring of 2021 was a crazy time. We were all working through the chaos of supply chain challenges and unheard-of product price escalation. Budgets developed throughout the design stage were woefully out of sync by the time projects went out for bid. This is when the OPS went to the market seeking a fixed-price construction bid.

The April 26, 2021 briefing report to the OPS board recommended the project be paused. I noted this comment in the report in regards to what may happen to the future when the project goes back out to the market:

“There is also the potential of price de-escalation as the market stabilizes and adjusts to a post-pandemic environment, further supporting the strategy to pause the south facility project to allow for this equilibrium.”

Two years later, we know the costs of some critical construction materials have come down. Others, however, haven’t. Labour costs, for example, went up significantly in response to inflation. One measurement that captures it all is the Statistics Canada Building Construction Price Index for Non-Residential construction.

Between Q1 2021 and Q2 2023, the index rose 24.2% for the Ottawa-Gatineau region. The following bar chart shows the significant quarterly hikes starting just when the OPS opted to cancel the project.

I don’t intend for this commentary to be critical in any way. It is a reflection back on how challenging it has been for any of our construction clients such as the OPS and the City of Ottawa to undertake major construction projects the past two years. I and many observers feel we are now in a settled more normal environment.

The saying ‘it is what it is’ comes to mind. For the OPS, maybe there is regret that they paused this project, but I am sure the intervening two years gave them and the design team that much time to fine tune the facility to the needs of the police service.