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Rob Wright
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Rob Wright
2020-07-10 13:42
The construction contingency is essentially for unknown conditions as we move into construction. For example, we've just run into the first unknown element. As we've done the early excavation work, we have found, on the southeast corner of Centre Block, in front of the Senate area, that the foundation is actually a rubble foundation. That was an unknown. There will be some cost implications and impacts that will come from that.
We will run through a number of those experiences as we move through this in a 100-year-old building of which there were no blueprints, etc. We have a fairly exhaustive assessment program to reduce those unknowns as much as possible, but we will run into those over time.
Escalation is an important factor. We tried to take, I would say, a fairly conservative approach here. Any cost estimate is in current dollars, not in future dollars, so the escalation is essentially an attempt to accommodate inflationary pressures into the cost estimate. If you look back over the past 10-year period, the escalation factor in the Ottawa construction industry has been 3%: 2.95%, to be specific.
As we look forward, I would say that right now escalation is a challenging piece to get right, as we are in the COVID situation, so we will continue to assess this. We feel that 3.5% would be a safe and conservative estimate at this point.
The midpoint element that you mention is where we would not want to apply escalation to early activities. Take excavation, for example. It is not going to experience escalation, because it is a current activity and it will be done in the early points of the construction. To average out the escalation—because it is cumulative, as it kind of builds on itself from year to year to year—from a time point perspective, we apply it to the total cost above but for the first half, from a time perspective, to make sure that we're not inappropriately applying escalation to construction events that would be happening early in the project and should not experience any type of escalation pressures.
I'm happy to expand further. I know it is a bit of a technical area, and we would be happy to provide any additional information as well.
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