Could pandemic inflation force Hamilton’s LRT over budget — again?

It's a familiar LRT question with a pandemic twist: could Hamilton's light rail transit project go over budget again?

Ontario's Tory government cancelled the city's first light rail project mid-procurement in 2019 citing ballooning costs. Then a funding partnership between the province and federal Liberals resurrected LRT last year with $3.4 billion now set aside for construction - more than triple the original public price tag.

So far, project manager Metrolinx says it believes the new budget is adequate.

But COVID supply chain woes and record inflation have sent construction costs soaring across Canada - and recently spurred planners of Calgary's $5.5-billion Green Line LRT to warn they have a low level of confidence" that the first phase of construction in that city will come in on budget.

It's possible - but not guaranteed - that pandemic chaos could also shrink the buying power of Hamilton's beefed up budget, experts told The Spectator.

How much of this is transitory, versus the new normal, remains to be seen," said University of Toronto professor and transit policy expert Matti Siemiatycki.

He noted surging inflation - which hit a 30-year high of 4.8 per cent in December - could settle down by the time the main rail construction contract for Hamilton's 14-kilometre LRT line goes to tender, likely next year. They would have budgeted for some degree of inflation ... but for the rate we're seeing now? Unlikely."

Even without a pandemic, the cost of subway and light rail projects in the GTA have spiralled out of control" in the last two decades, said transit researcher Stephen Wickens, who wrote a report on the cost conundrum for the Residential and Civil Construction Alliance of Ontario in 2020.

His report argued costs for recent GTA rapid transit projects have soared well beyond the rate of inflation, although many of those examples included tunnelling. Is it something to be concerned about? Absolutely," he said.

Kris Jacobson, a former city LRT director who now works for Metrolinx, acknowledged in an interview pandemic market volatility makes project cost estimating a challenge.

It's difficult to be accurate with those potential price escalations," he said. We're aware of it, we monitor it, we do factor it into our costing, but it is changing fairly rapidly these days and it's affecting the entire market."

So does he believe Hamilton's budgeted construction funding is adequate? At the moment, yes."

Jacobson noted Metrolinx was already exploring alternative procurement strategies aimed at reducing the risk of budget overruns and contractor reluctance associated with the first failed LRT project.

The Spectator previously reported one building consortium had already bailed on the LRT bidding process even before the government cancelled the first project in 2019.

Now Metrolinx is eyeing breaking up the massive, multi-year construction project into smaller contracts with an eye to minimize risk, stay on budget," Jacobson said. Under that scenario, the main rail-related construction contract in Hamilton might not go out for bidding until 2023, but a potential RFP to dig up and relocate underground pipes and utilities could go to market later this year.

Construction industry members were heartened to hear about the new split contract strategy - and potentially, more opportunities for smaller, local players - in a presentation by Metrolinx this month, said Sue Ramsay, general manager of the Hamilton Halton Construction Association.

With the support of all three level of government, it does feel like it's closer to a reality," she said. The current market conditions make it challenging ... but we're still a couple of years away and a lot can change in that time."

Despite the threat of rising costs, LRT 2.0 has a few advantages that were missing under the original project attempt.

For example, the provincial government is on record this time accepting responsibility for construction cost overruns.

Ontario also appears to be relying on more conservative budget estimates compared to the original 2015 announced LRT budget of $1 billion.

A costing report on LRT commissioned for Infrastructure Ontario in 2019 - which helped justify the original cancellation - estimated capital construction costs of closer to $2.3 million.

That report budgeted nearly 18 per cent, or $320 million, for contingencies and another $190 million (two per cent annually) for price escalation.

Matthew Van Dongen is a transportation and environment reporter at for The Spectator. mvandongen@thespec.com