” Hi Laila…Remember the Principle of Parsimony, aka Occam’s Razor that says: “simpler explanations are, other things being equal, generally better than more complex ones.” The illusion of a fixed price contract is great optics even though its an illusion. As you quite rightly point out there are escape clauses in the agreement that do in fact provide for modifications to the price. However, builders do build in as much room as possible in their fixed price bids to cover minor price fluctuations and minor delays. The downfall for these big projects though is that non-expert political masters interfere with the design and order changes along the way. That was the case with the fast ferries, and with BC Place roof and with the Port Mann. This interference triggers the modification to the original terms and conditions. But politically speaking, ‘they’ trumpet the fixed price nature of the contract – even though the “Fixed” nature of the price is tenuous to say the least. Just look at the history of the stadium roof! “~ unnamed source
John Pilger is a renowned investigative journalist and documentary film-maker whose work is very provocative. He has well-known for meticulously picking apart and revealing the well crafted illusions that several governments have worked hard to pass as “official truths” – a description so befitting to our situation here in British Columbia.
There have been many official truths promoted by the governing BC Liberals over the last 10 years, and many illusions revealed as well.
Official truths like there is no toll on the Sea to Sky highway, when in fact there is- a shadow toll. ( you can read the full series on my Best Of page above- there are shadow tolls on several large projects in BC we must pay for years to come – ALL of us.)
Official truths like the HST wasn’t on our radar, when it fact is was and had been for some time. And that plays into todays story with the Port Mann as well,believe it or not.
Official truths like ” We must not go back to those dark, horrible days of when the NDP ran this province into the ground.” Again… not so true when you look at the numbers.
Official truths like the Port Mann bridge is a fixed price contract where the builder takes all the risk, when – as my source confirms above -there are in fact many allowances built into the agreement for changes in cost, design and circumstance. Indeed, this contract has the potential to be another BC Place stadium roof!
Also concerning, is reference within the Statement of Financial Information, to multiple indemnities given by Transportation Investment Corporation( to be referred to as TIC from this point) under the design build contract with Kiewiet/Flatiron, as well as other agreements and contracts. TIC is the crown corporation in charge of the Port Mann/Highway 1 project. (click on the image to see full size)
It is the many clauses in the contract between TIC and Kiewit/Flatiron that have me strongly questioning the governments repeated assertions that this project is on budget….and should have the opposition calling for an immediate reveal of any resulting changes in cost and design to date.
Recently back in the news because of a gantry collapse that dropped a massive, pre-fab concrete portion of the new bridge deck into the Fraser River, I once again wondered how the builder could continually absorb these kind of costs on such a massive project that has experienced ongoing challenges since the beginning, even factoring in contingencies for rising supply costs etc.
The gantry is custom made, specifically for this project and the damage sustained was not insignificant to those who know the equipment. The pre-fab concrete portion may potentially be unusable and there are questions to what, if any structural damage the bridge deck under construction sustained as a result of the impact of the gantry collapse. Not to mention the very real potential for a delay, all of which adds up to $$$$.
Max Logan, current PR man for the project and TIC, immediately stated to the press this is a fixed price contract, no cost to the province. But is that really the case? I immediately went back to the disc I received after a lengthy FOI process from Transportation Investment Corporation that contained a redacted copy of the Port Mann design build agreement, the interface agreement and over 30 additional schedules and references that is now also available on the project site.
What I found is evidence that there is more than enough room for the cost of this bridge to rise, thanks to a few artfully crafted clauses and schedules within the design build contract.
This is the 1209 page document, in PDF format: http://www.pmh1project.com/About%20the%20Project/PMH1DBAgreementRedacted.pdf
These clauses and schedules allow for several different kinds of changes in compensation and cost, and can be triggered by a number of events and circumstances.
First, if the province makes a material change to the design, supplies- whatever- that will cost more than estimated by contract purposes, the builder can be compensated for this by the terms of the contract.
As confirmed by my source at the beginning,the contract does indeed hold the builder liable for the cost of minor changes and costs -this is part of the ‘fixed-price’ nature of the contract the politicians like to remind us of every time something happens.
However, what they don’t tell us about is that if the cost increase in supply, construction or design is found to be above a set, predetermined amount, the builder can apply for compensation as long he can show that all attempts were made to mitigate that increase and maximize savings.
For example, let’s imagine that the local source for gravel that was initially chosen to supply the Port Mann construction of the bridge because of it’s location, is lost and the builder now has to truck it in from Chilliwack rather than Langley. Clearly,as the cost of that material is going to be higher than estimated due to increased trucking distance, the builder looks to several sources but none are as close as the original. Although the builder attempted to mitigate this occurrence, the increase is unavoidable.
If that increase in cost can be shown to be far above and beyond what was estimated for contract purposes as a ‘minor change’, this triggers the approval of a change in cost and subsequent payments to the builder.
In laymen terms, although the builder is prudent in making sure his fixed price has room for minor changes and ensuing costs, he still covers his financial ass via these escape and condition clauses in the contract – what smart business person wouldn’t, in particular in a time of global economic instability.
The interface agreement, ( schedule 18) which is the supplementary agreement that binds all parties in this massive venture, states that the constructor is bound by Part 7 (page 52) and Schedule 11 of the design build contract, both of which cover the above conditions, as well as Part 8(pg 54) and section 4.10, Mitigation by Constructor.(pg. 21)
It’s all there in the contract,it’s been there all this time, and while Falcon, Campbell and all the PR people in between have often lauded, ” It’s a fixed-price contract!”,they’ve been handily patting themselves on the back the entire time.Now you might understand that statement from a very knowledgable source even better:
“The illusion of a fixed price contract is great optics even though its an illusion. As you quite rightly point out there are escape clauses in the agreement that do in fact provide for modifications to the price. However, builders do build in as much room as possible in their fixed price bids to cover minor price fluctuations and minor delays. The downfall for these big projects though is that non-expert political masters interfere with the design and order changes along the way. That was the case with the fast ferries, and with BC Place roof and with the Port Mann. This interference triggers the modification to the original terms and conditions. But politically speaking, ‘they’ trumpet the fixed price nature of the contract – even though the “Fixed” nature of the price is tenuous to say the least. Just look at the history of the stadium roof! ” ( this was also a fixed-price contract)
It is nothing but an illusion to take the heat off the province and give the talking heads a standard three word line to fend off the press.
Retaining wall fails? ” Fixed price contract!”
Skyrocketing supply and material costs? “Fixed-price contract!”
Geotechnical problems on the north end approach? ” Fixed-price contract!”
I will state clearly, that it is in the builders best interest to make sure the costs are kept as low as possible to maximize their profit, but there lies the inherent danger with a fixed price contract. Strict cost-cutting measures by the builder can, and do, dangerously impact quality of construction and safety as they race to meet stringent construction deadlines and the lucrative performance bonuses that come with them.
(Can anyone say “The failed retaining wall on Lougheed that did not meet provincial building standards” ? ) Which brings us to the current gantry collapse and possibility of delay in the project.
A provision of the design build contract with Kiewit/Flatiron General Partnership requires the payment of an early completion bonus if the tolling operations commence prior to December 1, 2012. How much is that bonus, and how hard would Kiewit push to reach that deadline?
There are more gems among the documents available, including the estimated cost for demolishing the old Port Mann once the new bridge is complete.
As recently as two weeks ago, Max Logan, PR man for the project, was still telling the press that the province had not assigned a dollar figure for the demolition.
I’m happy to let Metro Vancouver mayors know that as of March 2011, the province had a contractual obligation to Kiewit/Flatiron to decommission the old bridge in the amount of $39 million dollars. The old bridge will not be saved without a tremendous amount of expense, because the contract would also have a termination clause if the province bowed out at any point, and Kiewit would walk away laughing. ( click on image to view in full)
So, the question is, what, or whom, do we believe- and why? The page from TIC’s financial information statement is clear that number is a contractual obligation, yet Max Logan is telling the press, not once, but at least twice, that no number has been alloted for demolition yet.
Did he get left out of the loop or is the cost of that dollar value of the contract going to be different as well and deflection is his game?
The chart above also reveals the total contractual obligation to Kiewit/Flatiron for the Port Mann bridge new construction to be $1.27 billion dollars. This is significant because in a recent article with the Journal of Commerce criticizing the decision to build an entirely new bridge rather than twin the old one, the province would not reveal specific costs for the new bridge, instead giving a roundabout number of $820 millon.
Again, the province is not forthcoming with specifics, sticking to the fixed-price contract line. ( the link in this segment is a must read angle)
The Port Mann project has been steeped in controversy from it’s humble beginnings as a plan to twin the existing bridge at a cost of $1.5 billion which seemed to be both prudent and economical.
Suddenly, taxpayers are told the province is going to build an entirely new bridge, at the cost of $3.3 billion, in a P3 deal with the private partners shouldering the risk. Of course, the private partners were long time Liberal friends, Macquarie and Kiewit of Sea to Sky highway fame, of whom I have written extensively.Turns out the bidders felt the cost of upgrading the old bridge was cost prohibitive and building an entirely new bridge would be a better deal for taxpayers… ( ??)
But then,Falcon announced that the province was going to fund one third of the project, and soon after when the world economy was so unstable that even Macquarie, the Liberals best offshore advisors, could not secure finace terms that suited Partnerships BC, the P3 deal was called off.
Falcon, who had earlier announced the P3 model was best for this project and taxpayers, then turned tail and announced that a traditional design build contract was best for taxpayers and the government was paying for the whole project via a fixed price contract…With Kiewit/Flatiron as builders and Macquarie being kept on as ‘financial advisors’.
The design build contract was never put back out to tender, a move decried by many in the industry as unfair and irregular.
Yes indeed… its a good thing, people, Falcon assured us, in the best interests of taxpayers and the best value for our money…
Again, sure Kevin. Time for a full reveal and disclosure on this project, and the actual costs to date. I suspect there is a lot more to be discovered on this project,some of which we may not know until the bridge is done.
And before I forget, it was also somewhat ironic, as the government currently stalls the demise of the HST, to find that there are specific sections in this contract – signed in March of 2009 – specifically on how a change in the PST law and the GST law will impact the contract…( page 90 & 91) Clearly, although we have long known the Liberals lied about the HST all along, the contract shows Falcon and Campbell were in the loop at that early date.
“Truth: Outlawed by governments everywhere.” ~ John Gilmore.