Construction costs for Lansdowne 2.0 could be underestimated by $75 million, Ottawa's auditor concludes

The approved concept plan for the Lansdowne 2.0 project. (City of Ottawa)

Construction costs for a new event centre and a north side stands at TD Place could approach $500 million due to delayed construction and increasing costs, according to a new report.

Council approved Lansdowne 2.0 in December, the $419 million plan to build a new 5,500 seat event centre and a new north side stands for the football stadium at Lansdowne. Under the partnership with the Ottawa Sports and Entertainment Group (OSEG), the city would cover the cost of building the new arena and football stadium stands.

However, an audit from Ottawa's Auditor General concludes construction cost estimates could be understated by $73.4 million for the new stadium and north-side stands, while costs for the new parking structure could be underestimated by $2.7 million.

"Given the inherent risks related to construction, including the delayed construction horizon and already increasing construction costs, we believe this approach has resulted in some construction estimates that are optimistic," the audit by Auditor General Nathalie Gougeon concludes.

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The auditor general's audit looks at the financial proposal presented to city council in November 2023 and the associated due diligence applied to it. The audit looked at "key assumptions" for the Lansdowne 2.0 plan, including the proceeds from the sale of air rights, event ticket revenue, sponsorship revenue, retail revenue, parking revenue and associated project costs including construction costs and operating expenditures.

The auditor general's office says the audit found that "the due diligence process reflected a significant effort to engage sufficient and appropriate expertise to validate significant financial assumptions and projections for Lansdowne 2.0."

"More specifically, our audit confirmed that all significant financial assumptions embedded in the financial projections were validated by subject matter experts. In several cases, the financial projections were updated to reflect the results of the due diligence activities."

However, the audit concludes the cost estimates for the new event centre and the north-side stands at Lansdowne were on the "lower end of City acceptable ranges for contingencies and utilities construction cost."

In the original proposal in May 2022, the city estimated construction costs at $332.6 million. A new report last November showed the cost increase to $419.1 million, with the Class C estimate including the cost of preliminary work, construction, soft costs related to design and delivery and contingency.

The auditor general puts the cost of the construction project at $493.4 million, while the cost of the new parking structure will cost $18.6 million.

The auditor general also warns of a $10 million to $30 million decrease in waterfall distribution available to the city over the life of the partnership with the OSEG due to specific assumptions for revenue, including Ottawa Redblacks revenue growth and overall expense growth.

"The bottom line is that the City is responsible for the cost of construction for Lansdowne 2.0 and any cost overruns," Gougeon says.

"While this is a City-owned asset, the funding strategy requires the City to cover these costs in the short-term (primarily through the issuance of debt) with the most significant revenue source from this redevelopment (i.e., waterfall distributions) only anticipated to be realized in the later years of the Partnership Agreement, increasing the risk and uncertainty of these revenues. If the cost of construction has been underestimated, this most likely will result in additional debt required by the City."

"Further, should proforma projections associated with the partnership fall short, distributions from the waterfall will not be available to the City to support debt servicing."

Gougeon makes two recommendations to the city of Ottawa:

• Reviewing the Project Delivery Review and Cost Estimating Guide to clarify expectations on how to apply the ranges of estimates, including contingencies based on specific risk factors.
• Recent actual partnership results and modest future assumptions are considered in order to update the proforma projections related to the city's partnership with OSEG.

The auditor general will present the report to the city's audit committee on Monday.

City staff 'confident' in cost estimates: memo

A memo to city councillors sent Thursday afternoon says that city staff agree with the recommendations in Gougeon's report, but differ on some of the findings she identified.

"The validation exercises through the completion of the necessary due diligence of the 2022 Funding Strategy and Cost estimating fully complied with Council's direction and as stated in the Audit report, demonstrated an extensive effort to engage sufficient and appropriate expertise, both external and internal to the City to validate the financial assumptions and projections for the Lansdowne 2.0 redevelopment," the memo said. "This level of effort will continue through all stages of this project. Staff remain committed to bringing forward a plan that creates the highest value for money and respects the investment by taxpayers in this important city asset. We remain confident that the original estimates that were presented to Council are appropriate and align to the guideline for developing them."

Staff said the City has "extensive experience" in owning and operating Lansdowne, which gives it greater certainty in estimating costs. This additional certainty, staff said, allows for the City to lower the estimates for some contingencies.

"To facilitate the most accurate information informed the business case assumptions and associated projections before Council for consideration, staff have applied this allowance to the Lansdowne 2.0 through various due diligence exercises, including planning reports and studies, additional cost estimating and advancement in design elements," the memo said. "This was done to provide Council with a high degree of reasonableness and certainty in the cost estimating."

An updated project delivery review and cost estimating guide is to be brought before council by the end of 2025. Future reports will have additional details to enhance transparency. 

Mayor Mark Sutcliffe is responding the auditor general’s report.

“I'm grateful to the auditor general and her team, and it's great that we have an auditor general who can provide more information and can shed more light on the work that we're doing.”

But Sutcliffe says the report is based on estimates, not the final cost of the project that will be released later next year.

“What I heard from staff in conversations today is that they're still committed to bringing the project back to council next year, very close to the estimates that were before council at the last hurdle that that we crossed," Sutcliffe told CTV News Ottawa Thursday.

"So in the end, council will be making a decision not based on estimates but based on actual costs, and that's what matters.”

"I think any time you have a big project, there are going to be different ways of approaching the estimates and there are going to be different assumptions. And you can have a contingency that's 20 per cent or 25 per cent or 30 per cent. So there's a lot of variables when you're doing estimates, and that's why we structured the process this way.

“We're not going to make any final decisions based on estimates.”

With files from CTV News Ottawa's Leah Larocque