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.
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.