This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 2016 special report on the 2015 Pan Am/Parapan Am Games, the Auditor General of Ontario found that the provincial government spent more than $300 million over its initial budget for the games. The Auditor General calculated the cost overrun as follows:
The Ontario government contributed significantly more than its original 2009 $500-million bid commitment on capital costs (excluding the Athletes’ Village), operating costs and legacy costs—We estimated that the final cost of the Games (excluding construction of the Athletes’ Village) was $1.794 billion, compared to the Games 2009 bid commitment of $1.429 billion (in 2014 dollars). We estimated that Ontario’s share of the final cost of the Games (excluding the Village) is $804 million, or $304 million (61%) more than its initial commitment of $500 million in the 2009 bid budget (in 2014 dollars), as shown in Figure 4. Ultimately, additional costs were incurred for security, transportation, capital spending, provincial oversight, and support of the Games.
The Auditor General also noted that in addition to spending more, the Ontario government also received less than originally planned. For example, the size and features in the Athletes Village were scoped down twice to stay within budget, while some of the game venues failed to meet target completion dates. Although those venues were open in time for the games, the late completion dates restricted the government’s ability to engage in proper event planning, such as the installation of appropriate security infrastructure and temporary event seating.
The Auditor General further observed that the government’s decision to bundle multiple projects together in order to justify the use of an Alternative Financing and Procurement (AFP) model, also known as a public-private partnership or P3, eventually resulted in additional delays and project deficiencies:
Bundling of construction projects contributed to project delays and significant deficiencies—Nine construction projects, managed by Infrastructure Ontario, were grouped into two bundles in order to have a total project value high enough to be able to use the Alternative Financing and Procurement delivery model, with a goal of attracting bids from international contractors. These bundles involved different venue owners, unique designs, and a range of project sizes that had few common elements. All six projects in one such bundle were delayed as any particular problem with a contractor on one project would inevitably affect all other projects in the same bundle. As well, the two projects (Tim Hortons Field in Hamilton and York University Athletics Stadium) that continue to deal with outstanding deficiencies were from this same bundle. Also, owners of smaller projects in the bundle noted that bundling limited their flexibility to manage their projects; they could not, for example, contemplate issuing a stop work order or terminating a contractor who was running late on their smaller projects without affecting delivery of bigger projects in the same bundle.
As this case study illustrates, using the AFP/P3 procurement model does not guarantee that projects will avoid delays and cost overruns. In fact, in this situation, the Auditor General concluded that the use of this approach may have contributed to the delays and cost overruns that the model was ostensibly designed to avoid.
