Cost breakdown | Megahospitalmistake

http://www.wrh.on.ca/Site_Published/wrh_internet/Document.aspx?Body.Id=68777

Financial Costs:

A cost breakdown according to the Economic Impact Statement

The first line is the actual cost of constructing the hospital $733.5 million, which is a whole lot less than the reported $1.7 billion. On top of that they include additional costs In contract equipment allowance, design scope allowance, and LEED allowance to make it $987.9 million. These are all things you would exxpect the construction company to pay for in the price.

LEED allowance is the one lowest environmental standards apparently. There are much higher standards for construction and LEED isn’t much above normal practice.

Also typical commercial/institutional contruction costs about $250 per square foot. The total cost presented here is about $1000/sf. The hospital will be 1.6 million sf so it should start out at $400 million, with the above add-ons we could understand maybe $600 million just because that’s what governments and contractors have always done. Also, if you want more you pay more, so a bit of that is acceptable.

Construction Contingency $49.4 million. Now it isn’t absolutely clear what that is, nor do they explain it but it sounds like added cost ‘in case things go wrong as they always do’. However one of the reasons the government is so enthused about P3 builds is that the private sector assumes the risk as part of there price without an added “cost of insurance” clause that this seems to be.

Project ancillaries $229.2 million had me stumped for the longest time until I found a definition in the North Bay value for money report:

“There are significant costs associated with the planning and delivery of a large complex project that could vary depending on the project delivery method. For example, there are costs related to each of the following:

Project management: These are essentially fees to manage the entire project. Under the AFP approach, these fees will be augmented by the incremental costs of Infrastructure Ontario providing its services.
Transaction costs: These are costs associated with delivering a project and primarily consist of legal fees. Under the AFP approach, in addition to legal, these fees will also include capital markets, fairness and transaction advisory fees. Architectural and engineering advisory fees are also incurred to ensure the facility is being built according to specifications.”

So in other words both the provincial government and the private partner charge an extra 31% of the base price to manage the project. That is in addition to the construction companies own management costs. Too many supervisors not enough left for the workers. I’m not an accountant but under the tradition way I think most people would question a 31% management fee, why not just call it a kickback fee?

Moving allowance $6.5 million. By comparison to everything else this seems mild but that is the equivalent of paying 60 nurses for a year. I’m assuming that cost is for moving patients because the next line suggests they are buying all new furniture and equipment.

Furniture, fixtures, and Equipment and IT allowance $235.8 million. Perhaps that is because it is an all digital hospital, the old equipment is no longer adaptable but this seems high. Perterborough fully equipped a new 500 bed hospital for about $88 million in 2008. Video of the old Peterborough hospital looked like they left a lot behind.

The new state-of-the-art digital Humber River hospital sounds inconvenient to employees; they have to walk around the robots that are supposed to make their job easier. Another example is they send blood work to the lab through pneumatic tubes; there is promising research underway to analyze blood work bedside. What happens to those built-in pneumatic tubes when they are outdated in 5-10 years?

As a side note, the hospital is fundraising $150 million for furniture and equipment but this $236 million is also part of the 10% hospital tax levy. In fact all these additional charges are part of the tax levy yet they call it 10% of construction costs which we see is only $736-$988 million depending on how you look at it. Maybe they should have specified 5% construction and 5% management, insurance, equipment and satellites to compensate for the poor planning fees.

Now the last line Escalation $198.3 million should perhaps be called anticipated inflation but it is actually low according to an online escalation calculator whic assumes 22% buy 2026 or $332 million but they planned to be starting sooner. So the total for the hospital itself $1.707 billion. Based on the the payments for Humber River hospital their $1.75 billion hospital actually cost $2.22 billion.

That doesn’t include the satellites needed to compensate for poor planning at $385 million bring the actual total to about $2.6 billion.

The cost to the city for infrastructure to develop the surrounding area has been estimated at $220 million which may not have been necessary if not hospital driven. Today we are learning the estimates may be higher, much of the cost recovered in development charges (DC) if it develops.

Also not mentioned is the cost of “revenue generating” areas not paid for the province. These can include the parking lot, the cafeteria or restaurants, retail outlets, office space for lease, research facilities leased out by the hospital, even potentially space leased by the city for a public library suggested last year. There has been no mention of how these will be paid for but my assumption is the private partner will pay for them upfront and recoup their costs through lease rates and maintenance fees.

York regional council estimated about 35% of the cost of a hospital is paid for by the local community through taxes, fundraising or both. So it isn’t unimaginable that this supposed $2 billion winfall from the province will actually cost us $1 billion for a hospital worth less than $1 billion.

It is important also to note that the province isn’t paying much up front. For Humber River they paid $611.5 million down and will be paying $53.9 million /year for 30 years according to the Value for Money report available for download on the Infrastructure Ontario site.