Revamped Stanton costing ‘hundreds of millions more than planned’

Canada’s auditor general says work associated with Yellowknife’s new hospital will cost hundreds of millions of dollars more than originally planned and is not “good value for money.”

A 45-page report from the Office of the Auditor General of Canada, released on Tuesday, scrutinizes the project that built a new Stanton Territorial Hospital in Yellowknife while renovating and leasing the city’s old hospital, now known as the Łıwegǫ̀atì building.

The project as a whole was called the Stanton Territorial Hospital Renewal Project. The new hospital opened in 2019 and a year later, MLAs asked the federal auditor general’s office to examine its finances.

The auditor general regularly reviews major projects or programs in the NWT as the territory doesn’t have an equivalent oversight body of its own.

Deputy auditor general Andrew Hayes said on Tuesday the NWT government could not show the project provided good value for money on behalf of residents or the government.

Hayes attributed that to three issues:

• a lack of evidence for and analysis of decisions that significantly changed the project’s scope;
• a failure to consider or estimate key costs when planning the project; and
• a lack of evidence to show that the project would provide the expected benefits to local and northern businesses.

“The people of the Northwest Territories and the government will feel the consequences of decisions that were made without proper analysis for decades to come,” Hayes said in a statement.

“This project provides many lessons to be learned for future large-scale projects to ensure that the government and residents of the Northwest Territories receive good value for money spent.”

Huge cost leap

While the NWT government projected in 2015 that Stanton Renewal would cost $750 million over 30 years, the auditor general’s report suggests it will actually cost an estimated $1.21 billion over that period – a 62-percent increase.

The new estimate is based on Stanton Renewal’s actual and projected costs as of June 2023.

Tuesday’s report also found the NWT government moved ahead with a public-private partnership (known as a P3) for the project without determining whether that would offer better value for money than a more traditional procurement method.

The report said the Department of Infrastructure could not provide evidence to auditors verifying that spending of more than $71 million actually went, as the department had reported, to registered local and northern businesses.

Meanwhile, auditors found information related to conflict-of-interest declarations and conversations with bidders was missing from procurement records.

In its final major finding, the report said project management roles and responsibilities among departments and the NWT’s health authority were poorly defined.

Plan changed

Providing some background, the report asserted that the NWT government initially believed renovating and expanding the existing Yellowknife hospital would save money compared to building a new hospital.

A subsequent assessment found that using a P3 procurement model best suited the project and would transfer most of the risk – in terms of financing, construction, operations and maintenance – to the private sector.

But when the territory actually awarded the project, the winning bid was drastically different.

Boreal Health Partnership was given a contract to construct an entirely new hospital. The auditor general’s office found the territorial government had gone ahead with that new plan without analyzing whether a P3 was still the best value for money.

“Given the magnitude and long-term nature of P3 projects, the consequences of poor financial planning and management can cost taxpayers a significant amount of money for a long period of time,” Tuesday’s report stated.

The NWT government signed a 30-year lease for the old hospital building with third-party developer Ventura in 2016. The plan was for Ventura to rent space to tenants with the territory receiving some of the revenue.

The audit said the NWT government never considered retaining the building to accommodate its own services, despite being aware – as early as 2014 – that it needed more healthcare space.

In 2017, the territorial government subleased the entire space back from Ventura for 30 years, becoming a tenant in its own building.

The audit states the territorial government took that step without confirming it would result in the best value for money and without the required approval.

Three years later, the territory decided it would carry out most of the renovations on the building itself, which the audit found was inconsistent with its intent to transfer risks and costs to Ventura – a key aspect of its decision to use a P3 model.

Finally, assessing the huge leap in project costs, the audit found the NWT government had failed to publicly report the total estimated figure.

Among factors contributing to the cost increase:

• the NWT government did not include annual property taxes when planning for the new project, which are estimated to cost at least $151.6 million over 30 years;
• operating costs for some non-medical services in the new hospital are projected to increase by least $173 million over 30 years; and
• the territory’s decision to sublease back the old hospital building cost at least $78.6 million more than planned.

The audit was limited to assessing the financial implications of the Stanton renewal project and the NWT government’s associated decision-making.

It did not assess the safety of the hospital buildings, nor whether they comply with building codes.

The audit also did not examine healthcare operations at the hospital.

Tuesday’s report includes a number of recommendations related to the procurement process, updating analyses as projects change, and developing full cost estimates for projects.

The NWT government agreed to all of the recommendations save for one.

That recommendation called on the territory to publicly report detailed and complete costs for the Stanton Renewal project, including costs related to the leasing arrangement, to support transparency in the use of public funds.