THE KAHNAWÀ:KE CULTURAL ARTS CENTER (KCAC) FACT SHEET ON THE PROJECT ESCALATION COST

Introduction

The COVID -19 pandemic has had extreme effects on commodity and resource prices have skyrocketed. As supply shortages intensify, prices rise, cost estimates are reflecting the current costs in today’s value during the pandemic and economy. Estimators, contractors, sub-trades and suppliers have no control over the cost and materials in these market conditions. Over the past year, there have labour shortages due to varying circumstances resulting from the pandemic. The result of which has increased labour costs as a result.

The Covid-19 pandemic has had a negative impact on many industries, and the construction industry is no exception. Cost increases being seen during the tender phase of construction projects can be attributed to the need to conform to public health guidelines which include mandates to screen trades, cleaning, and disinfecting worksites at a higher level, installing handwashing stations, additional personal protective equipment and in some cases, limiting the amount of workers in a space due to social distancing requirements, which extends the schedule due to decreased productivity. While Covid-19 mandates have generally been lifted, its expected that construction sites will continue to maintain various protocols in order to protect workers. The value of the loss of productivity on job sites, along with the supply chain shortage, can be estimated at a value of 40%. We are now seeing this increased cost impact in competitive bidding conditions.

One of the biggest challenges that the construction industry will face in 2022-2023, are disruptions within building material supply chains. Throughout the pandemic, there has been disruptions to supply chains which has led to several material shortages along with increased demand for materials on a global scale. The Canadian construction sector grew approximately 6.5% due to influx of investments in the construction sector, progress with vaccinations and increased public spending in clean energy and infrastructure projects. However, the quick recovery from the start of the pandemic in the construction sector, has further bottlenecked the building material supply chain, resulting in shortages, and unpredictable costs. These shortages are often a leading factor in project delays, costing time and money.

Several items have been affected by cost increases and/or longer delivery/ lead times in 2022-2023.

Costing Analysis Summary

Below is a list of the most prominent elemental items that have been significantly affected since the start of the pandemic. Other materials, not limited to asphalt, concrete, masonry, site work, etc., have had less dramatic price increases, however, they are still above standard inflation costs from 2020.

  1. Steel Elements: There have been significant increases since the pandemic began, and costs have increased approximately 180-200% for structural and miscellaneous steel. Costs continue to escalate. Labour costs have also increased due to the volume of work and shortage of workers.
  2. Mechanical, Plumbing + Electrical Systems: We have seen costs increase for materials used for M+E systems between 50-90%. A large part of the increases is related to raw material from other sectors, such as aluminum for ductwork, plastic resin for piping. Delivery of mechanical units have been taking an average of 16-22 weeks or longer to deliver as opposed 8-10 weeks pre-pandemic. Labour costs have also increase due to the volume of work and shortage of workers.
  3. Insulation: The cost of insulation material has increased by approximately 30-50%. We are seeing several major supply issues, with lead times up to one (1) year for delivery of Roxul mineral fiber insulation products, where it was previously readily available. Additional supply shortages are being forecast for the near future on other building insulations materials such as poly-iso, etc. Labour costs have also increased due to the volume of work and shortage of workers.
  4. Windows/Doors, Glazing: Residential and Commercial window and door assemblies have been months behind with the standard delivery times extended due to the shortage of skilled trades. These also come with a cost increase of 30-50% compared to pre-pandemic pricing. Costs have also increased as a result of the pandemic, and labour costs have also increased due to the volume of work and shortage of workers.
  5. Wood Elements: The cost of lumber material, such as sheathing, framing lumber, LVL beams, furring, TJI’s have hit record high prices in 2021. Although we have seen some decreases in the lumber prices since then, the increases are still up by 150%-200% compared to pre-pandemic pricing. The increase in lumber and wood products are also affected other areas, such as millwork systems, wood windows, etc. Labour costs have also increased due to the volume of work and shortage of workers.
  6. Overall tender costs: Overall tender cost have seen significant increase, which is due to GC’s and trades inflating their costs to cover additional costs they may see, for material delays which can cause project delays, lack of labour, and having to pay higher labour rates to keep workers, and to cover inflation rates and rising costs as well as provide a substantial safety new with the rise in material costs that suppliers are no longer ‘holding’ their prices for more than 7 days in most cases.
    • 3.5 Risks
      The Key risks have been considered are summarised below:
      • Current market conditions relating to material and equipment pricing and availability as a result of COVID-19
      • The impact of Russia-Ukraine conflict on commodities prices and supply chain.
    • 3.6 Escalation Summary
      • Works are priced at a Base Date of calendar year Q1 2023
      • Escalation is set at 13.7%
      • Escalation is included up to midpoint of construction – assumed September 2024. It is built at 10% for 2023 and 7% p.a. for 2024-2025 (based on an average calculation over the last five years inflation using Statscan Building construction price indexes for Non-residential buildings).

The findings from the selected Architect are that the original cost escalation since COVID still exists and now have the added uncertainty of the Russia/Ukraine conflict placing additional price pressure on building supplies and materials.

Message from the Committee

The estimated overall project costs from 2018 per square foot to today have approximately doubled, leading to an overall project and budget increase proportionately. Unfortunately, previously committed Public Funds have not doubled their committed contributions despite the market volatility, placing financial pressure on the project team and requiring them to explore new envelopes of funding.

One other avenue currently being explored is the “optimizing” the project where possible for final budget consideration, to make the project a reality within the targeted project timeline of a Fall 2023 ground-breaking.

We hope this explanation provides current and potential new donors gain a better understanding of what the Building Committee has been challenged with. We also invite you to contact our Project Manager, Louie John Diabo, for more details on the projected project costs when available and he can assist in explanations to donors.

We look forward to the day we open the new Kahnawà:ke Cultural Arts Center doors together as a community and would like to take this opportunity to thank you for your continued dedication to the project, and the positive financial and awareness results produced to date.

Contact:
Louie John Diabo, Project Manager
[email protected]