Inflation, labour shortages and supply chain disruptions are taking their toll on the City of Nanaimo’s construction projects.
At a governance and priorities meeting Monday, June 27, councillors presented with a report on current construction market conditions impacting most of the city’s infrastructure upgrade projects, many of which are being postponed until 2023 and beyond.
“This a familiar tale to council,” said Bill Sims, city general manager of engineering and public works, in his introduction of the report the committee. “The market uncertainty continues … At some point we anticipate that it will settle down and be a little more stable once again, but it’s hard to see that at the moment.”
Phil Stewart, city engineering projects manager, reported that inflation has pushed most city construction projects substantially over budget. He spoke with people in the Vancouver Island Construction Association who pointed to increasing operating costs such as rising prices to run heavy machinery, supply stream disruptions that started during the COVID-19 pandemic, and a skilled labour shortage amplified by a booming construction market.
In early March, the city called a local contractor to price a small project.
“They said, ‘We’ll price it for you, but we’re scheduling out in October.’ So, they had their entire calendar throughout the summer booked already in early spring,” Stewart said.
The combination of inflation and inability to schedule contractors has led to a number of projects scheduled to start in 2022 being delayed until 2023. Among those are the Albert Street complete streets project, ‘Mid-Town Gateway’ road realignment, and Terminal Avenue Phase 1 projects totalling about $12.2 million.
The Pearson Bridge section of the Millstone trunk sewer upgrades, Tenth Street paving, Mill Street sanitary sewer, White Street utilities and the Strongitharm Avenue sewer are another $3.5 million worth of projects deferred to 2023.
Cost consultants with whom the city is working estimate construction costs will jump five to seven per cent for 2022 to 2023 and for 2023 to 2024 and about four to six per cent from 2024 to 2030.
“It’s quite a bit different than the two to three per cent that we’re used to,” Stewart said. “Finally, we’re using this information to develop the next round of financial plans, making sure that escalation is in there, and we’ll be back in council in the fall during budget discussions for more information.”
Nanaimo Mayor Leonard Krog asked if city staff’s research had turned up any particular parts of the world where supply chain issues were originating from. Stewart said shortages for certain products, such as pipe, specifically the plastic resin ingredient to make the pipe, were surprising.
“Some places it’s fine, the wait for components is what it used to be,” Stewart said. “Other places it surprises us how long waits are for an electrical component. Anything with a [computer] chip in it takes a long time … Pipe continues to be an issue, especially larger pipe … and every once in a while there’s these specialty components [and] anything specialty that’s just not off-the-shelf is hard to come by.”
Sims said another factor is the large amount of money injected into the economy to keep projects going and bolster economic strength during the pandemic.
“Which was good, but now … everybody’s trying to get the work done and the labour [supply], which was already starting to shrink, is now spread out trying to do all these projects,” Sims said. “Everything from building a house to pouring a sidewalk to laying a pipe is affected.”
Coun. Ian Thorpe suggested, given inflation, construction cost increases, supply chain issues and the backlog of city projects, the current council and incoming council will need to review the priority levels of those projects.
“[Council is] going to need to have a very close look at all of the projects that are in our queue, re-examine all of them to see which are must-have projects – related, probably, to our infrastructure – and which of them are … nice-to-have projects, because our taxpayers are hurting, the cost of living is way up and all of these projects with increased costs are going to come back down onto the taxpayer,” Thorpe said. “So, I think there’s going to have to be some hard decisions made down the road and that’s just the reality of this. This is not like a depression where we can spend our way out of it.”