Report: “socio-economic objectives” lay behind Nunavut social housing fiasco
Six departments presided over $110-million debacle
The Nunavut Housing Corp.’s infamous $110-million cost-overrun fiasco occurred because Nunavut government officials did not account for the cost of various social and economic objectives that were tacked on to the project, an NHC report says.
“In short, the construction of housing stock was heavily overburdened with socio-economic objectives which the budget for the delivery of housing was not able to bear. In trying to solve other problems, the focus and the intent of the funding was clouded and misdirected,” the report said.
The report, called “Lessons Learned,” is now posted on the housing corporation’s website.
The document attempts to summarize why two federal social housing contributions totalling $300 million ended up blowing a $110-million hole in the GN’s capital spending plans.
In doing so, the report reveals that responsibility for the debacle extends far beyond the senior levels of the housing corporation.
That’s because the ill-fated Nunavut Housing Trust strategy was devised in 2006 by a top-level steering committee of GN deputy ministers and senior managers directed by the Financial Management Board, the name given to the Nunavut cabinet when it’s chaired by the finance minister.
That group included officials from not only the housing corporation, but the following departments:
• Nunavut Arctic College;
• the Department of Community Government and Services;
• the Department of Education;
• the Department of Economic Development and Transportation; and,
• the Qulliq Energy Corp.
The socio-economic objectives this group added to the project included the training of workers and the development of new construction firms.
But the civil service committee didn’t figure out how to pay for those aspirations.
“The inclusion of economic development and workforce training initiatives naturally impacted construction costs, but were not factored into the 2006 budgeting,” the report said.
And the strategy this group devised in 2006 to manage the first $200 million contribution from the Harper government failed — because GN civil servants did not have the experience to handle the job.
“Both the interdepartmental groups and the NHC lacked the experience to deal with this type and magnitude of project: multi-year and hundreds of millions of dollars,” the report said.
“This resulted in a traditional government approach being used rather than a major project model. The government as such assumed full responsibility and construction risk by attempting to do what the private sector does best.”
The cost overruns first came to light in May 2010, when the housing corporation revealed that the social housing construction program funded by Ottawa’s first contribution, worth $200 million, had gone $60 million over budget.
That $200-million contribution was essentially a Kelowna accord commitment that the Conservative government, newly-elected that year, chose to follow through on.
In September 2010, the corporation then announced that the construction program financed by Ottawa’s second contribution, worth $100 million, had gone $50 million over budget.
By then, it was too late to adjust the plan. The second program, called the Affordable Housing Initiative, had been set up with the same flawed assumptions built into the first one.
The GN responded by sticking to its original target. They finished building 726 social housing units, scraping together the extra $110 million be gouging it out of other parts of their budget.
“To its credit, the Government of Nunavut, in recognition of the enormity of Nunavut’s housing challenges, chose to resolve the inherited situation by allocating additional budget, rather than reduce the number of houses to be constructed,” the report said.
The program also led to the training of 45 apprentices and one journeyman tradesman.
But the report said that in spite of those “successes,” the “resulting budgetary impacts are difficult to justify.”
One big problem was created by the way in which the territorial government structure the work: the supply and marshalling of materials was separated from construction and labour contracts, which often went to a variety of local firms.
As a result, the short-staffed housing corporation, with limited capacity and experience, was required to act as general contractor, even though the corporation lacks a procurement division.
Other big problems cited in the report include:
• the marshalling of material for sealift did not lead to reduced costs, material was flown in, and an unproven company received the first marshaling contract;
• the use of Roxol wool insulation led to quadrupled shipping costs;
• the use of sealift containers increased shipping costs and created difficulties on the ground;
• the use of journeyman and apprentices led to higher costs for contractors;
• mandatory high wages and northern allowances for workers led to big financial problems for small contractors, some of whom stopped working on construction projects;
• local housing organizations, such as housing associations, had no experience in construction and had to handle construction in communities where there are no local contractors;
• the housing corporation’s structure, which included a chief financial officer in Iqaluit and an understaffed finance division in Arviat, prevented cost increases from being spotted on time;
• the GN’s computer network prevents email attachments greater than five megabytes from being sent, hampering communications;
• land lease costs increased from $300 per year to between $20,000 and $75,000 per year; and,
• oil prices doubled and material costs rose during the construction period.