ARCHIVE - 3. Capital cost assumptions

3.1 Sources

The review of the capital cost assumptions was supported by the information provided by CSC (names are those provided on the documentation received):

• Complexes. Capital Cost Estimates (class D, order-of-magnitude). 07/09/11;
• Project Time Frames. Complex ($500 M Construction Value). September 11, 2007;
• Sept 2007 Cost per Offender Calculations – 2005-06 – Rated Capacity vs. Utilization; and
• Capital Costs, Background Information. Order of magnitude costs.

3.2 Key assumptions

The complex is assumed to have the following functional areas.

• Reception;
• Health care;
• Mental health;
• Special handling;
• Regional administration (reception, training, regional headquarters, etc);
• Maximum population;
• Medium population;
• Minimum population;
• Segregation unit; and
• A shared area.

The proposed complex is notionally assumed to be on the lands within the Millhaven facility. Therefore, no special accommodations need be made for localized inflation (e.g., special accommodations for inflation may need to be made if the complex were constructed in Vancouver, Edmonton or Calgary) or for the purchase of land. Thus, if the location of the complex was changed, a different set of assumptions would be necessary in order to account for these factors.

Assuming traditional procurement, the financing charges associated with the construction of the facility are not part of the costing, i.e. no capitalized interest.

No accommodation for how inflation may impact the cost over the construction timeframe has been made. This is an adjustment that should be made in further analyses given the material impact current rates of construction inflation are having on large capital projects in Canada, particularly if there are significant implementation timeline differences between the status quo and complex.

In addition, all referenced capital costs are reported in 2007 dollars. Order of magnitude estimates are (+/-) 25% and project costs are excluding land acquisition costs.

The facilities slotted for replacement are those deemed most in need of redevelopment/refurbishment, with exception of Pittsburgh, which is due to be incorporated because of its association with Joyceville. Thus, significant capital costs will be incurred on these facilities regardless of the construction of the complex. Furthermore, CSC has not incorporated any construction projects currently underway at any of the amalgamating facilities. They are deemed to be sunk costs. Therefore, budgeted capital costs may be slightly skewed.

The lifespan of the complex has been estimated to be 32 years which is deemed, by CSC, to be reflective of a typical lifespan of other correctional facilities. Additionally, when completing their calculations, CSC did not incorporate the relatively young life of the Pittsburgh facility in order to maintain simplicity. Thus all incorporating facilities are deemed to have a similar lifespan.

Property re-sale values have been considered in the capital costs when deemed applicable by CSC less costs of demolition. CSC has estimated that property resale values will result from Joyceville/ Pittsburgh, $2 million from the sale of farmland and Regional Headquarters of $17 million based on 2001 market assessments plus 25% (the estimate does not consider the related costs prior to the sale, i.e. environmental costs). CSC has estimated that the sale of Warkworth will equal the cost of demolition, Kinston Penitentiary will remain heritage property and Millhaven will remain CSC property because of its proximity to Bath institution. These estimates are all contingent of current market conditions at the time of sale.

The option to include the regional headquarters as a part of the complex is in line with CSC's long term capital plan² which is to replace and rebuild the current regional headquarters. The costs are consistent with the latest estimates for the related projects.

Social trends, such as the requirement to separate rival gangs, have been considered in the proposed cost estimates.

The starting point for the capital cost assumptions are the "all-in" cost per cell standard costs for minimum, medium and maximum security levels. These costs are $500,000 per maximum cell, $400,000 per medium cell and $200,000 per minimum cell. These standard costs include:

1. All expected costs for the facility including health care, kitchen, etc.
2. Approximately 35% of additional costs are added to the cost per cell/bed for planning and design fees, project management costs, furniture and equipment, telecommunications and electronics and construction site security; and
3. An estimated premium (stated as 5% to 25%) for construction within a correctional facility although the amount of this premium is not explicitly stated.

Efforts have been made by CSC staff to identify opportunities for co-location, such as placing reception with health care, and opportunities for improved service standards, such as providing shorter distance between inmate populations and the reception area. However, the structure and design of other complex models that exist in the other jurisdictions were not leveraged. Therefore, it cannot be ascertained whether the proposed complex model represents the most innovative and cost effective design layout. As the capital costs are a major cost item, this would seem to be a good area to find potential savings.

Given the key assumptions and the above standard costs, CSC uses its judgement and experience to estimate the required footprint for each area. This is then multiplied by an estimated cost per gross square meter (translated into gross square feet in this report) figure to arrive at the cost per functional area.

3.3 Cost breakdown by functional area

As noted above, construction costs for a new facility are typically reflected in unit costs and include all components of the facility including administrative, security, program, socialization, healthcare, inmate and technical services, inmate housing, segregation, employment, industries, education and vocational facilities, and all related systems and infrastructure including perimeter systems, site services, mechanical, electrical, security telecommunications, and all land development costs including site preparation, access, central service installations, landscaping, roads and pedestrian circulation.

Figure 3.1 illustrates the components of the capital cost estimates prepared by CSC for the complex. From this, it can be seen that the key costs are those associated with the maximum and medium populations as well as the reception areas of the facility. This is to be expected as these are anticipated to be the largest areas within the facility.

Further, the relative 'cost per gross square foot' assumptions were reviewed. As might be expected, the highest costs per gross square foot are Health Care, Special Handling, Segregation and Maximum. Also as might be expected, the Minimum Population area and the Total Regional Administration and Training have the lowest gross square foot costs.

Furthermore, Figure 3.2 illustrates the total square footage consumed by each functional area in the new complex as compared to the total complex. It may be noted that the maximum and medium populations, reception and shared cores represent the largest areas in square feet of the complex.

3.4 Implementation timeline

CSC has established preliminary estimates relating to the procurement and implementation of the new complex. To the extent that the status quo assets will not meet the needs of CSC due to overcrowding or need for replacement, an interim solution may be required (and hence, accounted for) in the costing of the status quo comparison.

The key observations from the proposed timeline are:

• The timeline has a presumed design-bid-build delivery model. To the extent that other delivery models may be possible these timelines may be significantly reduced;
• The time from the planning to the construction stage is budgeted to be 5.25 to 8.25 years. This seems inordinately long, even for a construction contract of this magnitude. It is recommended that CSC consult with other Departments that have undertaken similarly sized projects in order to determine whether the approvals process can be reduced;
• Procurement is estimated to be 1.75 to 2.75 years. Typically it is estimated that this time frame should be approximately 1 year;
• The estimate has 1.5 to 2 years to develop the contract documents. Other comparables suggest that this could be as short as 0.75 to 1 year; and
• The construction period is projected to be 4 to 5.5 years. Based on the data received and the capital costing expenditures, this would translate into $188M to $136M spent on construction cost per annum. It is recognized that this assumption is dependent upon the location of the proposed complex. However, to the extent that the Millhaven site is preferred, the construction period would likely be on the low side of this proposed range.

A shorter implementation period for the complex should translate into lower costs and potential avoidance of any interim solutions to deal with overcrowding in the existing facilities. Given our concerns with the implementation timeline generated by CSC, we recommend that a more detail critical path based approach to generating the timeline be considered in any further analysis.

² This fact has been provided by CSC but was not corroborated by reviewing the Long Term Capital Plan

Date modified:

2015-12-09