City concedes SOEC could have been handled better

By Penticton Mayor Jake Kimberley City Administrator Leo den B Jan 21 2007 http://www.pentictonwesternnews.com/
If only the South Okanagan Event Centre proponent selection process was as quick and easy as looking at two numbers and choosing the lowest one. If only the past council had undertaken the public input process and determined what user groups wanted at the beginning of the process to save time later. If only the city had been given all of the money — instead of merely most of it — to build the SOEC, it wouldn’t have required a time-consuming referendum process. If only it were as easy to come to a signed agreement on a project of this magnitude as it is to criticize those who have now accomplished that feat.

The “if only” list is as long as the list of those who will use the generalized lack of understanding of the design/build process to advance their own agendas. When former mayor David Perry states he was close to signing an agreement with one proponent and the rest of his council knew nothing of that, it is perhaps understandable he assumes the current mayor pushed for selection of the other proponent. The current mayor was not involved in the selection process and had an independent panel of citizens review the evaluation team’s recommendation to ensure there was no bias, political or otherwise. Now that the process is behind us, the current mayor’s predecessor can claim he would have shortened the process and the unsuccessful proponent can claim they can guarantee a year-old price knowing that claim will not be tested.

The city, on the other hand, had to test and prove that one of two proposals offered residents the best long-term financial and community benefits. Yes, both proposals had a dollar figure attached to them, but they were indeed like comparing apples and grapefruits. A method of first “equalizing” them had to be developed. The relative value of the extra 71,000 square feet of facility space we are getting with the Giffel’s proposal had to be determined. The evaluation team had to decide if the corridor connecting the SOEC to the Penticton Trade and Convention Centre proposed by Giffels would help increase convention revenues. The team had to commission a comparative analysis of the long-term financial benefits of both proposals.

They had to decide if an experienced operator was better able to maximize those financial benefits through joint facility operations. The team had to go through two extensive proposals looking for unanswered questions and contingencies, request more detail and then evaluate proponent responses. After the price of the selected proposal increased, a second comparative analysis had to be undertaken to ensure the Giffels proposal still offered the best value. That is what city staff and advisors were doing during the months leading up to the decision. Anyone who has seen the details contained in the final agreement — which is a public document — would easily recognize that the negotiating team wasn’t sitting on its hands for seven months waiting for the price to go up.

Now that we have the benefit of hindsight, are there things we could have done differently? Undoubtedly, we now know that the price for such a complex facility could not be set firmly in this overheated construction environment until the design was detailed enough to allow sub-trades to provide precise costs. Those detailed designs could not be completed until early November, after the public input process determined user and stakeholder needs and the architects had time to complete detailed drawings. Giffels was then able to provide a revised price in mid-November.

Developing a process and contractual agreement for a project of this magnitude was a first for the City of Penticton. The learning curve was steep. When the city took the term “guaranteed maximum price” stated in the proposal at face value, it made an assumption we now know in hindsight to be erroneous. Based on written information, verbal statements and the advice we had before us at the time, we went out to the public before the referendum stating our genuine belief that the price was guaranteed at $39.6 million until mid-October. The city has written confirmation that the price was $39.6 million until the end of July 2006. In fact, the city’s comfort in stating that price was confirmed by a document received from Giffels on Sept. 13, 2006, which included a wellness centre, extra elevator and Zamboni room as well as a proposed $1 million for “escalation.” Otherwise, it indicated no substantial change from the original price. As the proposed escalation figure was not substantial, did not affect the borrowing bylaw, had not been agreed to and negotiations were still under way, the city team was not at that point concerned about escalation due to the usual give and take of construction contract negotiations.With the benefit of hindsight, references to guaranteed maximum price should have been qualified or deleted. For this we apologize.

Before signing the agreement, the city had an independent firm undertake a quantity survey to determine if the final negotiated price offered good value for money for the specific facility that has evolved through this process. The quantity surveyor’s report confirmed that the price tag is within 2.44 per cent of the actual costs to build the South Okanagan Event Centre. That means Giffels — or any of its competitors — could not build the facility we have designed for less given the current construction climate.

While the city could have started over and gone back out for new proposals when the final price came in higher than anticipated, the quantity survey and re-assessment of the second-place proposal confirmed Penticton is getting a good facility at a fair price. Also, if we had started over again, the city would likely have lost the $9.7 million in provincial funding and the casino funding of $40 million. Given past experience, council decided not to downsize the facility. Due to the almost $50 million in provincial and gaming revenues we have available for this project, we do not have to increase taxes for the SOEC by more than .67 per cent in each of three years, as council originally promised. We do not have to borrow more money than voted on in the referendum question. While our capital expenditure belt will be tightened for three years — which is to be expected with a project this size — beyond that, our financial commitment to the SOEC will in no way impact this community’s ability to finance other major projects as it sees fit. Furthermore, the most significant aspect of the city’s operations — such as day-to-day activities including fire and police protection, road maintenance and sewer, water and electrical services — remain the same or better.

Reaching an agreement on a legacy project with the South Okanagan Event Centre’s economic, social and recreational benefits without creating an undue tax burden has been difficult, but proved possible. Doing so without some controversy was, however, unlikely. With this statement we have attempted to provide an overview of the activities and principles that have pre-occupied staff and council for the past year and, in the public interest, to clarify any misinformation that may have been unintentionally disseminated. While detractors will come and go along with the newspaper headlines, the city now intends to focus its efforts on making the SOEC a reality and providing residents with regular updates on their 2008 legacy project.