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Calgary investigating potential impact of rising building material costs on city projects

Calgary’s mayor has expressed his concerns with potential impacts higher prices for construction materials will have on the city’s major capital projects.

Mayor Naheed Nenshi told reporters he’s worried about the rising cost of lumber, steel and concrete.

“Since I’ve been mayor, every major project has come in on time and on budget,” Nenshi said. “I’m not letting that go away now.”

Prices of commodity based materials have been on an upward trend this year, evidence of a “supply shock” as countries around the world respond to the COVID-19 pandemic, according to School of Public Policy presidents fellow and economist Dr. Jack Mintz.

“Supply chains have been disrupted. That’s translating into higher producer prices for infrastructure construction.

“I think that’s something that we’re going to be seeing really for the next year or two.”

That supply disruption is being coupled with growing demand for those building materials, Mintz said.

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But recently, attention has turned south of the border as U.S. President Joe Biden has outlined a massive $2.3-trillion infrastructure plan over the next eight years, which he hopes can pass by the summer.

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While Nenshi welcomes the substantial investment, he recognized it will most likely also contribute to higher costs for construction materials.

“This is yet another lesson in why you should make project decisions fast and not delay,” Calgary Construction Association president Bill Black said. “Delays bring you into circumstances that you might have been able to avoid had you pulled the trigger early.”

According to Nenshi, the city will need to take steps to prevent cost hikes for those major projects, adding now is the time to begin signing contracts with potential builders.

“We are currently looking at strategies on how we may be able to hedge future price increases by locking prices now,” Nenshi said.

“We’re also looking into how we need to perhaps put in a little bit of money to protect against inflation on these major projects.”

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In recent weeks, Calgary’s city council has been meeting behind closed doors to get updates on each of the major capital projects currently in the works, including the Green Line, Events Centre, Arts Commons upgrades and the Fieldhouse.

“As costs escalate over the next 12 to 18 months, we want to make sure that we’re procuring materials now for those projects, not later,” Ward 6 city councillor Jeff Davison said.

“Some of the challenges we’re going to see if we don’t get some of these projects in the ground right now is that over the near term, the costs of the projects are going to go up.”

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Economist Trevor Tombe called that a wise approach, pointing to the atypical uncertainty that lies ahead as COVID-19 responses continue to impact economies.

“It always make sense for a government or a large entity to do its due diligence and really understand all the different possible scenarios for large infrastructure projects because there are a lot of uncertainties around those projects even in normal times,” Tombe said.

“Those uncertainties are particularly large and so ensuring that we’re working through all of the scenarios in detail would be very prudent.”

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Nenshi’s comments come days after it was announced work on the city’s Events Centre would be paused to work on budget concerns with the project. Global News has learned the $550-million project is $70 million over budget.

“The worst thing is if you get into scope and get cost overruns once you’re in the ground,” Nenshi said.

“So I’d rather spend a little more time up front making sure we got it right, and if that means our construction timetable slips a little bit then that’s fine; it’ll still be short timelines than fixing it as you go.”

However, Nenshi said he is not as concerned with delays with the Events Centre as he is the Green Line, which is still delayed due to a review from the province.

Attention now turns to Ottawa on Monday as the federal government tables its first budget in two years, and how that spending will play into the price equation moving forward.

–With files from Global News’ Adam Toy

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