How to better control the spiralling construction costs of Canada’s public transit projects

Well over a hundred billion dollars worth of major public transit projects are currently being planned or under construction across Canada.

However, many of these projects are experiencing steep escalating costs.

According to the findings of a brand-new landmark study released last week by the University of Toronto’s (UT) School of Cities, the spiralling costs cannot be alone blamed on the pandemic-induced inflation of the market price of construction equipment, labour, and materials.

Although the study focuses on the woes of Metrolinx — Ontario’s provincial Crown corporation responsible for managing transportation infrastructure, including most of the $80 billion provincial investment in expanding and improving public transit within the Greater Toronto and Hamilton Area — the issues and lessons are increasingly applicable to other cities across the country. It should also be noted that the study team is also led by individuals who are researchers and planners with Metrolinx.

Moreover, the study specifically examines and compares rail rapid transit projects in the Toronto region with similar projects around the world, highlighting a key difference: significantly lower construction costs per kilometre in these other projects, including projects elsewhere in the world that are far more complex.

Canada has the ninth-highest average cost

Examining the data from 60 countries, Canada now has the ninth-highest average cost per km for rail rapid transit construction — an average of $396 million per km. This is considerably higher than the global average of $242 million per km, based on 1,083 street-level LRT, metro/subway, and mainline rail projects worldwide.

“Over the past two decades, the cost of building new transit infrastructure in Toronto (and across Canada) has increased significantly, at a rate far beyond inflation,” reads the study.

“Unfortunately, the alarming rise of transit construction costs in Toronto is being replicated in many cities across the nation. As explored further in this chapter, cost estimates for rapid transit projects across Canada’s largest cities have skyrocketed in recent years, making them among the most expensive (per kilometre) in the world.”

The study warns that the rising pace of such costs must be meaningfully addressed. Otherwise, various levels of government across the country may be forced to downsize the scope of their projects to fit available budgets — potentially leading to detrimental measures such as removing stations or shortening lines. In some scenarios, the projects could be cancelled entirely.

Canadian public transit projects are increasingly at risk of delivering less in both quality and quantity, while costing significantly more. Meanwhile, Canada’s largest urban centres face a critical need for attractive, fast, reliable, and high-capacity rail transit networks. These networks are essential for attracting higher ridership, reducing private vehicle use, and meeting the demands of rapid population growth driven by urban densification and high levels of immigration.

“If the current trend of cost escalation continues, our rate of transit expansion will grind to a halt, and we will be unable to close the infrastructure gap and serve the transportation demands of Canada’s fast-growing urban populations,” reads the study.

Within Metro Vancouver, the Surrey-Langley SkyTrain extension of the Expo Line — spanning a length of 16 km with eight new stations, entirely on an elevated configuration — saw its total construction budget increase by 50% to $6 billion in Summer 2024, ahead of the start of major construction work following the awarding of contracts.

While the design and scope of the Surrey-Langley SkyTrain was not reduced to lower costs, the same could not be said for the City of Calgary’s Green Line LRT project.

In July 2024, due to further cost escalation, the Green Line LRT’s scope was significantly shortened to a 10 km route and scaled back with just seven stations — approximately half the original route length and nearly half the number of stations. And even after scaling back the project so significantly, City estimated it will still cost even more to build: $6.2 billion.

Original route and station map plan for the Green Line LRT:

July 2024 revised plan for the Green Line LRT, shortening the route and reducing the number of stations:

Calgary’s new Green Line LRT was originally planned as an 18 km-long route across the city, with 13 stations primarily running along street level, a two-kilometre-long tunnel for the approach into downtown Calgary, and a one-kilometre-long elevated guideway segment. Before the pandemic, the project had a preliminary cost estimate of roughly $4.6 billion, and as recently as 2023, it was pegged at $5.5 billion.

Also, the resulting downsized Green Line LRT project would see an average of 32,000 boardings upon opening — a decrease of 42% compared to the previous design’s 55,000 daily boardings. Previously envisioned as a transformative project, this would set Calgary’s public transit ambitions back by decades.

In more recent months, the Government of Alberta has intervened in the municipal government’s Green Line LRT, with provincial officials expected to reveal before the end o this month their new proposal for the design of the segment running through downtown Calgary. It also threatened to cut the provincial funding due to the City’s approach.

There is also Toronto’s new Ontario Line, which will be similar to Metro Vancouver’s SkyTrain, as it will also be a fully grade-separated driverless system, with a combination of elevated, tunnelled, and at-grade segments. It will span 16 km, feature 15 stations, and serve as a much-needed relief for the existing subways into downtown Toronto.

In 2019, the Ontario Line’s construction cost was pegged at $10.9 billion. The latest available cost estimate of $27.2 billion, as of Summer 2024, is not a direct comparison, as it not only includes the construction costs, but also larger contingency funds, financing costs, and the operations and maintenance costs over 30 years of the public-private partnership — similar to SkyTrain’s Canada Line.

According to the study by UT’s School of Cities, 23 Canadian street-level LRT and metro/subway projects with actual or projected complete dates between 2002 and 2034 had an average per km cost of $751 million per km if over 50% of the route is tunnelled. For projects with less than 50% of tunnelling, this figure is $137 million per km.

The average cost for fully grade separated projects — elevated and/or tunnelled — is $557 million per km. Projects that are not fully grade separated and run on street level through intersections, for example, have an average cost of $154 million per km.

However, the study’s findings point to how Milan in Italy was able to complete its highly complex M5 Metro line project in 2013 at a cost of $108 million per km, which is completely tunnelled and fully driverless. The costs were much lower than Canada’s street-level LRT projects, which are much simpler to achieve.

Growing proportion of “soft costs” before shovels hit the ground

The study has found that the “soft costs” of such projects have grown significantly in recent years and are disproportionate to the types of costs of other projects compared across the world.

Soft costs are types of costs incurred that do not directly relate to the actual construction work, including planning and design work, consultants and professional services, project management, contingency funds, and land acquisition. In some Canadian jurisdictions, especially in Metro Vancouver, the soft costs for land acquisition needs may be particularly higher due to higher property values.

Conversely, the “hard costs” deal with the actual construction work, such as the direct equipment, labour, and materials needed to build tunnels, viaducts, embankments, stations, systems, equipment, operations and maintenance facilities, and the procurement of new trains.

Typically, the hard costs should be proportionally much larger than the soft costs.

According to the study, Metrolinx’s soft costs for key projects have now reached 55.8%, while its hard costs are now 44.2%. This is deemed to be highly problematic.

Metrolinx’s soft costs entail 17.1% for professional services, 19.3% for contingency to cover unexpected costs/delays, 13.7% for escalation from market inflation, 4.4% for property acquisition, and 1.2% for taxes, while the hard costs entail 17.9% for stations, 14.2% for line works, 5.7% for systems, and 6.4% for facilities. This is based on the total costs of the Metrolinx projects of Eglinton Crosstown West, Ontario Line, Scarborough Subway, and the Yonge North subway extension.

In steep contrast, the Italian metro projects of the Milan M5 and Turin M1 lines not only have a lower total cost figure, but their soft costs are significantly smaller at a proportion of 23.9%. Their hard costs account for the vast majority of their project costs, including 27.2% for stations, 19.4% for line works, 21.1% for systems, and 8.5% for facilities.

Lack of in-house expertise requires more contractors

As governments and public transit authorities are increasingly relying on third-party expertise, the soft costs for such projects have gone up drastically in recent years.

Instead of employing, retaining, and relying on in-house expertise at a lower cost, public transit authorities like Metrolinx are now depending more on contracting external consultants for the design, planning, engineering, and management experience needs for a high project. Departing from the previous approach decades ago, there is now a substantially reduced in-house capacity by the public sector to execute projects, relying on the work of private companies and contractors that charge a premium.

Furthermore, for Metrolinx projects, the proportion of white-collar labour costs (17.1%) is now nearing the entire soft-cost proportion (23.9%) observed in the Italian examples.

To reduce costs, there is a need for governments and public transit authorities to rebuild their workforce of in-house staff with expertise.

“The abnormally high proportion of professional services does not seem to stem from a lack of in-house personnel. Rather, the heavy reliance on external consultants impedes the retention of knowledge and expertise within the organization, leading to a scenario where there is minimal learning and an excessive managerial focus among public servants,” reads the study.

There is also a “lack of internal reflection” within such organizations on this growing trend, and the over-reliance on consultants can make the project management process far more complicated and less efficient.

The study also recommends detailed design and engineering work should be led by in-house staff, such as in the lower-cost cities of Paris, Milan, and Istanbul, where bidding for major contractors is only performed when in-house staff have completed 30% to 70% of the design.

“Advancing project design in-house empowers civil servants to take ownership of and make decisions on projects, increasing cost confidence and controlling soft costs by minimizing change orders and delays,” reads the study.

Budgets padded with too much contingency

The study points to the additional major issue of the size of contingency funds becoming far too large. Contingency funds can be used to cover the higher construction costs from delays, unexpected soil conditions, and other unexpected factors.

In the case of Metrolinx, there is an additional separate secondary contingency fund for the “escalation” in market prices from inflation. Metrolinx’s combined total contingency/escalation fund accounts for 33% of the budget — far higher than the 7% to 12% contingencies allotted to projects in Italy and Turkey, including projects that are far more complex.

The study paints a picture of Canadian rapid transit projects using up their inflated contingency fund, instead of using contingencies in moderation, improving risk management, and resisting growing costs. With the built-in plan in the budgets to allow for major cost overruns, there appears to be a lack of incentive to prioritize controlling costs.

“Excessively large contingencies can lead to ‘budget laxism,’ where the incentive to control costs over a project life cycle is low and money, having been allocated, is unnecessarily spent,” reads the study.

“While allocating contingency funds may seem prudent, the way Canadian agencies perceive and manage risk is at odds with the concept of contingency itself. Theoretically, contingencies should never be entirely spent, and should shrink as project risks are managed through the design and engineering process.”

According to the study, some other startling examples of excessive contingency funds include the Los Angeles Southeast Gateway Line LRT, which has a budget of over 40% being contingency, and the Montreal LRT project of the “Projet structurant de l’est tramway,” which sets aside $10.5 billion of its $18 billion cost for contingencies.

It is suggested that a smaller contingency fund would incentivize public sector agencies to try to control the absolute cost of a project.

Differences in labour costs not a major factor

Authoritarian countries, such as China, are known for significantly lower project costs due to major factors such as expedited project planning, easier land acquisition, and lower labour costs.

But the study’s researchers note that in their analysis, there are also developed countries with high gross domestic products, similar to Canada and the United States, that have low project costs.

“Some people would say, ‘Well, you know, it’s cost of living and labour, right? Like, Toronto is an expensive city. Canada is an expensive country to live in. Well, if we look at the Nordic countries like Denmark, Finland, Norway, and Sweden, they have some of the most robust welfare states in the world,” said Jedwin Mok, a research fellow at Metrolinx and one of the study’s authors, during his presentation of the study’s findings at the TAL-CATTS Symposium at UT last week.

“They have incredibly high wages, but also incredibly high cost of living, and yet, they can also deliver projects at one-fifth to one-tenth the cost that we do here in Canada.”

Mok also highlighted that while building projects in Canada’s highly urbanized areas, such as downtown Toronto, can be challenging due to underground utilities, far larger and more complex projects in Italy manage even greater challenges at a fraction of the Canadian cost — such as constructing metro lines beneath historic cities that are thousands of years old.

He adds that high costs are not inevitable, as Canada does not follow the best global practices for planning and building rapid transit projects.

But the spiralling costs are increasingly forcing more projects to downsize their scope and perform excessive value engineering to reduce costs, such as reducing necessary train system capacities, reducing the number of stations and the length of a new line, and reconfiguring a project to run at street level within highly urban areas as opposed to a fully grade-separated solution for improved speed, travel times, and reliability — such as the Green Line LRT in Calgary.

Such projects with higher costs and lower benefits become increasingly politically difficult to justify, attract lower ridership, result in poorer economic benefits (cost-benefit ratios), and reduce public and political support for future investment in more rail rapid transit projects.

The study suggests Anglophone countries — nations with English as the primary nature — are far more likely to practice non-optimal project planning and governance, producing exceptionally high costs.

“These nations share a common institutional history, exchange ideas, and learn from one another. As such, our benchmarking investigation concurs with other studies of global transit costs, strongly indicating that national costs are associated most closely with project delivery practices, policies, and governance,” reads the study.

“High costs in Canada and other English-speaking nations aren’t a result of factors inherent to these places (like cost of living, governance, or wealth); rather, they are the result of ineffective planning, costing, procurement, stakeholder engagement, and governance practices, some of which can be observed in Metrolinx projects.”

Vancouver’s Canada Line and Montreal’s new REM are low-cost models

The study lists three Canadian rail rapid transit projects that are outliers in not being high-cost projects. In fact, it deems the 2019-built ION LRT in Kitchener, SkyTrain’s Canada Line in Vancouver, and the new REM network in Montreal to be examples of “low-cost transit construction [that] demonstrate that effective project delivery is possible in the Canadian context.”

These three projects “were all built at costs comparable to global averages at their time of completion.”

In 2009, just in time for the 2010 Winter Olympics, the 19-km-long fully grade-separated driverless project of the Canada Line reached completion with 16 stations. About half of the line’s length and number of stations is elevated, while the other half is primarily elevated, with two bridges over a major river and a short segment that is at-grade at Vancouver International Airport. As well, it also included the construction of the Bridgeport operations and maintenance centre.

The Canada Line’s construction costs came to $2.05 billion ($108 million per km) in 2009 dollars or $2.89 billion ($152 million per km) in 2024 dollars when adjusted for inflation.

The northernmost end of the Canada Line, the segment between Olympic Village Station and Waterfront Station, a distance of about three km, was achieved as a bored tunnel due to the challenging geographic (False Creek) and urban conditions. But for the remaining six km of tunnelled route under Cambie Street between Olympic Village Station and Marine Drive Station, the tunnel was constructed using the cut-and-cover method of an open trench that is later filled in, which is also overall quicker and less expensive to achieve than tunnel boring.

Of course, there were some big tradeoffs to this controversial low-cost method for the Canada Line, with the prolonged open trench construction process on Cambie Street significantly impacting businesses and cross-town accessibility.

The controversies and legal challenges surrounding the cut-and-cover construction of the Canada Line directly influenced the decision to use the tunnel boring method to build the five-km-long tunnel segment between Great Northern Way-Emily Carr Station and Arbutus Station for SkyTrain Millennium Line’s Broadway extension, which will open in Fall 2027.

But there has also been criticism that in the effort to control costs, the design and planning process for the Canada Line pushed the limit too far in terms of the project’s highly simplistic design, particularly with its 40-metre-long station platforms (some station platforms were built to a 50-metre length, while all 40-metre-long station platforms have the built-in capability to be extended by a further 10 metres with relative ease).

These platform lengths are considered very short in the global context, especially for a major growing urban region with promising public transit ridership growth. Such short station platforms limit the Canada Line’s system capacity, with an over-reliance on increasing train frequencies before performing a modest train lengthening of one additional car, which is the current limit with 50-metre-long platforms. Longer trains well beyond 50 metres would require significant reinvestment.

As well, some of these station interior layouts are under-sized for egress and ingress of the increasing volume of passengers.

The Canada Line was achieved as a public-private partnership, with a private consortium led by Atkins Realis (previously known as SNC-Lavalin) and other investors — including the Quebec pension fund of CDPQ — holding an operations and maintenance contract through 2044.

With immensely strong ridership, well ahead of original forecasts, CDPQ saw strong financial returns from its investment in the Canada Line, and this subsequently led them to create a new transportation infrastructure investment arm, which partnered with Quebec’s provincial government to spearhead the construction of the REM network in Montreal.

Unlike its time-limited contract for the Canada Line, CDPQ is both the owner and operator of the REM — a 67-kilometre-long fully grade-separated driverless rail rapid transit network with 26 stations. The REM’s design and operations are inspired and based on CDPQ’s learnings with the Canada Line.

The first 17-kilometre-long REM segment with five stations opened in 2023, and the remainder of the network — including the segment between Montreal-Pierre Trudeau International Airport (YUL) and downtown Montreal — will open by 2027.

As of November 2024, the full cost of constructing the REM network has risen to $9.4 billion from the previous figure of $7 billion in 2018, when major construction work first began. But even with the budget escalation, this still represents a low-cost project, with an average cost of about $147 million per km — far lower than other comparable metro projects being built in Vancouver and Toronto this decade.

Moreover, CDPQ is achieving 67 km of fully grade-separated rail rapid transit in a relatively very short period of time, with construction spanning only a decade. In contrast, the existing 80-kilometre-long length of the SkyTrain network took decades to achieve in gradual increments.

This is partly due to the REM’s design, which repurposes existing railway rights-of-way, utilizes a highway median for an at-grade route, minimizes new tunnelling, and standardizes station designs.

To a certain degree, the higher costs for other Canadian projects are due in part to “overbuilding” and “overdesign,” such as building larger, deeper, and wider tunnels and stations than necessary. Some of this is performed to placate impacted residents and businesses — who may complain about noise and aesthetics — and other project critics, but this sets a poor precedent for cost-effective design.

“Instead of tunnelling, they choose low-cost tunnelling methods, and they avoid tunnelling wherever possible with stations. They try to build as small of a station as possible to reduce the amount of excavation with right of ways. They try to acquire as much existing right of way and reduce the amount of land acquisition,” said Mok.

“That’s how the Montreal REM was so cheap and its standardization, of course. They standardized so that lessons can be transferred within the project, but also to other projects in the product delivery pipeline.”

Molk suggested how private sector practices focusing on financial accountability and efficiency were able to get the Canada Line’s construction costs done “so cheap.” Under the public-private partnership, the consortium led by Atkins Realis had “so much risk and they needed to keep the product on their budget.” So during the detailed design phase after awarding the contract to the consortium, they were permitted to perform the lower-cost tunnelling method of cut-and-cover construction along the length of Cambie Street.

“I guess it depends on who the decision makers are, and are they also accountable for the risks?” he said.

“CDPQ, for example, is delivering the REM in Montreal. They are the decision-makers, and they are accountable for the risk, and they’re able to deliver projects.”

Furthermore, unlike the 35-year operating and maintenance agreement for the Canada Line, Atkins Realis’ full perpetual ownership of the REM gives CDPQ a much stronger impetus and incentive to prioritize the REM’s long-term design quality and capacity performance from the project’s get-go to optimize operations and minimize maintenance and the need for certain types of major reinvestment.

“The lowest cost projects in Canada, like the Canada Line and REM, were both extremely privatized in terms of risk, where we gave away all the risks to the private sector,” continued Mok.

But the inverse is true for many other Canadian projects, given how procurement practices by the public sector have evolved.

He suggests there is now a compounding effect on the budgets, with an inflated budget for one project subsequently impacting future projects — setting a new benchmark for where costs start, with this cycle repeating with every new project.

“When we put a cost estimate out to procurement, the market usually comes in higher because they know exactly how we cost our project, and because the next set of projects is based on the cost estimates of the previous projects,” he added.

“That’s how we end up in this cycle of cost.”

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