Be sure to read the fine print
Contractors are warned that stimulus rules could put them at financial risk. By HEATHER SCOFFIELD The Canadian Press
OTTAWA — Warning: Federal stimulus money should be approached warily.
The Canadian Construction Association has posted a “”cautionary note” to contractors across the country, saying they may be on the hook for infrastructure projects uncompleted by the federally imposed deadline of March 31, 2011.
The warning comes as new data from the Parliamentary Budget Officer show a huge amount of stimulus work is set to come on stream over the next few months — raising questions about whether a lot of work will be left unfinished and unfunded when the federal money stops flowing.
Ottawa has told municipalities that all federal funding will stop cold on March 31, 2011, for projects under the Infrastructure Stimulus Fund and the Knowledge Infrastructure Program.
So some cities — scrambling to put billions of dollars to work before time runs out — are trying to get contractors to agree to pay for any construction that isn’t finished by the deadline, the association warns in the note posted on its website last month.
The warning advises contractors not to sign anything unless they find out first whether the project is subject to the March 2011 deadline, whether the project has any hope of being completed by the deadline, and if not, who will pay after the deadline.
“A contract might say, ‘We’re looking to you to take on extra costs’,” said association president Michael Atkinson. “We’re saying, at least ask the questions.”
Contractors aware of the clauses might agree to take the risk, he said, but only at a steep, additional cost.
New data crunched by watchdogs at the Parliamentary Budget Office suggest the risk is far from small. The PBO proves what many have concluded from anecdotal evidence; that after a year of slow buildup, the federal government’s marquee Infrastructure Stimulus Fund will roar into action in May and peak this summer.
At that point, the office says governments will be spending more than $700 million a month on stimulus projects — almost a full year after the recession was deemed to have ended.
Spending is expected to taper off as the March deadline approaches. But then, if the federal government sticks to its word, it will abruptly plummet from $350 million a month to nothing.
The PBO report, based on data from Infrastructure Canada, looks at applications for the Infrastructure Stimulus Fund up until the cut-off date of January 29, 2010. It also examines progress reports up until December 31, 2009.
Under examination is about $10 billion in federal, provincial and municipal money — a huge chunk of the government’s two-year plan to beat back the recession.
Atkinson is skeptical all the projects will be finished in time and he says municipalities are too. That’s why some cities are quietly including clauses passing the risk on to contractors.
“The following may be assessed against the contractor if the project is not substantially completed by March 31st, 2011: two-thirds of the actual remaining construction costs incurred after March 31, 2011, in order to complete the project,” says clause 17 of a contract tendered recently in Windsor, Ont.
Such clauses are only normal for cities trying to take good care of their finances, says Berry Vrbanovic, second vice-president of the Federation of Canadian Municipalities and a city councillor in Kitchener, Ont.
“Municipalities are simply doing what’s responsible to protect their taxpayers . . . from the possibility of companies taking on more work than they can handle,” he said.
Contractors’s costs may well rise to reflect the added risk, he said, but so far he’s seen no sign of that.
The PBO report also found the average size of Infrastructure Stimulus Fund projects is $2.5 million and most involve roads and sewers. The report found about two thirds of the projects involve repairs to existing structures. About a quarter are new construction and that will mean extra maintenance costs for municipalities in coming years, the PBO warned.
But the PBO was still not able to come to any firm conclusions about whether the stimulus program meets the government’s stated objectives of creating jobs and spurring economic growth.
For that, it needs more government numbers, accompanied by an independent gathering of information as well as public opinion research.