MUNICIPALITY OF CHATHAM-KENT INFRASTRUCTURE AND ENGINEERING SERVICES INFORMATION REPORT

TO: FROM:

Mayor and Members of Council Leo Denys, P.Eng., General Manager Infrastructure and Engineering Services March 1, 2012 Capitol Theatre Cost Update and Audit Results

DATE: SUBJECT:

This report is for the information of Council.

BACKGROUND On October 6, 2008, Council approved proceeding with the reconstruction of the Capitol Theatre at an anticipated cost of $11.3M. On September 14, 2009, Council approved an additional $.75M contingency allowance setting the budget for the final phase of construction at $12.05M. Council on April 18, 2011 requested an audit of the Capitol Theatre finances and at the June 6, 2011 meeting approved the format of audit information to be returned.

COMMENTS Audit Results Deloitte & Touche LLP were retained to audit the municipal financial statements of the Capitol Theatre. A copy of the audit report is attached. (Appendix A) The opinion of the auditor is that the financial statements presents fairly, in all material respects, the capital expenditures of the Corporation of the Municipality of ChathamKent Capitol Theatre for the period January 1, 2008 to December 31, 2010.

Cost Update The final costs for the Theatre have been received and are at $12.499M, which has been verified and tested by the auditor.

Capitol Theatre Cost Update and Audit Results

The purpose of this report is to detail for Council the source of expenditures affecting the final costs. The chart in Appendix B compares the actual costs to budget figures. To better characterize the overages a number of categories have been broken down further with their estimated costs. A discussion below covers the major issues which lead to the project variance. Discussion of actual costs Specific Issues Piles: Budget was over run by $102,000 as a result of the length of piles needing to be increased to achieve required bearing capacity. Concrete forming and rebar: It was originally anticipated that MTCU staff would be able to assist in concrete forming ($50,000), but due to Ministry of Labour requirements they could not be utilized for this work. Additional work was required on the stairs and ramps in the Rotary Lounge ($20,000), extra concrete lip in orchestra pit ($3,500), concrete topping on pre-cast floor panels ($12,000) and a retaining wall was required at the south receiving door ($5,000). Electrical fire alarm: There were some items completed in phase one that no longer met electrical code and needed to be upgraded before the final phase could be completed. An additional transformer was required for the rigging system. Opera box lighting needed to be reconfigured adding additional cost. Plumbing: Phase one repairs to plumbing systems added $46,000 of cost while replacement of pipe insulation (to prevent condensation) added $21,300. Sprinklers: There were miscellaneous repairs related to Phase 1 construction totalling $45,000, and the sprinkler heads used in phase one were recalled and outside the recall time costing $10,000. Metal stud and drywall: Ceiling tile grid was installed under this account as not to hold up contractors in the final phases of construction $15,000, infill of proscenium for stage demolition $6,100, miscellaneous bulkheads required $15,000, main auditorium light well $15,000. Insulation: Was completed under Rene Roy contract and therefore the C08-116 contract was not spent. Construction Management Fee and Insurance Costs: The most significant portion of this cost was for the Construction Manager which had a contract with the Municipality calling for $27,000/month in construction management fees. Due to the construction schedule being extended a significant overage was realized in this area. The duration of the project also had an affect on the insurance & bonding costs. Opera Box Foundation: While excavating the main auditorium it was discovered that the opera boxes did not have a foundation installed under them. This cost an additional $70,000 to install.

Capitol Theatre Cost Update and Audit Results

General Issues MTCU issues: The Ministry of Training Colleges and Universities (MTCU) provided a significant contribution to this project in terms of free labour and provision of tools through the Job Creation Program (JCP). Their contribution to the project was significant. This staff was supplied to and managed by the CCTA. However, the plan for their portion of the work may have been overly optimistic considering a number of factors: o Level of skills - Some of the jobs originally allocated to the JCP crew were beyond the abilities of the work force; i.e. hanging of doors, carpet installation, cutting openings for windows and doors through clay tile and brick walls. o Lack of work force - Some of the work force left the project at various stages when it was uncertain if the MTCU would fund an extension of the JCP participation in the project. As well the project could not always attract a full complement of staff, resulting in insufficient staff to complete the work. There were also administrative issues which delayed the extension of MTCU contracts. o Restriction on working on the same site as contractors - The Construction Manager was responsible for the safety of the job site, but it could not include the JCP crew which was not under its care and control. Therefore while contractors were on site the JCP crew needed to be physically separated from the trades. This resulted in reduced efficiency in the use of the JCP crew. o Schedule adherence - Some of the work planned to be completed by the JCP crew was required before the trades could complete their work. In order to allow a few of the trades to adhere to their schedule, some of the jobs planned for the JCP crew needed to be completed by the trades; i.e. ceiling tile grid installation, flooring finishes, etc. Items not covered by contract scopes o Higher than anticipated demolition costs - Were incurred as a result of the acceptance of the low demolition bidder not properly bidding the work, and being discharged from the site. The actual costs for demolition were higher than reflected in the low bid. o Site safety: The Ministry of Labour would visit the job site and ensure that all openings were protected by railings, site was clean and safe. Although it was intended that this type of work could be completed by the JCP crew, the requirement to keep their work space separate from the trades precluded this from occurring. As a result the Construction Managers staff was forced to undertake this type of work over the duration of the project. Over-time required to meet grand opening: As the theatres grand opening approached it was evident that significant work was still required to achieve occupancy. As a result the JCP crew supervisors and volunteers worked significant over-time to complete the project on time resulting in approximately $40,800 of wages.

Capitol Theatre Cost Update and Audit Results

Phase 1 construction issues: As work on the final phase progressed and tied into the earlier construction a number of issues were found and corrected. These items included such things as inadequate insulation on chiller piping which if not corrected would cause condensation and damage of ceiling tile, electrical panels which no longer met code, HVAC components, plumbing and light fixtures which failed to function and needed to be replaced. These items caused approximately $136,000 of unanticipated costs. Construction Manager versus General Contractor: Prior to the final phase of construction it was decided to use a construction manager rather than a general contractor for the project. It was felt that there may be savings with the use of a construction manager. A general contractor would have been responsible for many of the out of scope issues and that is why they are typically more costly than the construction manager. Although not necessarily less expensive, the cost for the general contractor would be better defined and known at the outset of the project. Volunteer effort: In order to reduce costs, and meet time line commitments, a substantial effort of a volunteer group was implemented. Owner recommended changes and used allowances: Recognizing the budget difficulties on this project some additional changes were made to reduce cost. As an example, two sets of motorized rigging were eliminated saving $57,000 and the furniture and acoustic panel allowances were not used, reducing the cost by $52,000. HST Implementation: Prior to July 1, 2010 the Municipality was charged GST on all contract services and we reclaimed 100% of the GST. Following the implementation of HST Chatham-Kent was charged 13% HST and claimed back 11.24%.

CONSULTATION In the preparation of this report Financial Services assisted in creating and producing reports of the various accounts. The architect and prior Project Manager were consulted for some history on the events of construction.

Capitol Theatre Cost Update and Audit Results FINANCIAL IMPLICATIONS This report is for the information of Council and a companion report will cover a recommendation on the funding mechanism. Prepared by:

____________________________ Leo Denys, P.Eng. General Manager Infrastructure and Engineering Services

Attachment(s):

Appendix A Audit Report Appendix B Summary of Contingency Funds

REF: P:\RTC\Infrastructure and Engineering\I & ES\2012\3444 - Capitol Theatre Cost Update and Audit Results.docx