N.S. government looks to end tender process with lone bidder for Halifax Infirmary project

The Nova Scotia government is poised to end the tender process with the only remaining bidder on the Halifax Infirmary redevelopment, CBC News has learned.

The move would pave the way for a new approach on the once-in-a-generation health-care construction project.

Documents obtained by CBC News show that Plenary PCL Health (PPH) and the government have been in discussions since October about a payment of $7 million to cover part of the consortium's work to date on its bid.

The potential agreement would also include the government getting to keep the company's technical submissions and any other intellectual property for future use in the redevelopment, and likely avoid any legal repercussions from PPH.

The information is contained in a memo to executive council outlining a submission to the Treasury Board in which Colton LeBlanc, the minister responsible for health-care redevelopment projects, and Health Minister Michelle Thompson request up to $7 million to negotiate a resolution.

"If the province and PPH are able to successfully close out the current [tender process] and satisfactory releases are obtained, then the province will be in a better position to commence a new procurement process with mitigated risk of claim by PPH," the documents say.

The director of communications for Premier Tim Houston's office said the infirmary project "is still in tendering, and we will respect the confidentiality of the process until it concludes."

"We will have more to say on this project before the end of the year," Michelle Stevens said in an email.

A spokesperson for PPH did not respond to a request for comment.

According to the documents, on Oct. 13, senior health officials directed the redevelopment project team to try to reach an amicable end to the procurement. Officials with multiple government departments and agencies involved collectively agreed "that the confidence of delivery of the project, as envisioned, was significantly lowered due to the complexity, size and cost exacerbated by market conditions."

Other issues the documents deemed difficult to resolve include:

• The inability of the proponent to submit a compliant bid.
• Construction insurance for a project of this magnitude exceeded the available limits within the market.
• The size of the project impacts the ability of sub-trade contracts to get bonding.
• The inability to secure pricing on key sub-trades.
• The labour premium due to size of the project.
• The cost escalation of the project.

The Halifax Infirmary redevelopment is the largest component of the so-called QEII New Generation Project.

Along with the infirmary, the project includes a new outpatient centre in Bayers Lake and the expansion of the Dartmouth General and Hants Community hospitals.

New and renovated facilities would allow for the closure and demolition of aging buildings on the Victoria General Hospital campus.

But while the work in Bayers Lake, Dartmouth and Windsor is finished or nearing completion, the work at the Infirmary has been hobbled by setbacks.

When Premier Tim Houston and his Progressive Conservative government came to power in 2021, they reassessed the infirmary project before proceeding.

The delay, intended as a form of due diligence by an incoming government, had the misfortune of coinciding with rising interest rates and record spikes in inflation that have affected all facets of life, including the construction industry.

The project lost one of its two pre-qualified bidders when the consortium EllisDon Infrastructure Healthcare announced in June it was pulling out due to concerns related to the project's scope, mounting cost and pressures related to construction supply chains and labour availability.

The government carried on with PPH as the only bidder, having rejected a proposal from the two consortiums to do the work as a joint venture.

CBC later reported that the government was sticking with the original project design, despite updated figures that showed the number of inpatient beds and operating rooms should be increased to account for population projections that outstrip what was used when the original design was finalized.

When the former Liberal government approved the master plan for the work at the four sites in October 2018, the total cost estimate was $1.97 billion. Two years later, an updated approval was obtained based on a target project budget of $2.7 billion for all the work.

The documents submitted to the Treasury Board, however, confirm previous reporting by CBC that the total cost of the Halifax Infirmary alone is now expected to be in that range.

Included in the documents is a list of hospital projects across the country and their capital costs.

One of the projects, St. Paul's Hospital in Vancouver, is listed as having a capital cost of $1.4 billion. A note included says the capital cost of the Halifax Infirmary project is "approximately twice" that amount.

Reaching an agreement with PPH and the need to go to Treasury Board centres on what is known as the tender break fee. That is the amount of money set aside for an unsuccessful bidder to offset some of the costs associated with preparing their bid.

The break fee for the Infirmary is $5 million, but the submission to Treasury Board notes that in previous meetings with the province, PPH "consistently identified the importance of increasing" that number. PPH highlighted the decision by the government to extend the project's financial submission deadline by 10 months and other requirements not included in the original tender as reasons for the needed increase.

"They have cited that their level of effort to date exceeds $11 million and has deviated from the original [tender]."

Break fees are a standard practice in Canadian public-private partnership projects, according to the document.

The proposal to the Treasury Board is to be able to use the $5 million set aside for the break fee and an additional $2 million in order to offer PPH what the consortium identified as "an acceptable partial compensation for their efforts."

It's noted in the documents that the government prefers this option to cancelling the tender or seeing the process through to the financial submission date, a target that was first pushed back in October when PPH missed a deadline before the government put it on indefinite hold.

The documents say cancelling the tender could "discourage further engagement by industry on any replacement project and lead to unnecessary public criticism. The need remains to deliver infrastructure on the [Infirmary] site." Continuing with the process risks PPH submitting a bid that is "non-compliant or incapable of being accepted for budget reasons" or they would not submit a bid by the submission date.

"Either of these outcomes are not desired as it could negatively impact any future relationship to deliver any replacement project."

The government favours the settlement approach because it will "ensure future interest on projects in this province," preserve its reputation with the construction industry and allow for a "lessons learned" session with the consortium.

"PPH has agreed to hold a 2-3-hour session where they would share information with the province on lessons learned in this procurement. The province can use this information to improve our next procurement of the [Halifax Infirmary expansion project] — Phase 1."

If the province abandons the P3 model for the project, it remains unclear how it will proceed.

The work at the Infirmary is supposed to include a new cancer care building, ambulatory care building, inpatient and operating room building and central utility plant. Given where things stand, it seems unlikely all those elements can now be completed as a single work package.

Meanwhile, as the public waits for more news about how the government will proceed, work is continuing to extend the life of the Victoria General Hospital.

Health Minister Michelle Thompson told reporters on Thursday that work to improve water quality on the fifth floor of the hospital's Centennial Building is complete and a tender would be issued soon for four other floors.

Work will also happen to address longstanding problems with the building's air conditioning system, which has been prone to failure during summer months.

When the QE II New Generation project was first announced in 2016, demolition work on the VG was slated to begin in 2022.

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