Raise the Hammer

The context here is that the City of Hamilton and Metrolinx have committed to building LRT based on a careful evaluation of the benefits and an estimate of the operating costs given in the 2013 Rapid Ready report prepared by the city (and the 2010 Metrolinx Benefits Case Analysis).

As you rightly point out, no contract will be signed with the "seller" (i.e. the operator/builder) until an agreement on costs is worked out. This will likely involve some net cost sharing between Metrolinx (who will own the asset) and the City. But, again, the City and Metrolinx have already decided that the likely net levy cost is reasonable. Of course, the net cost will also depend on fare revenue and other factors which will change over time, but the Rapid Ready report explicitly used conservative estimates for ridership growth.

A better analogy might be that an individual will decide to build a house, or start a business, based on estimates of costs and benefits long before signing contracts with all suppliers or employees. And often these "sellers" will not guarantee a cost over the period of the contract, so there is still uncertainty. (Certainty commands a big cost premium!) For example, the house builder won't know the cost of utilities or taxes five years from now, but that doesn't stop people building houses. Even the capital cost is not known in advance since mortgage interest rates change.

We have a 30% engineering design, which allows us to accurately evaluate the capital costs (as Councillor Ferguson pointed out). And we have estimates of net operating costs, which can be made more precise now we have the example of K-W's system. This is the basis on which Metrolinx and the city will negotiate with builders/operators.

No large infrastructure projects would ever get built if we required 100% certainty about every aspect of construction and future operating costs at the beginning of the process. That's why the City and Metrolinx spent many years doing analysis, planning and modelling of the project to have high confidence it would be a success.

And we mustn't forget that the Province has taken on all the construction cost risk, a much better deal than what K-W got!

Comment edited by kevlahan on 2017-04-06 06:03:26