Monday, June 17, 2019

Opinion: Infrastructure investment – It’s about value, not price

 

 

In May of this year, Mayor John Tory announced the official start of construction season in Toronto.  It was noted that the 2019 plan was the largest ever, with over $1-billion in spending on a combination of new infrastructure, plus maintenance and rehabilitation of existing infrastructure.  This is a bit of good news in what has been a lackluster element of the Ontario economy over the past year.  There is a significant infrastructure deficit in Ontario, most notably in the GTHA, and as the Doug Ford government enters its sophomore year, we still haven’t seen their long-term infrastructure plan.  Yes, there are a number of projects underway, but for the most part we have been coasting on the momentum of the 2017 plan developed and implemented by the previous government.

Infrastructure investment has a two-fold impact.  Once constructed, infrastructure becomes the underlying framework for a dynamic, thriving economy.  It supports growth and is fundamental to economic prosperity over the complete life of the infrastructure asset – which is often measured in decades.  It is the very existence of modern infrastructure that defines a civil and ordered society.  In the shorter term, it stimulates those industries that are responsible for the planning, design and construction of the infrastructure itself.  Engineering firms, contractors and related companies need a predictable, reliable stream of infrastructure projects in order to preserve a sustainable business environment.  Significant ebbs and flows of infrastructure funding create a disruptive and chaotic environment making it difficult for these firms to recruit and retain skilled personnel, and making it impossible to plan for the future.

Good infrastructure, be it roads, water supply/treatment, transit or schools and hospitals, can be defined as that which delivers the best life-cycle value to those who depend on it and those who pay for it.  The key words here are “best life-cycle value”.  To begin, consider the concept of “value”.  Too often, municipalities confuse the concept of “value” with “cost” or “price”.  Other than for certain commodities like office supplies or road salt acquired by municipalities in bulk, “lowest price” does not correlate well to “best value”.  This is especially true for infrastructure investment because the value has to be seen as a function of the life cycle of the infrastructure asset, not just the cost of acquisition.

Generally speaking, the life cycle of an infrastructure asset can be broken down into three phases:  design, construction and operation (including maintenance).  A municipality that seeks to spend the least amount possible for design, followed by the least amount possible for construction, followed by the least amount possible for operations and maintenance, is never going to realize the best value for that infrastructure asset.  The reason for this is straightforward:  the three phases are not independent.  Decisions are made during the design phase that will have an impact on the cost of construction, operation and maintenance.  Decisions get made during construction that will have an impact on the cost of operation and maintenance.  And it is the operation and maintenance of an infrastructure asset that typically contributes the greatest portion of the life-cycle cost.

During the design phase, in addition to addressing the functional requirements for the infrastructure asset, there is an opportunity to consider design for constructability, design for operability and design for maintainability.  Too often, design teams are pressured to develop their designs quickly – in part to minimize the cost of design but also to allow contractors to “get shovels in the ground” as soon as possible to provide a tangible demonstration of progress.  These pressures can have an adverse impact on design.  The opportunity to optimize the design in terms of constructability, operability and maintainability will be limited.  Expediency will demand that prior designs be dusted off and reused.  The opportunity to innovate, be creative and employ the latest technology may be lost – things that could significantly reduce the cost of construction or the cost of operations and maintenance.

The cost of design changes grows exponentially over the life of an infrastructure asset.  What might cost $1,000 to address during the design phase could cost $10,000 to address during construction and $100,000 after the asset is up and running.  The impact on the “value” of the infrastructure asset is unmistakeable.  Municipalities would do well to invest more at the time of design to maximize the opportunity to achieve best value.  Unfortunately, the processes used by most municipalities for the procurement of professional design services place too much emphasis on price.  This is definitely an area where “lowest price” cannot be equated to “best value”.

Asset management planning is another area where municipalities have an opportunity to maximize the value of their infrastructure assets.  The service life of an infrastructure asset is estimated based on a mix of facts and assumptions.  Facts are known about the nature of the materials used to construct the asset, but assumptions have to be made about utilization, service levels, maintenance schedules, etc.  The longer the predicted service life, the greater the uncertainty about that prediction.  Asset management plans are a tool for municipalities to address that uncertainty.

Evidence-based decision making is a key element of asset management.  Decisions to repair, refurbish or replace an asset must be based on direct evidence where possible.  Yes, there is a cost associated with the development and maintenance of asset management plans, but consider the alternatives:  A municipality can simply be reactive and chase down failures as they occur, or refurbishment or replacement can be scheduled simply as a function of the age of the asset with no consideration of its actual condition.  In both cases money is wasted that could have gone towards properly planned infrastructure.  The asset management plan pays for itself over time.

At all levels of government, infrastructure needs to be viewed as an investment, not a cost.  Municipalities and government agencies need to take the long term, life cycle view of infrastructure.  Small increments of additional funds invested during the design phase can reap significant improvements to the life-cycle value of the infrastructure asset.  We need a change in mindset and perspective of politicians and senior bureaucrats to embrace “best life-cycle value”.

Bruce G. Matthews, P.Eng., is the Chief Executive Officer at Consulting Engineers of Ontario

www.ceo.on.ca

 


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