A new government program in Nova Scotia aimed at reducing roadbuilding costs isn’t good news
By Bill Tice
Nova Scotia’s roadbuilding business is in for some changes.
Nova Scotia’s roadbuilding business is in for some changes. That’s the word from Bruce Fitzner, chief engineer for the province’s Transportation and Infrastructure Renewal (TIR) Highway Programs as his department implements an initiative that will see some chip seal paving and asphalt work brought back in house.
| Bruce Fitzner (left) and Kevin Mitchell of Nova Scotia’s Transportation and Infrastructure Renewal (TIR) Highway Programs stand in front of a new Dynapac CP224 roller at a TIR yard near Halifax.|
Having government crews handle some of this work isn’t new, and Fitzner says until the early 1990s it was common practice in Nova Scotia. But since then, all capital roadbuilding work in the province has been completed by the private sector through a competitive bidding process.
“We are bringing some of this work back in house because we have found that in some areas there is little competition,” explains Fitzner. “And in these areas, prices from private sector companies were significantly higher than in areas where there was more competition.”
Fitzner stresses that his department’s plan is not to take work away from private sector roadbuilding companies, and he says they are only looking at completing between 5% and 10% of the province’s chip seal paving and asphalt work in house. The province will also tender for the aggregate and asphalt emulsions required for the in-house operations so the private sector will still have a big part of the work. “Our intention has never been to take over all of the work,” Fitzner explains. “In the past, when a high bid came in, we had two choices. Either award the work, or don’t. Now, if we get a bid that we think is too high, we have the option of doing the work ourselves the following year.”
Making the Decision
Fitzner and Kevin Mitchell, TIR’s director of fleet management, both say the government didn’t take the decision to reinstate some in-house work lightly, especially when they needed to make some major capital investments in new equipment and training. “We looked at the cost of our crews, the price of materials we need, the cost of the equipment we had to purchase and the costs related to having a crew on the road, such as housing and feeding them,” says Mitchell. “We went through that exercise and based on our labour and union agreements, we came up with values that were close to what we are getting from the private sector in areas with competition. But, in the areas without competition, we were finding that our costs for doing the work in-house were significantly lower.”
Fitzner says for the province’s chip seal work, a limited number of bidders is an issue. “There are only two contractors that have historically bid on chip seal paving projects in Nova Scotia,” he explains. “And we feel that definitely contributes to higher prices.”
Looking across the provincial border at New Brunswick, Fitzner says his provincial counterparts in that province have in-house chip seal paving operations and tender some chip seal paving to the private sector. He says when compared to New Brunswick, prices in Nova Scotia are currently two to two-and-a-half times higher. He notes that in New Brunswick the average cost for single chip seal paving in 2009 was $15,850 per kilometre. That compared to $32,500 per kilometre in Nova Scotia, prior to the TIR initiative. The average cost for double chip seal paving in New Brunswick in 2009 was $35,500 per year, while in Nova Scotia, the average per-kilometre cost during the same time period was $91,000 per kilometre. While Fitzner acknowledges some of this difference can be attributed to different specifications and methods between the two provinces, he says even when this was factored in, the costs in New Brunswick were substantially lower.
Despite having to buy some new equipment, the in-house crews aren’t starting from scratch as Fitzner says they already handle some road maintenance in house. “We were tendering out all of the capital work such as the big roadbuilding jobs, but we have kept some of the maintenance work in house so we already have a skilled labour force and we have over 400 pieces of equipment that we can use.”
Fitzner adds that much of that equipment and some of the work force is currently only utilized during the winter months, but with in-house chip sealing and paving being done in the summer, he says they will be able to keep some crews and equipment working year round.
The first stage for the TIR initiative is the chip seal paving, and Fitzner projects savings over previously contracted prices of 30% to 50%. He says the estimated cost of purchasing and outfitting the chip seal paving operation is $2.6 million and the first work will get underway this summer. He expects the government will save $2.2 million per year, so the payback is fast. Fitzner adds that a crew of approximately 26 will be needed for the chip seal paving operation, but no new full-time equivalents (FTEs) will be added as he says staff will be reassigned from other areas.
The Second Stage
Part 2 of the initiative will be the implementation of a mobile asphalt plant and this is scheduled to happen in 2012. Fitzner notes that they expect to pave approximately 100 kilometres per year in house, which he says is less than 10% of the total paving activity in the province.
|The province’s brand new Terex Roadmix CR622RM asphalt spreader is part of the equipment fleet TIR has acquired.|
Fitzner says when looking at some asphalt paving jobs in remote areas of the province during 2008 and 2009, 10 paving tender calls had only one bid, and 74 projects had only two bidders. “These are the types of jobs where we think we can really make a difference and bring the costs in line,” says Fitzner.
Going back into the asphalt paving business doesn’t come at a low price as TIR estimates peg the bill for purchasing and outfitting an asphalt plant at around $6 million, most of this for the mobile asphalt plant, an asphalt spreader, rollers, distributor trucks and trailers.
However, as with the chip seal operation, Fitzner expects a quick payback on the investment, noting that they expect to save somewhere in the neighbourhood of $2.5 million per year. He’s already said TIR will subject its paving plant to a thorough audit within a three-to-five-year time frame in an effort to a determine if it has achieved the desired results, and he says they will be more than willing to make the results of the audit available to the public.
At this point, a quick walk through the TIR equipment shop and yard near Halifax, confirms that there is no turning back. Still wrapped in protective plastic, a brand new Terex Roadmix CR622RM asphalt spreader is tucked into the corner of a warehouse and other equipment is lined up outside. That includes a pair of Volvo DD112HF rollers, Dynapac CP224 and CC424HF rollers, a John Deere 563 tractor equipped with a power broom sweeper attachment, a Rosco (LeeBoy) SPRHH chip spreader, and numerous trucks, including dump trucks and tanker trucks with Rosco (LeeBoy) Maximizer II tanks.
Of course, not everyone is thrilled with TIR’s latest venture, especially Nova Scotia’s private sector roadbuilders, who dispute claims that the government crews will be able to do the job for less (see sidebar). However, Fitzner is quick to defend the program. “This isn’t a debate about who can pave roads for the lowest cost,” he summarizes. “The reality is that the private sector’s ability to do things cheaper isn’t always reflected in the tender prices we’ve been getting. We are confident that owning our own asphalt plant will encourage more competitive bidding in areas of the province with limited competition, resulting in better bid prices in the future and delivering more paving for each dollar invested. What is important is that we are able to fix more roads in more communities across the province.”
As Nova Scotia’s Transportation and Infrastructure Renewal (TIR) department launches a new program this summer aimed at reducing the cost of roadbuilding in the province, many private sector groups and companies are expressing concern, disputing the numbers, and pushing back. One of the biggest critics of the new government program, which will initially see some chip seal and asphalt work be done in house by government crews and equipment, is the Nova Scotia Road Builders Association (NSRBA).
The NSRBA has publicly stated it is “unequivocally opposed” to this decision by the government, and its executive director Grant Feltmate says he believes his association members can deliver these services more cost effectively than the province’s TIR.
“Government has no business being in business,” Feltmate says. “There are strong examples of past entries into the business world by Nova Scotia governments having been financial disasters.”
Feltmate says the government has acknowledged that they will spend about $18 million annually on the initiative and won’t evaluate the program for possibly five years.
“The government has stated there will be no evaluation of this program for up to five years after its inception,” Feltmate explains. “Even at the $18 million per year level, which does not include capital purchases of equipment and an asphalt plant, they could spend approximately $100 million of taxpayers’ money before even checking to see if this program is cost effective.”
Feltmate also questions TIR’s stated level of involvement in the province’s chip sealing and asphalt business. He says at the $18-million-per-year level, which includes $8 million for the chip seal business and $10 million for paving, the government will be a bigger player than they are projecting. “Looking at the distribution of tenders for 2010 of government contracts, the $18 million amount of business would make the government the second largest roadbuilding contractor in the province for Provincial work,” he says.
Feltmate says $18 million “is a very large direct hit on the industry,” while adding that the actual impact is much more significant. “These misguided business plans have led contractors to now look forward with uncertainty as to where this is going. It has caused investments in equipment and people to be put on hold. In a province that desperately needs a much stronger private sector, this intervention sends exactly the wrong message.”
The 153 member company strong NSRBA isn’t alone in its battle with Nova Scotia’s TIR and Feltmate says being highly visible on this issue through radio, television and print has made Nova Scotians aware of his association’s position. “We have had great support from many substantive organizations throughout Nova Scotia, including Construction Association of Nova Scotia, Trucking Association of Nova Scotia, Canadian Taxpayers Foundation, Canadian Federation of Independent Business, Chamber of Commerce, Mining Association of Nova Scotia and the Canadian Construction Association. In addition both opposition parties have strongly objected to this direction. We will continue to vigorously oppose this poor decision and supply awareness raising information.”
Aside from the dollars and cents aspect of the TIR move and the impact on the province’s private roadbuilders, Feltmate says accountability is another area his association has an issue with. “Who is going to watch the government?” he asks. “Industry is held to very high standards by this government for the work we do. We warranty most of our work. We have regular testing for quality control. We have environmental standards to meet. We have strict safety rules to follow. Who is going to monitor the quality of the work done by the government and who is going to hold them accountable for accurate financial analysis of their true costs?”
Looking forward, Feltmate expects the TIR move will negatively impact his member companies’ ability to do business in Nova Scotia. “Less funds for the private sector will discourage investment and make it more difficult for existing firms to thrive and compete aggressively going forward,” he concludes.
Grant Feltmate, executive director of the Nova Scotia Roadbuilders Association.