In a previous article, I reviewed the history of the Toronto York Spadina Subway Extension (TYSSE). This project has been widely reported to be both late and over budget, but details only began to emerge on March 20, 2015 when TTC CEO Andy Byford fired two senior members of the engineering staff.

On March 21, 2015, Byford presented a briefing to the media as a preview of a report to be discussed by the TTC Board on March 26, 2015. This report includes both current information on the project and an October 2012 update that was issued when the TYSSE deadline was shifted to fall 2016.

The key points of the briefing were:

• The earliest possible opening date for the TYSSE to Vaughan is the end of 2017.
• Relations between TTC project management and the various contractors working on the TYSSE are badly strained, and this cannot be remedied by those now in charge.
• Byford recommends that the TTC “retain a third party project-management firm as an incentivized project manager” (the terms of the proposed arrangement are confidential pending execution of the agreement).
• Alternate schemes for continuing the TYSSE project with TTC staff in part or all of this role will extend the period needed to resolve outstanding issues and reach project completion, and will increase total project costs.
• Additional funding to keep the project active to the end of 2017 of $150-million is required with Toronto paying $90m and York Region paying $60m. Toronto’s share could come from a TTC operating surplus in 2015 (mistakenly cited as “2014” in the report), property sales and/or deferral of projects. There is no word on how York Region might fund its share of the extra costs.
• The project is subject to many claims by contractors against the TTC, and some counterclaims on the TTC’s part. The eventual value of settling these is unknown, and this is a potential additional cost beyond the $150m. Whether this can be accommodated by the existing project budget remains to be seen.

Opening Date

Projected opening dates for the TYSSE under various scenarios range from the fourth quarter of 2017 to the second quarter of 2019. Crucial to this range of dates is the speed with which the relationship between the TTC’s project manager and the contractors can be restored to a co-operative basis. The more the existing TTC management team remains in place, the longer this will take. External reviews of the project have concluded that only a complete “reset” of the project can have this effect quickly. This leads to the recommendation of a new, external project management firm to complete the project.

One option that has been discussed both at the TTC and in comments on this site is the idea of opening a first stage of the line only to York University Station. This presents obvious political problems in York Region along the lines “we paid for it, we want what we paid for”, but more importantly there are major operational issues.

York U Station is not designed as a terminal. If it were to be used on a temporary basis, this would require single track operation of service north of Finch West Station, an operation for which the signal system is not designed. (The initial signal contract for the TYSSE is based on conventional, unidirectional block signals, with ATC to be added after the line opens.) Adding a crossover at York U would be extremely expensive because the station approach is a pair of deep bored tunnels, not a simple box structure to which a crossover could be added.

Changing the project to allow a York U opening would delay other parts of the project and contribute to the claims for delays by contractors working on other sub-projects.

A further and important problem at York U is that this station is the least complete of the entire project at 35%.

[Source: Page 10 of TYSSE – Schedule and Budget Change]

Because of the extra work needed to provide for temporary terminal operations at York U, the estimated time saving compared with finishing the line to Vaughan is only a few months, and the project cost would go up by $12m.

Options for a New Project Management Scheme

Four scenarios were examined for a new project management framework:

• A third party project management firm would be retained on a sole-source basis to take over the project. The estimated cost is one more year (2017) of the existing project team ($70m) plus a large contingent from the management firm ($80).
• A project management firm would be retained after a Request for Proposals (RFP). This would add six months to the project at an additional cost of about $30m over the sole-source option.
• A third party firm would act as a facilitator between TTC staff and contractors to resolve outstanding issues, but because the main work of claims management would still be handled by TTC, this would push completion out to the end of 2018. Costs would go up by $140m for two extra years (2017-18) of the TTC project team plus $15m to cover the cost of the facilitator and related consultants.
• The status quo would prevail with project management and claims being performed largely by TTC staff. This would push completion out to the middle of 2019 at a cost of $175m for the project team (2.5 years) plus $15m for additional staff with claims settlement experience.

Sole sourcing will not sit well with some members of the TTC Board and Council, but the cost in added delay to the project an RFP would require is a strong incentive for this approach.

What is clear in the evaluation of these options is a strong sense that leaving the project in the TTC’s hands will delay, possibly severely, the restoration of amicable relationships with the contractors. This does not speak well of whatever practices had been in place before.

The Need for a “Reset” in Contractor Relationships

In his briefing, Andy Byford was asked whether he bears some responsibility for this situation.  Byford noted that he became CEO in March 2012 and initially concentrated on some of the “quick wins” such as station and vehicle cleanups. However, by 2013 he was concerned with the state of the TYSSE project and commissioned a review by Parsons Brinkerhoff. They concluded that at the current rate of progress, the line would not open until 2019. This report was presented to Byford, and then to the project’s Executive Task Force (with representatives from the sponsoring governments) in July 2014.

In the fall of 2014, Byford commissioned a peer review by the American Public Transit Association (APTA) who concluded that a “project reset” was required, and that incentives were needed to speed up the project and achieve an end-of-2017 opening date.

The findings outlined a variety of concerns including anomalies in the correlation of the contractor’s and project schedules, delays in resolution of contract changes and needs to increase scheduling staff. Its analysis was presented to the ETF on November 20, 2014 and concluded that a project opening date of the end of 2017 could be achieved if a project “reset” was implemented. The “reset” involved contractor partnering, resolution of outstanding contract changes / claims, ‘incentivizing’ contractor schedule acceleration and increased project scheduling / controls. [Page 12]

Over the winter 2014-15, Byford retained Bechtel Construction to review the situation. They agreed with APTA that the project needed “renewed project management”. It is unclear whether this sentiment falls entirely on the TTC or if one or more contractors are difficult to deal with.

[Bechtel’s] report was presented to the TTC and ETF in early February 2015. That report concurred with APTA’s findings of a “reset”, and further added that a change in project management would be required, to deliver an end of 2017 completion date. The report outlined implementation of a new project schedule and contractor incentives, resolve of adversarial contractor relationships, and improvement of processes for cost / contract / claims resolution.

Both APTA and Bechtel agree that the TTC should:

1. Incentivize contractors and obtain agreements for an end of 2017 opening date.
2. Develop a process / timeline to resolve outstanding claims.
3. Establish a collaborative environment to develop a common goal and improve project relationships.

[Page 12]

The APTA and Bechtel reports will not be made public because they contain information about staff and the status of contracts, both of which are protected under confidentiality provisions of the City of Toronto Act. The TTC has advised that they are working on executive summaries that can be released.

Part of the “reset” will be a change in the handling of claims between the TTC and its contractors. Byford would not detail these by number, value or location, but noted that non-payment by TTC on these claims is a major issue for the contractors. They do not welcome requests to speed up their work when they already carry the cost of work for which they have not been paid. Byford reported that in one case the total claims exceed the base value of the contract.

Byford noted that although the final settlements may not give contractors all they wanted, some parts of most claims are certainly valid and partial payment could help to restore the relationships. A related problem that Byford mentioned was that skilled claims adjusters for construction work are in short supply, and the TTC has been unable to fill these positions within the project team.

Working through all of the existing claims is projected to require much of 2015. This will be done with the assistance of an external consultant with expertise in this area.

The Project Budget

The total project budget includes contributions from four governments as shown in Table 2 below. Note that there is accumulated interest only on the Ontario portion because it was paid into a trust fund. Money from other partners arrives on a “pay as you go” basis.

Tables 3 and 4 show the budget based on a 2016 completion. Note that “External Project Management Costs” are separate from the planned new Project Management contract. The “Contract Change Allowance” of $95m may have enough headroom that this account can contribute toward the claims settlements, but this depends on the actual numbers that are as yet unknown.

No contingency remains in the project budget. Although it was originally established at 26%, it was used up years ago. One major issue in project accounting that is not addressed in the current review is a reconciliation of just where the contingency went. As I reported in the first article, at least two major items – vehicles and automatic train control – were not in the original project budget, but they are included now. Where did the “elbow room” for this spending come from?

[Source: Page 6 of TYSSE – Schedule and Budget Change]

Although the required change in the overall budget has been touted as $150m, there are potential additional costs that have not been included:

• Claims resolution
• “Incentives” for project completion

Project Oversight and Governance

According to the report, various bodies have been kept up to date on the status of the project.

The TTC Board has been briefed by staff on numerous occasions about the status of the TYSSE and concerns around contractor(s) performance. In addition, the CEO Report is updated monthly that reflect project status for the board and public. The Executive Task Force have met monthly. The “Move Ontario Trust” has also met monthly to consider project funding requests and other issues. A Federal “Management Committee” established under the Federal contribution agreement for the project has met 4 times a year to receive project updates. [Page 10]

There may have been briefings, but it is unclear just what information was conveyed to the oversight bodies.

As recently as the December 2014 CEO’s Report, the Commission (which was then newly-minted for the John Tory administration) was told:

To date, the TYSSE project is on budget with a total budget of $2,634 Million. The in-service date is targeted for the fall of 2016 however the project is facing a serious schedule challenge. [Page 29]

In the strictest sense, the budgetary claim was true, but only by ignoring the considerable overhangs of pending claims costs and the almost certain need to restructure and extend the project. According to Byford at the media briefing, these problems were not reported at the request of the ETF because the review was still underway.

This is a rather odd situation considering the implications for, among other things, the City of Toronto’s budget that was then in preparation. Conveniently, the real situation with the TYSSE was not unveiled until after Toronto had passed a budget. It is hard to understand the TTC’s CEO withholding information from his own board at the request of an external body. Who, after all, is really in charge of this project?

This is not the first multi-million dollar “oops” in the City’s budget planning. When the City Manager first tabled the budget on January 20, 2015, to the surprise of many watching his presentation, he claimed that Queen’s Park would let Toronto off the hook for downloading of social service costs. [See pages 10-11 of the Budget Committee version of the presentation.] When Queen’s Park challenged this, Toronto found itself with an $86m hole in the 2015 budget and a continuing problem for future years. On the capital planning side, the city’s borrowing plans (including money for the Scarborough Subway) will push the debt level right up to the target maximum of 15% of tax revenue leaving no borrowing headroom for new or expanded projects. Unless additional money can be found from expected surpluses, from one time revenue such as property sales, or from deferral of other capital work, the cupboard is bare.

The City’s $90m share of the extra TYSSE costs will rely on these sources, and more bills will come in from the claim settlements.

Fundamental questions must be asked about the role of the Commission, and of who knew what, when, about the state of the project. Red flags were going up in 2013, and the project review first reported in mid 2014. Where were members of the TTC Board including the “private citizens” who are supposed to bring their experience from the business world to bear on the TTC? How much information was withheld thanks to the “good news” culture of Karen Stintz, TTC Chair from December 2010 to February 2014, and a member of the board until December 2014?

This is not just a question about one subway extension, but about TTC projects and budgets in general. Leslie Barns and the associated work to build a track connection south from Queen Street has been a fiasco of cost overruns and design cock-ups thanks to inadequate investigation of site conditions and a pig-headed unwillingness by the TTC to entertain alternate locations or routes to the new carhouse. The resignalling project on the Yonge-University subway is running late, proving more complex than expected, but also encountering both design and multiple-contractor issues. TTC fleet planning leaves much to be desired, and there is an ongoing reliability issue not just with the aging streetcar fleet, but with the relatively new bus fleet. The TTC’s so-called “key performance indicators” for service quality are a joke to anyone who actually rides the system, and the formulae behind them are constructed to ratify what management has done for years, not to show what is really happening from a rider’s perspective.

According to Andy Byford, he has briefed and warned his board about TYSSE problems since mid 2013. How thoroughly? How much information did he have available until the 2014 project review? Why is the CEO’s report full of superficial information about current year budget performance while long-term project status and budgetary exposures are almost entirely absent? Byford must take some responsibility for his overly simplistic and rosy reports, and TTC board members must answer for the lack of public awareness and debate.

At the media briefing, Byford was asked whether the TTC should just get out of capital project management. He replied that a review of this matter has already been launched by TTC Chair Josh Colle. Not mentioned is the fact that after the Sheppard Subway project, TTC downsized its inhouse engineering section, and even with this, make-work projects sprang up such as the fire ventillation review. Whether the skills needed to head up a big project like the TYSSE were retained, we don’t know.

The antagonistic relationship between TTC as a buyer and its suppliers is no secret, and this surfaces occasionally at public meetings when contractors attempt an end-run around management. This is not just an engineering problem, but also touches procurement practices. The problem, of course, is that when such issues come up, the board is loath to second-guess management, and with good reason – board meetings would become an endless parade of contractors pleading their case to politicians who don’t have the expertise to assess the situation, and whose love for “making things better” can get in the way of good business practice.

Another large project is facing the TTC: the Scarborough Subway Extension. On a dollar value basis, the SSE is bigger than the TYSSE, and the political environment is difficult. The SSE got its start with the premise that it would cost “only” $500m more than the LRT proposal it replaced, a number that has now grown to $1b. Already scope creep (if a behemoth of that size can be said to “creep”) is setting in. Then there is the small matter of SmartTrack with an estimated cost almost three times the SSE.

We hear a lot, especially from Queen’s Park, about the magic of “AFP” (Alternate Finance & Procurement), a fancy term for 3Ps (Public Private Partnerships), and about how we can prevent public sector budget overruns by “transferring risk” to the private sector. The jury is still out on that claim, especially for large transit construction jobs. The underlying problem is with project definition and true risk transfer – if the context for deciding what we will build is political, and if the marching orders are to “get it done”, many controls simply vanish. AFP can only work if there is a detailed contract with specifications of content, quality and long-term reliability.

Simply saying “I want a subway, please put blue tiles in my station, and call me when you’re done” is not acceptable. It is well known from other AFP projects that the contract discipline needed adds about a year to a large project because much more must be specified up front. Moreover, a steely nerve is required from the public partner to hold contractors to performance and penalty clauses, not to waive penalties – the heart of the rationale for AFP – when a contractor pleads poor. Risk transfer must be a reality, not a catchphrase for political speeches.

An important difference with AFP projects is that, at least from the public sector’s viewpoint, contract responsibility lies in one place, the private partner. If there are problems with poor project management and botched co-ordination among subcontractors, that’s the private partner’s problem, and the incentive of a fixed price contract should focus their mind. The worst case scenario, of course, is that the private partner could simply walk away from their commitment as happened with Transport for London at a substantial public cost.

Going forward, Andy Byford intends to spend much more of his time on major project management with Deputy CEO Chris Upfold taking on more of the day-to-day system operations. Byford wants to modernize the TTC, to change attitudes and to fundamentally overhaul the organization with his five year plan to the end of 2017. He expects to be held accountable for completion of the TYSSE on its revised schedule.

He can make a good start with regular, detailed, public reports that truly inform the TTC board, City Council and the public. “Detail” does not mean volumes too thick even for the most dedicated transit watcher, but a quality of information that permits good understanding and flags problems rather than hiding them.

Part of “TTC culture” that Byford cannot reform himself is political. Politicians rarely walk the plank for their grandiose, self-serving schemes and unworkable funding tactics, but organizations turn cartwheels attempting to serve political demands. The TTC must walk a fine line between professionalism and simply becoming a stage manager for photo ops. Professionalism must trump politics. Easier said than done.