Is a change in contracts the reason behind financial hardship for Canadian light-rail builder?

The Ontario Line project has officially begun, joining the Eglinton Crosstown project in Toronto.

Metrolinx

COVID, inflation, and supply chain issues have tripled down on productivity for builder SNC-Lavelin.

On March 3 the contractor announced a $231 million pretax loss on its project unit due to cost reforecasts on three light-rail contracts in Canada. In a worse-case scenario, SNC-Lavelin is projecting additional losses of as much as $300 million on the Reseau Express Metropolitain project in Montreal, Ottawa’s Trillium Line, and the Eglinton Crosstown in Toronto.

SNC Chief Executive Ian Edwards said during a teleconference on March 3 that forecasting that was done a year ago did not go as planned. The contractor reported a 2021 fourth quarter loss of $15.3 million, including a $90 million loss on the three light-rail jobs in Canada.

Since 2019, the goal of the company has been to end the process of bidding on fixed-price construction work and focus more on lump sum turnkey contracts. With those contracts, construction firms agree to a set price for a project and do not pass along any cost overruns.

COVID-19’s Omicron variant depleted work forces over the last few months. According to SNC, absenteeism was as high as 50% on some jobs. In addition, inflation has tacked on another 10% on costs, and supply chain issues have crippled productivity.

The Trillium Line is about 70% complete, but SNC recently pushed the completion date back to 2023. Building inflation in the Ottawa area has been severe—17% during the last three months of 2021 compared to 3.1% during the same time in 2020. Toronto and Montreal recorded inflation increases of 15% and 12%, respectively. The Eglinton Crosstown project is 90% complete, while the REM is 60% done.

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