Hamilton's outdoor shelter costs balloon $5.1 million over budget

Hamilton's first outdoor shelter is $5.1 million over budget.

Capital costs have almost tripled from what city staff first pitched and council approved last September — from $2.8 million to $7.9 million, says a report to council's general issues committee Wednesday.

Staff revealed in the report there's been a number of issues with site contamination and the 40 tiny homes, which were delivered not up to code. These issues drove up costs for a project already plagued with controversial decisions and delays. 

"I have to say, I was shocked by everything that occurred, sincerely," Coun. Brad Clark told staff. "I could not believe this has happened in the manner it did and we had a full slate of people involved in this process." 

North-end resident Kelly Oucharek, who's been opposed to the outdoor shelter's location from the start, delegated to councillors wearing a shirt that said, "If I had $5.1 million" — a play off the Barenaked Ladies song, If I Had $1000000. 

"I along with many Hamiltonians are dismayed this project is 300 per cent over budget," said Oucharek. 

Gessie Stearns, a researcher on homelessness and advocate, told the committee that the city's decision to build the outdoor shelter on contaminated land for millions of dollars wasn't done in consultation with people experiencing homelessness or the cash-strapped community groups who support them. 

"If you gave 10 organizations in the community $500,000, it would've been unprecedented," Stearns said. "Here, $5 million has evaporated like it's nothing." 

Last summer, Mayor Andrea Horwath used strong mayor powers, which allow mayors to take quicker initiative on some issues, to direct staff to create some kind of "sanctioned" encampment site. She wasn't present at the meeting Wednesday due to an accident. 

By September, staff had proposed an 80-person temporary outdoor shelter — intended to house couples and people with pets — that would open by December in time for winter.

It is a temporary site, and will only be operational for up to two years, but the "exit strategy" has yet to be announced, Grace Mater, general manager of healthy and safe communities, told councillors.

'A small subdivision in under 4 months'

The city knew the land was contaminated when the project began, but soon discovered it would cost millions dollars more to deal with than budgeted, said Mater.

The site needed grading, erosion control and other work to address the pollution, and the city had to hire architects, engineers and environmental experts to guide and sign off on the process, the report said.

Mater defended city staff's management of the project on a tight timeline. 

"We've basically built a small subdivision in under four months," she said. "As with all projects of this magnitude, there were challenges along the way."

There were also issues with the tiny homes ordered from MicroShelters Inc., staff said.

The decision to buy them from the fledgling Brantford, Ont., company was already controversial, but then staff learned the units weren't up to code. 

The electrical wiring didn't meet Canadian standards and had to be completely replaced, said the report. The city also had to pay for architectural validation of MicroShelter's documents to make sure they met occupancy standards.

The fire department had concerns about the layout of the overall shelter and individual tiny homes, and the city had to make design changes for safety reasons, the report said.

In total, the city spent an unexpected $400,000 to make sure the tiny homes were safe for people to live in, Mater said. 

Coun. Craig Cassar said it was "very surprising" the "vendor did not deliver what was promised" and described the tiny homes as "defective." 

The city's legal team said it is assisting staff in trying to recoup some money from MicroShelters.

MicroShelters did not respond to a request for comment, but director Jeff Cooper previously said in an email, "all aspects of its business are proprietary and confidential. Under advice of our lawyer we decline comment." 

Hamilton's auditor general is reviewing the contract between MicroShelters and the city, said Mater.

Lawsuit filed against MicroShelters

MicroShelters was incorporated weeks before council approved the project and used images on its website identical to those used by another tiny home company, Foldum Corporation. MicroShelters then imported the tiny homes from China through U.S. company Global Axxis. 

Foldum is now suing both MicroShelters and Global Axxis in California court, alleging they "conspired" to make a profit by using Foldum's proprietary information. 

Foldum's complaint says MicroShelters "falsely" advertised Foldum's housing and past projects as its own, "misleading Hamilton and other potential buyers" and then charging the city "a significant price." 

The allegations have not been proven in court. Global Axxis told CBC Hamilton, through a lawyer also named in the complaint, that it denies Foldum's allegations. Neither Foldum nor MicroShelters provided comments for this story. 

Before the lawsuit and budget overrun, city staff admitted they'd not done a thorough check on MicroShelters before awarding them a contract worth millions of dollars. 

Because of the short timeline, staff selected the company through a non-competitive process. 

Mater previously told CBC Hamilton she didn't know if MicroShelters had ever fulfilled any other similar contract before choosing it and wasn't aware they'd be importing the units from China. 

She said it was the only company the city could find to deliver foldable tiny homes big enough for two people in short order. The units ended up arriving weeks later than anticipated, in January. 

Manager says she could've told council sooner

Several councillors, including Cameron Kroetsch, Matt Francis and Mike Spadafora, asked staff why they were not told of the ballooning costs or site challenges until now. 

"Staff had instructions to move forward extremely fast," Spadafora said. "But I think the disconnect is staff should've come back and said, 'It's not going to work, the site's a dump, it's going to cost millions of dollars and we're not going to be able to get people in before the snow flies.'" 

Kroetsch said if he had known the site would cost $5.1 million more and not be ready in time for winter, he wouldn't have supported it. 

Mater took responsibility for not "reporting back in a timely manner" but said the challenges and costs were "coming at us at a very rapid pace." 

The committee told staff to report back with a detailed breakdown of all the project costs, as approved in a motion from Francis. 

Mike Zegarac, general manager of finance, said staff would pull the additional $5.1 million from federal and provincial funding already secured for the project.

Coun. Tammy Hwang defended the project, saying staff were given "an impossible task" to build the outdoor shelter in a matter of months. 

"This is the admirable and amazing way they have showed up and given their all," she said. "I'm thankful for the work done and respectful of the mistakes made. We need to figure out how do we talk about this and share lessons learned."