Stanton Territorial Hospital project balloons to $1.2B amid 'perplexing' decisions, auditor general finds

Canada's auditor general has issued a damning report outlining how the N.W.T. government's project to build a new Stanton Territorial Hospital went hundreds of millions of dollars over budget, failed to document potential conflicts of interest in the process, and ultimately short-changed the territory's residents.

The 45-page report, tabled in the Legislative Assembly on Tuesday, looks at how the new Stanton Hospital — which became operational in 2019 — was built using a public-private partnership (P3) model, and how the territory ended up becoming a rent-paying tenant in the old hospital building which it still owns.

"I am perplexed by this series of decisions that were reached by the government," said deputy auditor general Andrew Hayes, at a news conference in Yellowknife after the report was tabled on Tuesday.

"These decisions come with important costs, for the population and for the government." 

The auditor general's report estimates that as of June 2023, the hospital project's overall costs — originally valued at $750 million — are now in the range of $1.21 billion over the project's 30-year life. 

In short, the report states, the N.W.T. government could not show how the project provided "good value for money" for the territory's residents.

"In our view, this was due to a lack of evidence-based decision making to inform significant changes to the project scope over time, not including and underestimating key costs when planning for the project, and a lack of information to show that the project provided the expected economic benefits to local and northern individuals and businesses," the report states.

The new Stanton Territorial Hospital became operational in 2019. Within months, the projected cost of the facility over its expected lifespan had increased from about $750 million to roughly $900 million — due to an apparently unforeseen jump in the hospital's property tax bill.

Finance Minister Caroline Wawzonek admitted at the time that her department didn't see the tax hike coming, to the bafflement of some MLAs.

Then in 2020, less than a year after the new facility opened, a majority of MLAs voted to request an audit of the hospital. A majority of members supported the motion, while the four cabinet ministers present that day — including Wawzonek and now-Premier R.J. Simpson — voted against it.

In a statement on Tuesday, after the auditor general's report was tabled, the Legislative Assembly's standing committee on public accounts said the report shows "the concerns raised by the 19th Assembly were well-founded."

"This report ... raises many serious questions about the government of the Northwest Territories P3 partnership that require further review by the committee," it reads.

'Significantly different project scope'

The auditor general's report details how the project was originally envisioned a decade ago as a renovation and expansion project on the old Stanton Hospital building, and that a P3 model was found to make the most sense, compared to a traditional procurement.

P3 models are sometimes used by governments as a way to help finance projects by hiring a private corporation to design, build or upgrade infrastructure, or operate and maintain it. The private partner can then take on some of the associated risks, such as delays and cost overruns.  

But when Boreal Health Partnerships was awarded the contract in 2015, it submitted a plan for an entirely new hospital instead of a plan to revamp the existing hospital — "a significantly different project scope than what was analyzed in the 2013 business case," according to the report.

The territorial government therefore had not determined whether a P3 model still made sense for the new plan — but it went ahead anyway, the report states.

News reports from 2015 show the territory's finance department said it went with a P3 model because it was more cost-effective, even though the company in question had a history of building P3 hospitals in Ontario that went overbudget — one of which triggered an auditor general's report in that province.

Speaking on Tuesday, Hayes said he was concerned by the N.W.T.'s decision.

"What should happen when there are changes in course? The government should take a step back, analyze what the impacts of those decisions are going to be before moving forward," Hayes said.

"That's the analysis that we consider to be very fundamental. That wasn't done here."

The auditor general also highlighted incomplete procurement records by the government, meaning it's impossible to assess potential conflicts-of-interest involving project bidders.

The territorial government, and the Northwest Territories Health and Social Services Authority "were unable to provide us with evidence of the conflict-of-interest declaration forms for many of the individuals involved in the RFP process for the project," the report states.

"This included individuals involved in the evaluation of the bids."

Hayes said the audit did not find evidence of conflicts-of-interest, but that's doesn't mean that there weren't any.

"I can only say that we did not find them," he said.

"Conflict of interest is not a tick-box exercise. It should be done in a rigorous way, before decisions are made."

Paying rent in its own building

The report also details how the territorial government ended up leasing out the old hospital building to a third-party developer, only to then sub-lease the building back from the third-party developer for a period of 30 years.

"This meant that the government became a tenant in its own building, paying to Ventura, the landlord: base rent; additional rent for operating and maintenance costs; other fees," the report states.

The arrangement effectively undermined some of the intended benefits of the P3 model, the auditor general found.That's because the territory ended up using the old building for health services, and undertaking its own renovations.

"This decision was not consistent with the departments' and the authority's original intention to transfer to Ventura the capital risks and costs associated with redeveloping the legacy hospital building. Transferring these redevelopment risks and costs was a key component for the initial decision to use a P3 model," the report states.

Hayes said the overall additional cost associated with the government's sub-leasing of the old hospital is about $78.6 million, over the 30-year agreement.

"To me that's perplexing — when you know you already have a space need, you're renting back your own building."

The auditor general also found that the department of Infrastructure failed to show how the hospital renewal project — deemed the largest-ever building project undertaken by the territory — benefited local and northern residents and businesses.

The report blames that on poor monitoring and record-keeping to ensure that contractors fulfilled targets and commitments for hiring local and northern businesses.

"The contract also did not specify targets or a way to measure whether local and northern benefits were achieved," it states.

The report also includes several recommendations stemming from the auditor general's findings, and the government has accepted all but one of them.

The government disagrees with a recommendation that it should "publicly report detailed and complete project costs for the Stanton Territorial Hospital renewal project that supplement the reporting in the public accounts of the government of Northwest Territories," including costs related to the leasing arrangement in the old hospital building.

According to the government, the leasing costs should be considered separately from the P3 hospital renewal project. 

"These were two distinct projects," reads the government's response, included in the auditor general's report.

Speaking to reporters on Tuesday, the finance minister acknowledged that "audits aren't necessarily going to be fun or easy experiences."

But Caroline Wawzonek said the report on the Stanton Hospital project actually validates some of the work the government has done in recent years to review and update its procurement processes and policies.

She also said that despite the auditor general's findings, the hospital renewal project was beneficial.

"We're ... quite happy at this point to have two facilities available to us that we can deliver health-care services from," she said.