Opening Statement before the Northwest Territories Legislative Assembly Standing Committee on Public Accounts

Stanton Territorial Hospital Renewal Project

(2024 Report of the Auditor General of Canada to the Northwest Territories Legislative Assembly)

15 January 2025

Andrew Hayes
Deputy Auditor General

Mr. Chair, I am pleased to be here today to discuss our report on the Stanton Territorial Hospital Renewal Project which was tabled in the Assembly in October 2024. I express my gratitude and respect to all Indigenous peoples who have contributed to shaping and safeguarding the beautiful lands they call home throughout the Northwest Territories, and Canada. Joining me today are Jo Ann Schwartz and Sean MacLennan, who were responsible for the audit.

In this audit, we wanted to know whether the departments of Finance, Infrastructure, and Health and Social Services, as well as the Northwest Territories Health and Social Services Authority, delivered on their responsibilities and commitments for the renewal project. This included whether the project, which was a public-private partnership, provided good value for money for the government and residents of the Northwest Territories. Under a public-private partnership, which is often referred to as a P3, government organizations partner with private sector companies to deliver goods or services while sharing resources, risks, and benefits.

Overall, the departments and the authority could not show how the hospital renewal project, as a P3, delivered good value for money for residents of the Northwest Territories. In our view, this was due to 3 failures: first, decisions that significantly changed the project’s scope over time were not based on evidence or analysis; second, key costs were not considered or were underestimated when planning the project and; third, there was little evidence to show whether the project provided the expected economic benefits to local and northern businesses.

When the government first approved the project, it was only for the renovation and expansion of the existing hospital building. Based on this project scope, the government approved a P3 procurement process. The reason for using a P3 was to transfer most of the financing and construction, operating, and maintenance risks to the private sector. The winning bid accepted by the government significantly changed the project scope. Instead of a renovation and expansion, the project now included building a new hospital and renovating the existing hospital to lease it out. The project then moved forward without analyzing whether a P3 still delivered the best value for money compared with a traditional procurement model.

The departments and the authority reported in 2015 that the total value of the contract with Boreal Health Partnership was about $750 million. We estimated that as of June 2023, the project’s actual and projected costs over its 30‑year life were in the range of $1.21 billion, which was a 62% increase. The difference is because property taxes for the new hospital were not factored in, operating costs for services in the new hospital were underestimated, and leasing costs for the existing hospital building were later added.

With the revised project scope, the Department of Infrastructure conducted a value-for-money analysis related to leasing the existing hospital building to a third-party developer for 30 years. At the time, the departments and the authority believed a lease had the potential to achieve value for money. However, the Government of the Northwest Territories then subleased the building back from the third-party developer without the required approval and without re‑doing or updating its analysis.

As a result, the government became a rent-paying tenant in its own building with a lease that committed it to paying rent and other fees to a third-party developer for 30 years. This also resulted in the government taking back some of the risks it had intended to transfer using the P3 model.

The people of the Northwest Territories and the government will feel the consequences of decisions that were made without proper analysis for decades to come. This project provides many lessons that the government should apply to future large-scale projects to ensure that the government and residents of the Northwest Territories receive good value for money spent.

Mr. Chair, this concludes my opening statement. We would be pleased to answer any questions the committee may have. Thank you.