Quebec tramway failure, analysis of a predicted storm

Published by Louis Bellemare on 2023-11-19

PART 1 The project

His announcement

“With this project, the city of Quebec will enter modernity,” declared former mayor Labeaume during a press conference held on March 16, 2018. ^1 2

The project was a 23-kilometer-long tramway crossing Quebec City from west to east. A 17-kilometer tram bus was connected to it with new reserved lanes for the suburbs. It provided also four interchange hubs with 5,000 additional incentive parking spaces. Two mechanical links to connect the upper and lower towns were also considered.

At a cost of $3.3 billion, it was to be entirely financed by the provincial and federal governments. The city had, however, committed to putting $300 million on the table for urban development.

The timeline schedule was estimated at three years to complete the plans, specifications, and calls for tender. Barring any unforeseen circumstances, commissioning could take place in 2025-2026.

Government commitment

In order to follow up on the project, the Legault government adopted three decrees in April 2021. It was to prove the desire to carry out the project. ³

• The first allowed the City of Quebec to receive a grant of up to $1.2 billion from the federal government. This grant was awarded under the Investing in Canada infrastructure program ;
• The second decree granted a $200 million subsidy from the government to Quebec City to continue its planning work. The Quebec government had committed $1.8 billion.
• Finally, a third decree aimed to authorize the City to award contracts as part of the construction of the network.

The costs of the project evolved and City of Quebec announced the abandonment of the tram bus part. ^4 5

In January 2022, the City of Quebec published a document. It explained that the new costs were estimated at $4 billion. It was due to the volatility of the real estate market. Necessary acquisitions, inflation, and an amount of $100 million related to the procurement process had to be considered. Superior levels of government committed to assuming this additional cost of $600 million. 

On April 6, 2022, Quebec government gave its definitive support to the project by adopting decree 655-2022. The decree was subject to certain conditions imposed by the Ministry of the Environment. No conditions on social acceptability were imposed, despite rather unfavorable surveys of the population. Also, no conditions were imposed on the costs of the project. ⁶

Calls for tenders

Following the decree of April 2022, the City started preparing work involving numerous expropriations. An initial call for proposals was launched for the construction of the tramway rolling stock. Subsequently, a second call for tenders was launched for the tramway infrastructure component. ⁷

Alstom has won the contract to supply 34 Citadis trams for the Quebec City tramway project for 1.34 billion $. It implies the design and supply of the rolling stock as well as its maintenance for a period of 30 years. An option to acquire up to five additional trams and their maintenance were also included. ⁸

In addition, two companies responded to the call for qualification for the construction of infrastructure. That included design, construction, financing, and maintenance activities. Those companies were Mobilité de la Capitale and ModerniCité. ⁹ None of those have submitted bids at the end of the call. The process was then extended until November 2023. ¹⁰

The City of Quebec then revealed revised costs for the project. The new estimates were $10 billion to 12 billion dollars $ if a contract was awarded for the construction of the infrastructure. It was of 8 billion dollars $ if the wok was carried out by the city itself.

PART 2: The Storm

The first winds of the storm were felt in 2021, after the pandemic and an unfavorable economic climate. Costs for all construction projects around the world increased following chain disruptions, material scarcity, and labor shortages. ¹¹

Increased costs were necessarily reflected in the bidding processes. This mean much higher levels of risk by contractors, especially during the execution of the work itself. As of early 2022, increased costs for construction projects in general were already estimated at more than 25%. The Quebec project was therefore not spared.

Also, starting March 2022, successive interest rate increases were announced by central banks around the word. Those raises had a considerable impact on long-term financing costs for infrastructure projects.   ^12 13 It is especially true if bidders have to assume the financing of the project themselves. Simple calculation shows the sensitivity of these increases to costs. As an indication, a 2% increase in the interest rate would establish the final value (FV) at nearly $11 billion. The project was initially estimated at $4 billion if financed over 50 years, an increase of 175%. This assessment corresponds to the ones presented by the City’s managers.

In other words, cost increases can be explained by an exceptionally unfavorable economic situation. In dealing with this situation, certain mistakes were made.

First mistake: haste

Perhaps the first mistake was to fear that federal funds to finance the project would run out. One could believe that the longer a project is delayed, the more expensive it becomes. This belief encouraged haste. Adjustments for inflation are necessary. However, there is no evidence that time makes a project always more costly in real terms (cost of a project minus inflation). Otherwise, the costs of all projects would become astronomical and none would be feasible.

This false belief, in my opinion, led to the acceleration of its implementation stages. The launch of calls for tenders was done at a time extremely unfavorable. Bidders were asked to assume a very high financial risk. ¹⁴ The City of Quebec, not the main provider of funds, feared cancellation of the project because of the increase in costs. But also, because of the financial availability of its partners, including federal funds.

Furthermore, supply chain disruptions and interest rate hikes should have been anticipated as temporary. Planning over a longer period would have allowed the storm to pass while risks could be reassessed downward and project costs determined with much greater certainty.

Second mistake: abandoning a significant portion of the project

In order to reduce costs, the project was cut by almost half. 17 kilometers of tram bus lines and new reserved lanes were abandoned. As if the nature of the project was subjected to the vagaries of the economic situation. It is illogical that a difficult economic situation implies cuts on projects. The needs of the population has to be taken into account.

The part of the project that was abandoned was the most important for the efficiency of transportation in the Quebec region. It was also the least expensive per user. It would have had the greatest impact by unifying Quebec with its suburbs and by building a truly integrated network.

The tram bus lines would have contributed to the increasing cost of the project. However, eliminating it has the effect of lowering social acceptability. The project has become much less relevant and its cost has become unjustifiable.

Third mistake: the absence of an integrated vision

We entered the heart of the storm. There was a political takeover of the project by the Quebec government. It had already announced the abandonment of an infrastructure project between Quebec and Lévis. But this led to the loss of the riding of Jean-Talon. Consequently, Quebec government decided to review the entire work.

This political decision was motivated by the new cost estimates and the desire for greater public support for the project. It is also the result of another error which is the absence of an integrated vision of transportation for the Quebec metropolitan region.

This vision is necessary. The efficiency of a transportation network can be measured by its level of integration with its various components. Quebec City is only one of its components in the great metropolitan area but was the project manager. It was tempting to ignore needs of the municipalities on the south shores. For example, the City of Quebec was not mandated to undertake planning on behalf of the City of Lévis.

Furthermore, this integrated vision would have made it possible to meet the needs of a greater number of citizens.

PART 3: The calm after the storm

The Quebec government mandated the Caisse de Dépôt et de Placement du Québec (CDPQ). CPDQ had to propose transportation solutions for the Quebec region within the next 6 months. ¹⁵

Entrusting it with financing, the project’s debt can be subtracted from that of the province, freeing up funding for other projects.

In such an eventuality, the CDPQ can demand high returns on its investments, up to 8%. This would have the effect of increasing the costs of the project even more, without considering the contribution of the federal government which would not be assured.

The decision to entrust this mandate to the CDPQ could also be motivated by the desire to gain time, in order to let the storm pass. It remains to be seen whether this will be the fourth mistake.

Louis Bellemare

1. Couillard and Labaume present an ambitious tramway project in Quebec ↩︎
2. A tramway named desire for modernity and mobility ↩︎
3. Tramway project, three decrees adopted by the Quebec government ↩︎
4. Details regarding costs, power supply and platform insertion ↩︎
5. Tramway, we have agreed, Regis Labaume ↩︎
6. Decree No. 655-2022 , ↩︎
7. The tramway project is moving forward, a first call for tenders launched ↩︎
8. Alstom to supply 34 Citadis trams for maintenance in Quebec City, Canada ↩︎
9. Calls for qualifications, two consortia interested in the infrastructure component of the Quebec tramway ^* ↩︎
10. The financiers said no ↩︎
11. Inflations-Impact of inflation on construction in Canada ↩︎
12. inflation: the impact on the construction sector ↩︎
13. How do interest rates impact your business plans ↩︎
14. Infrastructure financing, returns and risks of infrastructure projects ↩︎
15. Legault takes over the project and entrusts it to the Caisse de Dépôt ↩︎