November 18, 2011
Cancelled Ontario contracts draw fire
An Ontario election promise to cancel a $400-million natural gas energy plant in Mississauga is the latest in a series of construction contractual issues casting a chill over the sector.
“I’ve got cases piled on my desk with more coming in,” said Clive Thurston, president of the Ontario General Contractors Association. “There is a $45-million project and another $60-million project which may end up in court as well. I’ve never seen it this bad. Something has to stop. We have to stand up as an industry and take this industry back. All the issues are with public projects, either provincial or municipal.”
Thurston’s comments come as two large projects teeter toward litigation: one, a $45 million job in southwestern Ontario and the other a $60 million project. Thurston wouldn’t specify details.
The newly elected government is already embroiled in a $2.25 billion claim brought by Trillium Power Wind Corp. over the sudden moratorium imposed by the Ontario government on offshore wind projects last February.
Soon it may face another legal fight if it proceeds with an election promise to “relocate” the $400 million, 280 MW Greenfield South natural gas energy plant in Mississauga which is already well into construction. According to the Ontario Power Authority, major equipment has been ordered and several powerhouse column footings are complete.
The Grits made the promise to shore up support for the incumbent Liberal MP Charles Sousa who was facing a tough battle.
The project was intended to take up the slack after the $1-billion, 900 MW Oakville Generating Station was cancelled because of voter pushback last year. There are still unsettled claims on that project.
How much this will all cost and whether it proceeds to litigation or settlement is unclear. What is clear is that there are hundreds of millions of dollar in liabilities the taxpayer may be forced to pay out.
It also calls into question whether Ontario will meet projected power needs if it continues to phase out coal plants.
William Pigott with Miller Thomson, an expert lawyer in construction law doesn’t see a lot of cancellation litigation and says the standard CCDC2 contract only allows for cancellation for cause.
“An owner can cancel a contract for cause, such as insolvency or a failure to complete work to a substantial degree,” he said noting that the owner can then recover the costs of completion from the contractor or guarantors.
Further, some contracts have clauses inserted to allow “termination for convenience,” but he noted the industry is on the lookout for such clauses and generally prices in anticipated costs if that eventually occurs.
Generally, Pigott said, there is also a “winding down” provision in the contracts which allow the contractors to be paid for work to date and a portion of anticipated profits, though they may have to show proof of that expectation.
“And when there’s financing involved, it gets even more complex,” he said. “Of course, the government could just pass a law that says, ‘we’re cancelling and you get nothing’ but that would be shocking and send the entire industry spinning.”
Thurston said the industry is about ready to cry “enough.”
“The problem is that you have this new layer of procurement specialists who think they know construction,” he said.
“They may be good at buying chairs and copiers but they don’t understand construction. In the past, if we had a problem we’d talk to the owner and we’d work it out. They might change their position, they might not but at least you talked.”
Now, Thurston added, issues which would have been resolved with a few meetings develop into impasses with each side calling in their lawyers.
He’s hopeful that Infrastructure Ontario will take over procurement and construction management from other ministries who don’t have the in-house expertise and that will resolve some of the issues.
In the meantime, with one lawsuit on the table and another potentially looming things are getting heated.
John Kourtoff, president and CEO of Trillium Power filed a suit last May claiming $2.25 billion in damages for “confiscation of property and intellectual property, confiscation of assets, reimbursements of its costs thrown away and compensatory damages.”
The Trillium case stretches back to 1996 when a forerunner of Trillium began researching wind energy locations in and around Ontario and pursuing a location off Kingston up to about the fall of 2006.
In the run up to the October 2007 election Trillium claims “without prior discussion” a moratorium was imposed on offshore wind so the government could conclude environmental and social studies.
Kourtoff was told the moratorium was imposed because of political pressure and objections from surrounding homeowners. In August 2007 it was further advised “to stay quiet during the upcoming election” which it did. After the Liberals swept to power, with a majority in 2007, the moratorium was lifted and Trillium continued making plans for offshore wind sites across the Great Lakes with supporting studies showing it could generate 20,700 megawatts.
Indeed, the project’s first phase was accepted by the province in August 2010 and Trillium set about getting financing.
It all came to a halt at 2 p.m. February 11 this year when Trillium learned from a press release announcing a moratorium for “further scientific investigation.”
“We still don’t have any official documentation or notice of cancellation save for the press releases,” said Kourtoff.
“It’s not just the project; it’s all the power and jobs this would have provided. And our turbines were 27 kilometres off shore; you wouldn’t see them like the others which are only five kilometres away.”
Thurston said the disputes are similar to the City of Ottawa’s cancellation of a 37 kilometre light rail transit line after the 2006 municipal election. Ottawa paid Siemens Canada Limited, PCL Constructors Canada Inc., Ottawa LRT Corp. and St. Lawrence Cement Inc. (now known as Holcim (Canada) Inc.) $36.7 million to settle three years later.
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