Inside Queen's Park: Contracts cancelled at taxpayers’ expense

The provincial government is clearly broke. So why would it risk incurring billions of dollars in potential liabilities for political ends by cancelling contracts?

As it stands, there are billions of dollars in construction-related lawsuits piling up across Ontario, says Clive Thurston, president of the Ontario General Contractors Association.

“I’ve got a stack of them on my desk now, all public owners,” he says. “There are two more at $45 million and a $60-million job pending. These could be the last straw. We need to take control of this industry. I’ve never seen it so bad in the 10 years I’ve been in this job.”

Top of mind this week is the looming cancellation, based on a promise two weeks before the election, of the construction of a natural gas plant in Mississauga, Ont., by Greenfield South Power Corp.

The decision came on the heels of another cancellation of a gas plant in nearby Oakville. Both plants were contentious and threatened Liberal incumbents in their respective ridings.

The government hasn’t officially cancelled the Mississauga plant, although it has telegraphed its intent. In the meantime, construction continues unabated with machines and equipment flying in and out of the site.

Estimates from some sources of the cost of cancelling the contract run to the billion-dollar mark because of anticipated revenues from the energy portion. Greenfield South, however, isn’t talking. Instead, it prefers to focus on the job and wait for an official notice.

My reference on this issue is William Pigott of Miller Thomson LLP, a go-to lawyer in construction law. He acts for owners in the private sector and notes construction contracts generally revolve around what’s known as CCDC2, the Canadian Construction Documents Committee suite of documents.

“In CCDC2, an owner can cancel a contract for cause, such as insolvency or a failure to complete work to a substantial degree,” he says, noting the owner can then recover the costs of completion from the contractor or guarantors.

Further, some contracts have clauses that allow “termination for convenience,” but Pigott says the industry watches out for such provisions and generally accounts for those with that wording through the price. (In other words, being a weasel drives up the price. How we all wish we could invoke that in day-to-day commerce.)

In general, according to Pigott, there’s also a winding-down provision in most contracts in the event of a cancellation that allows the contractors to be paid for work to date and a portion of  the anticipated profits.

“And when there’s financing involved, it gets even more complex,” says Pigott, noting the lenders can also claim compensation. “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.”

Talking of spinning, meet John Kourtoff, the angry president and CEO of Trillium Power Wind Corp., who filed a statement of claim against the Crown on May 19 seeking $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 Kourtoff’s firm began researching wind energy locations around Ontario.

It pursued them for several years until, Trillium claims, “without prior discussion” the government imposed a moratorium on offshore wind in order to conclude environmental and social studies.

Kourtoff was told the moratorium was due to political pressure as surrounding homeowners objected to the esthetics. In August 2007, the company was advised “to stay quiet during the upcoming election,” a recommendation it followed.

After the Liberals swept to power with a majority in 2007, the government magically lifted the moratorium.

Trillium then continued making plans for offshore wind sites across the Great Lakes with supporting studies to show it could generate 20,700 megawatts of power. Indeed, the Ministry of the Environment accepted its first project in August 2010. At that point, Trillium set about getting financing.

It all came to a grinding halt at 2 p.m. on Feb. 11 when Kourtoff learned of a press release announcing a moratorium for “further scientific investigation.”

“We still have no documents, order in council, anything other than a press release as the authority for this,” says Kourtoff.

Trillium has no contract per se but it has a trail of paper showing applications for permits and leases and other arrangements it entered into with the province and its agencies.

The irony, as Kourtoff notes, is that his wind turbines were to be 26 kilometres offshore, a place where they wouldn’t have been visible. He says he’s being hit unfairly because the objections were aimed at projects planned at just five kilometres offshore.

Acting in good faith, Trillium has spent $5.3 million on the groundwork for offshore wind projects and millions more in other costs.

“And it’s not just the cancellation,” says Kourtoff. “It’s the jobs this would have created and the sustainable power.”

The potential cancellation of the $400-million Greenfield South gas plant is a similar debacle. It was to have delivered 280 megawatts of power by the fall of 2014.

This is politics at its worst as the government panders to a minority with billions of dollars in taxpayers’ money that at the end of the day creates no new jobs and no new energy.

The question now becomes this: at what cost to taxpayers did Premier Dalton McGuinty win a minority government? Clearly, there are at least two or three seats, one could argue, that the government bought with taxpayers’ money.

Ian Harvey has been a journalist for 34 years writing about a diverse range of issues including legal and political affairs. His e-mail address is
[email protected].

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