City's legal expenses for LRT claim would skyrocket with additional $15M

A LRT train between Tunney's Pasture and Pimisi station in November, 2020.

The municipal government is mum on how much money it’s trying to recover from its main LRT contractor in a dispute poised to multiply the amount of taxpayer money shelled out for city-hired lawyers.

Council next week will be asked to add another $15 million to pay for the city’s legal fight with the Rideau Transit Group, significantly increasing the costs paid to external lawyers for what could be a prolonged legal battle.

At the end of 2020, the city had paid $4.9 million for legal fees related to its claim dispute with RTG that’s been ongoing since 2018, according to city solicitor David White.

The legal fight with RTG goes back to the construction period when the consortium missed handover dates, causing the city to spend more money to keep the OC Transpo’s bus network detoured through downtown and convincing riders to stick with public transit through the growing pains.

The finance and economic development committee on Tuesday night voted in favour of adding $15 million to the Stage 1 LRT contingency fund to pay for the city’s legal bills in an ongoing contract dispute with RTG, which is a partnership between ACS Infrastructure, EllisDon and SNC-Lavalin.

The committee’s decision came after a two-hour closed session of the meeting in which council members received an update on the legal fracas with the LRT contractor.

In the public session of the meeting, there was no discussion about the $15-million recommendation outside of the unanimous vote in favour of the spending. Council will need to ratify the committee’s decision on Wednesday.

The city says it intends to recover the legal costs from RTG through a dispute process.

It’s unclear where the city and RTG are in their discussions under the dispute resolution procedure embedded in their contract. Staff wouldn’t say.

The dispute resolution procedure sets the path for settling a claim, first by negotiating, followed by appointing an adjudicator, filing for arbitration, and finally pursuing lawsuits in Ontario Superior Court. There are other steps along the way, such as involving the executives of each organization and calling in the project’s independent certifier.

The city has never ruled out pursuing its claim through the courts.

While the city has lumped on cost overruns to its claim against RTG, there hasn’t been a recent update on the total amount the city believes the consortium owes municipal taxpayers, going back to the delays during construction of the 12.5-kilometre rail system.

The delays, caused in part by the Rideau Street sinkhole in June 2016, forced the city to maintain expensive bus detours and freeze fares in recognition of the inconvenience foisted on transit customers.

In March 2020, the city sent RTG a notice of contract default and a letter itemizing all the problems with the LRT system. RTG dismissed the letter as “self-serving.”

This week, city staff wouldn’t answer how much money it’s demanding from RTG in the claim dispute.

Mayor Jim Watson also wouldn’t state the number when asked about it on Thursday. He said city lawyers advised against talking about the specific claim in fear of compromising the city’s case.

“We’re dealing with millions and millions of dollars and we feel we have a strong case in all of the points we have raised over the course of the last couple of years,” Watson said.

The city had a running tab of about $25 million in cost overruns in December 2018, but there have been additional fare freezes, temporary backup bus operations and consultant reviews after the rocky LRT launch in September 2019.

On the flip side, RTG has indicated its own displeasure with the city holding back payments right through to the post-launch maintenance period. RTG, through its affiliate Rideau Transit Maintenance, has a 30-year contract with the city to maintain the Confederation Line.

The $2.1-billion LRT project included a $100-million contingency, but there’s nothing left in the contingency to pay for the legal costs related to the dispute.

The auditor general’s office, in finding that the city has correctly managed the contingency fund, included a breakdown of contingency spending in a report last fall.

About $51 million paid for 58 change orders in the construction contract and another $27 million was for integrating station entrances in existing buildings. Another $14 million was needed to settle property acquisitions, with the rest going to LRT-related road and infrastructure work and environmental remediation.

Watson pointed out that many of the problems hampering the LRT system, such as the door malfunctions, have been resolved and the system is working better.

While RTG continues to work on its remediation plan to increase the reliability of the LRT system, the consortium still has outstanding work to fix minor deficiencies from the original construction.

Michael Morgan, the city’s director of rail construction, said the work includes installing flow control devices in a catch basin near Tunney’s Pasture Station and providing final administrative and design documents to the city.

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