Mayor, contract thrown under the bus on Day 3 of LRT public inquiry

When Jim Watson promised during his 2010 mayoral campaign that the first part of the Ottawa light rail line would be on time and on budget, he likely couldn't have imagined the banal political slogan would become a centrepiece of a public inquiry a dozen years later.

But Watson's insistence during that campaign that Stage 1 ofthe Confederation Linebe kept to a $2.1-billion price tag despite the fact that figure was a preliminary estimate has been one of the focal points in the first few days of the much-anticipated LRT public inquiry.

It was a key line of questioning Wednesday to former deputy city manager Nancy Schepers from commission co-lead counsel John Adair.

Adair pointed to a 2009 report to council from Schepers, an engineer, that showed $2.1 billion wasan early estimate andcould go up or down by as much as 25 per cent as more details were confirmed.

But once Watson began campaigning on a $2.1-billion price tag, that number took on a life of its own, argued the lawyer.

"My simple point is that Mr. Watson, as he then was, and the other members of council who ran on that platform of $2.1 billion on time, on budget were making the very promise to the public that you, as an experienced professional, were not prepared to make tocouncil, right?" Adair asked.

"In the absence of estimates, I agree," said Schepers. "Yes."

• LRT budget so low that some worried bidders couldn't meet it, inquiry hears
• Political pressure led to LRT timeline being shortened, inquiry hears

But she also told Adair that she wasn't too fussed by Watson's political mantras, which she's heard before.

"It's not the first time that has happened," Schepers said.

"And, you know, as staff, we report to council. And if that was unrealistic and we at any point said, 'You know, this is not possible,' then we would have to do our homework and we would have to justify that in front of committee and council."

Drilling into early city decisions

The first three days of the four-week inquiry has revealed a number of core themes the commission seems set to scrutinize, from whether politics improperly constrained budgets and timelines to whether the details of thecontract ultimately failed.

WATCH | Low LRT budget left some worried about a 'failed procurment', inquiry hears:

Low LRT budget left some worried about a failed procurement, inquiry hears

2 years ago

Duration 1:23

Rob Pattison, who headed the LRT division for Infrastructure Ontario, says he worried the budget was too low for companies to meet and would lead to few or no bidders for the project.

The inquiry has heard several times how the budget cap was a potential problemanda number of key players testified they worriedno one would bid at that price.

On Tuesday, another commission lawyer asked the former city treasurer if there had been any discussions about whether the price cap might lead companies to "overpromise" in order to meet the budget.

Political pressure on the budget and the timeline are not the only ways in which inquiry lawyershave been drilling down into whethercity decisions made even before the contract was awarded contributed to the Confederation Line's troubles.

One such decision? Going with a private-public partnership, or P3 model, in its contract with Rideau Transit Group (RTG).

• Put LRT project into Infrastructure Ontario's hands, said Watson in 2010

The Confederation Line was the first time this funding model was used for a municipal LRT project in Ontario, the inquiry heard.

That's why provincial officials including Watson, who was just fresh from stepping down from the Ontario Liberal cabinet in late 2009 wanted Infrastructure Ontario to advise the city in setting up the contract.

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The ideas behind the payment plan

One of the key components of this kind of fundingmodel for transit is that the winning proponent designs, builds and maintains thesystem, butalso takes on part of the financing.

In the case of the Confederation Line contract,RTG took on $300 million in private financing, which the city would pay back as part of its monthly fee payments on the 30-year maintenance contract.

This private financing actually costs the city, because a municipality can usually borrow at a much lower rate than corporations. In 2012, the city estimated it was going to pay $165 million more in interest over 30 yearsthan if it had borrowed the money itself.

(Interestingly, the inquiry heard Wednesday that in May 2011, the city was not contemplating including private financing in its contract, unless the other levels of government paid for the additional cost. They didn't, but the city went for a design-build-finance-maintain or DBFM model anyway.)

Despite it being more expensive for the city,proponents of public-private partnerships say private financing provides the company with extra incentive to finish on time becausethe payments don't start until the project is handed over.

The arrangement is supposed to create a healthy"tension" that propels the companies to meet the project schedule.

But Adair argued that once the project was more than a yearlate, themodel starved RTG of much-needed cash.

Until it handed over the light rail system, RTG wouldn't get its final milestone payment of more than $200 million, while costs including servicing the $300 million debt kept piling up.

"RTG was under enormous financial pressure because of the model," Adair posited to Schepers, suggesting that the consortium was getting "killed financially."

Schepers pushed back, arguing that RTG partners SNC-Lavalin, ACS Infrastructure and Ellis Don were big players who should have known what they were doing.

Still, Adair argued, RTG couldn't afford to keep delaying its handover date but at the same time, couldn't ask the city not to enforce the contract because that's "not an option" under themodel.

"The guiding principle at all times has to be looking at what's in the best interest of the people of Ottawa, regardless of what the contract says," Adair suggested to Schepers, who only allowed that there should be flexibility.

Wednesday was not the first time this week that commission lawyers have suggested that the city holding to the contract or at least enforcing it in its strictest sense has been detrimental not just to RTG partners, but to the people of Ottawa.

On Friday, former RTG CEO Antonio Estrada is set to testify about, among other things, how the city handled the Rideau Street sinkhole.

First, on Thursday, Yves Declercqfrom train-maker Alstom, andManuel Rivayaof OLRT Constructors are scheduled to appear.