O-Train Confederation Line

Project Update

Transportation Services Department

Finance and Economic Development Committee

March 6, 2018
 Overview
1. Construction Update

2. Project Agreement:

• Revenue Service Availability (RSA) Date;

• Liquidated Damages;
• Delay Claims/Events;
• City Costs – Expenses and Revenues; and,
• Negotiations.

3. Lessons Learned applied to Stage 2

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Blair Station

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Cyrville Station

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Cyrville Station

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Train Testing & Operator Training

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St. Laurent Station

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St. Laurent Station

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Tremblay Station

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Hurdman Station

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Hurdman Station

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Lees Station

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uOttawa Station

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Rideau Station – concourse / platforms

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Parliament Station – East Entrance

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Parliament station – Platform

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Lyon Station - Platform Level

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Lyon Ventilation Fan

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Pimisi Station

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Pimisi Station

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Bayview Station

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Tunney’s Pasture Station

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Tunney’s Pasture Station

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Trackwork – Segment 1

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Trackwork – Segment 2

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Maintenance Storage Facility

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East Guideway

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 City Confederation Line Priorities
 RTG meets the November 2, 2018 RSA date;

 The City receives a safe, reliable and world class Light Rail Transit (LRT)
system;

 RTG covers all incremental costs resulting from the new RSA date; and,

 The interests of taxpayers, transit users and all residents of Ottawa are
protected.

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 Project Agreement
1. The City will continue to hold the Rideau Transit Group (RTG)
accountable for fully meeting the requirements of the Project
Agreement;

2. The City continues to work in partnership with RTG, at the same time
ensuring that the taxpayer, transit users and all residents of the city
remain protected;

3. Public Private Partnership (P3) – An Alternative Finance and

Procurement process that includes measures to protect the taxpayer
should the Revenue Service Availability date be adjusted including
the recovery of all incremental costs resulting from the delay from
RTG; and,

4. The PA serves as the basis for negotiations.

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Revenue Service Availability (RSA)
Date
 RTG’s notice of November 24, 2017 stated that Revenue Service
Availability (RSA) can be achieved by the required date under the
contract (May 24, 2018) “as such date may be extended due to
Delay Events and Variations”;

 City advised RTG a conditional RSA date notice was not acceptable
as per PA Section. 26.7(a) and (c); and,

 The schedule issued by RTG on December 7, 2017 demonstrated

the RSA date if all the delays were mitigated.

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 RSA Date Timelines

 December 2016 - RTG Works Schedule shows RSA on May 24, 2018;

 December 2016 to May 2017 - RTG continues to issue Works Schedule

updates showing RSA on May 24, 2018;

 December 2016 to May 2017 – the City closely monitors schedule and
advises RTG of activities showing a month over month slippage;

 May 2017 - the City commissions an Independent Assessment Team to

undertake a joint review of the schedule without the benefit of the detailed
schedule that met the City’s requirements and as requested of RTG to
assess the probability of a successful May 24, 2018 RSA date;

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 RSA Date Timelines (Cont’d)
 May 2017 – the City advises RTG that there is a high probability that the
RSA date could occur in Q4 2018;
 May 2017 - RTG did not agree and the PA did not oblige them to change
the Works Schedule;
 May 2017 – Aug 2017 – RTG continues to issue Works Schedule updates
showing RSA on May 24, 2018;
 August 2017 – the City issues the first “Failure to Maintain Schedule
Notice” indicating that the May 24, 2018 RSA Date was at risk and
requested a “recovery plan”;
 October 2017 – RTG issues Delay Event Notices for ceiling material and
‘Fare Control’;
 October 2017 – the City rejects the Delay Event Notices;

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 RSA Date Timelines (Cont’d)
 October 2017 – a follow-up schedule review with the Independent
Assessment Team again indicates that the May 24 RSA date is not
achievable;

 November 24, 2017 - RTG submitted the 180 day notice confirming that
they would achieve the May 24 RSA date as such date may be amended
due to Delay Events and Variations:

 November 2017 – The City immediately rejects the notice as ambiguous

and requests RTG to provide either an unconditional notice that May 24,
2018 will be achieved or provide a new RSA date;

 December 2017 - RTG submits a revised Works Schedule indicating a

RSA date of August 14, 2018;

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 RSA Date Timelines (Cont’d)
 December 2017 – The City rejects the latest Works Schedule and schedules
RTG to attend another joint schedule review with the Independent
Assessment Team in January 2018;

 January 2018 – This is the first time RTG provides the detailed schedule
meeting the City’s requirements and as requested by the City. This enables
a joint schedule review to be undertaken and RTG is informed of the
assessment conclusion that there is a low probability of achieving an August
14, 2018 RSA date and that a date in Q4 2018 is more achievable;

 February 5, 2018 - the City receives a new Works Schedule from RTG
indicating a new RSA date of November 2, 2018 subject to the resolution of
contractual matters; and,

 February / March 2018 – negotiations with RTG are ongoing.

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 Liquidated Damages
 Liquidated Damages apply whenever RTG provides an RSA date and
then fails to achieve that date [PA Section 26.7(b) and (e)];
 Liquidated Damages do not apply when there is a valid Delay Event,
as defined under Section 40 of the PA [definition of “Required Revenue
Service Availability Date” which provides that such date may be
extended by Delay Events];
 The $1M in Liquidated Damages will be applied if the November 2,
2018 date is missed [PA Section 26.7(e)];
 If RTG were to provide a new RSA date and subsequently missed that
date, Liquidated Damages would apply again [PA Section 26.7(d) and
(e)];

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 Liquidated Damages (Cont’d)
 There is no limit to the number of times this could occur between Nov
2, 2018 and the Longstop Date (default of contract) of May 24, 2019
[PA Section 26.7(d) and (e)]; and,
 Liquidate damages are not a penalty, but, rather, are a genuine pre-
estimate of damages the City could incur if the City has less than 180
days to plan for a new RSA date. Penalties are not permitted under
Canadian law.

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 Delay Claims / Events
 Similar types of construction contracts contain provisions allowing for delay claims and events
and mechanisms to deal with these and any disputes;
 Regardless of the delay in the RSA date, RTG always retained the ability to submit delay
claims / events;
 The PA includes certain provisions which if exercised could assist or compensate RTG in the
event of a delay event or claim . [PA s. 40.1(a) and 41.2(a)], For example: if, as the result of a
certain event or circumstance RTG is unable to fulfil all or part of its obligations and/or incurs
costs;
 The City’s opinion is that the sinkhole did not constitute a Delay Event as defined in Section
40 of the PA;
 RTG submitted a Relief Event Notice for the sinkhole and a corresponding Delay Event
Notice for delays they believed would be incurred as a result of the Relief Event;
 In our opinion, RTG is not entitled to a Relief Event on the grounds that the sinkhole was a
result of their acts and omissions;
 Under the terms of the PA, both parties have a general duty to mitigate the effects of these
events immediately upon their occurrence;

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 Delay Claims / Events (Cont’d)
 RTG is obligated to use “commercially reasonable efforts” to reduce or eliminate the effects
of the sinkhole;
 Following the sinkhole, RTG immediately implemented measures to stabilize the ground
conditions and develop proposals to recommence tunneling as soon as reasonably
practicable and continue to mitigate the effects of the sinkhole event;
 RTG has acknowledged that the sinkhole had a significant impact on the project;
 RTG also claims to be delayed by other factors, in addition to the sinkhole, such as the
change in ceiling material and weather protection for fare control equipment;
 The City has rejected both of these claims in writing and they remain a matter of dispute
between the parties; and,
 In the event of any further dispute, the matter will be referred to the Independent Certifier for
determination or referred to an Arbitrator in accordance with the Dispute Resolution
Procedure in the PA.

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 City Costs - Expenses & Revenues
 Staff are currently itemizing all City costs, which will include the following:
• Detours;
• Bus Operations;
• Ready for Rail communication, education and marketing campaign;
• Traffic management and OTC project office costs;
• Property costs; and,
• Lost revenue for OC Transpo due to delay, etc;

 The amount of these costs are in line with what has been previously
shared with Members of Council. The detailed breakdown forms part of
the negotiations with RTG and should remain confidential at this time to
protect the City's negotiating position;

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City Costs - Expenses & Revenues (Cont’d)

 The 2018 budget includes an expectation that there will be a one per
cent increase in ridership beginning with the opening of the O-Train
Confederation Line;

 The 2018 Budget included increased fare revenues starting in July.

Increased revenues are now expected to begin post November 2,
2018;
 The budget calculations were based on a mid-year opening, and the
ridership increase would have generated $1.83M in fare revenue over
the final 26 weeks of the year; and,
 With a 23.1 week delay, 89 per cent (23.1/26), or $1.63M, of this
budgeted revenue can no longer be expected in 2018.

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 Basis For Negotiation
In order to fully recover our costs and lost revenues the City will:

 Negotiate with RTG;

 Use budgeted Monthly Service Payments (MSPs) that are foregone as a
result of RSA being November 2, 2018 rather than May 24, 2018;
 Ensure the full application of the Painshare for Mobility Matters (costs for
traffic disruptions) targets provisions of the PA for Bus Rapid Transit
(BRT) and general Lane Closures to accommodate detours, etc.;
 Ensure all relevant Project Agreement provisions are applied;
 The PA contains a Dispute Resolution provision that could also be used
to pursue the City’s costs, potentially resulting in arbitration or litigation;

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 Basis For Negotiation (Cont’d)

 It is the City’s position that RTG will be covering all incremental costs; and,
 The City is using the PA including the payment schedule and the term of
the maintenance contract, as leverage to seek reimbursement of the City’s
additional costs.

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 Project Agreement Provisions
 The Project Agreement (PA) provides for milestone payments that
are in line with a May 24, 2018 RSA date. Currently there is one
milestone payment remaining;

 The PA doesn’t contemplate any other payments other than the

payments for achieving substantial completion and the RSA date;

 Milestone payments are made when the work defined in the

milestone certificate is completed;
 Payments are subject to the City’s and the Independent Certifier’s
opinion as to whether the conditions for issuance of the Milestone
Certificate, the Substantial Completion Certificate or Revenue
Service Availability Certificate have been satisfied;

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 Project Agreement Provisions (Cont’d)
 The City retains control of the cash flow for the remainder of the
project;
 The City would only consider early payment if both the City and the
Project would benefit from such an arrangement, and it is in the best
interest of taxpayers;

 The City will not pay more than 80 per cent of the Cost of Work
performed at any time, in accordance with how the financial model is
structured;

 This ensures that RTG remains financially incentivised with their 20 per
cent investment of equity and senior debt; and,

 The approval to proceed with such an arrangement would remain with

the City Manager and results would be reported to FEDCO.

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 Moving Forward: Stage 2 Project
Agreements
The City has taken a number of steps to ensure knowledge transfer from
the Stage 1 to the Stage 2 procurements:
 Commissioning of the Deloitte Lessons Learned Report distributed
to Council in December 2015 and available on the Stage 2 project
website;
 An Interdepartmental Lesson Learned Exercise lead by the O-Train
Planning Office; and,
 Consolidating both projects under the Transportation Services
Department to ensure knowledge transfer in real time.
These lessons learned have been supplemented by ongoing research into
recent industry experience and best practices.

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 Lessons Learned
 Based on these lessons learned staff reviewed key construction
performance regimes.
 Enhancements were identified and made with the Liquidated Damages
(LDs) Regime:
 Increased recoveries for delay, and greater clarity to indemnify the
City for any Direct Losses resulting from a delay event.
 Both Mobility Matters (costs for traffic disruptions) and the Lender
Discipline derived from the internal private financing structure of Stage 1
were determined to be working well.

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 Working Well: Mobility Matters
 As per Stage 1, the Stage 2 Project Agreements include a Mobility
Matters regime to:
• Provide incentive to maintain a high level of transit service during
construction; and,
• Minimize the number and duration of lane closures on the BRT
transitway and public roads;
 Stage 2 proponents submit construction schedule targets for lane
closures with their bids;
 If the Proponent’s actual lane closures exceed the target by more than
10 per cent, they are charged for the cost of the excess closures; and,
 The deduction amounts were sized to correspond to the cost of the
detour/traffic impact, and so will compensate the City for ongoing costs
to maintain a detour during a delay.

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 Working Well: Lender Discipline
 The Proponent repays monies loaned to them by their Lender in
accordance with the Project Agreement’s construction schedule;

 If construction is delayed, the Lender is still required to receive these

scheduled repayments;

 This drives speedy schedule recovery because if construction is late the

proponent is required to make these repayments (both interest and
principle) to their lender while they are not getting paid for construction
completion; and,

 Just like a credit card repayment, if you are late with any repayment, it
cost you more than making your payments on time. Late Lender
repayments result in increased interest costs that were not anticipated
or accounted for in the proponents business model.

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 Summary
 November 24, 2017 Notice from RTG was ambiguous, leaving uncertainty
as to the date Revenue Service would actually be achieved;
 December 7, 2017 Schedule did not provide the City with clarity on the
RSA date;
 The City has rejected RTG’s Delay Event claims;
 The City met with RTG with the objective of securing a schedule that has
a reasonable certainty of success;
 Numerous discussions between the parties led to RTG’s letter of Feb 5,
2018 confirming Revenue Service Availability will be achieved by Nov 2,
2018; and,
 All delay claims remain in discussion.

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 Next Steps
 Negotiate cost recovery with RTG in accordance with the Project
Agreement;

 Monitor RTG’s schedules and their continued adherence to November 2,

2018 RSA;

 The City may also seek to pursue or preserve its rights and negotiation
positions (which may involve simultaneously pursuing Dispute Resolution
/ claims);

 Provide monthly reports to FEDCO; and,

 The City is committed to achieving an outcome that provides schedule

certainty, delivers a World Class system to the highest standard of safety
and quality at no additional cost to the taxpayer.

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Questions?

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