MEMO / NOTE DE SERVICE

To / Destinataire Mayor and Members of Council File/N° de fichier:

From / Expéditeur City Manager

Subject / Objet O-Train Confederation Line – Overview Date: February 14, 2018
of Project Agreement

The purpose of this memorandum is to provide an overview of the O-Train Confederation Line
Project Agreement (PA) and address questions received from Members of Council.

The City of Ottawa structured the agreement with Rideau Transit Group (RTG) to protect
taxpayers’ investment. The Alternative Financing and Procurement model is designed to
allocate construction, geotechnical, tunneling, schedule and financial risk to RTG.

The Alternative Financing and Procurement model transfers responsibility to the private
partners who will only get paid as a group, up to the fixed price agreed upon, when the output
specifications are met and when the work is completed. The responsibility to meet the timelines
for the delivery of the system, on the date prescribed through the conditions set in the project
agreement, rests with RTG who will face various financial consequences as a result of the
delay.

The Project Agreement provides several protections for taxpayers’ investment, including but not
limited to:

 liquidated damages;
 deferral of milestone payments until associated requirements are achieved;
 deferral of the $200M Revenue Service Availability (RSA) payment due when RTG
hands over the system to the City;
 no monthly maintenance payments until Revenue Service is certified as being achieved;
 “Step In” rights in the event of default.

The City is using the project framework, including the payment schedule and the term of the
maintenance contract, as leverage to seek reimbursement of the City’s additional costs. Staff
has previously advised that the detour costs are estimated to be $1.9M per month, there will be
additional costs related to monitoring the construction, lane closures etc. Staff is working to
detail what those costs are, but this will be an ongoing discussion until the system is complete.

The Project Agreement serves as a framework for the City to seek direct delay costs from the
contractor. It is the City’s position that RTG needs to cover our costs for the delay. The City will
protect the interests of its taxpayers against extra costs – be it to keep buses running, for our
costs for monitoring the construction, for the costs associated with disruption in lane closures
and for the additional strains on our transit resources.

As a fixed price contract, RTG is responsible to absorb the additional costs they are incurring as
a result of the six month delay. This is estimated to be between $8M to $10M per month and
does not include the costs of the Rideau Street sinkhole that they have already absorbed.

The City controls the flow of cash to RTG for the remainder of the project. The City is currently
in discussions with RTG on ongoing issues including the timeline for the next milestone
payments, which require modification to reflect the new RSA date. These discussions will be
informed by what is in the best interest of Ottawa taxpayers. The results of these negotiations
will be brought to the Finance and Economic Development Committee once they are finalized.

It will take time to confirm the implications of the delay and the costs that will need to be
recovered. There may be ongoing disputes and lengthy negotiations – we need to understand
this is part of the process. The City’s expectation is that all requirements of the Project
Agreement will be fully met, such as quality, reliability, train capacity, and station designs.

The City will accept nothing less than the delivery of a safe, reliable world-class transit system.
There will be no risk transferred back to the City because of this delay.

The $1M in liquidated damages was an estimate put into the agreement to ensure that RTG,
once they had provided the RSA date, did not change that date and result in the City paying for
costs associated with mobilizing for that date. The City needs time to prepare for the LRT to go
into service – that was the point of setting a notice timeline in the agreement. That is why the
agreement was designed to compel a solid date for completion. For example, if after telling the
City to be ready for a particular date RTG then proceeded to change the date, the million dollars
was to compensate for the costs of that change.

In Canada, “liquidated damages” have to be a reasonable pre-estimate of what one would

suffer for a non-performance. This is different from the City’s costs because of the delay.

There will need to be budget adjustments to reallocate existing funding that would have gone to
RTG and that will now be used to cover ongoing bus service. However, this restatement of the
budget will not impact the amount already approved in the 2018 Transit budget.

The City's priority remains the protection of the interests of taxpayers and transit users, and to
provide a safe, reliable and world-class transit system in Ottawa.

This is a thirty-year relationship and we are a responsible partner – both parties are focusing on
working hard on resolving the challenge before us.

Both the City and RTG will work together to make sure we get the world-class system the City is
entitled to so that we can transition from bus to rail in an orderly and well-planned fashion.

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The contract is working just as it was designed to work. Unexpected events occur, such as the
sinkhole, in multi-billion dollar projects with this level of complexity. Council was prudent to
transfer this risk and responsibility to the private sector. Staff will work with RTG to deliver a
system that will provide both great value for money to taxpayers and great service for transit
users.

In response to several requests and for ease of access, please find attached the November 24,
2017 and February 5, 2018 letters from RTG regarding the RSA date.

Should you have any questions, please do not hesitate to contact me or John Manconi at ext.
52111.

Original signed by
Steve Kanellakos

c.c. Senior Leadership Team

Transportation Services Departmental Leadership Team
Director, Public Information and Media Relations

Attachments