How much more is Ottawa's LRT costing taxpayers?
This week, it was revealed the Rideau Street sinkhole cost the city $130M. What else dont we know?
In just a few weeks, it will be the fifth anniversary of the massive Rideau Street sinkhole that opened up above where the Confederation Line tunnel was being built.
Most everyone in Ottawa will remember the shocking event in which, miraculously, no one was hurt, although a parked van and three lanes of trafficwere swallowed whole.
And yetin all this time, we have never once heard that the sinkhole cost the city tens of millions of dollars until this week.
The revelation that the city is suing its own insurance companies for more than $360 million due to costs it incurred due to the sinkhole was startling on many fronts, not least of which the fact that in the years since the sinkhole occurred, the city hasn't publicly said anything about the event having any long-term financial impact.
Then there's the news that the city's insurers rejected its claim for the costs in December.
And finally,the discovery that the consortium thatbuilt the Confederation Line, Rideau Transit Group (RTG),is blaming the city for the sinkhole.
It's a complicated and expensive mess, and it all raises a bigger question: How many more millions did the LRT cost Ottawa taxpayers thatthe city hasn't told us about?
Legal dispute explained
First, let's dissect the lawsuit. News of it came through a confidential memo sent to council and first reported by the Ottawa Citizen,even though there's no good reason for information about the city filing a lawsuit in public court to be keptsecret.
It's a convoluted document, but here's what we can say for sure based on the memo to councillors, several publicly available court documentsand background conversations with people familiar with the issue.
As part of the Confederation Line construction, a project that has always been touted as costing $2.1 billion, RTG took out what's known as a builders' risk policy with a team of insurance companiesled by Zurich Insurance.
The policy covers RTG, but also the city and others working on the project against losses that might occur should something go wrong. The policy has a $700-million payout cap for any single eventsuch as a massive sinkhole.
The insurance companies have paid out $45 million to RTG for sinkhole-relatedlosses. But backin February 2019, RTG made an insurance claim of$235.7 million, arguing that the entire 15-month delay to complete the Confederation Line was due to sinkhole.
The insurers disagreed. They contend that non-sinkhole related problems with the Alstom trains and station construction meantthat the LRT wouldn't have been finished any earlier.
They denied theentire claim, andRTG sued for $275 million. That court fight continues.
This week, we find out that the city believes the "sinkhole event" cost it $131 million in so-called soft cots, including $104.2 million for so-called "carrying costs,"$3.3 million for delayed opening expenses and$22.8 million to pay consultantsand employees.
Those costs are in addition to the $1.7 million that insurance companies already paid to the city in2019 and 2020 for incremental expenses. According to the city, the insurers have shelled out for costs associated withpolice and traffic services neededin the sinkhole area, managing various utility disruptions to nearby businesses, and for the city's rail office to manageRTG's response.
Last August, however, the city made a final huge claim related to the sinkhole. Like they did with RTG'sgiant claim, the insurance team denied it. This week, the city took its fight to court and will be asking that a judge deal with its suit at the same time as the RTG suit.
But wait,there's more!
RTG blames sinkhole on city
Although the city is claiming losses of $131 million, the suit is for $361 million.
The rest of the claim $230 million has to do with who will ultimately be found responsible for the sinkhole.
In 2017, an engineering consultant'sreport commissioned by the city found it was "highly likely" that the sinkhole was caused by ground that was loosened during the LRT tunnel construction. But RTG has never agreed with that assessment, believing that the city is to blame possibly due to poor construction in that area in the past that RTG could not have known about.
- Tunnel work likely loosened sandy soil, causing Rideau Street sinkhole: Report
- LRT consortium won't take blame for Rideau Street sinkhole
In fact, that exact scenario had occurred earlier in the project. A report found that a much smaller sinkhole on Waller Street in 2014, at the eastern end of the tunnel, was caused bya "previously excavated construction pit" filled with "poor quality, uncompacted" material hence, not RTG's fault, although it picked up the costs at the time.
So to hedge its bets on getting compensated for its sinkhole-related losses, on top of suing the insurers, RTG has also made a claim against the city for$230 million under the LRT contract's dispute-resolution process, which is confidential.
The city, in turn, is including that $230 million in its own lawsuit against the insurance companies in case Ottawa is found responsible for causing the sinkhole.
Many questions remain unanswered
Many troubling questions remain from this week's news.
After RTG handed the Confederation Line over to the city inAugust2019, the city held back $59 million from its final payment. This money was supposed to cover the city's costs of the 15-month delay everything from having to keep buses on the road, to driver overtime, to keeping the rail office open.
It was understood that RTG might dispute this holding back of payment, but never did the city suggest taxpayers couldbeon the hook for hundreds of millions more due to the LRT delay.
Why was the public not made aware of this possibility earlier? And how many more millions over $2.1 billion did the city actually shell out for the Confederation Line construction?
On a final note, taxpayers were told over and over that the public-private-partnership or P3format of the LRT contract meant that the private partners RTG would be taking all the risks if something went awry.
It appears not to haveworked out that way.
At Tuesday's finance and economic development committee meeting, councillors will get to ask questions about this lawsuit.
According to the agenda, that discussion will be behind closed doors, perhaps signalling some new surprises for taxpayers down the road.
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