This is the fourth part of my review of the Final Report of the Commission of Inquiry into the Ottawa LRT fiasco. This article covers the construction of the line up to Substantial Completion and draws from chapters 10-12 of the Inquiry Report.

See also:

• The Ottawa LRT Report Part I
• The Ottawa LRT Report Part II
• The Ottawa LRT Report Part III

This is the third part of my review of the Final Report of the Commission of Inquiry into the Ottawa LRT fiasco. This article covers mainly the vehicle and control system manufacturing, and corresponds to chapter 9 of the Inquiry Report.

See also:

• The Ottawa LRT Report Part I
• The Ottawa LRT Report Part II

Part IV will deal with the construction of the line, and Part V will deal with the transition to revenue service.

The entire process is a textbook example of what happens when “on time, on budget”, coupled with an unproven design, forces abandonment of well-established best practices for manufacturing and testing. Moreover, the lack of integration and communication across the project puts the lie to the idea that a private sector consortium will automatically be run like a well-oiled machine rather than a clanking contraption on the edge of collapse.

Updated Dec. 12/22 at 5:30 pm: The discussion of signalling systems used on various lines has been corrected to cite Bombardier’s Cityflo 650 system as the one used on Line 5 Eglinton.

This is a continuation of my review of the Final Report of the Commission of Inquiry into the Ottawa LRT fiasco. This article picks up from the point where the contract is awarded to the successful P3 bidder, Rideau Transit Group, and reviews the contract and project structure.

See also: The Ottawa LRT Report Part I which contains introductory material and the story up to the contract award. In Part III I will turn to construction problems and testing before revenue service began, and Part IV will cover from that point to the present.

Contractual Agreement

On December 19, 2012, Rideau Transit Group (RTG) achieved the best score on their submission although, as I noted in the previous article, this was primarily on financial factors as the technical scores of the three bids were close to each other. Ottawa still clung to the 2010 budget estimate, and the project was approved at $2.13 billion. However, the P3 arrangement removed much of the City’s control over the project.

The actual structure of the project involved several entities, some of which were actually the same companies acting in different guises. This divided the project into subcontracts although ultimate responsibility rested at the top with RTG.

The Project Agreement accounted for the fact that, as is typical with this type of model, RTG would flow the bulk of its contractual obligations under the agreement down to subcontractors. […] The Project Agreement required RTG to ensure that its subcontractors complete the subcontracted scope of the OLRT1 project in the same manner and to the same extent as RTG is required to under the terms of the
Project Agreement.

Accordingly, the obligations for the works required by the Project Agreement were set out in RTG’s subcontracts with OLRT-C [the construction arm of the P3] and RTM [the mainenance arm], respectively. Under the subcontract with OLRT-C, OLRT-C took on the obligation to complete the design and construction as required under the Project Agreement as well as the risk and associated payments if the obligations were not met. Similarly, the subcontract with RTM flowed down RTG’s obligations to maintain the OLRT1 project as required under the Project Agreement, and RTM took on the risk and associated payments if the obligations were not met.

This structure allows RTG to be a small entity made up of only a handful of executives and support staff who would administer and oversee its contracts with its subcontractors. Any reporting from the subcontractors up to the City and back went through RTG. [p 148]

In this arrangement, management of the groups responsible for the work flows through the topmost level, RTG. In theory, this provides a single point of contact and responsibility, but it also creates a potential choke point in the City’s ability to manage work done on its behalf.

“Under the Project Agreement, RTG was responsible for the construction and maintenance of the OLRT, and the City would be the operator of the system. The Project Agreement, which was based on Infrastructure Ontario’s P3 template, gave the City limited control over the construction process or the subsequent maintenance of the system. Therefore, the City’s ability to direct the project was generally limited to enforcing specific financial remedies under the Project Agreement. In essence, the City was in a position where it had to rely on RTG to fulfill its contractual obligations and could only attempt to ensure compliance by withholding funds or otherwise enforcing contractual remedies.” [p 9]

Systems integration is an important part of any large technical project. One cannot simply buy components from various sources, plug them all in and expect them to work. With the management of suppliers happening a few levels removed from the City, an assumption is needed that this integration is actually happening. In fact, it was not, or at least not at a level needed to guarantee success.

“RTG’s project plan required the various engineering systems that went into the OLRT1 to be carefully integrated. However, the subcontractors operated in silos. These decentralized arrangements made it essential that the parties integrate their efforts and engage in near-constant communication. They failed to do so, OLRT-C [the construction arm of the P3] did not effectively coordinate their efforts, and the project suffered due to this lack of coordination.” [p 9]

On top of these issues, the vendors argued that the specifications were too “prescriptive” about how things should be achieved, as opposed to describing a system performance requirement and leaving it to the P3 to figure out how that should be met. This affected, in particular, the vehicle design.

An obvious question is why this was not addressed during the pre-award stage of commercially confidential discussions, or if the City and their consultants (who presumably were responsible for the specification) refused to change it.

“Regardless of the details of the project specifications required in the Project Agreement, by signing the Project Agreement, RTG agreed to be “responsible for the complete design, Construction, testing and commissioning and Maintenance of the complete Systems required for the safe and efficient operation of the LRT.” That is, RTG signed the Project Agreement with “eyes wide open.” [p 151]”

The contract contained provisions for various types of default including:

• Failure to Maintain Schedule: The City could issue a notice to RTG which triggered a requirement for a plan to get the project back on time and achieve a Revenue Service Availability (RSA) date no later than mid-May 2019. Failure to deliver a plan would be deemed a default and entitle the City to terminate the contract.
• Delays to Revenue Service Availability: Many preconditions determined whether RSA had been achieved including Substantial Completion of civil works, testing and safety requirements, and training of City staff for system operation. The RSA date was May 24, 2018, and five days after certification, RTG was entitled to a $200 million payment. If this date was not met, the agreement included provisions for rescheduling and a penalty payment (liquidated damages), but in any event if the date went beyond May 2019, this would be considered as a default.
• The contract between RTG and OLRT-C also contained provisions for penalties up to about $145 million for delay damages.

Various types of events were provided for where RTG would be entitled to a schedule change and financial compensation. Typically these were external events including Acts of God, interference by other agencies or governments, labour actions, civil unrest, contamination of work sites, and archeological finds. Even if the event was beyond RTG’s control, they were required to reduce or eliminate its impact to the degree possible.

Despite this fairly exhaustive list, the agreement did not provide for any relief related to geotechnical risk. This was assumed completely by RTG with only the following exemption:

“The only partial exception to this is that the Project Agreement did create a Relief Event “with respect to Tunnel Work only” for “bursting or overflowing of water tanks, apparatus or pipes if such events are not attributable to the actions or omissions of Project Co [RTG] or any Project Co Parties and are not properly inferable, readily apparent or readily discoverable from the Background Information.” [p 159]

RTG, in effect, lost their bet on geotechnical risk thanks to a large sinkhole on Rideau Street. This event is covered later in the report.

Although the contract included a worst-case option that the P3 would be declared in default and the entire project would revert back to the City, this is obviously not a path to be followed except in the most dire circumstances. There is a strong incentive for the P3 to hit the mark on schedules, or at least claim that this will occur, and for the City to use financial threats to ensure projects stay on time. However, this creates an antagonistic relationship if anything goes substantially wrong on the project.

However, with the Mayor’s political credibility hanging on delivering a project “on time, on budget”, the likelihood that the P3 would be forced into default was minuscule. This created a situation where the project would “succeed” no matter what.

The Ottawa LRT project opened for service in September 2019. It was riddled with problems years before through the procurement, construction and commissioning. After several failures, including two derailments, the Ontario government created a Commission of Inquiry under the Honourable Justice William Hourigan to investigate how this came to be.

This article is not an exhaustive review of the findings. Interested readers can browse the full report on the inquiry’s website. The Executive Summary gives a good overview, but many of the details are in the full report which is organized into “deep dives” into various aspects of the project’s history.

There are many lessons to be learned for other agencies and projects, and there is no reason to believe that the issues are unique to Ottawa’s first LRT line.

Where I quote directly from the report, this is shown clearly in quoted blocks. I have used the Executive Summary as a starting point, but have also woven in material from the detailed chapters to give additional background. Any conclusions or interpretations are my own.

This article reviews the report up to the point where the contract is awarded to a P3, Rideau Transit Group, to build and maintain the system. Part II will pick up the story from that point onward.

I have included part of the “Conclusions” section here for the benefit of readers who do not want to read through the full articles, much less the report.

David Cavlovic passed on to me an article by Ben Dachis in the Ottawa Citizen dated December 18.  The thrust of the article is that we can improve transit by avoiding strikes, and we can do that by encouraging competition among service providers.

One of the major stumbling blocks in the current negotiations has been the issue of outsourcing. However, outsourcing of transit operations and maintenance can be done in a way to improve public transit, preserve the jobs of workers and ensure that the city isn’t crippled by a strike.

Ottawa should consider modest relaxations over the transit monopoly that OC Transpo has in the region. Private companies could be permitted to operate a transit route on contract to the city.

If one transit operator went on strike, another could fill the service void. Ottawa can look to a suburb of Toronto, York Region, to see that in the case of a strike by one transit provider — Viva, operated by Veolia Transportation — the rest of the operations continued normally and most riders were not left waiting at the curb.

Competition between transit companies can ensure service delivery, reduce costs and improve service. The key to all of this is transit competition — not a transit monopoly.

This is utter nonsense.  The ability of one provider to take over for another assumes that there is sufficient capacity — buses and drivers — available to operate the fill-in service.  As was well-reported in York Region, the YRT buses could not cope with the riding displaced from VIVA.  Moreover, neither system carries riders on the scale of major urban systems like Toronto’s where the sheer size of operations would make any shift between providers a daunting one.

The classic example is the U.K. In London, controlled competition has led to cost savings and an increase in passenger trips.

In Ontario, privately operated transit systems had operating costs per hour of vehicle operation 20 per cent below publicly operated transit systems. The realized gains in efficiency come a number of ways, such as lower management costs.

London (and anywhere else in the U.K.) is probably the worst possible example regarding labour costs and service provision.  England is notorious for overly generous work arrangements for unionized staff, and the savings (such as they may be) achieved there do not transport across the pond to North America.

A related issue is that many schemes to privatize segments of systems eventually led to monopolies as the larger, better-financed operators systematically bought up the smaller ones.  The problem of a single operator’s shutdown taking the whole system becomes just as real in this situation with the added problem that the negotiating team is removed from public review.

Ontario cost comparisons need to be taken with several grains of salt.  First off, the most likely services to be privatized are those that are small enough for a private firm to take them on.  They are also likely to have much less demanding operating conditions (hours, riding levels, vehicle costs) and be candidates for part-time staff with lower total wages and benefits.  Major urban systems are different, and will automatically have “higher” costs due to their complexity, level of service and the need for a much larger organization to manage and operate their systems.

The unions can bid alongside private maintenance companies for the right to maintain OC Transpo vehicles, in what is known as managed competition. When this was done with U.S. government contracts, public unions won around 90 per cent of all work that was bid out, suggesting that they will not lose much work. In fact, in the U.K., local government employees have been successful at winning contracts for private-sector work in certain services.

If public workers are going to win about 90 percent of all work offered on tender, this implies that they are already competitive or close to it.  A more important question, however, is what proportion of work was actually offered on tender?  How many private companies now exist who repair large bus fleets or subway cars? It’s not as if there is an underutilized transit maintenance industry just sitting there waiting to do work on large transit systems.  The real agenda is likely the selloff of existing public assets to a private “operator” at fire-sale prices.  Think Highway 407.

Large systems already contract out some speciality work where it makes sense to do so, and large-scale capital projects are substantially built by private companies.  The last year has been a bonanza for private transit consulting firms, and there is a queue of construction firms ready to build new lines the moment the designs are finished and the funding is available.

The labour situation in Ottawa will not be helped by sabre-rattling on privatization.  This only fuels distrust at the bargaining table and suggests that the politicians are more interested in scoring debating points than in addressing contract issues.