How much more is Ottawa's LRT costing taxpayers?

·6 min read
No one was injured by the Rideau Street sinkhole on June 8, 2016, though it did swallow three lanes of the downtown roadway. (Justin Tang/Canadian Press - image credit)
No one was injured by the Rideau Street sinkhole on June 8, 2016, though it did swallow three lanes of the downtown roadway. (Justin Tang/Canadian Press - image credit)

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 traffic were swallowed whole.

And yet in 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 that built 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 that the city hasn't told us about?

According to court documents, it took Rideau Transit Group nine months to repair the damage done by the sinkhole.
According to court documents, it took Rideau Transit Group nine months to repair the damage done by the sinkhole.(Andrew Foote/CBC)

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 kept secret.

It's a convoluted document, but here's what we can say for sure based on the memo to councillors, several publicly available court documents and 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 companies led 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 event — such as a massive sinkhole.

The insurance companies have paid out $45 million to RTG for sinkhole-related losses. But back in 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 meant that the LRT wouldn't have been finished any earlier.

They denied the entire claim, and RTG 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 consultants and employees.

Those costs are in addition to the $1.7 million that insurance companies already paid to the city in 2019 and 2020 for incremental expenses. According to the city, the insurers have shelled out for costs associated with police and traffic services needed in the sinkhole area, managing various utility disruptions to nearby businesses, and for the city's rail office to manage RTG's response.

Last August, however, the city made a final huge claim related to the sinkhole. Like they did with RTG's giant 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's report 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.

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 by a "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.

Who's really to blame for the sinkhole?  As we learned this week, that's still under dispute.
Who's really to blame for the sinkhole? As we learned this week, that's still under dispute.(CBC)

Many questions remain unanswered

Many troubling questions remain from this week's news.

After RTG handed the Confederation Line over to the city in August 2019, 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 could be on 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 P3 format of the LRT contract meant that the private partners — RTG — would be taking all the risks if something went awry.

It appears not to have worked 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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