Metrolinx beefs up penalties in vehicle contract with Alstom in wake of Bombardier dispute

French company Alstom will face major penalties if vehicles for Eglinton Crosstown are late.

Thestar.com
June 23, 2017
By Ben Spurr

The French company tapped to provide vehicles for new Toronto-area light rail lines will face major financial penalties if the cars are late, the Star has learned, which the province hopes will prevent the kind of messy legal dispute it’s found itself in with its original supplier, Bombardier.

Last month, Ontario Transportation Minister Steven Del Duca announced the provincial government had reached a $528-million deal with Alstom for 61 light rail vehicles (LRVs), 44 of which could end up in service on the Eglinton Crosstown.

Bombardier signed a deal in 2010 to supply the fleet for the Crosstown and other Toronto-area lines, but it has missed delivery deadlines, and, as the province’s dispute with the Quebec-based company dragged on, the government opted to place the order with Alstom as backup.

More than a month after Del Duca’s announcement, the province has yet to release details of the Alstom contract, which it issued on a sole-source basis.

However, sources with knowledge of the deal confirmed that Alstom will pay a penalty of $55,000 a day for each vehicle that’s late. That’s more than 35 times greater than the late penalties in the Bombardier contract.

The contract with Alstom also caps the total late penalties the manufacturer can incur at 13 per cent of the value of the contract, compared to the 5-per-cent cap in the Bombardier deal. While the Bombardier contract contained “subcaps” on damages that could make it difficult to recoup the full 5 per cent, the Alstom deal has no such subcaps.

In response to the Star’s questions, a spokesperson for Del Duca said confidentiality provisions in the Alstom contract prevent the ministry from disclosing information that could be proprietary or commercially sensitive.

But he said the contract contained “strengthened” provisions that protect the public interest. “We expect all of our suppliers to honour their contractual obligations, perform professionally and to recognize that there are consequences for failing to do so,” said Celso Pereira.

The weaker penalties in the Bombardier contract were a major factor cited by Metrolinx, the provincial transit agency, in its decision to move to cancel the deal last year. That’s because the late fees Bombardier would incur were dwarfed by the financial consequences Metrolinx said it would face if the Crosstown’s 2021 opening date was delayed.

In court documents filed earlier this year as part of the contract dispute, Metrolinx estimated that it would owe the consortium building the Crosstown up to $500,000 a day if the line’s opening was pushed back because the vehicles hadn’t arrived on time.

Bombardier, meanwhile, would only be on the hook for $1,500 a day for each late vehicle.

Metrolinx said the disparity between the penalties left it exposed to major financial risk.

Last fall, Metrolinx served Bombardier with a notice of intention to terminate the $770-million contract, which was for 182 cars, 76 of which were slated for the Crosstown. Metrolinx claimed the company had defaulted on the deal because, among other reasons, it hadn’t delivered the first two prototype vehicles on time.

In April, an Ontario Superior Court judge blocked Metrolinx from terminating the contract for default, and, instead, ordered both parties to work through a dispute-resolution process. That process continues. Metrolinx is appealing the court ruling.

A spokesperson for Bombardier said, in an email, the company is confident the dispute-resolution board will confirm that the manufacturer has “complied with all of its obligations under its contract.”

“Bombardier is ready, able and willing to deliver all 182 vehicles to the people of Toronto on time,” wrote Marc-Andre Lefebvre.

Under the terms of the its deal, Alstom will supply 61 of its Citadis Spirit LRVs to Metrolinx. The company, which is also building vehicles for Ottawa’s LRT project, has pledged to open a manufacturing facility in the GTHA.

Seventeen of the vehicles will be used on the Finch West LRT, which is also scheduled to open in 2021. Should Bombardier make good on the order for the Crosstown fleet, Metrolinx will deploy the other 44 Alstom vehicles on the planned Hurontario line in Mississauga and Brampton.

The weaker penalties in the Bombardier contract are identical to provisions in the TTC’s troubled, $1-billion deal with the company for new streetcars. The TTC is suing Bombardier for damages due to repeated delays. Under the terms of the contract, the most it can recover is $50 million.