The timing and scope of a major planned expansion of GO Transit rail service appears to be in doubt, after the companies tasked with executing the project raised serious concerns about how the province was contracting out the work.
According to documents obtained by the Star, last fall Metrolinx and Infrastructure Ontario were forced to reconsider the procurement process for the massive expansion, under which Metrolinx planned to dramatically increase GO service across the GTA and deploy electric trains on core parts of the network.
The GO Expansion plan would effectively transform GO from a commuter railway into an all-day, two-way transit network, with service every 15 minutes or better on core parts of the network. It would enable projected annual GO ridership to reach more than 200 million by 2055, and is seen as crucial to meeting future transportation needs of the rapidly growing region.
The documents obtained by the Star, which include portions of an internal assessment of Metrolinx capital projects from last fall, show the regional transit agency and Infrastructure Ontario (IO) had to rethink the procurement in response to private sector bidders’ objections about how much financial risk they were being asked to take on through the public-private partnership (P3) being used to deliver it. The documents warned that changing course could delay procurement for the expansion.
Early work for the project is already underway, but Metrolinx and IO had planned to award a contract for the critical third and final phase by early 2021, and substantially complete the expansion by 2025.
In a statement Thursday, a spokesperson for IO, which oversees the delivery of major public infrastructure projects in the province, wouldn’t confirm whether the final phase of GO Expansion will still be completed according to the previously announced plan and schedule.
IO spokesperson Ian McConachie said it had “become apparent” through feedback from bidders “that some adjustment would benefit the procurement,” but said “it would be inappropriate to confirm any potential modifications to the schedule or scope details as that is still being determined.”
“We had heard from some of the construction industry and stakeholders that certain risks that they do not have full control over are becoming more difficult for proponents to carry,” he said, adding that GO Expansion is “large and complex” but IO remains committed to delivering the program.
McConachie said it is normal for Metrolinx and IO to discuss procurement with industry partners to “ensure we tailor the needs of each project to current market conditions.”
Anne Marie Aikins, a spokesperson for regional transit agency Metrolinx, said GO Expansion is being delivered incrementally, and under earlier phases of the plan the agency has already increased service by 33 per cent over the past two years.
“GO Expansion is not delayed,” she asserted, but declined to speak about the schedule for future work.
Aikins wouldn’t confirm whether Metrolinx is still firmly committed to replacing parts of its diesel fleet with electric trains, a promise that was made under the previous Ontario Liberal government and the fulfilment of which has been eagerly awaited by thousands of residents who live along the region’s GO lines.
Aikins would only say the agency wants the private sector to propose “innovative approaches” to meeting increased GO service levels, and that “could include” supplying technology “to electrify core segments of the network.”
GO Expansion, previously known as regional express rail, is the province’s single largest transit project and was launched under the Ontario Liberals. The total cost of the project has been estimated at $16.8 billion.
Initial phases focused on laying new track, building grade separations, making station improvements, and other relatively minor work. In May 2019, the province announced it had shortlisted four teams to bid on the third and most complex phase, known as On-Corridor Works (OnCorr).
Under the proposed P3 agreement, the winning team for OnCorr would be responsible over a 35-year term for designing, building and financing the infrastructure required for electrification and increased GO service, as well as supplying, operating, and maintaining the vehicle fleet. The complicated work would also include reconfiguring platforms and tracks at Union Station, and all of it would have to be completed while GO service continued to operate.
According to the report on Metrolinx capital projects obtained by the Star, by last fall the bidding teams had “expressed concerns regarding the scale of the project,” the capacity of the construction industry to complete it, and the difficulty of effectively dividing the contract between the member companies of the winning consortium.
The report said as a result of the bidders’ concerns “none of the teams are fully formed.” The provincial agencies were considering a “revised delivery strategy” to address the bidders’ issues, which the report said could impact procurement timelines.
Metrolinx CEO Phil Verster and Infrastructure Ontario president Ehren Cory told the project proponents in an Oct. 25 letter they were looking into altering the procurement.
“We continue to hear that the individual capacity to deliver the GO Expansion On-Corridor (OnCorr) project is challenging and that the market is less willing to consider risk transfers that were typical in the past,” Verster and Cory acknowledged in the letter, which was obtained by the Star.
Options the two agencies wanted to discuss included breaking up the OnCorr procurement into smaller parts and shortening the contract term from 35 years.
Neither Metrolinx nor IO would say last week whether those changes were made. Asked whether the shortlisted bidding teams, which are made up of Canadian and international contractors, design firms, banks, vehicle manufacturers and other companies, are still intact and engaged in the process, McConachie said IO has “not received any formal notice from the bid teams as to their withdrawal from the procurement,” and the “four teams continue to remain in the procurement.”
Leading members of the teams, which include SNC-Lavalin Capital, ACS Group, Aecon Concessions, and Kiewit, either didn’t respond to questions or declined to comment.
The problems affecting GO Expansion appear to reflect wider concerns the private sector has harboured about how Metrolinx has attempted to use P3s to deliver major transit projects in recent years.
Under a P3, a government authority typically establishes the overall parameters of a project, and the private sector is responsible for designing, financing, and/or constructing it.
The government generally only issues payment once the project is completed, and the companies can face steep financial penalties if they don’t complete the work on time or within the approved budget.
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IO asserts the model “allows projects to be delivered more efficiently” than traditional public procurement, and “protects taxpayers from cost overruns” by transferring risks to private sector partners “with the expertise, experience and ability” to handle it.
However, the model has faced opposition from progressive critics such as the Ontario NDP, which has described P3s as a wasteful form of privatization.
A 2014 report from Ontario Auditor General Bonnie Lysyk concluded the province’s use of P3s on transit and hospital projects had cost it $8 billion more than if they had been procured using traditional public financing, largely because private contractors face higher borrowing costs than government.
In a July 2018 letter that was sent to IO leadership and obtained by the Star, Mississauga-based construction giant EllisDon delivered a scathing critique of how Metrolinx was using the P3 model for GO expansion.
The firm warned Metrolinx was attempting to use P3s to force an unreasonable amount of risk onto private companies by making them responsible for costs that can’t be predicted for at the start of a major transit project.
As examples, EllisDon cited Metrolinx contracts putting private companies on the hook for work to mitigate site conditions or relocate underground utilities, issues that could only be discovered after a project had begun. EllisDon said that created “an extreme risk transfer that cannot actually be controlled for or bid to” by a company competing for the contract.
EllisDon also slammed Metrolinx’s management of P3 agreements, claiming agency officials interpreted contract language in a manner that was “unreasonable” and in “the most aggressive way possible.”
The company concluded that P3 projects “are becoming riskier for contractors to bid (on),” to the extent they were becoming unworkable.
“At this point general contractors can make the same margins in (non-P3) work for significantly less risk,” it said.
EllisDon has been contracted to work on earlier phases of GO Expansion, but wasn’t a member of the teams shortlisted for the OnCorr project.
EllisDon’s chief operating officer Kieran Hawe told the Star in a statement the company has a “collaborative relationship with IO” and regularly provides “candid feedback” to ensure the P3 model is successful.
McConachie, the IO spokesperson, said EllisDon’s comments in the correspondence was “normal and useful,” and the agency’s P3 model “is constantly evolving and improving to respond to market conditions and industry feedback.”
Aikins said Metrolinx has “done significant market engagement … to address the concerns raised by industry” in the 18 months since EllisDon wrote the letter.
Some in the private sector don’t believe Metrolinx has done enough to address concerns about how it delivers P3s. One private sector source who has worked on Metrolinx projects said the problem isn’t with P3s themselves, but with the agency’s “politically driven” administration of them.
The source, who spoke on the condition of anonymity because they weren’t authorized to talk publicly about Metrolinx work, charged that the arms-length transit agency attempts “to shove so much risk on contractors” because it fears it would face criticism from the government and the public if its costs for a project rose.
“They sell the P3 model as this magic bullet that’s going to mean projects are always delivered on time, and that any responsibility for delays or extra costs is borne by the (private sector). And that’s not what the model does,” said the source.
The source said Metrolinx and IO’s “commercial unreasonableness is affecting the willingness of contractors to work on these important projects.”
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