September 9, 2015
PUBLIC
ACCOUNTS COMMITTEE
The
Committee met at 9:00 a.m. in the House of Assembly Chamber.
CHAIR (Bennett):
Good morning.
This is
a meeting or, more appropriately put, a hearing of the Public Accounts
Committee. The Public Accounts
Committee today is going to be reviewing the findings of the Auditor General
related to the Department of Transportation and Works, and this is dealing with
the Humber Valley Paving contract report that the Auditor General did that was
called by former Premier Marshall.
For
viewers, my name is Jim Bennett; I am the Chair.
My Committee members are the Vice-Chair, Mr. Hunter, and with him other
members: Mr. Parsons, Mr. Peach, Mr. Cross, Mr. Osborne, and Mr. Murphy.
We have with us the Auditor General and his staff.
We have a number of individuals who are here as witness or support people
today, and I will call on them to identify themselves momentarily.
The
format that we follow with these hearings is that
individuals who have not been sworn and who are to give evidence are sworn,
although people who appear before us regularly and who have appeared during this
session of the House of Assembly in the last just under four years, if they are
already sworn, they do not need to be re-sworn.
So, there is nothing unusual about that.
They are deemed to have remained sworn.
The
questioning that we pursue is members go in rotation with approximately ten
minutes each. They ask whatever
questions they feel the need to ask and then it rotates to another member and
another member and another member.
We typically take a break after all members have asked questions, which puts us
around mid-morning, around 10:30 or so, then we will break midday for lunch.
If we go into the afternoon, if that is necessary we never know for
certain if it is or not then we will have a mid-afternoon break.
Usually
we also provide an opportunity for the Auditor General just to give some
background and explanation, not just to jump in and then people will not know
why you are asking all of these questions.
So, background can be useful for anybody who may come upon us and wonder
what we are doing here today.
When
individuals speak, particularly witnesses, it is important to say who you are
it is being recorded so the people who are preparing a transcript from Hansard
know who is making what statements.
Otherwise, they will have to go back and try to figure out who said what.
It is more helpful for them if you identify yourself in answering any
questions.
I think
I will go to the Clerk, if anybody needs to be sworn, or have all witnesses
already been sworn?
Our
Clerk is Ms Murphy.
Swearing of Witnesses
Mr.
John Casey
Ms Lori
Anne Companion
Mr.
Gary Gosse
Mr.
Todd Stanley
Ms
Denise Woodrow
Mr.
Brad Power
CHAIR:
Thank you, Ms Murphy.
I will
ask Mr. Paddon if he would like to give us some background, him or his Auditor
who actually conducted the audit, whatever his preference is.
MR. PADDON:
Thank you, Mr. Chair.
Just to
introduce, Sandra Russell is the Deputy Auditor General.
She has appeared before this Committee on numerous occasions.
John Casey was the Audit Senior involved in the conduct of this review.
Just by
way of background, we were asked on May 8, 2014 by the Lieutenant Governor in
Council to inquire and report into any and all aspects of a contract between the
Department of Transportation and Works and Humber Valley Paving Limited, related
to Project Number 1-12 PHP. The any
and all, obviously, is a fairly broad mandate, so we, over the course of our
planning, put some parameters around that and I will talk about that in a
second.
Just
for a bit of context, Project Number 1-12 is related to a contract for paving
and related work on seventy-six kilometres of the Trans-Labrador Highway and ran
basically between Happy Valley-Goose Bay and Churchill Falls.
Part of our planning process, we tried to put some scope around the any
and all aspects of the contract. So
in our judgement, we thought that five objectives would satisfy the Lieutenant
Governor in Council's objective of our review.
The
five objectives that, in our wisdom, we settled on were: one, to determine
whether the original tender and contract award were conducted in accordance with
the provisions of the Public Tender Act; two, whether progress payments made
were properly supported; three, whether any change orders or other adjustments
to the contract were appropriately documented and authorized.
Those three were more around the administrative process of the contract.
The
fourth objective was to determine whether the decision to mutually agree to
cancel the contract related to Project 1-12 was appropriately evaluated and
authorized; and our last objective was to determine whether there was any
evidence of undue influence in the evaluation or timing of the decision to
cancel the contract related to Project 1-12.
As part
of normal auditing standards, we would review these objectives with the person
that engaged us or the organization in this case, the Lieutenant Governor in
Council. We reviewed those
objectives with the Premier, more just to ensure they were complete as opposed
to negotiate the objectives at the end.
They were the objectives that in our professional judgement were
appropriate to the engagement.
We did
reach some conclusions against those five objectives, and I will just talk
briefly about those for the context of the hearing.
In terms of Objective 1, which was the contract being let in accordance
with the provisions of the Public Tender Act, we did find that the contract was
awarded in accordance with those provisions.
So we did not find any issues in terms of the contract award.
In
terms of progress payments made in connection with the contract, we did find
that they were properly supported and paid only for work completed under the
contract. There was an issue
related to payments being made on a biweekly basis that were not consistent with
the contract terms. We had some
findings around that and some recommendations.
In
terms of Objective 3, Change orders and other adjustments
were appropriately
documented and authorized. Really,
they were minimal in this case anyway.
Objective 4, which was the process around the decision to mutually terminate the
contract; we did determine that there was not appropriate documentation in terms
of the decision to mutually agree to terminate the contract.
Our
conclusion also says that, The urgency to conclude an agreement on March 13,
2014 resulted in an evaluation that, with the benefit of more time, may have
more fully considered all options available to the Department.
We also
indicated that, Additional time may have allowed
(the Department) to consider
other factors during the evaluation of the decision to cancel the contract
related ... around the decision to cancel the contract however, we cannot
determine whether more time would have resulted in a different decision.
Even
though they may have had more time to evaluate other options, they still may
have reached the same conclusion.
We really could not determine whether another outcome would have been better or
worse.
The
decision by the Minister of Transportation and Works was within the scope of his
authority and the decision was properly authorized.
In
terms of Objective 5, which is the issue around undue influence, we determined,
There is no documentary evidence of undue influence in the decision to mutually
terminate the contract related to Project 1-12.
We
have not able to satisfy ourselves why two Ministers, within ½ hour,
independently contacted the Deputy Minister of Transportation and Works to
enquire about the status of HVP on the morning of March 13, 2014.
We
have not able to satisfy ourselves why the process to come to an arrangement
with HVP to terminate the contract
had to be concluded the day before
nominations closed for the leadership of the Progressive Conservative Party of
Newfoundland and Labrador.
Those
were our conclusions related to our objectives.
We did have a number of findings as we went through, and those findings
totalled about thirty-three not about thirty-three, there were thirty-three
findings. At the end of the report
we did make a number of recommendations, five in total, around processes with
the Department of Transportation and Works.
Thank
you.
CHAIR:
Thank you, Mr. Paddon.
Before
we beginning questioning it is customary, at least in this Committee, to offer
the department an opportunity, if they wish, to make some sort of an opening
statement by way of background. It
could be who you are or it could be detailed, it could be short, it could be
long, or you do not need to do one if you do not want to.
So I
will call on the department person, the deputy minister, I believe, is Ms
Companion.
MS COMPANION:
Good morning.
I would
like to introduce my colleagues: Gary Gosse, Assistant Deputy Minister of
Transportation; Todd Stanley, Assistant Deputy Minister of Justice and Public
Safety; Paul Smith, Assistant Deputy Minister, Department of Transportation,
Corporate Services; Denise Woodrow, Legal Counsel for the Department of
Transportation through the Department of Justice and Public Safety; and, Brad
Power, our Communications Manager.
I am
Lori Anne Companion. I am the
Deputy Minister of Transportation and Works.
Thank
you for the opportunity to appear before the Public Accounts Committee to
discuss the Auditor General's report and review of Humber Valley Paving Limited.
The department welcomes the findings and the recommendations of the
Auditor General. We view them as
valuable insights into how we can better carry out our work.
I am pleased to advise the Public Accounts Committee that all five
recommendations contained in the report have been acted upon as follows.
In
November, 2014, the Clerk of the Executive Council provided a protocol for
informing the Premier and ministers of significant developments and issues
within departments in the event that they are asked to address such developments
in a public forum. In addition, the
Clerk of the Executive Council met with deputy ministers to reiterate the
importance of ensuring the conveyance of sensitive information through our
normal protocols and processes, which are through briefing notes, information
notes, and decision notes. That is
how we make decisions in government.
Briefing notes and decision notes are fundamental decision-making tools for the
public service. I have ensured
these tools are used for decision making and information exchange in the
Department of Transportation and Works.
In
response to the remaining four recommendations of the Auditor General, on August
21, 2015, I distributed four new policies to all department senior management
staff for immediate implementation.
These were then discussed at our senior management meeting in May.
We do regular and periodic reviews to ensure implementation is followed.
In
response to the Auditor General's recommendation with regard to tender closing
dates, we have implemented a policy which ensures that each tender close is
reviewed to determine whether we need to stagger the tender closing dates based
on a particular circumstance, or we need to bundle them, as we have to do in
some situations. Each individual
one is reviewed and assessed from that perspective.
We
developed and have implemented a policy for the adherence to payment terms of
contracts which requires contract payments on a monthly basis, except in
exceptional circumstances, which would be outlined in the contract under special
payment terms.
Management of contract and agreement records policy; through our document
control processes and our TRIM administrations, we have a strong policy which
requires that appropriate documentation be in place to support all key decisions
on contracts, especially when they are significant changes to the contract or
contractual relationship between government and the contractor or consultant.
Finally, for the department's communications protocol, and specifically for the
cancellation of awarded contracts, it provides a clear process and steps
required for public communication upon cancellation of a project and a contract.
I provided a copy of these protocols to the Public Accounts Committee and
the correspondence the minister provided in late June.
The
department remains committed to continued adherence to these policies.
We follow up with our staff regularly and we monitor in this regard on an
ongoing basis. We are confident
that the measures we have put in place will sufficiently address the Auditor
General's findings and recommendations.
We will
be pleased now to accept any questions from the Committee.
CHAIR:
Thank you, Ms Companion.
I will
go to the members.
Mr.
Osborne, if you would like to begin and approximately ten minutes.
MR. OSBORNE:
Does Mr. Hunter want to
CHAIR:
Oh, I am sorry.
I think maybe Mr. Parsons was going to open for government.
MR. K. PARSONS:
Good morning, everybody.
I would
like to welcome you here this morning to our second hearing this week of Public
Accounts. On behalf of the members
over here on this side, I hope we do not be too hard on you.
I just
want to welcome you all here this morning, and we will have questions, and like
the Chair said, it will be ten minutes at a time from each one of us asking
questions. We may go past this
afternoon, or we may continue whenever.
Anyway,
I just wanted to welcome you all here this morning.
Thank
you.
CHAIR:
Thank you, Mr. Parsons.
Mr.
Osborne, if you would like to begin.
MR. OSBORNE:
Thank you.
I
wanted to start, first of all, by welcoming everybody today.
I thank you for appearing before the Public Accounts Committee.
I would
like to ask Ms Companion, the witnesses from the Department of Transportation
and Works were chosen by you to attend here today.
Is that correct?
MS COMPANION:
Yes.
MR. OSBORNE:
Okay.
Did you
also choose the witnesses from the Department of Justice and Public Safety?
MS COMPANION:
Yes.
MR. OSBORNE:
Okay, thank you.
Why did
the two ministers within a half an hour independently contact the Deputy
Minister of Transportation and Works to inquire about the status of Humber
Valley Paving on the morning of March 13, 2014?
MS COMPANION:
I will speak to that.
I am unaware of why they would have, except what is noted in the Auditor
General's report, Mr. Osborne. The
Auditor General noted from the communication from the deputy minister of the day
that both ministers contacted regarding Humber Valley Paving and wondering if
there was some concern with their contract.
MR. OSBORNE:
Okay.
The
Auditor General's office was not able to satisfy themselves as to why the
process to come to an arrangement had to be concluded on the same day, March 13,
2014, the day before the nominations closed for the leadership of the PC Party.
Can you tell me the answer why did this have to be done so quickly on the
day before the PC leadership?
MS COMPANION:
I will ask Gary to speak to
that. He was around at that time.
MR. GOSSE:
It is my understanding that
in the conversation our deputy at the time had with Minister McGrath that
morning was that he wanted that matter concluded that day.
Why it had to be concluded that day, I guess only Minister McGrath at the
time could answer that.
MR. OSBORNE:
Okay, thank you.
MR. GOSSE:
The direction was to do it
that day.
MR. OSBORNE:
The contract was cancelled
for more than a month before it was made public.
The AG said that there was a lack of transparency.
Who made the decision not to make public the fact that the contract had
been cancelled?
MR. GOSSE:
I can only assume that the
decision was made between the communications people and the minister's office.
MR. OSBORNE:
Okay, thank you.
There
was no documentation prepared to support the decision to terminate the contract
between Humber Valley Paving and the department.
Did the minister fully evaluate all of the ramifications of the
cancellation of that contract?
MR. GOSSE:
We discussed the options at
the time. There was no
documentation because of the time frame.
The people who were involved in that file were very familiar with
contracts being the deputy at the time, myself, who has been dealing with
contracts for over thirty years, and our solicitor at the time who is also very
well versed in contractual law.
MR. OSBORNE:
Okay.
So did the minister himself evaluate all of the ramifications of
cancelling it?
MR. GOSSE:
We discussed the options
available to us with the minister.
MR. OSBORNE:
Okay.
A key
criterion of the minister, as communicated by the minister, was to ensure that
the outcome was not injurious to Humber Valley Paving.
Was this the sole decision of the former minister, or did the deputy
agree with this criteria as well?
MR. GOSSE:
I cannot speak for the
deputy at the time. It was a
consideration, I can say that.
It is
important to know that when this occurred there was no indication that Humber
Valley Paving had any issues other than on this one project.
They had 300 employees. They
were, as far as we knew at that time, a viable competitive company and did good
work for us. There was no desire, I
do not believe, on anybody's part to do something that we thought would injure
the company and put somebody out of business and put 300 people out of work.
At the
time there was no indication that there was an issue with the company itself
other than on this one project. It
was a project-specific issue.
MR. OSBORNE:
The former Minister McGrath
had contacted Deputy Minister Meade and called him to meet outside the Cabinet
room on two occasions within about an hour-and-a-half of each other on that
morning. What explanation did the
former Minister McGrath give to the deputy outside the Cabinet room?
MR. GOSSE:
I cannot answer that.
I was not there.
MR. OSBORNE:
Okay.
What
explanation or what response did the former Deputy Minister Meade give to the
minister outside the Cabinet room?
MR. GOSSE:
Again, I was not there; I do
not know exactly what was said. All
I could say is what was in the Auditor General's report.
MR. OSBORNE:
Okay.
Deputy
Minister Meade was instructed by the minister not to inform the Premier's Office
or Cabinet Secretariat. Was this
instruction made to ensure that there was nothing in writing?
MR. GOSSE:
Again, I cannot answer that.
MR. OSBORNE:
Okay.
What
was the nature of the conversation that the Minister of Advanced Education and
Skills had with Deputy Minister Brent Meade?
MR. GOSSE:
Again, I can only repeat
what was in the Auditor General's report.
I was not there for that conversation.
MR. OSBORNE:
Okay.
What
was the advice given by Deputy Minister Brent Meade to Minister O'Brien?
MR. GOSSE:
It would be hearsay on my
part. From the Auditor General's
report I believe the conversation had to do with we are aware of the situation
and the conversation ended.
MR. OSBORNE:
Okay.
MR. GOSSE:
Again, I was not there.
MR. OSBORNE:
Do you know what the
response was by Minister O'Brien to Deputy Minister Meade?
MR. GOSSE:
I believe that was when the
phone call ended and there was no further contact from Minister O'Brien at the
time. That is my understanding.
MR. OSBORNE:
Okay.
Mr.
Chair, it is quite obvious this morning, the Auditor General had sixteen
witnesses present or that he had interviewed.
Only two of those witnesses are here today.
It is quite obvious to me that without those other witnesses here and I
wish to continue today, I think there are important questions and I think we
will continue to probe.
It is
quite obvious to me, Mr. Chair, that without all of those witnesses here, we are
going to hear a lot of hearsay. We
are going to hear I cannot speak to that.
Only former Minister McGrath can speak to that.
Only former Deputy Minister Meade can speak to that.
It is very unfortunate.
I will
ask Ms Companion: Why was David Jones, for example, not called to be a witness
here today?
MS COMPANION:
Mr. Jones has left the
employ of the public service. He
now works with a private company.
MR. OSBORNE:
Okay.
Well
Mr. Ross Reid had left as former chief of staff to the Office of the Premier,
but was still called as a witness by the Auditor General.
I will ask why Julia Mullaley was not called as a witness today.
MS COMPANION:
Mr. Osborne, the reason we
chose who is here today is in response to the Auditor General's report.
My role, I had acted when I became Deputy Minister of Transportation and
Works in January. It was my
responsibility to ensure that we acted upon the recommendations of the Auditor
General and I can certainly speak to those and what I did and what we did.
Gary
was here at the time. I felt that
Gary was a relevant and a very important part of our group.
From our legal perspective, Todd is the ADM to whom David reported at
that time. Denise is our new legal
counsel. Paul Smith is our director
Paul is our ADM who is responsible for policy who was responsible for working
with me to implement those changes in policy.
Brad is our communications person.
That was the logic and the decisions for why we chose who was here today.
MR. OSBORNE:
So far I have not gotten a
lot of answers and we are only ten minutes into this hearing today.
I do not believe the proper witnesses were called.
That is very disappointing.
I do not believe that the witnesses here can answer for former Minister McGrath,
or former Minister O'Brien, or former Deputy Minister Meade, or other public
servants who are still employed with the public service.
Mr.
Chair, I move that the persons listed in Table 1 on page 13 of the Auditor
General's report of September 2014, a Review of Humber Valley Paving Ltd.
Project Number 1-12PHP, be invited to attend a hearing of the Public Accounts
Committee which will deal with this matter as soon as can be arranged by the
Clerk of the Public Accounts Committee.
That is
seconded by my colleague, the Member for St. John's East, George Murphy.
CHAIR:
Mr. Osborne, I do not have
any difficulty with such a motion, maybe at the end of the day, maybe late in
the day. At this point we have
assembled a whole array of individuals.
By we, I mean the Committee and the taxpayers, and if we
MR. OSBORNE:
If I could intervene for
just a moment, Mr. Chair I am wishing to continue with this today.
This motion that I am putting forward is to call an additional hearing of
the Public Accounts Committee as soon as can be arranged by the Clerk.
I do wish to continue today.
I believe that there are some questions that can be answered today, but
obviously within the first ten minutes we can see that not all answers that we
need will be answered today, the witnesses clearly are not here.
So I do
not want to adjourn this particular hearing.
I am passing a motion now that I believe is in order, I believe can be
passed at any time during this hearing, to have an additional hearing of the
Public Accounts Committee.
CHAIR:
I think we have done that
before, but your motion right now I would look at that more of a notice of an
intent to have a motion.
Previously, this Committee has done sixteen or so, counting yesterday, and on
one occasion we had to have somebody back, and that was the forestry
diversification. That was in the
case of the Roddickton pellet plant.
When we
got late into the day and we realized we did not have enough evidence then we
continued it at a later date. We
may need to do that. Your motion at
that point, it can be put before the Committee and voted on, but I do not think
that really it is fair and necessary to Committee members to have to entertain a
motion this early. If you want to
call it a notice of motion for later in the day, fine, that makes absolute sense
to me, and our rules are relatively flexible.
One
item that Mr. Gosse mentioned is that he said if I said it, it would only be
hearsay. Well, that is fine, we can
hear hearsay, but how we deal with it and what weight we give to it may be of
little consequence; but if everybody tends to say the same thing that someone
else said, then it is probably what happened.
If there is a conflict, then that is another issue, but for our purposes
I think we should continue with the examination to the next member.
Mr.
Osborne, later in the day, before we arise, certainly if you want to have your
motion and if you have it in writing, that would clarify exactly who is saying
what and what is being voted on.
There may need to be amendments made.
I think we will treat it in the ordinary course as we would in the House
if it was any other committee, or Committee of the Whole for that matter.
I would
like to move on to a government member for questioning.
Mr. Parsons has indicated that he would like to lead off.
MR. K. PARSONS:
Okay, good morning.
Just to
follow up with what Mr. Osborne just was asking some questions there that
time. Was the department aware of
the financial situation of Humber Valley Paving at the time?
MR. GOSSE:
No, when this issue became well, when it became an issue to us it was a
project specific issue. There was
no indication that Humber Valley Paving was in any sort of financial trouble.
In
fact, just weeks before this occurred, a senior person at Humber Valley Paving
had called me to ask me when the next tenders were being called.
So there was an expression of on their part at that time, they were
still interested in bidding on more work.
There was no indication there was any financial difficulty or any issues,
other than on the one project in question.
MR. K. PARSONS:
Had you known they were in
financial trouble, would it have made any difference on your decision?
MR. GOSSE:
It would have certainly been something different to consider.
I guess had we known the situation they were truly in, then harming the
company would not have been a consideration because the harm was already done.
MR. K. PARSONS:
I want to go to the point
where the project itself was underway at that time.
I think there were four different projects on the go for Humber Valley
Paving?
MR. GOSSE:
They had four active projects on the Trans-Labrador at that time, plus others on
the Island.
MR. K. PARSONS:
On the Island, okay.
Circumstances with Humber Valley Paving, they have been doing business with the
department for how many years?
MR. GOSSE:
I am going to say seven or eight years.
They had quite a history with us.
They were around a while.
MR. K. PARSONS:
Yes.
Did the
department have any issues with Humber Valley Paving before any of this?
MR. GOSSE:
No.
MR. K. PARSONS:
None whatsoever?
MR. GOSSE:
No, they generally did quality work.
They were a very co-operative contractor.
MR. K. PARSONS:
Okay.
Circumstances around the forest fires; I read in the Auditor General's report
there were twenty-five they said approximately twenty-five tankers of liquid
asphalt, and that had to come from Quebec, I believe.
MR. GOSSE:
The liquid asphalt was being trucked in from Quebec.
That is correct.
MR. K. PARSONS:
Okay.
Liquid
asphalt, because I do not know, how does it work?
It said something about cooling and stuff like this?
MR. GOSSE:
It has to be kept hot to be
pumpable out of the truck. Once it
cools off it becomes, basically, a solid and you cannot get it out of the trucks
anymore. It is heated, put in
tankers, and transported to the asphalt plant where it is unloaded into other
tanks and heated again.
MR. K. PARSONS:
Heated up again, okay.
The
forest fires during that period of time, what was the time frame?
How long did it delay the project itself?
MR. GOSSE:
There were numerous times
where Humber Valley Paving had to evacuate camps.
They had to take people off the road because the fires were so close.
It happened basically between the middle to the third week in June up
until about the middle of July in that summer.
MR. K. PARSONS:
What would be the cost of
liquid asphalt say for I do not know, there are twenty-five tanker loads,
approximately. What would be the
cost?
MR. GOSSE:
I would not know what Humber
Valley Paving paid for the liquid.
I know we pay about $1,000 a ton for liquid down there.
There would be thirty-two to thirty-five tons on a tanker.
MR. K. PARSONS:
So you are looking at about
$800,000.
MR. GOSSE:
It is about $35,000 a load,
and there were twenty-five loads that were turned back.
MR. K. PARSONS:
Also, during the time when
all this was happening the workers were away from the project.
So the project
MR. GOSSE:
Workers were taken off the
road. They were actually evacuated
from camps. These were isolated
projects, so they had construction camps that they worked from and stayed in,
ate in, slept in.
There
were times when they had to actually move their staff back to I believe they
went to Happy Valley-Goose Bay.
They had to take them out of the camps because the fires were so close.
MR. K. PARSONS:
Okay.
So with the four projects on the go at the one time, was this the only
area that was affected or were all four of them affected?
MR. GOSSE:
There were varying degrees
on all projects, but other projects were in different stages of completion.
So the other three projects actually did get completed.
MR. K. PARSONS:
Okay.
MR. GOSSE:
This was the one that was
the last to be started and of course the biggest impact because of the stage of
the work.
MR. K. PARSONS:
So 61 per cent of the
project was completed, right?
MR. GOSSE:
Approximately, yes.
MR. K. PARSONS:
Approximately 61 per cent.
The total cost to Humber Valley Paving was paid to Humber Valley Paving.
Was that for completion of the work they had done?
Was there any additional money given to them?
MR. GOSSE:
The $11 million in round
numbers that was paid to Humber Valley Paving was for work they had actually
completed. It was documented, as
verified by the Auditor General in his report.
MR. K. PARSONS:
The Auditor General
recognized that the and I know you spoke about it earlier, Deputy Minister,
about the biweekly payments. It was
kind of a disadvantage to anyone who was doing the tender.
If they all had to know the money was coming forth that they would what
was the reason for the biweekly payments?
MR. GOSSE:
The biweekly payments were
intended originally just to cover the liquid asphalt.
It was an arrangement that was made after the tender closed.
So it did not give anybody an unfair advantage from where I sit.
The asphalt suppliers were demanding payment for their liquid asphalt
which is a very costly item on a biweekly basis.
MR. K. PARSONS:
Okay.
Was that an overlook where everything was paid biweekly?
Is that normal?
MR. GOSSE:
It grew into biweekly
payments for everything. When I
became aware of that I stopped it.
MR. K. PARSONS:
Okay, all right.
The
mechanics' lien; I heard the minister the other night, actually, talking about
it on the Open Line show. The
mechanics' lien is 10 per cent of the total cost of what you pay.
When you pay off so many bills you pay 10 per cent, and that is held for
a mechanics' lien, is that correct?
MR. GOSSE:
For every payment that is
made, every progress payment that is paid on a contract and the normal cycle
is once a month. For every payment
that is made, 10 per cent of what is completed is held back and parked into what
is called the holdback account. So
money is actually taken out of the project and set aside in a separate account
in the contractor's name. That is
the mechanics' lien holdback, and 10 per cent is what is in the act.
MR. K. PARSONS:
Okay.
Can you give us an update on where we are with the mechanics' lien?
Because I know there was a big concern with a lot of small companies that
were owed money. Where we are, who
is paid, and who is not paid, and if there are small companies that are still
owed money?
MR. STANLEY:
The 10 per cent holdback
account that the Province had for contract 1-12 had in it at the relevant
times the amount was $1.180 million basically.
The Province received a number of contacts from various people claiming
they were owed money by Humber Valley Paving.
Those creditors were advised that there is nothing the Province could do
in respect of the holdback funds.
The
holdback funds were to be held both under the mechanics' lien legislation and
under our contract with Humber Valley Paving.
The holdback funds were held for work performed and liens claimed in
respect of contract 1-12.
Everyone who called the Department of Transportation and Works and Gary can
speak to this were advised that they should go get legal advice and pursue
their debts against Humber Valley Paving.
Government was not in a position to be basically arbiter of their debt
claims against Humber Valley Paving or to pay them out of the holdback funds.
Government knew of and received claims against the mechanics' lien fund, the
holdback account. Over time, we
determined that there was a claim from CRA, Revenue Canada.
There was also a claim that Humber Valley Paving owed money to the
Workplace Health, Safety and Compensation Commission.
We also
received a claim, starting in January of this year and I think this was
disclosed in the answers provided to the Committee; I think in response to
Question 5 of the written response.
We received a demand from HSBC, as the bank for Humber Valley Paving, demanding
the return and payment to HSBC of all monies held by government for Humber
Valley Paving, as secured creditor, and they provided evidence for the security
and there is no issue around that.
So, to
additionally complicate matters, in April there was a decision out of the
Newfoundland and Labrador Court of Appeal called Brook Construction which
confirmed or found something that was a bit of a surprise to TW, that the
Mechanics' Lien Act does not apply or bind government.
Therefore, amounts that we hold back for 10 per cent that are held in
anticipation of a mechanics' lien, the Brook Construction case found they cannot
be liened in our hands.
What
ended up is a situation where there is no longer a Mechanics' Lien Act in place
over this money, and HSBC had a secured creditor claim to the funds.
On the thirtieth of June, the Province actually made an arrangement with
HSBC and the funds that we had in the holdback account were paid out to HSBC on
certain conditions.
The
first condition was that we actually paid the CRA demand on that money, and I
have actually some paper I will distribute here.
The CRA demand was approximately $75,000.
So that was paid, because that ranked ahead of HSBC.
There was a holdback of $55,000 that we did not pay because of an
outstanding mechanics' lien claim that had been started by Mercer Consulting,
which I will talk about in a second.
The
remaining money was paid over to the solicitors for HSBC.
They undertook to provide and did provide a clearance for the workers'
compensation. They paid
approximately $23,000 to workers' compensation.
They also provided payment and this was part of the arrangement that
government negotiated with HSBC to twenty-five unsecured creditors of Humber
Valley Paving that Humber Valley Paving had confirmed with HSBC were actually
unsecured creditors who were owed money in respect of Project 1-12.
So the total amount of those payments that HSBC undertook to make to
those twenty-five creditors was approximately $95,000.
HSBC has confirmed to us that twenty-four of the twenty-five have been
paid. They had trouble finding one
of the individuals for an amount around $11,000.
After
those unsecured creditors were paid off as part of that arrangement, the
remaining funds went to HSBC that also has a demand in place against government
for any additional monies which we may have owing to Humber Valley Paving in the
future.
MR. K. PARSONS:
Right now is there anybody
else who is left owing money, any small contractors or anything knowing left
owing money now on this?
MR. STANLEY:
Well, we do not know if
there are people who may or may not be pursuing legal action against Humber
Valley Paving in respect of one particular contract or any contracts or services
they may have provided to Humber Valley Paving.
We are
aware that there are people who started legal proceedings, but none of them
progressed to the point where they had the power to effect or had a right to the
funds that were in government's hands.
We never received anything to that extent at all.
Even if they had, it would be a question of whether that would trump the
rights of HSBC as Humber Valley Paving's secure creditor to those funds.
Government had no grounds. Once the
Mechanics' Lien Act was deemed not to apply to government and we only had one
mechanics' lien that was received, upon Humber Valley Paving providing us with a
statutory declaration that their creditors in respect of Project 1-12 would be
paid off, government had no grounds to hold onto or withhold the remaining
funds.
MR. K. PARSONS:
Okay.
CHAIR:
Mr. Murphy, please.
MR. MURPHY:
Thank you very much, Mr.
Chair.
Good
morning to the respective witnesses who came to give us evidence today.
Thank you very much to the Auditor General and his team for the report
that they have, for the work that they have done, and for also agreeing to be
here today. I would say that you
have done a fine job when it comes to the report here today that we are dealing
with under the scope of the broad scope that you were given to do.
We have
here today a minister who resigned before he was fired, but we still have a
great degree of uncertainty around the questions that were asked.
I think that is one of the reasons why we are here today too, is to get
clarification on some of these questions.
I will be very interested as regards to some of the recommendations that
you did come out with, some questions around that.
I want
to come over back to I guess I will call it the political decision or the
decision, I should say. I will drop
the political. How the minister
actually arrived at the decision that there would be a mutual agreement to shut
down the contract. Just the
evidence that I am hearing now and just the supposition of what is happening and
what I have been finding out over recent days, I have to ask the department how
the department came to the decision that it would not make any adjustments for
Humber Valley Paving due to the conditions that happened around the contracts
and the difficulties that they were having in fulfilling some of the
requirements of the contract.
For
example, when I see the case where there was upwards of five weeks that were
lost in doing the work, and Humber Valley Paving is going ahead and looking to
government for recouping some of these costs; costs that were outside of their
control. I wonder why, for example,
the department would not agree to the basis of some of these claims.
I wonder if somebody can answer that first.
MR. GOSSE:
There was no formal claim
made by Humber Valley Paving for the losses due to the fires.
There was a conversation held between me and Gene Coleman, February of
that year, about the claim. I told
him he could make the claim if he like; I could not see how it would be
supported. There was nothing that
we did that caused any damages to the company.
I think that is the right position to take in the beginning.
That
view was shared by the deputy at the time, it was shared by our solicitor at the
time, and it was shared by Minister McGrath.
Again, based on what the Chair said a little while ago about hearsay, it
is my understanding that Gene Coleman actually met with Minister McGrath at the
time in the Goose Bay airport and made the same pitch to Minister McGrath that
he made to me. They were looking
for a figure of $2 million.
Of
course my initial response was: Gene, we are not responsible for that, but feel
free to make your claim in writing.
Formalize it and send it in. We
will look at it, but I do not see that we are responsible for it.
There was no formal claim made against that project.
MR. MURPHY:
In this particular case,
from what you are saying then, even though there was a conversation that
happened between Mr. Eugene Coleman and Mr. McGrath at
MR. GOSSE:
Correct.
It is my understanding that they met at the airport in Goose Bay, yes.
MR. MURPHY:
It is an unusual case.
MR. GOSSE:
It was not a prearranged
meeting. It was a meeting as
Minister McGrath said, Mr. Coleman just happened to show up at the airport and
caught me getting on a plane.
MR. MURPHY:
It seems unusual, but
anyway, any place at all for a meeting.
Has there been any reasoning from Humber Valley Paving why they did not
submit a claim?
MR. GOSSE:
No.
MR. MURPHY:
No reasoning at all?
MR. GOSSE:
No.
MR. MURPHY:
We have not heard anything
and of course well they are not there today so I guess
MR. GOSSE:
No, they did not follow
through with that formal claim. The
next contacts, basically, on that were around March 13 when we were told to call
Mr. Coleman to see what was up with Humber Valley Paving.
That followed from the initial meeting with Minister McGrath and Deputy
Minister Meade outside the Cabinet room.
MR. MURPHY:
Okay.
Mr. McGrath and Mr. Meade are not here today, so they obviously cannot
answer to the questions here. That
would obviously be one cornerstone as regards to why they ended up making the
other decision that they did then.
MR. GOSSE:
Potentially.
MR. MURPHY:
That both would mutually
agree to terminate the contract.
MR. GOSSE:
With any construction
project there is a claim process.
MR. MURPHY:
Right.
MR. GOSSE:
You cannot just agree to do
something without proper documentation.
MR. MURPHY:
No, right.
MR. GOSSE:
So they did not even follow
you cannot even agree to paying it based on a conversation.
It needs to be documented.
MR. MURPHY:
Yes, exactly.
In this particular case, though, it just seems unusual that they would
not have made a claim. I think that
given the nature of the forest fires there, it was probably something
understandable. If they went to
argue their case, I believe it probably would have been supported.
Just
looking at it myself, if this is the case where forest fires knocked them out of
commission for five weeks, that they would not have been able to get any kind of
an extraordinary sum like possibly that is brought down here on page 42, the $2
million that you are talking about, in order to carry over and have the
completion of the project. I find
that a bit odd that they did not submit a claim, number one.
The
claims around the heated tankers and the liquid asphalt, I wanted to get into a
conversation about that. It says
here, There were approximately 25 loads of liquid asphalt which, either were
too cool to use, or which could not pass through areas of forest fires and had
to return to Quebec.
I can
understand here that if it was forest fires that made the rigs turnaround, it is
totally understandable again, but my degree of understanding, liquid asphalt
basically at what temperature. I
have heard different numbers.
MR. GOSSE:
I cannot give you a number
as to where it cannot come out of the tanker anymore, Mr. Murphy.
MR. MURPHY:
Yes, okay.
MR. GOSSE:
You cannot, obviously, leave
it in a tanker for a week and expect to get it out.
MR. MURPHY:
No, and
MR. GOSSE:
It would depend on outside
temperatures, a whole series of things.
MR. MURPHY:
Yes, my understanding from
the industry, for example, just from the loading point to the drop-off point, if
you consider it being about a 1,450 kilometre trip, you would probably lose
about seventy degrees in temperature over the trip.
They lose about five degrees Fahrenheit every hour.
It is about seventy degrees Fahrenheit; I should make that clarification
too.
MR. GOSSE:
Yes, that would depend on
the size of the truck and the volume of liquid that was in the truck.
MR. MURPHY:
Did Humber Valley Paving
have the ability to reheat the product once it got on site?
MR. GOSSE:
Once it was out of the truck
and into their plant they could reheat it.
MR. MURPHY:
So they had the ability
there.
MR. GOSSE:
The issue would be heating
it in the truck. I do not think
they had the ability to be able to heat it in the tanker itself to be able to
pump it off.
MR. MURPHY:
Right.
MR. GOSSE:
There are no heaters in the
tankers.
MR. MURPHY:
Yes, some of the companies I
have talked to have the ability to maintain the heat in the tankers and
everything.
MR. GOSSE:
Some, yes.
MR. MURPHY:
What equipment they use, I
do not know. Just according to the
loss of temperature, what I found in my study of this issue was roughly about 5
degrees Fahrenheit per hour, assuming that some of these tankers were held off
site because of forest fires. Do we
know delivery times and everything?
Has the department looked at the delivery times when the tankers would have been
dropped off, the timeline of the actual construction as it was ongoing?
MR. GOSSE:
We do not record when tankers arrive on site, no.
MR. MURPHY:
No, that would obviously be
up to Humber Valley Paving
MR. GOSSE:
Yes.
MR. MURPHY:
then they would not have
to disclose that to the department.
MR. GOSSE:
Yes, it is an arrangement between Humber Valley Paving and the supplier and
their trucker, if there were three different entities involved.
MR. MURPHY:
Okay, all right.
Thanks for that, I appreciate that.
What we
are looking at here now, there was obviously an added cost to the execution of
project 1-12 according to the Auditor General's report.
It says, Labour, transportation and accommodation costs were still being
incurred
Okay, and obviously
because of the fires and pulling out crews and everything, getting them out of
danger. I can totally understand
that.
A camp
was evacuated due to its proximity to the fires which also added to HVP's cost
of executing the Project. There were
also extra costs due to the return of liquid asphalt.
Like I
said, I beg the question at the same time like I said, the former minister is
not here, and I wish he was. I am
trying to find out if this was obviously one of the cornerstones that were
considered in his decision. It
appears to me right now that it is, without him being here.
MR. GOSSE:
The delays were legitimate. I mean,
there is no question. We cannot
argue that they were not delayed.
Our contracts generally put us responsible for delays that are caused by us.
Acts of nature or anything else outside of our ability to control, we are
not responsible for.
MR. MURPHY:
Okay.
MR. GOSSE:
That is what prompted my first response to Gene Coleman.
We understand you are delayed.
We understand there was a cost, I understand there was a cost, but we are
not responsible, and that had to be my first response.
MR. MURPHY:
Right.
MR. GOSSE:
That was without having the benefit of seeing anything in writing that shows how
they got to where they were.
MR. MURPHY:
Okay, all right.
MR. GOSSE:
And $2 million just seemed to be such a convenient number to throw out that
MR. MURPHY:
Yes.
MR. GOSSE:
You need to see documented evidence to show where the delays were and how we
would have been responsible for those delays.
MR. MURPHY:
Yes.
Okay, all right.
I will
come back to the start of the report.
I just wanted to get that matter clarified first.
CHAIR:
Mr. Murphy, we will go to a government member.
MR. MURPHY:
Time?
There you go, okay.
MR. HUNTER:
Yes, I would like to go back
and forth a little bit so that
CHAIR:
Oh, for sure.
If government members want to divide up into ten, or twelve, or fifteen
minutes the important thing I think, is to get the questions asked and make
sure no one is left behind on asking questions.
MR. HUNTER:
Okay.
I do have a question pertaining to the options available to the
department. When it was brought to
your attention that Humber Valley wanted out of the contract, wouldn't you
automatically set some priority, some options, whether it be to increase the
amount of the contract to Humber Valley or to evaluate the situation on site
pertaining to liquid asphalt? Were
there options discussed immediately?
MR. GOSSE:
The options that were
discussed were options on a way forward when Humber Valley did not want to
continue when we were informed that Humber Valley Paving did not want to
continue with the contract. We did
not look at other options as far as paying them extra well, I guess that is
not really true either. It was all
considered.
We did
not discuss options with Humber Valley Paving.
We discussed options internally ourselves with how we proceed from this
point. Do you call a bond?
Do you cancel a contract?
MR. HUNTER:
So it is a common practice,
in a case like this, to automatically arrange a meeting with the contractor,
engineers, and the department people to get them together automatically ASAP to
discuss some options? If they were
asking for something verbally without putting it in writing
MR. GOSSE:
It is difficult to say what
would be the norm because it is very seldom that we cancel a contract or are
faced with the option of, or the decision of cancelling a contract.
In that regard, we are kind of all working our way through things because
it is not a normal occurrence.
In the
normal handling of claims, that is second nature to us and we work through
those. Had they followed through
with the claim that we discussed a little while ago, for the $2 million for
delays, we would have worked through that in a well-documented and processed
manner. It is a very rare
occurrence that we cancel a contract.
MR. HUNTER:
Wouldn't it start out with a
meeting first with all the stakeholders and say here is our plan ?
MR. GOSSE:
In this particular case
there was instruction to do it that day.
It did not allow time or opportunity to get people together and have
meetings to discuss options, other than the people who were involved, being the
deputy, myself, our solicitor, and the minister.
MR. HUNTER:
What would happen in the
past in a case where a contractor could not fulfill the contract in the time
frame and needed an extension and extra funding to continue?
It does not have to be a forest fire.
I know
in the fall of the year there are usually lots of cases and circumstances where
the weather plays a big factor. You
can only lay asphalt, I think, at seven degrees or higher.
MR. GOSSE:
That is correct.
MR. HUNTER:
There are lots of days when
they are on site and the temperatures drop below two degrees down to zero
degrees and liquid asphalt is on site, all the men are on site.
What do they do in the case in the past what was the norm scenario of a
job if you have a week of really cold weather in September, we will say?
Do the contractors come back and negotiate?
Or do you meet with the contractors and say here is what we will do for
you.
MR. GOSSE:
The normal process in that
exact scenario you described there, Mr. Hunter, would be for us to formally, in
writing, give them extensions to their completion dates.
If we have identified a completion date of the end of September, it would
not be uncommon for us to tell them in writing that, yes, we will extend your
completion date to the middle of October; or sometimes, in some occasions, even
into the next season if we know that it cannot be done and cannot get a quality
job going. We never discuss
increases in prices or payments to cover off extra costs because they have not
been able to complete on time.
MR. HUNTER:
Did Humber Valley Paving
notify in writing that it could not deliver that liquid asphalt to the site of
their plant; or it is just a phone call made saying that we cannot, we have to
turn back?
MR. GOSSE:
I do not know that I ever
saw in writing that there were twenty-five loads of liquid asphalt sent back.
They did ask for extensions during completion dates which we did give
them.
MR. HUNTER:
So if they got an extension,
they would have still had to send the asphalt back?
MR. GOSSE:
Yes.
The extensions that we gave them went into the following year, which is
when they eventually terminated the contract or asked for the contract to be
terminated. They were originally
supposed to finish the contract the fall before.
Because
of the fires, it was justifiable and reasonable to give them an extension to go
into the next season. We knew they
were delayed by four to five weeks, so it was a reasonable decision at that time
to extend their completion date into the following year, which we did.
We did it in writing, but they did not come back to work.
MR. HUNTER:
Were there any red flags
that came up, that you knew, that they were not going to fulfill the contract
pertaining to their financial position?
MR. GOSSE:
No.
As I said there earlier, it was only a couple of weeks before that Eugene
Coleman called me personally and asked me when the next tenders were coming out.
So indications to us at that time were, well, business as usual for them.
There was no indication, other than the conversation in February, that
said that it cost them $2 million because of the fires.
MR. HUNTER:
It seems awfully strange
there was a major restructuring or financial problem to arise that quickly.
MR. GOSSE:
It occurred within days of
the cancellation of this contract.
That is when we became aware of it.
MR. HUNTER:
George was talking about the
liquid asphalt. Being around
construction, I know that asphalt plants, in my past career, I have seen cases
where the liquid asphalt was on site at colder temperatures and there was a
mechanism that some of the contractors had to heat the asphalt to get it out.
I am not sure if Humber Valley could answer that question.
I mean, were they asked that question?
Can you deal with this problem if you had to move the liquid asphalt to
the site in a week's time or whatever?
MR. GOSSE:
No, that was a business decision they made to either send the liquid asphalt
back or that was their decision to make.
Some contractors do have the ability to be able to heat most of them
would have the ability to heat the asphalt if it is unloaded into their asphalt
plants.
MR. HUNTER:
Yes.
MR. GOSSE:
Some would have the ability to be able to heat it in tankers, not all.
MR. HUNTER:
In some cases in government
contracts the progress payments would be based on some of the materials landed
on site and not installed. Would
that have been a case for liquid asphalt if they said liquid asphalt is on site
and it is, say, 5 per cent of the job, so they send in a progress payment for 5
per cent?
MR. GOSSE:
We do not normally pay for liquid asphalt until it is incorporated (inaudible).
MR. HUNTER:
That is just pertaining to
liquid asphalt?
MR. GOSSE:
Yes.
MR. HUNTER:
So what about crushed stone and class A and class B and all that stuff?
MR. GOSSE:
Yes, if there is materials crushed and stockpiled and we have control of it,
then we will pay for that, in part, before it is put on the road.
MR. HUNTER:
It does not include liquid
asphalt?
MR. GOSSE:
It does not include liquid asphalt, no.
MR. HUNTER:
Okay.
MR. GOSSE:
We require all crushed materials to be done up front.
So we know that there is a cost to them to doing that.
Typically what we would pay, if the material is all crushed and in a
stockpile and just left to be put on the road, we would pay two-thirds of
whatever their contract price was and that is documented right on the progress
payments as to what is being paid for.
MR. HUNTER:
So were they immediately
stopped on the site, on the job itself, immediately stopped and not to do
anything further on the site? In
cases that I have seen done, once the company said they are not going to fulfill
a contract and wanted out of the contract, then a stop was put to everything.
MR. GOSSE:
We would not have stopped them there, that was their decision, and the right
decision for safety reasons to stop because of the fires.
It was not us that stopped them from doing work.
MR. HUNTER:
Well that is, Mr. Chair, a
couple of questions I had I would like to come back to a few more later on.
CHAIR:
Oh, for sure, you can ask on
another round.
MR. HUNTER:
Yes.
CHAIR:
We are about eight minutes
in if you want to go back to another member, if a government member wants to ask
a few more questions. I do not want
you to be cut short on time.
MR. PEACH:
I just want to follow up on
what you are saying there with regard to the contractor.
The request came in from the contractor himself, was it, to cancel the
project? It was not the government
just cancelled it; the request came in from the contractor?
MR. GOSSE:
Absolutely, yes.
There was a discussion that was held early on the morning of March 13.
MR. PEACH:
After the forest fires and
all the losses that they gained.
MR. GOSSE:
The forest fires were the
previous season.
MR. PEACH:
Yes.
I was listening to the questions and the answers and I was saying to
myself that if you were a good business person and you were accruing all these
losses with regard to the forest fire, the twenty-five loads of liquid asphalt
that had to be sent back and all the people out of work and evacuating the camps
and everything, on the company side it would not be uncommon for somebody to say
well, look, we are losing a lot of money here.
Are we going to continue or are we going to make a decision to request
it?
I was
just wondering then if the government, based on the claims that they were
looking at putting in you said that there was nothing in writing, but there
were some claims that had been discussed by Eugene Coleman of somewhere around
$2 million. It is a lot of money.
It does not sound like a lot of money, but it is a lot of money.
MR. GOSSE:
It is a lot of money
MR. PEACH:
I am just wondering when the
request came in if that was one of the main factors for the government to make a
decision to cancel the project.
MR. GOSSE:
No, it was not.
The $2 million, as I said, Mr. Peach, was never formally put there.
Although when we agreed to cancel the contract, we made it very clear in
our letter that one of the reasons or one of the conditions was that they drop
any claims that they see they may have had against us for that.
The
other thing that was in that letter, of course, was that they would be
responsible for any warranty work on the work they had completed.
Had we known they were in financial difficulty and the company probably
would not be around, then that was a moot clause.
It was fully our understanding that they were still a viable company.
There was no indication that there was a financial issue whatsoever,
other than on one project-specific issue.
MR. PEACH:
So then the decision to
cancel the project, that was just a decision of the minister, I guess, in his
authority and the department, based on a request from the company.
MR. GOSSE:
Correct.
MR. PEACH:
There were no other
circumstances around it, was there?
MR. GOSSE:
No.
MR. PEACH:
Okay, thanks.
I will
come back to some I have a few more questions here, but I will come back to it
later.
CHAIR:
I am going to go back to Mr.
Osborne.
MR. PEACH:
I do not want to take up
more of my time.
MR. OSBORNE:
Thank you.
I am
going to try to tailor my questions as much as I can to avoid that question is
better asked of another witness, because we know the other witnesses are not
here. I will say this is the second
day in a row we have had a hearing that the proper witnesses were not here.
Yesterday, member after member after member displayed their
disappointment that Memorial University did not show up.
I want
to say again on record that the proper witnesses were not called here today.
We obviously cannot ask all of the questions today, so again, I will try
to tailor my questions around the fact that we have only got certain witnesses
here today.
The
lack of transparency in the communication of this decision to terminate the
contract, why was there no communication for well over a month after the
termination of this contract and the time the general public became aware?
MS COMPANION:
I will answer that question, Mr. Osborne.
The
decision to enter the contract was the decision of the minister's, and the
decision to cancel the contract was a decision of the minister.
It was well within his right and authority to do so.
At the time, there was no communication plan put in place to announce the
cancellation of the contract for Humber Valley Paving.
I am
not sure if previous to that there had been communication on any contracts that
had been cancelled. What I can say
is that, from here on in, if there are any contracts that are cancelled there
will be a very robust communications plan in place.
MR. OSBORNE:
Okay.
Was
part of the reason for not communicating the decision to terminate the contract
to the general public made to protect Humber Valley Paving?
MS COMPANION:
I believe I will answer what I know.
There was no information flowed to the centre or to the Premier's office,
so the decision was made by the department to cancel the contract and there was
a view that no further communication would have been necessary at that point.
MR. OSBORNE:
So the people of Labrador
who relied on this road and the expectation of the commitment to have this road
done, there was no need to communicate to the people of Labrador that the
contract was cancelled?
MS COMPANION:
The work was being rebundled right Gary?
MR. GOSSE:
Correct.
MS COMPANION:
Do you want to speak to that?
MR. GOSSE:
As far as completing the contract on the road was concerned, I mean that was
fully our goal, and we just about met our goal we were eleven kilometres short
at the end of the season from having that work finished.
That work has since been finished, so the road between Western Labrador
and Central Labrador now is fully paved.
The
commitment to the people in Labrador, to me it does not matter how we got that
work completed, whether it was Humber Valley Paving or whether it was another
contractor that did it. The
commitment was the commitment to have the road paved, and that was met.
MR. OSBORNE:
So there were suppliers and
subcontractors to Humber Valley Paving.
Would they not have benefitted from the understanding that this contract
was cancelled?
MR. GOSSE:
I do not believe so.
The reason why I say that is because whether it is a mechanics' lien or a
claim against the Labour and Materials Bond, there were time frames associated
with those there were statutes of time where they had the ability to be able
to make a claim, and those time frames had all expired by the time the contract
was cancelled. Whether the contract
was cancelled or Humber Valley just decided to carry on and not pay them, I
believe and it is probably a question that Todd can answer better that they
had already missed the opportunity to make a claim in any case.
MR. OSBORNE:
Okay.
MR. GOSSE:
Bonds clearly say from the
time they supply a labour or a good, they have 120 days to claim.
That had passed. There is
thirty days to file a mechanics' lien in the act and that had passed.
There were no liens filed when the contract was terminated.
We did check at the Registry of Deeds, there were no liens filed.
MR. OSBORNE:
Okay, so legally they may
not have benefitted by being able to file a mechanics' lien.
Ethically, morally, perhaps they would have benefitted by knowing that
if they were thinking they were going to return to work to do work for Humber
Valley, or continuing to supply to Humber Valley, perhaps by knowing that this
contract was cancelled they would have been given a heads up.
This
was not communicated to anybody, not members of the House, not the general
public, not the people of Labrador, not the people who were doing business with
Humber Valley Paving. Why was it
not communicated?
MS COMPANION:
Absolutely.
There is a need to communicate major decisions of that nature, Mr.
Osborne. We fully understand that,
as was highlighted in the Auditor General's report in one of the recommendations
and findings in his report.
It was
not communicated and it was not communicated to anybody, not to the public, not
internally up and down. It just was
not communicated. That obviously
was an issue highlighted by the AG which we take very seriously.
It is very serious.
MR. OSBORNE:
It was a major oversight.
MS COMPANION:
Right.
MR. OSBORNE:
This was a company that the
former head, about to become the head of the Province, the head of government,
was involved with. Obviously it is
a very sensitive issue.
MS COMPANION:
Very sensitive.
MR. OSBORNE:
Obviously very sensitive and
no communication to anybody. That
to me is unexplainable. Who made
the decision? Was it the minister
who made that decision?
MS COMPANION:
I am going to tell you what
I think. I do not think that there
was a conscious decision to not communicate that.
I think it was an oversight.
He was in his authority to be able to sign the contract and close the contract,
and there is no documentation, nothing to show that there was a conscious
decision not to communicate that information; but, as you and the Auditor
General have indicated, that definitely is an oversight.
MR. OSBORNE:
I mean, that leads me to
another question. There is a lack
of documentation both the day the decision was made, and in the Auditor
General's report the decision from the very start of the day to the time the
contract was cancelled was seven-and-a-half hours.
In fact, it was less than four hours from the time the minister made
first contact with the deputy minister and the decision was made to cancel the
contract. So there was a lack of
documentation that day, but what surprises me is there was a lack of
documentation the day after, the week after, the month after on such a very
sensitive issue.
MS COMPANION:
Right.
MR. OSBORNE:
There was no documentation.
MS COMPANION:
No.
MR. OSBORNE:
There was no documentation
at all. Why was there no
documentation following we can explain away that the decision was made in
haste and it was a very quick decision and the minister had said that he wanted
that decision concluded that day, there was an urgency, and we can surmise it is
because the former head of that company now about to become the head of the
Province was involved and that the deadline for the PC nomination was the
following day.
That
might be the explanation for the day the decision was made.
Is that also the explanation for the day after, the week after, the month
after that there was no documentation the sensitivity around the issue?
MS COMPANION:
There were two pieces of documentation that are in the files, and I think they
were attached to the Public Accounts letter.
One was a briefing note that went to Cabinet Secretariat and to the
Premier's Office. It was in late
April or early May I can find the date and another piece was an email
outlining the circumstance of the decision from David Jones, the lawyer on the
file at that time. Those were the
two pieces of correspondence that were prepared after that decision had been
made.
MR. OSBORNE:
One of those was almost a
month-and-a-half later, and the other one was almost two months after the fact,
though.
MS COMPANION:
Right.
MR. OSBORNE:
Ordinarily, after a major
decision like this, the ordinary route, the normal route in a department is to
have briefing notes done to outline the pros and cons to have a briefing note,
to have other documentation, to do a proper assessment of the decision, and to
do a communications plan. Anybody
who has served in a department knows that those are normal procedures, and none
of those were done.
Did the
minister make the decision that there would be no communication?
Was it Deputy Minister Meade who made the decision that there be no
documentation? Who made that
decision?
MS COMPANION:
How we do business as the
public service those are our tools for decision making; our information notes,
if we are going to exchange information about a decision that has been made so
that everyone is aware and in the loop.
The other is a decision note which outlines all of our alternatives,
assesses our pros and cons, and makes some recommendations and weighs the
recommendations weighs the alternatives.
The
decision being made on that day, that work was not completed, the
decision-making note or process.
After the decision had been made it was to the point that there was information
sharing and that information note was prepared.
That is the note I would have attached that was prepared and sent to the
centre. The whole decision-making
process of the analysis and alternatives is a process we use prior to a decision
being made, right.
MR. OSBORNE:
Okay.
The earliest documentation after this was more than a month and a half
later. That is certainly not normal
within a department or certainly not normal for public servants.
It is not normal for the bureaucrats.
Is that correct?
MS COMPANION:
Right.
We function and we use information and briefing notes.
They are our tools, definitely.
MR. OSBORNE:
Okay.
CHAIR:
Mr. Osborne, if you are not
finished that line of questioning I will let you continue with that.
If it is something new you want to go to, I would prefer to go to a
government member and then take our morning break.
MR. OSBORNE:
No, that is fine.
We can carry on.
CHAIR:
Okay.
I think
Mr. Cross does not have questions yet.
Mr.
Peach was already asking before. Go
ahead, please.
MR. PEACH:
I just have a couple of
questions. As the day goes on I am
sure some of the questions we have noted are going to be duplicate questions
from some of the other members that have already been asked before.
So, I just have a couple of questions of understanding.
When
the gentleman there was speaking about the mechanics' lien he mentioned about
the claims to the Canada Revenue Agency, and also to Workplace Health, Safety
and Compensation Commission. Did I
understand correctly that there were claims put in to those people?
MR. STANLEY:
If it helps, I actually have a handout with some of the numbers on it that might
it is just that I am not sure (inaudible).
MR. PEACH:
I am referring to statutory
claims, right.
MR. STANLEY:
Yes, there were two statutory claims of which the department was aware.
There was a claim received from CRA there was a claim demand that the
Department of Finance received a garnishment order or an interception order from
CRA for any amounts payable to Humber Valley Paving.
That claim demand was in the amount of $75,477.
We were
also aware that there was an amount payable to the Workplace Health, Safety and
Compensation Commission of $23,300-and something.
The numbers are on the document you are getting there now.
So,
yes, those two had been received.
The way the law works is they would trump secured creditors or anybody else.
In particular, CRA gets paid ahead of anybody else.
MR. PEACH:
Okay.
Can you give me some information on those claims?
What were they for?
MR. STANLEY:
Well, no, that we would not know.
MR. PEACH:
How did they arrive at it as
a claim?
MR. STANLEY:
The CRA claim, I am aware of the amount, but I am not actually sure what it
would be for. CRA claims like that
can be for a couple of things.
Failures to remit, withholding tax payments, or employee deductions on salary,
that sort of thing, or HST remissions.
There are a number of ways a CRA claim can arise.
I do not know the details of that one.
I am not sure that CRA would disclose that to us.
MR. PEACH:
Yes, or it could be not
paying in enough Canada Pension, and things like that, right?
MR. STANLEY:
Yes. Canada Pension would be the
employee deductions yes, if they have not submitted that.
The
workers' compensation amount that was outstanding, which was around $23,000,
would be a lien for unpaid employer premiums on workers' compensation.
MR. PEACH:
Okay, thanks.
Another
question I had is on page 32, Findings 8 and 9 of the AG and maybe this is a
question for the AG, I am not sure.
It was noted that HVP would have had knowledge of the bi-weekly payment
practice from previous contracts with the Department.
I am just wondering, is that previous contracts from Humber Valley Paving
or are we talking about previous contracts from other contractors?
MR. PADDON:
It was my understanding, from the discussions we had and the interviews at the
time, contracts that Humber Valley previously had with the department, there was
the arrangement for biweekly payments related to liquid asphalt.
At some point they did, as Mr. Gosse had stated, morph into biweekly
payments for the full contract, not just liquid asphalt.
I guess
our concern was that potentially if Humber Valley Paving knew that this
arrangement for biweekly payments was in place, based on previous contracts,
that when they bid new contracts they may have built that knowledge in and it
might affect their pricing. If you
had a contract where the gap in prices was very narrow, it has the potential, or
had the potential to affect the price on bids.
In this
particular case it likely did not because it was a large enough gap that this
probably would not have affected it.
It is more of a principle thing than anything else that makes sure that
who is bidding on the contract is aware of all the nuances around payments under
contracts. That was the point we
were trying to make.
MR. PEACH:
Yes.
That was the next question that I had.
So you pretty much clarified it there where you had stated that it may
have a competitive bidding advantage over other contractors.
MR. PADDON:
It may have, but not likely in this case, but more from a broad principle basis,
just to ensure that there is a level playing field.
MR. PEACH:
Okay.
Just a
question on the sixty kilometres of highway.
What is the status on that now?
Is that completed now or is it something ongoing, or is it retendered?
What is happening with it?
MR. GOSSE:
That sixty kilometres was retendered and it has now been finished.
It was finished in July of this year.
The last eleven kilometres was done this summer.
MR. PEACH:
Okay.
I have
some more questions here, but I will come back to them later, Mr. Chair.
If Eli wants to ask a few
CHAIR:
Okay.
Mr.
Cross, did you want to use up a little bit of the time Mr. Peach would have had?
MR. CROSS:
Yes, okay, we can move
ahead.
Obviously, we might have been a little more organized if we all got together and
planned our questions as such, but geography of where we reside does not give us
that all the time. Some of the
things are jumping back and forth, and things that I had, that I was
identifying, Mr. Peach just hit on.
I was
looking at some of the findings and comments that were there and I do not know
if I could ask the Auditor General.
As we are looking through, some of the findings that are here Finding 6 on
page 31 has to do with the mechanics' lien.
It says: There was a lack of transparency in the communication of the
decision to terminate the contract.
This had the potential to impact the ability of sub-contractors and suppliers to
file a claim under that mechanics' lien.
The
whole issue of the lack of transparency how does that play here; what would
lead you to make that comment?
MR. PADDON:
I guess our concern was if
there is a time frame for any supplier or any sub-contractor to make a claim for
any reason, if they are unaware that the contract is being cancelled then they
are unaware that the clock may have started ticking.
Now, I accept the comment that was made earlier by one of the witnesses
I just cannot remember that in this particular case it may not have made any
difference because the clock may have started ticking the summer before; but,
conceivably, you could have a circumstance where the contract is cancelled
fairly soon after the goods or services are delivered and if there is no
awareness that the contract is cancelled, then they may not have the ability to
launch any legal avenues that are available to them.
That
was really the point we were trying to make here is to make sure that everybody
is aware what is happening with a particular contract so any legal avenues they
may have available to them are not diminished or compromised.
MR. CROSS:
Okay.
Connected to that then because I was looking to a couple of the next findings
or previous finding that says no claims had been filed in the period subsequent
to this in the progress payments to Humber Valley, at this point I think 62
per cent of the original work was complete.
So it would only be in that portion of work there would be claims
against, or would there be claims further to the amount of work that was left to
be completed because Humber Valley may have entered into a contract with someone
to do some of the future work for them but at this point they cancelled the
contract I not know; I am sort of puzzled, and I do not know who I am asking
this to
MR. PADDON:
Well, for us, Finding 5, at
the point in time when we did our report, it was really just a statement of
fact. The circumstances around how
companies may, in fact, get to the point of filing a mechanics' lien claim was
not really the issue; it was the fact that there were none at that time.
There were indications that people were looking at claims, but I do not
think there were any formal claims under the Mechanics' Lien Act.
MR. CROSS:
Okay.
I think
I will pick up a little later on. I
just wanted to conclude some of time that Mr. Peach had with a couple of these,
but I will reorganize to come back.
CHAIR:
Thank you, Mr. Cross.
The
Clerk advises that there is coffee in the Speaker's Boardroom which is straight
out through here. I think yesterday
there was some confusion about where we ought to have gone or could have gone.
We will break and come back probably around 10:50 p.m. or 10:55 p.m., and
we will resume with Mr. Murphy.
Recess
CHAIR:
Thank you.
We are
resuming, and we will continue with Mr. Murphy.
MR. MURPHY:
Thank you very much, Mr.
Chair.
It is
good to be back and to get a few questions answered.
I will start off on a couple of questions around the communications end
of things before I come back to the conclusions, and a couple of questions for
the Auditor General and anybody else who can answer them.
I want
to ask when it comes to the handling of this affair, when it comes to the
communications end of things; obviously we have an issue now that the minister
has decided that the issue is done.
He has come to a decision there is going to be a mutual agreement, obviously,
and this now has to be communicated.
To whom would he have sent that message to at that particular time, that
there was going to be a mutual agreement?
Because obviously a lot of people here had to go to work, number one.
Were
there lawyers who were going to be drawing up some form of a mutual contract?
Number two, I guess there would probably have to be notification to the
Premier's Office. Communications
people would be involved. Who were
the communications people who would have been involved here in this process?
MS COMPANION:
In the normal course of process, once a decision is made, prior to we would
prepare a decision note. We would
outline the pros and cons, alternatives, make some recommendations.
Once a decision is made then we would engage our communications people.
They would develop some key messages.
If a decision was significant that we needed to send an information note
to inform the Premier and the Clerk of the Executive Council prior to any
communications happening, then we would do that.
If it
was of a regular course of business, which the departments have authority to
make decisions, then we would develop a communications activity and we would
inform the central communications branch, and the Premier's Office would be
informed.
MR. MURPHY:
Okay.
Was there a communications person at that particular time who would have
been there with the minister Mr. McGrath at the time, and again, I am
sorry he is not here to answer the question.
Would he have, under normal processes, communicated this message to a
communications person so that it would be gone out to the various we will call
it target audiences in this
particular case people who would have had to be informed of it?
MR. GOSSE:
Normally, if a decision of
the magnitude of this one was made, there would be a series of people involved.
You would have the minister, you would have the deputy, you would have
the assistant deputy, most likely, who was responsible for that area in this
case it would have been me potentially the assistant deputy for Strategic and
Corporate Services, and a communications person.
They
would be involved in the initial stages of discussion and figuring out the path
forward. That is when the
communications person would be certainly aware that messages need to be
developed, and who is going to do the necessary steps to make sure that others
were informed who needed to be informed.
MR. MURPHY:
Okay.
Who was at that particular meeting at that particular time?
Once the minister made his decision, who was there at that meeting?
MR. GOSSE:
Once the decision was made,
I believe it was only the minister and the deputy.
The direction from the minister was to terminate the contract, get it
done that day. Besides the deputy,
after that it was essentially myself and the solicitor for the department.
MR. MURPHY:
Okay.
The deputy minister at the time would have been?
MR. GOSSE:
Brent Meade.
MR. MURPHY:
Brent Meade, and he is not
here to answer any questions either.
I would be curious too, if he would have communicated that sort of
message to a communications person so that they would be able to undertake some
responsibilities of informing the various people concerned.
Again, we do not know what happened in the dissemination of the message
and whether it would have gotten up to the Premier's Office.
Who was the communications person at the time there?
MR. GOSSE:
I do not remember if it was
Scott Barfoot or Carol Ann
MR. MURPHY:
Can we find out?
MR. GOSSE:
I can, yes.
MR. MURPHY:
I think it is kind of an
important piece of information here in order to find out the actual chain of
events. Who was the communications
person say in the Premier's Office who would have had the responsibility of
picking up that message too from the communications person at Transportation and
Works?
MS CAMPANION:
We will find out those two
individuals for you.
MR. MURPHY:
Yes.
Can we have that possibly for this afternoon, if we go into an afternoon
session, but as soon as possible anyway?
I think it is kind of important.
We have
a case here where we do not know if the message was communicated between the
Premier's Office and through a communications person, or would this message
possibly have been conveyed from Mr. Meade, for example, to the Premier's Office
directly after the
MS CAMPANION:
I will speak to that. No, that is not
the way we would normally do business.
The communication to the Premier's Office is through the Clerk of the
Executive Council
MR. MURPHY:
Right.
MS COMPANION:
and any communication from
the deputy minister would have been through the Clerk.
On this occasion that we are speaking of today, no communication went to
the Clerk.
MR. MURPHY:
No communication went to the
Clerk at all?
MS COMPANION:
No.
MR. MURPHY:
Would you view that as a
failure in communications that that message did not get through?
MS COMPANION:
Right.
That was identified as an omission.
The Clerk followed up on that quickly after the Auditor General's report
and met with deputy ministers to remind them of the importance of decision
notes, information notes of major decisions that would affect the Premier's
Office, or affect government in general, or the public in general and identify
the protocol to ensure that that happened.
MR. MURPHY:
That protocol is in place now?
MS COMPANION:
Right.
It is.
MR. MURPHY:
Okay.
Thanks for that.
I will
leave that for now, but see if you can come up with the names of the
communications people who were involved.
I might have further questioning on that later on this afternoon.
MS COMPANION:
We will.
MR. MURPHY:
I want to come back to the
conclusions now and ask a few questions around that.
Under Objective 2, on page 2 of the report, under progress payments, they
were not made in accordance with the terms of the contract for Project 1-12 and
lacked consistency and transparency.
I have just a couple of more questions around that, if I could.
They
are reviewed as unfair because the payments, for example, were made every two
weeks it was seen to be giving Humber Valley Paving an unfair advantage.
In your search, did you find any other times where the bimonthly payments
were made to any other companies in any other circumstance, or did you just look
at Humber Valley Paving and find that one example there?
Obviously there might have been others you ran into.
MR. PADDON:
Of course, our focus was on
Humber Valley Paving and this particular contract itself, and sort of some
tangent issues around that. We did
not see any other evidence of bimonthly payments.
There
were two issues that we raised here.
One was that the contract itself called for monthly payments.
This was inconsistent with the contract.
So that was one issue.
Whether that was a major issue, that is a question of judgment I suppose, but
the fact remains that it was not part of the original contract.
The
other issue was the one I had spoken about before the break, which was it has
the potential if somebody is aware that there is sort of an understanding
around bimonthly payments that other people are not aware, it could affect your
bids and it has the potential to impact sort of your relative position in the
bidding process. Our only point was
if your contract has monthly payments specified in it, well then that is what it
should be so everybody knows what the lay of the land is.
MR. MURPHY:
There does not seem to be
anything as regards wrongdoing done here.
It did not give anybody else (inaudible)
MR. PADDON:
Based on the discussions we
had, particularly with Mr. Gosse in this regard, the rationale for the bimonthly
payments was really to provide some measure of relief, if you wanted to call it,
just because the significance of the liquid asphalt as a cost and just to
facilitate some cash flow I guess.
It was probably done for the right reason, but at the end of the day it was
still inconsistent with the contract terms.
MR. MURPHY:
So I guess the question is
for Mr. Gosse: Any other tenders that were out there that were being addressed
by government, did other companies to get that advantage of the bimonthly
payments because of liquid asphalt costs?
MR. GOSSE:
No, there were not, but
there were no other companies in similar situations where they had massive
paving projects where there were millions of dollars of payments made each month
to them.
MR. MURPHY:
Okay.
MR. GOSSE:
There have been instances in
the past where you have made what we call an interim progress payment in the
middle of a month for a certain circumstance that happened in a project.
For example, a contractor pours a bridge deck, which is a big cost on a
bridge project, shortly after progress payments progress payments are normally
made at the twentieth of the month.
So if a contractor poured a bridge deck, for example, on the twenty-fifth it
would not be unheard of to pay for that bridge deck before the twentieth of the
next month.
MR. MURPHY:
Okay.
MR. GOSSE:
Because it is a substantial
outlay and most contractors have to pay their bills ten, fourteen days it
depends on the contractors and what arrangements they have with their suppliers.
MR. MURPHY:
I can understand with
asphalt because it was particularly costly in 2012-2013 up until
MR. GOSSE:
It is still costly.
MR. MURPHY:
Yes, it still is
MR. GOSSE:
Regardless of the price of
oil, asphalt did not come down.
MR. MURPHY:
Well it came down a little
bit, but we will get into that some other time.
Yes, I
can understand that. So it has been
done under
MR. GOSSE:
Certain
MR. MURPHY:
certain conditions where
there was a high amount of asphalt that was needed for a project or liquid
asphalt I should say, the binder.
It has been done for other cases like that.
MR. GOSSE:
Yes.
MR. MURPHY:
Okay.
So we are not seeing anything exceptional here
MR. GOSSE:
No.
MR. MURPHY:
but it was granted well,
it is still sixty kilometres of road and you are talking twenty-five loads.
It is an immense cost; I can understand that.
Thanks
for the clarification on that by the way.
CHAIR:
Mr. Murphy, before we go, if
you would hold that thought, I would like to go to a government member now
(inaudible) eleven minutes or so.
MR. MURPHY:
I am finished that section.
Thanks.
MR. K. PARSONS:
Thank you very much, Mr.
Chair.
Let me
state first, before we go forward that I, too, would like to see more witnesses
here this morning. I am not sure
who we could have had available or not here this morning, but some of the
questions are being asked and there are answers that cannot be given.
So I, too, would like to be able to see if we had more people here to
answer the questions.
As a
member of the Public Accounts for the last seven years, most of our meetings
that we have done were a review of the Auditor General's report and the
recommendations of the Auditor General and what he has put forward to make
changes that should be made. That
is what we normally review under these hearings.
I commend the deputy minister for your opening statement of all the
recommendations that the Auditor General; you addressed every one of them.
That is usually what we do at most of these hearings, but again, there
are some questions that need to be answered and we need appropriate people to
answer those questions.
I want
to go back to the contract a little bit and the tender I know that on July 11,
Humber Valley Paving made a request for an extension of the contract.
At that time, what was the discussion?
Was it we were losing 'megadollars', was any of that involved; or was it
just look, we cannot do this, it is impossible because of the five weeks we have
lost; or how was the discussion at that time with Humber Valley Paving?
MR. GOSSE:
Not a lot of discussion, actually, other than the delays that were the result of
the fires because July 11, if I recall correctly, there were still fires
burning. It was not only in
Labrador; it was in Quebec as well.
MR. K. PARSONS:
Quebec, yes.
MR. GOSSE:
Of course, there is only one route, and the fires in Quebec actually stopped
some of the trucks as well.
So the
only issue no discussion of extra costs at that time other than challenges
they would have in getting the project finished, and a request to extend the
completion date into the following year.
We responded to that, I believe, sometime mid to late August and approved
the extension although we had verbally agreed to it before that time.
MR. K. PARSONS:
Contracts that are done on
the Trans-Labrador Highway, obviously the distances are huge; you are looking at
hundreds and hundreds of kilometres out to be able to do this section and that
section. With looking at the
Labrador climate in the wintertime and I know just from experience down at the
Torbay Bypass Road, which I tormented you a lot about, there was a plant set up.
It had to be all set up and it was a big operation just to bring all that
in and put it there, and then there was a major concern that they wanted to get
it out of there before the winter months came.
Is
there a major cost to the actual set up of these plants and stuff like that?
So, my question is around if you do a project such as on the
Trans-Labrador Highway and it is in such a remote area, hundreds of kilometres
away from everything, obviously a plant has to be set up, all this stuff has to
be set up, and I do not know if they decided to leave it there during the winter
or do they take it out what is the cost of something like that?
MR. GOSSE:
They would not have
demobilized their asphalt plants for the winter.
They would have winterized it and left it in place for the following
year.
MR. K. PARSONS:
Okay.
MR. GOSSE:
Normally to set up one of
those plants it is, ballpark, about a week to set it up, so it is a week's
labour plus the equipment used to set it up.
It is a substantial cost to setting up an asphalt plant.
On an eighty kilometre paving project, they would either have two plants
or they would move it once. They
would not try to haul it is cheaper to move the plant than haul asphalt.
MR. K. PARSONS:
So they have a lot of these
mobile plants now that they can move in and out, is that the way it works?
MR. GOSSE:
They have mobile plants
well, they are mobile, but it takes a week to set it up.
It would probably be on seven or eight tractor trailer loads of material.
It is a big set-up.
The
same would go then for their crushing operations as well; that is another
set-up.
MR. K. PARSONS:
A question for the Auditor
General: When you said in the report about the two tenders coming out and
closing on the one day, did you look at the other bidders?
Were all the other bidders bidding on both projects or was it just the
one?
MR. PADDON:
We did not look at the other
bidders.
MR. K. PARSONS:
There were five other
bidders, I believe.
MR. PADDON:
Yes, but whether they bid on
both I could not tell you right at the moment.
MR. K. PARSONS:
Okay.
Granted, it is not considered a bundle.
It would not be considered a bundle, but a lot of times when you look at
people bidding if they get two the price of the bid on the first one, if you
can bid low enough on that and low enough to get two of them, it would be really
good for the company.
I do
not know if Mr. Gosse can answer that question or not because it was interesting
to see the difference between the bid that Humber Valley received and the second
bid was almost $5 million. I was
wondering, was that a factor? Would
that be a reason why you open two of them on the one day or put them out the
same time for basically the same area?
MR. GOSSE:
There are pros and cons to
closing big projects on the same day versus opposite days.
In this particular case here we actually had a request from a contractor,
not Humber Valley Paving, to close both on the same day because they were keenly
interested in if they had to mobilize to Labrador it had to be worth their
while, so they wanted to have a real good run at both projects.
MR. K. PARSONS:
Okay.
MR. GOSSE:
There are times, as you
said, Mr. Parsons, that if you close projects on opposite days and a losing
contractor on the first day really wants work then he sharpens his pencil good
for the second day and lowers his prices.
It can work both ways, if it is in an isolated area like Labrador and
some will need to make it worthwhile to go there and it also gives them the
opportunity of combining, for want of a better term, their mobilization cost.
MR. K. PARSONS:
Okay.
MR. GOSSE:
If they get both projects, they only have to move the gear up there once,
basically.
MR. K. PARSONS:
Once, yes.
MR. GOSSE:
So they will see economies on that that would be reflected in their bids in an
effort to get the work.
MR. K. PARSONS:
Yes.
Do you know if all the bidders bid on both (inaudible)?
MR. GOSSE:
I can get that list. I do not have
them right here.
MR. K. PARSONS:
Yes, okay, because when I
look at the bids, the first bid is $21,582,000, and if you look at the fifth
bidder, the number five person, they were at $45 million.
When I looked at this I said, wow, there is a huge range in the
difference. Even from first to
second, it was $5 million on a $20 million project.
That seemed to be very, very high to me.
Is there a difference in why the bids are so different?
I am just asking the question, because
MR. GOSSE:
Yes. I can only surmise as to how
it got there, but Humber Valley Paving was already mobilized in Labrador.
MR. K. PARSONS:
Okay, so they had
MR. GOSSE:
They had other projects that they were working on.
So that would give them a competitive advantage because they already have
their gear there.
MR. K. PARSONS:
Okay, yes.
Auditor
General, your assumption was that two of them should not be opened or done on
the one day. What is your
rationale?
MR. PADDON:
I guess really our suggestion was that the department should consider whether it
is appropriate to have them done on the same day, particularly in a circumstance
where you have large contracts. I
recall during the interview with Mr. Gosse he had indicated that by and large
these projects in Labrador were some of the largest paving projects that the
department had let, just by their very nature, and the location.
I guess
the concern was that because of the size of the individual projects, if you have
one contractor who is successful on both but may stretch their capacity to deal
with both, you may end up running into problems just as an administrator, as
government, in terms of dealing with a contractor then who may have stretched
themselves a little too far.
MR. K. PARSONS:
Okay.
MR. PADDON:
That was the point we were trying to make.
MR. K. PARSONS:
Yes, okay.
The point which Mr. Gosse is making, that sometimes if they think they
can get both of them then the bids will come down a little lower than the way it
is. So maybe that is the way the
bids work.
I just
want to get back to a little bit about Minister McGrath at the time and his
decision to, what I call rush the decision.
Your experience of thirty years will probably tell you you are after
dealing with a lot of politicians over the years and the importance of getting
projects done on time. The options
that were available to the department, whether it be cancelled or a third party
come in and take over the contract or whatever, what do you see to be a better
option or is there no better option, or do you look at everything?
Because sometimes when it goes back to retendering, and I know this
through personal experience, that when a bid comes in too high and it goes back,
it could be delayed for a year or two years.
What we
have done this year, even in my district two years ago the bid was way too
high. This year I bundled with a
neighbouring and the bid came in.
There were more bidders and stuff like that.
I just want to know what your experience is of how this process what do
you think of the process?
MR. GOSSE:
I have kind of lost track of
your question.
MR. K. PARSONS:
My question basically is by
bundling, by taking this tender and saying, okay, the best way to get this
completed on time would be ?
MR. GOSSE:
The best way of getting this
completed on time and of getting the best price for getting the work completed
was doing exactly what we did, including it with other work, because this was an
isolated section in the middle of Labrador.
MR. K. PARSONS:
Say, for example, to go back
and do sixty kilometres obviously, when contracts come out they look at the
amount of work that is there, and 61 per cent of this work was already done.
Would it be difficult to get someone to go in and do that at the same
similar price that you were looking at?
MR. GOSSE:
In my opinion, it would be impossible to get someone to do it at the same price.
MR. K. PARSONS:
Okay.
MR. GOSSE:
The best way of completing
it was doing it as we did it and putting it with a much bigger piece of work
because now it is of interest to a contractor to get that bigger piece of work.
MR. K. PARSONS:
Okay.
MR. GOSSE:
Included with this one,
besides the sixty kilometres, was another eighty kilometres of full paving
heading down the southern part of the TLH from Goose Bay South, and there was
work in Goose Bay as well.
MR. K. PARSONS:
Yes, I was just using my own
personal experience. That is what I
was explaining. You know that
sometimes when you bundle it seems like you get more bidders, better price, and
stuff like that.
CHAIR:
Mr. Osborne.
MR. OSBORNE:
Thank you.
Just on
that note before I move on to where I was going to go with the questioning.
Mr.
Gosse, you had indicated that the best approach was for the department to do
exactly what the department had done.
I just want to ask the Auditor General, because I know in your review of
the possible options, one of the options was to pay the claims that Humber
Valley Paving had made against government.
Mr.
Gosse, what is the status of the claims that Humber Valley Paving had made
against government? Have any of
those been paid?
MR. GOSSE:
On Project 1-12 or overall?
MR. OSBORNE:
Overall.
MR. GOSSE:
There are still two
outstanding claims that we thought we had agreements on, and they are
legitimate. They were for extra
work. There was a differing in
opinion of what the true extra cost was to the contractor.
We settle claims, legitimate claims all the time, and it is not uncommon
to deny a claim that we feel is not legitimate.
Then contractors of course have the option of taking us to court, and
some will do that. We will take on
those battles when it is right to do so.
In this
case here, there were claims totalling on two projects, from 2010 that had just
finished that year they were started in 2011 and finished in 2013 claims
totaling roughly, in round numbers, $600,000.
We had reached an agreement and we did our documentation, our analysis
and documented everything. We had
our consultant who was looking after the work document it.
We made offers on both of those of about, one was $94,000-and-change and
one was $95,000-and-change. Humber
Valley Paving had originally accepted those and then their board of directors
withdrew the acceptance.
MR. OSBORNE:
Okay.
So on
the other claims that you say were legitimate, I believe and the Auditor
General can correct me if I am wrong, but when I read the report there was no
analysis or no consultation with Humber Valley Paving as to whether the
legitimate claims, if they had been paid, whether that would have been enough to
convince Humber Valley Paving to go back into Labrador.
Is that correct Mr. Paddon?
MR. PADDON:
Yes, that was the point we
made. Well, the complete point was in the fullness of time had it been available
to conduct the analysis that may be something the department could have explored
with Humber Valley.
We
acknowledge that Humber Valley was looking for more money to go back to
Labrador. In order to pay more
money there would have to be some legitimate reason for the department to do
that if a contract was in place. If
there were legitimate claims that were being I guess considered, that may have
been an option to go down that road, but given the amount of time that was
available that was not something that was done.
MR. OSBORNE:
If that option had been
explored, Mr. Gosse, with Humber Valley Paving, and we understand that it was
not through the findings of the Auditor General's report, but there were
legitimate claims.
MR. GOSSE:
There were two legitimate
claims that we had made offers on that were accepted by Humber Valley Paving.
Right around this time or prior to that, one of them was accepted prior
to this that were subsequently rejected by the board of directors for Humber
Valley Paving. We had made offers
on those two claims that were legitimate.
MR. OSBORNE:
Okay.
Why
were they rejected? Were they
looking for additional money?
MR. GOSSE:
I cannot answer that honestly, I cannot answer that.
They had originally accepted them and it was all documented as to where
the justification for those claims.
I mean, we knew there was extra done.
We knew there was something owed to Humber Valley Paving.
MR. OSBORNE:
So, if you were able to
reach an agreement with them on that, in the fullness of time, if that option
were explored, was there a possibility that the work could have been done
cheaper than it was done when it was retendered if Humber Valley Paving had gone
back to Labrador to do the work?
Because that was one of the options Humber Valley had presented to the
department there were two. One
was that they get out of the contract; two was that they receive additional or
some compensation and they would go back and complete the contract.
Is that correct?
MR. GOSSE:
Partly just let me clarify. The
extra payment they were looking for to go back to Labrador referred back to the
$2 million we talked about earlier this morning.
Those two claims were on different projects and had nothing to do with
1-12.
The
extra money they were looking for was the $2 million.
To me, it is a number they picked out of the air and said this is what we
need, this is what our losses are, and that is what we want to be paid for.
So there was no formal claim made for the $2 million.
On the
two legitimate ones the offers that we made on the two claims that we made
offers on were what we could rationalize as being the legitimate extra costs.
I do not know that we ever would have agreed to go beyond that on those
two claims. From the information we
had and from the analysis that we did and the analysis that our consultant did,
that was the maximum that we would go to on those two claims.
MR. OSBORNE:
Okay.
The
Auditor General, on page 43, they found that there was no evaluation or
discussion with HVP as to the amount of additional resources it may have taken
to allow them to return. Claims
related to Project 139-10 and 140-10 were being negotiated.
There was evaluation whether a settlement of these claims would have been
sufficient to allow HVP to return to Labrador.
So, is
the Auditor General correct in that, or are you correct in what you are saying
there?
MR. GOSSE:
I think it is a combination of both.
I do not think either one of us is wrong.
We could not evaluate, nor would we try to tie two or three different
contracts together it is difficult to do that.
I do not know if you can do it, from a legal perspective.
We deal with it contract by contract by contract.
MR. OSBORNE:
Okay.
MR. PADDON:
(Inaudible).
MR. OSBORNE:
Sorry, go ahead.
MR. PADDON:
I think that sort of goes to the point that we were trying to make.
There is certainly uncertainty surrounding this, as Mr. Gosse is saying.
Because of the shortness of the time, there was no attempt to consider
whether that was a viable option. I
think this is really the issue that we are trying to get at: Because everything
was compressed into that seven-and-a-half or four-hour time frame, you do not
really get to explore an option that, at the end of the day, may not have been a
realistic option, but at least you could have fully considered it and say no.
MR. OSBORNE:
I mean, the reality is
Humber Valley themselves did put forward two options to the department: either
out of the contract, or negotiate an additional settlement.
We would have known the answer to that question in the fullness of time
if the department had, in fact, negotiated with Humber Valley and we do not
know whether or not that would have been a less expensive option than
retendering as a bundled contract because that negotiation did not take place.
Is that correct?
MR. GOSSE:
In the fullness of time, we
would have had time to consider any claim that they made for the delays and
back to the $2 million again, there was no justification to increasing the
offers on the previous two settlement offers based on the information we had.
To me, it would be improper to pay them for something that they did not
do or did not deserve on two other contracts to have them come back to work on a
third one.
MR. OSBORNE:
Okay.
When
you provided evidence to the Auditor General, did you make these comments at
that time?
MR. GOSSE:
I do not recall.
MR. OSBORNE:
Okay, because there is a bit
of a contradiction.
MR. GOSSE:
We did talk about the claims
on 139 and 140, no question.
Whether we tied the two of those together with 1-12, I do not recall that
conversation. That does not mean it
did not happen.
MR. OSBORNE:
Okay.
I do not recall reading anything about what you just said in the
findings.
MR. GOSSE:
There was no analysis done
between the two claims that were made and we could legitimize in relation to
1-12.
MR. OSBORNE:
Okay.
MR. GOSSE:
The claim on 1-12 that was
not settled was the one that was never formalized, notionally put forward by
Humber Valley Paving to be $2 million.
MR. OSBORNE:
Okay.
I am
going to come back to this issue because I do have several more questions on
this particular issue. Brad Power
is now the Communications director for Transportation and Works.
You were not in the department at the time of this?
MR. POWER:
I was not, no.
MR. OSBORNE:
Okay.
To the
Auditor General, did you interview the Communications director at that
particular time?
MR. PADDON:
No, we did not.
MR. OSBORNE:
Okay.
Just
for the record, Mr. Chair, if we do have an additional meeting, based on my
motion earlier, I think the Communications director at that time should perhaps
be called as well.
CHAIR:
Do we know that person's
name?
MR. MURPHY:
I think they are looking for
that now.
CHAIR:
Okay.
MR. OSBORNE:
Okay.
MS COMPANION:
The Director of Communications at the time was Scott Barfoot, and he currently
works with the Communications Branch with the Executive Council.
We were
also asked to find the person in the Communications Branch who this
communication would have gone to, and it would have been Milly Brown.
MR. OSBORNE:
Okay, thank you.
CHAIR:
Mr. Osborne, we should go to
a government member now.
MR. OSBORNE:
My time is up already?
CHAIR:
It is up
MR. MURPHY:
Time flies when you are
having fun, Tom.
CHAIR:
Unless you continue with the
same line of questioning, but I thought you arrived at a conclusion.
MR. OSBORNE:
Well, no, I am going to come
back to that. We are going to be
here for a week, Mr. Chair.
CHAIR:
Well, no, Mr. Osborne, you
are the last person that I can favour with time, being with same party.
A
government member, please.
MR. HUNTER:
Yes, I have a question.
I will get back on the liquid asphalt, because it seems to be a lot of
input by the AG there. On page 32
of the AG's report: The Assistant Deputy Minister, Transportation branch
originally approved bi-weekly progress payments related only to the liquid
asphalt payments for Labrador projects.
Was
that asphalt already used or was it tracked so that we know that it was gone to
the particular job that it was supposed to go to, or just the company decided to
store it or use it wherever they want to use it?
How was it tracked?
MR. GOSSE:
We pay for liquid as it goes into the asphalt and it is incorporated into the
work. So that would have been done
biweekly instead of monthly, per the normal.
So, only what was incorporated into the work in that two-week period was
paid for, not what was delivered.
MR. HUNTER:
So there was an inspector on
site that said yes, this two loads of asphalt was used on this site and that is
what
MR. GOSSE: We
have inspectors on site every (inaudible)
MR. HUNTER: So
what you paid for is what was used?
MR. GOSSE:
What was paid for is what was used.
MR. HUNTER:
If it was not used at that
particular time, were there still payments made for liquid asphalt?
MR. GOSSE:
No. They were only paid for what
was used in that two-week period.
MR. HUNTER:
In the next year when they
had to send back the twenty-five loads, there was no consideration given to any
payments of liquid asphalt
MR. GOSSE:
Absolutely not.
MR. HUNTER:
because it was not used.
MR. GOSSE:
Correct.
MR. HUNTER:
So before that, it was paid
but was it strange, or is this unusual for an assistant deputy minister to
sign off on those kinds of payments, or is that the norm?
MR. GOSSE:
I do not think so. It is a
contractual issue that I felt I had the authority to do.
MR. HUNTER:
Okay, that was one question
that I had there that was still bothering me.
Going back earlier with the options and I know some of the questions
were already asked here, but it still seems unusual that right at the beginning
when it was known that the contract wanted to be cancelled there was not an ASAP
meeting to discuss the options.
In your
point of view, at the time, there was no other way that this project could
proceed with Humber Valley Paving because they wanted out; or did you just give
up on trying to discuss an option with Humber Valley Paving; or was it you want
out, we will give you out?
MR. GOSSE:
The indication at the time
was that Humber Valley Paving, on that day, was not going back to do any more
work, and that the direction from the minister was to terminate the contract.
MR. PEACH:
Mr. Chair, I can use up the
rest of the time, for sure.
CHAIR:
Mr. Peach.
MR. PEACH:
First of all, Mr. Chair, I
have to say that this is the second day now that we have been in sections where
we do not have the witnesses across the way to ask the questions, so I am
struggling to get questions that I want to ask as to what I would have asked if
other people were here.
I just
have a couple of questions on staggering tender dates.
Staggering the tender dates, would that cause a monetary cost to the
department, like closing dates?
MR. GOSSE:
It can work either way.
As I said earlier, in some cases, staggering your closing date will cause
a contractor that was unsuccessful up to that point to perhaps do a better
price. In some cases, closing them
on the same day will allow a contractor to avail of combining or thinking he can
combine some of his mobilization costs and reduce his costs that way.
It can work either way.
There are pros and cons to both.
MR. PEACH:
I just want to touch a bit
on the bonds. Earlier you mentioned
that the contractor did show on site when it reopened.
Default called bonds, was there any claims under the default bonds do you
know? They requested to have the
contract cancelled. Once the
contract was cancelled if they never showed up on site, then there could be a
claim put in, if I understand it correctly.
Maybe
we should ask the AG to give us some insight on the bonds, how it works, because
I am not 100 per cent sure. I was a
mayor for ten years, but we always had bonded clerks and things like that.
I do not know if it worked in the same way or not so I wondered because
it mentions three different kinds of bonds there.
MR. PADDON:
I would suggest that Mr. Gosse is probably better positioned to talk about the
bonds.
MR. PEACH:
Well, Mr. Gosse either or.
CHAIR:
Maybe even legal counsel
probably would be quite familiar with the bonding process.
MR. PEACH:
Yes, well, I do not know who
the question could be directed at, but I just
MR. GOSSE:
There are essentially two bonds, not three.
MR. PEACH:
Okay.
MR. GOSSE:
One is a Performance Bond, and that is, for all intents and purposes, an
insurance policy for, in this case, government to make sure work gets done.
The other one is a labour and materials bond, and that protects suppliers
to the project.
The way
a Performance Bond works both bonds are valued at 50 per cent of the original
contract cost. So in this case,
about $9.5 million each. The
Performance Bond, if you call the bond, the Performance Bond will cover
additional costs to get the work done that was in the original contract.
It will not cover extra costs or extra work.
It will not cover extra quantities.
It does not cover anything that has already been paid for.
The labour and materials is again, in this case, about $9.5 million, 50
per cent of the original contract cost.
That will cover anything, payments due to suppliers, or providers of
labour that the contractor does not pay.
Both of
those have a limitations period identified in the bond.
For the labour and materials, from the time that the goods were provided,
or the materials were provided, or the time that the labour was provided, those
service providers or labour providers have 120 days to make a claim.
In the
case that we are talking about here, the termination date of the contract was
not the governing date; it was the date that work was last done.
It is incumbent, I think, upon the suppliers, both of materials and
labour, to be aware of what their responsibilities are when they are doing work.
By the
time that this contract had been terminated by the department and Humber Valley
Paving, the 120-day time period had expired.
So, anybody making a claim under the labour and materials bond had no
recourse anyway. On the Performance
Bond, it only protected government, and by mutually agreeing to the termination
it basically voided anything that we would have had to claim under the
Performance Bond anyway.
I do
not know if Todd can expand anymore on that, or add more insight; but, from the
contract point of view, that is how I see it.
MR. PEACH:
That leads me up to the next
question there under Finding 21 on page 49.
It says, The Department did not pursue the option of calling the
Performance Bond because this risked Project 1-12 not being completed in 2014
and would have negatively impacted HVP.
How?
MR. GOSSE:
By calling the Performance
Bond, we would basically be putting Humber Valley Paving in default.
As I said earlier, up until this point in time it was our view and our
opinion, and based on the knowledge we had, Humber Valley Paving was still a
viable, functioning company. We did
not want to put them out of business for reasons of competition and for reasons
of putting 300 people out of work.
Calling the bond would have made it very difficult for them to get bonding in
the future; hence, it effectively would have likely put them out of business.
The
other thing to remember here, had we called a bond fourteen months ago we
called a bond on another project.
To this date, we do not have an answer from the bonding company.
Had we waited to call the bond, work would not have been done last year.
It would not be finished now.
We would still be waiting on the bonding company to do an analysis and
likely come back at the end of the day and deny it anyway.
In the
one instance where we called a bond, we have carried on and completed work
ourselves because it was essential that we do so.
It was on a bridge repair so it had to be done, but fourteen months later
we still do not have an answer from the bonding company as to whether they are
going to accept the claim or not.
We have
had experience with bonding companies.
We knew where we were headed.
Had we called a bond on this project, we would end up in court probably
next year sometime still fighting over who was responsible for what.
If and when the bonding company won their case which likely they would
have because they did have the forest fires to go back on, and their argument
would have been without doubt that it was not Humber Valley Paving's fault that
they could not go back and finish we would be tendering that sixty kilometres
of work on its own and paying a premium to have it done.
MR. PEACH:
So while this ongoing then,
you would not have been able to call a tender for the remainder of the work that
was done?
MR. GOSSE:
It would put us in an
awkward position.
MR. PEACH:
You would not be able to
call the tender?
MR. GOSSE:
It would have been very
awkward to do so because technically we still had a contract to have it done.
So we would have two contracts now for the same piece of work.
MR. PEACH:
Okay.
I am a
little bit confused, but maybe I am not understanding your answer.
Humber Valley Paving requested to cancel the contract, right?
MR. GOSSE:
Correct.
MR. PEACH:
So once the contract got
cancelled then the next season I thought you mentioned earlier they did not
show up on the site. Didn't that
then put you in a position that you could claim under the bonds, under the
Performance Bond?
MR. GOSSE:
They requested that the contract be cancelled on March 13.
They did not come back to work that year.
MR. PEACH:
Okay, I misunderstood you.
MR. GOSSE:
That 2014 would have been the final year of that contract.
So they did not go back for the last year.
MR. PEACH:
I misunderstood your
question.
The
four contracts that were mentioned by Humber Valley Paving, were they all in
Labrador or were they all over the Province?
MR. GOSSE:
They had four ongoing projects in Labrador.
They had others on the Island part of the Province as well.
MR. PEACH:
So some of them were
subcontracted out or their company was doing it?
MR. GOSSE:
The one big project that they had outstanding was subsequently assigned to
another contractor, and that is a different process altogether.
MR. PEACH:
Okay.
That is
it for me right now.
CHAIR:
Mr. Murphy.
MR. MURPHY:
Thank you very much, again,
Mr. Chair.
A
question for Mr. Gosse this one is bugging me a little bit government, I
guess, in this particular instance when they arrived at their decision, they did
not want to put the company out of business.
I heard that right, right?
MR. GOSSE:
That is correct.
MR. MURPHY:
Did the department have some
sort of an understanding that they were in a financial crisis when they made
that decision, that they did not want to put this company out of business?
MR. GOSSE:
At the time that this decision was made we were not aware that they were in any
financial difficulty. In fact, only
weeks before this decision was made they had called wondering about when the
next work was going to be tendered.
There was no indication that this was widespread, other than one
contract-specific issue.
MR. MURPHY:
The reason why I ask that
question I do not know if it is apparent to anybody else, but we have a
company that certainly sounds to be financially viable, number one; number two,
I find it odd that government did not want to put the company out that they
would actually think about that.
Not that that is a bad thing, but I am thinking about it in this context, that
it actually came to somebody's mind that we do not want to harm the company,
even though the company tendered it probably would have been self-inflicted,
had the company closed up.
The
other thing that leads me to believe that they were financially viable in the
first place is that, number one, they put in two claims against your department,
they had initially agreed to it and then withdrew it on a previous contract;
they also had the quote, unquote, the opportunity to put in a claim for five
weeks of work that was put aside, but they did not submit a claim.
So it could not have been about the viability of the company, and
government should not, I do not think, would have had any worry about putting
the company under. If the company
really wanted the money, they would have put in the claim for it.
I wonder if you can explain that.
MR. GOSSE:
I cannot explain it.
I guess, Mr. Murphy, those were some of the things that we considered too
when we were making our decision to cancel.
There are a limited number of people in the paving industry.
Competition always keeps your prices down.
MR. MURPHY:
Right.
Yes.
MR. GOSSE:
You would not want to injure
what you feel is a viable company that does good work for you and is a very
co-operative contractor. You would
not want to impact them negatively by doing something like calling their bond
when we could see that there were likely legitimate reasons for their delays.
We all
knew the fires happened. We had our
own staff involved in fighting fires from our Air Services side.
They were there for weeks, months, so we knew what was going on.
The fires were real. We knew
they were impacting on Humber Valley Paving.
The fact that they were not reaching out and grasping at that $180,000 we
offered them on the other two projects, they did not formalize a claim on 1-12
and were interested when other work was being tendered, were talking about
going back to work on the project on the Island, there was absolutely no
indication that there was any reason why Humber Valley Paving would not still be
working the following month.
MR. MURPHY:
Yes.
Again,
I have to say the minister is not here to answer the questions around that.
I would like to know I do not know if you were there at the time when
that decision was made. I think I
am starting to get a picture that you were.
Would I be right on that?
What was the minister's reasoning for thinking that he would be harming the
company if they had to go the way they did?
MR. GOSSE:
That probably came from just
a general conversation we had about the pros and cons of cancelling the
contract. There was a discussion
with myself, the deputy, and the minister.
That was one of the things that we talked about.
Humber Valley Paving does good work.
They are a sound company, so we thought.
MR. MURPHY:
Yes.
MR. GOSSE:
I had to look at the website
actually. They list 300 employees
on their website so we had that information.
We knew that they had planned on going back to work on the Island project
and we knew they were inquiring about other work.
They did good work. As, I
think the Auditor General, Mr. Paddon said, or someone said earlier, their bid
on that job was $5 million less than the second bidder.
MR. MURPHY:
Yes.
MR. GOSSE:
They were doing good work
and they were competitive prices.
MR. MURPHY:
Yes.
Just looking at the tenders, I wanted to talk about the competition
aspect of it too. I cannot remember
what page it is now. The most
expensive bid at that time was about $45 million, and the there you go, page
26 for the other Committee members, Table 4, the Tender Summary from April 24,
2012.
We had
Humber Valley Paving in at $21 million, a second, third, fourth, fifth bidder
so five companies basically after this contract.
If they were not in the marketplace I do not know where prices would have
gone, but do you feel that there still would have been robust competition
amongst the four companies that were there?
MR. GOSSE:
Any time that you can get
four bidders on a project then I would consider you have a good competition.
MR. MURPHY:
Right.
MR. GOSSE:
Having said that, the second
bidder was still $5 million over the low bidder.
MR. MURPHY:
Yes.
I saw the $45 million figure.
I would like to know where they came up with that one, but I am not party
to that. Thank you for that.
I will
always have that question in my mind when it comes back to Humber Valley, why
they did not submit a claim and why they I hate to say it, but it looks like
they gave up. The timing of it
makes it look particularly odd when we talk about the March 13 cut-off time and
where some people were when it came to their politics.
I will not get into that yet.
Mr.
Chair, also when it comes to witnesses I think that Tracy Boland was also press
secretary in the Premier's Office at that time.
Perhaps we might be able to have a conversation with her.
Besides Milly Brown, I think the question would go to Lori Anne
Companion.
Ms
Companion, I also have to ask the question, just to clarify, why Mr. McGrath,
Mr. Meade, and Mr. Jones were not asked to come and appear as witnesses here to
the Public Accounts Committee.
MS COMPANION:
Mr. Jones was asked to come,
but he had left the public service.
When I contacted him afterwards, he was reluctant to appear as he was not a
public servant.
I did
not contact Mr. McGrath, nor did I contact Mr. Meade to present and to prepare.
Mr. Gosse is the assistant deputy minister who was in the department at
the time and who was a part of and involved in the decisions.
As I indicated, the other people here are a part of what we are doing to
make sure that this issue does not resurge.
I felt
that we would be able to answer the questions that the Committee may have.
In hindsight, I could have invited Mr. Meade and Mr. McGrath.
If you wish to arrange another Committee meeting, I can invite them.
CHAIR:
Ms Companion, on that note,
do you think they might be in the building or nearby?
Would they be available in the afternoon?
MS COMPANION:
I do not know.
I can check.
CHAIR:
It might be a bit of short
notice, but if they are here and if they are available, it might be more useful
than to wait until a later date and go through all the machinations of writing
them and going back and forth, if they are available.
They may be next door and say, well, you did not ask me.
I would have attended had I been asked.
It might be worthwhile to check into it over our break.
MS COMPANION:
Absolutely.
MR. MURPHY:
Is Mr. Jones in town as
well? Can we ask if he would be
available for that? Obviously the
legalities around the drawing up of the contract, I think, is kind of important.
MS COMPANSION:
Mr. Jones
WITNESS:
To my knowledge, Mr. Jones
is not in the country right now.
MR. MURPHY:
He is not in the country?
WITNESS:
No.
That is what I (inaudible).
MR. OSBORNE:
Mr. Chair, in addition to
those individuals just named, there are other individuals who should be
appearing to answer questions.
CHAIR:
If there are others who are
available to save us going over to another date.
I am less concerned about person A or person B.
I am more concerned about who knows the stuff, who was there, who can
tell us whatever.
Some of
it seems to be absolutely first hand.
Former Minister McGrath, O'Brien, and former Deputy Minister Meade, they
would seem to be absolutely critical because they are referenced in the Auditor
General's report. Nobody can ask
what was in somebody else's mind with any assurance that they are going to get a
response.
I would
not say not to invite the others because they may have valuable information.
If they are available, we should consider that for the afternoon to have
them show up and provide some information.
I would not see any anomaly there.
They
are not under subpoena; we have no power to subpoena.
We also do not want them to say if you had asked me I would have shown up
and spent a couple of hours with the Committee and straightened all this out.
Maybe that is optimistic, but they should be given the opportunity.
I think
we were with Mr. Murphy.
MR. MURPHY:
Yes, Sir.
Thank you very much again.
Before
I go on, Ms Companion, is there any reason why you thought that Mr. McGrath or
Mr. Meade would not be significant to this hearing today, the reason why you
would leave them out? I am trying
to figure out the process.
MS COMPANION:
No, there would be no reason
in particular. Mr. Gosse is the
assistant deputy minister in the department who is currently there and currently
an employee. We had prepared and
discussed who we thought would be relevant and who could answer the questions to
the Committee. There was no other
reason than that.
MR. MURPHY:
Okay, all right.
I will leave it for now. We
will see if we can get him in and have a chat with him.
I want
to move on now to the
CHAIR:
Mr. Murphy, I may have used
up some of your time.
MR. MURPHY:
Sorry, that is okay.
CHAIR:
What I will do is go to a government member and then break for the lunch break
and come back
MR. MURPHY:
Yes,
I will digress.
CHAIR:
in the afternoon and begin
with Mr. Osborne, like we did this morning.
MR. MURPHY:
Yes.
CHAIR:
We may have a government
member.
MR. CROSS:
Just one thing we can
conclude with before lunch and it should not take too long.
In looking at all of the options that were potentially on the table on
March 13, or the time leading into March 13 March 13 was the actual date that
the decisions were made. In the
findings it is on page 40 there was some consideration that they wanted to
make sure the project was completed in 2014, the least amount of harm to HVP and
the employees of Humber Valley Paving, and ensuring the project was completed at
the contract cost. These were some
of the criteria or some of the thoughts that would go into the four options.
How did
all this weigh into the four options, and was everything decided on that day or
was this a period of time that led into March 13?
MR. GOSSE:
If we look at completing the work and not injuring Humber Valley Paving, and add
in there the cost of completing the work as well, the four options that were
available and it is on page 39 in the Auditor General's report.
I am assuming (inaudible).
MR. CROSS:
Then continue on, it takes
up four or five pages here, but just concisely.
MR. GOSSE:
The assignment of a contract to a third party; that is not something we can do.
That is something for contractors to take on themselves.
We did not think, and we are pretty confident, that was not a viable
option for Humber Valley Paving or any other contractor.
When you assign a contract, a new contractor takes on you basically
just substitute the names in the contract, contractor B for contractor A.
It is the same prices
MR. CROSS:
A quick question, do they
assume then for the early part of the contract, or you had two different parts
of the contract (inaudible).
MR. GOSSE:
They would have to take the whole contract.
MR. CROSS:
Okay.
MR. GOSSE:
So, a lot of the easier work, for want of a better term, was already done on
this contract. A lot of the grunt
work was done, a lot of the money was already paid out.
So there would not have been enough of an incentive for another
contractor to take on what was left at the contract prices that were there.
It was just too far advanced to be able to do that.
That really was not an option, and it was not something we could push or
insist on in any case.
Provide
additional funding to Humber Valley Paving; that goes back to the $2 million
they were talking about with the claim.
We could not rationalize that.
There were no grounds for us, based on a phone conversation, to agree to
an extra payment of any quantum because we had seen nothing in the way of a
formal claim.
Mutually terminate the contract; well, let's skip that one for now.
Consider Humber Valley Paving in default; well, let's go back to terminating the
contract. That was probably the
least painful for both us and Humber Valley Paving in the sense of getting the
work completed, because we did have an opportunity to bundle it with the project
we eventually bundled with.
The
other project was effectively ready to tender.
There was a lag between the time we terminated and actually calling a new
tender because we had to quickly go back and rejig what was left to do on Humber
Valley's project and incorporate it into the contract and get our conditions and
that in there.
That
did allow us to finish the work. It
should have been last year, no question, but unfortunately it was the wettest
summer on record in Labrador. It
also allowed us to get the best price because you were doing it with a bigger
piece of work. It would not have
injured Humber Valley Paving because you were not calling the bond.
As we
have said many times now, we felt they were still a viable company because they
were asking about other work. In
fact, somebody had asked a question of whether Humber Valley Paving would still
be able to bid on the new work. Had
we terminated and re-tendered, could Humber Valley Paving still bid on it?
There was no indication that we would have been harming them doing that.
The
final one, consider Humber Valley Paving in default and call the bond basically;
work would not be finished today.
We are still waiting on a much smaller claim fourteen months later.
The smaller claim we are talking about is in the $200,000 range.
It
would have injured Humber Valley Paving because they would not have been in good
standing with their bonding company anymore.
Had the bonding company then been successful in arguing against their
responsibility under the bond, it would have resulted in us tendering that piece
of work on its own, likely next year or the year after, and the prices would be
nowhere near what we had it done for.
All of
those options were considered in each of those four.
Very quickly mind you, but more time, I do not think, would have resulted
in a different outcome and impact in each of those four options.
MR. CROSS:
That was going to be a
follow-up question if there was more time.
It was like six weeks or five weeks before any of the extra work had
continued, going from March 13 to April 20-something, knowing that Easter and
everything was in between there.
There was time off.
With
all of that, would that have changed do you think?
My question was going to be because I know some of this led into March
13. How much of it was actually the
nuts and bolts of March 13, the seven-hour period being referred to?
MR. GOSSE:
Yes.
That was a short conversation.
I think we covered all the bases without writing it all down.
I just summarized what the options or what the impacts would have been on
each of those three criteria on the four options that we had available to us.
I do
not think the outcome would have been any different had we had more time to
consider. The fact that there was a
delay between March 13 and when we actually tendered in April that was time we
took getting the new quantities together and realize there was still snow on
the ground and winter conditions in Labrador when we were out trying to make
sure we had everything covered off that needed to be included in a new contract.
MR. CROSS:
Okay.
MR. GOSSE:
So it did take us time to do
that.
MR. CROSS:
I may have others after
lunch when we come back, but that is a good time frame to go now I guess.
CHAIR:
Okay.
Thank you.
Yes, we
can take a lunch break. If we can
get back at 1:30 o'clock or longer, what would you prefer?
Different people have other things to do, phone calls and getting away
from the building for lunch and so on.
Getting in and out takes a bit of time.
So 1:30 o'clock would be good.
Recess
CHAIR:
Good afternoon, we are back
on being recorded. Before we broke,
there was some discussion about the potential for any other people to appear
this afternoon. Ms Companion, what
sort of headway did you make, if any?
Did you find anybody?
MS COMPANION:
Oh, I did. In a follow-up to our
discussions, I can confirm that Brent Meade is in Confederation Building, and
the Clerk of the Executive Council.
Scott Barfoot, who was the Director of Communications at the time, and Milly
Brown, who was in the Premier's office at the time, they are in Confederation
Building and at work today.
I also
relayed the Committee's message that they wish for some people to appear to both
Mr. Meade and to the Clerk those were the two people that I spoke to and the
wish for them to appear to speak to this issue.
They indicated they have no hesitation whatsoever in appearing before the
Committee, but they have asked if they could have a day to review their notes
and get themselves back up to speed so they can appropriately be in a position
to best respond to the Committee but they have no hesitation in coming to meet
with the Committee at the Committee's call.
CHAIR:
Okay.
I guess
for timeliness we have to confer probably the Clerk and other witnesses and
Committee members, because when we arrange for another day, usually it takes
multiples of weeks to get everybody pulled together.
Although, we are all here, there is no reason not to go over to tomorrow,
but other people may have other commitments, so I do not really know about that.
Maybe
some of the Committee members might have some observations.
MR. PEACH:
We have meetings tomorrow
afternoon from 1:00 to 4:00, myself, Eli, and Ray.
CHAIR:
I think that if they
MR. K. PARSONS:
Mr. Chair, if I may.
I know this morning it is not only the two that we talked about earlier
this morning, but Mr. Osborne made a suggestion that we contact all the people
that were questioned by the Auditor General, and then I think you added on
another two also. So my suggestion
would be to do what we normally do.
What we did in the past was that we went ahead and we had an extra hearing, and
the Clerk sent letters to the people asking them to appear, because and you
can correct me on this no one is required if they do not want to come, or
whatever. Their lawyer may say no,
you do not need to come to appear or whatever.
So, we
should have a general idea of everyone.
Even if we do a meeting with these two, I am sure that the member here,
and the members behind, and myself, there are other people on that list.
So then we are going to do another meeting and try to get everybody
there. I would prefer that we sent
letters to these people, get the Clerk to decide when there is a time and a date
that is suitable for the Committee, and we have another full meeting with them.
I think
that is what you are looking for, isn't it?
MR. OSBORNE:
Absolutely.
I think that is reasonable.
I think there should be a formal invitation, perhaps, sent to each of the people
who were witnesses under oath with the Auditor General, as well as other people
that the Committee feel may be worthy of being witnesses.
We identified, for example, the communications director at that time as
one.
I think
it is only a matter of later on this afternoon, if we conclude, that we set
aside a date or a couple of dates and give options to the Clerk and the Clerk
can send invitations.
CHAIR:
Mr. Murphy, what are your
thoughts?
MR. MURPHY:
I am of the same thinking,
Mr. Chair. I will tell the Clerk
right now that my schedule is completely free, except for September 18.
So whatever the Committee deems necessary as regards to dates, I am fully
agreeable to.
MR. OSBORNE:
We have all of the rest of
September. We have all of October
before the provincial election is called.
So I think there is plenty of time.
MR. MURPHY:
I think there is plenty of
time.
Did we
include Mr. McGrath, by the way, in that list as well?
AN HON. MEMBER:
(Inaudible).
MR. MURPHY:
Yes.
CHAIR:
I think where we are with
respect to the list is that the list that was interviewed by the Auditor
General, plus additional names have come up.
Clearly, we would not be able to hear from that many people, but if we
got five or six or three or four of the right ones not the right ones but the
ones with the best information, but we would do that in the ordinary course.
The Clerk would ordinarily look after the scheduling and expediting it
and basically put it together. Even
though we sit here, the Clerk does all of the coordinating and an awful lot of
the work.
MR. K. PARSONS:
The other thing too is some
witnesses, if they wish not appear, then it gives us a time frame to say what is
our next step to do this to make (inaudible) because there are a lot of
witnesses there. I am sure the
Clerk is probably the best person to contact them and say we are here now from
September to the end of October and here is what we a time frame like that.
CHAIR:
I think that even if many of
the others could not or did not want to return, based on Ms Companion's
information with the people she spoke of, with them being available, it would be
worthwhile to come back because we could fill the seats and not have enough time
to get to all of them anyway. So
that would be enough to certainly make it worthwhile to come because they seem
to be critical players with the pieces of information.
MR. K. PARSONS:
There are a lot of critical players on the list there.
CHAIR:
You know that I like for
every member to speak or not speak if Mr. Hunter, what is your view?
MR. HUNTER:
I have no objection to doing
that. The thing is I am not sure
what days I am going to be available in September or October.
CHAIR:
Okay.
Mr.
Peach?
MR. PEACH:
I am on the same line as
Tom, Kevin, and George. I think
that we should send out a letter to the individuals and request if they could
make it to another date, if we can get a timeline that we can use, and send the
letters out and see how many people we can get together.
We may not get them all together, but a good many of them may be able to
come.
What if
we do not get the key people? Then,
are we going to keep on going until we get them?
How is that going to happen?
CHAIR:
The ones who responded today
seemed Mr. Meade to be really important.
So I think it would probably flow in the ordinary course.
There is a big enough field of individuals that we would easily get
enough people for most hearings.
MR. K. PARSONS:
Can I make a suggestion?
CHAIR:
Sure.
Let's go to Mr. Cross. He
has not spoken.
MR. K. PARSONS:
Go ahead, Mr. Cross.
MR. CROSS:
Okay.
No, I agree. Calvin probably
took most of the comment that I would have made.
The thing is we want to do the best job that we can do as a Committee.
In doing so, I think that is the best choice, to have as many possible
and to adequately have time to prepare for it, both us and them.
CHAIR:
Mr. Parsons.
MR. K. PARSONS:
Yes, the only thing I would
like to just add and I agree with everyone and what we are saying here.
I think once the Clerk gets her responses of who is available and stuff
like that, it would be a great idea for the Committee to either meet and we do
not need to come to St. John's or anything like that, just get on the phone and
have a conference call someday and say listen, these are the people we have.
Are these the ones we really want there or is there somebody else who we
need to add to that?
CHAIR:
Ordinarily what we would do
is we give Ms Murphy dates to work with.
MR. K. PARSONS:
Yes.
CHAIR:
We usually give her, as you
know, our dates first and say here is a block of three days, here is a block of
three days. It gives her a bunch of
dates to work with because some of them may be out of the country or might have
a medical procedure, like a witness.
If we
give her a couple of blocks of days September will get used up pretty quickly
so maybe late September or sometime in October.
Then she will contact the witnesses and see as to their availability on
those dates and then we would know.
MR. OSBORNE:
Mr. Chair, I think it seems
like we have consensus. I am going
to read my motion into the record again.
I move
that the persons listed in Table 1 on page 13 of the Auditor General's report of
September 2014, a Review of Humber Valley Paving Ltd. Project Number 1-12PHP,
be invited to attend a hearing of the Public Accounts Committee which will deal
with this matter as soon as can be arranged by the Clerk of the Public Accounts
Committee. Furthermore, that other
witnesses who may be identified by the Committee throughout the day be added to
that list.
That is
seconded by the Member for St. John's East.
CHAIR:
Do we want to deal with the
motion now and then just continue with the time we have?
MR. OSBORNE:
I think so.
MR. K. PARSONS:
(Inaudible) we are going to
get the Clerk to contact them, invite
MR. OSBORNE:
Invite the list of people
who were interviewed by the Auditor General, as well as others who may be
identified throughout the day.
MR. K. PARSONS:
Okay.
Can we
review the response from the people who are there so we will know who is coming,
so we will not have the same situation that we had today?
MR. OSBORNE:
Yes, absolutely.
CHAIR:
Ms Murphy can easily confirm
the attendance of different people and not necessarily wait until the end.
She will say I have such-and-such a person attending, such-and-such a
person is attending. We do that
fairly regularly when it comes back.
Quite
often, departments will say do you want us to send this person.
My standard response is we want you to send the person with the
information. We do not want to say
send this person and that one does not know anything.
We want you to send and clearly we do not have enough individuals
today.
MR. K. PARSONS:
Have we ever gone back to
somebody and said we want this person available for the meetings?
CHAIR:
We can do that.
MR. K. PARSONS:
Have we done it?
We have never done it in the past, though, have we?
CHAIR:
We have never identified a
specific person. We do not have the
power to subpoena them; we need to go out to the House.
There might be someone else who might know more information.
We have rarely actually not until this week have we had a situation
where we did not get the witnesses that were sufficient.
MR. K. PARSONS:
Yes, the first time.
CHAIR:
We had to have a second
go-round in the forestry diversification with the Roddickton pellet plant, but
mostly that was because, I think to a large degree, the witnesses maybe were not
prepared. There were issues.
We did not get much out of that whole day.
Other than that, we have always gotten the witnesses who were able to
give us whatever information was available.
MR. OSBORNE:
I think there is a general
feeling amongst I just kind of got a nod from my colleagues, both the PC
members, myself, and Mr. Murphy. I
think we just deal with this now, vote on it, get it done, and get back to
business, Mr. Chair.
CHAIR:
Does anybody have any
further discussion, debate? We will
entertain the motion
MR. MURPHY:
I am just wondering, Mr.
Chair, about the timeline to taking the vote.
I tend to think that while I am seconding the motion, I think that if
some other names come up or some other train of thought comes up that perhaps we
should leave it to the end. We
might be better off doing that for now.
CHAIR:
I think that we are more or
less in agreement right now.
MR. MURPHY:
Yes.
CHAIR:
I think we should take the
thirty seconds left
MR. MURPHY:
Okay.
CHAIR:
and push it through rather
than five minutes to talk about it all over again.
If another name comes up, the Clerk can simply add it.
MR. MURPHY:
Perfect.
Okay.
MR. PEACH:
Mr. Chair, didn't you also
say at the end that we would add names that would come up today?
That would pretty much cover the whole thing anyway.
MR. MURPHY:
I did not know if they had
to be named or not.
MR. PEACH:
No.
CHAIR:
Are we ready for the
question?
In
favour?
SOME HON. MEMBERS:
Aye.
CHAIR:
Opposed?
Unanimous.
Before
we return to Mr. Osborne, does anybody else have any questions or we will get
right back into your questioning?
Please
continue.
MR. OSBORNE:
Thank you, Mr. Chair.
I would
like to focus a little now on the performance and labour and material bonds, and
the fact that once the contract was cancelled they provided no guarantee against
the contract; that it was no longer in effect.
That has been determined already.
I think we are all in agreement with that.
The department did not pursue the option of calling the Performance Bonds
because they felt that it risked Project 1-12 not being completed in 2014 and
would have negatively affected Humber Valley Paving.
On that
note, I am just wondering, did the minister have anything to say about the fact
that the labour and material and the Performance Bond were not going to be
called? Was he aware that these
bonds would no longer be effective once the contract was cancelled?
MR. GOSSE:
I believe he was aware of that.
MR. OSBORNE:
Okay.
If the
bonds were called, that would have provided protection to suppliers,
subcontractors, as well as to the Province.
That is presuming that of course the bonding company accepted the fact
that the bonds were called.
Why was
there not more focus put on the option to call the bonds, ensuing that there
would be no additional cost to the Province to retender this as a bundled
tender; as well, instead of just focusing on providing protection to Humber
Valley Paving, knowing that there were several small companies, large companies
as well, but there were several companies, suppliers, subcontractors, that would
be adversely effected by not calling the bonds?
MR. GOSSE:
Had we called the bond, the
only bond that we could call was the Performance Bond.
That has nothing to do with the labour and materials bond.
The period of limitations under the labour and materials bond had already
expired. There was no recourse
under that bond in any case. The
Performance Bond only protected us to the extent that we discussed earlier this
morning.
MR. OSBORNE:
You are saying that if the
labour and materials bonds had been called that there was no company or
supplier, no subcontractor who would have benefited from that?
MR. GOSSE:
We, as a department, could not call the labour and materials bond.
That was not there for our protection.
That was there for the protection, as you suggest, of other suppliers of
both materials and labour.
Under
the labour and materials bond, there is a 120-day time frame from the time that
those suppliers supplied the goods or labour for them to make the claim, and
that 120 days had expired. So, for
all intents and purposes, the labour and materials bond, whether they had gone
back to work or not, was void until more work had started on that project in any
case. There was no recourse for
someone who had no work the previous November to claim under the labour and
materials bond in March or April.
MR. OSBORNE:
Okay.
Under
the Performance Bond, what was the additional cost, for example, to the Province
by retendering and bundling the work that was left uncompleted?
MR. GOSSE:
The analysis we have done indicates an extra cost of about $1.7 million.
That included some extra work that was not in the original contract.
We think that had the bonding company accepted the claim, the very
maximum they would have reimbursed us for was about $1.25 million.
MR. OSBORNE:
Okay.
So
there would have been a savings.
Now, if you took the additional work out that was not part of the original
tender, there would have been a savings of at least $1.25 million.
MR. GOSSE:
About $1.25 million.
MR. OSBORNE:
To the taxpayers of the
Province.
MR. GOSSE:
Assuming the bonding company had accepted that claim.
MR. OSBORNE:
In the aftermath of the
decision to terminate the contract, along with the associated release of the
bonds, Mr. Coleman acknowledged Frank Coleman, that is that he had been a
guarantor to the bonds and could have benefited as a result of the bonds being
released. Was the department aware
of that?
MR. GOSSE:
We were not aware of the guarantors, and are never aware of guarantors on bonds,
or if indeed there are guarantors.
All we ask for is a bond.
MR. OSBORNE:
Okay.
Was the
minister aware of ?
MR. GOSSE:
I do not know.
MR. OSBORNE:
So, we know that Mr. Frank
Coleman benefited as a result of the bonds being released, because he was a
guarantor. We know that Humber
Valley Paving benefited as a result of cancelling the contract, and all of this
happened the day before he announced he was going to seek the leadership of the
PC Party. Are you aware of the
conversation that took place between Minister McGrath and Deputy Minister Meade?
MR. GOSSE:
On that morning?
MR. OSBORNE:
Yes.
MR. GOSSE:
I am aware of the
conversation. I was not there, but
I am aware of the conversation.
MR. OSBORNE:
Okay.
During
that conversation I know that Deputy Minister Meade mentioned to the minister,
cautioned him that this was a very sensitive issue because of the fact Mr.
Coleman was involved and suggested that a briefing note be prepared for Cabinet
Secretariat and the Premier's Office.
MR. GOSSE:
That is my understanding,
yes.
MR. OSBORNE:
Minister McGrath said: no,
do not prepare a briefing note.
MR. GOSSE:
That is my understanding.
MR. OSBORNE:
Okay.
So did
this not raise any alarms with yourself or any of the other staff within the
department?
MR. GOSSE:
I am not sure that would
have raised any alarms with me. My
deputy was in conversation with the minister and took instructions from the
minister. I am not sure that an
alarm would be the right word.
Sensitive, yes; as Deputy Minister Meade indicated, it was a sensitive time.
MR. OSBORNE:
Okay.
Even
still, we know that at least on one occasion Minister McGrath had shut down the
idea of having a briefing note done which would have been something on paper.
Are you aware of any other occasions when Minister McGrath would have
stopped any action to have information put on paper, analysis put on paper, or
any advice put on paper?
MR. GOSSE:
In frequent discussions with
Minister McGrath, while he was our minister, there were oftentimes that
briefings were just verbal.
MR. OSBORNE:
That was to avoid having
them on paper?
MR. GOSSE:
He was just content with
verbal briefings. He did not need
to see stuff in writing.
MR. OSBORNE:
Okay.
I will
go back to a question I had asked earlier this morning of Ms Companion.
I mean generally speaking, whether it is a direction of the minister or
not, public servants through due course and proper carrying out of their duties
would ensure that there was information put on paper, analysis would be put on
paper, correspondence would be put on paper, even emails back and forth between
officials within the department, and none of this happened.
Do you have any explanation as to why that did not happen?
MR. GOSSE:
There is no explanation for that other than the tight time frame.
There was no analysis per se done because time did not permit it.
MR. OSBORNE:
Okay.
That was on the day that
MR. GOSSE:
The day of.
MR. OSBORNE:
On the day of, when in less
than four hours the contract was cancelled.
MR. GOSSE:
That is correct.
MR. OSBORNE:
In the subsequent five to
six weeks since that day, and the very first piece of correspondence on this
particular topic, there was nothing.
Do you yourself have any explanation as to why that would be the case?
MR. GOSSE: I
cannot explain why that was the case, Mr. Osborne, I am sorry.
It was not done. The
decision was already made, so there was no analysis done in retrospect.
You cannot do an analysis in retrospect to make a decision when a
decision is already made.
Minister McGrath was briefed orally many times.
As you know, the House was in session, so there were briefings every day.
He was certainly aware of where we were.
It was not uncommon for him to do things verbally.
MR. OSBORNE: A
deputy minister is appointed by the Premier and answers to the Clerk of
Executive Council. The normal
course of action for a deputy minister because what happened here was
exceptional. The normal course of
action would be for a deputy to inform the Clerk of Executive Council,
especially with a situation as sensitive as this.
That did not happen.
Just knowing how the process is supposed to work and the
obligation Ms Companion, you are now deputy minister, so you are aware of that
obligation to report to the Clerk of Executive Council.
MS COMPANION:
Absolutely.
MR. OSBORNE:
I am finding it difficult to
rationalize why a deputy minister who is obligated to report to the Clerk of
Executive Council, who had informed the minister that this was a sensitive issue
the deputy minister knew this was a sensitive issue.
Obviously, the minister knew it was a sensitive issue; yet, the deputy
did not inform the Clerk of Executive Council or the Premier's Office.
Ultimately, the deputy is responsible to the Clerk of Executive Council
and to the Premier. On something so
sensitive, why would that integral piece of the puzzle be missing?
MS COMPANION:
The only thing I can offer
is if the deputy minister would have thought that the Premier's office or the
Clerk had been involved in that discussion or had been informed by the minister.
In our normal course of business, deputy ministers definitely advise the
Clerk of sensitive issues that need to be brought to the attention of the
Premier's office.
MR. OSBORNE:
Okay.
CHAIR:
Mr. Osborne, we should go to
a government member.
MR. OSBORNE:
Yes, okay.
Thank you.
CHAIR:
Mr. Parsons.
MR. K. PARSONS:
Just continuing with Mr.
Osborne's questions there, to the Auditor General, when you interviewed the
Deputy Minister of Transportation, he was under the belief that the minister
already contacted the Premier's office?
MR. PADDON:
I do not think it was a
question of contacting the Premier's office.
I think the way the report reads, which reflects the discussion with
Deputy Meade, was that two discussions between the deputy and the minister
occurred outside the Cabinet room.
There was a Cabinet meeting that morning.
My
understanding is that a deputy met the minister outside the Cabinet room and had
the impression that the information, perhaps, was taken back inside the Cabinet
room and discussed.
MR. K. PARSONS:
He was thinking that was the
way everything was communicated that morning then.
MR. PADDON:
I mean, I do not want to put
words in his mouth, but that was certainly the impression I had from the
discussion from that, yes.
MR. K. PARSONS:
Okay.
I just
want to go back to the question I had about the bonds.
Did Humber Valley Paving get any additional money or anything from the
bonds? Was any money paid out from
bonds at all?
MR. GOSSE:
There was no money paid to
Humber Valley Paving by releasing bonds.
Contrary to popular belief, there was no money involved.
A bond is an insurance policy.
MR. K. PARSONS:
Okay, because when you
listen to the media, listen to reports, and your Open Lines and everything else,
you hear about Humber Valley Paving and the $19 million, but there was no monies
MR. GOSSE:
That is not the case,
absolutely not.
MR. K. PARSONS:
Okay.
The way
the bonds work, like you just said it is an insurance.
Half the insurance is for protection of people who are supplying the
materials.
MR. GOSSE:
If you look at it as an
insurance policy, there are two separate policies.
MR. K. PARSONS:
Yes.
MR. GOSSE:
One to protect us as the
owner of the work and one to protect suppliers of goods or services to the
general contractor.
MR. K. PARSONS:
Okay.
The initial time that all this started was back when Humber Valley looked
for an extension, that was the first time that the department had any concerns
over this particular project?
MR. GOSSE:
Even at the time that they
asked for the extensions to the project, there was really no concern.
There was an acknowledgement on our part that they were frustrated in
completing their contract because of the fires.
That is why we agreed to the extension into the following year, which
would have voided them having to pay penalties for being late finishing.
MR. K. PARSONS:
Okay.
You had absolutely no knowledge of the financial situation?
MR. GOSSE:
Absolutely none.
MR. K. PARSONS:
None whatsoever.
MR. GOSSE:
No.
MR. K. PARSONS:
Okay.
MR. GOSSE:
Everything indicated to the
contrary.
MR. K. PARSONS:
Okay.
When
the project started up with the next tender that came out and it was bundled
together, there was twenty-eight kilometres done that year?
How did that work?
MR. GOSSE:
At the time that the report
was done I believe there was twenty-eight kilometres out of the sixty finished.
By the time the season finished, there was forty-nine kilometres out of
the sixty finished. So at the end
of last season, even though we had hoped that the paving would be finished,
there was eleven kilometres left to pave.
MR. K. PARSONS:
Okay.
When
the contract as terminated you had legal advice that day from Mr. Jones, right?
MR. GOSSE:
Correct.
MR. K. PARSONS:
He determined that as long
as the two parties agrees to terminate the contract that everything would be
MR. GOSSE:
It is a legitimate and a
legal process that two parties can mutually agree to terminate a contract with
certain conditions as the two parties choose to have inserted.
Our two contingents, of course, was that Humber Valley Paving continue to
be responsible for any warranty issues that arose and that they drop any further
claims associated with that project.
MR. K. PARSONS:
When you determined that and
had your meeting then so the criteria that you looked at then was harm to the
company and its employees, and what was the best possible way to complete the
project.
MR. GOSSE:
Correct.
MR. K. PARSONS:
Yourself, the deputy
minister, and attorney determined that?
MR. GOSSE:
Given the circumstances and
the evidence, for want of a better term, that we had, and knowing that the
contract had been frustrated by the fires, we felt that this was an appropriate
way to proceed.
MR. K. PARSONS:
Okay.
When
you were in the meeting was it the three of you and the minister, or was it just
the three of you?
MR. GOSSE:
I do not recall if the
minister was there for that meeting.
It was mostly myself, Brent, and David Jones who advanced things that day
after the minister instructions to do so.
We had talked to the minister earlier in the day.
MR. K. PARSONS:
Okay.
When
you spoke to Minister McGrath, was his major concern to just get the project
done?
MR. GOSSE:
That seemed to be his focus:
get the work done.
MR. K. PARSONS:
Okay, and then knowing if
you called in the bonds that, to your experience, you would have known that
MR. GOSSE:
It would not be done today.
MR. K. PARSONS:
It would not be done today.
Did you give him that advice that day?
MR. GOSSE:
I think we talked about past experience with bonding companies.
MR. K. PARSONS:
Okay.
Is it
normal whenever a contract there must be lots of contracts that need
extensions, and then there are different costs related to it.
I know when we looked at the bypass road in my area, the costs escalated.
Did this cost escalate any from the original tender to at the end?
I know there were a couple of change orders on a couple of more tenders.
MR. GOSSE:
There were a couple of change orders.
In the second contract that we called the bundled one, we will call it
there were ere extra conditions that we had put into that contract that were
not in the original one.
MR. K. PARSONS:
Okay.
There
were a total of four tenders that were called, so all of them, other than the
one, were completed on time and did not need any extensions?
MR. GOSSE:
I cannot say for sure that one or more of the other three did not need
extensions, but they were done to our satisfaction.
MR. K. PARSONS:
On budget?
MR. GOSSE:
No, because there were cost overruns, quantity overruns on each of many of our
projects there are quantity overruns.
You do an estimate based on what you know at the time, and frequently
it is kind of like doing renovations on your house.
You go in and you are going to replace a bit of Gyproc, and when you tear
out the old piece
MR. K. PARSONS:
There is something else
MR. GOSSE:
there is something you did not know about.
MR. K. PARSONS:
Yes, but in this project,
the one that we are talking about, Project 1-12, there was 61 per cent of it was
completed, and the project's total cost was $11,805,000 and we had a holdback of
$1.8 million.
MR. GOSSE:
Yes.
MR. K. PARSONS:
So, the additional money
that was there just went on to the next, when you retendered the bundle?
MR. GOSSE:
Yes. So, the $11 million was paid
to Humber Valley for the 62 per cent, or 61.8 per cent of the work they had
done, and the rest of it was just rolled back into the budget then and went to
offset the cost on the new contract.
So we had identified the extra $8 million, give or take, in our budget
for the following year anyway.
MR. K. PARSONS:
Okay.
I am
just going back to the holdback. So
everyone that Humber Valley owed money to as a result of this project have been
paid?
MR. GOSSE:
Everyone that Humber Valley Paving has identified as a legitimate claimant
against this project, it is our understanding that they have been paid.
There was twenty-five that they identified.
MR. K. PARSONS:
Is it Humber Valley that
decides that, or is it the Department of Justice?
MR. GOSSE:
It was a part of our negotiation between well, mostly between David Jones and
the solicitor for HSBC. One of the
terms we had in our agreement with them to release the holdback in trust for
HSBC was that they take care of these twenty-five smaller creditors.
They were smaller creditors, a little over $90,000 in total.
MR. K. PARSONS:
You say the negotiations.
Is that something that is not done?
What is the norm?
MR. GOSSE:
It is not normal that we get into a situation like this.
MR. K. PARSONS:
Okay, but is it normal that
when there is a holdback the creditors are the ones who hold the purses and say
who gets paid and who do not get paid?
MR. GOSSE:
Normally, if there is a claim I think I am going to let Todd speak to how a
mechanics' lien is addressed.
MR. STANLEY:
Ordinarily, the person with the holdback for mechanics' liens is just
essentially the holder of the funds.
They do not get involved in any of the issues between the contractor and
their subcontractors in terms of the existence or validity of debts.
The only issue for the person with the holdback is whether
or not they receive a notice of a mechanics' lien, how much the mechanics' lien
notice is for, and then at the end of the period you would release the
difference. So if you had notice of
two or three mechanics' liens you would hold enough money to pay those and you
would release the remainder to the contractor.
In this case, as Mr. Gosse said, it was pretty unusual.
We had a holdback for an extended period of time because Humber Valley
Paving had not requested payment.
Then when they had requested it, they had not quite requested it in the
appropriate manner. HSBC, as the
secured creditor for Humber Valley Paving, were the ones making the request for
the holdback funds. That is not the
normal run of business for this at all.
Ordinarily, we would not be involved in any negotiations.
In this point, Mr. Jones was able to negotiate with HSBC.
I think the idea may have originated with HSBC to pay off the twenty-five
unsecured creditors in exchange for the rest of this matter just flowing, as
opposed to there being need for court actions and the like.
MR. K. PARSONS:
Was there any legal cost to
the small companies that were involved here?
I think the suggestion was made earlier that they can contact their
solicitors to make claims and whatnot.
The legal cost to these companies, was that a part of the adjustment or
was it (inaudible)?
MR. STANLEY:
There was no adjustment paid
or made, or accounting made for the legal costs to anybody outside of well
anybody other than to government.
If a small company is owed money by Humber Valley Paving, it is up to that small
company to go exercise their remedies to get that money.
That is the cost of business of the small companies.
We would never step in and start paying people's legal bills.
MR. K. PARSONS:
Okay.
MR. STANLEY:
Particularly, as Mr. Gosse
said, because the labour and materials bond had already expired.
There is nothing that we it had effectively already run its course for
work to date, so there was no negative effect to people for our cancellation of
that.
The
mechanics' lien holdback had been in place.
We had only received (inaudible) claim.
So there was no one to whom it was perceived we owed any funds to account
for legal expenses.
MR. K. PARSONS:
Okay.
That is
it for my line of questioning, Mr. Chair.
CHAIR:
Thank you, Mr. Parsons.
Mr.
Murphy.
MR. MURPHY:
Thank you very much, Mr.
Chair.
I guess
I will come back to some of the objectives here, Objective 5.
The question would be directed to the Auditor General.
At the same time, I guess, Lori Anne Companion might be able to address
some of the questions that I will be coming around here with.
Mr.
Paddon, in Objective 5, page 3 of the report, it says here, There is no
documentary evidence of undue influence in the decision to mutually terminate
the contract related to Project 1-12.
While there is nothing there documented on paper, do you feel that under
the guides you were given, the scope you were given, under page 12 where you
received the information for example, I am wondering if the scope that you
were given gave you permission to look outside of where government resources
might have been. For example,
instead of government email, was private email looked at, this sort of thing?
Did you have the scope to look at that?
MR. PADDON:
Had I had the scope well,
I will start by saying we focused on correspondence within government, the email
system.
MR. MURPHY:
Right.
MR. PADDON:
There was no indication in
any of that documentation that we saw of anything originating from outside that
was indicating undue influence. In
the absence of any evidence, I do not know where I would go.
Then it just becomes a random exercise of looking at emails.
MR. MURPHY:
Yes.
MR. PADDON:
You have to have some
objective when you start to look outside the government system.
MR. MURPHY:
Okay.
MR. PADDON:
In the absence of any
evidence, we did not go there.
MR. MURPHY:
Okay.
So it was mainly within whatever would be sheltered under the government
umbrella more or less.
MR. PADDON:
That is correct, yes.
MR. MURPHY:
Okay.
So you could not go outside and see, for example, if people were using an
outside email address, rci.rogers.com address or something like that, you could
not do that, but you could certainly look at emails that would be under the
Government of Newfoundland and Labrador heading?
MR. PADDON:
That is correct.
MR. MURPHY:
Okay.
The
question is then to Lori Anne Companion, one of the tools that you would use,
obviously, are emails to go back and forth on a communications perspective.
Is it a habit of government people who might be working to have an
outside email address or anything working to pass along information outside of
government email addresses, for example?
MS COMPANION:
No, not to my knowledge. Our email
and communication for business is all through our government email addresses.
Not to my knowledge do any of our employees use personal email addresses
for the exchange of government business.
MR. MURPHY:
Okay, all right.
The
reason why I ask that is because of course there are times when you cannot get
communications people through one means and you may have to go through another
means to get it.
MS COMPANION:
Right.
MR. MURPHY:
This seems to be well, I
will put the word crisis on it. I
do not know if it was a crisis. I
think the Auditor General interprets it as being a crisis that was created by
the simple fact that they did not give it enough time to reach a decision.
To me, it amounts to that.
So, I
would like to know, from a communications perspective then and right now we do
not have the communications people we want to talk to if the communications
people were talking with you or talking with the Premier's Office on this issue
as being a matter of concern in the Premier's Office?
Would that have been a concern, the contract on the day of when the
communications people would have found out about this?
MS COMPANION:
It would have naturally raised some concern, yes.
MR. MURPHY:
Okay.
So
there would have been an exchange of emails, obviously, between communications
people, if not direct phone calls that would have happened between the
communications people?
MS COMPANION:
I do not know if the communications people were engaged at the time, then that
would have raised some issues for them.
Whether the communications staff and I will just ask Gary if
communications staff were engaged in the discussions end of the contract.
MR. GOSSE:
I do not believe they were on that first day.
They certainly became engaged subsequent to the decision to terminate.
MR. MURPHY:
On day two they would be.
MR. GOSSE:
On day two they were.
MR. MURPHY:
Absolutely.
Okay, I
guess we will leave that to, if we have that future hearing or not.
Mr. Paddon, I want to come back here again under Objective 5 on page 3.
You say here, on the second bullet, We have not been able to satisfy
ourselves why two Ministers, within ½ hour, independently contacted the Deputy
Minister of Transportation and Works to enquire about the status of HVP on the
morning of March 13, 2014.
In your opinion, obviously the two ministers knew that there was an issue.
How would that have been communicated to the two ministers?
How would they have found out?
How would the other person have found out?
Obviously, there was nothing documented so it could only be done
verbally, assuming that there were no email done.
MR. PADDON:
I cannot engage in speculation as to how.
The facts that I do know is that two ministers contacted the deputy
minister that morning within close proximity.
MR. MURPHY:
Right.
MR. PADDON:
That is a fact.
We did interview both Minister McGrath and Minister O'Brien and asked that
question as to what prompted the calls.
The answers were, essentially, answers such as: I was hearing rumblings
in my district or I was hearings things from maybe people in caucus, that sort
of thing, but we could not get any more specific answer than that.
MR. MURPHY:
Nothing specific from Mr. O'Brien as regards to where he heard it?
MR. PADDON:
No.
MR. MURPHY:
Okay, I wonder because it is not his district and he was
MR. PADDON:
Minister O'Brien did make a comment that he was the Minister Responsible for
Fire and Emergency Services the year before.
MR. MURPHY:
Fire and Emergency Services. Yes,
he would have been.
MR. PADDON:
When the fires were occurring.
MR. MURPHY:
Okay.
The question then to Mr. Gosse: When it comes to Fire and Emergency Services and
the knowledge of the fires then, there obviously had to be some sort of concern;
would the department, for example, have asked Mr. O'Brien about the impact of
these fires at the time on the possibility of disruption to some of the projects
that Transportation and Works were undertaking in Labrador at the time?
MR. GOSSE:
There would not have been any contact certainly between officials and Minister
O'Brien on that. Had there been any
concerns, it would have been from officials to officials with Fire and Emergency
Services.
In that particular case there, we did not ask what their option was on it, but
we knew what the impact of the fires was.
We knew trucks were stopped.
We knew camps were evacuated. So
our contact, if any, between us and Fire and Emergency Services would have been
more to do with the air services side and our air tankers, our water tankers.
MR. MURPHY:
Right. So there would have been
some concerns that were there but not necessarily, in your purview, where the
air services would be separate?
MR. GOSSE: Correct.
MR. MURPHY:
Okay.
I am trying to figure out then obviously there seems to be, between the two
ministers then, at the same time, within a half an hour that there was previous
knowledge. That there is no doubt,
Mr. Paddon, about the two ministers knowing that there was certainly an issue.
We just do not know definitively how they heard about there being an
issue, in particular, Mr. O'Brien.
MR. PADDON:
That is correct.
MR. MURPHY:
Okay.
Where did you look? When it came to
trying to find evidence of that, if indeed you were looking for evidence of it,
where did you look when it came to trying to find evidence?
MR. PADDON:
We looked at all emails that went through Minister O'Brien and Minister well,
not just limited to those, but all ministers and all senior civil services who
would have had any reasonable contact or anything to do with this particular
project. We inquired of the
directors of Humber Valley Paving and we inquired of the solicitor for Humber
Valley Paving.
MR. MURPHY:
Okay.
We do not know, for example, if Mr. O'Brien might have even been informed at a
Cabinet-table setting, or a meeting that both might have been at where this
might have come up?
MR. PADDON:
I do not know.
MR. MURPHY:
Yes. We simply do not know.
You also say here too we have not been able to satisfy ourselves in the third
bullet, I will skip on down. It had
to be concluded the day before nominations closed for the leadership of the
Progressive Conservative Party of Newfoundland and Labrador.
Was this just coincidence?
MR. PADDON:
That is a question I cannot answer.
Perhaps it was coincidence; perhaps it is not.
I do not know. I guess the
real issue is: Did it have to be concluded that day?
MR. MURPHY:
Right.
MR. PADDON:
Once you look in retrospect, and if you accept the issue that bundling was the
way to go and arguably it may have been, there was still plenty of time between
March 13 and April 27 or the date that
MR. MURPHY:
Thirty-seven days or something.
MR. PADDON:
Yes. It did not have to be done
that day within four hours. It
could have been done the next day or Monday or Tuesday.
MR. MURPHY:
Okay. So we are still left with the
question what it was that drove Minister McGrath to make the decision that he
did. It still seems open ended
here.
I will carry on over to questions about the holdback.
It may have already been answered.
I think, Mr. Gosse, you were addressing this earlier, about twenty-five
claims under the Mechanics' Lien Act.
There are no outstanding claims now, right?
Or do we know?
WITNESS:
(Inaudible).
MR. MURPHY:
Or Todd, okay.
MR. STANLEY:
There was one remaining outstanding mechanics' lien.
There was a company that filed a mechanics' lien claim against Humber
Valley Paving in, I believe, June last year: Dallas Mercer Consulting.
Humber Valley Paving was contesting that claim in court.
So Dallas, the part of the mechanics' lien process is they have to file a
notice of the mechanics' lien claim and then they had to start a statement of
claim to sue Humber Valley Paving.
That proceeding is still going on; but, as of yesterday, Dallas Mercer
Consulting issued a notice of discontinuance against the Crown and the holdback
that we still had we have $55,000.
That comes a result of the Court of Appeal decision in Brook Construction
I was talking about this morning.
MR. MURPHY:
Yes.
MR. STANLEY:
As a result of that Court of Appeal decision, the funds that the Province has
actually no longer qualifies under the Mechanics' Lien Act, so they cannot lien
it in our hands. So it has taken
this long for us to get Dallas Mercer Consulting to agree and acknowledge that
and discontinue the action against the money.
They are still suing Humber Valley Paving, as I understand it, but the
$55,000 that we have is no longer liened, and as a result the next step will be
that we will be paying that money over to HSBC because they have demanded all
funds that would otherwise be payable to Humber Valley Paving.
MR. MURPHY:
Okay, so now the fight is going to be between Humber Valley Paving and Dallas
Mercer?
MR. STANLEY:
Yes, for however much they say they are owed.
MR. MURPHY:
So government is clear of it right now?
MR. STANLEY:
Yes.
MR. MURPHY:
Okay.
CHAIR:
Mr. Murphy, we should go to a government member now.
MR. MURPHY:
Okay.
MR. PEACH:
I just have a couple of questions coming out of some of the other questions that
were asked. I guess March 13, 2014
is the date that we are looking at here.
I am just wondering: In the decision to terminate the contract on that
date, was there any discussions with Gene Coleman or anybody else before that
date, with regard to cancelling the contract?
MR. GOSSE:
There were no discussions on cancelling the contract prior to March 13.
MR. PEACH:
There were no discussions at all?
MR. GOSSE:
There were discussions on the claim, but not on cancelling the contract.
MR. PEACH:
Now, on the roadwork that is being done, you have engineers all the time from
the department on site
MR. GOSSE:
Correct.
MR. PEACH:
making sure the work is being done and testing the liquid asphalt that goes
down and different things like that.
MR. GOSSE:
With the exception of work in Labrador, where we do not have our own employees,
we have a consultant retained to look out for our interests for us.
MR. PEACH:
Okay, so you did not have any department engineers
MR. GOSSE:
We have actually a consultant that looked after the work.
MR. PEACH:
on site?
MR. GOSSE:
Yes.
MR. PEACH:
That was my question I was going to ask, so you answered it for me.
I have
nothing further, at this point anyway.
CHAIR:
Is there another government
member who would like to pose some questions?
We will
go back to Mr. Osborne.
MR. OSBORNE:
Mr. Gosse, in questions to
one of the previous members of the Committee regarding communications, you said
on the day the decision was made communications were not involved but they were
on the second day. Can you
elaborate on that?
MR. GOSSE:
I do not recall communications people being involved in our discussions on March
13. They were primarily between the
minister and the deputy, and to a certain degree between the minister and the
deputy, myself and David Jones, our solicitor, and then between the three
executive, being myself, the deputy, and David Jones.
I do not recall any communications people being involved on that first
day.
MR. OSBORNE:
Okay.
On the
second day?
MR. GOSSE:
On the second day when we did our briefing, as we always do when the House is
open, communications people would have been there.
MR. OSBORNE:
Okay.
Can you
elaborate on what transpired during that briefing?
MR. GOSSE:
I do not recall the exact conversations from that day.
The briefings from that point onwards were always focused on whatever the
issue of the day was. I do not
recall specifically that HVP or the cancelling of the contract, when those
conversations occurred. I do know
that communications people were involved the day after.
MR. OSBORNE:
Okay.
Communications were involved the day following, so that would have been
MR. GOSSE:
They were always involved in the briefings.
MR. OSBORNE:
So that would have been the
fourteenth.
MR. GOSSE:
The fourteenth I expect, yes.
MR. OSBORNE:
Obviously, communications
staff would have had knowledge at that point of the fact that the contract was
cancelled. In fact, it was the very
next day that Mr. Coleman had made his intentions known to seek the PC
leadership. The fact that it was a
sensitive issue, do you recall any of the conversations that had taken place
regarding communications?
MR. GOSSE:
I do not.
MR. OSBORNE:
Okay, but you know they were
involved and updated on the issue.
MR. GOSSE:
I know that communications people were at the briefings always, and I know we
had briefings every day.
MR. OSBORNE:
Okay.
So there were briefings on the issue.
MR. GOSSE:
On any issue that potentially was an issue for the minister to address in the
House.
MR. OSBORNE:
Okay.
During
those briefings, did the issue of Humber Valley Paving come up?
MR. GOSSE:
Humber Valley Paving was a frequent topic of discussion and briefings after the
thirteenth. Whether or not it was
the fourteenth or fifteenth, Mr. Osborne, I could not say.
I know once the decision was made, and from the next day onward well,
there were briefings every day. We
know Humber Valley Paving and the contract was an issue.
I cannot imagine that it was not discussed.
MR. OSBORNE:
Okay.
It is
pretty standard that ministers have written briefings in preparation for the
House.
MR. GOSSE:
Written briefings?
MR. OSBORNE:
Yes.
MR. GOSSE:
It depends on the minister. Some do
not want written briefings.
MR. OSBORNE:
Okay.
Did
Minister McGrath ever have a written briefing for the House?
MR. GOSSE:
He preferred verbal/ oral briefings.
MR. OSBORNE:
Okay.
I know
he preferred those, but did he have any written briefings for the House?
MR. GOSSE:
I am not aware that he ever had written briefings.
They would have been done more likely through the communications people
after our briefings. I am not aware
of him having any written briefings.
MR. OSBORNE:
Okay.
A
question for the Auditor General; the conversations with the two ministers that
you had, their testimony that they provided under oath, are you able to
elaborate on those conversations any further?
MR. PADDON:
Well, it depends on where your question is, I guess.
MR. OSBORNE:
Okay.
During
those conversations, how long would those conversations have been?
MR. PADDON:
I do not recall. Minister McGrath
was likely a couple of hours, in that range I do not know if you can remember,
John. Minister O'Brien was probably
somewhere between half an hour and forty-five minutes, give or take.
MR. OSBORNE:
Okay.
Did you
ask either of the two ministers whether or not the issue of Humber Valley Paving
on March 13 had been discussed at the Cabinet table?
MR. PADDON:
Yes, I did.
MR. OSBORNE:
Okay.
Was the
issue discussed at the Cabinet table?
MR. PADDON:
Not that I am aware of. There was
no evidence to suggest it was, so the answer would have been no.
MR. OSBORNE:
So both ministers would have
said no to that question?
MR. PADDON:
I do not recall if I asked Minister O'Brien, but we did ask Minister McGrath.
MR. OSBORNE:
Okay.
So he
specifically stated that it was not discussed at the Cabinet table?
MR. PADDON:
That is correct.
MR. OSBORNE:
Okay.
Did
they discuss whether or not other Cabinet colleagues were aware of the issue,
other than Minister O'Brien?
MR. PADDON:
The general thrust of the questioning was what was the impetus for the call to
the deputy, or the calls to the deputy?
There were no specific individuals indicated as being the source of the
information other than a general comment about just hearing things around, we
are hearing rumblings, those sorts of things, but no specific names.
MR. OSBORNE:
Okay.
Are you
prepared to provide to the Committee transcripts of those interviews with the
two ministers?
MR. PADDON:
We generally do not provide
information that is contained in our audit files.
MR. OSBORNE:
Okay.
Under
this particular circumstance, would you provide those transcripts?
MR. PADDON:
I think I would have to take
advice on that.
CHAIR:
If I may, I actually have
reviewed the Auditor General Act and I spoke with the AG about this source of
information. Section 21 deals with
confidentiality. Even more so,
section 22 deals with Audit working papers of the office shall not be laid
before the House of Assembly or a committee of the House of Assembly.
If the
Auditor General took the position, as I am certain the people who were
interviewed under oath did, their position likely would be that the interviews
would constitute working papers, or the same as working papers.
Absent a court order, I doubt the Auditor General would be without some
advice from Justice, I think the more appropriate response is to either the
consent of the people who were interviewed under oath or an order from the
court.
MR. PADDON:
Before I answer the
question, I would certainly need to seek some advice on this.
MR. OSBORNE:
Okay.
Auditor
General, you indicate that there is no documentary evidence to indicate what
prompted the ministers to call the Deputy Minister of Transportation within a
half hour of each other. Outside of
documentary evidence, was there any other evidence?
Was there verbal evidence?
Was there any indication from anybody as to what prompted those calls?
MR. PADDON:
The only indication was the
discussions I had with each minister, Minister McGrath and Minister O'Brien, and
the questions that were put to both of them as to what prompted the calls.
The answers were home specific, I guess.
MR. OSBORNE:
Okay.
There
is no documentary evidence of undue influence.
Outside of documentary evidence, did you get any indication generally
speaking, and I think even in your report you outline what constitutes undue
influence, I can locate that
MR. PADDON:
Page 53.
MR. OSBORNE:
You know your report better
than I do.
MR. PADDON:
No, it was just luck.
MR. OSBORNE:
Undue influence can
generally be considered as improper use of power or trust by a person who has
authority over somebody who serves under them, I guess, to paraphrase what you
have there. Obviously a minister
advising a deputy minister not to prepare a briefing note to Cabinet Secretariat
or to the Premier's office would probably be undue influence.
Now, that is not documentary but it is
MR. PADDON:
It would certainly be
influence. Whether it is undue, I
guess, could be subject of debate.
It is certainly influence, whether it is undue or outside the normal course.
Deputies, I would argue, have a working relationship with their ministers
so there is a dialogue and discussion on a constant basis.
It would be sometimes difficult to say whether that is undue.
They are taking instructions from a minister, whether that is undue
influence or that is just instructions is a nuance really.
MR. OSBORNE:
For a deputy minister to
know that as part of their duties part of their responsibility is to inform
Cabinet Secretariat or to inform the Premier of sensitive issues.
For a minister in that particular case to instruct the deputy minister
not to inform Cabinet Secretariat or the Premier's office, in my mind, would
probably go a little beyond just influence.
MR. PADDON:
That is an instruction as
opposed to influence.
MR. OSBORNE:
Okay.
MR. PADDON:
You have a reporting
relationship between a deputy and a minister versus somebody who is not a direct
report where sort of the undue influence might come, depending on the nature of
the person. It is, I would suggest,
a little bit different when you have a reporting relationship between two
individuals whether it was influence or just the normal course of the business
relationship.
MR. OSBORNE:
Okay.
Did you
MR. PADDON:
We would have been looking
for, in this particular regard, whether there was any influence from outside the
department, essentially.
MR. OSBORNE:
Okay.
MR. PADDON:
Or outside government.
MR. OSBORNE:
There was no documentary
evidence of that. Did you get any
indication that there may have been?
MR. PADDON:
No.
MR. OSBORNE:
Okay.
CHAIR:
Mr. Osborne, we should go
either to a government member or to Mr. Murphy.
MR. K. PARSONS:
I just have a question.
It is a normal question that I usually ask the Auditor General.
As we
heard this morning from the deputy minister, what is your response to the
recommendations that you made and the responses that were given to you by the
department? Are you satisfied with
what they have put in place?
MR. PADDON:
Well, certainly based on
what I read in the response and Ms Companion's testimony this morning about the
process that both the department and the Clerk of the Executive Council have
gone through, it would certainly appear that the recommendations are being acted
on and being considered and appropriate change, where necessary, is being made.
MR. K. PARSONS:
Okay.
Perfect. That is all I have.
CHAIR:
Mr. Murphy, do you have
questions?
MR. MURPHY:
Thank you, Mr. Chair.
I guess
this question Todd, might be able to answer this one.
As regards to the Humber Valley Paving cancellation of the contract on
March 13, just for my own clarity in this particular case, when was the first
claim filed against Humber Valley Paving?
Filed against the bond, I should say in this particular case, by people
who would have been unsecured.
MR. STANLEY:
There were no claims filed
against the bond, as far as we know, at all.
The mechanics' lien claim that was filed, the one by Dallas Mercer
Consulting I think I have the name right.
MR. MURPHY:
Yes.
MR. STANLEY:
I believe it was filed in
June 2014. Humber Valley Paving
ceased work around November 2013 so there was an issue and Humber Valley Paving
was contesting the validity of the mechanics' lien itself as to whether or not
it was a valid lien on the basis that it was filed too late.
MR. MURPHY:
Yes.
MR. STANLEY:
Whether or not there is an
amount owing from Humber Valley Paving to DMC, I am going to call it, that is a
separate issue. Whether there is a
simple debt between the two of them, they can work that out.
The actual claim against the mechanics' lien holdback that we had I think
arrived in June 2014.
MR. MURPHY:
Okay, so the people then who
were making claims against Humber Valley
MR. STANLEY:
Yes.
MR. MURPHY:
it was happening well before March 13.
Am I right on that? Mr.
Gosse, maybe you
MR. GOSSE:
Yes, there were many phone
calls and letters to the department saying that Humber Valley Paving had owed
them money. There was no certainty
as to what the money was owed for or what project it was related to.
MR. MURPHY:
Okay, so you had phone calls
from people who were owed money obviously.
MR. GOSSE:
We had phone calls and we
had correspondence that we received.
MR. MURPHY:
You knew that there was an
issue then with Humber Valley Paving, right?
MR. GOSSE:
Yes.
MR. MURPHY:
It is easy to assume that if
you have all these people lining up looking for money, either (a) Humber Valley
was not addressing the issue, or (b) they were trying to recoup some of their
lives too at the time. So,
obviously there was an issue here.
MR. GOSSE:
There was an issue with
claims against Humber Valley Paving, no question.
MR. MURPHY:
Right, back in 2013 so
MR. GOSSE:
No, 2014.
MR. MURPHY:
In 2014, sorry; I will get
it straight one of these days. I
keep getting mixed up in years. I
keep forgetting how old I am, but anyway needless to say there was an issue
previous to March 13?
MR. GOSSE:
No.
MR. MURPHY:
No?
MR. GOSSE:
No.
This came into April of 2014.
MR. MURPHY:
People were calling when
did they start calling your office expressing that there was an issue?
MR. GOSSE:
When it became public
knowledge that the contract was cancelled.
MR. MURPHY:
Okay.
So it
was only from there on
MR. GOSSE:
From there on was when we
started getting phone calls and letters.
MR. MURPHY:
That is what I was trying to
establish, okay.
That
was when the communications people obviously would have been all over this and
talking and going to whoever they thought they would figure would be their
target audience and respected people that would have to know about this.
MR. GOSSE:
Correct.
MR. MURPHY:
All right, thank you for
that.
I
wanted to come back to, at the same time, as a bit of a formality and my own
knowledge as well, but in number 12 on page 5, under Documentation, it says, in
the Auditor General's report: There was no documentation prepared on March 13,
2014 to support the decision to terminate the contract between HVP and the
Department related to Project 1-12.
Perhaps
you can explain the process obviously if both mutually agree, it is not
necessarily on paper at that particular time, it could be done in a handshake,
it could be done in a phone call that they agreed, it could be an exchange of
emails; but either way, from there, somebody would obviously be given the go
ahead to draw up the appropriate paperwork and everything.
Can you
explain to me what the process was that was used to do that?
Who would have done that and what kind of formalities, if you will, or
what kind of process would have been used to draw up that written decision and
how long it took?
MR. GOSSE:
The decision I guess, Mr.
Murphy, to terminate the contract followed from the 9:15 o'clock, thereabouts,
call from Deputy Minister Meade and myself to Eugene Coleman when we were told
to contact them and see. The
direction was through Deputy Minister Meade at the time he had me sit in on a
phone call, and we frequently do that.
We try not to be giving direction or taking instructions on your own, for
various reasons.
MR. MURPHY:
Yes.
MR. GOSSE:
The indication from Mr.
Coleman Eugene Coleman at that time was that they were not going back to
Labrador. They could not go back to
Labrador. They wanted to terminate
the contract. That was relayed back
in the second meeting, as I recall, between Deputy Minister Meade and Minister
McGrath at the time, of what Humber Valley's wishes and desires were.
We knew
that there was nothing illegal about mutually agreeing to terminate a contract.
MR. MURPHY:
No.
MR. GOSSE:
First decision, any illegal,
absolutely not. When the minister
was aware that we could do that as one of the options that was the option he
wanted to pursue.
As I
recall, Deputy Minister Meade on that day had an outside appointment in the
afternoon. I did the original
letter. It was reviewed by David
Jones, our solicitor. We tweaked
it, added clauses, crafted it the way that we wanted it to look, and sent it to
Deputy Minister Meade for his review.
He
approved it. I signed it.
Unfortunately, I did not date it because I do not usually sign and date
letters. That is usually done by
the secretary, the dating part. It
is stamped. She was gone and of
course it just was not in my mindset to put a date on the letter because it is
always stamped.
MR. MURPHY:
Was that done the same day?
MR. GOSSE:
That was done the same day.
That was March 13.
MR. MURPHY:
March 13, so that letter
would have gone out.
MR. GOSSE:
The letter was done and
printed by me, signed by me after David's and Brent's approval, and sent to Gene
Coleman by email.
MR. MURPHY:
That was sent to him by
email. Did he have to sign anything
and return it too (inaudible)?
MR. GOSSE:
It was not him, it was
signed for the board it was actually signed by Eugene with the approval of the
board of directors.
MR. MURPHY:
Okay.
MR. GOSSE:
That was not done until
March 21 as I recall, eight days later.
MR. MURPHY:
On March 21, okay.
MR. STANLEY:
Sorry, if I could.
Just for clarity, a copy of that letter was included as Appendix 3 in the
response that was provided by the department to the Committee.
MR. MURPHY:
Yes.
MR. STANLEY:
So that one-page letter or
essentially two-page letter is actually in the materials that were sent.
MR. MURPHY:
Yes.
We have a copy of the letter.
I just wanted to know about the process itself and what had happened over
that particular period of time.
MR. GOSSE:
That is how the letter came
into being.
MR. MURPHY:
Sorry?
MR. GOSSE:
That is how the letter came
into being.
MR. MURPHY:
Right.
Okay, thanks for that.
MR. GOSSE:
The dates were right.
MR. MURPHY:
All right.
So this was all done by a phone call.
Everything was all done within the seven-and-a-half hours?
MR. GOSSE:
Their desire was clear; they
wanted the contract to be terminated.
MR. MURPHY:
It sounds so odd, to me
anyway. I am just curious, did the
department at that particular time, yourself, or Mr. Meade, or even the
minister, suggest that there might have been other options there, that they
wanted to talk about it, that you might have wanted a little bit more time to
discuss this? Was that option
brought up to Humber Valley Paving?
Was it so immediate that they had to get out of it then?
MR. GOSSE:
I can tell you that the board of directors for Humber Valley Paving were meeting
on that day.
MR. MURPHY:
Yes.
MR. GOSSE:
I can tell you that Eugene Coleman stepped out of that board of directors
meeting to take the phone call. So,
there was an urgency on their part.
I cannot tell you why.
MR. MURPHY:
Yes, it is kind of
mystifying. Anyway, Humber Valley
Paving obviously then had conveyed the message to the minister, and there was no
way that the minister could convince Humber Valley Paving that there are other
possibilities here that was just out the window, that was not an option.
MR. GOSSE:
I do not know if that discussion was had between them or not, or if those
discussions were had.
MR. MURPHY:
Okay, and Mr. McGrath is not
here to
MR. GOSSE:
His instruction to us was clear.
MR. MURPHY:
Get it done
MR. GOSSE:
Do it that day.
MR. MURPHY:
finally, and then get into
bundling the other part of the contract, and so it went.
Okay.
So in
June, 2014, if I can carry on further down here the same page, page 5, number
18: In June 2014, the Department estimated an additional cost of approximately
$1.5 million to complete work relating to Project 1-12 - a 20.6% increase in the
cost remaining on the Project.
Why was
the cost increased, and what was that particular part of the contract?
MR. GOSSE:
On the bundled contract we had a number of different terms and conditions put in
there.
MR. MURPHY:
Yes.
MR. GOSSE:
For one, it was what we call an end-result project.
So that left the asphalt design, some of the testing and that, to the
contractor, which meant he had to hire a consultant himself.
So that was an extra cost to him.
MR. MURPHY:
Yes.
MR. GOSSE:
We had a different grade of asphalt in the second contract, which was more of a
premium grade product. We required
them to have what we call a construction safety officer now, and that was a new
initiative that we just started last year, or certainly after the original
tender for 1-12. That is just so
that we can at least try to address our safety concerns on projects.
MR. MURPHY:
Okay.
MR. GOSSE: All
positive things, in my mind, but they added to the cost of the second one over
and above what the first one would have been.
MR. MURPHY:
Okay.
Coming over to
CHAIR: Mr.
Murphy, before you begin another area maybe we should go to another member, a
government member?
MR. MURPHY:
Sure.
MR. PEACH:
(Inaudible) looking through the findings here and a question popped to my mind.
When Mr. Marshall, then Premier, called the AG to do an investigation
into the allegations that
were made and tried to determine the dates and when Frank Coleman ran for the
leadership, they were saying in all the investigations the AG did, on page 56
there is a sentence there at the end of the paragraph, it says, There is no
evidence to suggest the HVP asked for a decision on March 13, 2014.
In all
you investigations that you did, with all the people that you had talked to,
there was nothing to show there was any evidence whatsoever that would
correspond with the date of March 13, 2014 and to the same time that Frank
Coleman was, I guess, trying to become Premier of the Province.
Is that right?
MR. PADDON: I
guess the point I am making here is that there is no evidence that Humber Valley
Paving absolutely had to have a decision on the thirteenth.
We did not see any evidence of that.
They may have wanted it, but there was no evidence that they wanted it.
Certainly, based on the discussions I had with both Frank and Eugene
Coleman, there was no indication from them that the decision had to be made on
the thirteenth.
MR. PEACH:
Okay.
In my own mind, I am just reading it and looking at it and I am saying if
there was no evidence on March 13 and nothing to correspond with the leadership
at that time, then I am just wondering if all the
MR. PADDON: The
evidence is clear that the decision was taken on the thirteenth and it was
communicated to the deputy to get it done on the thirteenth from the minister.
The only point is we did not see any evidence to suggest that Humber
Valley Paving wanted it done that day.
MR. PEACH:
Wanted it done, that urgency
MR. PADDON:
Now, they may have, but there was no evidence that is all.
MR. PEACH:
Okay, thanks.
That is
all I have right now.
CHAIR:
Any other government member?
I will
go back to Mr. Osborne.
MR. OSBORNE:
Thank you.
I have
a question for the Auditor General.
When you were speaking with the solicitor for Humber Valley Paving to determine
the level of contact that Frank Coleman may have had with elected officials of
the Progressive Conservative Party or members of the party or departmental
officials, the solicitor did not waive the client privilege in that particular
instance. Is that correct?
MR. PADDON:
That is correct, yes.
MR. OSBORNE:
Okay.
In
other words, the solicitor for Humber Valley Paving had indicated that they
would not share any information?
MR. PADDON:
No, that is not quite how I
would read it. I would have to
think a little bit about what that perhaps there are some solicitors in the
room who could explain it a little better than I could.
As I
recall, John, he did answer questions but he did not waive client-solicitor
privilege.
CHAIR:
Mr. Paddon, are you saying
that he said I am not going to tell you what my lawyer told me?
I will answer some questions.
MR. PADDON:
Hold on now.
Mr. Coleman answered questions.
We interviewed both Mr. Colemans; Frank and Eugene.
MR. OSBORNE:
Okay.
MR. PADDON:
We asked the solicitor for
Humber Valley Paving a number of questions around contact with government
officials or with the Conservative Party.
MR. OSBORNE:
I guess just to read the
paragraph involved, We also contacted the solicitor for HVP to determine the
level of contact he may have had with elected officials, Progressive
Conservative Party members or Departmental officials.
Solicitor-client privilege was not waived in this instance.
MR. PADDON:
Yes.
I would have to check just to make absolutely sure, but I do
believe the solicitor for Humber Valley Paving did answer our questions but I
will check to make sure. I just
cannot remember it.
MR. OSBORNE:
Okay.
If the solicitor-client privilege was not waived, I would
have taken that to mean they invoked solicitor-client privilege.
Am I misreading that or ?
MR. PADDON: You
may be. There may be a nuance here
that I am not, at this point, confident enough to talk about.
I will just have to do a little bit of research and get back to you.
MR. OSBORNE:
Okay.
I guess a question for Mr. Gosse.
During your conversation at 9:15 a.m. between yourself, the deputy
minister, and Eugene Coleman there was a feeling that Mr. Coleman did not want
the Performance Bond called.
MR. GOSSE: That
is correct.
MR. OSBORNE:
Can you elaborate on that?
MR. GOSSE: They
wanted to mutually terminate the contract without if we were going to call the
bond in, it is not terminating the contract.
If you are going to
call the bond in you are going to put them in default.
By terminating the contract there was an inference that the bonds were
going to be released anyway. That
was their understanding as well.
MR. OSBORNE:
Okay.
As
found by the Auditor General, The criteria of inflicting the least amount of
harm to HVP and its employees would require some knowledge of the current
financial or operational position of HVP.
There is no evidence that the Department sought any documentation
regarding HVP's current position.
Is that true?
MR. GOSSE:
We did not ask Humber Valley
Paving what their financial position was, no.
I am not sure they would have told us had we asked.
MR. OSBORNE:
Okay.
Ordinarily I guess anybody in business, or certainly at the ADM or the deputy
level if a company, such as Humber Valley Paving, had indicated they do not
want to go back to Labrador, they want to cancel the contract they do not want
the bonds called; they just want the contract cancelled.
Wouldn't that have raised a great level of concern with the department as
to whether or not there were other issues with Humber Valley Paving?
MR. GOSSE:
There was no evidence that
there was any issue with Humber Valley Paving, as we have said multiple times
this morning. The inference was
it was project specific. There was
no issue with any of the other projects they had, and no indication there was
any issue with any of the other projects or with the company itself.
In fact, they had inquired about when the next round of tenders was
coming out for the Trans-Labrador Highway.
We knew
there were issues with 1-12 because of the fires.
We knew they were delayed.
We knew they asked for extra time.
We knew they were hampered from completing the work the year before because of
that.
Knowing
what we knew and knowing they were frustrated in completing their contract, we
felt that was the reason they were asking.
There was no evidence there was any financial difficulty with the
company.
MR. OSBORNE:
Okay.
The
sixty kilometres on Phase I of the Trans-Labrador Highway, that is from Happy
Valley-Goose Bay to Labrador West, correct?
MR. GOSSE:
That was in that section,
correct.
MR. OSBORNE:
It was in that section.
MR. GOSSE:
That is Phase I.
MR. OSBORNE:
There was still several
hundred kilometres in Phase II and III between Cartwright Junction and Happy
Valley-Goose Bay that had yet to be done.
MR. GOSSE:
Correct.
MR. OSBORNE:
Okay.
What
was the urgency in cancelling the contract as opposed to calling in the bonds,
or cancelling the contract to ensure a political commitment that that section of
highway would be completed as opposed to looking out for the best interests of
the taxpayers and the people of the Province?
MR. GOSSE:
I believe that if you look at the big picture, we were looking out to the
interests of the taxpayers as well.
This was the least-cost option that we could guarantee of getting that work
done. Had we called the bond, there
was no guarantee if I was to bet, the bonding company would deny that claim
and would be successful in court in denying that claim.
Then the interests of the taxpayers of the Province would be gone through
the roof. This was the best cost
option.
MR. OSBORNE:
Was that legal advice that you were provided to say that that bond would likely
not be successful in being called?
MR. GOSSE:
That was a discussion we had, absolutely.
MR. OSBORNE:
A discussion with whom?
MR. GOSSE:
With myself and solicitor David Jones for sure.
Brent was involved in that discussion as well having dealt with bonds and
a bonding company. I will refer
back again to the conversation we had this morning, about fourteen months later
on a $200,000 claim we still do not have an answer on, and it is highly unlikely
that the bonding company is going to accept that claim.
MR. OSBORNE:
I just want to go back to March 13.
On March 13, the day the decision was made not subsequent to that.
I am not talking about March 14 or later, but on March 13, the day the
decision was made, are you telling me you had legal advice saying that that bond
would likely not be successful if you had called in the bond?
MR. GOSSE:
On March 13 there was a discussion and the result was there is a very good
chance that we would not be successful in making a claim against the bond.
MR. OSBORNE:
Okay.
Now,
when you cancelled the contract you put in as part of the condition that the
company, Humber Valley Paving, would guarantee the work they had already done.
MR. GOSSE:
Correct.
MR. OSBORNE:
That guarantee is only as
good as Humber Valley Paving is still in operation.
MR. GOSSE:
I will say again, the indications were at the time that Humber Valley Paving was
still a viable company. We felt,
knowing their history, knowing the ethics they applied normally, that we were in
good stead and they would stand up to any warranty claims we would have had.
MR. OSBORNE:
Okay.
MR. GOSSE:
Equally, we put in the clause about you have to drop that claim for the $2
million because of the fire.
MR. OSBORNE:
I am not calling into
question your observation of it, but in hindsight and we all know hindsight, I
guess, is twenty-twenty the fact that the deadline was the following day and
that it was very public knowledge that Frank Coleman was going to put his name
forward for the leadership of the PC Party, there were no red flags?
MR. GOSSE:
My objective and my advice
would have still been getting that project finished at the least cost to the
Province.
MR. OSBORNE:
Okay, but were there red
flags, in your opinion?
MR. GOSSE:
Concerns, I think, is what
we referred to it as earlier today, sensitivities I do not know that I would
call it a red flag. There were
things that people should have been aware of, absolutely; and, to the best of
our knowledge, the people who should have been aware were aware.
MR. OSBORNE:
Okay.
If
government had called the bond there was a possibility that that bond may have
been called and been successful. We
do not know that for sure
MR. GOSSE:
We will never know that for
sure.
MR. OSBORNE:
No, we will never know that,
unfortunately, because it was not called.
If the bond had been called, knowing there were several hundred
kilometres of highway still to be paved on Phase II and Phase III I know now
from speaking to people in Lab West that they are upset at the way this
transpired. I am not sure if they
would have been more or less upset if that sixty kilometres had not been
completed because there was a legitimate reason, the company defaulted on the
contract and government called in the bond and waited for that process to
unfold.
MR. GOSSE:
My experience with that is
people have very short memories when it comes to having sixty kilometres of
gravel road in the middle of nowhere.
Three years out, when you are still fighting in the court system about
having it done, people's memories will be short.
It also
makes it very challenging for maintenance when you are trying to maintain an
isolated section of gravel road on what is predominately a paved road.
There were other issues that would have evolved from not having that done
as well, not only from a goods and people transport and comfort perspective but
from a maintenance perspective.
MR. OSBORNE:
Okay.
So all
of this analysis was done on the thirteenth?
MR. GOSSE:
The analysis that we did on
the thirteenth, I have gone through on at least two occasions now today and I
looked at each of the criteria, the cost of completing the work and the impact
on Humber Valley Paving, and each of the four options that we had available to
us.
MR. OSBORNE:
Can you honestly say that
there was full due diligence on March 13 in investigating whether or not there
were better options than what was carried out?
MR. GOSSE:
I can say that we did the
best we could, given the time frame that we had.
Had we had more time, we may have analyzed it a little more.
I do not know that the recommendation would have been any different, if
you call it a recommendation. I do
not know that the outcome would have been any different.
I still think that what was done was the best alternative.
MR. OSBORNE:
Okay.
What
else transpired during the discussion at 9:15 a.m. on March 13 between yourself,
the deputy, and Eugene Coleman?
MR. GOSSE:
Well, from that phone call we got the indication from Gene Coleman that they
wanted to terminate the contract.
Once we confirmed with the minister that that was the way he wanted to proceed,
well then the rest of it was crafting that letter and making sure that we got in
the conditions that we needed to protect us as much as we could.
MR. OSBORNE:
Okay.
Now
when you say protect us, you mean protect the Province
MR. GOSSE:
Protect the Province.
MR. OSBORNE:
and the taxpayers.
MR. GOSSE:
Eliminating any future possibility of claims against the department or
government for the forest fires for that $2 million that they kept talking
about.
MR. OSBORNE:
Knowing the urgency to cancel the contract, both by the minister and by Humber
Valley Paving, the two conditions that were in the letter one was the
guarantee of the work and the other was no claims against the fire.
MR. GOSSE:
Correct.
MR. OSBORNE:
There were other claims that were still in dispute with the department.
Why were those claims not a part of that letter, knowing that there was
an urgency?
MR. GOSSE:
Those other two claims were not in relation to this project.
This was project specific.
The other two claims were on two separate projects entirely.
They were still on the TLH, but two separate contracts.
MR. OSBORNE:
Okay.
You
indicated that Humber Valley Paving was inquiring about other work on the
Trans-Labrador Highway when those tenders would come out.
MR. GOSSE:
Correct.
MR. OSBORNE:
So is it customary for
government to entertain another tender proposal from a contractor who just
basically defaulted on roadwork on the same highway?
MR. GOSSE: I
cannot say it is customary because it had not happened before.
MR. OSBORNE:
Okay.
Has the Province ever called in a bond on another contract
before?
MR. GOSSE: We
have, most recently fourteen months ago.
We still have not got an answer.
MR. OSBORNE:
Okay.
CHAIR: Mr.
Osborne, we would move to a government member or to Mr. Murphy.
MR. OSBORNE:
Thank you.
CHAIR: Mr.
Murphy.
MR. MURPHY:
Thank you, Mr. Chair.
I have
a question of clarification here.
Mr. Gosse, earlier we were talking about you having a meeting with Eugene
Coleman and they wanted out.
MR. GOSSE:
Correct.
MR. MURPHY:
No ifs, ands, or buts.
March 13 that happened.
MR. GOSSE:
That call at 9:15 a.m. that we made to them, they made it clear.
MR. MURPHY:
That was at 9:15 a.m.
So they were perfectly clear that they wanted out and it was mutually
agreed that you would proceed to cancel the contract.
MR. GOSSE:
Not at that point.
MR. MURPHY:
Not at that point?
MR. GOSSE:
At 9:15 a.m. they made it
clear that they were not going back to Labrador and they wanted out of the
contract.
MR. MURPHY:
Okay.
MR. GOSSE:
Deputy Minister Meade then
went back to Minister McGrath at the time to advise him of what the result of
that conversation was. That is when
we pursued the option of mutually terminating the contract.
MR. MURPHY:
Okay.
So it was first suggested at the department to do that mutually?
I am just trying to establish
MR. GOSSE:
They wanted out.
They wanted the contract cancelled.
MR. MURPHY:
They wanted out
MR. GOSSE:
So then the second party,
when they say yes, we will do it, that is a mutual agreement.
MR. MURPHY:
Okay.
MR. GOSSE:
Humber Valley Paving at the
9:15 a.m. call were the ones who made it very clear they could not go back to
Labrador and they wanted out of the contract.
MR. MURPHY:
He was called out of the
meeting of the board of directors and that is when he
MR. GOSSE:
He stepped out of the
meeting for the board of directors and took that call.
MR. MURPHY:
He stepped out okay, so a
question then for Mr. Paddon. Mr.
Paddon, you mentioned that you had talked to Gene Coleman and to Frank Coleman
and they were not in any rush to get out of the contract.
Am I right on that?
MR. PADDON:
No, I am not quite sure I
would characterize it like that.
MR. MURPHY:
Well no, not like that.
I am trying to find my words here.
MR. PADDON:
There was no indication from
them that they needed it dealt with that day.
MR. MURPHY:
Did they give you any
indication that they could have waited?
MR. PADDON:
That they could not wait?
MR. MURPHY:
That they could have waited
a little bit longer for the termination of the contract.
MR. PADDON:
That was the indication from
them, that they did not need it that day.
Clearly, I think they wanted it dealt with.
MR. MURPHY:
Okay, but they were not in a
rush at that particular time?
MR. PADDON:
That was the indication from
them, yes.
MR. MURPHY:
That was the indication from
them. We have a contrary opinion
from Mr. Gosse that they wanted out on that particular day.
What day was it that you had talked to Frank Coleman and Eugene Coleman
on that?
MR. PADDON:
What day?
MR. MURPHY:
It was obviously sometime
after when you started your investigation.
MR. PADDON:
Today that is
MR. MURPHY:
That was on right?
MR. PADDON:
I spoke to the Colemans on
August 5.
MR. MURPHY:
Yes, so it is sometime after
obviously and there is a differing opinion that is coming from Mr. Coleman on
exactly when they wanted out. We
hear from Mr. Gosse that they wanted out on March 13 and that was it.
We hear from your report that they were not in a rush to do it.
Am I right in saying that?
MR. PADDON:
No, I would not say that
they were not in a rush. Then you
have to define what rush means.
MR. MURPHY:
Well, it did not have to be
done right away. It could have
waited until next week or if the department
MR. PADDON:
That was certainly the
indication we got from the Colemans, yes.
MR. MURPHY:
So there was more than
enough indication here that the department or the minister, I should say,
could have taken some more time to arrive at his decision.
There is more than enough evidence here to say my interpretation that
he could have taken his time in exploring other options.
MR. GOSSE:
There was a phone call from Gene Coleman to me that afternoon asking if we were
getting the letter today. So that
was reaffirming their sense of urgency to have that done that day.
MR. MURPHY:
Okay.
So they
had a sense of urgency then, but then we were getting I am getting the feeling
from Mr. Paddon's report and from his interview that they were not in an
immediate rush. I will use that
term, immediate rush. They could
have waited some time and that probably would have freed up the minister to
explore the other options.
MR. GOSSE:
That was not the indication at 9:15 and it was not the indication when he asked
me if we were getting the letter today.
MR. MURPHY:
Okay; and the minister was
at that meeting that you referred to?
MR. GOSSE:
He was not at the phone call.
MR. MURPHY:
He was not at the phone
call. How did you get that message
to Minister McGrath that they wanted to get out of that contract right away?
MR. GOSSE:
That was relayed by Deputy Minister Meade when he went back for the second
meeting with Minister McGrath outside the Cabinet room.
MR. MURPHY:
Okay, all right.
I am
just trying to corroborate what had happened in the investigation process of the
report versus what is happening here.
I am still seeing some difference here I do not know if it is just me
or not having to do with that particular fact.
Let me get my thought together on this one.
Do we
have any other further supporting evidence that did they exchange writing with
you or anything like that saying we were not in a rush to do this?
It was just the verbal interview that you had?
MR. PADDON:
(Inaudible).
MR. MURPHY:
Mr. Paddon.
MR. PADDON:
Just the interview, yes.
MR. MURPHY:
Just the interview, yes,
okay.
MR. PADDON:
Or two interviews.
MR. MURPHY:
Right.
Okay, thanks.
Mr.
Gosse, so we can safely assume from what you are saying that they wanted out
right away?
MR. GOSSE:
They wanted out that day.
MR. MURPHY:
Okay.
MR. GOSSE:
Again, surmising on my part, and knowing they were having their board of
directors meeting, they wanted it for the board of directors.
MR. MURPHY:
Yes.
MR. GOSSE:
Even though they did not countersign on the agreement until eight days later.
MR. MURPHY:
Are we aware of who is on
the board of directors of Humber Valley Paving?
We are aware of that?
MR. GOSSE:
I am not aware of that.
MR. MURPHY:
I am just wondering as
regards to the decision they might have come to, and obviously well, they are
not here to answer the questions as regards to that either.
We have a little bit of a hole here I think that we would have liked to
have asked Humber Valley Paving, even some of the questions on this, or even the
minister as regards to what he might have heard.
Okay, I will leave that for now, but it is in the back of my mind here on
that.
I will
come back to the report again. On
page lots of questions Effect of Urgency.
Again, this part of it jumps out at me.
In section 25(a) on page 6, The option of assigning the contract for
Project 1-12 to a third party contractor for completion.
While this would be a business-to-business arrangement outside the
control of the Department, there is no evidence that HVP was asked if this is an
option they could pursue. Again
you said they wanted immediately out of it, but were they asked?
MR. GOSSE:
To assign?
MR. MURPHY:
Yes.
MR. GOSSE:
They were not.
MR. MURPHY:
They were not?
MR. GOSSE:
No.
MR. MURPHY:
Why weren't they asked?
MR. GOSSE:
We feel that it is not
something we would initiate as a department in any case.
That project was so far advanced that it was not viable for another
company to jump in and do what was left that the contract (inaudible).
MR. MURPHY:
Understandable because of
geography, that sort of thing, and the cost and everything.
MR. GOSSE:
Yes.
It just was not a viable solution.
MR. MURPHY:
I can understand where you
came from on that. Okay.
MR. GOSSE:
Had that happened at the
very beginning of the contract, well then there is some liability to it, but not
at the stage it was at.
MR. MURPHY:
All right.
Mr.
Chair, at this present time I do not have any further questions.
I will say that loosely. I
know there are plenty of other questions that I think we need the other
witnesses for, if we can get them.
I have nothing right now, at least for the next five minutes anyway.
CHAIR:
That being the case, we
should take the afternoon break. We
started at 1:30 p.m. so we have been going for a while.
How about 3:30 p.m.? We will
be finished by 4:30 p.m., or do we want to go longer?
MR. MURPHY:
No, I think we can probably
be done at least today by 4:30 p.m., but all of it is going to be contingent of
course on calling (inaudible).
CHAIR:
Yes, we do not need to, but
the witnesses may be planning their lives.
They might like to know.
MR. MURPHY:
Yes, there is nothing else
we can do today based on the witnesses.
CHAIR:
So not past 4:30 p.m. in any
event?
MR. MURPHY:
Yes.
CHAIR:
If we conclude earlier, so
be it.
MR. MURPHY:
Okay.
CHAIR:
Okay, we will return at 3:30
p.m.
Recess
CHAIR:
We are not on video we are
on audio. That is probably better.
It means you can do anything you want, you just cannot say too much.
Before
we broke, Mr. Murphy was concluding.
The Auditor General advised us that he has a follow-up on the question
about solicitor-client privilege that Mr. Osborne had.
So I will let the Auditor General resolve that or provide that
information, then go to a government member, and then to Mr. Osborne.
Mr.
Paddon.
MR. PADDON:
Thank you, Mr. Chair.
What I
will indicate now is my accountant's explanation of solicitor-client privilege
or certainly in the context here.
We did pose a series of questions to the solicitor for Humber Valley Paving.
The solicitor did respond to those questions, and in responding to those
questions indicated that the response to those questions did not constitute a
waiver of solicitor-client privilege.
Really,
in my understanding he is saying, fair enough, I am answering these specific
questions but by answering these questions does not constitute a broader waiver
of solicitor-client privilege. So
that was why we specifically indicated it in the report that it was not waived,
but they did answer the questions.
The
only response that piqued our curiosity or that was at odds with anything else
is outlined on page 38, in the middle, where the solicitor indicated he had
spoken to Mr. Gosse the day before on March 12, and the solicitor had indicated
it was about not returning to Labrador.
We had indicated that we followed up with Mr. Gosse, and Mr. Gosse had
indicated that his recollection was, it was a conversation about claims.
That is outlined in the report.
CHAIR:
We can next go to a
government member, if a government member has questions.
We will
go to Mr. Murphy.
No, we
finished with Mr. Murphy. We will
go to Mr. Osborne now.
MR. OSBORNE:
Thank you.
I was
not going to argue with you, Mr. Chair, but I knew the difference.
Mr.
Gosse has been indicating that Humber Valley Paving wanted out of the contract
and that that was evident at the 9:15 a.m. meeting that day just on a line of
questioning that the Member for St. John's East had a few moments ago.
In the
Auditor General's findings: HVP raised the possibility of additional
compensation to allow them to return to Labrador in 2014.
There is a contradiction there.
Additional compensation could be provided if the Department was prepared
to accept a legitimate claim by HVP related to any additional costs incurred on
any of the projects.
A
further observation by the Auditor General: There was no evaluation or
discussion with HVP as to the amount of additional resources it may have taken
to allow them to return. I wanted
to point out that just for the record, Mr. Chair.
It is not just the Member for St. John's East, but I, myself, see that as
somewhat contradictory. I did not
have a question on it; I just wanted to raise the point so that it is on record.
There
was no single option that could satisfy all three decision drivers as found by
the Auditor General. They go on to
say, In fact, in our view, none of the options available to the Department
could provide certainty that the remaining work on Project 1-12 would be
completed on time which was Minister McGrath's primary consideration.
If we
go to 11:30 a.m. that day, the Deputy Minister of Transportation and Works met
with Minister McGrath outside the Cabinet room to brief him on the discussions
and evaluation conducted by Departmental officials throughout the morning.
I still find it very odd that departmental officials had conducted
evaluations, but there was nothing in writing other than verbal.
I am
going to ask Mr. Gosse: Were you a part of the decision to cancel the contract
with Humber Valley Paving? Was that
your recommendation to the minister?
MR. GOSSE:
We did not make a recommendation on how to proceed, as I recall.
We outlined the options and likely repercussions from each, and the
minister made the decision to terminate carry on.
MR. OSBORNE:
Okay.
It
certainly appears that Deputy Minister Meade was concerned with the decision of
the minister. To your knowledge,
did Deputy Minister Meade agree with the decision of the minister outside the
Cabinet room or was he simply taking direction?
MR. GOSSE: I
believe he took direction, knowing the minister had the authority to be able to
do that and that there was nothing illegal about doing what we did.
MR. OSBORNE:
Okay.
You
stated in an answer to Mr. Murphy during his questioning, and I will quote, I
wrote down what you had said: When we made the decision to cancel the contract
based on the 9:15 a.m. telephone meeting.
That
9:15 a.m. telephone meeting was prior to Deputy Minister Meade approaching the
minister outside the Cabinet room.
So was there a decision made as a result of the 9:15 a.m. meeting or was it
direction from the minister?
MR. GOSSE: From
the 9:15 a.m. call, we got feedback from Humber Valley Paving of what they
wanted.
The instruction for the 9:15 a.m. call from the minister
was to call them and see what is up, basically.
We did that we being myself and Brent.
I do not believe David Jones was at that first call.
We got an indication from Humber Valley Paving of what they wanted.
They were not going back to Labrador.
They wanted to terminate.
That went back to the minister indicating what the results of that conversation
were.
MR. OSBORNE:
Okay.
What did you mean when you said: when we?
I take we as collective.
MR. GOSSE:
Collective we, as a department.
MR. OSBORNE:
Okay.
So was it the minister's decision or was it the
department's decision?
MR. GOSSE: At
the end of the day, I guess it was the department's decision under the
minister's direction.
MR. OSBORNE:
Okay, but was it clearly the minister's decision?
MR. GOSSE: The
minister and I think it is noted in the Auditor General's report here, the
minister told Brent to just get it done.
Get it done today.
MR. OSBORNE:
Okay.
MR. GOSSE:
So it was the minister's direction.
Had there been any reason for us not to proceed in that direction, such as any
legalities or the minister did not have any authority to give that direction,
then it would have stopped there.
There certainly would have been more discussion.
The
minister gave the direction to proceed in that direction.
MR. OSBORNE:
The deputy minister was
given instructions by the minister that reinforced his earlier instruction to
deal with the termination of the contract that day.
There was no supportable reason for the urgency for that decision.
There was no supportable evidence or reasons provided for that decision
to be made.
I am
just trying to get to the root. I
know there was an urgency. I know
it had to be done that day. That
has been documented. It is a
finding of the Auditor General.
Was it
clear at the 9:15 a.m. meeting that the contract would be cancelled that day?
MR. GOSSE: No.
At the 9:15 a.m. we made no commitments to Humber Valley Paving.
At 9:15 a.m. we collected information from Humber Valley Paving to see
what they wanted, what was their expectation, what were they asking.
So that was the information we got from the 9:15 a.m. call.
That was the initial call to Humber Valley Paving that day.
MR. OSBORNE:
Okay.
When was Humber Valley Paving informed of the decision?
MR. GOSSE:
I am going to say sometime shortly after noon, early afternoon.
MR. OSBORNE:
Okay.
So they
would have been informed shortly after noon and at 2:30 p.m. that day you got a
call from Eugene Coleman wondering if they were going to get the letter that
day.
MR. GOSSE:
It was in the afternoon. I do not
know if it was 2:30 p.m. or not. It
was in the afternoon that Eugene Coleman called and said: Are we getting our
letter today?
MR. OSBORNE:
I apologize; I thought you
said it was 2:30 p.m. in your earlier response.
MR. GOSSE:
No, it was in the afternoon.
MR. OSBORNE:
Okay.
That
afternoon he called, within two hours or two-and-a-half hours of receiving the
news that the contract would be cancelled.
MR. GOSSE:
I do not recall the time, Mr. Osborne.
I know it was in the afternoon.
He called and said: Are we getting our letter today?
He asked a question.
MR. OSBORNE:
Okay.
I mean,
there was certainly an urgency there on Humber Valley Paving's part as well.
MR. GOSSE: There
is absolutely no question there was urgency on their part.
MR. OSBORNE:
Okay.
Do contractors generally influence the decision of the
department as a result of the urgency that they were putting forward?
MR. GOSSE: It
would depend on what the issue was.
If there was an issue that we could address and avoid a delay, then absolutely
we would consider it to be urgent.
We deal with contracts every day; we know what is urgent and what is not.
There are some things that you can address quickly.
MR. OSBORNE:
How much of a role do you
believe that Humber Valley Paving themselves as a result of the 9:15 a.m. call,
the sense of urgency that they had placed on this how much of a role did that
play in the decision having to be made that day?
MR. GOSSE:
They certainly made it very
clear to myself and Deputy Meade that it was urgent and needed to be addressed.
I do not know if they had contacted anybody else to express the urgency
to them or not. They did let us
know very clearly that it was urgent; they needed an answer.
MR. OSBORNE:
Were you prompted to act
sooner because of the urgency relayed by Humber Valley Paving?
MR. GOSSE:
To act or to terminate
anytime anybody expresses an urgency with anything, we act quickly.
That does not mean that you make rash decisions or make a decision right
away. You always act as soon as you
need to, but that does not mean that a decision is made immediately that may not
be the right one.
MR. OSBORNE:
Okay, but the decision made
on March 13, I believe, was a rash decision.
It was made very quickly without all of the due diligence required.
So this is sort of what I am getting at.
I mean, obviously Humber Valley Paving played a role in the urgency
behind the decision that had to be made.
MR. GOSSE:
They certainly expressed the
urgency to us and the urgency was relayed back to us by the minister in his
instructions to get it done that day, so we were getting urgency from two
directions.
MR. OSBORNE:
Okay.
Is it
commonplace for officials within the department, upon getting a call from a
contractor, to act urgently and to do something such as terminating a contract,
in the case of Humber Valley Paving is it commonplace for officials within the
department to act this quickly?
MR. GOSSE:
Officials in the department
always act quickly. I will say
again, you act quickly, you start analyzing and you look at your options, what
is the real issue. It does not mean
that you have to respond quickly.
We always act quickly.
MR. OSBORNE:
Okay.
MR. GOSSE:
We do not let stuff sit on
the corners of desks.
MR. OSBORNE:
Okay, then let me rephrase
then. Is it commonplace for
officials within the department to respond in such a way that they responded to
Humber Valley Paving with such urgency at the beckoning of the company?
MR. GOSSE:
It is not commonplace that
we terminate contracts. It is
commonplace that officials respond to calls from contractors.
We have contracts.
We have obligations with them.
We have an obligation to make sure that they are not frustrated in any
way or delayed in any way from completing the work that we expect them to do.
MR. OSBORNE:
Okay.
MR. GOSSE:
Once we are seen as delaying
a contractor, well then he is open to making claims against us for delays, which
is not a very wise use of taxpayers' money either.
MR. OSBORNE:
No, but I would put forth
that I mean, the findings of the Auditor General's report were that this
decision was made very hastily without due diligence, without all of the
homework done, without all of the i's dotted or the t's crossed, without even a
piece of correspondence for a full five weeks after the decision was made.
Is
there a concern in the department?
Should we be concerned that officials within the department make these types of
decisions when a contractor calls and says we need a decision made today?
MR. GOSSE:
You cannot categorically
answer that question as a definite yes or a definite no.
It depends on the situation.
MR. OSBORNE:
That would cause me great
concern, if decisions were being made like this.
This one has obviously become a very public issue.
It was the issue of an Auditor General review.
It is the issue of a Public Accounts Committee review.
MR. GOSSE:
That is why I am trying to
say, Mr. Osborne, that it depends on the situation.
It could be as simple as extending the completion date for a contract by
a week. That could be an urgent
issue for a contractor on a particular day.
Terminating a contract is not a common occurrence.
Since this happened, as Deputy Minister Companion said this morning, we
have put policies in place to ensure that this does not happen again.
We have followed through and done everything, met every recommendation
that the AG has made on this file.
MR. OSBORNE:
Okay.
Knowing
that cancelling a contract is not a common occurrence you were getting
pressure from the company, you were getting pressure from the minister.
Knowing that this is not a common occurrence and knowing that there were
sensitivities, why was there not more due diligence performed on this particular
decision?
MR. GOSSE:
I think we did our due
diligence the best we could, given the time frame we had to deal with it.
MR. OSBORNE:
Why were you forced to make
the decision in such a short time frame then?
MR. GOSSE:
That was the direction we
were given by the minister: Do it today.
MR. OSBORNE:
Also, the company.
MR. GOSSE:
That was the direction given
by the minister: Do it today.
MR. OSBORNE:
Okay.
CHAIR:
Mr. Osborne, we should go to
another member.
MR. OSBORNE:
Thank you.
CHAIR:
Does a government member
have questions?
MR. PEACH:
I have one coming out of the
discussions that Mr. Osborne made.
I am just wondering, when the decision was made to cancel the contract and they
said that they did not want to go back to Labrador, was that based on probably
the discussions that you had with them or the department had with them with
regard to not absorbing the costs, the overrun costs of the $2 million was
that part of the reason why they did not go back?
MR. GOSSE:
I do not know if that is why
they did not go back or not, Mr. Peach.
I know that they did say or indicate that it was a drain financially
the delays because of the fires hurt them financially on that project.
Whether or not we had agreed to they never ever submitted a claim on
that project.
MR. PEACH:
No, they discussed it with
the department.
MR. GOSSE:
They discussed it with me.
They broached it initially in February,
they broached it with the minister around the same time, and they mentioned the
same figure to both of us: $2 million.
After I had the call, I went out to spoke to Minister McGrath at the time
and his comment was that was interesting; and then he described the meeting
where, paraphrasing, he felt that he was kind of ambushed at the airport in
Goose Bay. The $2 million was the
same figure that Eugene mentioned to him that he talked to me about.
That
was in February and there was no other mention of that until March 12 when their
solicitor, Ray Connors, called me, and then there is a differing opinion of what
my recollection of that call was and what Mr. Connors told the Auditor General.
My
recollection of that call was solely to do with the delays and the claim; no
discussion on cancelling contracts.
I can tell you what time of the day it was; it was lunchtime.
I remember the call.
MR. PEACH:
I am good.
I just wanted clarification on that; that is all.
CHAIR:
Mr. Murphy.
MR. MURPHY:
Thank you, Mr. Chair.
Mr.
Gosse, I have to come back to the 9:15 a.m. meeting again.
You mentioned a sense of urgency in cancelling the contract, so
everything was all set to go, to progress down that road towards cancelling of
the contract. Is a phone call all
the department needs in order to cancel a contract, or wouldn't they want to get
something in writing that stipulates that the contract is wanting to be
cancelled here now by a particular party?
MR. GOSSE:
To initiate that process,
no. The phone call was the phone
call; that was the direction: Call them to see what their issue was.
We called them at 9:15 a.m., found out what their issue was or what
direction they wanted to go in, and back to the minister for direction from him.
In
writing I mean, they countersigned the letter that we sent to them with the
terms on the termination. That was
the only piece in writing. It was
our letter, offering on these conditions and their countersigning, accepting
those conditions. That was it.
MR. MURPHY:
Okay, but nothing
stipulating that they would have to sign something that says we want out, bang,
that was it.
MR. GOSSE:
No.
MR. MURPHY:
Okay.
MR. GOSSE:
Well, the fact that they
signed this proposal was an indication that they wanted out.
MR. MURPHY:
Okay.
For
clarification again, at the 9:15 a.m. meeting there is yourself, Eugene Coleman
on the phone because he just came out of the board of directors meeting, Mr.
Meade, and Mr. McGrath. Correct?
MR. GOSSE:
No, Mr. McGrath was outside
the Cabinet room.
MR. MURPHY:
He was outside the Cabinet
room.
MR. GOSSE:
Minister McGrath called
Deputy Meade to come down to the Cabinet room.
MR. MURPHY:
Right.
Okay.
MR. GOSSE:
He gave him instructions to
go back and call Humber Valley Paving to see what their issue was.
Something was up.
MR. MURPHY:
Okay, so there was a Cabinet
meeting that was already ongoing and Mr. McGrath got called out?
MR. GOSSE:
Correct.
MR. MURPHY:
Okay.
MR. GOSSE:
Mr. McGrath stepped out.
Mr. McGrath called Deputy Meade and stepped out of the Cabinet meeting to
have that discussion with Deputy Meade.
MR. MURPHY:
So my interpretation of that
would be that it is not a normal process to have to just simply walk out of a
Cabinet meeting for well other than using the bathroom, I cannot see why you
would not be called out, unless it was an emergency, right?
MR. GOSSE:
Well he was not called out,
he stepped out.
MR. MURPHY:
He stepped out.
MR. GOSSE:
He called Deputy Meade,
asked him to come down, and he stepped out of the Cabinet meeting.
MR. MURPHY:
Okay.
MR. GOSSE:
So the inference for us was
that it was a discussion that was occurring.
MR. MURPHY:
You think that there was a
discussion occurring around the Cabinet table around this issue?
MR. GOSSE:
That was our inference, Mr.
Murphy.
MR. MURPHY:
That would be your
inference.
MR. GOSSE:
Indications are now that it
was not discussed at the Cabinet table.
MR. MURPHY:
Okay.
MR. GOSSE:
The fact that he called,
stepped out of a Cabinet meeting, had that discussion and went back in, and then
stepped out again later to give us direction
MR. MURPHY:
Right, would certainly point
MR. GOSSE:
The assumption was that
MR. MURPHY:
that it was discussed at
the Cabinet table at that particular time.
MR. GOSSE:
It was discussed and people
were aware.
MR. MURPHY:
If people look at the
evidence from what you just said, then it can be assumed by everybody that, yes,
it was brought up at the Cabinet level.
MR. GOSSE:
I think Mr. Paddon also says
in his report that was a reasonable assumption to make at the time.
MR. MURPHY:
That was a reasonable
assumption to make.
MR. GOSSE:
Obviously not the right
assumption, but it was a reasonable one at the time.
MR. MURPHY:
Yes, and I guess it is what
it is.
I am
just wondering here too now on a different line; the Minister of Transportation
and Works at the time, Mr. McGrath, told reporters at that time that he had
negotiated personally with Gene Coleman.
He was out there in the public as saying that.
I have
to come back to that at the same time because it was all regarding HVP being let
out of the contract. Yet the former
owner of the company Mr. Coleman at the time told reporters that company
representatives dealt with officials and their legal counsels to reach a
conclusion.
So we
have two divergent opinions here, or two divergent comments.
We have Minister McGrath saying that he personally negotiated, which
would probably be unusual, given the facts, and we have you saying that of
course, there was another meeting.
I wonder if you can quantify that or explain that.
MR. GOSSE:
There is no way that I confirm that there was a negotiation between Minister
McGrath and anybody from Humber Valley Paving.
The discussions on that day happened between myself and Deputy Minister
Meade, and Eugene Coleman, and nobody else from Humber Valley Paving.
MR. MURPHY:
Okay.
Can you
explain the nature of all the conversations that the company had with MHAs?
Obviously you cannot, right?
MR. GOSSE:
I cannot.
MR. MURPHY:
I guess I will read out the
question: Can you explain the nature of all the conversations that the company
had with MHAs and government officials leading up to the abrupt cancellation of
the contract? I think that you have
already done that, so I am just rehashing some of these notes that I still have
on this to make sure they are covered.
Yes,
that is about it. I still have to
come back to the briefing note, too, on the basis of why that briefing note was
not written. Again, was that
because the minister explicitly said that he did not want a briefing note
written, or did he come out and say no, I have already talked to Cabinet about
this, so you do not have to write a briefing note?
MR. GOSSE:
He did not have that discussion with me.
Brent, when Brent is available, or when it is reconvened again, may be
able to answer that question.
MR. MURPHY:
Okay.
MR. GOSSE:
I do not know how that transpired.
MR. MURPHY:
Ms Companion, that would not
have been in your purview at the time, or would it?
WITNESS:
(Inaudible.)
MR. MURPHY:
Okay, so we do not know if
it was one or the other, at the same time.
MR. GOSSE:
I do not know.
MR. MURPHY:
Mr. Chair, that is all I
have right now, considering that we have to talk to witnesses on this.
I think that is probably about it for now.
CHAIR:
Would a government member
like to ask any questions?
I will
go back to Mr. Osborne.
MR. OSBORNE:
Thank you.
I am
going to go back to the fact that the tender call for the subsequent bundled
roadwork in Labrador under Project 7-14 was not made until April 19, 2014.
I am reading directly from the Auditor General's report: Based upon
this, there was no urgency to conduct the analysis and reach a decision on March
13, 2014. Sufficient time existed
to allow for a broader evaluation and consideration of the issues.
Mr.
Gosse, you have defended the decision that was made on March 13 here today.
Do you personally agree with the decision?
Let me rephrase that: Do you personally agree with having made the
decision on March 13?
MR. GOSSE:
I do not necessarily think
that it needed to be made on March 13.
I do not think the decision, had we waited until March 23, would have
been any different.
MR. OSBORNE:
Okay.
MR. GOSSE:
I do not think we would have
come to a different conclusion. The
fact that we did not actually call tenders until sometime in April, it did not
mean we could wait until April to make that decision.
It took us three to four weeks to revise we had a tender ready to go
for the eighty kilometres south of Goose Bay and the work in Goose Bay.
That tender was ready to go, or within days of being ready to go.
We had
to take that back, include the extra work on the sixty kilometres, and determine
what was left to be done because there were parts of the work that were done.
For example, this morning we talked about all the material being crushed
and being paid for. Well that was a
different process now and a different spec, to take that crushed material and
place it on the road.
There
was a whole series of things that we had to do to reorganize and reformat that
tender and get it in a condition that we could use it as a tender call.
There was a lot of work that had to be done to add that work to a tender
that was already ready to go. The
longer you waited to make that decision, the longer you were getting the work
out the door and getting any work done that year.
MR. OSBORNE:
Okay.
You had
indicated that Eugene Coleman at the 9:15 a.m. meeting had indicated they wanted
out of the contract. That is
correct?
MR. GOSSE:
That is correct.
MR. OSBORNE:
You had indicated that later
on that day, at some point after the lunch period, Eugene Coleman had called
asking if they were getting the letter that day.
MR. GOSSE:
Correct.
MR. OSBORNE:
Okay.
When
you were testifying under oath to the Auditor General, did you express those two
issues to the Auditor General?
MR. GOSSE:
I do not know that the phone
call came up from either of us. I
do not remember if I mentioned that or not, quite frankly.
MR. OSBORNE:
Okay.
Because I know in the Auditor General's report, and I am reading directly
from the report again: There is no evidence to suggest that Humber Valley Paving
asked for a decision on March 13, 2014.
MR. GOSSE:
I think that was a result of
not putting words in Mr. Paddon's mouth, but that was from the conversation
they had with the Colemans. They
did not express any urgency. There
was certainly an urgency expressed by them to us, and by the minister to us.
MR. OSBORNE:
Okay.
I am
just going to go back to what had transpired outside the Cabinet room.
Reading again from the Auditor General's report: We believe that the
Deputy Minister was convinced, based on the Minister's response, the appropriate
people in the Premier's Office had been made aware of what was occurring.
This view would have been reinforced by the fact that the meeting with
Minister McGrath occurred outside the Cabinet Room while a Cabinet meeting was
in progress. Not only once, but twice I
believe, Deputy Minister Meade had been called to the Cabinet waiting area or
the waiting area outside the Cabinet room to meet with Minister McGrath.
MR. GOSSE:
Correct.
MR. OSBORNE:
Okay.
Minister McGrath was briefed by his Deputy Minister outside the Cabinet Room on
March 13, 2014 and had every opportunity to raise this issue in Cabinet or with
the Premier's Office. It goes on
to say, While the Minister had the authority to make the decision and we
understand that legally he had that authority it is difficult to understand,
given the potential political sensitivity of this issue, why he would not have
discussed this with his colleagues in Cabinet or the Premier's Office.
I guess
what I find puzzling is the fact that it was not just Minister McGrath who had
called Deputy Minister Meade to the waiting area outside the Cabinet room twice,
but it was also Minister O'Brien who had contacted the deputy minister.
Both calls were within a half an hour of each other.
I do
not have a particular question. I
do not know if anybody wants to make a comment on this.
I find it difficult to believe that with two calls to a deputy minister
on the same morning within a half an hour of each other, and the minister
requesting the presence of the deputy minister outside the Cabinet room on two
occasions that day, I find it difficult to believe that nobody else inside that
Cabinet room, other than those two ministers, had knowledge of what was
happening with Humber Valley Paving.
I will
invite comments if anybody wishes to do so.
Nobody is going to touch it with a ten-foot pole, are you?
MR. GOSSE:
I will say what I have
already said. It was the assumption
on our part that other people knew.
I think that was the conclusion the Auditor General found as well, is that it
was a reasonable assumption.
MR. OSBORNE:
Okay.
Well,
based on that, Mr. Chair, I do want to thank I know I have asked some tough
questions today. I want to thank
the witnesses who responded to my questions.
I look forward to another hearing of the Public Accounts Committee with
other witnesses.
Thank
you all for coming out and taking a grilling.
Sometimes you do not always understand what it is like to sit in the
House and be grilled, but I guess you got that opportunity today.
CHAIR:
I have a few questions
MR. MURPHY:
I have just one, too.
CHAIR:
Mr. Murphy.
MR. MURPHY:
Did you want me to go first
before you?
CHAIR:
Go ahead.
MR. MURPHY:
Okay.
I have just one question for clarity sake, I guess, again.
In the
Auditor General's report on page 38, in the 9:15 a.m. time frame, it says, HVP
suggests that this issue was first raised with an official of the Department the
previous day, March 12, 2014. I
would presume it would be an issue with, like it says in the previous paragraph,
Project 1-12. The official, while
acknowledging contact with the solicitor for HVP on March 12, 2013, does not
recall a discussion related to HVP not returning to Labrador in 2014 but felt
the discussion related to the potential of a claim resulting from the forest
fires in 2013.
Which
official was that? Do we know?
It was you.
MR. GOSSE: It was
me.
MR. MURPHY:
Okay.
When you got that phone call, Mr. Gosse, who would you have
informed? Would you have informed
the minister that this call came through, that there was all of a sudden a
concern or alarm bells or anything going off?
MR. GOSSE: I do
not know that I spoke to anybody about that phone call, Mr. Murphy.
It was a phone call, as I understood it, on the claims that we had talked
about previously, the $2 million claim.
It was just another phone call.
It really did not even it was not worthy of mention until the next
morning when we were told to contact Humber Valley Paving to see what was on the
go.
MR. MURPHY:
What time of the day was that, that you got that phone call?
MR. GOSSE: It
was around lunchtime.
MR. MURPHY: It
was around lunchtime on March 12?
MR. GOSSE: Yes.
I remember the phone call.
MR. MURPHY: You
got the phone call dinnertime but you did not tell the minister that day that
the phone call came in, you waited until the next day for it.
MR. GOSSE: No.
It was a phone call like many others that you get through the run of a
day talking about contractual issues.
MR. MURPHY:
Yes, okay.
MR. GOSSE: But
there was nothing in that phone call that caused me any concern other than,
well, maybe they are going to formalize that claim now and we are going to see
something that we can analyze.
MR. MURPHY:
Yes, but what I am thinking is even though the minister did not have the basis
to make any kind of a decision yet, because it still was not March 13 it was
only March 13 that the decision was made.
Was the decision to allow the contract do you think that your minister
came to the decision the day before about the cancellation of the contract
because you had received this phone call about some issues or that it might have
been a concern to the minister? Why
would the minister not have been told about that particular
phone call if there was a
financial concern there?
MR. GOSSE:
Because, like I said, it was just another follow-up phone call, as I saw it,
from the solicitor for the construction company which is not uncommon on an
outstanding claim issue.
MR. MURPHY:
Okay, so
MR. GOSSE:
My perception of that phone call is well, now we are going to see something that
we can analyze. We will determine
where we go with that $2 million. Once
that was formalized, well then deputies and ministers certainly would have been
aware of it.
MR. MURPHY:
Okay, because it was a $2
million ask
MR. GOSSE:
Request.
MR. MURPHY:
request on the part of the
company, and it does not seem like it would be alarming enough to tell the
minister; that is what I am wondering about.
MR. GOSSE:
The minister was already aware of the $2 million request
MR. MURPHY:
He was, yes.
MR. GOSSE:
because was confronted at the airport in Goose Bay, plus I had already told
him about the phone call I had from Eugene Coleman on the $2 million claim.
MR. MURPHY:
Okay, so something was
MR. GOSSE:
This was another phone call on the same issue that
MR. MURPHY:
Something was happening then
that was really getting the pot going on March 12, instead of March 13 when the
final decision came.
MR. GOSSE:
Yes, so that looks like it may have started on the twelfth; but, from where I
sat, it was an advancement of that claim they were going to make.
MR. MURPHY:
Okay.
Just
MR. GOSSE:
We deal with claims all the time.
It does not mean that you brief a minister every time you get a construction
claim.
MR. MURPHY:
Yes, okay.
All
right, thank you for that. Mr.
Chair, I will leave it at that for now.
Like you said, we will have a discussion about the witnesses and
everything after.
CHAIR:
Thank you.
Page 40
of the AG is a discussion of four options the department used.
The department used three criteria.
The first was: Ensuring the project was completed in 2014.
So was it completed in 2014?
MR. GOSSE:
It was completed July of this year, 2015.
CHAIR:
Okay.
MR. GOSSE:
There were eleven kilometres that were not completed in 2014.
Having said that, 2014 was the wettest summer on record for Labrador, so
I do not think it mattered who was doing that work, it was not getting finished,
regardless of plans.
CHAIR:
Okay.
The
second one: Inflicting the least amount of harm to Humber Valley Paving and its
employees. At the time the decision
was arrived at, was Humber Valley Paving actually operating?
Was it paving?
MR. GOSSE:
At the time this decision was made, Humber Valley Paving would have been in what
we would normally consider to be their winter shutdown period.
They were still active, they were still calling, and they were still
wondering about tenders that were coming out.
As I understand it, they were still taking out tender documents.
So they were still operating and functioning as you would expect them to
be functioning in March.
CHAIR:
Okay, but most of its
employees were laid off?
MR. GOSSE:
Most construction employees are seasonal employees; they would not be back to
work yet.
CHAIR:
Humber Valley Paving
ultimately, I think, went into receivership or made an arrangement with
creditors?
MR. GOSSE:
They are restructuring.
I do not think that they are actually in receivership.
CHAIR:
So are the employees still
working for Humber Valley Paving?
MR. GOSSE:
I cannot imagine where or
how. They are not actively doing
any work.
CHAIR:
The third one was: Ensuring
the project was completed at contract cost.
It went over cost, how much?
MR. GOSSE:
It cost us $1.7 million more
than what it would have cost us at Humber Valley Paving's prices.
CHAIR:
Essentially, none of the
criteria were met?
MR. GOSSE:
No.
CHAIR:
On page 49, at the top of
the AG report, it said, Calling any Performance bond would likely have been
damaging to the reputation of the company and its relationship with the bonding
company. This outcome was
inconsistent with the Minister's desire that any solution not be injurious to
HVP and its employees. However, no
assessment of the financial condition of HVP was made.
Was any
consideration given to the effect on the tendering process with other
contractors who would be bidding on similar work in competition with Humber
Valley, if their view was Humber Valley is getting a preference?
Was that a consideration in the department's mind?
MR. GOSSE:
I am going to say no, it was
not one of the considerations that we had.
CHAIR:
In one of the methods of
paying, you can pay every two weeks for liquid asphalt.
I think that was outside of the terms of the contract.
It was a benefit that was conferred, I believe, on Humber Valley Paving.
That was not generally made available to other bidders on the contract.
Is that correct?
MR. PADDON:
That is my understanding.
CHAIR:
Has the department made any
assessment as if there has been any harm done to the general tendering of paving
contracts in the Province because of the fallout from this Humber Valley Paving
issue?
MR. GOSSE:
If you look at tenders that
we have called since that time and the number of bidders that we get and prices
that we get, there has been no harm done.
We have a very good relationship actually with the Heavy Civil
Association that is made up of all heavy civil contractors, including paving
contractors, in the Province. We
have grown that relationship over the last number of years.
CHAIR:
On page 50, in the middle of
the page, the Auditor General reports: As part of his discussion with the
Minister, the Deputy Minister asked if he should prepare a briefing note and
'move this up the line.' The
Minister's answer was 'no, move on it.'
If, in
fact time, had been taken to move it up the line in, what I will call, the
ordinary course, how long would it have taken to wrap it up?
MS COMPANION:
Normally, to get a briefing note up the line, an urgent matter such as a
decision that would have very serious sensitivities, we can get a note prepared
and approved by the minister and get it within a day to Cabinet Secretariat with
everyone focused on getting it there.
CHAIR:
So it could have been
documented within, I will say, your standard processes, but on an expedited
matter within a day or two?
MS COMPANION:
Right.
CHAIR: So all
that was really saved was a day or two?
MS COMPANION:
In a day or two, we would be able to get a note to Cabinet Secretariat and to
the Premier's office, yes.
CHAIR: Of
course that day was a critical day because it was the close of a certain
nomination proceeding.
MS COMPANION:
For the department to get the note there, it would take a day.
For the Premier's office, if it was a decision note, if we were looking
for a decision, that takes a varying amount of time, depending on the urgency,
of course and the number of issues that are going through the centre; but, from
our end, we would get our work done to get to the Premier's office and to
Cabinet Secretariat.
CHAIR: I can
understand and appreciate from one of Mr. Gosse's earlier answers that it is
really not much point in doing a briefing note.
If I am wrong on that, you can correct me.
After it is already done, you do not really need a briefing note on the
points of doing it or not doing it, and I would understand that.
However, it would be common, I think, in some offices to have a note to
file after the fact. So you have a
note to file, which is to summarize what you just did, even though it is not a
briefing note.
Was there any such note to file prepared?
MS COMPANION:
No, the note that was
prepared on this issue was an information note that was sent to Cabinet
Secretariat on this decision that had been taken and that was in April.
I think it was in April mid-April or late April.
A copy was provided to Public Accounts.
I will check the date.
It was
April 29, sorry.
CHAIR:
Now there was a holdback I
think of $1,118,000, in that range.
My thought would be that if there is a holdback and the owner is the government,
and the government does not own the money, that somebody would have made a
recommendation to pay the money into court just to get the government out of it,
in some court processes done in an interpleader.
Send the lawyers down to the courthouse and say: hey, Judge, this is not
our money. We want nothing to do
with it. Give us an order, if we
want to pay it in court we clean our hands.
I would
cringe every time I would think that if it was my client that he would be paying
certain creditors and maybe giving a preference and maybe exposing my client to
more risk on a longer basis and more legal fees.
Was there any consideration to just pay the money in a court and back up,
get out of the game?
MR. STANLEY:
No, that was actually
actively considered a couple of times to assess whether the Province had
possession of the holdback funds for more than a year.
There was consideration as to whether or not we should go down and do an
interpleader and pay it all into court.
The problem was usually that is used in the context, we have multiple
people claiming or fighting over the same amount of money.
We were
actually in the position where we did not have multiple people claiming or
fighting over the money because we were not receiving demands or claims for the
funds, other than from the secured creditors.
So we actually did not think the court would entertain an interpleader
because we did not have two parties usually an interpleader is where you have
two parties claiming against you.
You are just the custodian of the funds.
You say to the court, I do not know which one of these two own it.
I know I do not own it. So I
am going to pay it into court and I am going to walk away and let them fight it
out.
We did
not have that scenario. So we were
not sure the court would let us pay it into court on an interpleader and on the
issue of ensuring that we did not do anything that created artificial creditor
preferences. This is why we were
pretty careful when we were going down through the priorities of who the money
would be paid to. We were
reassessed and it is pretty clear under law.
There is not much dispute that intercepts requests from CRA and a payment
outstanding workers' comp requirement.
Our
workers' comp lien had to be satisfied.
After that an assessment was done as the only secured creditor, because
we searched to check in behind, HSBC had the claim for the funding.
CHAIR:
So there were statutory
liens from workers' comp and CRA?
MR. STANLEY:
There was a statutory lien
for workers' comp and there was basically a garnishment or interception demand
from CRA that we received, I think through the Department of Finance.
CHAIR:
Okay.
So they got their money first.
MR. STANLEY:
They got their money first,
yes.
CHAIR:
Many lawyers cry over that
when CRA shows up, when they have won a judgment.
CRA gets all the money.
MR. STANLEY:
Yes.
CHAIR:
I think I heard earlier in
Mr. Gosse's evidence that one of the bonds actually had no liability attached to
it. I do not understand if that was
because it was a two-year coverage but with a 120-day rolling window when you
could claim.
What
was happening there? If there was
no liability attached to that particular bond, there would seem to be no
downside to releasing it in any event, but then there was the other one.
MR. STANLEY:
I can try to answer that.
The two bonds that the Province got on this project when the tender was
put in place which it does on, I think, every tender project was a
Performance Bond and a Labour and Materials Bond.
They are very different documents.
The
Performance Bond is essentially an insurance policy against there being a
performance problem on the contract, so that in theory you have a bond available
if you want to call on the bond and get the contract completed.
It is the sort of an insurance policy that has to be triggered to kick
in. It has been discussed by Mr.
Gosse, that the decision to trigger it has a number of implications.
The
Labour and Materials Bond is almost like a facility that you get put in place
that is available during the life of the contract.
While the bond is in place it is available to third-party contractors
that if they it is a little bit complicated in its interaction with mechanics'
liens. You can have individuals
who, if they are in a position to get a mechanics' lien, or even if they have
missed the mechanics' lien period, they still have a position where they can
claim against the Labour and Materials Bond to have a means to get paid.
They still have to pursue their lawsuit against the company and then the
bond will kick in. So it is an
ongoing facility that is available if people avail of it during the period of
time.
The
issue is that when the contract was terminated in the middle of March, under the
Labour and Materials Bond you have to make a claim within 120 days for work that
was done within ninety days of so you have to make a claim within 120 days of
work that you had done within like a ninety-day period.
There are two time frames there.
If you do not make the claim under the Labour and Materials Bond within
those time frames, you cannot claim later on.
So six months later you cannot go back and claim under the Labour and
Materials Bond.
At the
time that we terminated the contract, it had been more than 120 days since
anybody had performed services to Humber Valley Paving under contract 1-12.
So there would have been nobody out there who would have been able to
make a legitimate claim against the Labour and Materials Bond.
That was the legal assessment done at the time on that day, and we have
not seen anything to change our mind on that.
CHAIR:
So when the lien claim is
filed within the ninety days, does it then have to be perfected with a statement
of claim?
MR. STANLEY:
Yes, the Labour and
Materials Bond, the terms of the bond require people to file a notice with the
bonding company of their claim for bond funds for something they were not paid
for where services were provided within the last ninety days or 120 days to the
company. Then they have to go and
still maintain a lawsuit and prove that claim.
The bond company just does not pay out on the basis of a claim.
The bond company wants to see that you have run it through court and
exhausted your remedies through court.
It does
not actually say they only pay out on judgements, but that is sort of the idea.
That if you manage to get a judgement against a company for the amount of
money you are owed, the Labour and Materials Bond will kick in to pay that
judgement as opposed to you having to chase the company for it.
CHAIR:
Is there any requirement or
mechanism for, I will say the owner, the Province to give notice to anybody who
is a potential claimant that we are going to discharge a particular bond so they
can file their claims?
MR. STANLEY:
There is nothing in the bond
form itself that I am aware of, no.
CHAIR:
So there is no potential
liability for the Province for having released the bond and a third party who is
innocent may show up and say, hey, we did not know and you did not tell us, now
we are going to sue the Province.
MR. STANLEY:
Our starting position on any
such claim would be, no, we have no liability for that and we do not have a
claim in front us. Nobody has come
forward with any kind of a legal action on that basis.
CHAIR:
Mr. Gosse had an explanation
about progress payments, which I understand a little bit about.
To do progress payments for amounts of work, is it done with like an
engineer's certificate of partial completion?
How do you know how much to pay them?
MR. GOSSE:
On our certificates of
payment, or on the progress estimates, a certificate of payment has one
signature, and that is mine, and initials by the Director of Highway Design and
Construction. To get to the
certificate of payment, there is a progress payment sheet which lists all the
items in the contract, the quantities and the prices, and the extended value,
and that is done each month. So it
is updated each month, and the previous quantities are deducted.
That is how you determine this month's payment.
That is
signed by four people. That is
signed by the engineer on the job; it is confirmed by the regional engineer, or
in his absence the regional director; then it is signed by the Director of
Highway Design and Construction; and the fourth signature is mine, or the
assistant deputy minister's.
CHAIR:
If payment is advanced
toward materials that are on site, crushed or whatever, how is that secured so
they do not run off and use it on another job while they have your money?
MR. GOSSE:
Well, we have it in a secured site.
If they are doing work on two different areas, they keep the stock piles of
materials separate. They know that
is ours; do not touch it. We have
people on the job who make sure they do not go off with our materials.
The
other piece of materials, of course, that we often pay for is components that
would come in for example, take the Placentia Lift Bridge, where we are
getting all the mechanical and electrical components in now.
We require them to be put in a secured yard that we pay $1 to lease the
space to us, so it is our property.
It is stored on our property and we pay for the materials that way, based on the
invoices and not what the contractor's bid prices are.
So if
he bid, for example, $1,000 for an item and the item cost $500, once it is
delivered, we pay the $500. When it
is installed and operational, then we pay the other $500.
CHAIR:
There were two other claims
that you guys had settlements worked out with
MR. GOSSE:
Correct.
CHAIR:
and the company backed out
of it. How could they back out?
Did you have a signed deal or was it only a handshake?
MR. GOSSE: We had
an agreement with them to do that.
We would have paid those on the same basis as a progress payment.
So we were in the process of doing up our progress payment sheets, with
the change order on the bottom covering off the extra costs, when they called
and said: No, we are withdrawing our agreement to that.
We do not want you to do that anymore.
So we just stopped.
CHAIR: Okay.
You did not have actually a signed
MR. GOSSE: No,
there was an email that said: Yes, proceed.
Then another I do not recall if it was an email or a phone call that
said: No, we are not in agreement with that anymore; stop.
CHAIR: What
happened to those claims? Are they
finalized now or are they still outstanding?
MR. GOSSE: They
are still outstanding.
CHAIR: How much
are they?
MR. GOSSE: The
two claims one originally was about $200,000 and the other was about $400,000,
in round numbers. The settlement
offers on both were in the $94,000 to $95,000 range.
The value of those would have been confirmed by our consultant on the
project. As I said earlier, we had
a consultant looking after that work for us.
It was confirmed by our people at the regional office in Labrador and
then sent to the Director of Highway Design and Construction.
CHAIR: Okay,
thank you.
I do not have any more questions.
I do not know if other members may have questions arising from any of
these.
Usually we turn to Mr. Paddon and see if there is anything
he would like us to ask that we might have missed; things we did not ask three
times.
MR. PADDON: No,
I think it has been fairly comprehensive.
Thank
you.
CHAIR:
In that case, just a bit of
housekeeping, Ms Murphy is asking about dates, so I think she will communicate
directly with members and get available dates.
Whatever dates people have that are available any time over the next few
weeks to come back, or the next two, or three, or four, or five weeks, everybody
should just give her the dates. She
will match us all up and then we will move forward, depending on whatever we
come up with.
Our
proposed discussion is that we have a notice, a request to appear, and that we
would get the people's email addresses and scan it and send it to them by email
so they would have it as quickly as possible.
It will be a scan, a legitimate thing.
If we send letters, that means mail.
It could be a while. Ms
Murphy is quite proficient with doing this and we would have a record of it
having gone to them.
MR. K. PARSONS:
(Inaudible) and whatnot like
that so we can look at who is available and who is not.
CHAIR:
Yes, we can do that, but we
need to supply dates to Ms Murphy.
I would ask all members to provide her with whatever dates either you have
available or you are not available for the next, whenever it is.
MR. MURPHY:
Any time, except September
18, for me. I am good.
CHAIR:
Okay.
MR. OSBORNE:
Any time, except for the
last three weeks in November, for me.
CHAIR:
It has been a long day.
I would like to thank all of you for coming.
I think to the extent that you have had information that you have been
able to provide it quite willingly, and freely and openly shared it with the
Committee. I think for that we are
grateful. The fact that we may want
to hear more from other people is no reflection on the people who came.
My view is that you were very forthcoming, so thank you.
I have
minutes from yesterday. Can we have
a motion?
MR. HUNTER:
So moved.
CHAIR:
So moved by Mr. Hunter.
MR. MURPHY:
Seconded.
CHAIR:
Seconded by Mr. Murphy.
All
those in favour, 'aye.'
SOME HON. MEMBERS:
Aye.
CHAIR:
Anyone opposed?
Carried.
On
motion, minutes adopted as circulated.
The
Committee adjourned.