Chapter 3 Section 3.07 Metrolinx—LRT Construction and Infrastructure Planning Sheppard East, Scarborough Rapid Transit, 1.0 Summary Hamilton and Hurontario. We focused on the Eglinton Crosstown, as this was the only project in construction during our audit. Metrolinx is the regional transportation agency We found that Metrolinx incurred about responsible for planning an integrated regional $436 million in sunk and additional costs between transit system for the Greater Toronto and Hamil- 2009 and 2018 because of problems with how the ton Area (GTHA), overseeing transit capital pro- transit-planning process evolved for the GTHA jects, and operating GO Transit trains and buses, and how Metrolinx carries out its responsibilities. the Union Pearson Express and the PRESTO fare Figure 1 summarizes this based on the LRT projects payment system. Metrolinx’s responsibilities are set our audit examined: out in the Metrolinx Act, 2006 (Act). Sunk Costs Resulting from Project Changes. In November 2008, Metrolinx formally adopted • Chapter 3 • VFM Section 3.07 After the LRT projects were announced or its first Regional Transportation Plan. It was a agreed on, the provincial and municipal 25-year plan setting out the priorities, policies and governments changed their decisions on what programs for a regional transportation system for to build and when to build, even though sig- the GTHA. Among its top 15 transit priorities in nificant investments had already been made. the first 15 years were five “rapid transit” projects For instance, the City of Toronto overrode that would allow people to travel quickly in special previous decisions on the Scarborough transit vehicles that have “exclusive right of way” (other project three times, ultimately resulting in the vehicles are not allowed on the lanes). The high cancellation of the Scarborough RT project capacity of the special vehicles and the exclusive altogether. As well, the Sheppard LRT has right of way make this transport more “rapid,” or been delayed for more than 10 years from its faster, than transport like traditional buses and initial expected completion in 2013. streetcars, which are smaller vehicles that travel on Costs Over and Above Original Contract Values. lanes shared with other vehicles. • Metrolinx had to spend extra money to get Our audit looked at Metrolinx’s regional the consortium already designing and con- planning responsibilities and work, and its structing the Eglinton Crosstown LRT (AFP oversight of a number of its rapid transit capital consortium) to settle claims and commit to projects that have been designated as “light rail complete the project by its original comple- transit” (LRT): Eglinton Crosstown, Finch West, tion date of 2021. As well, Metrolinx had to 322 Metrolinx—LRT Construction and Infrastructure Planning 323 Figure 1: Sunk and Additional Costs on the LRT Projects, 2009–2018 Prepared by the Office of the Auditor General of Ontario $ million Sunk Costs Resulting from Project Changes1 Cancellation of Scarborough RT project (see Section 4.1) 75 Delay in Sheppard LRT project (see Section 4.1) 50 Subtotal 125 Costs Over and Above Original Contract Values2 Eglinton Crosstown LRT settlement (see Section 4.4.2) 237 Amendments to LRT vehicles contract (see Section 4.6.1) 49 Subtotal 286 Additional Contract Management Costs Oversight, administrative, contingency-plan and legal costs for vehicles contract3 (see Section 4.6.2) 25 Potential increase to program management consultant contracts (see Section 4.5) n/a4 Subtotal 25 Total 436 1. These costs resulted from problems with how the transit-planning process works in Ontario. Projects can be cancelled and delayed because of provincial and municipal government decisions. The investments made to that point lead to no result. 2. These costs resulted from how Metrolinx carried out its responsibilities. This required Metrolinx to spend money that it never planned to. 3. For the vehicles contract, these consist of oversight, administrative, contingency-plan and legal costs Metrolinx spent to manage the LRT vehicle supplier’s slow response to quality and schedule issues that caused concerns for Metrolinx. 4. For the program management consultant contracts, these may entail amendments to increase their upper limits because significant portions of their values were spent earlier on in the contracts. negotiate changes to the light rail vehicles it would still finish the project on time. The contract with the vehicle supplier because of AFP consortium consists of ACS, AECON, Ellis- revised projects and timelines. Don and SNC-Lavalin. Under an AFP contract Chapter 3 • VFM Section 3.07 • Additional Contract Management Costs. awarded in July 2015, the AFP consortium Metrolinx incurred additional contract was to provide Metrolinx with a detailed six- management costs after raising concerns month work schedule and update it monthly. about the vehicle supplier’s poor performance If it were to find that it was unable to meet the in designing the vehicles. They included substantial completion date, it would have to paying consultants and lawyers to help it try submit a report identifying the reasons for the to cancel the contract and resolve the dispute. delay and a plan for eliminating or reducing In addition, Metrolinx’s current rate of use the delay. The AFP consortium began falling of program management consultants poses a behind schedule in 2017. Metrolinx had the risk that additional money will be needed to right under the AFP contract to ask for addi- complete the delivery of the projects. tional information from the AFP consortium Regarding the construction of the Eglinton in order to perform a detailed assessment Crosstown LRT, our audit found that: of the work schedule if the AFP consortium • Under the Alternative Financing and Pro- indicated that project completion would curement (AFP) contract, Metrolinx had be delayed or if in Metrolinx’s opinion the limited remedies available to it to hold the consortium had fallen significantly behind the AFP consortium responsible for project work schedule; however, Metrolinx did not do delays as long as the consortium certified so because the AFP consortium represented 324 that it could still finish on time. The AFP adjacent to the existing West Don River consortium continued to submit schedules Bridge and a Salvation Army building. with increasing delays throughout 2017, and • Metrolinx and Infrastructure Ontario Metrolinx communicated its concerns about developed a risk register to negotiate the the delays, but the AFP consortium did not settlement to the claim, but Metrolinx adequately address them. In December 2017, did not have sufficient documentation of Metrolinx met with senior consortium man- evidence linking the settlement amount agement, at which time the AFP consortium to the AFP consortium’s claims that was still certifying it would meet the con- Metrolinx was partially responsible for tracted completion date of September 2021 project delays. We reviewed the settlement and indicated that in February 2018 it would negotiation process and confirmed that provide solutions to mitigate schedule delays. Metrolinx and Infrastructure Ontario used However, the AFP consortium instead filed a risk register, based on their analysis of a claim against Metrolinx in February 2018 the AFP contract, to estimate a settlement for extension of the project completion date amount. However, Metrolinx could not to October 2022. The claim also requested provide us with sufficient documentation compensation because Metrolinx allegedly confirming whether the project delays were was not helping the AFP consortium overcome or were not in part its responsibility and scheduling and cost challenges. The AFP factoring that assessment into the settlement contract with the consortium does not provide amount. We noted as well that the AFP Metrolinx with adequate remedies to address consortium also did not provide information project delays that it knows of early in the that linked responsibility for project delays project; the remedies take effect only when to compensation amounts, either before or the AFP consortium has declared that it will when it initiated its claim. not meet the completion date. • Approvals of designs and the AFP consor- Chapter 3 • VFM Section 3.07 • The AFP contract did not fully transfer tium’s delivery schedule were affected by responsibility for the risks of project the AFP consortium’s late submission of delays and cost overruns to the AFP designs and the designs’ poor quality as consortium, as evidenced by Metrolinx reported by Metrolinx’s technical advisors. having to pay the AFP consortium Deficiencies in the designs submitted by the $237 million to hold it to the completion AFP consortium included missing system date of September 2021. In an AFP project, elements (for example, signalling and fire a private-sector consortium is paid a detection equipment in tunnels). As well, premium to bear the risks of project delays the AFP consortium has constructed parts of and cost overruns. However, under the the project before having the overall design Eglinton Crosstown LRT AFP contract, the approved by third parties, creating a risk responsibility for these risks was not fully that it will later need to make unplanned and transferred to the AFP consortium. In August less-than-optimal modifications because the 2018, Metrolinx settled the AFP consortium’s completed work is not in compliance with the claim against it, paying the AFP consortium AFP contract (such modifications are made at $237 million to hold the AFP consortium to the consortium’s own cost). Metrolinx’s tech- the contracted completion date of September nical advisors observed that if design issues 2021. In addition, Metrolinx agreed to accept are not resolved, the Eglinton Crosstown LRT later delivery dates for the pedestrian bridges may not be found at the end of scheduled Metrolinx—LRT Construction and Infrastructure Planning 325 construction to be fully compliant with the regardless of the amount. We noted a number requirements in the AFP contract and/or of cases where Metrolinx requested that par- may not function properly.