Lifting Lansdowne's veil: Lawsuits tell story of escalating costs, unpaid bills, business failure
James Bagnall, Ottawa Citizen
Published on: December 11, 2015 | Last Updated: December 11, 2015 12:50 PM EST
The firm that built the signature wooden ‘veil’ on TD Place stadium went bankrupt. Other contractors are suing for millions. James Bagnall reveals the legal scars left by Lansdowne Park’s facelift.
One of Eric Sommer’s greatest joys is creating wood structures that transform ordinary buildings, infusing them with new shapes and warmth.
It was his company — Spring Valley Classic Custom — that installed the signature wooden veil that envelops the south side of TD Place, the rebuilt stadium at the heart of a reborn Lansdowne Park.
Sommer translated the inspiration of architect Robert Claiborne into a lattice of wood and steel so precise that nowhere is there a spot for water to collect and begin the process of decay. The structure, which incorporates more than 12 kilometres of Alaskan yellow cedar, should age gracefully.
“It’s a work of art,” Sommer said wistfully from his company headquarters in Jerseyville, a small town just west of Hamilton.
The $7-million job should have been the pinnacle of Sommer’s 27-year career.
Instead, it ruined him.
Spring Valley filed for bankruptcy on Oct. 28. Seventy workers lost their jobs.
“I won’t bring my family to Ottawa to see what we built,” Sommer said afterwards. “I couldn’t bear it.”
Sommer lost everything after putting his “heart and soul” into building the one structure at Lansdowne that would become a landmark in the city. But while bankruptcies are not uncommon in the complex world of large-scale construction, Spring Valley was far from the only firm on the Lansdowne site that saw large invoices unpaid despite work being finished or materials delivered.
Construction of Lansdowne’s stadium, arena and parking garage appear to have generated an unusually large number of legal actions — from electricians and providers of steel and heating and air-conditioning systems — that amount to tens of millions of dollars.
Last year, while fans streamed past the huge Lansdowne Park transformation project and into the rebuilt stadium to watch the Ottawa Redblacks’ first CFL game, liens and lawsuits were already piling up as firms tried to get paid by Pomerleau, Inc., the prime contractor on the project.
Pomerleau said in a statement this week that it “has resolved, or is in the process of resolving, all commercial issues with its sub-trades.” Through its director of communications, Carolyne Van Der Meer, the Quebec-based construction giant added: “We trust that all contracts will be closed within the next 60 days.”
The Citizen examined nearly a dozen litigations at the Superior Court of Ontario involving disputes over payments at the Lansdowne project and interviewed 25 people with expertise in the industry — lawyers, contractors, suppliers, financiers and architects.
These court records and interviews shed light on the inner workings of the construction sector that is one of the city’s biggest industries, and a project that has been in the capital’s spotlight for the last few years. They appear to show that the City of Ottawa’s strong desire to avoid financial risk translated into tight budgets from top to bottom, from the project’s owner, Ottawa Sports and Entertainment Group (OSEG), through its prime contractor, Pomerleau Inc., all the way down to its subcontractors, some of whom laid off dozens of workers as a result.
When unexpected work and design changes ran up against the project’s rigid deadlines, Pomerleau and OSEG disagreed over which firm would pay for the unbudgeted expenses. That meant Pomerleau’s subcontractors and their suppliers wouldn’t get paid until Pomerleau and OSEG resolved their standoff.
It was a project that was counting on things going smoothly. And they did not.
Áine McKellar, who co-owns Am-Tech Electrical with her husband, James McKellar, saw signs of stress on the project in May 2014. Pomerleau had hired Am-Tech to wire the stadium and parking lot through three separate contracts initially valued at $12.7 million.
“We have early-payment terms on our contracts,” Áine explained, “so we were first to see there was a problem.”
James and Áine told their story in a coffee shop a five-minute walk from Lansdowne. Like Sommer, they didn’t want to meet on the grounds — too many bad associations. Their anger is still raw.
The couple has been running Am-Tech for the past four years. They got their start there in 1999, but left for a time to manage their own business, then returned when James’s father and Am-Tech founder Archie McKellar retired. Am-Tech, now in its 38th year, is well known within Ottawa’s construction industry. The company installed the electrical grid that powers parts of the Ottawa airport, Queensway-Carleton Cancer Centre and Minto Place, the downtown office and retail complex.
At its peak, during the first part of the Lansdowne project, Am-Tech employed more than 170.
As the firm’s workers installed electrical conduit and junction boxes at the Lansdowne facilities, the company submitted bills for completed work. These were progress payments. From late 2012 to early 2014, Pomerleau paid them reasonably promptly. But then there was a problem.
Am-Tech forwarded multiple invoices involving jobs that hadn’t been anticipated by the original contract — often involving a change in the design of the parking lot or stadium to accommodate changing circumstances. Am-Tech said Pomerleau or OSEG reviewed the invoices, then signed off on the amounts. Or not. Increasingly during 2014, Am-Tech was incurring extra costs that were being denied. Pomerleau claims in litigation that this was because Am-Tech “was unable to finish its work in accordance with the project schedule” — which is disputed by Am-Tech.
In May 2014, mere weeks before OSEG was due to take possession of the stadium, the cash from Pomerleau suddenly dried up — not just for unexpected extras but the originally contracted electrical work as well.
When requests for payment weren’t satisfied, the McKellars responded by pulling their 60-plus workers off Lansdowne. That kind of tactic is rarely invoked on a construction site because of the potential ripple effects on the overall schedule. But Am-Tech was concerned about how the invoices were piling up.
“We had multiple meetings with OSEG who convinced us to come back,” said James. “We agreed because we both wanted football to return to Ottawa.”
It was very late in the day: electrical work on the stadium and garage was nearly all done at that point. The relationship with Pomerleau, already strained, would not recover.
Am-Tech has yet to receive another payment from Pomerleau — representing a $1.5-million shortfall under the original contract and another $3.8 million for additional work ordered by Pomerleau, according to court documents submitted by the McKellars’ firm.
Am-Tech wasn’t the only contractor affected by a sudden stoppage in payments from Pomerleau. Lainco and ABF Reinforcing Steel launched multi-million-dollar suits in the summer of 2014 in support of claims of nearly $7 million. Lainco had built the steel framework for the new structures while ABF had supplied 6,000 tonnes of rebar to reinforce the concrete. Both suppliers settled out of court earlier this year for undisclosed sums.
“Pomerleau is a good customer for us,” explained Lainco president Marin Lachapelle in reference to the $1.7-billion-a-year Montreal construction giant, which manages hundreds of civil and industrial projects across Eastern Canada.
Am-Tech, Spring Valley and a third major subcontractor — X-L-Air Energy Services, the provider of heating, air conditioning and other mechanical gear — have not reached settlements. Nor have a handful of third-tier suppliers, who have initiated legal action against Am-Tech and filed related claims against Pomerleau, OSEG and, in one instance, the City of Ottawa. In at least three cases, according to subcontractors and suppliers, Pomerleau offered amounts at a significant discount to the claimed amount, but these were turned down.
While the litigations are many and complex, the gist is simple: Pomerleau maintains that OSEG ordered a number of significant changes to the project and therefore should have picked up the extra tab.
“By not paying Pomerleau or by delaying payments, OSEG has placed Pomerleau in an unfortunate financial position vis à vis its subcontractors,” Pomerleau claimed last June in a court document outlining its defence.
OSEG, for its part, argues it hired Pomerleau under a fixed-price contract, albeit with provision for certain limited changes. “Pomerleau has been paid everything it is owed under the prime contract,” OSEG and the City of Ottawa asserted in a statement of defence. “To the extent any amount remains owing (to subcontractors) it is entirely Pomerleau’s responsibility.”
None of the allegations contained in more than a dozen Lansdowne lawsuits has been tested in a court of law.
The standoff between OSEG and Pomerleau created a financial squeeze for many of the project’s subcontractors and their suppliers. Spring Valley is the only one to have filed for bankruptcy, but Am-Tech has suffered as well. Its workforce today numbers fewer than 25 — down 85 per cent from its peak — and the firm no longer has the heft to bid on large contracts.
Am-Tech is suing Pomerleau for nearly $6.7 million in damages in connection with the business it lost while downsizing, as well as $5.3 million in money it claims is still owing from the Lansdowne project. Pomerleau has responded with a $3.8-million suit alleging breach of contract and negligence.
“We intend to see this through,” said Am-Tech co-owner James McKellar of his firm’s civil suit. “What happened to us, to our employees and suppliers isn’t right.” His wife and business partner Áine added: “The hardest part of the past year-and-a-half was laying our people off. This has not been a good experience for anybody.”
Am-Tech’s suppliers — the providers of wire, cable and other electrical components — are claiming hundreds of thousands of dollars worth of damages. In its statement of defence Am-Tech notes that the contracts it signed with its suppliers “contained express or implied terms” whereby the suppliers “would only be paid once Am-Tech had been paid by the general contractor, Pomerleau.”
From the beginning, the City of Ottawa was determined to minimize its financial exposure. “It was to be a zero-sum game,” said Larry O’Brien, the mayor who steered the Lansdowne project through its earlier stages. By this, he meant the net cost to Ottawa taxpayers was to be nothing. “We had the land,” he added, “private developers had the money and the expertise.”
Minto Group executive chairman Roger Greenberg championed the idea of a partnership. Joining the prominent Ottawa developer were John Ruddy, CEO of Trinity Development, Jeff Hunt, owner of the Ottawa 67s hockey team, John Pugh, president of the Ottawa Fury Football (soccer) Club, and William Shenkman, chairman of the Shenkman Group. To pursue what would become the Lansdowne project, they formed the Ottawa Sports and Entertainment Group.
OSEG assumed the lion’s share of the business risks. By the time the lawyers got done with it, the Lansdowne project had transformed into a vast, 30-year arrangement. It covered upfront capital costs, estimates of revenues and expenses and how these were to be shared between OSEG and the city.
Crucially, it provided for a relatively anemic eight-per-cent annual return on OSEG’s investment — surprisingly low for a project of such complexity and risk.
“I know people think it’s really corny, particularly when rapacious developers suggest they’re going to do something that’s good for the city,” explained Greenberg, “but this was a desire by civic-minded individuals to develop Lansdowne in a fashion that would not have us lose a bundle of money.”
Surprisingly, the negotiated eight per cent return was not compounded — each year’s calculation would be based on the original investment, and not on accumulated interest.
“By negotiating an eight per cent simple return with the city,” Greenberg said, “we really agreed to less than five per cent compounded. It’s bad on me, bad negotiations on my part.”
It’s not as bad as it sounds because Greenberg had originally expected to see more money returned during the earlier years, which meant there would have been a smaller difference between the sums produced by simple and compound interest. But higher-than-expected upfront construction expenses changed all that.
OSEG was under the — to get its costs down from the very beginning.
In 2012, EllisDon, PCL Construction and Pomerleau submitted proposals to rebuild the stadium, arena and parking garage. Every bid exceeded OSEG’s budget.
To push spending down, OSEG and Pomerleau — the low bidder — developed less expensive designs. “We needed to go back and do a lot of value engineering to try to identify savings,” Greenberg said. “The city wasn’t prepared to pay the incremental amount.”
Project architects reduced the size of the roof on the north stadium, created a smaller canopy for the stadium entrance and made adjustments to the wood veil to be installed by Spring Valley along the south side of the stadium.
Satisfied with the proposed changes, OSEG awarded Pomerleau a fixed-price contract on Oct. 11, 2012, estimated at $142 million. OSEG wanted to take possession of the stadium by June 2014, just in advance of the Redblacks first home game. The partnership was anxious to begin securing revenues from football and soccer fans.
Just a few months after the project began, OSEG very nearly put the whole thing on hold when it discovered the arena roof would require an extra $17 million in repairs. This would later be revised to $22.6 million.
But that wasn’t the only call on OSEG’s money. Pomerleau had been forwarding change orders — bills for extra work on the other parts of the project. Despite a five per cent plus contingency fund, standard for any construction project, these had the potential of blowing a hole through OSEG’s budget.
With more than 50 years in the business, Pomerleau is deeply familiar with the building trades. Despite its experience, the Lansdowne project proved challenging. In part, this reflected the intensive re-engineering exercise that took place in 2012. When construction started, the trades claimed, Pomerleau had not yet finalized the architectural blueprints known as “issued for construction” (IFC) drawings. This was unusual, the trades said.
“Pomerleau pushed ahead in 2012 with the concrete, block and mechanical and electrical systems without the IFC drawings (issued in July 2013),” Am-Tech alleged in its statement of claim, “forcing the trades to guess on system interference and adjust after the concrete was poured at great cost and delay.”
In its statement this week prepared for the Citizen, Pomerleau noted about the litigation in general: “As in any large, complex construction project like this one, issues sometimes arise.”
Relations between Pomerleau and some key trades were difficult at times. Am-Tech alleged that Pomerleau workers kicked aside electrical conduit to expedite the job of pouring cement. There were disputes about the need to heat the buildings during a brutally cold winter, and who should pay for asbestos removal gear.
Pomerleau for its part has accused Am-Tech of failing “to perform its subcontract work in a good and workmanlike manner, leaving unrectified deficiencies and incomplete work.”
While much reduced in size from when it took on the Lansdowne project, Am-Tech at least remains in business. At his company headquarters near Hamilton, Spring Valley founder Eric Sommer is still mulling how it all went so wrong for him.
It had all seemed so straightforward on Nov. 6, 2012, when Pomerleau hired Spring Valley to install the wooden veil on the south side of the stadium. That contract was for $4.6 million — several million dollars less than the original design. The reduced cost reflected the re-engineering efforts designed to make Lansdowne more affordable.
But there was unfinished business in the form of an engineering study commissioned by OSEG, which wanted to know if the smaller, redesigned veil could still withstand Ottawa’s maximum wind and snow conditions. The 2013 study determined that Spring Valley would have to adapt the veil again.
Spring Valley employee David Melia said the revision required the use of about 5,000 custom-made steel connections. The costs escalated.
Sommer sent Pomerleau a letter that noted “we could no longer achieve the budget.”
In fact, the redesign would push the cost of the veil to $7.1 million. Sommer, who had already paid for the wood and other materials, was now locked into a veil project substantially over budget. Pomerleau said it would work with OSEG to make sure Spring Valley would be paid for the changes.
But according to legal documents, OSEG approved only $160,492 worth of changes beyond the original contract with Spring Valley. That left $3.2 million in submitted claims that had not been approved.
Pomerleau claims it “diligently submitted” Spring Valley’s additional charges to OSEG throughout. “OSEG is responsible for paying Pomerleau for the changes, plus the overhead and profit,” Pomerleau noted in a statement of defence. “In turn, Pomerleau would pay Spring Valley.”
However, OSEG maintains that all the work done by Spring Valley “was required under the prime contract with Pomerleau.”
OSEG’s litigation against Pomerleau adds that if Spring Valley “suffered any loss or damage, which is denied, such loss or damage was caused or contributed to by Pomerleau.”
While Pomerleau acknowledged that Spring Valley had incurred extra costs on the veil project (though not the full amount), relations between the two firms soured after Spring Valley launched its claim against Pomerleau, OSEG and the City of Ottawa in October 2014.
During nearly three decades of business, Sommer had accumulated little more than $1 million in equity — this was to be his retirement fund, his family’s nest egg. Now he was $3 million short on a key project. As long as there was a prospect Spring Valley would get paid, things would work out.
But in October, Spring Valley could find no one willing to provide it with sufficient cash to carry it through until it received payment for the Lansdowne work. At the end of the month it was forced to file for bankruptcy, listing $3.2 million in liabilities against just $289,000 in assets. Earlier this week BDO Canada, the receiver on this file, was still debating whether to continue Spring Valley’s civil suit against Pomerleau. According to Pomerleau, discussions between it and Spring Valley are “ongoing.”
In separate litigation, Pomerleau had been seeking at least $17.9 million from OSEG to pay for construction changes performed by its subcontractors (an amount unrelated to the roof repair). “We’ve agreed on the amount,” Greenberg said. “This will all be resolved as part of the payment that we’ll make to them at the end of the year once they get their deficiencies done.”
Greenberg declined to provide insight into the settlement but other litigants who worked on the Lansdowne project have done well to get more than 25 cents on the dollar for their claims.
On a warm day in early December, Christmas music wafts throughout the retail and office sections of Lansdowne. It’s almost unrecognizable to those who remember the acres of asphalt that spread as far as they could see. It is a reminder of what private money can accomplish in public spaces.
But no matter where you walk on the site, it’s difficult not to notice the veil, Eric Sommer’s gift to the city. It may well become the enduring symbol of what Lansdowne really cost.
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