Region forgoes appeal, pays $2M judgment
Lawsuit was for wrongfully terminating contract for work at Chippawa pumping station
A lawyer called it a textbook case of how not to run a project — and the serious consequences that can happen if you do.
Niagara Region has paid damages of $2.1 million plus HST and legal costs after deciding not to appeal a court decision for wrongfully terminating a contract with Kingdom Construction.
Geza Banfai, the lawyer for Kingdom, which is headquartered in Ayr, confirmed the municipality has made the payment. He said the
“Encountering surprises in construction is not unusual. What was unusual here was how the Region responded.” GEZA BANFAI
lawyer
matter is closed.
The lawsuit originated from a project at the Chippawa pumping station in Niagara Falls. Superior Court Justice D.A. Broad issued his decision on Jan. 8.
The contract, which was tendered in 2013, included the construction of an underground reinforced concrete storage tank to capture combined sewer overflows at the pumping station, as well as upgrades to the existing facilities which are located on Chippawa Parkway.
“Encountering surprises in construction is not unusual,” Banfai said. “What was unusual here was how the Region responded.”
The project was fraught with delays and problems from the onset of construction, and it officially fell apart on Jan. 20, 2015, when the Kingdom was told it was no longer welcome at the site.
The next day a formal letter terminating the contract was sent to Kingdom and its surety, insurance giant Aviva.
Problems began almost immediately in spring 2014. As Kingdom started excavating for the new tank, the underground con-
ditions were far different than expected. There was a flood of subsurface water in quantities many times greater than anticipated. Instead of digging down to solid bedrock, Kingdom’s subcontractor was working on top of an aquifer connected to Chippawa Creek.
There was also a discharge of hydrogen sulfide gas. The stench dismayed nearby residents and posed a threat to worker safety. Also, slimy black organic sludge fouled the water and clogged the sub-contractors dewatering equipment, which caused work to slow to a crawl.
Banfai said conditions weren’t disclosed in the information the Region provided Kingdom and the other contractors when they priced the work and bid for the job.
If extra work was required, the contractor was entitled to what is known as a “change order” and additional compensation.
When Kingdom encountered the excessive gas, the Region’s initial response was to place the responsibility for dealing with it entirely on Kingdom, though it did eventually come around, Banfai said.
When it came to excessive subsurface water, the Region dismissed Kingdom’s entreaties for help with the investigation. The Region also refused to provide Kingdom with directions on how to proceed.
“Instead, it tried to pin the problem entirely on Kingdom, to the point where the Region began efforts to default Kingdom under the contract in October of 2014,” Banfai said.
“When Kingdom objected to that, the Region told Kingdom it wasn’t going to terminate the contract at that time, and kept Kingdom working.”
The Region eventually provided Kingdom with the direction it was looking for regarding the revised dewatering which the project required. As a result, Kingdom then worked for another 105 days, before the Region moved to terminate the contract.
Jason Tamming, the Region’s director for strategic communication, said the award for the lawsuit was paid out of the Tax Rate Stabilization Fund, which exists to mitigate unforeseen in-year costs.
He said the Region has taken steps to strengthen accountability and public spending.
The steps include the establishment of an internal controls and organizational performance division, which has five dedicated internal auditors as well as business consulting staff. The division undertakes operational audits and identifies opportunities for process and cost improvements.
“As a result of recent process reviews, Niagara Region’s procurement, document retention, and project management processes were improved to ensure greater accountability to taxpayers,” Tamming said.