PROVINCE OF NEWFOUNDLAND AND LABRADOR HOUSE OF ASSEMBLY Fourth Session Forty-Seventh General Assembly Proceedings of the Standing Committee on Public Accounts September 9, 2015 - Issue 2 Department of Transportation and Works Humber Valley Paving Ltd. – Project Number 1-12PHP Published under the authority of the Speaker of the House of Assembly Honourable Wade Verge, MHA

Public Accounts Committee Chair: Jim Bennett, MHA Vice-Chair: Ray Hunter, MHA Members: Eli Cross, MHA George Murphy, MHA Tom Osborne, MHA Kevin Parsons, MHA Calvin Peach, MHA Clerk of the Committee: Elizabeth Murphy Appearing: Office of the Auditor General Terry Paddon, Auditor General Sandra Russell, Deputy Auditor General John Casey, Senior Department of Transportation and Works Lori Anne Companion, Deputy Minister Gary Gosse, Deputy Minister, Transportation Paul Smith, Assistant Deputy Minister, Corporate Services Department of Justice and Public Safety Todd Stanley, Assistant Deputy Minister, Courts and Legal Services Denise Woodrow, Solicitor (embedded in the Department of Transportation and Works)

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 40 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 41 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.”

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 42 “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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 43 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 44 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 45 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 46 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?

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 47 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 48 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 49 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 50 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 51 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 52 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 53 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 54 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?

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 55 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 56 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?

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 57 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 58 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 59 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 60 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 61 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 –

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 62 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 63 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 64 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 65 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 66 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 67 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 68 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?

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 69 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 70 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.

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 71 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

September 9, 2015 PUBLIC ACCOUNTS COMMITTEE 72 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