Backgrounder – litigation regarding City Hall construction

updated June 2015

Urbacon’s contract and affected parties

In July 2006, Urbacon was awarded a $42-million contract as general contractor for the construction of City Hall and the Provincial Offences Administration (POA) Court.

Urbacon was required to provide a performance bond, which it obtained from Aviva Insurance Company of Canada (Aviva) for $21 million.

Moriyama & Teshima Architects (MTA) was hired by the City as the projects’ architect and payment certifier/consultant for the project.

According to Urbacon’s original construction schedule, City Hall was to be substantially complete by February 28, 2008. An extension for the completion date to August 15, 2008 was negotiated and agreed to by all parties in December 2007. Shortly after, an additional extension to September 8, 2008 was made to accommodate design changes.

As of September 8, 2008, the City sent a letter of default to Urbacon because City Hall was not substantially complete.

Leases paid for rental space to accommodate City staff were coming to an end and alternative options for office space were limited. Council and staff were concerned further delays meant a move-in date was uncertain. Council had lost faith in Urbacon’s ability to deliver. At this point, Council decided to resume control of the construction site.

On September 19, 2008, the City terminated Urbacon’s right to work to completion and Urbacon was ordered to leave the site.

Three days later, the City made a claim under the performance bond, seeking Aviva to complete the remaining work.

Aviva rejected the request after they conducted an investigation, stating there was no clear default by either party—a precondition required for the City to make a claim under the performance bond.

On October 9, 2008, Urbacon filed a $20-million, breach-of-contract lawsuit against the City.

The City formally terminated its contract with Urbacon on October 17, 2008.

The City served a Statement of Defence and counterclaim against Urbacon, claiming $5 million in damages for breach of contract.

In November 2008, the City issued a Statement of Claim against Aviva for failing to pay on the performance bond and in September 2009, the City filed a Statement of Claim against MTA for contribution and indemnity and professional negligence.

The City amended its counterclaim against Urbacon from $5 million to $10  million on August 30, 2012.

Lien claims

Under the Construction Lien Act, project owners must hold back 10 per cent of each progress payment for a total of 10 per cent of the value of the project in the event that subcontractors are not paid by the general contractor. In this case, the City held back $3.2 million and paid this amount to the court.

Following Urbacon’s termination, 19 subcontractors registered lien claims against the City Hall building.

The City directly paid some of the subcontractors money they were owed by Urbacon, totalling $3,865,205.58, so they would continue working on the project and complete the building.

A vetting committee was agreed to by the parties to review the lien claims. The committee contained representatives from Urbacon, the City and the lien claimants. The City disputed several lien claims on the basis they were not filed within the time frame required by the Construction Lien Act of Ontario.

From the money the City paid into court the majority of the lien claimants were paid 81 per cent of the value of their claim, as determined by the vetting committee.

The other 19 per cent of the City’s money was to remain in court until a final determination was made of what the lien claimants were owed. As part of the City’s settlement with Urbacon, Urbacon agreed to settle all lien claims directly with the claimants. The amount left in court was $828,427, which was returned to the City after the settlement was complete.

Litigation status

On March 31, 2014, following a 40-day trial that ended in June 2013, the court found the City did not have the right to terminate its contract with Urbacon.

The damages portion of the trial was scheduled to start October 14, 2014. However, through the negotiation process the City and Urbacon settled their legal dispute out of court for $6.635 million on September 8, 2014.

The City’s legal action against Aviva was dismissed by the judge when he ruled in Urbacon’s favour. The City, as determined by the court, was responsible to pay Aviva’s legal costs. The costs were settled in June 2015 in the amount of $100,000.

Also in June 2015, the City settled with Moriyama & Teshima Architects (MTA). As a result of that settlement, MTA will pay the City $150,000.

The resolution of these final actions and the discharge of all liens brings the City’s litigation with Urbacon to a final and complete close.

Costs

The City’s full settlement costs, including all applicable taxes, are $5,800,837. Full legal costs, including lawyer’s fees, mediation, expert witness fees and reports, are $2,300,484. Together, settlement and legal costs amount to $8,101,321.