“Official truths are often powerful illusions” ~ John Pilger

” Hi Laila…Remember the Principle of Parsimony, aka Occam’s Razor that says: “simpler explanations are, other things being equal, generally better than more complex ones.”  The illusion of a fixed price contract is great optics even though its an illusion.  As you quite rightly point out there are escape clauses in the agreement that do in fact provide for modifications to the price.  However, builders do build in as much room as possible in their fixed price bids to cover minor price fluctuations and minor delays.  The downfall for these big projects though is that non-expert political masters interfere with the design and order changes along the way.  That was the case with the fast ferries, and with BC Place roof and with the Port Mann.  This interference triggers the modification to the original terms and conditions.   But politically speaking, ‘they’ trumpet the fixed price nature of the contract – even though the “Fixed” nature of the price is tenuous to say the least.  Just look at the history of the stadium roof! “~ unnamed source

John Pilger is a renowned investigative journalist and documentary film-maker whose work is very provocative. He has well-known for meticulously picking apart and revealing  the well crafted illusions that several governments have worked hard to pass as “official truths” – a description so befitting to our situation here in British Columbia.

There have been many official truths promoted by the governing BC Liberals over the last 10 years, and many illusions revealed as well.

Official truths like there is no toll on the Sea to Sky highway, when in fact there is- a shadow toll. ( you can read the full series on my Best Of page above- there are shadow tolls on several large projects in BC we must pay for years to come – ALL of us.)

Official truths like the HST wasn’t on our radar, when it fact is was and had been for some time. And that plays into todays story with the Port Mann as well,believe it or not.

Official truths like ” We must not go back to those dark, horrible days of when the NDP ran this province into the ground.” Again… not so true when you look at the numbers.

Official truths like the Port Mann bridge is a fixed price contract where the builder takes all the risk, when – as my source confirms above -there are in fact many allowances built into the agreement for changes in cost, design and circumstance. Indeed, this contract has the potential to be another BC Place stadium roof!

Also concerning, is reference within the Statement of Financial Information, to multiple indemnities given by Transportation Investment Corporation( to be referred to as TIC from this point) under the design build contract with Kiewiet/Flatiron, as well as other agreements and contracts. TIC is the crown corporation in charge of the Port Mann/Highway 1 project. (click on the image to see full size)

It is the many clauses in the contract between TIC  and Kiewit/Flatiron that have me strongly questioning the governments repeated assertions that this project is on budget….and should have the opposition calling for an immediate reveal of any resulting changes in cost and design to date.

Recently back in the news because of a gantry collapse that dropped a massive, pre-fab  concrete portion of the new bridge deck into the Fraser River, I once again wondered how the builder could continually absorb these kind of costs on such a massive project that has experienced ongoing challenges since the beginning, even factoring in contingencies for rising supply costs etc. 

 The gantry is custom made, specifically for this project and the damage sustained was not insignificant to those who know the equipment. The pre-fab concrete portion may potentially be unusable and there are questions to what, if any structural damage the bridge deck under construction sustained as a result of the impact of the gantry collapse. Not to mention the very real potential for a delay, all of which adds up to $$$$.

Max Logan, current PR man for the project and TIC, immediately stated to the press this is a fixed price contract, no cost to the province. But is that really the case? I immediately went back to the disc I received after a lengthy FOI process from Transportation Investment Corporation that contained a redacted copy of the Port Mann design build agreement, the interface agreement and over 30 additional schedules and references that is now also available on the project site.

What I found is evidence that there is more than enough room for the cost of this bridge to rise, thanks to a few artfully crafted clauses and schedules within the design build contract.

This is the 1209 page document, in PDF format: http://www.pmh1project.com/About%20the%20Project/PMH1DBAgreementRedacted.pdf

These clauses and schedules  allow for several different kinds of changes in compensation and cost, and can be triggered by a number of events and circumstances.

First, if the province makes a material change to the design, supplies- whatever- that will cost more than estimated by contract purposes, the builder can be compensated for this by the terms of the contract.

As confirmed by my source at the beginning,the contract does indeed hold the builder liable for the cost of minor changes and costs -this is part of the ‘fixed-price’ nature of the contract the politicians like to remind us of every time something happens. 

However, what they don’t tell us about is that if the cost increase in supply, construction or design is found to be above a set, predetermined amount, the builder can apply for compensation as long he can show that all attempts were made to mitigate that increase and maximize savings.

For example, let’s imagine  that the local source for gravel that was initially chosen to supply the Port Mann construction of the bridge because of it’s location, is lost and the builder now has to truck it in from Chilliwack rather than Langley. Clearly,as the cost of that material is going to be higher than estimated due to increased trucking distance, the builder looks to several sources but none are as close as the original. Although the builder attempted to mitigate this occurrence, the increase is unavoidable.

 If that increase in cost can be shown to be far above and beyond what was estimated for contract purposes as a ‘minor change’, this triggers the approval of a change in cost and subsequent payments to the builder. 

In laymen terms, although the builder is prudent in making sure his fixed price has room for minor changes and ensuing costs, he still covers his financial ass via these escape and condition clauses in the contract – what smart business person wouldn’t, in particular in a time of global economic instability.

The interface agreement, ( schedule 18)  which is the  supplementary agreement that binds all parties in this massive venture, states that the constructor is bound by Part 7 (page 52) and Schedule 11 of the design build contract, both of which cover the above conditions, as well as Part 8(pg 54) and section 4.10, Mitigation by Constructor.(pg. 21)

It’s all there in the contract,it’s been there all this time, and while Falcon, Campbell and all the PR people in between have often lauded, ” It’s a fixed-price contract!”,they’ve been handily patting themselves on the back the entire time.Now you  might understand that statement from a very knowledgable source even better:

“The illusion of a fixed price contract is great optics even though its an illusion.  As you quite rightly point out there are escape clauses in the agreement that do in fact provide for modifications to the price.  However, builders do build in as much room as possible in their fixed price bids to cover minor price fluctuations and minor delays.  The downfall for these big projects though is that non-expert political masters interfere with the design and order changes along the way.  That was the case with the fast ferries, and with BC Place roof and with the Port Mann.  This interference triggers the modification to the original terms and conditions.   But politically speaking, ‘they’ trumpet the fixed price nature of the contract – even though the “Fixed” nature of the price is tenuous to say the least.  Just look at the history of the stadium roof! ” ( this was also a fixed-price contract)

It is nothing but an illusion to take the heat off the province and give the talking heads a standard three word line to fend off the press. 

Retaining wall fails?  ” Fixed price contract!”

Skyrocketing supply and material costs? “Fixed-price contract!”

Geotechnical problems on the north end approach? ” Fixed-price contract!”

Sure Kevin….

I will state clearly, that it is in the builders best interest to make sure the costs are kept as low as possible to maximize their profit, but there lies the inherent danger with a fixed price contract. Strict cost-cutting measures by the builder can, and do, dangerously impact quality of construction and safety as they race to meet stringent construction deadlines and  the lucrative performance bonuses that come with them.

(Can anyone say “The failed retaining wall on Lougheed that did not meet provincial building standards” ? ) Which brings us to the current gantry collapse and possibility of delay in the project.

A provision of the design build contract with Kiewit/Flatiron General Partnership requires the payment of an early completion bonus if the tolling operations commence prior to December 1, 2012. How much is that bonus, and how hard would Kiewit push to reach that deadline?

There are more gems among the documents available, including the estimated cost for demolishing the old Port Mann once the new bridge is complete.

As recently as two weeks ago, Max Logan, PR man for the project, was still telling the press that the province had not assigned a dollar figure for the demolition.

I’m happy to let Metro Vancouver mayors know that as of March 2011, the province had a contractual obligation to Kiewit/Flatiron to decommission the old bridge in the amount of $39 million dollars. The old bridge will not be saved without a tremendous amount of expense, because the contract would also have a termination clause if the province bowed out at any point, and Kiewit would walk away laughing. ( click on image to view in full)

So, the question is, what, or whom, do we believe- and why? The page from TIC’s financial information statement is clear that number is a contractual obligation, yet Max Logan is telling the press, not once, but at least twice, that no number has been alloted for demolition yet.

Did he get left out of the loop or is the cost of that dollar value of the contract going to be different as well and deflection is his game?

The chart above also reveals the total contractual obligation to Kiewit/Flatiron for the Port Mann bridge new construction to be $1.27 billion dollars. This is significant because in a recent article with the Journal of Commerce criticizing the decision to build an entirely new bridge rather than twin the old one, the province would not reveal specific costs for the new bridge, instead giving a roundabout number of $820 millon.

Again, the province is not forthcoming with specifics, sticking to the fixed-price contract line. ( the link in this segment is a must read angle)

The Port Mann project has been steeped in controversy from it’s humble beginnings as a plan to twin the existing bridge at a cost of $1.5 billion which seemed to be both prudent and economical.

Suddenly, taxpayers are told the province is going to build an entirely new bridge, at the cost of $3.3 billion, in a P3 deal with the private partners shouldering the risk. Of course, the private partners were long time Liberal friends, Macquarie and Kiewit of Sea to Sky highway fame, of whom I have written extensively.Turns out the bidders felt the cost of upgrading the old bridge was cost prohibitive and building an entirely new bridge would be a better deal for taxpayers… ( ??)

But then,Falcon announced that the province was going to fund one third of the project, and soon after when the world economy was so unstable that even Macquarie, the Liberals best offshore advisors, could not secure finace terms that suited Partnerships BC, the P3 deal was called off.

Falcon, who had earlier announced the P3 model was best for this project and taxpayers, then turned tail and announced that a traditional design build contract was best for taxpayers and the government was paying for the whole project via a fixed price contract…With Kiewit/Flatiron as builders and Macquarie being kept on as ‘financial advisors’.

The design build contract was never put back out to tender, a move decried by many in the industry as unfair and irregular.

Yes indeed… its a good thing, people, Falcon assured us, in the best interests of taxpayers and the best value for our money…

Again, sure Kevin. Time for a full reveal and disclosure on this project, and the actual costs to date. I suspect there is a lot more to be discovered on this project,some of which we may not know until the bridge is done.

And before I forget, it was also somewhat ironic, as the government currently stalls the demise of the HST, to find that there are specific sections in this contract – signed in March of 2009 – specifically on how a change in the PST law and the GST law will impact the contract…( page 90 & 91) Clearly, although we have long known the Liberals lied about the HST all along, the contract shows Falcon and Campbell were in the loop at that early date.

“Truth:  Outlawed by governments everywhere.” ~ John Gilmore.

10 thoughts on ““Official truths are often powerful illusions” ~ John Pilger

  1. Laila: Another outstanding piece of work clearly illustrating your grasp of the intricacys of the subject. You blow me away Lady!!
    Dan (above) says it most succinctly – but its completely true that most families are so tied up in living, working, playing – not to mention struggling to cope with all the new taxes, fee increases etc. that they have no time to digest your revelations. Not meaning in any way to disparage them, its just not sexy enough to grab their attention. Highway construction (and its inherent guile) is one of the less interesting methods this (and previous!) governments have used to fleece us.
    John Pilger should write a book about it. Unfortunatly it would not be a best seller.

    Like

  2. regular guy

    Heck, I think it’s really sexy to have a woman who get’s this at this level John! Especially one thats so good looking!

    Another stunning story made easy to understand for regular guys like me, and please keep digging because you’re bang on that there is more on this project. The rush to beat deadlines shows all over this bridge. I will email you more privately.

    Like

  3. e.a.f.

    AMAZING ARTICLE! Thank you for all your work. Without you we would not have known this. Shame on the lame stream media. Not one of them could have done something like this.

    Congratulations! You deserve an award for this writing. Jack Webster & Marjory Nichols would have been proud. Are you sure you aren’t related to the late Ms. Baker & her paper?

    This again demonstrates clearly the lieberals lied to the voters on the HST & the bridge. These tolls are another method of financing things for the lieberals buddies. The msm just went along for the ride.

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  4. erik andersen

    It maybe the time for some speculation about where all these overly costly projects could be headed. It has been the case in other places that when Governments become financially challenged they begin entertaining asset buyout offers from Private Investors. These offers are of short-term benefit because they involve buying out government owned assets such as bridges, roads, tunnels and subways at distessed prices because the seller is desperite. Anything that a private investor can place a toll on, that most folks find difficult to avoid, is considered “low hanging friut” for these paracites.
    The citizens get some short-term tax relief but it comes back more viciously as user fees for a very long-term.
    The lead-in is to first build lots of lovely assets that have financial dimensions too great for the real economic activity of the targeted society. When one looks around the lower mainland there are several new infrastucture projects that fit this description and more are being built.
    Our senior governments have been heading in the direction of using “consumption” taxation over all other options. Why would it not be unreasonable for these same “Fraser Institute” schooled folks to go the extra mile as described above? As most readers know, the history of “poll taxaion” is one of civil violence. “Consumption” taxation such as the VAT, HST, BC Hydro rates and fees for everything else, are “Poll Taxes” by other names.

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  5. Laila

    Hi Dan, thank you very much. It’s really kind of funny the response I have received over this. Some people were pissed about the fast ferries mention by my un-named source and thought I should have removed it. I think this is an important article because far too many people are not aware how easy it is for the price to change rather quickly, and to be honest, I don’t believe anything this current government states, unless they can prove it.

    Yes would be nice for more people to see this, but dont be fooled by lack fo comments on this. It kept certain government offices quite busy and made the email rounds well, and inspired a lot of complete silence in some political circles..lol..

    John, thanks my friend. I know get it… and yes, not as sexy of a sell as the current Harper robo call scandal, but still important. I think the amount of dollars being spent on projects already built and under construction in this province is ridiculous. Far too many investors are looking to BC projects as a surefire method of nearly guaranteed safe return. Not much I can do to make anything with Kevin Falcon involved sound more sexy.. lol.. sorry!!

    regular guy, thanks… I think! You can thank John for sparking my interest in this a couple years ago. Hooked me on the scam of P3 arrangements and darn near taught me everything I know, or sent me in the right direction for finding it. Looking forward to your email!!

    eaf, thanks for the kind words! It was kind of funny seeing the change in PST GST law in there. This government couldnt surprise me with any more deceit, not at all possible. I am just committed to finding out how much they have sold us down the river in debt and financing with all the P3’s… and funny enough, a good friend shared some really interesting information with me tonight on the sea to sky shadow tolls I wrote about. We always knew it was a lucrative venture for the private partners who put the money up to build the project, since they get paid for every vehicle that travels the highway, dependent on size of vehicle and distance travelled, but he located some compelling evidence of what that yearly payment might be…. stay tuned!!

    Hi Ian, its been a long time! I lost your number, so give me an email, ok?

    Erik, you are really onto something. The P3 projects in this province are a killer on the budget and will be for many many years to come. Such a lucrative return on the investment that many projects have had the original investors sell their stake and move on after making a not so small fortune on the backs of taxpayers. It is my belief that with what is now known in the global market about the impact of P3 on governments, it is not in the best interests of taxpayers to pursue them, in particular in such unstable economies.

    It is also my belief that when you have a government that finances public projects via debt load entirely on the back of the province, you need to be incredibly cautious about when and how those projects are contracted. When you have a government like the Liberals who like to hand out contracts in anything but a fair and transparent bidding process that inevitably favours points in favour of their preferred contractor..over and over again…. that you are setting situations up for future privatization as the only feasible option. At least presenting it that way.

    Unfortunately, unless we have opposition in the house that holds the feet of those making these deals to the fire, not a hell of a lot is going to change. You can lead a horse to water but you cant make them drink.

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  6. For example, let’s imagine that the local source for gravel that was initially chosen to supply the Port Mann construction of the bridge because of it’s location, is lost

    “lost” could mean collusion, and how many times on large ticket contracts eg. Site C

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  7. Pingback: Port Mann Bridge becomes the new ‘Fast Ferries’ debacle. – Laila Yuile on people, politics and life in B.C.

  8. Pingback: Everything old is new again: CBC investigation raises big questions about Port Mann bridge build. – No Strings Attached: Laila Yuile on people, politics and life in B.C.

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