David Reevely, Ottawa Citizen
The city's set to settle a $24-million dispute with the private developers who renovated Lansdowne Park largely because the way their deal is structured, the city would end up holding the bag no matter what it does.
This is in spite of an opinion from the city's lawyers that says that if the city and the Ottawa Sports and Entertainment Group fought it out, the city would probably win.
The $24-million figure is mostly the cost to replace rusty structural steel the builders discovered once they started ripping into the north-side stands of what's now TD Place, though it includes a few smaller surprises and squabbles that aren't surprising in a project as big as Lansdowne — who's on the hook for using higher-end materials in OSEG's new retail area because the city wanted them to match the stuff it used in the park it built next door, that kind of thing.
The Lansdowne partnership's finances are tight. Even in the context of a project worth hundreds of millions, $24 million is real money.
The legal opinion, from outside firm Gowling Lafleur Henderson, is secret. It says that on every front, Gowlings' lawyers think the city would probably win. On the big-ticket steel, OSEG knew that rain leaked into the Civic Centre hockey arena from above — not least because it dripped into Ottawa 67's owner and OSEG partner Jeff Hunt's private box. It had a report in hand suggesting that the steel in the arena roof, which supported the concourse for the football stadium built on top of it, had probably been exposed to a lot of water.
The developers might not have known precisely what they were getting into, but they knew they were taking a risk when they signed a deal to take on renovating the stadium and arena at a fixed price.
It's the same in all the other areas of dispute. The lawyers like the city's chances on all fronts.
Nevertheless, Ottawa's senior managers and Mayor Jim Watson want city council's finance committee to sign off on a settlement with OSEG when the committee meets on Tuesday. There's some accounting hokey-pokey involved because nothing with Lansdowne is simple, but the thrust is that the two sides would split the costs.
The public report proposing the settlement alludes to the favourability of that secret legal opinion without spelling out what it says, arguing that "it is important to appreciate that such an assessment, at this relatively early stage of the litigation process, should not be construed as any form of guarantee of success."
This is true. OSEG has lawyers, too, who presumably like their own prospects. It might have documents or materials the city doesn't, or didn't realize were important and didn't give to the Gowlings lawyers. A judge or arbitrator might simply see things differently. And there's a cost to having the fight, both in direct legal expenses and in goodwill between the city and the developers with whom it's going to be in bed for decades to come.
More importantly, even if OSEG lost in a standup fight, it would still win.
Much about the Lansdowne deal depends on things going exactly as planned, but inevitably not everything will. The city's auditor at the time, Alain Lalonde, went over the financial assumptions underlying the plans and found nothing squirrelly, but they were still assumptions. Now, his successor Ken Hughes notes, we have reality to work with and some things have changed. This is one of them.
If the developers had to pay the $24 million themselves, that would count as an additional investment in the project. OSEG would be entitled to get repaid over the next 30 years along with all the other money the OSEG partners have put in. That claim on Lansdowne revenues comes before any major payouts to the city. So win or lose, OSEG gets the money. It's just a question of timing.
Coun. David Chernushenko, the Glebe councillor who voted against the Lansdowne project but tries not to be a nag about it so that people will still listen to him, says this is the kind of nasty surprise city councillors were warned about before they agreed to the megaproject, and he's right.
Let us hope for no more of them.