HVP BOND ISSUE: THE MAKINGS OF A SCANDAL

The Report by CBC, last week, that “the provincial government allowed Humber Valley Paving to walk away from a contract to pave the highway in Labrador…” and  return the Company’s Performance Bond has all the makings of a scandal at the highest level. 

It possibly implicates Frank Coleman, Premier-in-waiting, and raises questions whether the Marshall Government acted improperly by awarding Humber Valley Paving special favours.  Coleman was a major shareholder and Director of Humber Valley Paving (HVP) until just three days before the Government was asked to cancel the contract and release the bond (according to the Minister of Transportation and Works).  

At a minimum, the decision seems an abuse of public policy.  Quite possibly, it was not just unwarranted; it is unprecedented.   

The implications go far beyond Minister Nick McGrath’s suggestion that it was done to spare HVP from bankruptcy, though the reason for doing so seems to entirely lack legitimacy.

It invokes questions of abuse of the Public Tendering Act and destroys the level playing field the Act provides for Bidders on Government work.  

Evidently, the Government performed the same service to Penney Paving, though the Owner of that Company argued, in a Weekend Telegram piece entitled "Roadwork contract release unprecedented: company" by Reporter Ashley Fitzpatrick the two cases “are not comparable”.

The HVP decision involves a very large cost to the public purse, possibly in the millions.

I believe that the cancellation of HVP Contract and the release of the Performance Bond are matters of such magnitude that they ought to prevent Frank Coleman from being sworn in, as Premier, until he, his family and business associates are cleared from any involvement in the decision by an independent arbiter. 

The person possessing the powers to undertake such an Enquiry is the Auditor General though a Judge or retired Judge of the Supreme Court, given the legal implications of the matter, may be a more suitable adjudicator. 

The Penney Paving Ltd. decision should undergo the same review.

The HVP and Penny Paving decisions may, in fact, be so rare that they are the only ones of that kind taken since the Public Tendering Act came into law in the early 1970s.  

Prior to writing this Post, I consulted with senior politicians in the Moores/Peckford Governments, with senior public servants spanning several Administrations including one public servant who had spent many years in the Provincial office responsible for Tendering and Contracts.

None possessed knowledge that a cancellation of a legal Contract and free release of a Performance Bond had ever been permitted.  The former Contracts administrator noted that requests for contract relief never made it to the political level. They were always refused.

For those unfamiliar, a performance bond is a surety issued by an insurance company or a bank to guarantee satisfactory completion of contracted work by a contractor.   

To obtain a Bond, a Contractor is required to commit business and often large personal assets as security. 

A Bond is the equivalent of cash.  A company that has its Bond called risks loss or even bankruptcy.  Often the owner risks personal loss, too.

However, as the former Contracts Administrator stated: “these are the rules of the game.  The Contractors understand the rules. They apply to everyone equally”.

At least in the case of HVP and possibly Penney Paving, too, “the rules of the game” were changed. 

As the CBC story broke over the HVP Contract, Premier Marshall took to the airwaves.  He told VOCM on May 1st: 

“… the Department…they wanted to get the work done they wanted to get the work done on time and they wanted to get the work done at the best possible price for the taxpayers and they made this arrangement to accomplish that objective”.

The Premier makes no sense.  The Government had a fixed priced contract.  It had a $9.5 million Bond (the equivalent of cash) for the purpose of securing performance. The Minister acknowledged the Government could have taken it. 

How can the Government’s decision to favour the Contractor square with the assertion of “best possible price for the taxpayer”?

Now, let’s look at Minister Nick McGrath’s story:

1. The CBC quoted him as saying: “Humber Valley Paving didn't want to follow through with the contract because it would lose money; Government said problems started last fall after forest fires ripped through western Labrador. Roads in the area were closed due to the flames, and supplies couldn't be shipped over the road, causing delays in work.”
2. HVP put up a $9.5-million bond as a guarantee it would finish the work. The Minister stated that the Government could have kept this money when the contract was terminated, but did not call the bond.
3. Quoting from the CBC story, “McGrath said government made the decision in the best interests of both government, as well as the company and its employees.”
4. According to McGrath: "…the contractor lost money on the contract due to that (the forest fires) — and nobody's fault why they lost money, but then to continue with the contract they felt they would lose a lot more money so it just wasn't worthwhile.
5. Stated McGrath "We don't want to put a company out of business because…” He said they didn’t want the Company to go bankrupt.

The Minister's remarks paint the picture that the Contract was “worthwhile” only if the Contractor made money; he offers no evidence whatsoever as to how the public might have benefited from the decision.  

Though the Minister allocates blame to the fires on the Trans Labrador Highway, we know the road was not closed for weeks or months. It may have been closed for a couple of days, but that’s all.  

The forest fires occurred in late June, 2013. Coleman stepped down as a Director of HVP on March 10th, 2014 and entered the P.C. Leadership race on March 14.  That's a period of eight and one-half months in which the Minister wants us to believe nothing happened between the Government and HVP on this Contract.  But the new owner of HVP needed only three days, following the purchase of the Company, to get the Minister's attention and have him begin the Contract cancellation process.  

How dumb does the Minister think we are?   

Coleman's Company did not invoke “Force Majeure”; the clause permits the Contractor to cancel the work due to an “act of god” or on account of extraordinary, extreme and unforeseen circumstances.  Evidently, the fires were not serious enough to justify "Force Majeure", otherwise this matter would have been disposed of last Fall.  

Is it not simply the case that the Company was in breach of Contract, was faced with having its Bond called and only a political solution could save it?

Why don't the Minister just come clean?

What is he doing now?

He intends to re-tender the job and include additional work on the road.  The Revised Tender will have the effect of covering up exactly the final cost to the public Treasury of the Government’s HVP decision.

I will return now to my conversation with the professional public servant who spent 15 years in the Government’s Office of Contracts and Tendering. 

He advises that over that period 10-15 companies had their Certified Cheques cashed by Government (Certified Cheques are a substitute for Performance Bonds on small jobs) or had their Bonds called.  “Yes”, said he, in my 15 or so years with Tendering and Contracts, we took many Bonds and did force companies out of business”. 

The Minister and the Premier wants us to believe that HVP is somehow different.  A paving company needs to be saved from bankruptcy, one that ostensibly had invoked no legal action under the Contract to protect itself, one that very likely had no right to be favoured in the first place.  And the whole Government goes into overdrive to save it? 

Are we really to believe that it had nothing to do with one of its former Owners, the politically influential Premier-in-Waiting, Frank Coleman?

The Transportation and Works Minister says when the company officially asked to be let out of the contract, Coleman was no longer CEO.

Quoting the Minister, the CBC reported: "Frank Coleman was neither a CEO nor a director of the company, and we didn't have any dealings with him whatsoever, we were dealing with the contract company themselves," he said.

Whether the Minister is being truthful or not, we still need to know if the assets pledged to the underwriter of the Bond by Frank Coleman, his family or business associates following the sale of the Company shares were the same assets which securitized the Bond at the time it was returned.  That is just one of the many important pieces of information an independent arbiter would confirm.

And, what is so compelling about this Contract that the Government was prepared to undercut the Public Tendering Act to see it cancelled?    

The whole Cabinet knew the name of the Premier-in-Waiting; yet, they were prepared to risk allegations of conflict-of-interest? 

What was the urgency?  

Was the Government's decision completely above board?

There is no greater offence to a democratic society than the odour of favouritism at the highest levels of the Government.  The Premier and the Minister, rather than allay our fears, have fuelled the issue with arguments that make no sense.  They have placed the prospect of scandal in full public view. 

If the allegations are untrue they need to be expunged with all due haste by a credible and independent third party possessed of the powers of enquiry.

The very idea that the Premier-in-Waiting might be sworn in under a cloud of suspicion is unthinkable. It is inconceivable that Mr. Coleman, himself, would want to be sworn in until the cloud has been removed.

On any level the HVP Contract/Bond issue has seriously damaged trust in the Premier and in his Administration.

Only after an investigation by either the Auditor-General or a Supreme Court Justice can that trust begin to be repaired.