Industry Watch – How A Demolition Contractor Outsmarted The City of Ottawa.

I have mixed feelings about this week’s article.  It’s about a Springfield Landfill in Ottawa Canada.  The title of the article is Auditor suggests city consider blacklisting major contractor over Springhill landfill management.  The story tells us that the Township of Osgoode (now part of the City of Ottawa) signed two separate deals with a Company called Tomlinson.  In the first deal, signed in 1996, Tomlinson was awarded a contract to manage the Springhill landfill.  The second deal, signed 2 years later, was a lease that allowed Tomlinson to run a construction and demolition waste recycling facility at the same location.

The first deal for managing the landfill was a 40% / 60% gain-share agreement that was supposed to continue until the landfill was 100% full.  Under this agreement, the land still belongs to the Township, but the operation is the responsibility of Tomlinson.  It was originally estimated that the landfill would remain open until 2029.  As of December it is said to be 75% full.

According to the City, Tomlinson has only paid the City $6.3 Million from the gain-share deal over 21 years.  That is $300K per year.  That means the total annual revenue of the landfill would have been about $750K per year.

The story goes on to tell us that part of the reason that the gain-share was so low is because Tomlinson’s landfill management business was granting heavy discounts to Tomlinson’s demolition business.  It even seems that Tomlinson Demolition may have been allowed to dump waste for free at the Springhill Landfill.

Now the City is up in arms about the lack of revenue they have seen from this deal and they are scrutinizing Tomlinson.

The City even claims that the landfill has caused contamination of ground water in and around the area.

There is no mention of whether the landfill contract required Tomlinson to take any environmental steps or even to re-mediate any environmental impact resulting from their operation of the landfill.

In a follow up article, Tomlinson has agreed to pay for the remediation to surface water that was contaminated by the landfill and the landfill has stopped receiving any more waste.

So why do I have mixed feelings?

Well on the one hand, I’m certainly no fan of anyone who contaminates the environment, so that part of the story makes me have negative feelings towards Tomlinson.  On the other hand, I see the two agreements that Tomlinson negotiated as a smart way for them to make what may have been an unprofitable first business work.

There is nothing in the story about how profitable Tomlinson’s operation of the landfill was, but I’ve got to believe that there cannot be a ton of money in managing a landfill.  Tomlinson seized an opportunity to form a demolition business around the landfill business and probably won may demolition contracts in the area by giving himself deep discounts for processing the waste.

Ottawa (who inherited the contracts from the Township of Osgoode) saw how brilliantly Tomlinson benefited from the two agreements.  The contract for the demolition business was a straight lease agreement with no gain-share provisions, so Tomlinson’s profits as a demolition contractor are not subject to gain-share.  Ottawa now feels that the profits that Tomlinson has shared over 21 years are too low and wants to throw their weight around by threatening to blacklist Tomlinson.

I think officials at Ottawa need to recognize that they were simply outplayed and Tomlinson deserves the success they have achieved.  Blacklisting Tomlinson would be an act of sour grapes which would not cast a good light on Ottawa.

I’m happy that Tomlinson has stepped up to deal with the environmental issues the landfill has caused.  I think that responsibility is theirs even if their agreement did not contemplate environmental management.  As for the profitability of the landfill, Tomlinson has stated that they have provided the City with all of the documents required.  If that is true, and the documents show that the gain-share paid to the Township is correct, Tomlinson has every right to operate the landfill as they see fit and granting discounts to their sister company is well within those rights.

In short, as long as Tomlinson addresses the environmental issues they have caused, I don’t think Ottawa has much ground for blacklisting Tomlinson.

Whether you are a private business or a public agency, blacklisting any Vendor needs to be done very carefully.  If Ottawa were to go forward with their threat, Tomlinson would have every right to contest and they would probably prevail.

So what do you think?  Did Tomlinson cheat the City or was this just good business?  Should Ottawa blacklist Tomlinson or would the City open themselves up for a Civil Action?  Tell me your stories.

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