Public-Private Partnerships and the Allocation of Risk

July 20, 2021

The allocation of risk in public-private partnership agreements is carefully balanced. That balance, however, can be easily disrupted in the wake of a worldwide pandemic. In a recent decision, Crosslinx v Ontario Infrastructure1, the Court tipped the scale in favour of the private sector—allocating pandemic risk to the public sector. The Court held that Crosslinx Transit Solutions (“Crosslinx”), a consortium of companies responsible for building the Eglinton Crosstown LRT (the “Project”), was entitled to seek schedule relief under the Project agreement (the “Project Agreement”) with Metrolinx and Ontario Infrastructure (collectively “HMQ”) due to impacts caused by the COVID-19 pandemic.

In March 2020, after the World Health Organization declared COVID-19 a pandemic and the Premier of Ontario declared a State of Emergency, Crosslinx requested that HMQ direct the consortium to implement additional safety measures—as doing so would entitle Crosslinx to request a variation under the Project Agreement, providing Crosslinx with both compensation and schedule relief. HMQ refused, stating that the Project Agreement already required Crosslinx to comply with all applicable law, including the Occupational Health and Safety Act (“OHSA”), and therefore Crosslinx alone was responsible for implementing whatever measures were necessary to ensure the health and safety of workers on the Project. While HMQ directed Crosslinx to implement additional procedures by requiring Crosslinx to comply with construction protocols issued by the Ministry of Labour (who administers the OHSA) in response to COVID-19, HMQ argued that Crosslinx was required to comply with the protocols as “applicable law” and therefore any direction by HMQ was simply a reiteration of the existing obligations of Crosslinx under the Project Agreement. In other words, the cost of schedule delays arising from compliance with health and safety regulations and the construction protocols was for Crosslinx to shoulder—not HMQ.

However, the Court reasoned that the provisions in the Project Agreement requiring Crosslinx to ensure worker health and safety did not allocate pandemic risk to Crosslinx. Under the Project Agreement, any hazard that jeopardizes or may jeopardize health and safety on the Project is defined as an “emergency”. The Court reasoned that this broad definition, coupled with the possibility of an extension to the Project’s substantial completion date, contradicted the assertion by HMQ that Crosslinx assumed pandemic risk or that certain health and safety concerns that caused delays were intended to be shouldered by Crosslinx. Given that the parties contemplated extending the Project’s substantial completion date in the event of a health and safety emergency, it was more appropriate to entitle Crosslinx to a variation than to read the provision out of the Project Agreement altogether.

The Court found that the safety measures required on construction sites as a result of the COVID-19 pandemic amounted to additional procedures under the Project Agreement. The fact that Crosslinx was required to comply with the OHSA and the fact that Crosslinx had proactively adopted the safety measures prior to any request by HMQ was immaterial to the rights of Crosslinx under the Project Agreement to ask for a variation.

Notably, Crosslinx did not seek relief from HMQ under the force majeure provisions of the Project Agreement as those provisions only addressed very specific circumstances, none of which covered pandemics. However, the irony of HMQ’s narrowly drafted force majeure provisions is that unlike under force majeure where Crosslinx may have been entitled to schedule relief but no compensation, the result of the recent decision is such that Crosslinx can now recover additional compensation as well as schedule relief.

1 2021 ONSC 3567

This article is for informational purposes only and is not intended to constitute legal advice or an opinion on any issues contained therein.
John Margie
John Margie
T. 416-473-7963
Joshua Strub
Joshua Strub
T. 647-924-2264
Jacob Lokash
T. 647-956-5422