TORONTO, Oct. 1, 2013 /CNW Telbec/ - CN (TSX: CNR) (NYSE: CNI) said
today the commuter rail infrastructure projects it undertook for GO
Transit in the Greater Toronto Area (GTA) were rigorously reviewed and
that it rejects unfounded allegations that it defrauded the agency.
Sean Finn, CN executive vice-president, corporate services, and chief
legal officer, said: "CN is deeply concerned with allegations of
financial improprieties in connection with its work on behalf of GO
Transit since 2004. CN and GO Transit developed a rigorous construction
management process that assured financial integrity, cost certainty,
quality work and strict oversight. CN categorically rejects allegations
that it in any way defrauded the agency."
All of CN's construction projects for GO Transit were completed on a
fixed-price basis that the parties agreed upon before work started.
This approach required CN to maintain discipline in delivering projects
within the agreed-upon price. This also provided GO Transit with cost
certainty for each project, enabling it to manage expansion budgets
without the risk of cost overruns.
The rigorous construction management process agreed to by CN and GO
Transit contained four steps:
Project scoping and definition: for each project there was a specific
agreement on the scope of the work, which took into account the fact
that freight, commuter and passenger trains share the same
infrastructure and that no infrastructure is dedicated to GO Transit on
Contractual agreement on fixed price: CN prepared -- and GO Transit
reviewed and formally approved -- a detailed estimate for each project
that formed the basis for the committed fixed price under which CN
agreed to deliver the project. Only once satisfied with the details and
price did GO Transit provide CN with a purchase order allowing for the
work to commence. Such fixed-price purchase orders were seldom varied,
and only with the consent of GO Transit and CN.
On-site construction monitoring: regularly throughout each project,
joint CN and GO Transit field inspection took place to ensure that the
work was executed as planned and quantities installed in accordance
with the agreed-to project scope. A highly experienced consulting firm
was also hired by GO Transit to help carry out the inspection work.
Post-completion inspection and final payment -- upon completion, a joint
inspection was done in the field to confirm that the work was to GO
Transit's satisfaction. Final payment was made by GO Transit only after
such inspection was completed.
Finn said: "This rigorous construction management process assured
projects were completed as to agreed-upon specifications and on budget.
Of equal importance, this rigorous process assured transparency and
full accountability of CN. At no time has GO Transit expressed concerns
with CN's management of projects performed on its behalf.
"CN is very proud of the role it's played in building the rail
infrastructure that supports GO Transit's highly successful rail
commuter service in the GTA."
Scott Holmes' claims and allegations
Former CN employee Scott Holmes, who was the subject of a comprehensive
fraud investigation, has made unfounded allegations of financial
improprieties by CN, including the following:
Allegation: That GO Transit was unaware that CN was installing previously worn track
materials as part of the contract to expand rail capacity on the
agency's Lakeshore West Line.
Fact: The Lakeshore West contract with GO Transit clearly identified that CN
would install partially worn materials - a commonly-accepted practice
-- for a short segment of track at the west end of CN's Aldershot Yard.
The on-site construction monitoring element of the construction
management process gave the agency the ability to do site verification
of these partially worn materials as they were installed.
Allegation: CN billed GO Transit and Ontario taxpayers for network improvements that
were unnecessary for commuter rail, including undercutting the overpass
at Snake Road to facilitate CN freight trains.
Fact: CN only performed work that GO Transit was aware of and had authorized
as part of the detailed project scoping and definition step of the
construction management process. As noted, while expanded capacity
required for GO Transit service called for adding infrastructure, no
one track is dedicated to GO Transit service. The work at Snake Road
was done to ensure full corridor operating capacity for GO Transit and
Allegation: CN billed GO Transit for unrelated expenses, including such items as
hotel rooms outside of the Lakeshore West project territory.
Fact: Considering the fixed-price basis upon which the various projects were
realized, the manner expenses were coded and reported internally at CN
is a relevant matter for CN, but not for GO Transit, which paid only
what it agreed to by contract. Under these types of arrangements, the
key measure of performance hinges on whether the in-scope work was
realized at the agreed-upon price. A verification of GO Transit-related
project expenses has been started by CN. The review is on-going, but
there is no indication of any financial improprieties other than
indicated below with regard to Scott Holmes.
CN's lawsuit against Scott Holmes
CN has a lawsuit against Scott Holmes before the Ontario Superior Court
of Justice. From Sept. 25, 1999, Holmes was a program supervisor for CN
based in Toronto. In that capacity, he was directly involved in
construction programs in Ontario, including programs associated with GO
Transit. In its action, CN contends that, while employed by CN, Holmes
incorporated his own companies and participated in various other
businesses providing services and equipment to CN, without disclosing
his personal interest in those businesses, and that those businesses
charged CN several millions of dollars for services that were not fully
and properly rendered. As CN charged GO Transit a fixed price for the
project, CN suffered any losses, not GO Transit. CN is suing Holmes to
recover misappropriated funds. CN denies vigorously Holmes' allegation
that CN committed financial improprieties in the management of GO
CN (TSX: CNR) (NYSE: CNI) is a true backbone of the economy,
transporting approximately C$250 billion worth of goods annually for a
wide range of business sectors, ranging from resource products to
manufactured products to consumer goods, across a rail network spanning
Canada and mid-America. CN - Canadian National Railway Company, along
with its operating railway subsidiaries -- serves the cities and ports
of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and
Mobile, Ala., and the metropolitan areas of Toronto, Edmonton,
Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth, Minn./Superior,
Wis., and Jackson, Miss., with connections to all points in North
America. For more information on CN, visit the company's website at www.cn.ca.
Certain information included in this news release is "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and under Canadian securities laws. CN
cautions that, by their nature, these forward-looking statements
involve risks, uncertainties and assumptions. The Company cautions that
its assumptions may not materialize and that current economic
conditions render such assumptions, although reasonable at the time
they were made, subject to greater uncertainty. Such forward-looking
statements are not guarantees of future performance and involve known
and unknown risks, uncertainties and other factors which may cause the
actual results or performance of the Company or the rail industry to be
materially different from the outlook or any future results or
performance implied by such statements.
Important risk factors that could affect the forward-looking statements
include, but are not limited to, the effects of general economic and
business conditions, industry competition, inflation, currency and
interest rate fluctuations, changes in fuel prices, legislative and/or
regulatory developments, compliance with environmental laws and
regulations, actions by regulators, various events which could disrupt
operations, including natural events such as severe weather, droughts,
floods and earthquakes, labor negotiations and disruptions,
environmental claims, uncertainties of investigations, proceedings or
other types of claims and litigation, risks and liabilities arising
from derailments, and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United States.
Reference should be made to "Management's Discussion and Analysis" in
CN's annual and interim reports, Annual Information Form and Form 40-F
filed with Canadian and U.S. securities regulators, available on CN's
website, for a summary of major risks.
CN assumes no obligation to update or revise forward-looking statements
to reflect future events, changes in circumstances, or changes in
beliefs, unless required by applicable Canadian securities laws. In the
event CN does update any forward-looking statement, no inference should
be made that CN will make additional updates with respect to that
statement, related matters, or any other forward-looking statement.
For further information:
Director, Communications & Public Affairs
Vice-President, Investor Relations