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SNC.NBDOT -30CC.O438
455,Rene-LevcsqucBlvd.West SNC-LAVALININC.

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SNC L A"ITA LIN

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Monlreal,Qnebec
Canada H2Z lZ3

Tel.:
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(514) (514)

393-1000 861-5349

Fredericton, October 2011 6,

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TO THE ATTENTION OF: DISPUTE RESOLUTIONBOARD "';-;"",: "'~J 'f,"c!it

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NEW BRUNSWICK DEPARTMENT OF TRANSPORTATION ""~r"~t~~;f1";in~ rt:)1'~

PRINCESS MARGARET BRIDGE PROJECT

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c/o KristaMacDonald, Eng. P.

Room 526, KingTower, KingsPlace 440 KingSt. Fredericton, New Brunswick
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c/o: ProjectManager
RE: PrincessMargaret Bridge Project

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"Noticeof Referral" Non-Conformance for NoticeDBNCNO211

DearSirs,
INTRODUCTORY NOTES:

1. Capitalized terms and expressions usedbut not otherwisedefinedherein shallhavethe meanings given to them in the Project Agreement dated February 2010among Majestythe Queen right,of Province 17, Her in the

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Member theSNCLAVALIN of Group

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of New Brunswick, as represented by the Minister of Transportation, and SNC-Lavalin Inc., relating to the PrincessMargaret BridgeProject. 2. Where there is a referenceto section numbers without the associateddocument, the document in question is the Project Agreement.

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3. As noted in S. l(i) below, in its letter to the Province requesting that this Contractor NCN be withdrawn, the
Contractor requested that, in the alternative, the dispute resolution procedure be placed on hold until a later date, but the Provincedid not respond directly to this request. The request was motivated by: a. the extreme exigenciesof Project Completion, to which we are devoting all of our resources; b. the broad scope of our factual and legal arguments on the black letter of the contract as well as broader principles of law and equity. These principles relate to (i) good faith, (ii) fair use of
contractual discretion, (iii) the duty to cooperate in the pursuit of a common contractual aim, and (iv) the particularly punitive quality assurance structure of the Project Agreement and the manner in which it is being deployed by the Province in this Project including, without limitation, the significantly delayed Project start date, the imposition of out of scope work relating to pier stability, the change order relating to Sterling Lloyd Waterproofing, all of which have negatively impacted Project delivery through no fault of the Contractor; and c. our agreement to postpone discussions on certain matters identified above in Paragraph 3(b)(iv), resulting in our complete surprise at receiving DBNCNO211.

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As not~d in S. lk) below, on Octo~er. 3, 20~1, the. Contractor sent a further letter t~ the Province asking fo~ an
extension of the date for submitting thIs Notice of Referral due to the particular demands of Project

completion. As noted In S. 11) below, in a verbal communication to the Contractor on the day of the original submission deadline, the Province advised the Contractor that it would not consent to any extension. This letter doesnot necessarily contain a complete statement of all of the facts and arguments available to us. We therefore reserve the right to follow up with an amended version hereof providing more complete facts, grounds and documents to ensure this process allows for a full hearing of the issues and provides an equitable platform to the Contractor given the Province's purported need to extend the prescribed la-business day deadline for responding to our Notices of Referral. The Province cannot refuse to grant us an extension while unilaterally imposing an extension on us in its own favour. This shall also confirm that the Province has indicated, verbally, to the Contractor, its agreement with this reservation of rights and that it would await receipt of our more developed documentation before providing their response. 4. This complex matter necessitates written and oral presentations to the Dispute Resolution Board (ORB). We would ask that the Contractor be allowed to offer a written rebuttal to the Response of the Province no later than 10 Business Days after it is received. We anticipate that the DRB will require three separate (4)-hour hearings to allow the parties to properly present the many issues within this dispute and address any questions the panel members may have prior to delivering their decision.

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FACTS:

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a) Duringan auditconducted 6 September on 2011,the PMB Auditor determined the Contractor not that had
achieved Full Traffic Availability by the FullTraffic Condition date of 5 September2011. b) On September 13, 2011 the Provincedelivered DBNCN0211 the Contractor. to c) On September 20,2011 the Contractor notified the Provincethat it declinedto accept DBNCN0211.

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d) OnSeptember 2011the Province 21, confirmed that DBNCN0211 beenplaced dispute requested had in and a DisputeResolution Meetingbe scheduled within 10 business days.
e) On September 22, 2011 the Project Manager and Provincial Project Manager met, but were unable to resolve the dispute relating to DBNCN0211.

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f) On September27, 2011 the Contractorsent the Provincea letter ("Contractor'sFurtherResponse") providing further informationasto our grounds disputing Non-Conformance for the Notice requesting, and in the event of the Province's persistence, agreement placethe disputeresolution hold until such to on
time as all matters relating to project delayswere discussed. g) On September 30, 2011 the Provincesent a letter that did not respond directly to the Contractor'srequest for an extension of the deadline for submitting the present Notice of Referral, but reiterated that the PrincessMargaret Bridge did not achieveFull Traffic Availability by the RequiredFullTraffic Condition Date, in justificationof the NCN.

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h) OnOctober3, 2011,the Contractor senta further letter to the Province asking an extension the date for of for submitting Noticeof Referral to the particular this due demands Project of completion. i) OnOctober6, 2011,the Province rejected request. this Based the above,the Contractorherebyrefers this disputefor resolutionby the DisputeResolution on Board
pursuant to Article 25.5 PA II. DISPUTE BRIEF: IN a) Province Findings as to Facts as Stated in the NCN: The Province contends that the Contractor did not.
achieve Full Traffic Availability by the Required Full Traffic Condition Date. '",

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b) ProvinceFindings to ApplicableContractual as Provisions Statedin the NCN: as TheProvince alleges that

the failure to achieve Full Traffic Availability by the Required Full Traffic Condition Date contravenessection 14.1 PAwhich states:

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"TheContractor covenants ensurethat (a) the Full TrafficCondition to Dateoccurs or beforethe on

Required Full Traffic Condition Date and (b) the Total completion Date occurs on or before the Required Total Completion Date and acknowledgesand agrees that the failure by it to achievesuch

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covenants without limitingany other remedyavailable the Province will, to hereunder at law or in or equity,resultin Contractor Non-Conformance Payments becoming andpayable the Contractor due by

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The Province also cites Schedule 7(11)(A)which sets forth the amount of the Non-Conformancepayments which are payablein the event the requirement of Section 14.1 PA is not met. Finally, the Provincecites the definitions of "Full Traffic Availability" and IIRequiredFull Traffic Condition Date" in support of its submission. c) Contractor's Further Response,dated 27 September 2011: In We acknowledgedthat the Bridge was not in Full Traffic Condition on the Full Traffic Condition Date but stated as follows: "However, as previously indicated and discussedduring our coordination meetings, certain Scope Changes over the course of the Project and other circumstances beyond the control of the Contractor have resulted in an expressor implied consent or contractual term extending the Full Traffic ConditionDate past (misspelledas "passed") the original date of September5, 2011 (and in fact, as you know, the Provinceand the Contractor are still negotiating the scheduleimpact of these changes).Consequently,we decline to accept the occurrenceof an incidenceof Contractor NonConformanceas the cause of the delay does not fall within the definition of a Contractor NonConformance. light of the foregoing, the NCNshouldbe withdrawn." In d) Province's Response, Dated September 30,2011, to the Contractor's Further Response The Provincefirst reiterated the fact that the Bridge did not achieve Full traffic Availability by the Required Full Traffic Condition Date. Next the Province, in rejecting that "an express or implied consent or contractual term extending the Full understand how we cameto such a conclusion and stated that "there is no such consent on the Part of the Province. The Province in further assertion of its position cited Section 27.8 of the Project Agreement,which provides that no amendment to the Project Agreement shall be valid unlessit is made in writing and signed by or on behalf of each of the Parties. III. CONTRACTOR'S RESPONSE: As stated, we do not contest the fact that the PrincessMargaret Bridgedid not achieve Fulltraffic Availability by the RequiredFull Traffic Condition Date of September 5, 2011. Rather, it is the allegedly non-conformingnature of this
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111111"~~""5;""f;:;:': Traffic Condition Date passed (sic) the original date of September 5, 201111, respondedthat they did not

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lateness whichis contested..

The Province'sstatement (letter of September 30, 2011) that there was no consent to extend the project term is selective and self-serving and neglects important facts which go to the heart of this Notice of Referral. The Contractor was compelled to undertake certain work to upgrade the stability of pier work which is outside the Contractor's Scope of Work, thereby constituting a Scope Change,with an increasein the Contractor's costs and delays in the completion of the scheduled obligations under the ProjectAgreementresulting.The Provincedisputed this characterization but offered to defer the negotiation of this Issueuntil a later time in order to enable the work to proceed without delay given the already serious time constraints on the Project. In a spirit of cooperation and despite the risk of moving forward without an upfront guarantee of the required compensationand schedulerelief, the Contractor agreed. Page4 de/of 15 .r

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Similarly, when the Province issued a Change Order amending the Project Agreement to add the requirement for Sterling Lloyd Eliminator bridge deck waterproofing of the bridge deck, the Parties were unable to come to an agreement regarding the cost and schedule impact of this change. However, notwithstanding this disagreement, the Contractor agreed' to implement the system into the design, with the understanding that the issues of scheduling and cost impacts would be negotiated at a later date. Finally, the Province has adopted an excessively punitive approach to quality assurance and design review on this Project which has had an adverse impact on scheduling and justifies an extension of time. As at the date hereof, the Province has delivered to SNC-Lavalin 232 Non-Conformance Notices (collectively, the "NCN's"). Some were acknowledged and accepted pursuant to S. 12.2.1 (a) while others were disputed in accordance with s. 12.2.1(b). The remainder were subjected to the Province's final determination pursuant to the last paragraph of s. 12.2.5. Notices of Referral to the DRB have been filed with respect to certain NCN's and Notices of Referral have been prepared with respect to certain NCN's but set aside by mutual agreement of the parties for later discussion. By mutual agreement, the prescribed Contractor Non-Conformance Payments in respect of the NCN's have not yet been paid or deducted as it has been agreed that the totality of such payments shall be subject to discussions to take place at a later date. Thus, the Parties agreed to suspend the discussions of scheduling and other Impacts until a later date and it was the Contractor's intention that some accommodation regarding project schedule would be reached. Since the contractual terms relating to schedule were not yet finalized, this NCN is premature at best. While it was and remains our firm contention that the factors to be discussed justify an extension of time, among other relief which should accrue to the Contractor on this Project, we consented to suspend discussions of these issues in order to move the work forward effectively. Our consent was obviously premised on the Province's good faith in return, and the Province knew or should have known this, so should not be permitted to raise an absence of an express contractual term against the Contractor. We re-assert our claim that the Province permitted the Contractor to rely on an implied agreement to subsequently negotiate in good faith, creating an implied consent or term of contract in favour of the Contractor to this effect. Alternatively, the performance delay was contractually justified given that the Contractor was not at fault or able to control the factors giving rise to the delay. In fact most, if not all, of these factors were within the control or due to the fault of the Province, including the cumulative impact of the aforementioned scope changes, the particular circumstances of the Project and the Province's unfairly punitive approach to project management on productivity, as demonstrated below. It is important to note that we are not claiming the Province has reneged on its promise to suspend the foregoing issues for later discussion. It is possible that the Province chose to issue DBNCNO211 in order to preserve its rights in the event the parties do not reach agreement during their discussions on project delays. However, the Province has not stated that this is the case, so we are just extending it the benefit of the doubt. Whatever the case may be, we are compelled to reject this non-conformance given our contention that the contract should have been and must be amended to reflect the project delay impacts of extra work performed by Contractor on the Project, whether or not the full impact reached negotiation. As such, the Contractor is not in a situation of nonconformance justifying the NCN. A. DETAilED DISCUSSIONOF FACTORSJUSTIFYINGEXTENSION 0~
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Late Signing of Contract

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Facts surrounding the execution of the PA Page 5 de/of 15

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On March 19, 2009 the Province issued a Request for Qualifications (RFQ)in which Respondentswere askedto submit thei~qualifications for the performance of designand construction work to rehabilitate the PrincessMargaret Bridge in Fredericton, New Brunswick (the "Project"). SNC-Lavalin's was ranked in bid second place but was selected by the Provincefollowing the failure of the original Preferred Proponent to timely execute and deliver the PA under RFP. a result, the PAwas executed and delivered by SNC-Lavalin As on 17 February2011, being almost two months following the original Project start date. This meant, among other things, the loss of two crucial months of engineeringtime.

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Despite the significantly delayed Project start date (through no fault of SNC-Lavalin), deadline for full Traffic the remained unchanged,resulting in significantly shortened time frames for certain of the Work. Attempts by SNC-Lavalin negotiate changesto the PA including with respect to deadlineextensionsto reflect to these altered time frames - wereunsuccessful, the Province with showing openness amend PA. no to the However, SNC-Lavalin's impression was that the Province would show flexibility where possibleto enable SNCLavalin to meet the challenges presented by the vastly compressed schedule. For example, the compressed timelines made it virtually impossiblefor SNC-Lavalin deliver the 100%DesignReport no later than 30 days prior to to commencement of construction of the Works as required under the PA and it was our impression from discussionswith the Provincethat, while unwilling to formally amend the PA,they were aware of this impossibility and intended to allow for a feasible alternate solution involving the phaseddelivery of designpackages:However, this turned out not to be the case as, when the deadline for delivery of the 100% DesignReport passed,the Provinceimmediately delivered a Non~Conformance Notice ("NCN")to SNC-Lavalin. Delaved Start as Scope Chang~:Paragraph (viii) of S. 1.1 of the Project Agreement provides that a failure by the Province to make the Bridge Lands Work Areas available to the Contractor on or before November 30, 2009 constitutes a ScopeChange.This clause applies whether or not the delayedaccess the BridgeLandsWork Areas to is accompaniedby an equivalent extension of the project completion date. As such, the contemplatedrelief relates QQ1h mobilization costs incurred by the Contractor as a result of mobilized resourcesnot usedduring the delay to
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to the cost and schedule impacton the Contractorof the reductionin time arisingfrom the delayedProject
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Commencement.This in and of itself entitles the Contractor to relief as to time and cost resulting from the late

start of the Project.However, evenif one were to arguethat the stateddate of November 2009(paragraph 30,
(viii) of S. 1.1) was the initial start date for the Project and that such date is deemed to have been amended and replaced by the actual start date of February 17, 2010, the existence of this Scope Changeillustrates that, according to the spirit and the letter of the Project Agreement, the Contractor is intended to be relievedfrom the cost and schedule impact of a shortened contract term where such reduction in time arisesfrom an act of the Province. ii) ProvinceProject Management/Un/air Practices

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General CommentsRegardingConduct of the NCNRegime:

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Our phasing proposal suggested the design for particular work be submitted 10 prior to commencementof that work rather
design for the project In phases. 30 days prior to Work mode commencement. This proposed solution was not only

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than submitting the entire feasible but perfectly by enabling

in keeping

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of procurement,

one of whose advantages

Is to allow faster delivery

design to be conducted

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a. Design-Build Contracts! Acceptable Risk: The Contractor bid on this Project on the basis that the
IIDesign-Build" method of procurement was going to be being used. One of the key advantages of IIDesign-Build" (as compared to traditional Design-Bid-Build or Design-Award-Build modes of procurement) is that designcan be performed concurrently with construction activities, allowing the work to be phased and performed efficiently, as long as it is compliant with applicable codes,
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standards and the Project Agreement. Suchphaseddesign and constructionwork, aptly referred to
as fast-tracking, is not used on all projects. Sometimes the Design-Builder (IIDB") creates the entire design prior to commencement of construction. However, such fast-tracking is particularly useful in order to achieve accelerated delivery of projects and therefore, such an approach would have been particularly appropriate given the abnormally accelerated schedule date described in a) above. resulting from the late start

For example, (as mentioned in a) above) the compressed timelines made it virtually impossible for SNC-Lavalin to deliver the 100% Design Report no later than 30 days prior to commencement of construction of the Works as required under the PA and it was our impression from discussions with the Province that, while unwilling to formally amend the PAl they were aware of this impossibility and intended to allow for a feasible alternate solution involving the phased delivery of design packages.2 As an alternative, we suggested the use of design packages. However, our expectation of flexibility from the Province was shown to be in error, when the deadline for delivery of the 100% Design Report passed, the Province immediately delivered a NonConformance Notice (IINCN")3 to SNC-Lavalin.

The suggesteduse of design packages being perfectly in keeping with the "Design-Build" mode was
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schedule and the expectation of the Province's accommodation was reasonable.The issuanceof
NCN 004 was not. NCN 004 is not the only example of an unproductive, uncooperative and, unreasonable departure by the Province from the innovative scope allocation principles of Design-Build. In fact, from an early stage in the Project the Province began to adopt an increasingly detail-oriented approach to oversight of the Work, with their Independent Engineer frequently requiring us to "go back to the drawing board" with respect to various designs, causing a significant drain on our financial and human resources and aggravating the already tight time constraints of the project. By driving the design process in a manner more befitting a traditional bid, the Province has placed SNC-Lavalin in the untenable situation of assuming all the risks and burdens to Design-Build delivery while at the

of procurement used on this project and particularly appropriate given the abnormally accelerated

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same depriving it of the independence and margin for manoeuvre which generallyaccompanythe
assumption of those risks,.

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This overzealousapproach to reviewing design has resulted in interference with the Contractor's ability to manage the design and construction process. This has a negative impact on the Contractor's cost and schedule and this off-loading to the Contractor of unacceptablerisk was not

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foreseeable thereforecouldnot havebeen(andwas and not) pricedor planned for.

2 Our phasing proposal suggestedthe design for particular work be submitted 10 prior to commencement that of work rather than submittingthe entire design for the project 30 days prior to Work commencement. This proposed

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solution was not only feasible but perfectly in keeping with the DesignBid mode of procurement, of whose one advantages is to allows faster delivery by enabling design to be conductedin phases. 3 NCN 004. Page 7 de/of 15

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~ b. Interference in the Design Process: In contrast to the nature of a Design-Build contract where the Contractor controls design, the Province is unduly interfering with the design process. Design Review by an Owner's role in a Design-Build project should be limited to compliance with Project requirements, not to design validity nor technical adequacy of the design; this is particularly so in this case where the Province wishes the Contractor to retain responsibility for the design4. In addition, excessive involvement in the design process by the Province has had a negative impact the Contractor's schedule and cost. The design approval process under the Project Agreement adds considerable delays to the schedules causing a significant multiplier effect in time lost from excessive interference In the process by the Province. Inappropriate intrusion in the design process has created additional and unnecessary approval cycles causing significant loss of time. Furthermore, NCNs have issued for differences of opinion relating to design choices which the Contractor is contractually entitled and obligated to control. Even if the Province (or another contractor) would do things differently, this is not tantamount to anon-conformity provided our design is reasonable and is complaint with the bridge code,the state of the art, and the Project Agreement, in which case It must be accepted. NCNs are not the appropriate vehicle for debating these issues as there is no defect or non-conformity, no damage and no objective non-conforming behaviour to sanction and the use of the NCNs in these cases contributes to unnecessary delays.

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c. Punitive Nature: The Province has adopted an excessively punitive approach to QA and design
rev~ew on thi~ Project. To date, the p~ovince h~s delivered.to SNC-L~valin over. 200 NCNs, many of which we believe were unnecessary, Inappropriate or unfair and which have diverted resources of the Contractor from more productive work.

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d. Implied covenant of good faith and fair dealing: The Province must deal with the Contractor
honestly, fairly, and in good faith, so as to not destroy the Contractor's right to receive the benefits of the contract. This obligation occurs each time the Province exercises discretion in performance and thereby controls the other party's anticipated benefit. Such good faith dealing is even more necessary In the case of the inflexible and arguably inappropriate (as discussed elsewhere) NCN regime under the PA, particularly in the context of what Is for all intents and purposes a contract of adhesion. It is argued that the Province has not conducted itself in accordance with this principle in its application of the NCN regime and that this problem underlies many of the other comments set

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forth in this memo. e. Quality Assurance is typically not an NCN-Matter: QA is not typically sanctioned by NCNsin the
context of construction contracts whose object is to deliver a constructed Project. This goes against contract principles as well as equity, custom and practise. Typically, NCN deductions or payments are imposed in construction contracts in the event of delayed completion ("Delay Liquidated Damages" or "Delay LD's") or in the event the facility elements do not meet, or perform in accordance with, contractual specifications. Likewise, O&M or facility management contracts typically contain non-performance deduction regimes which provide for the deduction of amounts to reflect deficiencies in the quality or the quantity of services rendered. These deficiencies include the failure to make a facility or parts thereof available as required or the failure to meet specific quality or service standards They serve, in such
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Section 5.1 of the PA clearly allocates responsibilityfor the DesignWork to the Contractor. See for example,the 10 businessday waiting periods set forth in S. 5.4.2 of the ProjectAgreement. Page 8 de/of 15
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circumstances, to indemnify the client for the damages it suffers because of such late delivery or

becausethe thing delivered did not meet the standards bargainedfor, a tool for avoiding onerous litigation and complicated issues of proof by agreeing to a contractually defined pre-estimate of damages'Penalty or deduction points are often assessed with each crystallizednon-conformanceso as to track their occurrence and to trigger contractual defaults and termination where the level of non-conformance risesto contractually-established critical (and high) thresholds. In contrast, in this
Project many of the NCNs are imposed in the context of a QA program, the purpose of which
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typically is to ensure ~on-conformancesare caught early and rectified so that bre.aches gi~ing rise to
NCNs under normal circumstances and contracts never occur. QA relates to conditions which for the most part are in the process of being rectified or can and will be rectified, at Contractor's cost and without causing any damage to the Province (and not, as in the case of typical performance LD's, for lateness or defects in the delivered infrastructure). These are picked up either by the Contractors QA procedure or via Province audit, both part of a QA system which assumes non-conformities will occur and seeks to identify and record them and ensure their timely rectification. In both cases, the Contractor rectifies the deficiency at its own cost as part of its contractual obligations. Yet, in our case, because of the overly punitive nature of the contractual NCN-regime and the Province's particularly abusive use of it, non-conformities in QA which are expected and which cause no damage to the Province, are now causing the Contractor onerous financial consequences without

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the benefit of a rectification period to correct the non-conformance or a concept of repetitive

breach to assess deductions only where the nature or quantity of the deficiencies surpasses a reasonably agreed threshold.

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Contravention of General Contract Principles: The issuance by the Province of the NCN-regime
should be confined, and is so confined in typical construction (including Design-Build contracts) to

the limited circumstanceswhere objective technical criteria are breached,rather than to the wider patterns as is occurring in this case. A contractor should not have to suffer automatic and
~~! significant penalties for vague alleged breaches or being deprived of benefit of such protections as burden of proof, materiality thresholds right to cure and to mitigate as this violates many principles of contract law, creates unfairness in this contractual framework (especially since the Province controls the purse-strings under PA and excessive NCNs reduce the Payments to the Contractor), create a situation of unjust enrichment favouring the Province. In short, NCNs are being used by the inconsistent with the typical aims of NCN regimes. More on these principles below.
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Provinceas a tool to inappropriately sanction more minor deviations from the agreement,which is

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Timing; Imposition of NCNs with respect to Ongoing Work: Thisincludes:

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NCNsfor deficiencies which have been identified by the Contractor's QA system or by ProvincialAudit which are in the processof being rectified; where a requirement has not yet been met but where in the opinion of the Contractor, there was no obligation to meet such requirement at the time the NCNwas assessed.

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This phenomenon, sometimes referred to as the problem of "temporary disconformities/', hasa negative impact on the timing of ongoing work and inappropriately and unfairly penalizes the :',~:" Contractor for disconformities which will not form part of the delivered structure.

h. Requestingmore information than Contractor feels is necessary to comply; this, despite ,~

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disagreement, results in a non-conformance which, prior to its removal from the bucket and Page 9 delof 15
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regardless whetherContractor ultimatelyvindicated, serveasthe threshold of is can NCN triggering

$10,OOO/day. This is fundamentally unfair (given the NCN payment impact) but also goes against one of the major tenets of Design Build: streamlining. At all times, the public owner should do its best to allow the contractor to produce the minimum documentation required to demonstrate compliancewith the Owner's requirements, construct the project and facilitate the Owners final acceptance.Disagreementsbetween the parties should be dealt with in the appropriate discussion or dispute forums, not via the issuanceof punitive NCNs. i. Non-Removalfrom NCN Register: Due to the Province'sinterpretation of S. 12.2.3,the PA, NCN's remain in the Register until the incidence of Contractor Non-Conformanceis corrected or rectified to the reasonable satisfaction of the Province. This has the potential to prolong the accrual of 10,OOO/day Non-Conformance Payments due to circumstancescompletely beyond the control of the Contractor. Only the good faith exercise of the Province'sdiscretion in this regard can guard againstthe unfair application of the PAin this regard. NCN94 is but one exampleof this. Existenceof Non-Punitive Alternatives: The Province is inappropriately imposingonerous NCN's where non-punitive alternatives exist: An example is the issuanceof NCNswhere the Province's real intent was to trigger ciarification of a matter by SNC-Lavalin. acknowledgeand appreciate We the occasionaluse of Observation Notices by the Provincebut lament their underuse.

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k. Unjust Enrichment: The NCNpenalties are beyond compensatory in the circumstances would be as the case if they were truly liquidated damages- they constitute unjustifiable penaltiesthat unjustly enrich the Provinceto the detriment of the Contractor. In addition, the delayedremovalof the NCNs from the Registerleads to an improper financial burden for the Contractor without any correlation to damagessuffered by the Provinceor ability to mitigate by the Contractor. I. Cure and Mitigation: Under general contract principles, and usual contract terms, a contracting party is given a fair opportunity to correct (or cure) defaults as well as to mitigate its damages. Typically, NCNregimes also provide the same. However, the current NCNregime as applied by the Province deprives the Contractor of its ability to both cure and mitigate. NCNsare removed with great difficulty which posesadditional burdens on the Contractor. In summary, it is SNC-Lavalin's contention that a great many of these NCNswere unnecessaryand unfair in substance. Furthermore, their related Payments are also excessive,unfair and oppressive,many of which could have been avoided, reduced or removed quickly from the register. As It is within the Province'sdiscretionto assess or not assessNCNs,their sheer number, frequency and size of Payments show a pattern of bad faith. The NCI\J regime set forth in the Project Agreement is being inappropriately used as part of the QA program in this context, being in a construction contract. Where it would be appropriate, such as in O&M contract (where the deductions compensate owners for services or standards paid for but not met), they are accompanied by balancing mechanisms,suchas rectification periods making the NCNregimesfair and equitable, rather than punitive, which is totally not the case here. For this reason, Provincial discretion must be exercisedto the higheststandard of good faith and fairnessto mitigate the most punitive and onerous effects of this kind of regime. 1; gi 8 >' ~
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;ii)

Stability Work Outside of Contract

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As mentioned above, it was the Contractor's reasonable expectation that the issuessurrounding the nature and scope of the Contractor's obligations as they pertain to the substructure of the Bridge would be mutually negotiated at a later date, as agreed with the Province.However, the issuance DBNCN0211 of makesit necessaryto addressthe issueof the impact of out-of-scopework on our schedule now.

Disagreementwith respect to contractual scope and deferred negotiations

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The issue mutually set aside for later negotiation concerns whether or not the Contractor scopeof Work was intended to encompassthe investigation, analysisor assessment the stability of the Bridgepiers and of abutments and the rehabilitation of piers and abutments not meeting required load and stability ratings. The Contractor's firm position is that it does not, as our scope of Work in respect of substructure elements is limited to: (i) concrete removal from and encapsulation of pier and abutments; and (ii) concrete infill of land-based piers, as clearly set forth in Section 1.4 (Project Description) of Schedule 1 to the Project Agreement. This position, which constitutes one of the assumptionsupon which the Contractor based its decision to bid on the Project at the tendered price, was reflected in our initial structural evaluation report submitted to the Province. In responseto the report, the Province,during the first coordination meeting between the Contactor and the Provinceon 31 March 2011, indicated its position that the Contractor was responsible for performance of stability studies on the bridge piers as well as any work required to bring the stability ratings of the piers up to current standards, if necessary. The Contractor's DesignManager, Adel Zaki, disagreed,stating that the pier work required by the ProjectAgreementwas limited to "repair of substructure elements." While the Province continued to dispute this characterization of the Project Agreement, it was clearly agreed during the 13 May 2011 Coordination Meeting #4 that the issue of contractual scope,specifically its application to upgrading the piers to meet the current bridge code, would be settled at a later date. Contractual Basisfor Contractor's position with respect to contractualscope

The substructure work involving pier stability is outside of the Contractor's scope of Work based on the following: Section 3.1 PA provides that the Contractor is engagedto perform the Work. "Work", in turn, is defined at S. 1.1(ju) as:

(i) (ii) (iii) (iv) (v) (vi) (vii)

TheDesign Work TheConstruction Work TheContractor Repairs TheWarrantyWork All requiredinvestigation, analysis assessment or requiredin connection anyof the foregoing: with All other work to be performedby or on behalf of the Contractor described the Contract as in Documents; and The performanceand observance all the covenants,agreements of and obligationsof the Contractor underthis Agreement. [...].

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"Design Work" is definedin relevantpart at S.1.1(bq) mean"the design all elements the Construction to of of Work [...]. Therefore, operative the definitionfor our purposes "Construction is Work" "Construction Work" is definedat S.1.1(am) as:
Page 11 defof 15

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(i)

The dismantling, required replaced, accordance

removal

and disposal of all existing elements removed installation and/or replaced,

or components

of the Bridge that are of or in repaired

to be dismantled, and the supply, are required

the refurbishment,

repair or replacement or components

all existing elements Bridge which

or components

of the Bridge that are required and construction installed (including or constructed,

to be refurbished,

of all new elements

of the

to be supplied, Documents

in each case as specified

with, the Contract Determined

Part 1.0 of Schedule 1) and

(ii) The operative

Any Contractor provision

Work [...J 1 (referred to specifically in the definition of Construction Work) is S.

in Part 1 of Schedule

1.4 (Project Description)

which describes the Work to be completed by the Contractor painting, includes, without

as follows:

"The Work to be completed

limitation: of structural steel work; floor beams and asphalt

.
.

surface preparation compete wearing removal surface;

upgrading,

and general refurbishment concrete

and replacement

of existing

deck slabs, supporting

. .

replacement replacement

of existing traffic of expansion

barriers

and installation

of new traffic barriers;

joint assemblies,

drainage troughs and downspouts;

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replacement of all bearing assemblies not replaced as part of the Phase 1 contract; concrete removal from and encapsulation of all piers and abutments; concrete infill of land-based piers; and all other Work specified herein.

The Work shall also include such additional Design Work and Construction Work as is required to ensure that the Bridge achieves the required (i) capacity; and (ii) service life objectives set out in the Contract Documents (the 'Contractor Determined Work')." Thus, the general definition of "Construction Work" requires the refurbishment, repair or replacement of all existing elements or components of the Bridge that are required to be refurbished. recaired or reclaced. and S. 1.4 provides a detailed list of those elements or components requiring repair, refurbishment and replacement. For the most part, the Work described in section 1.4 relates to superstructure elements and the only requirements relating to the substructure apply to concrete removal from and encapsulation of all piers and abutments and concrete infill of land-based piers. None of the foregoing requires substructure work below the waterline, which is what would have been required if it were within the Contractor's scope to ensure stability of the bridge through the performance of Work on its Substructure Elements (other than those which are land based). Schedule 1 provides further detailed information about the nature of the Work. Section 5 provides the specifications for Durability. It commences with the requirement that all materials, processes and methods of Page 12 de/of 15

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rehabttitation usedby the Contractorbe "the bestavailable state of the art industrystandards" to providea (sic) fifty (50) year service life for a bridge structure exposedto heavy usageof salt and other de-icing materials. This is stated in the first paragraph of s. 5 and it is not a subparagraph and so it can be said that it is meant as an overriding clauseto apply to the rest of section 5, which, in subsequentsubparagraphs to 5.2 refers to Concrete 5.1 Corrosion Protection and Painting Structural Steelwork, respectively. In each case reference is made to superstructure elements only, with the exception of the third paragraph of s. 5.1, which states that the Design requirements, materials and methods of construction used for encapsulationand refurbishment of existing piers and abutments must conform to Item 302 of the Construction Specificationsas well as Section 8 of Schedule 1
(Repair of Substructure Elements). Item 302 of the Construction Specsrelates to Concrete in Structures and the only instance in which Item 302 relates to substructure elements is in the case of encapsulation. Section 8 of Schedule1 clearly provides that repair of substructure elements shall be accomplishedby encapsulationand that refurbishment of land basedpiers E-5to E-8,and E-ll to E-15shall be through constructionof a new concrete intill wall and concrete base cup. Once again, in no case is substructure work mentioned other than the specific cases mentioned above. Finally,section 8.2 reiterates that repair of substructure elements shall be by encapsulationand proceedsto set forth how encapsulationshall be carried out. Section 6 relates to the Deck ReplacementSystem. Section 7 relates to the upgrading of Structural Steelwork. Under subsection 7.1, the Contractor is required to design all strengthening required for deficient superstructure

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membersand to perform its own inspectionand assessment the Bridgein order to evaluatethe structural of
capacity of all existing superstructure Bridge Members. Under s. 7.2 ("Strengthening and Repair work") the contractor is required to provide adequate structural capacity for all Bridge superstructuremembers:s. 7, part 1.
,

Finally,section9 of schedule goes into significantdetail regarding 1 miscellaneous bridgecomponents suchas

traffic barriers, expansionjoints, single box seals, large movement joints, deck drainage, and bearing assemblies, none of which relate to substructure stability work. Therefore, the Project Agreement imposes detailed requirements relating to superstructure along with a limited number of specifications relating to the substructure, supporting the Contractors contention that the contractual scope excludes work involving the investigation or remediation of the load bearing capacity of the substructure elements. This conclusion is further reinforced by the Province'scommitments relating to EnvironmentalImpact Assessments in respect of the Project. Correspondencebetween NBDOTand Fisheries and OceansCanadaand between NBDOT and the Assessmentand Approvals Branchof the Department of Environmentof New Brunswickmake it clear that

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substructure work to be performedunderthe ProjectAgreement restrictedto encapsulation the piers and is of abutments,with no underwaterwork being contemplated.It was on this basisthat relevantgovernmental authoritiesconfirmedthat the Projectwould not be subject to registrationunder the Environmental Impact Assessment Regulation and other relevantenvironmentalauthorizationrequirements. fact, section1.1 (iv) In
provides that there shall be a Scope Changein the event an EtAEnvironmental Condition is imposed or otherwise
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becomesapplicable to the Work. Therefore, the position relating to EIAssupports the Contractor's contention that substructure work was never contemplated under the Project Agreement.

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Work performed and schedulingimpact

Despitethe Contractor's firm position that Bridgestability work was outside of its agreedscopeand relying on the parties' "agreement to disagree" on this issue until a later date, the Contractor consented to perform certain engineeringwork to assess extent of any stability problems with the piers. Thesestudiesdiscloseda number of the

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piers were unstable. Through various techniques the number of pierswith such stability problems was reduced down to 8. During a coordination meeting held on June 7, 2010,the Province instructed Contractor submit a Structural the to Evaluationand Live Load Rating Report containing solutions to the stability problems relating to the 8 piers prior to closure of the bridge. We were able to significantly reduce the number of piers which were deemedto be unstable but could still not bring the number of unstable elements to zero. We submitted our Structural Evaluationand Live Load Rating Report containing this information and we were allowed to close the Bridge despite the Province's contention that the Report was non-compliant. During the 2010 Permitted Closure Period, our efforts were devoted to engineering work which had been delayed during the spring due to the extra-contractual focus on issues related to structure and stability and no further progress was made on those issues
In the autumn of 2010, the parties agreed to hold non-prejudicial meetings on a number of issues,including the stability issue. The group established to deal with stability issuesresolved the remaining stability issuesby among other things: (i) driving a test pile on the land to provide further evidence of our existing assumptionsregarding

stability; (ii) diggingout the space behind the west abutment and refilling it with light weight material; (iii) taking a bearing installed at W2 and placing it in W3; (iv) driving 10 extra piles beneath El0; and (v) removing the landfill behind the east abutment and tying the abutment back.
It is noteworthy that neither
scope of work under driving piles nor excavatingthe backsideof abutments form the Project Agreement. part of the

Contractor's

As a result of our engineering work relating to the stability issue,our design budget increased significantly and we suffered delaysas Work was deferred in order to focuson the issue pier stability. of
iv) Sterling Lloyd Waterproofing ChangeOrder

The ProvinceissuedChangeOrder PMBPCO06 amendingthe Project Agreement to add the requirement for Stirling LloydEliminatorbridgedeck waterproofing to be added to the waterproof wearing surface system. The Province agreed that the Change Order constituted a Scope Change and the Contractor submitted costsfor the work as well as its assertion that the performance the work would requirea two week extension to the 2011 Permitted of Closure Period. As the parties were unable to come to an agreement on the cost and schedule impacts of the change, the Province issued,by a letter dated March 31, 2011, a determination in respect of the matter. On April 14, 2011, the Contractor respondedwith a Notice of Dispute indicating that it would proceed as required with the work but would be disputing the Province's determination as permitted under article 13.5.4 of the Project Agreement. We also reiterating our concern relating to the potential adverse scheduling impact of rainy/damp weather on the performance of the ChangeOrder and suggestingthat ways of dealing with this issuebe added to the agendaof the dispute resolution scheduled in respect pursuant to Article 25.4(b) of the ProjectAgreement.This issue still awaits discussionand therefore, since the contractual terms relating to schedulewere not yet finalized, DBNCN0211 premature at best. is c;

v)

Conclusion

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The late start to the Project (as discussedin Ai) above), which was already afflicted with what were arguably unrealistictimeliness, would alone be sufficientto justify an extension. However, persistent the failure of the
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) Provinceto adapt proceduresand practices to the abnormally accelerated project scheduleand the inappropriate general approach of the Province (as described in ii) above) also significantly contributed to Project delays and, taken together with the additional work mentioned in iii) and iv) above had a devastatlngly negative cumulative impact on productivity, cost and timing, all of which justify an extension of time on this Project. As the schedule impact of certain work was submitted for later discussion with the Province, we do not consider the Full Traffic Condition Date of September5,2011 to be valid as a measure of timely achievement of Full Traffic Availability and therefore, we consider DBNCN0211 be invalid. We furthermore considerthat the cumulative effect of the factors to mentioned in the present Notice of Referral, all of which were beyond the control of the Contractor and were causedby the Province,justify an extension of the timelines on this Project. Reservation of Rights: In addition and without prejudice to the rights reserved in Section 3 above, we hereby reserve our rights and recourseswhether or not the Provinceinvokes new or additional grounds apart from those stated in DBNCNO211. Furthermore we reserve our right to review or adduce further evidence and arguments in connection with any negative responsethe Provincedeems fit to bring forward. Summary and Conclusion
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In light of all of the foregoing, we hereby request that the Dispute ResolutionBoard confirm that DBNCN0211 does not demonstrate and is thus invalid. is in non-conformance with Article 14.1 of the Project Agreement or any that the Contractor related provision, Respectfullysubmitted,

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c.", Enclosures

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