Bondfield lenders suing Ontario agency and Toronto hospital over unpaid loans for redevelopment project
The Canadian banks that financed the troubled redevelopment of St. Michael’s Hospital in Toronto are suing the hospital, as well as the provincial agency responsible for awarding the project, alleging they failed to prevent the supply is “tainted and compromised”.
The syndicate of lenders, led by the Bank of Montreal, says it has advanced $230 million to Bondfield Construction Co. Ltd., the contractor selected for the project. Bondfield was one of Ontario’s largest public sector contractors until its collapse in 2019 – a messy insolvency process that uncovered allegations of fraud and bid-rigging.
The lawsuit raises further questions about how much taxpayers will ultimately pay for the long-delayed $300 million hospital project, which is at least five years behind schedule. St. Michael’s new 17-story patient care center, although partially occupied, is still under construction. This work started in 2015.
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One of the defendants is Infrastructure Ontario, the provincial agency that oversees the awarding of all contracts for major public sector construction projects, such as hospitals, light rail transit and stadiums. The agency uses a funding model known as public-private partnerships, or PPPs. Under this system, builders are required to finance projects through private sector loans, often from banks, and are only paid in public dollars when they reach certain milestones.
Infrastructure Ontario said the model protects taxpayers and no public funding for the St. Michael’s project will flow until it progresses. The new lawsuit filed by the banks, however, will test the strength of that model — and whether the alleged impropriety of a former senior St. Michael’s executive will expose the public to major liability.
After Bondfield filed for bankruptcy protection, court-appointed monitor Ernst & Young Inc. discovered paper emails showing that a St. Michael’s insider had advised Bondfield’s then-president, John Aquino, on how to bid for the project in 2014.
E&Y later determined that the insider was Vas Georgiou, St. Michael’s administrative manager during the procurement, and the hospital’s manager in charge of the redevelopment. As investigators dug deeper, they learned that Mr. Aquino had provided Mr. Georgiou with a secret BlackBerry and his own. bondfield.com email address the two men used to communicate throughout the procurement.
One of Bondfield’s main creditors, Zurich Insurance Co. Ltd., sued the hospital, along with Mr. Georgiou and Mr. Aquino. Zurich, which issued bonds on the project and was responsible for its completion, alleged that the process had been corrupted and asked the courts to void the bonds. This case is still before the courts.
But as part of its lawsuit, Zurich says it has uncovered evidence that shows Mr Georgiou intervened on Bondfield’s behalf at two key stages of the bidding process: helping the company get on the shortlist of preferred bidders and defend Bondfield when it received a low and near disqualifying score for its final design submission. Mr. Georgiou has denied any wrongdoing.
The banks are now relying on this evidence to demand payment of the $230 million the syndicate advanced to Bondfield. They say Infrastructure Ontario and St. Michael’s had a duty to Bondfield’s lenders to ensure the procurement was done without undue influence.
“Collusion and inappropriate communication took place between Georgiou and Aquino throughout the procurement process. As a result, the procurement process has been tainted and compromised,” the banks claim.
Mr. Aquino did not respond to a request for comment.
Besides BMO, the other lenders are the Toronto-Dominion Bank, the National Bank of Canada and the Mouvement Desjardins. In an emailed statement on behalf of the lenders, a BMO spokesperson called the situation “unfortunate”, saying the banks “would have preferred to settle this matter out of court”.
The situation is particularly sensitive for BMO, which has deep ties to St. Michael’s. William Downe, a former BMO chief executive, chaired St. Michael’s board from 2006 to 2009, but stepped down long before the redevelopment contract was awarded. Frank Techar, former chief operating officer of BMO, chaired the board committee that oversaw procurement.
Both men have since retired from banking, but serve on the board of directors of St. Michael’s Foundation, the hospital’s fundraising arm.
The banks’ statement also targets the findings of internal investigations launched by the hospital and Infrastructure Ontario. In 2015, The Globe and Mail published a series of articles about the close business ties between Mr. Aquino and Mr. Georgiou – ties that neither man disclosed before the bidding process.
In response, a special committee of Infrastructure Ontario’s board of directors released a 2016 report concluding that “supply has not been compromised.”
The banks allege that the assurances given to them of the sanctity of the process were “false, inaccurate and misleading and are subject to prosecution as misrepresentations”.
In their claim, the banks are demanding full access to all supply-related communications — including “meeting notes, reports, assessments, emails, text messages” — from Unity Health Toronto, the network of Catholic hospitals which includes St. Michael’s and Infrastructure Ontario. .
In an emailed statement, Infrastructure Ontario did not respond to the specific allegations contained in the banks’ complaint. But an agency spokesperson said it had worked closely with the hospital “in every way possible to mitigate the challenges of an insolvent general contractor”.
Jennifer Stranges, spokeswoman for Unity Health, said in an email that the completed portions of the patient care tower “provided much-needed critical care capacity for COVID-19 patients at the height of the pandemic.” .
The entire project, which includes the new tower, as well as an expanded emergency department and a completely renovated intensive care unit, is expected to be completed in 2025, she said.
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