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 CN's network.
- 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 CN trains.
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 Transit
projects.
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.
Forward-Looking Statements
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.
SOURCE CN