When is a contract a contract?

Work in Progress By Ivan Morgan

Why does it seem that you and I – the tax-paying public – are always left holding the bag?

Last week I read an interesting piece in this publication that got me thinking. Journalist Mark Squibb wrote a piece (“Toilet price hike is a bum rap”) about the City of Mount Pearl having to pay more for toilet paper. Turns out the company who won the tender to provide this item to Mount Pearl told the City, in the middle of the contract, they could no longer afford to provide the product at the price they signed for. They wanted more money. Squibb documented the debate Mount Pearl council had on this issue.

Before I go any further, note I’m not necessarily criticizing anyone involved. I am, however, confused, and a little concerned how this relatively minor line item in Mount Pearl’s budget could have bigger repercussions.

In Canadian law a contract is a contract. There are very few conditions that can dissolve a contract, and price squeeze isn’t one of them. If a vendor is caught between their supplier and the contract with the city, why is that the taxpayer’s problem? Couldn’t the vendor go to their suppliers looking for a break in their price? Why are we supposed to pony up?

A councillor asked about the legal ramifications of giving the vendor more money. Can a supplier be held to their contract? Good question. The city has a legal department. Try withholding your taxes and you will see them kick into action. Why weren’t they brought into this?

There was talk among the councillors about market volatility. How volatile would the market be if folks were made to stick to their contracts (and prices) all the way down the line? Is it market volatility (a catchphrase that has now lost all meaning to me) or greed? Maybe not the vendor, but someone in the supply chain. Or as they call it in business, maximizing profits.

One of the councillors noted that this situation had bigger implications. I agree. If they cave to a toilet paper supplier, does every other contractor with the city of Mount Pearl come cap in hand, looking to have their contracts sweetened?

I don’t plan to die on toilet paper hill, it’s a minor line item. But it begs the question: When is a contract a contract?

Ask the folks who contracted with Nalcor on Muskrat Falls. It was originally contracted to cost roughly $7.4 billion. We, our children, and grandchildren are now on the hook for $13.4 billion and counting. And the power line from Labrador? It doesn’t work. Who is holding the bag on these overruns? Here’s a hint: not the contractors. GE is now looking for another quarter of a billion dollars to fix something they designed under contract to us. Why has this become our problem?

When is a contract a contract? Churchill Falls comes to mind. We signed a contract with Hydro Quebec in the late 1960s which really worked for them. Not so much for us. For the last 54 years we have been through many courts trying to wiggle out of it. No dice. A contract is a contract. Why is that different?

I assume the toilet paper suppliers the vendor relied on jacked up their prices, presumably not caring if their customer was caught in a financial vice. The vendor came to council for help. So, being good guys, council voted to let the taxpayer pick up the tab. The city wasn’t heartless. Fair play to them.

I don’t want to bankrupt suppliers, but how do we make it clear to business contactors the taxpayer is not an endless supply of cash. How do we stop businesses from viewing you and I as the unending gravy train? I am asking because I don’t know.

Businesses are always using words like competitive, cutting edge, lean, and efficient to describe themselves. Yet I have seen, time after time, when they don’t reach these lofty goals, they turn to you and I to bail them out. Is it time for us to be heartless? Or at least firm in the contracts we have made?

Several councillors wondered during their discussion where this will end.

Where indeed?

Ivan Morgan can be reached at ivan.morgan@gmail.com