Decision No. 272-R-2013

APPLICATION

[1] The Canadian National Railway Company (CN) has requested the Canadian Transportation Agency (Agency) to determine that the calculations of overhead charges set out in CN’s bill to the Ministère des Transports du Québec (MTQ) are in compliance with the Guide to Railway Charges for the Maintenance and Construction of Road Crossings (Agency Guide) and that the bill must be paid by MTQ as provided for in Order No. 2010-AGR-374 dated July 7, 2010.

[2] In addition, pursuant to section 32 of the Canada Transportation Act (CTA), MTQ requested the Agency, to review or vary Order No. 2010-AGR-374 to reflect the application of a rate of 3 percent for subcontracting, in this case Safetran which provides the pre-wired and pre-assembled material used for crossing work, in the same manner as that provided for in Transport Canada’s Applicant Guide for Railways – Grade Crossing Improvement Program (TC Guide).

BACKGROUND

[3] CN and MTQ signed an agreement on March 25, 2010 related to the modification to the crossing warning system located at Mileage 41.16 of CN’s Pelletier Subdivision, in the municipality of Rivière-Bleue, in the province of Quebec.

[4] The agreement provides that after the Transport Canada grant is received, MTQ would pay 62.5 percent and CN, 37.5 percent of the remaining costs related to the modification to the crossing warning system. Moreover, Clause 6 of the agreement provides that CN shall prepare all accounts for both construction and maintenance work using rates as stipulated in the latest Agency Guide.

[5] CN filed a copy of the agreement with the Agency on May 17, 2010. On July 7, 2010, an order was issued by the Secretary of the Agency advising that the agreement was an Order of the Agency effective May 17, 2010.

[6] On August 1, 2009, CN and Her Majesty the Queen in right of Canada, as represented by the Minister of Transport, entered into a contribution agreement pursuant to section 12 of the Railway Safety Act, R.S.C. (1985), c. 32 (4th Supp) [RSA]. The contribution agreement provided for the partial funding by Transport Canada of various projects undertaken by CN, including the modification to the warning system at the road crossing located at Mileage 41.16 of CN’s Pelletier Subdivision (Project). This contribution agreement was amended on May 30, 2011

[7] On June 9, 2011, CN sent a bill to MTQ for $21,480.19.

[8] On June 30, 2011, MTQ advised CN that there was a discrepancy between the costs billed to MTQ and the costs billed to Transport Canada.

[9] CN issued a new bill for $20,863.12 (Bill No. 90496008 dated August 3, 2011) [bill]. On August 5, 2011, CN provided MTQ with an explanation of the calculations set out in the bill.

[10] On September 13, 2011, MTQ advised CN that it disagreed with the explanations provided regarding the bill.

PRELIMINARY MATTER

MTQ’s application pursuant to section 32 of the CTA

[11] MTQ maintains that CN’s bill is not in accordance with the Agency Guide. MTQ submits that even if the Agency were to conclude that the bill complies with the Agency Guide, the lack of clarity of CN’s method of billing constitutes a change in facts or circumstances that warrant a variance or review of the order.

[12] According to CN, the application of section 32 of the CTA would not only give rise to the review of the Agency order. In fact, MTQ is seeking to unilaterally amend the conditions of a negotiated agreement. CN asserts that allowing a review of the agreement would violate the spirit of deference to contracts, which is an underlying principle of the CTA. According to CN, section 101 of the CTA explicitly provides that the parties govern their relationships by means of agreements.

[13] CN maintains that given that the relevant overhead rates were specified in the estimates provided before the work was undertaken, MTQ has not demonstrated that there have been changes in facts or circumstances that would warrant a variance of the order.

Analysis and findings

[14] Pursuant to section 32 of the CTA, the Agency may review, rescind or vary any decision or order made by it or may re-hear any application before deciding it if, in the opinion of the Agency, since the decision or order or the hearing of the application, there has been a change in the facts or circumstances pertaining to the decision, order or hearing.

[15] Section 32 of the CTA is not an open-ended authority for the Agency to review its decisions. The Agency’s jurisdiction under this section is limited and only arises if, in its opinion, there has been a change in the facts or circumstances pertaining to a particular decision since its issuance.

[16] For the reasons that follow, the Agency is of the opinion that section 32 of the CTA does not apply in this matter.

[17] Pursuant to subsection 101(1) of the CTA, an agreement, or an amendment to an agreement, relating to the construction, maintenance or apportionment of the costs of a road crossing or a utility crossing may be filed with the Agency.

[18] An order confirming that the agreement is an order of the Agency is issued by the Secretary each time an agreement is filed.

[19] Although an order is issued confirming the filing of the agreement with the Agency, the agreement becomes an order of the Agency authorizing the construction or maintenance of a crossing, or apportioning the costs, in accordance with the document filed, through the mere operation of subsection 101(2) of the CTA. The Agency may, in accordance with subsection 33(4) of the CTA, enforce the agreement that became an Agency order.

[20] The Federal Court of Appeal (FCA) examined the status of an order of an administrative tribunal that becomes an order of the Federal Court in Canada (Canadian Human Rights Commission) v. Warman (2011 FCA 297) (Warman). There, the FCA found that the order of an administrative tribunal, once filed for registration with the Federal Court under the provisions of the Act, remains an order of an administrative tribunal despite being filed with the Federal Court for enforcement:

In my view, the issue raised in this appeal turns on the registration provision set out in section 57 of the Act, and in particular whether the order enforced under the authority of that provision is the order of the Tribunal or the order of the Court.

The answer to that question is relatively straightforward when one considers that the only order being enforced under this scheme is that of the Tribunal and that there is to-day no legal principle that restricts the use of contempt powers to orders issued by superior Courts.

[…] in the present case, there is only one order – the Tribunal order – which is enforced by the Federal Court pursuant to section 57 as though it was an order of that Court. This intent is best reflected by the French text according to which: “les ordonnances rendues en vertu des articles 53 et 54 […] peuvent […] être assimilées aux ordonnances rendues par celle-ci [i.e., la Cour fédérale]. ”

[21] In Professional Institute of the Public Service of Canada v. Bremsak (2012 FCA 147) [Bremsak], the FCA confirmed the approach set out in Warman. Referring to the reasons given by Judge Noël, who wrote the majority decision in Warman, the FCA indicated in Bremsak that: “…More broadly, Warman stands for the proposition that in enforcement proceedings following the filing of a tribunal order in the Federal Court, what is being enforced is the tribunal order”.

[22] From Warman and Bremsak, it is clear that the mechanism by which an order of an administrative tribunal becomes an order of a court for the purpose of enforcement does not alter the nature of this order. The order of an administrative tribunal remains an order of this tribunal, despite being filed for enforcement with the Federal Court.

[23] The decisions in Warman and Bremsak pertain to orders of administrative tribunals that become Federal Court orders by operation of law. However, the Agency notes that the statutory provisions examined in these two cases established a mechanism by which an agreement or amendment becomes an order described in the same words, or words having the same effect for all practical purposes, as those used in subsection 101(2) of the CTA. In English, subsection 101(2) of the CTA uses the expression “becomes an order”(in French “est assimilée à un arrêté de l’Office”), whereas section 57 of the Canadian Human Rights Act and subsection 52(2) of the Public Service Staff Relations Act respectively use the expressions “may be made an order” (in French “peuvent être assimilées aux ordonnances rendues par [la CF]”) and “becomes an order” (in French “est assimilée à une ordonnance rendue par [la CF]”). For this reason, the Agency considers that the principles developed in Warman and Bremsak apply, by analogy and with such modification as the circumstances require, to the interpretation of subsection 101(2) of the CTA.

[24] The Agency concludes that an agreement filed with the Agency in accordance with subsection 101(1) of the CTA becomes an order of the Agency for the purposes of enforcement. However, the agreement remains an agreement between the parties, even after it is filed with the Agency, regardless of the operation of subsection 101(2) of the CTA. Such an agreement may be amended by the parties without the intervention of the Agency, and the amendment may be subsequently filed with the Agency, as contemplated by Parliament in subsections 101(1) and (2) of the CTA.

[25] The Agency is of the opinion that MTQ, through section 32 of the CTA, is attempting to reopen the contract that it negotiated with CN to amend the contents in such a way as to insert a clause that was not there at the time that the agreement was entered into, i.e., that a rate of 3 percent applies in the event of subcontracting, in the same way as provided for in the TC Guide. The intention, however, of subsections 101(1) and 101(2) of the CTA is to help enforce the agreements entered into between the parties. If section 32 of the CTA applied to agreements filed under subsection 101(1) of the CTA, this would lead to the opposite effect by allowing the parties to reopen a negotiated agreement, thus creating uncertainty.

[26] Moreover, if the Agency were to approve MTQ’s application, it would be using its power of review regarding an agreement entered into by two parties, whereas this authority is expressly limited to Agency orders and decisions.

[27] As the Agency has determined that the agreement reached between MTQ and CN remains an agreement between the parties, the Agency finds that section 32 of the CTA does not apply in this case.

QUESTION

[28] Does the calculation of overhead costs in the bill sent to MTQ comply with Clause 6 of the agreement entered into by the parties on March 25, 2010 with respect to the Project and the Agency Guide?

POSITIONS OF THE PARTIES

MTQ

[29] MTQ submits that it was the discrepancy in the bills sent to Transport Canada and MTQ that raised questions about the method of billing applied and MTQ’s share of the costs of the Project. MTQ is of the opinion that the actual cost of the Project relates to the reimbursement of eligible costs as set out in the contribution agreement. According to MTQ, there can only be one total cost for the Project and that was the cost billed to Transport Canada for $110,694.03 and not the $121,936.12 billed to MTQ.

[30] MTQ submits that when comparing the bills sent to MTQ and Transport Canada, it appears that the difference is $11,959.78. MTQ states that this represents the overheads related to the Safetran bill, which in its view, suggests that CN is attempting to “foist” these on MTQ and Transport Canada in two different ways. MTQ maintains that CN increased the amount billed by Safetran by 50 percent for MTQ while at the same time increasing the bill sent to Transport Canada by three percent. According to MTQ, CN should have applied an equitable method when calculating the Safetran item of the Project. MTQ also maintains that CN’s imposition of a rate of 50 percent creates excess overheads, which, in its view, are not eligible according to the TC Guide. MTQ argues that a material overhead rate of 50 percent had to have been authorized by MTQ in order to be applicable.

[31] According to MTQ, a review of Safetran’s bill revealed that both material and time, including engineering, design and shop hours, were provided by a third party. MTQ submits that the Agency Guide deals with the issue of subcontracting, and, in its view, the rate applicable to the subcontractor should be three percent subcontract and not the 50 percent rate for material provided by CN.

[32] As a result, MTQ concludes that the sum of $20,863.12 billed by CN does not represent 62.5 percent of the balance of the Project costs, after the Transport Canada grant of $88,555.22, but rather 94.24%. MTQ maintains that its total obligation is $13,836.76.

[33] MTQ refers to the TC Guide and maintains that it supports its position, specifically as it relates to Transport Canada grant-eligible costs. MTQ maintains that eligible costs are costs incurred by the recipient that are directly related to the eligible project and which, in the opinion of Transport Canada, are reasonable and required to achieve the Program objectives and results. Conversely, the inadmissible costs set out in the TC Guide are, by their nature, ineligible costs not only for Transport Canada but for all partners of a project with CN.

[34] MTQ submits that according to the order, the cost apportionment for all projects, i.e., 20 percent after the Transport Canada grant, is in accordance with the principle stated in the TC Guide. MTQ contends that CN disputes the application of the TC Guide even though the order contains express reference to a funded project, and by extension a reference to the TC Guide and the RSA.

CN

[35] CN asserts that the agreement entered into by MTQ and CN, which resulted in the order confirming the agreement, specifies that the Project costs must be determined in accordance with the agreement or order that unequivocally provides that such determination is made solely on the basis of the Agency Guide.

[36] CN maintains that Transport Canada’s decision to not fund certain costs which are set out in the Agency Guide does not change the obligations of CN and MTQ under the agreement and the order. CN adds that, for obvious practical reasons, the bill sent to Transport Canada excludes certain relevant costs because they fall outside the scope of Transport Canada’s funding and would delay or complicate the processing of the application for funding.

[37] According to CN, MTQ bases the discrepancy between the Project’s total costs established according to the Agency Guide, and the costs that Transport Canada chose to fund by virtue of its discretionary power. CN submits that the discrepancy relates to the calculation of the rates of the pre-wired or pre-assembled material used for crossing work.

[38] CN points out that Clause 1.01.01 of the Transport Canada contribution agreement is based on the rates provided for in the Agency Guide, with the exception: “the allowance applicable to prewired packages shall be the allowance applicable for contracts overhead”. CN submits that in the same manner that Transport Canada chose to fund projects up to a maximum of 80 percent for certain costs, it also decided to fund up to a maximum of 3 percent of certain overheads. CN maintains that Transport Canada’s decision to limit the funding of certain overheads cannot be interpreted as an indication that the costs are not actual. According to CN, the Transport Canada funding shortfall, including the decision to fund only the first 3 three percent of certain overheads, affects both MTQ and CN, based on the percentage agreed upon by the parties.

[39] Furthermore, CN maintains that the Agency Guide provides rates that are clearly defined with respect to overheads that are directly and unequivocally applicable to pre-wired material. CN maintains that to apply a different overhead rate, as MTQ insinuates, would be incompatible with the agreement and the Agency Guide, as this would result in CN absorbing a disproportionate share of the Project costs. CN adds that the inclusion of the reference to the Agency Guide, which includes the overhead rates, in the agreement, was freely negotiated by the parties. According to CN, selectively ignoring or cancelling any element of the agreement would result in an unjustified compromise regarding the integrity of the agreement overall.

[40] In response to MTQ’s submission that a material overhead rate of 50 percent had to have been authorized by MTQ in order to be applied, CN argues that this authorization was not required as the parties had already agreed to apply the overhead rates in the Agency Guide by incorporating this into the agreement. CN asserts that MTQ was advised in advance of the overhead rate in an open and transparent manner as the wording was clearly stated and agreed upon when the agreement was entered into.

[41] CN asserts that the material overhead rates at issue have already been analysed in depth by the Agency. More specifically, in response to Transport Canada’s questions regarding the overhead rates applicable to pre-wired packages, the Agency, in its Decision No. LET-R-254-2003 dated December 19, 2003, confirmed the application of the Agency Guide overhead rates to these packages.

[42] CN points out that the Agency Guide specifies that the charges for any material items, “including any pre-wired and/or pre-assembled components”, such as Safetran packages, have two components:

the actual purchase price (including applicable sales tax) paid by the railway company for any material item.

a material overhead rate which covers the charges associated with administration, supervision, purchasing, accounting, and other associated costs, such as utilities. It also includes in-house design and engineering work, legal issues, inspections and quality control, and customs clearance activities.

Schedule C of the Agency Guide outlines the appropriate material overhead rate to be applied to all material charges used in unscheduled maintenance and construction projects.

[43] CN submits that Schedule C of the Agency Guide indicates a material overhead rate of 50 percent to be applied to material costs.

[44] CN does not agree that the Safetran bill is characteristic of a subcontractor, and submits that even if the bill includes a breakdown of the labour and material used to manufacture pre-wired packages, this breakdown cannot, in itself, fundamentally change the nature of a final deliverable into a service. CN submits that the pre-wired packages must be customized and tailormade. As well, the overheads associated with the purchase of such packages should be greater than those of standard mass produced material, which is already attributed an overhead of 50 percent without question. CN explains that its engineers are the ones who must provide a project description and other specifications to be adapted to each location where the pre-wired packages have to be installed.

[45] As a result, CN maintains that the bill sent to MTQ complies with the Agency Guide and that MTQ’s share of costs was established in accordance with to the order’s express wording. Therefore, MTQ must pay the amount of $20,863.12, representing 62.5% of the balance of the costs associated with the Project.

ANALYSIS AND FINDINGS

Legislative context

[46] Under subsection 101(3) of the CTA, if a person is unsuccessful in negotiating an agreement or amendment mentioned in subsection 101(1), the Agency may, upon application, authorize the construction of a suitable crossing and/or all related work thereto, or specify who shall maintain the crossing. In the case of cost apportionment, subsection 101(4) of the CTA requires the Agency to apply section 16 of the RSA. This provision specifies the criteria that the Agency shall take into account to determine this apportionment.

[47] Generally, the Agency does not intervene when agreements under section 101 of the CTA have been signed. The Agency considers that any contractual agreement freely entered into between the parties is binding on them both, and requires them to respect the terms of that agreement.

[48] The Agency has reviewed the evidence on file and is of the opinion that the parties have negotiated an agreement and concurred on all aspects of the Project, including the issue of cost apportionment, as well as responsibilities related to the crossing. As an agreement was reached, subsection 101(4) of the CTA does not apply and the Agency may therefore not intervene regarding cost apportionment.

[49] Pursuant to subsection 33(4) of the CTA, the Agency may always enforce its decisions or orders even if they have been made orders of a court. As the agreement filed under subsection 101(2) of the CTA becomes an Agency order for the purposes of enforcement, the Agency can assume jurisdiction with regard to the enforcement of the agreement that becomes an order. The Agency also notes that Clause 12 of the agreement contains a provision recognizing the Agency’s jurisdiction.

[50] The issue raised in this application concerns the interpretation of the application of the Agency Guide. The issue goes beyond the mere consideration of private matters and therefore, the Agency deems it appropriate to exercise its jurisdiction under subsection 33(4) of the CTA.

Analysis

[51] The Agency notes MTQ’s position that the costs it was billed by CN should be billed in the same way as they were billed to Transport Canada. CN’s position is that the costs non-reimbursed by Transport Canada, but incurred in connection with the Project, must be included in the applicable amount and apportioned between the parties in accordance with the proportions provided for in the agreement.

[52] The Agency is of the opinion that Clauses 3 and 4 of the agreement unequivocally establish the responsibilities of the parties with respect to cost apportionment associated with the modification to the warning system. Moreover, Clause 6 provides that CN shall prepare all accounts for both installation and maintenance using rates stipulated in the Agency Guide. After deducting the costs covered by Transport Canada, costs are calculated based on the costs established in the Agency Guide. When read together, these clauses in the agreement clearly indicate that a part of the costs might not be covered by Transport Canada. These costs may, however, still be charged to MTQ by CN in accordance with the agreement and the Agency Guide, in the proportions set out in Clauses 3 and 4. Thus, the agreement provides for the apportionment of the remaining balance of the costs associated with the modification to the crossing warning system following the deduction of the Transport Canada grant, using the Agency Guide as a basis for calculating costs. The Agency therefore concludes that Transport Canada’s decision not to cover certain costs relating to overheads under its contribution program is outside the scope of the agreement and the Agency Guide and is not relevant to the resolution of this dispute.

[53] The Agency Guide indicates the way in which the costs for work at crossings must be billed. More specifically, the section pertaining to the general billing guidelines, on page 4, provides that they apply to all work at crossings and clearly define the allocation of costs incurred by a railway company.

[54] For unscheduled maintenance and construction project, the Agency Guide sets out that railway companies charge for the direct hours of labour and the direct costs of material items used in the project, and then apply overhead charges on the direct labour and material costs using the overhead rates specified in Schedule B (labour) and Schedule C (material) of the Agency Guide. Following a review of CN’s bill, the Agency concludes that CN clearly details each item required for the Project and applicable overheads in accordance with the Agency Guide.

[55] Moreover, the Agency is satisfied that CN’s bill separately identifies actual labour hours worked, labour hourly rates, and the resulting unproductive factor per category of employee or by group for each working day. Furthermore, CN also identifies the resulting quantities, price and unproductive factors for each item of material used for completing the Project.

[56] The Agency notes MTQ’s argument regarding the use of Safetran packages as well as CN’s billing. MTQ submits that if the use of these packages constitutes a form of subcontracting and CN is not performing the design, engineering and assembly work for these packages. Safetran packages require labour hours and material such as certain work performed through subcontracting and therefore, the contracting equipment and service overheads should apply.

[57] As indicated in the Agency Guide, the overhead rates for railway construction and maintenance projects reflect the share of each project’s costs of several activities performed by the railway company to enable and support construction and maintenance projects. These include general administration costs related to the management of the railway company, administration costs related to railways operations and rail communication services to the Project, employee benefits and office accommodations for employees directly working on the Project or providing support services, and related taxes, insurance and working capital. The overhead rates are calculated using the Agency’s railway costing model.

[58] The General Billing Guidelines section of the Agency Guide, more specifically the Labour Charges and Material Charges sections on pages 5 and 6, provide that the specified overhead rates are to be applied to the direct labour hours and the direct cost of materials used in each project. The Agency Guide also specifically states that pre-wired and/or pre‑assembled items used in construction or unscheduled maintenance projects are material items to which the overhead rate should be applied.

[59] With respect to MTQ’s arguments on the issue of whether the use of Safetran packages constitutes a form of subcontracting, which would result in overheads of three percent, the Agency agrees with CN’s argument that the Agency has already considered the issue of pre‑wired material and found that the applicable overheads are material overheads when billing a project. In this regard, the Agency Guide clearly reflects on page 6 that charges for any material items used in unscheduled maintenance or construction work includes pre-wired and/or pre‑assembled components.

[60] The detailed information contained in CN’s bill shows that, after deducting the grant received from Transport Canada, the remaining amount of material costs for the Project are subject to the application of 50 percent material overheads. The Agency concludes that this application of 50 percent overheads is in accordance with the agreement and the Agency Guide.

[61] The Agency determines that CN’s method of billing in the preparation of its bill is in accordance with the Agency Guide. More precisely, the Agency concludes that CN correctly applied the appropriate material overhead rate to the direct costs of the material items used in the Project including the material item(s) purchased from Safetran, in accordance with the Agreement and the Agency Guide.

CONCLUSION

[62] The Agency concludes that CN calculated overheads in accordance with the agreement and the Agency Guide.