FOIPOP Findings: The Real McKeil Deal

The documents I received last week reveal some very interesting details about the 2015 McKeil deal, which saw the CBRM purchase land in the Sydport Marine Industrial Park to lease to Ontario-based marine services company McKeil Marine. The transaction was a very contentious piece of municipal legerdemain that troubled the CBRM’s chief financial officer and precipitated the resignation of its economic development manager.

The public first heard about the McKeil deal in June 2015 — shortly before council approved it — but the plan had actually been in the works since at least the preceding August (we’ll go into the dates in more detail below) and it seems it initially involved an elaborate scheme to construct an $18 million floating drydock in Sydney harbor, largely with public money, to be co-owned by McKeil and CBRM.

At 2:11 PM on April 7 2015, CBRM Mayor Cecil Clarke sent an email with the subject line: “McKiel [sic] Marine Development Agreement” to:

  • Blair McKeil of McKeil Marine
  • James Gogan of Breton Law Group
  • CBRM CAO Michael Merritt
  • Scott Henderson (McKeil’s lawyer)
  • Rick Heddle (Heddle Shipyards)

CC’ed were:

  • Mark Bettens (Clarke’s executive assistant)
  • Mike Moore (a consultant hired as part of Clarke’s “port team,” whose email is literally “mikemooreport@cbrm.ns.ca”)
  • Marie Walsh (CBRM chief financial officer)
  • Christina Lamey (Clarke’s communications person)

Here’s the email:

McKeil_agreement

 

At 2:31 PM, Clarke forwarded the email to a larger group, including all the original recipients plus:

  • Tara Milburn of Nova Scotia Business Inc
  • Joe Cashin (who still has an Enterprise Cape Breton Corp email although ECBC had been absorbed by ACOA the previous year)
  • Port of Sydney CEO Marlene Usher
  • Steven Lane at ACOA
  • John Whalley, CBRM economic development officer

And at 4:04 PM he forwarded it to Albert Barbusci.

I wonder how this plan died? Did it fade quietly away, or did someone at some level of government stomp on it? Actually, I suppose I shouldn’t just assume this plan died — it may be out there in Zombie form, like Mother Canada, ready to stagger back onto the scene when you least expect it.

 

Holy floating drydocks!

If you’re curious as to how companies generally go about making the business decision to build a floating drydock, you’re in luck, because a very big chunk of the “About Us” section of the Heddle Shipyards web page is devoted to just that subject. Hamilton-based Heddle, founded in 1987, began by focusing on “topside repair work for local Hamilton harbour staples such as McKeil Marine’s harbour tugs.”

As the relationship between Heddle and McKeil progressed through the years, it was recognized by both Rick Heddle and Blair McKeil – the patriarch of McKeil Marine – that a dry dock asset in Hamilton Harbour would be a benefit for both companies. Subsequently, in 1989 the two entrepreneurs joined forces and purchased five identical rail car barges from the Detroit River area and converted them into the 3000T capacity HM1 dry dock still in use today.

Heddle Marine floating drydocks

Source: Heddle web site http://heddleshipyards.com/locations/

If things go really well with the first floating drydock, you might even build a second:

Continued success and expansion brought with it the need for a second, larger dry dock and in 1996 the HM2 dock was put into service bringing Heddle shipyards total combined lifting capacity up to 9000T. Like the HM1 dock, HM2 was built from existing barges, one of which was personally salvaged by Mr. Heddle and the Heddle team.

The sense I’m getting (and mind you, I’m no marine repair specialist) is that facilities like floating drydocks are best built in response to demand, can be financed without government assistance (unless Heddle simply elided the part of the story where they sought funding from three levels of government) and needn’t cost $18 million.

 

Graving docks

The documents provide another peek into Sheehy’s plans for McKeil in a 1 December 2014  email from Sheehy to Clarke and Moore. Under the subject line: “Action steps after tomorrow including China. Thoughts?”

Sheehy writes:

Barry Sheehy email

(The reference to the “Sysco” or “Sydco” docks is never properly explained in these documents. I would guess it refers to the former Sydney Steel Corporation piers, leased — not uncontroversially — by the provincial government since 2001 to Provincial Energy Ventures, which operates a break bulk terminal. But I cannot say for sure.)

I don’t know how seriously the CBRM pursued any of these “steps,” although I do know there is no 1,200-foot graving dock in the harbor, but I think this is probably a good time to mention that McKeil Marine and Heddle Shipyards already have joint facilities in Atlantic Canada. In 2012, they teamed with Dennis Thorne to form Heddle Marine Service (NL). According to the Heddle web site:

Heddle Marine Service (NL) Inc. quickly established itself as a leading ship repair company on the East Coast & in the Canadian Arctic. In 2015, Heddle was awarded multiple contracts related to the construction of ExxonMobil’s Hebron Gravity Based Structure. Heddle Marine Service (NL) Inc. grew to over 100 employees as a result of the Hebron project, which became the single largest project in our company’s history. Today, our East Coast division continues to service the offshore energy sector and perform repairs from Kugaaruk in Nunavut to Thunder Bay, Ontario and everywhere in between.

Thorne is a director of the Nova Scotia subsidiary McKeil and Heddle eventually formed, Point Edward Marine.

Which might explain why, when Christina Lamey drafted an announcement of the McKeil/CBRM leasing deal with the headline: “McKeil Marine to make Port of Sydney its Atlantic Hub,” Albert Barbusci replied:

I think the headline may cause him concern. Let’s wait to speak with Blair [McKeil] but in the meantime please consider an option by removing references to the Atlantic Hub.

 

Dates

I suspect Blair McKeil and Rick Heddle knew the government-funded floating drydock was a non-starter, which is why the first line in Clarke’s letter is about “separating the lease/purchase agreement from the development agreement.”

At any rate, the lease/purchase agreement is the only deal that ever saw the light of day.

The first whiff the general public got of it, as noted above, was on 4 June 2015, when Mayor Clarke, speaking at a business luncheon, mentioned McKeil as “a company that sees potential for growth in Sydney Harbour.”

At that point, though, the Mayor and his “port team” had been working on the file for almost a year. On 26 August 2014, Mike Moore wrote Clarke:

Albert [Barbusci] has reached out to another large operator in the ship building/ repair industry, McKeil Marine…

His connection is to Blair McKeil, chairman and CEO of McKeil Marine…

Albert is meeting Blair next week and Blair has a meeting in Cape Breton and would like to meet with yourself and our team to discuss the opportunity.

What’s more, it seems like council was kept as much in the dark as the public — my reading of these documents is that council first heard about the planned sale during an in camera meeting on June 2 — two days before the Mayor made it public. Council didn’t actually approve the sale until June 19 and according to Viewpoint.ca, the sale didn’t actually close until September 2015.

 

Price

The purchase price was $1.2 million, which seemed excessive for some potentially contaminated land and a beat-up wharf, but turns out to have been a bargain compared to what the owners — Sydport Operations Inc and East Coast Metal Fabrications, both headed by local businessman Jim Kehoe — initially asked for the properties. As lawyer Jim Gogan explained to Barbusci on 14 January 2015:

CBRM generally, and the Mayor directly, have gone to considerable lengths to facilitate the McKeil Group establishing operations in the Sydney area. This effort has been based in large part upon the personal working relationship between the Mayor and Blair McKeil, and more broadly the business reputation of the McKeil Group. As you will recall, CBRM directly interceded in the negotiation between McKeil Group and Sydport Operations Inc. after they were advised that the original requested sale price of the wharf and surrounding assets was excessive. The direct involvement of the Municipality in these discussions resulted in a decrease of Five Million Eight Hundred Thousand ($5,800,000.00) Dollars in the sale price.

Putting aside for a moment the appropriateness of a municipality “directly interceding” in a land deal between two private companies (or of business being done based on the “personal working relationship” between a business owner and the mayor), that means Kehoe wanted $7 million for about 24 acres and a wharf McKeil said would “be in need of repair in the next few years” and for which it could not “assume liability or responsibility.”

To put this sum in perspective, Kehoe’s group sold the greenfield site — the proposed location for this container terminal project — to the CBRM in 2012 for $6 million. (To put it in even greater perspective, back in 2011, the Altus Group appraised the entire Sydport Marine Industrial Park at $0, saying the only value in the place was in the greenfield site.)

Given the whole floating drydock scheme and the excessive initial sale price for the Sydport land, I’m beginning to understand why the McKeil deal took so long to complete. (Clarke got so tired of waiting he decided to just go ahead and sign the damn contract on 7 April 2015, before it had gone to council.) These delays annoyed our port promoters greatly, mostly because, although they were anxious to hoover up public money at every step of the way, they didn’t like the hassle of dealing with public entities. In that same January 2015 exchange with Barbusci, Gogan, who was drafting the Sydport lease, wrote:

I would like to begin by expressing my regret that we were unable to close the language/commitment gap during our call this morning. As we discussed at length during our call, CBRM, as a body politic, is obligated to be impartial and transparent in all of its transactions.

How Gogan reconciled the CBRM’s need to be “impartial” with its direct involvement in a private sector transaction baffles me, as does his claim about transparency, given he’s busy drafting a lease agreement for a municipal deal neither the public nor council knows anything about. But the legal mind is a fascinating thing.

Interestingly, even Barbusci recognized that the $1.2 million purchase price might be hard for Clarke to sell (or defend “in the public square” as Gogan puts it). Writing McKeil on 30 May 2015, Barbusci says::

…Unfortunately, we are dealing with a public agency, the municipality will have an obligation to announce something around the acquisition of the Sydport site and lease back to Heddle/McKeil. How does [Clarke] justify the 1.2 million acquisition price? I understand that Heddle will attend the council session on Tuesday which will certainly comfort the council but now we need to provide even the bare minimum to the public at the Wednesday luncheon.

As I’ve already noted, resentment at the need to tell the public anything is a theme than runs throughout these documents. In fact, during this very exchange, McKeil told Barbusci he’d rather not tell the public anything until they had the CBRM council on board and their financing in place. But Barbusci explained that: 642/785

Cecil has been under pressure to deliver some positive news regarding the Port of Sydney by June otherwise he publicly stated that he would resign. We, Harbor Port Development Partners (HPDP) are prepared to face council and provide an update regarding the container port…The game plan is to provide just enough information next week so that Cecil and his team can focus their energies and deliver continued results before next years [sic] election.

Clarke provided the public with the “bare minimum” needed to avoid having to resign and on June 19, council approved the McKeil deal — although the actual sale, according to Viewpoint.ca, wasn’t completed until September 18.

 

Snark

As noted, Barbusci and Sheehy were pushing hard for the McKeil deal to go through — and for the CBRM to sign their official exclusivity agreement — and this led to a number of amusingly testy exchanges.

Here’s Barbusci to Clarke (and others) on 12 December 2014:

Cecil, we have a major problem on our hands. I just spoke with Blair [McKeil] regarding CBRM’s latest proposal and he is not happy with these changes nor the delay. He advised me that they will begin to entertain other options because he is loosing [sic] credibility with his management…

To which Clarke replies:

I have no idea what you are talking about Albert. I have been embroiled in work on another pressing matter.

Here’s Barbusci to Clarke et al on 31 May 2015:

I received a call from Blair [McKeil] at 8.45 this evening advising me that he has not yet seen the indemnity clause. I certainly hope the issue is at their end, I did not get copied so I have no idea whether Jim [Gogan] has sent it along to Scott [Henderson]. This is an unbelievable ongoing saga…

I’m speechless…

To which Clarke responds:

Enough! I have messaged Blair through voice-mail and text myself.

Later Barbusci writes to them all again:

Just for the record, I will never play the monkey in the middle when I bring the next partner to the Harbour.

Still, it was left to Sheehy to unleash the full fury of the keyboard. Here he is writing to Mike Moore (Clarke is cc’ed) on 2 November 2014 under the subject line “NOW OR NEVER…where have I heard this before?”

After nearly two months and three trips to Sydney, Blair [McKeil] deserves an answer, tomorrow. This is the simplest, sweetest and most easily done deal I have ever seen in my career. If Blair does not have some sensible numbers tomorrow, Albert and I cannot account for the outcome…Why talk to Bechtel if we cannot get a simple 1.5 million dollar deal closed in which everyone wins. [italics Sheehy’s]. How can we hope to negotiate a complicated, risky billion dollar opportunity with world class partners, if we cannot get something as simple as this done?

How indeed?

On the subject of their exclusivity agreement, here’s Barbusci to Port of Sydney CEO Marlene Usher on 22 May 2015 (Moore, Clarke and Merritt are cc’ed):

I’m really sorry to say this but Jim Gogan is starting to annoy me.

Barbusci was annoyed by Gogan’s first draft of their contract, which he felt failed to capture “the essence and spirit” of their agreement. Barbusci told Usher et al:

We also signed an agreement with Bechtel that has pretty specific language around HPDP’s relationship and rights regarding the proposed container port. What Jim has drafted does not reflect our understanding and has caused grave concern.

This represents a bit of a rabbit hole, but it seems worth going down, if only briefly. The document dump includes drafts of a “Technical Advisory Services Agreement” between HPDP and Bechtel Canada Co, under which HPDP was to engage Bechtel to perform “advisory services in connection with the development and planning stages” of the container terminal project. The contract also says the services would be offered at a and, were the project to move forward, to engage Bechtel as the main contractor. (Please note: neither of these engagements involve Bechtel “investing” in the project or becoming HPDP’s “partner.”)

The contract, dated 11 May 2015, states:

HPDP has entered into a five (5)-year agreement with the Cape Breton Regional Municipality to provide project development and management services with respect of the Port of Sydney container terminal complex project in Sydney, Nova Scotia…

But that simply wasn’t true. HPDP didn’t sign its exclusivity agreement with the CBRM until June 2015 and when it did, it was for two years (the five-year extension would come later). For the record, I’m not even sure that HPDP actually did sign this agreement with Bechtel, given that it was the Port of Sydney that would eventually end up paying the company $192,906 for its work.

 

Power in a union?

Tellingly, given the deal would be sold to council (and Cape Bretoners) on the basis of job creation, Moore writes:

In an earlier meeting Blair has indicated concern over labour in Cape Breton and would like to better understand the available labour in market [sic] and also the relationship with union and non-union labour.

In September, Moore returns to the subject, writing to Barbusci:

As earlier discussed the rates for non-union associated trade peoples is a difficult number to pinpoint. I have spoken to both the local community college (NSCC) and private companies. For example a non union carpenter may charge 20- 25 dollars per hour while a union rate carpenter could be over 30 dollars per hour. This speaks to the importance of the union collective agreement that we forwarded earlier. It is a way for Blair to create his own in house union, set up his own rate and benefit structure, plus protect him from outside unions trying to assume memberships. Additionally it allows him to work in both non-union and union environments effectively.

It’s a pretty picture, isn’t it? Moore discussing the possibility of a carpenter earning $30/hour with a man who believes his labor is worth $2,500 a day.

 

The many hats of James Gogan

I knew that Gogan had represented both the buyer (CBRM) and the sellers (Sydport Operations Inc and East Coast Metal Fabrications) in the Sydport property deal because it’s spelled out in the sales contract:

Contact information from contract between East Coast Metal Fabrication, Sydport Operations and the CBRM.

Contact information from contract between East Coast Metal Fabrication, Sydport Operations and the CBRM.

What I hadn’t realized was that he’d also represented McKeil Marine (or its Nova Scotia subsidiary, Point Edward Marine).

On 18 March 2015, Blair McKeil’s lawyer, Scott Henderson wrote to McKeil: 283/785

Jim [Gogan] has offered to incorporate the Nova Scotia company on your behalf…

Which, in fact, he did. If you look up Point Edward Marine, you’ll see that Gogan is its recognized agent.

Which means Gogan represented literally every party in this deal.

“Jim is excited about the project and the McKeil/Heddle involvement,” Henderson wrote McKeil in March 2015.

No wonder.