A4

By DANIEL MCHARDIE
Canadaeast News Service

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SAINT JOHN - For almost five hours this week, David Rioux sat stone-faced near the back of a Saint John courtroom as he listened to lawyers argue over how his company missed deadlines and teetered on the verge of financial collapse.

This isn't likely where Rioux would have predicted he would be a few years ago considering the corporate trajectory both he and his companies, Precision Metal Works and Precision Nuclear, were on.

Rioux, president and chief executive officer of the two Mactaquac-based companies, has been repeatedly named one of Atlantic Canada's top CEOs, earned an export achievement award from New Brunswick Manufacturers Association in 1996 and held up as an entrepreneurial success story by Premier Shawn Graham.

For a company that gained a great deal of prestige for its early contracts with players such as Princeton University and NASA, signs of trouble can now be traced back to 2001.

Precision Metal Works hasn't been profitable for the past three or four years, a fact the company attributes to a downfall of orders following the Sept. 11 U.S. terror attacks, when almost all of its specialized vacuum chamber orders were cancelled.

Rioux began eyeing the opportunities in the New Brunswick energy sector as a way of cushioning the financial fall.

In 2003, he spun off Precision Nuclear to take advantage of the New Brunswick government's decision to push ahead with the Point Lepreau refurbishment.

Fabricating equipment for nuclear reactors is not a core business that any company can participate in, forcing Rioux to put his company through a rigorous and costly qualification process so it could become an Atomic Energy of Canada Ltd. (AECL) supplier.

That drive paid off when Rioux won the now controversial end fitting contracts for the refurbishment contracts at Point Lepreau and Wolsong, South Korea, that were both worth more than $10 million each.

With those lucrative contracts came an immediate explosion of economic growth.

Boasting a workforce of 105, the nuclear wing saw its sales grow 378,000 per cent in 2006, compared to the 11 employees at Precision Metal Works that had an increase in sales of 1,030 per cent in 2007.

But his eagerness to take advantage of these opportunities may have contributed to the legal drama that unfolded in a Queen's Bench courtroom in Saint John this week.

"Although the Lepreau and Wolsong contracts were bid with little margin, the business case allowed PNI to do the work and, at the end of those contracts, PNI would have a state-of-the-art manufacturing facility which would be well positioned to continue nuclear work for the next 25 years," Rioux said in an affidavit filed.

Those little margins would come back to haunt Rioux.

Soon after the Lepreau and Wolsong contracts were awarded to Precision Nuclear, the company began to run into problems with AECL.

The company found itself being asked by one branch of AECL to meet a certain set of requirements, which added cost and setbacks, just to have another set of managers cancel that demand.

That stream of delays documented by Precision Nuclear ate into the tiny margins that the company set aside.

To rebalance the organization, Rioux began shifting staff from Precision Metal Works to the upstart nuclear division.

Delays began piling up and at the end of 2007, AECL requested a status update on its components.

Although a small contract in the overall refurbishment project, not having these components would cost AECL precious time, and the Crown corporation argued in court could harm its international reputation at a time when there is fierce competition in the international nuclear industry and the federal government is reviewing its future.

It's at this point that AECL learned Precision Nuclear was running out of cash and appeared unable to deliver on its contract.

As a way to ensure the end fittings arrived on time, AECL agreed to pay for the products before they were actually manufactured, but it also placed a full-time employee inside the company to oversee the work.

When the two sides appeared in court this week, AECL recounted how it had waited as long as it could before it took action.

AECL is the company's only customer and the Crown corporation estimated that it had paid Precision Nuclear 115 per cent of its contract price and only received 40 per cent of the products, a charge that the company opposed.

The final shipment of the Lepreau end fittings was due March 21, and now it is expected it won't happen until late November or early December.

When the financial troubles came into the open in July, AECL brought the company together with the federal and provincial governments and financial organizations and requested a chief restructuring officer be put in place.

AECL called in U.S. restructuring specialist Alix Partners to report on Precision Nuclear's financial wherewithal and Rioux began devolving control of operational issues to the restructuring officer.

Rioux described how for the better part of a year, AECL has had effective management of his company but it still went to court this week to have a receiver installed to make sure its parts are delivered this year.

The company argued in court that action would force homegrown company to close.

"If AECL's request for relief is granted, I believe the training, technology, jobs and world-class facility all bought and paid for in New Brunswick will disappear along with the future prospects of both PNI and PMW and their employees," Rioux said in an affidavit.

The two sides reached a tentative agreement on Thursday, which is still in the process of being finalized, that will see a monitor put in place until June 30, 2009, or until the Lepreau and Wolsong contracts are wrapped up.