The Yukon Hospital Corp. knew as of late May 2012 that Dowland Construction Ltd. had not paid at least one subcontractor working on two rural hospital projects.

On Tuesday in the legislature, the NDP tabled a letter from Nelson Drywall Interiors Alberta Inc. to project manager Michael Cowper dated May 28, 2012.

In the letter, Leslie Nelson, Nelson Drywall's president, said his company had performed significant steel and drywall work on both the Watson Lake and Dawson City hospital projects.

"Notwithstanding its completion of the subcontract work in a proper and timely manner, Dowland has failed to pay Nelson the significant amount left owing under the subcontracts,” wrote Nelson.

Dowland, he said, owed his company $387,774 for the Watson Lake work and $628,149 for the Dawson work.

Jan Stick, the NDP's Health and Social Services critic, wondered Tuesday why this letter didn't raise any red flags with the hospital corporation.

"Why was it eight months later that the hospital corporation says they were taken by surprise by this?” she asked, referring to the discovery that Dowland was not paying its subcontractors.

Jason Bilsky, the corporation's CEO, said this morning the Nelson issue was unrelated to Dowland's widespread non-payment of subcontractors discovered in February.

"Nelson's Drywall was in dispute with the general contractor over work that was actually unfinished and deficient,” Bilsky told the Star.

"At that point in time, subtrades were being paid, we were going through the process of confirming progress, we were making progress payments to Dowland and Dowland had signed statutory declarations that they were paying subs and everything was moving along,” he said.

The Star requested the most recently signed statutory declaration but was told they are confidential.

The issue in February arose because multiple subcontractors weren't being paid and were threatening to stop work, Bilsky differentiated.

Pat McGaffey, a senior advisor and project chief operating officer with Nelson Drywall, refuted those claims this morning.

"That's a good answer for them to come up with, but that's not the case,” he said.

"There was nothing wrong with the work in question, and if that was the case, we should have been called on our warranties and had letters stating we need to fix things so that it could be proceeded. None of that ever took place.”

McGaffey noted that Nelson Drywall had completed six successful jobs with Dowland prior to the hospitals.

And before the company put Dowland in default of its contract for non-payment, Dowland had wanted Nelson Drywall to sign up on a Selkirk pumphouse job, he said.

"So our work couldn't have been too shoddy.”

McGaffey told the Star the company never received a reply to the May 28, 2012 letter, nor to follow-up phone calls and emails, from the hospital corporation or its project manager.

"First and foremost, when they get these informations of non-payment on jobs, the norm is to get the actual contractor to deal with it, address it.

"If that doesn't happen, then there's supposed to be an arbitration, and they should have forced that into arbitration to get a resolution. They didn't do any of that,” McGaffey said.

"They just all became non-responsive, and here we sit spending money trying to get an answer.”

Bilsky said the corporation was taking appropriate steps to address the issue through legal counsel and through Dowland.

"If we responded or actually got involved with the contract between Dowland and their subtrades, we would be in breach of our contract with Dowland, and that puts us in default with any insurance or bonding company claim that we may have,” he added.

Nelson Drywall subsequently filed a lawsuit against Dowland for the outstanding $1,150,000, but McGaffey argued it shouldn't have come to that.

Bilsky and Craig Tuton, the chair of the corporation's board of governors, told MLAs Monday they only became aware that Dowland wasn't paying subcontrators in February.

That month, they placed Dowland in default of its contract.

Work on the projects has now resumed.

Dowland's bonding company has agreed to complete the hospitals for the agreed price and timeline. A new general contractor, TSL Contractors, has taken over project management.

Currently, about $1 million is in trust with the hospital corporation's legal counsel for subcontractors who are still owed payment.

But Tuton said getting paid is not just a matter of invoicing the corporation.

"There has to be a process, so the process is that the subtrades present their invoices to a group, which includes obviously the bonding company now, representing Dowland, to ensure that what invoices are presented for is in fact work that has been completed and therefore eligible to be paid for.

"Once that criterion has been met, those subtrades are paid,” he said.

McGaffey said there has been no communication from the hospital corporation about this process.

"We won't be bidding on future projects just because of this,” said McGaffey, "not a government one of any kind out there.”

Only significant changes to the project contracts that would better protect his company would change his mind.

One change he'd like to see is the inclusion of a quick claim process to avoid long court proceedings.

"There has to be something that gets it to the forefront and dealt with and so everybody can go on their merry way,” said McGaffey.

In February, Dennis Smith Construction also filed a lawsuit against Dowland, claiming it's owed more than $80,000 in unpaid bills.

Earlier this month, Arcrite Northern Ltd. filed three separate suits against Dowland. Two related to the hospital projects.

Arcrite claims it is owed $968,077 for unpaid work related to the Dawson hospital project, a contract that was worth $3,604,495.

The company also claims it is owed $987,786 for work on the Watson Lake hospital, a contract that was worth $4,820,670.

Arcrite filed a third suit related to a City of Whitehorse project. It entered into a subcontract with Dowland worth just more than $1 million and claims the company is owed $784,410.