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Stephen Diamond, Chair of Waterfront Toronto, seen during a board meeting on Oct. 31 2019. Waterfront Toronto board meeting saw the approval for moving forward with Sidewalk Labs development.

Fred Lum/The Globe and Mail

Waterfront Toronto will move forward with a proposal for Sidewalk Labs to build a high-tech community on the city’s waterfront, and will now begin five months of consultations and negotiations about its privacy implications, innovations and business model.

The agency’s board of directors voted Thursday to proceed with a partnership that, if formally approved next March, would allow the Google sister company to build a 12-acre community on Lake Ontario called Quayside. The partnership was first announced two years ago, with Sidewalk Labs proposing a sensor-filled, tech-friendly neighbourhood community filled with innovations ranging from artificial-intelligence-powered heating and cooling to underground robotic freight transportation.

Sidewalk forced its government partner to re-examine the partnership in June after it revealed a much broader, 190-acre proposal with many terms Waterfront said it either disagreed with or could not deliver. The June proposal also left unanswered questions about privacy in the community.

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After four months of negotiations, however, Waterfront’s vote Thursday locked in terms that returned the project to its original scale and included government control over privacy and data policy. The agreement also included better terms for Canadian entities to profit from intellectual property generated through new technologies in the community. The Globe and Mail first reported the details of the revised proposal Tuesday.

Sidewalk also did not receive a guarantee of light-rail transit in the area. And it cannot be the lead developer for Quayside, but would be able to buy the Quayside lands at fair-market value – which Waterfront estimated is now worth $590-million – with some adjustments for provisions including affordable housing.

The deal came down to the wire. Waterfront chair Stephen Diamond said in an interview that Sidewalk did not formally agree to the terms until midday Wednesday, and that the final days of negotiations centred on how much land Sidewalk would have permission to work with. Waterfront won that battle, and Sidewalk chief executive Dan Doctoroff said in an interview Thursday that “resistance” to the project’s scope eventually prompted the company to back down, reconsidering what was possible with 12 acres.

But as Sidewalk and Waterfront consult the public and negotiate further terms ahead of the final March vote, Mr. Doctoroff said the company could still walk away if the new terms don’t prove financially viable or if it can’t implement a “critical mass” of technological and construction innovations. Those range from wood-structure high-rises to “dynamic” curbs that could be altered for different uses.

But the door is also open, as it was in the original contract, for Sidewalk to later win the right to implement technologies or develop nearby land if it achieves Waterfront’s objectives at Quayside. “Asking us to prove ourselves is not unreasonable,” Mr. Doctoroff said.

Mr. Diamond said he is pleased that Sidewalk agreed to Waterfront’s proposals, but did not appreciate having to negotiate the deal in public. He said Sidewalk surprised Waterfront when it promised to publish its June master plan in the spring, when the agency had hoped to see final details and negotiate in private.

“I would say that it’s an approach that was unique and not one that I might have pursued in my experience as a lawyer and as a developer in wanting to obtain public approval,” Mr. Diamond said.

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The new agreement also puts an end to Sidewalk’s proposal to house data collected by technology in the community in a independent trust. Instead, Waterfront will take the lead in proposing future data-collection and storage strategies for the community, likely in the hands of a government body.

Sidewalk also expanded the rights Canadian entities would get to intellectual property (IP) created in the neighbourhood, including a to-be-determined cut of global net revenue from technology Sidewalk pilots there. Originally, Sidewalk promised only 10 per cent of profits from some innovations, which many IP experts said was unfair to Canadians for letting the company test tech on their home soil. Sidewalk also expanded its pledge to give Canadian innovators greater access to its patents there.

Former Research in Motion Ltd. co-CEO Jim Balsillie has long criticized Sidewalk’s approach to IP as a missed opportunity for Canadians. On Thursday, he said the new plan is a step in the right direction. The new proposal “reflects some of the strongest criticism, including my own, so I am pleased to see this important step in the right direction," he said in a statement.

Former Ontario privacy commissioner Ann Cavoukian resigned from her role as a paid adviser to Sidewalk a year ago after going public with her concerns over the potential for widespread surveillance. She later began advising Waterfront on privacy, hoping to turn things around, and praised Thursday’s developments as an important step for Canadians.

Mayor John Tory said the city needed to tread carefully through the process, but local councillor Joe Cressy, a Waterfront board member, told reporters that he is pleased with the result, and hoped to push through long-delayed light-rail transit along that section of waterfront.

Local MP Adam Vaughan told The Globe that he is happy governments could focus on a broader vision for the waterfront, and that the federal government will establish a framework for data usage in such city environments. “The trouble is we legislate in analog, and we innovate in digital, and digital innovation is outstripping our capacity to legislate,” Mr. Vaughan said.

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Ontario Premier Doug Ford, who has criticized some of Sidewalk’s expansive proposals, said in a statement that he welcomed the smaller scope’s balance between protecting public interest and economic development.

Some members of the vocal #BlockSidewalk opposition group who showed up to protest the vote said that the progress Waterfront had made showed that Sidewalk didn’t need to be involved at all anymore. “I don’t know why we still need a Google affiliate as a partner for this. Especially with the rollback of the data component,” #BlockSidewalk member JJ Fueser said. “Every other piece of this has been done or could be done by other people.”

With reports from Alex Bozikovic, Jeff Gray and Oliver Moore

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