$16K for a 99 with that kind of mileage sounds pretty reasonable to me. I'm in Ottawa, and see non-SVT 99 Contours with 75-80K kilometres on them advertised at dealerships for $13-14K.
I wouldn't worry about the new engine, in fact, I'd consider that a bonus.
And as to the hesitation thing the dealer blames on the a/c clutch....that's exactly what it is: the a/c compressor cycling on-and-off. In this case, they really do all do that.
