City of Windsor Post Construction Audit Report Square East Building · 2015. 7. 20. · 400 CHS...

-

I of II

Office of the

Auditor General

City of Windsor

A Review of the Project Approval Process,

The Award of the Contracts and,

The Information Reported to City Council for

Decision Making Purposes

Post Construction Audit Report

On the 400 City Hall

Square East Building

Report II-A:

The Design / Build RFP

December 2009

Auditor General’s Office

MARKED COPY: TRACEABLE

To: The Audit Committee and City Council of the Corporation of the City of Windsor

Date: December 2009

I am pleased to present to you our report II-A of the 400 CHS Audit entitled, “A Review of the

Project Approval Process, The Award of the Contracts and The Information Reported to Council for

Decision Making Purposes.”

This audit report is presented to you in keeping with the mandate of the Auditor General’s Office,

“To support City Council and Municipal Administration in meeting their legislated responsibilities,

in improving the performance of the corporation in the programs and services it delivers and in

ensuring the accountability of local government to the taxpayers. The Auditor General’s Office will

bring an independent, objective, professional and value-added approach in evaluating the economy,

efficiency, effectiveness and equity of the results of the corporation’s programs and in evaluating the

appropriateness and adequacy of risk management procedures and management controls.”

Respectfully,

Angela Berry

Lead Auditor, Auditor General’s Office

City of Windsor

QUESTIONS?

The following staff of the Auditor General’s Office may be contacted by email to answer public questions on the

information within this audit report:

To contact the Auditor General’s Office, email us at: [email protected]

Auditor General’s Office Staff:

Angela Berry, Lead Auditor

Florence Lee-St. Amour, Auditor – RFP Approval and Procurement Process

Hayley McCoy, Auditor – The 400 CHS Furniture Tender

TABLE OF CONTENTS

1.0 EXECUTIVE SUMMARY .........................................................................................................................1

2.0 INTRODUCTION TO THE 400 CHS AUDIT REPORT ........................................................................27

2.1 About Good Governance ................................................................................................................27

2.2 An Audit Report about Good Municipal Governance, Not the 400 CHS Project ..........................29

2.3 Scope Limitations & the Conclusion of the 400 CHS Review .......................................................30

2.4 Scope Limitation Issues: The Original Report Split into Two Parts ..............................................31

2.5 Conclusion ......................................................................................................................................31

3.0 OBJECTIVES, SCOPE AND METHODOLOGY ...................................................................................33

3.1 Objectives, Scope and Methodology ..............................................................................................33

3.2 Change to A Best Practice Reporting Format .................................................................................35

3.3 Role of Administration in the Completion of the Review ..............................................................35

3.4 Engaging KPMG to Assist the Audit Function...............................................................................36

4.0 THE PROJECT BUSINESS CASE ..........................................................................................................37

4.1 Expanding on the Report I Recommendation, for the Implementation of a Project Management

Methodology ...................................................................................................................................37

4.2 Project Approval Requirement Issues – The Essential Business Case ...........................................38

4.3 Council’s Good Governance Actions Helped to Mitigate Project Risk ..........................................39

4.4 Conclusion: .....................................................................................................................................41

5.0 THE APPROVAL & PROCUREMENT PROCESS FOR THE 400 CHS, MAIN CONSTRUCTION

CONTRACT ...............................................................................................................................................42

5.1 Report Objective .............................................................................................................................42

5.2 Summary of the Timeline for the Award of the Design / Build Contract .......................................43

5.3 Phase 1 – 3 Discussion & Report Findings .....................................................................................45

5.3.1 Legal Conclusions of the Project Approval and Procurement Process for the Award of the Main

Construction Contract .....................................................................................................................46

Appendix A-I: Legal Review of the RFP & Contracting Practices .........................................................48

5.4 Phase 4 – “Price” Financial Analysis Discussion and Report Findings .........................................82

5.4.1 The Working Environment of the RFP Evaluation Committee ......................................................82

5.4.2 The “Price” Financial Analysis and the Information Reported to Council for Decision Making

Purposes ..........................................................................................................................................95

Discussion: The “Price” Financial Analysis ..................................................................................99

5.5 The Adequacy and Fairness of the “Price” Financial Analysis ....................................................112

5.6 Building Size as the Sole Analysis Criterion & the Impact on the “Risk” Criterion Used for the

Recommendation to Award the RFP ............................................................................................113

6.0 LEGACY COST REPORTING ..............................................................................................................121

Appendix B: Summary of Recommendations and Management Comments ........................................................122

Appendix C:Glossary of Terms ..............................................................................................................................142

1.0 EXECUTIVE SUMMARY

1.1 Background of the 400 CHS Report

About the City’s 400

CHS Project.

In 2001, the Corporation of the City of Windsor (the City) began a process to design

and construct the 400 CHS building (400 City Hall Square). The purpose of the

building was to consolidate the income security programs of the City of Windsor, the

Province of Ontario and the Federal Government into one location. The building was

substantially completed by 2005 at which time the tenants began moving into the

building.

Background of the

400 CHS Audit

Report.

What was the scope of

the review?

The 400 CHS audit is

now concluded – in

three separate

reports.

In 2006, the Auditor General’s Office (under a former structure entitled City Auditor’s

Office) undertook a post-construction audit of the processes approving the project and

managing the construction of the building. In April of 2007, the City Auditor’s Office

prepared a draft document, entitled, “Draft: Post-Construction Audit Report on the 400

City Hall Square East Building”. Since that time, the (former) City Auditor’s Office

has transitioned into the Auditor General’s Office (July 2008).

The audit objectives included a review of the extent to which the project approval and

procurement processes were conducted in compliance with the City’s Purchasing By-

Law, the Municipal Act, 2001 and the Common Law governing procurement by public

authorities in awarding the contracts for the building design and construction and for

the building fit-ups. Additionally, the objectives included a review of the quality of the

information reported to Council for decision-making purposes for project approval and

procurement processes.

- Part I: In February of 2009, the Auditor General's Office released Part I of the

400 CHS audit entitled, “Post Construction Audit Report on the 400 City Hall

Square East Building - Management of the 400 CHS Construction Contract”.

- This Phase II Report is 2 parts: Phase II-A and Phase II-B, which brings the

audit to conclusion. Each report phase has two parts – the audit report and

legal report, as listed below.

Part II-A The RFP process for the Design Build Contract. Appendix A-

I, Legal review of the RFP process.

Part II-B The project’s main Furniture Tender 02-04 for the building fit-

ups. Appendix A-II, Legal review of the Furniture tender.

City of Windsor AGO 1

Report II, Parts A (Design / Build RFP) and B (Furniture Tender) are reviews of

different types of procurement activities, however the findings of each review, were

remarkably similar. Therefore the recommendations of the review have been recorded

in Part A only. Part B, while dealing with a different topic, provides additional support

for consideration of the Part A report recommendations.

Why did we conduct

this review?

The 400 City Hall Square project was a project funded through municipal tax dollars.

As such, there is a high standard required for public transparency and accountability.

This audit report is the end-product of the post-construction audit. It serves as an

effective governance tool, to facilitate transparency and accountability for past

Municipal activities and for improvement in future Municipal activities.

How did we conduct

this review?

The audit involved extensive discussions with various members of current and former

City Staff, Management and City Councillors who worked on the project as well as the

gathering and close examination of numerous City documents (from reports to Council

to Committee meeting minutes to e-mails and memos).

Our fieldwork for this report commenced on April 15, 2008 and concluded June 30,

2009. The work started where the draft dated April 2007 left off. It included review

and analysis of new information received from Administration and gathered through

interviews conducted in 2008 and 2009.

The audit was a collaboration of Audit staff completing the fieldwork, analysis, review

and reporting, Miller Thomson providing legal interpretation of evidence and legal

advice, and KPMG Forensic (engaged by Miller Thomson) providing fact-gathering

and review to support the legal opinions as well as oversight of some of the audit work

of the staff of the City’s Auditor General’s Office.

1.2 A New Plateau in Transparency & Accountability

This report examines, openly, highly sensitive issues. Its publication represents a new

plateau in the level of transparency and accountability reached by the City. The audit’s

findings and recommendations hold nothing back in criticism, where justified, of past

conduct. This should assist Council in holding itself and its administrators more

accountable. Moving on from what took place in the past, the recommendations of the

report address existing risk exposure by providing governance level recommendations

for future improvements, in order to achieve best practices.


The report findings do

not point to issues

with any of the

Proponents or

Consultants that

worked with the City

or with the 400 CHS

Building built by

Vindella – for that

part of the project

was deemed a

success.

We would like to emphasize that any criticisms in this report are exclusively directed

at the decisions and activities of the City of Windsor. The story told in this report is

about the City doing things that subjected the City, its RFP proponents and Consultants

to unnecessary risks. The audit results in no way reflect on the quality of the building

obtained or the services delivered by any of the Proponents or Consultants that

participated in this project, for the building design and construction was described in

our Report I of the 400 CHS review as a success.

1.3 The Audit about Governance Reform – Not the 400 CHS Project

Although the project

construction phase

was a success, there

were serious

problems on the

project caused by

weakness in the City’s

governance structure.

As the audit review progressed, it became clear that if the report were to describe only

the events of the procurement processes of the 400 CHS project, without digging

deeper to examine the basic, underlying causes, the real story would have been missed.

While the audit findings of the project events are concerning, the root cause of what

took place is that the City’s governance structure at that time was not as robust as it

should have been. It was significantly fragmented, creating an environment ripe for

exposing the City to unnecessary risk and cost. The criticisms in this report reveal that

risk. The report recommendations should assist the City to improve its performance on

similar large and / or complex procurement projects and to improve on the quality and

usefulness of information reported to Council for decision making purposes.

What is good

governance & why is

it important?

Governance has two elements: a set of laws/rules and policies, and the processes of

interpreting and applying them. A good municipal governance structure is achieved

through a strong framework of laws and policies (Municipal Act and other applicable

Ontario statutes, City By-Laws, policies and procedures) as developed and

implemented by a core structure of authority (Council and Administration).

The governance structure grants and limits authority, defines public expectations, and

creates mechanisms to ensure accountability and verify performance for the ratepayers

of the City. Good municipal governance also enables the City to be accountable for

the way in which Council and Administration carries out their legal and ethical duties

when dealing with the various interests of the public and the City’s employees, while

managing the City so as to achieve its operational goals efficiently.


Using the examples of

the past as support,

the audit report

recommendations

assist to address risk

that exists today.

By reviewing what happened on the 400 CHS Project, we were able to identify

significant risk and control weaknesses in the City’s governance structure, to present

an inventory of what the City has done since 2002 to improve the weakened control

condition, and to develop recommendations towards improvement on serious risk

weaknesses that exist today.

The recommendations of the report speak to a call for reform to the City’s governance

structure and its support systems. The main audit report demonstrates the need for

such change, through findings and detailed discussions of the decisions and actions of

the City during the project Design / Build RFP and Main Furniture Tender processes.

Why is there a need for change? Certain practices used by the City – both staff and

Council members – during the RFP process through to the award of the contract to the

selected proponent, were unfair and were in contravention of the laws that govern the

City of Windsor. The audit assists in providing recommendations to address the risk of

the City making the same mistakes in the future.

It is important to recognize that there has been significant progress at the City since the

project began (2002). The current governance structure is not what it was in 2002

however, it is still not – and never will be – perfect. Therefore, by using the examples

of the past from which to learn important lessons, the audit can help to prevent the

recurrence of structural weaknesses in the City’s governance system. With this goal in

mind, this audit report recommends various ways to improve future municipal

operations and to strengthen the City’s current governance structure.

1.4 Four Main Causes of the 400 CHS Project Issues

There were issues in

the City’s governance

structure that created

pressure and

opportunity for things

to go wrong.

The audit report considers issues of the 400 CHS project around weaknesses in three

core elements of good governance in the municipal context: (i) The appropriate

allocation of powers between Council and Administration, (ii) The maintenance of

continuous vigilance over the City’s accountability systems and, (iii) Appropriate

corrective action taken when the system controls have been avoided without proper

authorization, or where the City becomes exposed to significant risk.

Council made the

error of breaking the

first element of good

governance, by

stepping into the role

of Administration.

In 2002, Council was concerned about three significant issues that affected the 400

CHS project: (1) the history of other projects going over budget and the lack of

communications from Administration to Council on those projects, (2) the fact that the

City was in the shadow of the multi-hundred-million dollar MFP crisis, and (3) the fact

that the City was carrying a significant municipal debt load, which by the year 2003,

was 54% higher than the municipal average (and headed higher given a number of

planned projects requiring debt issuances).


This heightened the

risk of problems

occurring, but was by

no means the sole

cause of project

problems.

These serious problems faced by the City prompted the decision of Council to step into

the role of Administration in undertaking a review of the RFP responses and

developing a short list of the RFP proponents for the 400 CHS project. This action

took place in the midst of Administration managing the RFP process and created an

environment of conflicting processes, unfair practices, frustration and intimidation.

Council did not maintain the segregation of powers required for governance to operate

effectively, and many serious problems ensued. The action heightened the risk that

problems would arise, and for those problems that did arise, the impact was amplified.

While this action did have a significant impact on this project, it was secondary to the

weaknesses in the City’s governance structure – which created the risk of what then

took place.

Poor project planning

and failure to

adequately set the

project stage for

success was a 2nd

cause.

Another main cause of the 400 CHS problems started long before Council stepped into

the role of Administration. Council was initially approached by Administration with a

request to approve an “idea”, and from that point, the project evolved into a “reality”.

Between the “idea” and the “reality” phases, the critical steps taken by Administration

towards project planning and implementation were weak.

Administration did not provide Council with a strong business case, with a defined,

critical review of the prospective financial and environmental impacts, risks of, or

alternatives to the project. A strong business case is a good tool for Council to use in

deciding whether to proceed with a project. The case should show strong support for

the recommendation that the project is worth pursuing, by demonstrating that the

project is more likely than not to achieve its identified goals.

Going into the project, Council had major concerns about known risk to the City – with

the ongoing project issues, MFP and the City’s high debt level. Council also had

concerns about unknown risk because the project was loosely defined and poorly

planned. Administration did not have an adequate plan in place to serve as a solid base

to prove to Council that Administration had done its homework for the project.

Without the availability of such data, Council did not have the information to assess

prudently, whether the project was likely to be successful.

The weakness in project planning included the absence of adequately defined and

established standards of quality and performance for Administrative planning and

reporting to Council. The City also lacked an appropriate project management

methodology that would help to ensure that the project was well planned and managed

in accordance with the City’s Purchasing By-Law, when the temptation to deviate from

the process required by the By-Law and the Common Law materialized.


The 3rd

cause:

Weakness in reporting

to Council for

decision making

purposes.

Anyone preparing information for Council, which is intended to be acted upon, has a

duty of care to take all reasonable steps to ensure that what is prepared for Council is

done so with great clarity, is unbiased and includes all relevant information that is

material to the decision. The reporting to Council in this case was unclear, weak in

disclosure of relevant material information and in some areas was inconsistent.

In a reporting process, the duty of care generally falls to the entire team involved.

Primarily to the author and secondarily to the reviewers required to scan the reports for

glaring errors. The City’s reporting process for the project worked against

transparency of accountability as it muddied the line between the duty of the author

and reviewer. For example, the author had no authority over the report final content.

There were multiple report reviewers who did not have full knowledge (and some did

not have any knowledge) of the ongoing project problems. However, the reviewers did

have authority over the final report content.

The AGO has made specific recommendations to address the weaknesses in the City’s

reporting process, which while improved since 2002, needs improvement to effectively

support good governance and good Council communication.

The 4th cause:

Council and

Administration

demonstrated a low

level of awareness

and understanding of

the laws governing

the City.

Additional causes for the problems include, that the situation resulted in considerable

confusion and inconsistency regarding the respective roles of individual members of

Council and the Administration on the committee appointed to oversee the RFP

process. And, that throughout the 400 CHS procurement processes, Council members

and some senior staff members came to demonstrate a low level of awareness and

understanding of some of the most basic principles of the laws governing the City.

The combined effects of the four causes form the basis of the findings and extensive

report discussions of audit report II-A (the RFP) and II-B (the Furniture Tender).

1.5 The Overriding Concern of the 400 CHS Review

Why are we

concerned today?

The overriding concern of the findings presented in this audit report is that weaknesses

in the City’s governance structure and support systems, compounded by a low level of

awareness and understanding of the principles of some of the laws governing the City,

have led to an ongoing problem for the City of Windsor. While a great deal of

progress has been made since 2002, there is still a significant level of risk that remains

today.

The central conclusion of the review was that certain practices used by the City, both

staff and Council members, during the RFP process through to the award of the

contract to the selected proponent, were unfair and were in contravention of the laws


that govern the City of Windsor. While we did not find evidence to support that the

issues of the 400 CHS project were a result of deliberate actions to deceive or to cause

malice or harm, we caution that there is concern that the environment and culture of

the City during the 400 CHS project fostered pressure, opportunity and the

rationalization to bend or go around the rules.

The adverse impact of this type of risk environment is the strongest in times where it

matters the most, when the City is in the process of making important, time sensitive

and expensive decisions. Given the ongoing high volume of work and activities, there

is a concern that this is a regular risk scenario for Council and Administration at the

City of Windsor and it is our strong recommendation that this negative culture and

governance environment be immediately addressed.

The following examples from the 400 CHS project highlight the reality of the

weakened governance system and the perverse outcomes it produced for the City of

Windsor:

- Some in a position of power (both Council and Administration) achieved what was

perceived to be a desirable result, but the result was unfair and caused the risk of

costly law suits against the City, members of Council and members of senior

Administration.

- Through the actions taken and decisions made, the City risked damage to its

goodwill reputation, to future business relationships (including the ability to attract

quality proponents), and to relationships between Council and City staff. Of

additional concern were the costs that were incurred to achieve this outcome.

- Because of the problems in the governance structure, Council and some members

of Administration were without access to critical information that would have

presented them the opportunity to help the City make alternative, or better,

decisions. Seemingly, Council, the Councillors on the RFP Evaluation Committee

and some of the Administration did not have the knowledge of the serious ongoing

problems, or even that serious problems existed.

In summary… Through this audit, we have raised the awareness that in today’s environment of

municipal transparency and accountability, both Council and senior Administration are

at risk of making decisions without access to the best information available to the point

where serious errors may be made and serious risk may be invited. Both Council and

senior Administration are at risk of being held legally and professionally responsible

for errors that take place in the name of the City of Windsor.


We do not want to leave the impression that the problem is or was the personalities of

the people in place, or were merely the problems that took place on an almost decade

old project. The problem was, and remains, the weaknesses of the City’s governance

structure. Focussing on the structural problem, rather than on personalities, the audit

recommendations call for reform to the City’s governance system. The report also

provides advice to assist Council and Administration in taking the first steps to correct

this situation.

A light at the end of

the tunnel…

The City’s current government, Council, the CAO and senior Administration, faces

two challenges. The first is immediate: answering to the public for what transpired on

the 400 CHS project. The second is more long-term: effect the changes needed to

prevent the City from making the same mistakes in the future.

For a good chance of success, Council should be requested to commit to the following:

(1) A long term advancement strategy to deal with the recommendations of the

review, provided to assist Council and Administration in addressing

weaknesses in the City’s governance system that expose the City to significant

risk.

(2) Long term support that empowers Administration to develop, implement and

maintain the strategy. Such support will potentially require additional costs

and dedicated resources to achieve improvement.

The staff of the AGO have studied the activities of the City’s current municipal

government over the past few years – both Council and Administration. Based on our

observations, we are optimistic that the current Council, CAO and senior

Administration will successfully meet these challenges.


1.6 What Were the Findings of the Review?

Findings of the RFP

Evaluation

There are 12 findings of the audit evaluation of the City’s RFP procurement process

for the design / build contract, comprised of 4 legal conclusions and 8 audit findings,

as listed below:

Legal Conclusion 1: Although we found no evidence of intentional wrongdoing, Council members and

some senior staff members demonstrated a lack of awareness and understanding of

some of the most basic principles of the laws governing the City, including that:

(a) individual Council members do not have the powers of Council itself unless

specifically and validly delegated to them by a Council resolution or By-Law;

(b) neither one, nor more than one Council member appointed to an ad hoc

procurement committee has the authority to over-ride City staff members of

the same committee, or to treat them as merely advisory, unless Council by

resolution or By-Law has given them that power (which was not done with the

400 Building);

(c) once a power has been delegated by By-Law (e.g. a purchasing By-Law

delegating all purchasing power to specific staff manager positions) Council

cannot simply ignore its own By-Law and do whatever it pleases, but must

comply with its By-Law, unless and until it validly amends the By-Law or

creates an exemption from it in another By-Law;

(d) when an RFP is structured as it was for the 400 Building, the submission of

compliant proposals by proponents creates what the Supreme Court of Canada

has defined as the “bidding contract” (“Contract A”) between the City and

each compliant proponent, giving the City legally binding contractual

obligations to each compliant proponent, including obligations (i) to treat each

compliant proponent fairly and evenly and (ii) not to award the ultimate

contract (the project) to a proponent whose proposal was non-compliant;

(e) the City breached this “bidding contract” where, after the closing deadline, it

allowed Vindella, a proponent which had submitted a non-compliant proposal

that should have caused it to be eliminated from further participation, to amend

that proposal, when there was no language in the RFP which gave the City

such a right; and

(f) the City breached the “bidding contract” for the 400 Building by allowing

(actually, inviting) Vindella to amend its non-compliant proposal, thereby

exposing the City to a claim for the reasonable overhead and profit that


EllisDon would have earned from carrying out the project.

Legal Conclusion 2 The City Solicitor was impeded from carrying out the legal duties of his senior legal

position, as required by the Rules of Professional Conduct of the Law Society of Upper

Canada, by:

(a) the literal wording of the City’s Procedural By-Law;

(b) the structural insulation of the Mayor and Council from timely and unfiltered

(by the City Solicitor’s superiors) legal advice; and

(c) the attitude that “we will seek your legal advice when we want it” rather than

“be proactive and exercise your best judgment to help us to avoid going offside

legally”.

These legal, structural and attitudinal impediments have placed Windsor’s City

Solicitor in an untenable conflict situation, and, more importantly, prevented the City,

during the 400 Building RFP process and the building’s construction, from receiving

the benefit of the timely and independent legal advice that all corporations need. This

is risky conduct rendering the City liable to costly law suits. Large public companies

would find such a situation unacceptable. We can see no reason why municipal

corporations should structure themselves to receive a lower standard of legal protection

than their private sector counterparts.

Legal Conclusion 3 The Vindella proposal was non-compliant and should have been rejected immediately,

rather than selected for negotiations at the same time as EllisDon, whose proposal was

compliant. Nor was it fair for the City to allow (and even to assist) Vindella to amend

its proposal after the deadline for submitting a compliant proposal had passed.

Legal Conclusion 4 Correspondence between the City and EllisDon demonstrates that EllisDon was aware

of its legal rights. The City is fortunate not to have been sued by EllisDon when it was

passed over in favour of Vindella. Such legal proceedings would have imposed

significant costs on the City in terms of legal expenses and potential damage claims,

not to mention the political and reputational cost to the City. Had EllisDon sued the

City (before the limitations period had expired), it is possible that the three Council

members on the RFP working committee, who acted without written Council authority

in over-riding the staff and assisting Vindella over their objections, may have been


named as individual defendants. That is why Council members should be aware that

they may be taking personal risks when they engage in legally unauthorized conduct

causing damage to RFP proponents or tender bidders. The naming of Council members

as individual defendants may have placed the City in a position of continuous, ongoing

legal conflict of interest with the three Council members, in that the City (or its

insurers) would have had to raise a defence to an EllisDon lawsuit that would have

been antagonistic to the defences of the 3 Council members.

Audit Conclusion 1 A best practice of project management1 is that a successful project starts with a solid

business case, one that justifies informed, high level support that later, everyone else

can also see reason to support. We did not find evidence of a comprehensive business

case, or its equivalent under another heading, being presented to Council for informed

decision-making purposes for this project. The decision to proceed does not appear to

have been based on a defined, critical review of the prospective financial and

environmental impacts, risks of, or alternatives to the project.

Audit Conclusion 2 The vague Council motion that approved the creation of the ad-hoc procurement

committee and the absence of an adequate, approved business case resulted in a

division between the Councillors and the Administration responsible for

recommending the preferred proponent for the award of the Design / Build Contract.

The division was not contained within that group, but extended to other Administration

involved on the project and reporting to Council. 2

a) The division was evident in the project reports to Council in July, August and

September of 2002. Due to significant concerns over the MFP procurement

scandal and the City’s 2002 debt load, the Council members on the committee,

supported by some Administration external of the committee were running the

selection process on “lowest price” and members of Administration on the

committee were committed to the RFP matrix (Purchasing By-Law).

b) Between January 2002 and September 2002, members of junior

Administration brought concerns to the attention of some senior

Administration and the message reached the then-CAO regarding the City’s

1 Sources: Eight Key Factors to Ensuring Project Success; and Avoiding the Project Management Obstacle Course. Author

Duncan Haughey, a certified PMP and PRINCE2 Practitioner, is the editor of Project Smart, the project management

resource that helps managers at all levels to improve their performance: http://www.projectsmart.co.uk/whitepapers.html

2 Direct evidence which would reveal the identity of individuals will be held confidential by the Auditor General’s Office.


own departures from the announced RFP process as represented to the

prospective proponents.

c) Ultimately, the project environment became adverse. There are multiple

project documents and interview comments that strongly support our finding

that the working environment for certain members of Administration became

one of frustration and intimidation. Commendably, under the pressures of this

environment, some junior members of Administration showed significant

strength and resolve through repeated attempts to have the City return to

fidelity to the RFP process and the Purchasing By-Law.

d) Serious communication issues ensued. Project documentation and

correspondence among all levels of Administration through to February of

2004 shows that the division continued even after the award of the RFP. This

documentation shows that some members of senior Administration, including

the then-CAO were aware of the problems and the expressed legal concerns

with deviating from the RFP process.

e) The concerns about going offside legally reached the level of the then-CAO.

However, through the lack of documentation or comment support, it remains

unclear whether the then-CAO ever apprised the Councillors on the ad-hoc

procurement committee, or apprised Council as a whole, of the dangers of

selecting the final proponent without compliance with the applicable

procurement rules.

Audit Conclusion 3 It was not transparent in the reports to Council that Council was being asked to deviate

from the RFP process or to circumvent the Purchasing By-Law when the

Administration recommended that Council provide “direction” to the RFP Evaluation

Committee to negotiate with the highest ranking proponents in both the technical and

financial reviews of the RFP evaluation. Council was being asked to direct the

Committee to go down a path it legally could not go, without disclosing this.

a) This raises questions of unacceptable “Bid Shopping”, which “occurs when a

municipality opens the bids and then uses them to “negotiate” by approaching

bidders with the information and trying to get them to lower their bids. This

violates Contract A and the duty of good faith.” 3

3 Source: Fall 2008 Municipal Leader magazine, “Love Me, Tenderer: Municipalities, Tendering and the Law” by John D.

Stefaniuk, Partner , Thompson Dorfman Sweatman LLP.


b) It is unclear whether Council was ever advised that providing direction to

negotiate with proponents at this stage in the process would amount to Council

approval to circumvent the Purchasing By-Law. However, as Council could

have amended this By-Law to exempt the 400 Building from it with relative

ease, it is doubtful that this would have been presented, but left undone. The

Stage 2 RFP and related correspondence to the Proponents was clear – that the

Award of the RFP would be decided based on the RFP Assessment Matrix.

What remains unclear, and unlikely, is that Council was advised of this

requirement or reminded of this requirement when deciding on the RFP

Award.

c) The RFP itself created no such division between “technical” and “financial”.

Rather, points were awarded only on a matrix that included a weighting for

financial as well as other criteria. It was not accurate to characterize this

comprehensive and publicly-announced matrix as merely “technical”, and the

narrow, short-run analysis of purchase price alone as “financial”. It was also

without legal foundation to declare two “winners” and to pit one against the

other.

Audit Conclusion 4 The reports to Council failed to disclose the Vindella proposal was non-compliant to

the RFP, and therefore, had to be rejected, rather than declared a winner in the non-

existent “financial” category. The Vindella proposal was presented to Council as a

compliant and seemingly viable proposal, giving the false appearance that it was the

lowest compliant bid4 in the running for the award of the contract.

Audit Conclusion 5 After the Stage 2 evaluation and ranking of the RFP proponents concluded, the City

turned away from the RFP Assessment Matrix process to a “Price” Financial Analysis

to decide the award of the RFP contract.

Whether referred to by Administration as “Annual Operating Budgetary Impact”,

“Cost Neutral”, “Budget Neutral” or “Building Ownership Risk”, etc, the goal of the

“Price” Financial Analysis was to determine the lowest price of ownership (not lowest

cost of ownership) for the 400 CHS building.

The financial information brought forward to Council to determine this lowest price

factor was designed by Administration. There is a concern that Council was not told

4 Means the Bid that would provide the City of Windsor with the desired goods and/or services at the lowest per unit or

overall cost, meets all the Specifications and contains no major irregularity or qualifications.


by Administration that the Purchasing By-Law RFP Matrix which took into account

both long-term “Cost” & short-run “Price” (Value for Money) applied the maximum

weight to the Life Cycle Costing proposal requirement, which was clearly an

appropriate and meaningful evaluation tool to determine the lowest cost of ownership

of a fixed asset over its useful life.

To expand on this statement, the use of cheaper but less durable building designs and

materials, which require earlier replacement and more costly annual maintenance, only

serve to drive down the initial price by an amount which may be smaller than the total

cost of the building over its useful life. This may result in a transfer of costs from this

generation to our children, raising an issue of intergenerational equity.

Audit Conclusion 6 Based on the audit work performed, it is the opinion of the AGO that the “Price”

Financial Analysis used to evaluate the proponents’ proposals was flawed to the point

that it was unfair to Council and to taxpayers. There was incomplete disclosure of

material facts, which likely created the situation that Council did not have the

information to make an informed decision as to the award of the RFP Contract.

a) Council was advised, “…the variance between best and worst case scenario is

the amount of risk the Municipality must consider as the cost of owning this

facility on an annual basis.”

b) The presentation of the “Price” Financial Analysis “Risk” calculation along

with discussion of the RFP requirements in the same report, likely gave

Council the impression that the RFP requirements had relevance to the results

of the analysis. It is unclear whether Council was ever advised that the RFP

Matrix information included in the reports to Council became “for Council

information” only.

c) The “Price” Financial Analysis did not include an adequate evaluation of real

project risks. The risk analysis was a simple calculation that only equalled the

current amount of speculative space rent. The same outcome was achievable

through a simple arithmetic calculation: current un-rented space x the

estimated lease rate per square foot.

d) There was a material omission in the September 2002 report to Council to

recommend the Award of the RFP Contract. No final risk calculation,

Variance (Risk), on a basis consistent with previous reporting, was shown in

the September report. If the final risk calculation had been shown, in carrying

through Administration’s risk analysis methodology consistently, EllisDon


would now have been shown to be less risky. There was also no commentary

to indicate that contrary to prior reports, EllisDon was now the “winner” for

this risk criterion. Although we pursued the question with vigour, no one

connected with the project was able to provide us with any explanation for this

material omission.

Audit Conclusion 7 Based on the audit work performed, the AGO has determined that the “Price” Financial

Analysis used to evaluate the proponents’ proposals was flawed to the point that it was

unfair to the Proponents. Any proposal which met the stated City requirements or

requests of the RFP (any proponent that gave the City what the City asked for), was

placed at an immediate and uncontrollable disadvantage in comparison to a proponent

that did not meet the City’s requirements or requests. Conversely, the less compliant

the proposal, the better chance the proponent had to be declared the winner of the RFP

process.

Audit Conclusion 8 The financial analysis in the reports to Council dated July 18, 2002 (in-camera),

August 21, 2002 (in-camera) and September 4, 2002 (open session # 8652),

consistently used, but did not clearly state the total office space requirement as 111,500

sq. ft., a material decrease of 31,100 sq. ft. from the City’s RFP Stage 2 requested

estimate of 142,600 sq. ft. Any office space greater than 111,500 sq. ft. was now

treated by Administration to be “speculative” space, and thus, as a risk.

It was not appropriate to use the 111,500 sq. ft. value in the financial analysis without

disclosing the nature and consequences of that newly-adopted number. The

presentation of the information regarding the 111,500 sq. ft. in the reports to Council

was incomplete and unclear. Based on the audit work performed, the AGO determined

that:

a) The number represented a material change from the stated requirements of the

RFP as presented to the proponents, and the change had a distorting, punitive

effect on the evaluation of the proposals that came closest to meeting the

building size requirement presented by the City’s RFP.

b) The number was changed by Administration as a result of the loss of the

Provincial tenant, to reflect the then-current risk to the City. The information

should have been used to highlight the risks to Council, to assist Council in its

decision whether to approve the project to proceed. Instead, the information

was used in a manner that punished the RFP proponents that met the stated


requirements of the RFP and rewarded one that did not.

c) By material error or omission, what the reports to Council did not provide was

a discussion of the risk impact to the City that would result from this opaque

change. As stated in the legal memorandum (Appendix A), this change is one

part of the process leading to the breach of the City’s “bidding contract”

obligations to EllisDon. If not for the passage of time, the City would be

facing the risk of compensating EllisDon for the overhead and profit it would

have earned.

d) More broadly defined, the City risked damage to its goodwill, damage to future

business relationships including the ability to attract quality proponents and

quality investment, damage to relationships between Council and City staff,

and caused the risk of legal action against the City, members of Council and

members of senior Administration.

1.7 The Recommendations of the Audit

The Audit

recommendations

To support City Council and Municipal Administration in meeting their legislated

responsibilities, in improving the performance of the corporation in the programs and

services it delivers and in ensuring the accountability of local government to the

taxpayers, we provide the following 13 recommendations:

Recommendation 1 Develop a Strategic Plan to Address Audit Recommendations

To maximize the opportunity to enhance effectiveness and to achieve efficiencies in

the implementation of the 400 CHS recommendations, we recommend the CAO

consider the merits of addressing the recommendations of this review as a package,

through the development of a comprehensive strategic plan that may include a review

of risk, the City’s current strategic plan & corporate initiatives, resource requirements,

etc, and to respond to this audit recommendation with a date that Administration may

report back to the Audit Committee with an action plan and timeframes of the

packaged plan.

For a good chance of success, Council should be requested to commit to the following:

(1) A long term advancement strategy to deal with the recommendations of the

review provided to assist Council and Administration in addressing

weaknesses in the City’s governance system that expose the City to significant


risk.

(2) Long term support that empowers Administration to develop, implement and

maintain the strategy. Such support will potentially require additional costs

and dedicated resources to achieve improvement.

Recommendation 2 To Correct the Structural Insulation of Council’s Access to Timely, Independent

Legal Advice through an Amended Procedural By-law Number 420-2001 or a

Separate By-Law

We recommend that the CAO review the merits of the legal recommendation of Miller

Thomson LLP, and develop a policy for Council review and approval to correct the

issue of the structural insulation of the Mayor and Council, by way of By-Law or By-

Law amendment. This correction is recommended to provide the Mayor and Council

access to timely, independent legal advice from the City Solicitor. And further, to

remove the reporting independence conflict of the City Solicitor, which currently

serves as a barrier to the City Solicitor’s obligation to act in accordance with his or her

legal duties and other duties, such as those required as an Ontario Lawyer under the

Rules of Professional Conduct of the Law Society.

Recommendation of Andrew Roman of Miller Thomson LLP: “We would recommend

that the independence of the City Solicitor be enshrined either in an amended

Procedural By-law Number 420-2001 or within a separate By-law (to be made

consistent with an amended 420-2001) called “Terms of Reference for the City

Solicitor of the City of Windsor”. This By-law would be available to all Councillors

and staff of the City and available to the public on the City’s website, like other

municipal by-laws. This expanded role for the City Solicitor would be set out in much

the same way that the Terms of Reference for the Chair, President and certain key

officers of many Canadian public companies are, and are made available to the public

as a function of good corporate governance.”

Recommendation 3 The Removal of Structural Impediments to an Effective Corporate

Communication System through the Development of Policy and Amendment to

Procedural By-Law 420-2001

That Administration develop a protocol for Council review and approval to correct the

structural issues (relating to or resulting from the organization or functioning of a

political or economic system) that threatens the health of the City’s communication


system; the purpose of which is to preserve the flow of timely, appropriate, relevant

and critical information from the Administration to the Mayor, Council and CAO.

We recommend the policy include the following development of policy and

amendments to By-Law number 420-2001:

i) A City policy that defines the duty of the CAO, General Managers and each

Department Head to report information up a defined chain of command, where

he or she becomes aware of a level of risk being taken that is unacceptably

high to the City of Windsor. (Related City policy includes the “Fraud Policy

and Protocol”, CS.A2.05 under the control of Corporate Services and “Hotline

Protocols”, CAE-01-08 under the control of the Auditor General’s Office.)

ii) The guarantee of no career repercussions imposed on any staff carrying out

these duties should be enshrined by way of an amendment to Procedural By-

Law number 420-2001.

iii) Procedural By-Law number 420-2001 Section 24.1 “Each Department Head

shall act in accordance with any statutory duties”, should be revised to define

the requirement for the CAO, General Managers and each Department Head to

act in accordance with his or her legal duties and other duties, such as those

required as Officers and Employees of the Municipality and those under the

Rules of Professional Conduct of the various disciplines to which he or she

may belong. (I.e. Accountants, Engineers, etc.)

iv) That Procedural By-Law number 420-2001, be amended to revise the phrase

“and control” of Section 24.2, in order to remove implied structural barriers to

the required level of independence for the General Managers and each

Department Head to act in accordance with his or her legal duties and other

duties.

v) That Administration finalize the Corporate Code of Ethics policy for City

Staff, and bring forward the policy to Council for review and approval. The

City has implemented a code of ethics policy for members of Council;

however the code of ethics policy for Administration and staff remains in

draft.


Recommendation 4 Establish a “Top Down” Training Initiative, with Mandatory Components, to

Address the Risk of Legal Errors, Damage to the City’s Goodwill Reputation and

the Ability to Attract Quality Proponents and Future Investment.

To address the identified control weaknesses which lead to the risk of unintentional

errors that may invite legal action against the City, Council, members of Council and

senior Administration, and / or damage to the City’s goodwill reputation and ability to

attract quality proponents in the City’s projects and investment endeavours, we

recommend the following:

That the CAO consider the merits of developing a Corporate training initiative for the

review and approval of Council. The training initiative should provide for mandatory

and non-mandatory opportunities for Council, Administration and City Staff to be

exposed to ongoing education about the roles and responsibilities of the basic

principles of the laws governing the City as well as continued professional

development and education on emerging issues and high risk areas of purchasing and

procurement or other identified subject areas.

We recommended a course of mandatory training to include the exposure to seminars

and materials on the basic principles of the laws that govern the City which:

i) For Council: Acquaints Council with the Municipal Act and legal

requirements for,

a) The Role of Council vs. the Role of Administration,

b) Council and Corporate Governance, and

c) Potential Risk and Liability for Errors Made by Council, and

Individual Members.

ii) For senior Administration: Enhance the ongoing and valuable training

program that acquaints Administration with the Municipal Act and legal

requirements for,

a) The Role of Council vs. the Role of Administration,

b) Senior Administration, Council and Corporate Governance, and

c) Potential Risk and Liability to Administration and Council for Errors

Made by the Council, Individual Members of Council and the

Administration.


iii) City Council, Administration and Staff (Purchasing and Legal staff):

a) Acquaint Council, Administration and City Staff with the implications

of a process that creates the “bidding contract” and the duties and

obligations that flow, even from a process that does not create a

“bidding contract”.

b) Enhance the ongoing and valuable training program with other training

opportunities to expose Staff to current and emerging issues in

purchasing, procurement or others as defined by Administration.

Recommendation 5 To Establish an Accountability Standard of Due Diligence and Due Professional

Care for the Improvement of Information Reported to Council and the CAO for

Decision Making Purposes.

We recommend that the Administration establish a Corporate wide control policy for

Council review and approval that requires the preparation of communications or

reports to Council and the CAO in accordance with due diligence and due professional

care. This type of control should lead to better decisions by improving on the quality

and usefulness of information reported to City Council and senior Administration for

decision making purposes, facilitate transparency through full disclosure, communicate

pertinent risk considerations and establish accountability for the information reported.

In the 400 CHS project, transparency of project accountability was not clear due to

several factors. Improvement of this condition can be achieved through enhancements

to the City’s current reporting protocols as recommended through the development of a

Council approved policy which would:

i) Establish the standard for information to be assigned and prepared to a defined

standard of due diligence and due professional care as per the following

definitions:

a) Due Diligence is the degree of care that a prudent person would exercise.

This would involve the requirement to assign the work to be conducted to

a person with the requisite knowledge, skill and experience to complete the

required task.

b) Due Professional Care calls for the application of the care and skill

expected of a reasonably prudent and competent professional in the same

or similar circumstances. Due professional care is exercised when the


analysis and information reported are performed in accordance with the

Professional Standards under which the author or signatories are bound.

(I.e., Accountant, Engineer, Lawyer, etc.)

ii) The City should create a policy for the development of Council reports which

helps Council and Administration to more fully assess the potential risks of

making decisions with full or partial information, and give Council the

opportunity and understanding to accept or reject those risks. The policy

should:

a) Enshrine the understanding that it is incumbent upon Administration to

review and report special circumstances to Council.

b) Include the requirement for a standardized report heading for

“Important Risk Disclosures”.

c) Make mandatory, that Council reports include a risk discussion with

the requirement to clearly set out within the report body any significant

information that is not disclosed, why, the potential impact including

the risk of not having that information, and any compensating

information.

d) Where appropriate, include Life Cycle Costing information to facilitate

value for money decision making.

iii) Such a policy should retain the standards and requirements established in the

existing Corporate Services control tool: The finance checklist for council

reports and delegation of authority reports (r. April 16, 2009).

Recommendation 6 Formalize & Enhance the City’s Life Cycle Costing (LCC) Strategy to Provide for

Increased Effectiveness, Efficiencies and Value for Money for the City Of

Windsor.

We recommend the CAO consider the merits of developing an LCC strategy, which

has significant value added potential to provide the City opportunities to achieve better

value for money in all its (1) procurement activities, (2) the delivery of products and

services and (3) in municipal performance measurement.

This audit reviewed the importance of LCC as it relates to an RFP evaluation and

selection process on the basic principle of LCC, which is to determine the cost of a


particular product or service through the consideration of environmental, social and

economic costs and benefits that occur throughout the life of a product or service,

rather than on price alone. This is but one aspect of the benefit of LCC, which has far

reaching applications:

i) LCC can assist in making more effective decisions and better informed

procurement choices such as, whether or not to purchase or lease a specific

product or service or which to select from a range of options.

ii) LCC provides the opportunity to maximize on effectiveness and efficiencies

within in every service, program, project, etc. that the City delivers.

iii) In this aspect of LCC, there is existing opportunity to maximize on the

effectiveness and efficiencies of ongoing strategic initiatives. Performance

Measurement, Asset Management, the Service Delivery Review, City Projects

and City procurement, are all founded on the principles of LCC.

iv) As the LCC strategy progresses through maintenance, experience and

sophistication, the City should expect to continue to achieve measurable

improvements in value for money.

Recommendation 7 Transparency and Accountability Amendment to the Purchasing By-Law 400-

2004 for any Exceptions to or Exemptions from the By-Law

Given the significant risk to the City of Windsor involved, it is not recommended that

Council provide approval for the circumvention of the Purchasing By-Law controls.

However, we recognize that under extraordinary circumstances, such activity may

become necessary. We recommend that the City’s Purchasing By-Law 400-2004 be

amended to establish accountability and transparency where exceptions / exemptions

from the By-Law are required. We recommend such amendments to the By-Law

include:

i) A statement of the legal authority under which Council is authorized to

approve exceptions / exemptions of the Purchasing By-Law.

ii) Recognition of the Purchasing By-Law as the best practice standard to achieve

value for money in the City’s purchasing and procurement activities. It should

be noted that a circumvention of the By-Law should be the extraordinary

exception rather than the rule.

iii) The requirement for a written report recommendation to be brought forward to


Council by Administration, which clearly discloses that Council is being asked

to approve the circumvention of the Purchasing By-Law. (A consistent

problem observed by Audit in this, and past audit reviews)

iv) The requirement for the Council report to include a statement of legal risk and

/ or recommendation, prepared by the City Solicitor (or designate) and that the

City Solicitor (or designate) be in attendance to advise Council during the

discussion.

v) The requirement for the Council report to include a statement of purchasing

risk and / or recommendation, prepared by the City’s Purchasing Manager (or

designate) and that the Purchasing Manager (or designate) be present to advise

Council during the discussion.

vi) That the decision of Council to approve the circumvention of the By-Law be

clearly and comprehensively representative of the decision and direction in the

resolution of the Committee of the Whole.

Recommendation 8 Legal Review, Amendments to Purchasing By-Law 400-2004 & the Requirement

for Appropriate Oversight Over the City’s Purchasing and Procurement

Activities

We recommend the CAO consider the merits of the following recommendations to

improve on Purchasing By-Law 400-2004 and to address the risk of recurrence of

purchasing and procurement issues that were reported in the 400 CHS audit review:

i) That Administration establish within Purchasing By-Law 400-2004, a level of

required oversight by the City’s Purchasing or Legal department on purchasing

and procurement processes of a specified dollar amount and complexity.

Administration should conduct a review of the current Purchasing By-Law to

determine whether the coverage of defined Purchasing & Legal department

oversight on purchasing and procurement activities is commensurate with the

purchasing activity and level of risk exposure to the City of Windsor.

ii) As part of the oversight framework, that the Purchasing By-Law be amended

to include the requirement for a Legal and Purchasing review and sign off, on

specific purchasing and procurement activities in excess of a specified dollar

amount or complexity involving a Tender, RFP, or other procurement tool that

results in a formed Contract or Agreement. I.e. Purchasing and Legal sign-off

on RFP or Tender documents to be issued by the City.


iii) That Administration commission the City’s Legal Services department to

conduct a legal review of the Purchasing By-Law in comparison to the legal

memorandum appendix A to this report created by Andrew Roman of Miller

Thomson. The legal review should compare the By-Law and the legal

memorandum to look for additional opportunities for improvement and / or

legally required changes to Purchasing By-Law 400-2004.

iv) We recommend that Administration address the specific legal concern

identified in Appendix A, that Purchasing By-Law 400-2004, “contains a

number of provisions which could be interpreted as attempting to give the City

the right to treat proponents unfairly.”

Recommendation 9 Amend Procedural By-law Number 420-2001 to Ensure The Requirements of the

By-Law for the Establishment of Committees Approved by Resolution of Council

Are Carried Out

By-law Number 420-2001, Part 19 and Appendix B, b), ii sets out specific actions that

are required to take place, upon approved motion by the Committee of the Whole to

form a Special Committee of Council/Advisory Committee or Task Force. However,

there is no control mechanism in place to ensure the required actions are carried out.

We recommend that Procedural By-Law 420-2001 be amended to include language

which defines the responsibility of person(s) or position(s) required to report back to

the Clerk in order to fulfil requirements of Appendix B, b), ii of the City’s Procedural

By-Law. And that the By-Law be revised to include a control mechanism to ensure

that the requirements of the By-Law are carried out to the satisfaction of the Clerk, or

other defined accountable Head.

Recommendation 10 Governance / Project Management / Oversight Improvement

There should be a requirement for projects requiring City funding in excess of a

specified amount, that the City Solicitor (or designate) be assigned to the upper tiers of

project Committees (such as those with a three-tier project management structure

recommended in the Brodel Report) with a defined role to be present to provide pro-

active legal advice and recommendations to Council and Administration in order to

keep projects from steering off-side legally.


Recommendation 11 Attach Project Management Improvement Recommendations to Report I

The recommendations towards improvement to the City’s project management process

within this report should be incorporated into the Project Management Methodology

currently being developed by Administration as per the audit recommendation adopted

in the audit report issued in February 2009 entitled, “Post Construction Audit Report

on the 400 City Hall Square East Building”.

That the City of Windsor establish an adequate and effective project management

methodology that provides standard methods and guidelines to ensure that projects are

conducted in a disciplined, well-managed and consistent manner and; to promote the

delivery of a quality project that will be completed on time, within budget and in

accordance with the project specifications.

Recommendation 12 Project Management Improvements

There should be a requirement, for all future discretionary City projects requiring City

funding in excess of a specified amount, that Administration must prepare and submit

a comprehensive business case analysis for the purpose of making supportable and

prudent investment recommendations to Council.

Council decisions regarding the approval of major projects such as the 400 City Hall

Square building should be based on a standard of information established by

Administration to include the identification and documentation of key decision factors

such as clear objectives, analysis of alternatives, expected outcomes, critical success

factors, an environmental risk assessment and risk mitigating measures, cost/benefit

analysis, financing plans, scope and impact of the project.

Recommendation 13 Project Management, RFP and Tender Control Improvements

We recommend, as identified in the legal memorandums Appendix A, Part I RFP and

Part II Furniture Tender to this report, that Administration should establish model

documents for its bid processes and for its true request for proposal so that the process

elements are constructed with the needs and obligations of the City in mind, while risk

is controlled.

The City, in the design of this control should include:

i) The RFP or Tender should specifically incorporate the Purchasing By-Law to

have the effect of providing By-Law guidance as to what is and is not a


compliant proposal.

ii) The development of standardized procurement documents for Tenders and

Proposals with the assistance of purchasing / procurement specialists. An

advantage of such a control is that it promotes effectiveness & efficiency,

mitigates risk and helps to preserve the continuity of operations where

experience leaves the corporation.

iii) The requirement for periodic reviews of the standardized procurement

documents to assess compliance to changes to law and to fine tune for past

experience in using the tool.

iv) The initial model documents to be approved by the City Solicitor (Legal).

v) The development of a mandatory use checklist that includes triggers such as,

the required rejection of any bid or proposal or the required interaction /

approval of Purchasing and / or Legal.


2.0 INTRODUCTION TO THE 400 CHS AUDIT REPORT

2.1 About Good Governance

What is municipal

governance?

How does

governance work?

Role of Council &

Administration in

good governance.

Governance has two elements: a set of laws/rules and policies, and the processes of

interpreting and applying them. As with all such endeavours, there is a need to strive for

constant improvement.

A good municipal governance structure is achieved through a strong framework of laws

and policies (Municipal Act and other applicable Ontario statutes, City, By-Laws,

Policies and procedures) as developed and implemented by a core structure of authority

(Council and Administration). This governance structure grants and limits authority,

defines public expectations, and creates mechanisms to ensure accountability and verify

performance for the residents of the City.

The Municipal Act, 2001 provides the City with the core of a governance framework.

The core power structure outlined in the Act defines the role of Council as making

policy (By-Laws, Policy, direction to Administration, etc.) and the role of

Administration as implementing that policy (through development, monitoring,

implementation and enforcement of procedures).

An efficient and effective governance structure is dependent upon the development and

implementation of strong accountability systems. These systems, which include internal

auditing through the statutory Office of the Auditor General, are designed to monitor and

record the City’s activities, to confirm compliance with the applicable laws, and to

ensure enforcement policies that provide for corrective action whenever laws, processes

and policies have not been followed.

Generally, an internal audit report considers issues around three core elements of good

governance in the municipal context:

(1) That the City maintains the appropriate allocation of powers between Council

and Administration,

(2) That Administration maintains continuous vigilance over the City’s

accountability systems and,

(3) That Council and Administration take appropriate corrective action when the

system controls have been avoided without proper authorization, or where the

City becomes exposed to significant risk because the controls in place are


Why is good

governance

important?

inadequate.

Good municipal governance enables the City to be accountable for the way in which

Council and Administration carries out their legal and ethical duties when dealing with

the various interests of the Public and the City’s employees, while managing the City so

as to achieve its operational goals efficiently.

The Auditor General’s

role in good

governance, as

established by Council

In July 2008, Council made an important contribution to its governance process by

approving the conversion of the former Office of the City Auditor to the Office of the

Auditor General. Additionally, Council strengthened the independence of Windsor’s

internal audit function through a change to its reporting structure. By reporting to

Council through the Audit Committee, the Auditor General is functionally and

administratively independent of the City's Administration. Such internal auditor

independence is crucial to the effectiveness of the Office.

What is Internal

Auditing in the

Municipal Context?

Internal auditing through the Office of the Auditor General, a function created by the

Municipal Act, is very different from the external auditors who audit the City’s financial

statements. Internal auditing helps an organization accomplish its objectives by bringing

a systematic, disciplined approach to evaluate and improve the effectiveness of risk

management, control, and governance processes.

Section 223.19 of the Municipal Act explains the municipal role of internal

auditing as, “… assisting the council in holding itself and its administrators

accountable for the quality of stewardship over public funds and for

achievement of value for money in municipal operations.”

Thus, our work is more about quality and value than quantity.

The principal purpose of an internal audit report in a municipal context is to

communicate the results of an objective evaluation of the municipality’s activities in the

form of findings and recommendations for future improvement, to achieve best

practices. The real benefit of the internal audit process is not the criticism of past

decisions and activities, as these are in the past, but to assist Council and the

Administration to learn from them, and thus, to improve municipal governance. This

will provide greater value for money in future City operations.


2.2 An Audit Report about Good Municipal Governance, Not the 400 CHS Project

This public audit

report is a product of

Council’s dedication

to increased

transparency and

accountability in

Municipal Operations.

This report examines, openly, highly sensitive issues. Its publication represents a new

plateau in the level of transparency and accountability reached by the City. The audit’s

findings and recommendations hold nothing back in criticism, where justified, of past

conduct. This should assist Council in holding itself and its administrators more

accountable. Moving on from what took place in the past, the recommendations of the

report address existing risk exposure by providing governance level recommendations

for future improvements, in order to achieve best practices.

The passage of time

and entangled,

complex events make

accountability for

what took place non-

transparent and

difficult to enforce.

It is not the role of the audit function to hold anyone accountable as such. Rather, we are

here to provide the facts and analysis to Council and Administration for review, to assist

them in holding themselves accountable, and to provide them with recommendations for

future improvement.

Completion of this audit task was difficult. Due to the passage of time, the exodus of

most of the staff that worked on the project, the complexity of the issues and many

environmental factors, there is a reduction in the practical accountability for what took

place during the period of the project. (Appendix C, Glossary of Terms, can assist in

providing greater clarity to the audit discussions of this report.)

For example, the majority of the Administrative team involved in the project that would

have participated in preparing a response to this audit report in draft form are no longer

working at the City of Windsor. Thus, the current senior level of Administration have

inherited the difficult task of responding to the complexities of the audit report with a

reliance on what has been reported, but with a limited oral history of the events that took

place.

The findings of this

review do not reflect

on the quality of this

project, which in audit

report I – was deemed

a success.

In the presentation of the report findings it was necessary to discuss by name, for

purposes of distinction of the parties, the Proponents involved in the RFP and Tender

processes as well as external Consultants and Participants in the project.

We would like to emphasize that any criticisms in this report are exclusively directed at

the decisions and activities of the City of Windsor. The story told in this report is about

the City doing things that subjected the City, its RFP Proponents and Consultants to take

unnecessary risks. The audit results in no way reflect on the quality of building obtained

or the services delivered by any of the Proponents or Consultants that participated in this

project. The building design and construction was described in our Report I of the 400

CHS review as a success.

The 400 CHS audit evaluated the two main procurement processes of the project: (1)

The Main Building Construction RFP and (2) The Main Furniture tender. Under review


were the decisions, events and actions of the City that took place between 2002 and 2005

under a different City leadership, both Council and senior Administration, than is in

place today.

The review findings of

the past are most

useful as examples of

the real story – what

can go wrong when

the City’s governance

structure is in trouble.

As the audit review progressed, it became clear that if we were to describe only the

events of the procurement processes of the 400 CHS project, without digging deeper to

examine the basic, underlying causes, we would miss the real story. While the audit

findings are, in themselves concerning, the root cause is that the City’s governance

structure at that time was not as robust as it should have been. It was significantly

fragmented, creating an environment ripe for exposing the City to needless risk and cost.

The criticisms in this report reveal that risk. Our findings and recommendations should

assist the City to improve its performance in similar large and complex procurement

projects in the future.

Using the examples of

the past, our

recommendations also

take into

consideration the

progress of the City in

strengthening its

Governance structure.

It is important to recognize that there has been significant progress at the City since

2002. The current governance structure is not what it was in 2002. However, it is still

not – and never will be – perfect. Therefore, by using the examples of the past from

which to learn important lessons, the audit can help to prevent the recurrence of

structural weaknesses in the City’s governance system. With this goal in mind, this

audit report recommends ways to improve future municipal operations and to strengthen

the City’s current governance structure.

2.3 Scope Limitations & the Conclusion of the 400 CHS Review

This is the Phase II

report on the 400

CHS Building.

What is a scope

limitation?

This audit review

has been impacted

by a number of

This document is the second report on the audit work and analysis commenced with the

draft audit prepared by the (former) City Auditor’s Office in April of 2007 entitled,

“Draft: Post-Construction Audit Report on the 400 City Hall Square East Building”.

Our review had the benefit of the substantial volume of new information (both

documents and interviews) provided by Administration to the Auditor between April of

2008 and June of 2009.

A scope limitation is anything that gets in the way of an audit being completed

effectively (i.e. timely, useful reporting) and efficiently (i.e. appropriate use of internal

audit staff time and financial resources to complete the audit.)

Of key importance to this file were the significant to severe scope limitations under

which the audit was begun. Those limitations had a severe impact on the potential

usefulness of the April 2007 draft tabled in-camera at the November 2007 meeting of the


significant scope

limitations.

Audit Committee. Overcoming those limitations also, necessarily, had a large impact on

the volume of work, and the time required, to bring the April 2007 draft to completion.

2.4 Scope Limitation Issues: The Original Report Split into Two Parts

In 2008, Audit

reviewed the

challenges of the

scope limitations

and split the report

into two parts.

The (former) City Auditor’s Office prepared a draft 400 CHS audit in April 2007, noting

the scope limitations that impacted the draft document. The result was a draft document

(April 2007), prepared under a significant scope limitation, with three main sections:

A) City of Windsor’s Process for Awarding the Contract for the Building.

B) City’s Tendering of Building Fit-Ups.

C) Project Management Methodology. (Project team performance, on time, on

budget)

Because of the need for us to release what could be completed as soon as possible, the

AGO did the necessary work, and released it, in two parts. Report I, released in

February, 2009, completed section C) of the April 2007 draft. This Report II will

complete the much expanded sections A) and B) of the April 2007 draft.

- In February of 2009, the Auditor General’s Office released Report I entitled,

“Management of the 400 CHS Construction Contract.” Pages 34 – 39 of that report

provided a discussion of the scope limitation impacts on the “C) Project

Management Methodology” part of the audit.

- The scope limitations described in this report are specific to the impact on the audit

objectives for “A) City of Windsor’s Process for Awarding the Contract for the

Building” and “B) City’s Tendering of Building Fit-Ups”.

2.5 Conclusion

There are a number of legal and public policy reasons why the April 2007 draft (a working

paper of the Auditor General’s Office) cannot and should not be released. We understand

that this is frustrating to some members of the public who may be curious about its content.

While the Auditor General’s Office is prohibited by law from releasing the April 2007 draft,


Refer to the KPMG

report, which will

provide a more

comprehensive

explanation of what

happened on this

file.

and, like the Ontario Auditor General, would not release incomplete drafts for sound policy

reasons in any event, we can assure the reader that the Auditor has taken steps to make

certain that all of the issues and concerns considered in the April 2007 draft have been

investigated in detail and with great care, and addressed within this audit report. This

report holds back nothing, censors nothing, and pulls no punches.

The earlier scope limitations on this file have been rectified through obtaining a large

volume of documents and numerous lengthy and detailed interviews. This mass of new data

required a substantial increase in audit work to verify, cross-check and analyze. Once the

audit is completed and our work with the consultants has concluded, the Auditor will be in

the position to present a full accounting to the Audit Committee of the external and internal

costs of completing this file.

- We received, literally, thousands of documents from Administration in 2008 / 2009,

which we were required to organize, review and analyze.

- Even with this large volume of data, there were a number of serious issues reported in

the April 2007 draft that could not be explained by the project documentation alone.

- To fill the important information gaps, the Auditor conducted approximately 40 hours

of information gathering and fact validating interviews, with a diverse range of

interviewees.

The City’s Audit Committee, committed to accountability, transparency and improvement

to future operations, has requested that KPMG issue a report on the audit process of the 400

CHS review. The KPMG report will expand on the topic of scope limitations, provide

additional details, and provide value added recommendations to the City towards the

improvement of the effectiveness and efficiency of future audits.


3.0 OBJECTIVES, SCOPE AND METHODOLOGY

3.1 Objectives, Scope and Methodology

Why did we

complete this

review?

The mandate of the Auditor General’s Office is to support City Council and Municipal

Administration in meeting their legislated responsibilities. This is to be done through

improving the performance of the corporation in the programs and services it delivers,

and in that way, ensuring the qualitative accountability of local government to the

taxpayers. Pursuant to this mandate, the Auditor conducted a post construction review,

to help the City to meet the high standard required for large public project procurement.

The 400 City Hall Square project was a large municipal design and construction project,

and it was funded through municipal tax dollars.

This audit report is the end-product of the post-construction audit of the 400 CHS

Project. It is intended to serve as a value-added tool that not only facilitates short term

transparency and public accountability for the project, but also, serves as a valuable long

term source of information and analysis to everyone with an interest in the project – a

group that includes City Council, the Audit Committee, City Administration and Staff,

the Public, other Municipal organizations, etc.

A post-construction audit is not intended to be a Public Inquiry under the Public

Inquiries Act; nor is it intended to be an exercise in turning up the corner of every rug, to

see if anyone has swept any dirt under it. Used as intended, a post-construction audit is

an effective tool of Corporate Governance that provides a history of what has taken

place, recognizes processes that were performed well and recognizes areas where

improvements need to be recommended.

What were the

objectives of the

review?

The audit objectives included a review of the extent to which the project approval and

procurement processes were conducted in compliance with the City’s Purchasing By-

Law, the Municipal Act, 2001 and the Common Law governing procurement by public

authorities in awarding the contracts for the building construction and fit-ups.

Additionally, the objectives included a review of the quality of the information reported

to Council for decision-making purposes for project approval and procurement

processes.

This is the final

report, bringing the

400 CHS audit to

completion.

This Phase II Report is 2 parts: Phase II-A and Phase II-B.

Phase II-A, the RFP process for the Design Build Contract.

Phase II-B, the project’s main Furniture Tender 02-04 for the building fit-ups.


How did we do the

review?

The audit involved extensive discussions with various members of current and former

City Staff, Management and City Councillors who worked on the project as well as the

gathering and close examination of numerous City documents (from reports to Council

to Committee meeting minutes to e-mails and memos).

Collaborative effort

with Auditor

General’s Office

staff, KPMG

(Forensic) and

Miller Thomson

(Legal).

Principal steps in

the audit

Our fieldwork for this report commenced on April 15, 2008 and concluded June 30,

2009. The work started where the draft dated April 2007 left off and included review

and analysis of new information received from Administration and gathered through

interviews conducted in 2008 and 2009.

The audit was a collaboration of Audit staff completing the fieldwork, analysis, review

and reporting, Miller Thomson providing legal interpretation of evidence and legal

advice, and KPMG Forensic (engaged by Miller Thomson) providing fact-gathering and

review to support the legal opinions as well as oversight of some of the audit work of the

staff of the City’s Auditor General’s Office.

This file dealt with a number of sensitive issues and as such, required the senior level

oversight of a Chief Audit Executive (CAE), a position which has been vacant since

January of 2008. Paul Ross, Senior Vice President of KPMG Forensic (Waterloo)

fulfilled the required oversight role of the CAE in order to complete the audit with an

appropriate standard of proficiency and professional care.

Due to the legal aspects of some of the 400 CHS issues, it was necessary to engage the

specialized legal skill to interpret the audit evidence of the contracting process and to

provide the Auditor with timely legal advice. The City’s internal legal department

would have been in a position of conflict of interest in reviewing its own activities and

opinions as the department was very involved in the 400 CHS project. The Auditor

filled the required legal role by engaging, Andrew Roman, a Partner in the legal firm

Miller Thomson LLP.

The principal steps undertaken in performing the audit were to review and analyze a

substantial volume of new information received from Administration. The Auditor’s

staff reviewed thousands of physical documents along with approximately 100 electronic

project files covering a time span that ranged from 2001 to 2009, including the following

data:

- 400 CHS in-camera and open session reports to Council and minutes of its

meetings.

- 400 CHS Project files, physical and electronic, that were maintained by

Corporate Projects.

- 400 CHS Project Steering Committee meeting minutes and reports.

- Relevant emails, faxes, notes, etc. from administrative staff.


The Audit staff attempted to meet with all persons with a central level of knowledge

about, or involvement on the project. We interviewed approximately 20 such

individuals (some more than once).

- Early information gathering interviews were held to collect general project

knowledge, to identify persons involved in the project and to identify additional

sources of project documentation. These interviews were conducted by the staff

of the Auditor General’s Office before KPMG was retained.

- KPMG conducted most of the remaining interviews. With the exception of a

perceived conflict of interest or an out of town interview, a staff member of the

City’s Auditor General’s Office was present during these interviews to follow

up with secondary questions and as an observer to retain general continuity for

the City.

- Other interviews requiring legal skill and legal knowledge were conducted by

Miller Thomson, with staff of the Auditor General’s Office present to follow up

with secondary questions and as an observer to retain general continuity for the

City.

- Not counting preparation time, over 40 hours of interviews were conducted,

over a period of several months.

3.2 Change to A Best Practice Reporting Format

The City of Toronto Auditor General’s Office is considered to be an Internal Auditing

leader, whose works exemplify best practices. Our Audit reporting has changed and is

now based on the best practice reporting format of the City of Toronto Auditor General’s

Office.

3.3 Role of Administration in the Completion of the Review

Acknowledgment of

the level of

cooperation,

participation and

support of

The Auditor would like to acknowledge the high level of cooperation, participation and

support received during the fieldwork and analysis stage of this review from the past and

present members of Administration, City Council and external consultants who worked

on the project.


Administration that

facilitated the

conclusion of this

audit.

The Auditor would also like to acknowledge the high level of support received from the

senior administrative team who worked with us during the reporting stage, and who

responded to the audit report through Management Comments. The senior

administrative team was led by John Skorobohacz, then-Chief Administrative Officer

and Helga Reidel, then-General Manager of Corporate Services and current Chief

Administrative Officer.

- The review was brought to completion by providing Administration the opportunity

to review the report in draft form in its entirety, with a request to communicate any

identified issues of fact or error.

- Additionally, senior Administration was requested to respond to the audit report

recommendations. The responses of Administration have been attached as

submitted in the Executive Summary of Recommendations & Management

Comments, as were submitted by Administration. This response by Administration

is an essential precondition to the completion of any municipal internal audit

process.

3.4 Engaging KPMG to Assist the Audit Function

Given the timing,

risk and privacy

issues associated

with this review, we

view the decision to

engage KPMG was

both responsible

and appropriate.

KPMG Forensic (based in Waterloo), a branch of the City’s external auditor KPMG

(based in Windsor), was engaged to serve in an assurance and oversight capacity on this

audit file.

Audit standards require that if the external service provider is also the organization’s

external auditor and the nature of the engagement is extended audit services, then the

Auditor General’s Office needs to ascertain that work performed does not impair the

external auditor’s independence5.

The justification for the decision to permit Miller Thomson to retain KPMG for the

internal audit work was based on the legal necessity to protect the privacy of the file and

to reduce the cost and time required to complete the remaining work on the file. KPMG

had been in regular attendance at the City’s Audit Committee meetings and as such, was

familiar with the preliminary issues of the file and the ongoing scope challenges of the

audit function.

We did not identify any issues of impairment to KPMG’s independence and, given the

timing, risk and privacy issues associated with this review, our decision to permit Miller

Thomson to retain KPMG was both responsible (cost-effective) and appropriate.

5 International Professional Practices Framework (IPPF) Practice Advisory 1210.A1-1


4.0 THE PROJECT BUSINESS CASE

4.1 Expanding on the Report I Recommendation, for the Implementation of a

Project Management Methodology

Report I, entitled “Post Construction Audit Report on the 400 City Hall Square East

Building” 6, concluded with a central recommendation regarding project management:

“That the City of Windsor establish an adequate and effective project

management methodology that provides standard methods and guidelines to

ensure that projects are conducted in a disciplined, well-managed and

consistent manner and; to promote the delivery of a quality project that will be

completed on time, within budget and in accordance with the project

specifications.”

In Report, Part I, the Auditor General’s Office addressed the impact of this control

weakness on the Project Management Team’s performance for the project and the lack

of specific and measurable project objectives, which imposed limitations on our ability

to measure that performance.

In this report the Auditor General’s Office will address another important aspect of an

adequate project methodology that was missing in this project, and which led to many

problems in the procurement activities for the 400 CHS project: The absence of a

comprehensive business case (or its equivalent under another heading) with a defined,

critical review of the prospective financial and environmental impacts, risks of, or

alternatives to the project.

6 Released February 2009, “Post Construction Audit Report on the 400 City Hall Square East Building”. To obtain a copy,

call 311 or follow this web link: http://www.Citywindsor.ca/DisplayAttach.asp?AttachID=13246


4.2 Project Approval Requirement Issues – The Essential Business Case

The project was

approved before the

project was planned,

and a business case

was never

presented.

Finding 1.

A best practice of project management7 is that a successful project starts with a solid

business case, one that justifies informed, high level support that later, everyone else can

also see reason to support. We did not find evidence of a comprehensive business case,

or its equivalent under another heading, being presented to Council for informed

decision-making purposes for this project. The decision to proceed does not appear to

have been based on a defined, critical review of the prospective financial and

environmental impacts, risks of, or alternatives to the project.

What is a business

case?

Why is a business

case important?

Why and How did

this happen?

A business case is a comprehensive analysis (in this case to be assembled by

Administration) that tests the feasibility of a project’s success. A business case usually

includes factors such as a mission statement, project summary, critical success factors,

impacts, alternatives, expected outcomes, basic market analysis, risk analysis and a

preliminary analysis of costs and revenues.

A well-developed business case is a useful tool for Council in deciding whether to

proceed with a large and costly project. There should be strong support for a

recommendation that the project is worthy of the expenditure. The business case should

contain sufficient financial and management analysis to satisfy Council that the project

is more likely than not to meet the identified goals.

Once Council approves the project to proceed, the business case becomes a tool for

continued project management. By Clearly defining Council’s expectations, the

business case becomes a means of communicating the project goals and objectives to

everyone involved in its implementation. In that way it becomes a project effectiveness

and efficiency measure that can be used for assessing project performance from start to

finish.

The cart was put before the horse when the project was approved before the project was

planned. As is to be expected, initially, Council was approached with a request to

approve an “idea”, and from that point, the project evolved into a “reality”. Between the

“idea” and the “reality” phases, the critical steps taken towards project planning and

implementation were weak, perhaps because a strong business case was never created.

7 Sources: Eight Key Factors to Ensuring Project Success; and Avoiding the Project Management Obstacle Course. Author

Duncan Haughey, a certified PMP and PRINCE2 Practitioner, is the editor of Project Smart, the project management

resource that helps managers at all levels to improve their performance: http://www.projectsmart.co.uk/whitepapers.html


Why should the City

be concerned?

Conducting the business of large project management without a good methodology --

and good controls in place to ensure the methodology is working -- puts City projects at

risk of being managed ad-hoc. Managing large procurement projects in this type of

unplanned, reactive environment, is almost certain to lead to problems that may be

avoided with a detailed business plan.

The 400 CHS project is not short of examples as to what can go wrong:

- The 400 CHS project environment was one of evolving Council expectations

and widespread confusion as to what the project deliverables were.

- Throughout the project, Administration is noted as asking itself the question,

“What are we supposed to deliver?”

- The expected outcomes of the project were so poorly defined that today, after

Audit has studied the entire body of project documentation, the project goals,

objectives and deliverables are still somewhat vague.

- Project performance measurement is, therefore, indeterminate. The final project

outcome cannot be specifically measured because the project specifications and

expectations were never clearly defined.

- The legal concerns that occurred during the 400 CHS project, as outlined in the

legal memorandum attached to this report, could have been avoided. (See

Appendix A for the legal memorandum)

4.3 Council’s Good Governance Actions Helped to Mitigate Project Risk

Council’s good

governance actions

mitigated some of

the risk on the

project.

After the project was approved on the merits of the “idea”, Council practiced good

governance by setting the stage for future reporting requirements. As a result, Council

can be credited for mitigating some of the initial risk associated with proceeding with the

project without a business case.

- Council, in considering the merits of the 400 CHS project at an in-camera meeting

held on or about June 25, 2001, approved the project in principle and directed

Administration to submit a comprehensive report with a business plan for the

project, outlining any capital funding requirements, decreases in existing annual

operating expenses, sources of revenue and projected annual expenses related to the

proposal. (M103-2001)


Council continued this good governance practice by keeping the focus on reporting

requirements as the project progressed:

- IQ8 41-2001 November 5, 2001 Council meeting - “Requests that a future report

dealing with the proposed building for the consolidation of Income Support Services

Program… include an analysis of ownership versus lease options along with a

detailed analysis of all expenses and revenues including identified savings

associated with the consolidation of the municipal Social Services function.”

- CQ 75-2002 (C) March 4, 2002 Council meeting – “Asks for a cost benefit analysis

regarding the consolidation of the Social Services Department based on the square

footage of the proposed development adjacent to City Hall compared to the square

footage of existing Social Services facilities, with the evaluation to include existing

operating costs as well as projected leasing costs in the new headquarters.”

We did not find

evidence that the

questions of Council

were ever

adequately

addressed by

Administration.

In keeping with best practices and good governance, the initial direction provided by

Council was for Administration to submit a comprehensive report with a business plan

for the project – a project business case. After that direction, Council, on two further

occasions, asked Administration to report on various financial components of what

would be included as part of an adequate business case.

As the project progressed from Council approval to the process for the formation of the

main design-build construction contract, some important elements of a business case

were recorded within a number of project reports to Council, and peripherally in the RFP

documents. However, even considered collectively, these diverse sources of information

do not form what would be considered a solid and clear business case for the project.9

As a result, the direction and questions of Council were never adequately addressed by

Administration.

8 IQ or CQ means an in-camera or open-session Council question.

9 For a detailed analysis of the impact of this issue and specifics of the adequacy of project planning, refer to section 5 of this

report: “The RFP Process and the Award of the Main Construction Contract.”


4.4 Conclusion:

Projects are a daily fact of life for the City of Windsor; So much so that the business

practice is ongoing rather than intermittent. The City has many municipal projects

underway at any given time, and even while these projects are ongoing, the City is

continuously planning for more.

In our audit discussions, Administration confirmed our observation that Administration

takes project management and the successful delivery of projects very seriously. The

overriding concern is not a question of the dedication, commitment or skill of

Administration, but that, for most staff, large and/or complex Project Management is not

the principal role of Administration.

As noted in the Part I report, Phase I of a best practice project management methodology

requires a solid business plan to serve as the foundation for the project. The City does

not currently have a project management methodology in place that makes this a

requirement. Further, as occurred on the 400 CHS project, while working large scale

City projects, Administration may be required to maintain both the high level of Project

Management performance and their regular assigned duties. This situation sets a

difficult standard for any project lead to maintain.

Project Management is a profession.10

Without this type of professional expertise

assigned to work on large or complex projects, and without the appropriate policies,

procedures and other resources in place, the role of Administration in managing large

and/or complex projects would be challenging and the project environment one of high

risk. In today’s project environment, until such time as the City establishes an adequate

project management methodology, at least for major projects, the City’s project

management process will remain one of “high risk”, and beset by preventable problems.

Within Report I and Report II of the 400 CHS audit we have made a number of

recommendations for the improvement of the City’s project management policies and

practices. We suggest that Administration consider using a Project Management

Professional (whether internal or external) experienced in large and complex projects, to

assist in developing an improved project management methodology.

10

A Project Management Professional is defined as a person or firm certified in the requisite knowledge, skills and other

competencies of project management. This definition is in recognition of Project Management as a profession, which has

various designations founded upon specialized educational training in the discipline of planning, organizing, and managing

resources to bring about the successful completion of specific project goals. There are a number of project management

certifications: PMP, CAPM, PgMP, MPM, PMI-RMP, PMI-SP, GSC, PRINCE2, AIPM, etc. Many Universities offer

masters certificates in project management, graduate degrees, etc.


5.0 THE APPROVAL & PROCUREMENT PROCESS FOR

THE 400 CHS, MAIN CONSTRUCTION CONTRACT

5.1 Report Objective

The City’s

Purchasing By-Law

makes it clear: the

City has the legal

responsibility to

conduct

procurement

processes fairly,

honestly, ethically

and with integrity.

The report objective.

The City’s Purchasing By-Law sets an appropriately high ethical tone by including the

requirement to conduct procurement processes lawfully and fairly with a high degree of

honesty, ethics and integrity.

Section 9 of Purchasing By-Law 400-2004 requires:11

(1) “Open and Honest Dealings With Everyone Who is Involved in the

Purchasing Process.”

(2) “Fair and Impartial Award Recommendations for All Contracts and

Tenders,” without extending “preferential treatment to any vendor, including

local companies.”

(3) “An Irreproachable Standard of Personal Integrity on the Part of All Those

Designated as Purchasing Agents...”

The objectives of this section of the audit report were (i) to review whether the project

approval and procurement processes were conducted in compliance with the City’s

Purchasing By-Law, the Municipal Act, 2001 and the Common Law governing

procurement by public authorities; and (ii) to review the information reported to Council

for its decision-making purposes for project approval and procurement processes for the

contracts for the building design and construction.

To minimize overlap and duplication of effort;

- The legal memorandum (appendix A) addresses the degree of legal compliance in

the RFP approval and procurement process.

- The audit review addresses the quality of the information presented to Council for its

decision making purposes for the award of the 400 CHS design/build contract.

11

During the time period under discussion in this section, Purchasing By-Law 9-2000 was in effect. This requirement was

not specifically stated in By-Law 9-2000, however the By-Law did embody the spirit of honesty, fairness, and a high ethical

standard of integrity that is more clearly defined in the amended Purchasing By-Law, Section 9 of By-Law 400-2004.


5.2 Summary of the Timeline for the Award of the Design / Build Contract

Selection for the

design-build

contract was a 4-

phase process.

There was ongoing

confusion and

continuous

misapplication of

the City’s By-Laws

and policies

throughout the RFP

evaluation and

selection process.

Background:

The timeline to select a company to design and build the 400 City Hall Square East

building was made up of 4 phases,

(1) August 2001- Expression of Interest (EOI),

(2) December 2001 – Design-build RFP Stage 1, and

(3) March 2002 – Design-build RFP Stage 2 Assessment Matrix

(4) July – September 2002 – Selection occurs based on “Price”

While the timeline may appear to reflect a standard RFP procurement process, what took

place during that time was not standard. Starting with the establishment of the RFP

Evaluation Committee and throughout the remainder of the process, there was ongoing

confusion and continual misapplication of the City’s By-Laws and policies.

Following the timeline, these examples help to explain the areas of confusion and

misapplication:

The RFP Evaluation Committee was not clearly defined within the documented

resolution of Council that created the committee. It was unclear whether the

Committee established by Council was a formal “Council Committee”

(governed under Procedural By-Law 420-2001) or other ad-hoc “Committee”.

Through the continuous misapplication of By-Laws and policy, the City (at

times Council, at times Administration, at times both) demonstrated a limited

understanding of,

o The purpose of the Purchasing By-Law and its required application to

the RFP,

o The difference between an RFP and a Tender,

o The principles of a “Design / Build” process, and

o Financial principles such as “Price”, “Cost”, “Value for Money”, the

appropriateness of its financial and risk analysis, etc.

Our discussion to follow addresses what resulted from this confusion: a complex system

of continuous errors that exposed the City to a high degree of risk.

What is an EOI or an RFP?

Phase 1:

The Expression of

Interest (EOI)

A call for Expressions of Interest was issued by the City on or about August 2, 2001

requesting responses for a building with a minimum of 141,500 square feet. Expressions

of Interest were received from 15 potentially interested suppliers.


What is an EOI?

An “Expression of Interest” is a response to an invitation by the City to potentially

interested suppliers of goods or services to express interest in being considered as a

potential supplier in a future RFP or other, more detailed process to procure certain

goods or services as required by the City.

Phases 2 & 3:

The RFP

What is an RFP?

What is a Compliant

Proposal?

Stage 1 RFP

The City followed its Request for Expression of Interest with a two (2) stage Request for

Proposal (RFP).

A “Request for Proposal” is used rather than a Tender where a need is identified, but the

method by which it will be achieved is unknown or flexible at the outset. This process

allows vendors to propose solutions or methods to arrive at the desired result. It is the

solicitation of written, competitive proposals, to be used as a basis for entering into a

contract when detailed specifications and price will not necessarily be the predominant

criterion.

“Compliant Proposal” means a competitive offer, binding on the proponent and

submitted in response to and substantially compliant with the City’s Request for

Proposal. The proponent of a non-compliant proposal should not be considered for

further steps in the RFP process. The City evaluates and compares all compliant

proposals to determine which proponent should be awarded the contract. Proposal

evaluation uses criteria such as, but not limited to: proponent qualifications and

experience, product or service features and characteristics, service quality and efficiency

and cost (both the price at time of purchase and the post-purchase) operation and

maintenance costs. Price is normally one of the City’s criteria but will not necessarily be

the predominant one because the quality and suitability of the ideas proposed will also

be critically important. Unlike tenders, Proposals will not have public openings.

In December 2001, the City issued the Stage 1 Design / Build RFP to the prospective

vendors that responded to the EOI. On or about January 14, 2002, Council adopted an

in-camera resolution to appoint three Councillors to a working committee with members

of Administration (from this point on referred to as the RFP Evaluation Committee) to

review the proposals received and to develop a short list of the proponents.

In their responses to the Stage 1 RFP, the proponents were required to provide the details

of their qualifications related to this project. The RFP Stage 1 submissions detailing the

proponents’ qualifications were reviewed by the RFP Evaluation Committee. Only six

proponents were invited to participate further.


Stage 2 RFP and

Assessment Matrix

What is an

“Assessment

Matrix”?

City turned away

from the Purchasing

By-Law process.

Of the six proponents invited to participate in Stage 2, only four submitted proposals.

These Stage 2 submissions were subjected to an evaluation process whereby the RFP

Evaluation Committee reviewed the Proposals against pre-established criteria and

reached consensus on the final rating. The results of this evaluation process were

recorded in an “Assessment Matrix”.

The Assessment Matrix provided 10 different categories for measuring the proposals and

assigned points to each category (with 5 points being the most appropriate to the City’s

requirements) and gave each category a weighting factor (with a factor of 3 being the

most critical to the project).

This is normally where the RFP process ends as the assessment matrix results are

determinate of the outcome of the Award of the Contract. What happened instead was

that the City turned away from the RFP Evaluation Matrix results process of the

Purchasing By-Law, in favour of something else – Price.

Phase 4

Price

Upon completion of the Stage 2 Evaluation Matrix, the RFP evaluation results were

presented to Council on or around May 17, 2002 (preliminary results) and again on or

around July 18, 2002 in an in-camera report. The in-camera report, prepared by

Administration, set out the results of the RFP Assessment Matrix and provided a

financial analysis of the proposals based on price.

The in-camera report dated July 18, 2002 contained a request of the RFP Evaluation

Committee for Council’s approval to “negotiate” with the highest ranking proponents in

both the incorrectly named “technical review” (RFP Evaluation Matrix, which already

included price as one factor) and the newly created “financial review” (Price Financial

Analysis), which had not until then been part of the RFP process. This negotiation with

two parties instead of the one winner of the RFP process was presented as being to

obtain a “best deal” for the City.

5.3 Phase 1 – 3 Discussion & Report Findings

Detailed report

discussion.

The legal issues arising from this change in the procurement process for the RFP Award,

including the questions of “Bid Shopping” and the use of new and previously

undisclosed criteria to determine the Award, are summarized in the following discussion

and in detail in Appendix A.

The legal memorandum addressed the first part of the audit objective for this section,

which was to include a review of whether the project approval and procurement

processes were conducted in compliance with the City’s Purchasing By-Law, the

Municipal Act, 2001 and the common law governing procurement by public authorities.


5.3.1 Legal Conclusions of the Project Approval and Procurement Process

for the Award of the Main Construction Contract

Appendix A is an

external legal

review of the RFP

procurement

process.

There were

numerous legal

issues and legal

errors made during

the procurement and

approval process for

the Award of the

main construction

contract.

So as to preserve the

integrity of the legal

information of

Appendix A, the

written text of the

legal memorandum

copied into this

report was

unaltered.

The Auditor General’s Office asked Andrew Roman, a Partner at the Miller Thomson

LLP law firm, to review the practices used by the City – both staff and Council members

– beginning with the issuance of the first RFP through to the selection of the proponent

to design and construct the 400 Building. The legal review resulted in a legal

memorandum, attached, unedited, as Appendix A to this report.

The Central Conclusion of the Legal Review

The central conclusion of the legal review was that certain practices used by the City –

both staff and Council members – beginning with the issuance of the EOI through to the

award of the contract to the selected proponent were unfair and were in contravention of

the laws that govern the City of Windsor.

Of importance to note is that there were many issues that led to this conclusion. The

three related, but different sets of issues that are considered in detail in the legal

memorandum are:

I. The Relationship Between Council Members And The City Staff In The RFP

Proponent Evaluation Process

II. The Legal Requirement For The Fair Treatment Of Proponents In An RFP Or

Bidding Process

III. The Requirements Of The City’s Purchasing By-Laws

Additionally, the legal memorandum provides a number of recommendations to support

City Council and Municipal Administration in meeting their legislated responsibilities.

These recommendations are intended to improve the performance of the corporation in

future procurement processes; the overall governance structure of the City in obtaining

unobstructed legal advice; and in ensuring the transparency and accountability of local

government to the taxpayers.

Rather than to duplicate effort to say the same thing, and more importantly, to avoid

running the risk of altering the intent of the legal advice provided, Mr. Roman’s legal

memorandum has been attached to this report in its entirety. The following index will

assist in following the legal findings through the Appendix A discussion.


12

The CAO has already taken steps to address this legal finding, as reflected in the City’s new organization structure.

Legal Conclusion 1:

Awareness &

Understanding of

the Law

Appendix A, p. 3

Index Summary of the Legal Findings of the RFP Review

Heading Pages

The Relationship Between Individual Council Members And The City Staff

In The RFP Proponent Evaluation Process.

5-6

Council, not Individual Council Members, Are “The Boss” 6-8

Should Individual Council Members Be Excluded from All Procurement? 8-9

Obtaining Timely, Independent Legal Advice for Procurement Processes 9-14

Legal Conclusion 2:

Access to timely,

independent legal

advice was impeded 12

Appendix A, pp. 3-4

The Legal Requirement For The Fair Treatment Of Proponents In An RFP

Or Bidding Process.

14-15

Does The City Have Legal Obligations as a Result of Issuing the RFP and

Receiving Proposals?

15-17

Did the City’s RFP Process Create Contract A, the “Bidding Contract”? 17-18

Were the Proposals of Either EllisDon or Vindella Compliant so as to

Create the “Bidding Contract” Between the City and One or Both of These

Proponents?

18-21

Given the Nature of the RFP, What Are the Obligations of the City? 21-23

Assuming Vindella’s Proposal Was Compliant, Was EllisDon Treated

Fairly in the Evaluation?

23-26

What is the Exposure of a Party Like the City Upon Breach of its

Obligations Under the “Bidding Contract”?

26-28

How Might the City Minimize its Exposure on Future RFP’s? 28-30

Legal Conclusion 3

& 4:

Non-compliance to

the Purchasing By-

Law & the Legal

exposure that

resulted.

Appendix A pp. 4-5

The Requirements Of The Purchasing By-Laws 30

By-Law 9-2000 30-31

By-Law 400-2004 31-34

STOP The legal memorandum is required reading before continuing with this report. For full

comprehension of the legal issues of the review and to gain background for the report sections to

follow, please read Appendix A.


Toronto

To: Angela Berry

From: Andrew J. Roman

416-595-8604

Date: November 3, 2009

Subject: Legal Review of RFP and Contracting Practices Used by the City of Windsor in

Designing and Constructing the 400 Building

OVERVIEW:

The City of Windsor has asked Miller Thomson LLP to review the practices used by the City –

both staff and Council members – beginning with the issuance of the first RFP through to the

selection of the proponent contracted to design and construct the 400 Building. In preparing this

memorandum, we have had the opportunity to review various City staff correspondence, reports,

notes, file excerpts and other documentation extracted mainly from over 1300 pages of

documents, including:

City of Windsor By-Law Number 9-2000, A By-Law to Establish Purchasing and Materials

Management Policies and Procedures (passed and effective January 4, 2000)

City of Windsor Purchasing By-Law Number 400-2004 (passed and effective December 13,

2004)

City of Windsor By-Law Number 420-2001, A By-Law to Provide Rules Governing the

Proceedings of the Council of the City of Windsor and the Conduct of its Members (passed

November 19, 2001 and effective January 1, 2002) and subsequent amendments

December 2001 Design-Build Request for Proposal Stage 1 New Office Building and Parking

March 2002 Design-Build Request for Proposal Stage 2 New Office Building and Parking

RFP Stage 1 proponent submissions

RFP Stage 2 proponent submissions

Questions to proponents

Answers from proponents

Specific in-camera and public council reports, resolutions and motions


MILLER THOMSON LLP - 2 -

Although we have had one short meeting with the City Solicitor and an interview with the City

Solicitor and the City Clerk1, we have not interviewed any other City staff or the City Council

members who were involved in working on the project at one time or another. Rather, for the

sake of cost efficiency and the avoidance of duplication, we have relied upon the interviews

conducted mainly by the assigned KPMG consultants2.

During the course of our review, while examining the narrow and specific issues related to the

RFP and the proponent selection process, it became clear to us that there were certain related,

very basic legal issues that were either poorly understood by everyone or misunderstood entirely.

Such misunderstanding is common among municipalities in Canada. As well, because this arises

in a specialized and evolving area of law, many lawyers may be unaware of these issues.

Accordingly, to assist in a proper understanding of the specific issues it became necessary for us

to outline the more basic legal background so that our observations on the narrower issues

become more readily comprehensible.

Our earlier drafts of this Memorandum were considerably longer due to the use of numerous,

detailed footnotes setting out the support for various statements and opinions. Most of these

have been removed from this final version to reduce its length and make it easier to read.

However, there is extensive documentary and interview support for all of the statements of fact

or the reported opinions and statements of others, in a separate table (confidential working paper)

from the Office of the Auditor-General. We are grateful to Florence Lee-St. Amour of the

Auditor-General’s Office for having prepared this table.

The three related, but different sets of issues that are considered in detail in this memorandum

are:

I. The Relationship Between Council Members And The City Staff In The RFP

Proponent Evaluation Process

II. The Legal Requirement For The Fair Treatment Of Proponents In An RFP Or

Bidding Process

III. The Requirements Of The City’s Purchasing By-Laws

1 The City Solicitor (formerly the Director of the Legal Division- 2002) and the City Clerk were interviewed by

Andrew Roman and Angela Berry on September 12, 2008. 2 Some of the interviews were conducted by City staff before KPMG was retained. KPMG conducted most of

the interviews after they were retained, and a member of the City’s Auditor General staff was present during

most of the KPMG interviews mainly as an observer, to obtain some general continuity for the City, through

memory and notes of the interviews.



CONCLUSIONS:

1. Although we found no evidence of intentional wrongdoing, Council members and

some senior staff members demonstrated a lack of awareness and understanding of some of the

most basic principles of the laws governing the City, including that:

(a) individual Council members do not have the powers of Council itself unless

specifically and validly delegated to them by a Council resolution or By-Law;

(b) neither one, nor more than one Council member appointed to an ad hoc

procurement committee has the authority to over-ride City staff members of the

same committee, or to treat them as merely advisory, unless Council by resolution

or By-Law has given them that power (which was not done with the 400

Building);

(c) once a power has been delegated by By-Law (e.g. a purchasing By-Law

delegating all purchasing power to specific staff manager positions) Council

cannot simply ignore its own By-Law and do whatever it pleases, but must

comply with its By-Law, unless and until it validly amends the By-Law or creates

an exemption from it in another By-Law;

(d) when an RFP is structured as it was for the 400 Building, the submission of

compliant proposals by proponents creates what the Supreme Court of Canada has

defined as the “bidding contract” (“Contract A”) between the City and each

compliant proponent, giving the City legally binding contractual obligations to

each compliant proponent, including obligations (i) to treat each compliant

proponent fairly and evenly and (ii) not to award the ultimate contract (the

project) to a proponent whose proposal was non-compliant;

(e) the City breached this “bidding contract” where, after the closing deadline, it

allowed Vindella, a proponent which had submitted a non-compliant proposal that

should have caused it to be eliminated from further participation, to amend that

proposal, when there was no language in the RFP which gave the City such a

right; and

(f) the City breached the “bidding contract” for the 400 Building by allowing

(actually, inviting) Vindella to amend its non-compliant proposal, thereby

exposing the City to a claim for the reasonable overhead and profit that EllisDon

would have earned from carrying out the project.

2. The City Solicitor was impeded from carrying out the legal duties of his senior

legal position, as required by the Rules of Professional Conduct of the Law Society of Upper



Canada3, by:

(a) the literal wording of the City’s Procedural By-Law4;

(b) the structural insulation of the Mayor and Council from timely and unfiltered (by

the City Solicitor’s superiors) legal advice; and

(c) the attitude that “we will seek your legal advice when we want it” rather than “be

proactive and exercise your best judgment to help us to avoid going offside

legally”.

These legal, structural and attitudinal impediments have placed Windsor’s City Solicitor in an

untenable conflict situation5, and, more importantly, prevented the City, during the 400 Building

RFP process and the building’s construction, from receiving the benefit of the timely and

independent legal advice that all corporations need. This is risky conduct rendering the City

liable to costly law suits. Large public companies would find such a situation unacceptable. We

can see no reason why municipal corporations should structure themselves to receive a lower

standard of legal protection than their private sector counterparts.

3. The Vindella proposal was non-compliant and should have been rejected

immediately, rather than selected for negotiations at the same time as EllisDon, whose proposal

was compliant. Nor was it fair for the City to allow (and even to assist) Vindella to amend its

proposal after the deadline for submitting a compliant proposal had passed.

4. Correspondence between the City and EllisDon demonstrates that EllisDon was

aware of its legal rights. The City is fortunate not to have been sued by EllisDon when it was

passed over in favour of Vindella. Such legal proceedings would have imposed significant costs

on the City in terms of legal expenses and potential damage claims, not to mention the political

and reputational cost to the City. Had EllisDon sued the City (before the limitations period had

expired), it is possible that the three Council members on the RFP working committee, who

acted without written Council authority in over-riding the staff and assisting Vindella over their

objections, may have been named as individual defendants. That is why Council members

should be aware that they may be taking personal risks when they engage in legally unauthorized

conduct causing damage to RFP proponents or tender bidders. The naming of Council members

as individual defendants may have placed the City in a position of continuous, ongoing legal

conflict of interest with the three Council members, in that the City (or its insurers) would have

had to raise a defence to an EllisDon lawsuit that would have been antagonistic to the defences6

3 The Law Society of Upper Canada is the body that licenses all of the lawyers practising law in Ontario, and

regulates them through its Rules of Professional Conduct. The Law Society is as much a creature of Provincial

Statute as is the City of Windsor. The Rules of the Law Society have as much the force of law as do the By-

Laws of the City. 4 Sections 23.2, 24.1 and 24.2 of By-Law Number 420-2001.

5 Such a conflict is present when obedience to one law may require disobedience to the other.

6 If sued personally, the three Council members’ defences would have been that (a) they were at all times acting



of the three Council members.

ANALYSIS:

I. THE RELATIONSHIP BETWEEN INDIVIDUAL COUNCIL MEMBERS AND

THE CITY STAFF IN THE RFP PROPONENT EVALUATION PROCESS:

Broadly speaking, under the Municipal Act, 2001 (hereafter sometimes referred to as the “Act”),

it is the role of Council to make policy and the role of the Administration to implement that

policy. That is no less true in procurement than in other areas of municipal activity.

There was considerable confusion and inconsistency on the part of both Council members and

City staff, from the very beginning of the 400 Building project, about the respective roles of the

Council members and the administration members on the committee appointed to oversee the

RFP process. There was similar confusion and inconsistency about the very nature of this

committee: was it a subcommittee of Council assisted by administrative staff under the Act, or

was it an administration committee under the City’s Purchasing By-Law, supplemented by the

appointment of three Council members7?

The documentation shows that the Mayor’s Office issued an information release to the public

(released on March 7, 2002) stating:

“City Council oversees this project through a subcommittee of three City Councillors (Coun.

Carlesimo, Coun. Hotham, and Coun. Valentinis) assisted by staff from City administration.”

Despite this information release, these documents are sketchy at best, and there is no record we

have seen of any subcommittee of Council actually having been created by a Council resolution.

Nor is it clear why the staff are shown as merely assisting a subcommittee of Council rather than

being at least equal members of an RFP evaluation committee created under the then-applicable

Purchasing By-Law.

Going the other way, and contradicting the information release from the Mayor’s Office, an In-

Camera Council Report states,

“A review committee composed of three members of Council and members of administration was

struck to evaluate the proposals.”

in their capacities as members of Council, and therefore, (b) that no civil action lay against them personally,

only against the City, and that (c) the City would be liable for their actions. The City (or its insurers) would

have responded that (a) there was nothing in any By-Law or Resolution that allowed these persons to give local

suppliers preference, to over-ride City staff in their procurement functions, or to treat EllisDon unfairly, and

indeed, (b) such actions were expressly prohibited in the applicable purchasing By-Law, so that (c) the City did

not authorize and is not liable for the unlawful conduct of these Council members, but rather, (d) they

themselves were liable. This conflict may have required the resignations of the three Council members until the

legal conflict was resolved by the trial or settlement of the law suit. 7 Former Councillor Peter Carlesimo, former Councillor Charlie Hotham and Councillor Fulvio Valentinis.



This is internally inconsistent with another part of the very same report, which states, on the very

next page

“Members of Council on the review committee directed administration…”.

The documents we have seen show no legal basis for ordinary, individual Council members to be

directing administration on a procurement matter.

To continue the confusion, two months later, a September 4, 2002 Council report for the

September 11, 2002 Council meeting stated:

“This working committee of Councillors was supported by administration serving in the role of

advisors…

and it went on to say:

“At the request of the City Councillors on the working committee six proponents were short listed

to proceed to stage two of the R.F.P.”

and to say:

“The administrative staff supporting the working committee evaluated the proposals based upon

an “assessment matrix”…

The working committee of councillors upon reviewing other evaluation considerations decided to

recommend continuation of all 4 proposals.”

The “other evaluation considerations” are not specified. This use of other considerations is

inconsistent with the principle of transparency and prevents auditing of what new and previously

unannounced considerations went into the evaluation and ranking of the responses to the RFP.

For the reasons discussed in detail below, considerations outside of the publicly announced

evaluation matrix should not have been used once the City had represented to the prospective

proponents that their proposals, if submitted, would be reviewed in accordance with the matrix.

Or, if the City found the matrix to have been seriously defective in some way, it should either

have allowed all proponents the same full and fair opportunity to revise their proposals for a new

matrix, or started the entire RFP process again.

It was reported by the majority of the City staff responding to interviews, and is also evident in

the written documents quoted above, that some of the Council members on the committee which

oversaw the procurement process for the 400 Building (hereafter referred to for simplicity as the

“Committee”) saw themselves as the decision-makers and the staff members as merely advisory

to them. We have been unable to determine any legal basis for this view, and consider it to have

been a misconception. This is an important misconception, as it may well have affected the

selection of the proponent given the contract to design and build the 400 Building.

Council, not Individual Council Members, Are “The Boss”

There is no doubt that in law, Council has the exclusive legislative role in the City. Only

Council can enact municipal By-Laws, subject to the limits imposed by the applicable municipal



legislation. However, individual members of Council do not have all the powers of Council

itself. Outside of their positions as Council members, individual members of Council have only

the power to represent the members of their respective wards in the affairs of the City, and in

particular, at meetings of Council and of Committees of Council. Thus, although Council is at

the apex of the municipal hierarchy, ordinary Council members are not. Indeed, they have no

special powers unless those powers are delegated – and validly delegated– to them by Council.

Section 23.1 (1) of the Municipal Act, 2001 authorizes a municipality to “delegate its powers and

duties .. to a person or body …”. Subsection (2) of that section sets out the rules for such

delegation. Rule 6 states that where a power is delegated, the power is deemed to be delegated,

subject to any limits delegated, e.g., as to conditions, approvals and appeals. One effect of this

subsection is that the same power cannot be delegated twice to different persons, unless the first

delegation is revoked, the power brought back into Council, and then delegated to someone else.

This becomes important when we review, below, the powers delegated by the two purchasing

By-Laws which delegate no powers to Councillors, either individually or as a committee.

The ordinary work of procurement for the City is carried out by City staff, not by Council, or by

Council members. It is doubtful that this kind of activity could ever, practically, be taken over

by Council, either in general or for a specific project. In large and complex procurement projects

conducted via an RFP such as this one, it might have been useful to have appointed a lawyer to

the Committee early on.

The Council resolution appointing the particular Council members to the Committee did not

purport to delegate to them any special powers of Council itself8. The language of the resolution

does not indicate that this is an appointment of a subcommittee of Council, but rather, of an

ordinary committee comprised of the three Councillors and certain unspecified members of the

administration. Council did not authorize any hierarchy within this working committee, nor did

it give any authority for the Committee to do anything outside of the regular RFP processes of

the Purchasing By-Law.

The two purchasing By-Laws (discussed below) placed the authority for the procurement

function squarely within the City staff. These By-Laws were not amended or waived by

resolution for the 400 Building. Therefore, in law, the members of the Committee who were

Councillors were merely ordinary members of an ad hoc Committee (which was probably not

even formally a committee of Council), and were not delegated any special legal powers or given

hierarchical elevation above the other Committee members who were members of the City staff.

Although this was the legal reality, it may not have been the practical reality.

The Council members of the Committee acted as if they had the exclusive power to make all of

the decisions while the other members of the Committee were merely there to advise them,

8 P. 182, January 14, 2002 In-Camera Council Motion M2-2002 item 5:

“That Councillors Hotham, Carlesimo and Valentinis BE APPOINTED to a working committee with members

of the administration for the purpose of undertaking a review and developing a short list of the RFP proponents

for the New Office Building at the former Police Headquarters.”



which advice could be accepted or rejected. In effect, these Council members took over for

themselves the procurement process normally conducted by staff, without any evident legal

basis. Council had already legally delegated the procurement function, in considerable detail, to

various staff managers, in the purchasing By-Law. The By-Law was not amended to create an

exception for the 400 Building, although that would have been the proper way to treat it if

Council had wanted to make this project an exception. Again, as a practical matter, individual

staff members reported in interviews that they had been intimidated by the presence of these

Council members, who behaved as, and were incorrectly seen as, “the bosses”. We are not

suggesting that these individual Council members said or did anything intentionally to intimidate

the City staff. Rather, the assumption that Council members were a higher authority was a

common misconception, shared by several members of the Committee, including two of the

Councillors. To put this into perspective, it is a common misconception among municipalities,

and by no means confined to Windsor, that because Council is at the apex of the municipal

pyramid, individual Council members have the same authority.

There is evidence that some individual members of the City staff did not share in this

misconception of the hierarchical superiority of the individual Councillors, and, quite properly,

complained to the City Solicitor about being overruled or pushed aside by the Council members.

There is also evidence that the City Solicitor brought a number of these legal concerns to the

attention of his superior, to whom he then reported (in his temporary role as Acting

Commissioner of Legal and Human Resources). However, there is no indication that his

superior raised the issue with these Council members to bring them back in line, or did anything

whatsoever to deal with these complaints. This inaction may have been because his superior also

felt powerless in dealing with the individual Council members who were overstepping their legal

authority. It may have been seen as a career-limiting move to complain about this.

Assuming these to be the most likely reasons for the lack of decisive action by either the City

Solicitor or his superior, we would point to two important structural problems that existed at the

time, within the organization of the City. Again, these are by no means unique to Windsor but

are probably shared by many municipalities in Ontario. However, that is no reason not to take

any necessary corrective action.

Should Individual Council Members Be Excluded from All Procurement?

The first structural problem was the tendency of individual Council members to see themselves

as having the authority of Council behind them, and the pragmatic, self-protective acceptance of

that misconception by City staff. Commissioner Denise Bellamy wrote in her Report9 for the

City of Toronto that Council members should be excluded entirely from the procurement

process. Her recommendation provides a simple, clear and unambiguous solution to the practical

problem of individual Council members, perhaps inevitably, exercising authority over City staff

9 Madam Justice Denise Bellamy was sitting in her capacity as a Commissioner of a Public Inquiry into two

related subjects, not as a judge. Her Report was released September 12, 2005, and has two titles on its cover:

Toronto Computer Leasing Inquiry and Toronto External Contracts Inquiry.



that they do not properly have. However, it may be possible to find a less extreme solution for

exceptional procurements such as this one.

Commissioner Bellamy’s proposed solution made perfect sense in the factual context in which it

was presented, namely, the procurement of computer hardware and software, which is not (or at

least should not have been) a high political-content decision. Therefore, the involvement of

elected representatives risked politicizing the procurement process needlessly. The fact situation

of a new municipal building, to which the public is ordinarily admitted, may be somewhat

different. The design of such a building (although not its actual construction) may to some

degree be seen as political. To choose an extreme example to illustrate the point, if the architect

had designed the front doors of the building to be gold plated in order to appear majestic, it

might well have been the legitimate role of Council members to express their concern that this

degree of opulence in the proposed design would be politically unacceptable. Similarly, whether

the added cost of making the ceilings 10 feet high instead of 8 feet high is worth the added

benefit is a trade off which could legitimately benefit from the advice (although not the dictation)

of individual elected representatives. How this political advice should be integrated with the

procurement function (e.g. through a joint Councillor-staff committee or through the oversight of

the entire Council or in other ways) is a management issue rather than a legal issue, hence

beyond the scope of our expertise.

Commissioner Bellamy should not be interpreted as having recommended that no procurement

process, regardless of what is being purchased, should ever have the involvement of any

members of Council. Nevertheless, her recommendation that there be no such participation may

prove to be the only workable solution if Council members are unable to participate in

procurement processes without taking them over entirely, or completely dominating them. Such

participation, to be effective, would have to include the right of City staff to disagree – with a

guarantee of no career repercussions for the staff members – from any recommendation to

Council favoured by individual Council members.

Obtaining Timely, Independent Legal Advice for Procurement Processes

The second structural problem was lack of timely, independent legal advice reaching Council on

the emerging problems with the individual Council members taking over the proponent selection

process without any legal authority. This structural problem was the direct result of the lack of

independence of the position of the City Solicitor (regardless of who may be the incumbent in

that office). Documents and interviews indicate that the City Solicitor expressed his concerns to

his superior, both as a lawyer and as the head of the Legal Department of the City, but we saw no

evidence that his superior either passed on these concerns to anyone, or took any action himself.

Indeed, if the City Solicitor had not, by coincidence, had members of the 400 CHS selection

committee administrative advisory group reporting to him (because the City Solicitor was also

the Head of their department), even the City Solicitor would not have known about it.

On the basis of our review, we are satisfied that the City Solicitor expressed the correct legal

concerns, and did so within his normal “chain of command” to the superior to whom he reported,

in his temporary role as Acting Commissioner of Legal and Human Resources. But that

reporting structure, created by the City’s Procedural By-Law, did not produce the necessary

degree of independent legal advice reaching Council at the right time.



The nature of the problem can be seen in the internal conflict and inconsistency between By-Law

Number 420-2001 (as amended), the City’s Procedural By-Law (passed in intended compliance

with section 55 of the Act). Part 23 of this By-Law sets out the role of the CAO, while Part 24

sets out the role of the department heads.

Section 23.2 states that:

23.2 All reports and recommendations of department heads shall be co-ordinated through the

Chief Administrative Officer.

Since the CAO is at the apex of the administrative structure, even if the City Solicitor is given

the title of Department Head, which is not necessarily the case, any report or recommendation

from the City Solicitor must go through the CAO. In practice – and as was seen in this case –

this means that the CAO can interrupt the flow of communication from the City Solicitor to

Council or the Mayor simply by not forwarding the report or recommendation higher up the

ladder. Or, as the price of forwarding it, the CAO can demand that the City Solicitor amend or

“censor” the report to comply with the CAO’s views. This power of the CAO to veto any report

or recommendation that the CAO does not like worked as a barrier to Council obtaining advice

that was timely and independent.

Sections 24.1 and 24.2 state:

24.1 Each Department Head shall act in accordance with any statutory duties.

24.2 Each Department Head shall be responsible to and subject to direction and control by the

Chief Administrative Officer.

These last two sections created serious problems, and therefore, need to be amended10

.

The expression “statutory duties” in section 24.1 is incomplete and under-inclusive, in that legal

duties are much broader than merely statutory. Many statutes are skeletal in structure and

content, and are fleshed out only in detailed regulations or rules. Each Department Head should

be required to act in accordance with all of his or her legal duties, not merely statutory duties. A

good example of this under-inclusiveness is found in the Rules of Professional Conduct made by

the Law Society of Upper Canada (the governing regulatory body for all lawyers in Ontario) (the

“Law Society”).

Ontario municipalities normally require all of their City Solicitors to be Ontario lawyers,

licensed to practice law in Ontario. As Ontario lawyers, all City Solicitors must comply with the

Law Society’s Rules. Any serious instance of non-compliance can result in the lawyer being

disciplined, and potentially even disbarred (which would make the lawyer unemployable as a

10 Section 24.1 might be amended to read: The Chief Administrative Officer and each Department Head shall act

in compliance with any applicable legal duties imposed by any Federal, Provincial or Municipal statute,

regulation, By-Law, rule or guideline. The City Solicitor and all City lawyers shall at all times comply with all

applicable Rules and Regulations of the Law Society of Upper Canada.



City Solicitor, or in any other kind of lawyer’s position, anywhere in Ontario).

All Ontario lawyers, whether in private practice in a law firm or employed by municipalities,

must adhere to the same rules. Of particular relevance, when a lawyer is employed by an

organization, and the lawyer knows that the organization either intends to act, has acted or is

acting illegally with respect to that matter, the lawyer shall advise the persons “up the ladder”.

This advice should be elevated, if necessary, one step at a time, including, ultimately, to the

Board of Directors of a corporation11

(or its municipal equivalent, the Mayor, and/or Council). If

the organization, despite the lawyer’s advice, continues with the wrongful conduct, the lawyer

must withdraw from acting in that matter12

. (Some legal commentators have gone so far as to

suggest that the lawyer should resign his position entirely, while others say only that the lawyer

should cease working on that particular matter or file.) Thus, the duty of any lawyer in these

circumstances is, first, to be the “whistleblower” up the hierarchical ladder as far as necessary

and, second, if that effort fails, to cease any activity which could be seen as knowingly assisting

in or encouraging any illegal conduct13

.

By-Law section 24.2 states that each Department Head shall be responsible to and subject to

direction and control by the CAO. If the City Solicitor is a Department Head, then that title

alone makes the occupant of that position responsible only to, and subject only to direction and

control by the CAO. If the City Solicitor is below the level of a Department Head, the lawyer’s

position is even less independent. There is a clear conflict between the absolute language of the

hierarchical structure in By-Law section 24.2 and the legal duties of a lawyer who happens to be

a City Solicitor under RPC Rule 2.02 (1.1), which states:

(1.1) Notwithstanding that the instructions may be received from an officer, employee, agent

or representative, when a lawyer is employed or retained by an organization, including a

corporation, in exercising his or her duties and in providing professional services, the lawyer shall

act for the organization.

As the Commentary under this rule explains, it is the organization, as such, that is the client. A

corporate client (which the City is) has a legal personality distinct from its shareholders, officers,

directors and employees. Thus, the client of the City Solicitor is not the Department Head, not

the CAO, not the Mayor and not Council, but the City itself. While a municipality will act and

give instructions to its lawyer through its officers, employees, elected representatives or

whomever, the lawyer’s duty is to ensure that it is the interests of the City that are to be served

and protected.

A coherent, internally consistent By-Law should not create a conflict of interest or a conflict of

duties on the part of the City Solicitor. The City Solicitor’s duty of adherence to the By-Law

should be consistent, at all times, with adherence to the RPC. The absence of any recognition in

11 Law Society of Upper Canada, Rules of Professional Conduct, Rule 2.02 (5.1) and (5.2) (hereafter cited as

“RPC”). 12

RPC Rule 2.09 (7) (d.1). 13

RPC Rule 2.02 (5).



the By-Law of circumstances under which it would not be insubordination but a legal duty for

the City Solicitor to refuse to accept direction and control by the CAO must be corrected by an

amendment to the By-Law14

.

On the other hand, it is also an important aspect of municipal governance that the City’s staff

accountability structure has the office of the CAO at the apex of the pyramid. It would not work

well to defeat or bypass that accountability structure on a regular basis, even for the City

Solicitor. The revised By-Laws should achieve both goals: preserving the accountability

structure in ordinary circumstances, while allowing the City Solicitor to fulfil the legal duty of

being a “whistleblower” in an emergency or if faced by a refusal of the CAO to permit an

important legal warning to go up the ladder to the appropriate elected representatives.

Moving on from our analysis of the conflict between the By-Law and the RPC, which can

relatively easily be resolved, we turn to the question of how best to ensure that timely and

independent legal advice reaches the Mayor and Council without putting the City Solicitor into a

“whistleblower” situation.

There are two possible administrative resolutions to this problem: either to obtain an outside

legal review (as is now being done in this very memorandum, albeit after the fact); or, to create a

higher level of structural independence for the City Solicitor; or to do both.

It would be impractical and prohibitively costly to obtain outside legal opinions on virtually

every matter of any controversy. The City Solicitor should remain the principal legal adviser to

the City, with the formal power and the accepted role of providing timely legal advice and

opinions to Council (or to designated representative of Council, discussed below) directly,

without going through the bureaucratic filters of the Commissioner of Legal and Human

Resources (now called the General Manager of Corporate Services) and the CAO. However, all

City Solicitors have their practical limitations, in that their main area of expertise lies within

municipal law in general and the Municipal Act, 2001 and similar statutes in particular. It is

unreasonable and unfair to expect City Solicitors to be experts in every area of law. Like

corporate in-house counsel everywhere, they should be expected to retain outside counsel when

specific expertise requires it. In this case, however, the legal issues under the various City By-

Laws and the contracting issues under the RFP would have been squarely within the knowledge

of a City Solicitor. Therefore, it would have been preferable if the appropriate role had been

structured for the City Solicitor. It would then have been less likely that Council members

would have mistakenly acted as if they had the authority to take over the decision-making

capacity of City staff in the procurement process.

We have considered a number of different ways in which the role of the City Solicitor could be

restructured. Organizational restructuring is not a legal question but a managerial one, in which

we as lawyers have no specialized expertise. Nevertheless, we can discuss what legal options are

available.

14 Section 24.2 might be amended to delete the words “and control”.



First, the City Solicitor could be instructed, if it is necessary to bypass the CAO in a special or

emergency situation, to go directly to the Mayor. As the Mayor is the CEO of the municipality,

this would not be a legally illogical choice. However, that would immediately politicize the

decision. It would put the Mayor on the spot in having either to take the decision all alone or to

call a meeting of Council and politicize the matter even further.

Second, the City Solicitor could be instructed, in these special circumstances, to go to the entire

Council. The obvious disadvantage would be the time and effort it would take to convoke a

Council meeting, and the question of who on the City staff would convoke this meeting if the

CAO were opposed to Council receiving the City Solicitor’s report.

A third possibility would be for Council, through a By-Law amendment, to appoint a small

committee of Council (e.g., a Legal Committee) with delegated powers to perform this task.

This approach is probably unnecessarily formal because several years might go by, or perhaps

even decades, without the City Solicitor ever having to exercise his “whistleblower”

responsibility. This means that this small committee would exist on paper, but would rarely have

anything to do.

A fourth possibility is to use the existing “whistleblower” structure that the City has in place,

operating through the Office of the Auditor General. Although the structure was established to

receive complaints from the public at large, it also can receive complaints from City staff at all

levels. The Auditor General already has sufficient structural independence from the CAO to

permit the Auditor General to report directly to the Mayor, to the entire Council, or to the

appropriate committee of Council any legal warnings of unlawful conduct presented by the City

Solicitor that the CAO was either failing to act upon or failing to report to the Mayor and

Council. This possibility has the advantage of keeping what would be an obvious disagreement

between the CAO and the City Solicitor within the municipal staff structure for internal

resolution for one final step, providing another opportunity for resolution without going to

Council. It is only if the Auditor General was unable to persuade the CAO to deal with the City

Solicitor’s warnings in a timely and appropriate manner that the City Solicitor would then have

to move his warning a further rung up the ladder, to the political level. In effect, using the

current “whistleblower” mechanism through the Auditor General adds a new rung to the City

Solicitor’s ladder, but hopefully, an effective one which would make it unnecessary in most

cases to go up to the next rung.

This formal, structural change in the independence of the City Solicitor, to be effective, would

also have required a change in attitude from one of “when we want your legal opinion we will

ask for it” to one of “it is your duty to give us your advice on your own initiative whenever you

think it necessary to warn us that we may be going off-side legally”.

We would recommend that the changed role of the City Solicitor be formally recognized, either

in an amendment to Procedural By-Law Number 420-2001 or within a separate By-Law. This

legal change would be available to all Councillors and staff of the City and available to the

public on the City’s website, like any other municipal By-Laws. This recognition of the legal

need to change the role of the City Solicitor would be made available to the public as a function

of good corporate governance. Documenting the independent “watchdog” aspect of the

functions of the City Solicitor is also consistent with relatively recent requirements for U.S. and



Canadian public companies to establish complaint procedures that provide for the receipt,

retention and treatment of complaints and permit confidential, anonymous submissions by

employees with respect to concerns that they may have regarding compliance matters (these have

become known as “whistleblower policies”; the City’s Hotline is one form of this).

While mandatory for public companies, many quasi-public and private organizations have

voluntarily implemented similar procedures. Since the implementation of these complaint

procedure requirements, the U.S. Securities and Exchange Commission and the Ontario

Securities Commission have increasingly sought to hold in-house legal counsel responsible for

compliance-related matters. Legal counsel, as an organization’s gatekeepers on the front lines of

compliance, can be held liable, not only for their own mistakes, but for failing to prevent or

address the corporate wrongdoings of others. A workable whistleblower policy that structurally

and formally includes the City Solicitor is a means of ensuring that an organization’s values and

ethical behaviours (as enunciated in its code of conduct and ethics or similar document) are

enforced.

II. THE LEGAL REQUIREMENT FOR THE FAIR TREATMENT OF

PROPONENTS IN AN RFP OR BIDDING PROCESS

Background

Under the basic law of contracts, the parties must intend to enter binding legal obligations. The

contract comes into being – where that intention exists – when one party makes an offer, the

other party accepts it while the offer is still open, and “consideration” (value) passes between the

parties.

The Stage 1 RFP gives the City a considerable leeway in dealing with proposals that it receives

in both Stage 1 and Stage 2. An example of that language is the following15

:

“The City reserves the right to accept proposals in whole or in part; to discuss different or

additional terms to those expressed in this RFP in the proposal; or, to amend or modify any term

of this RFP. The City reserves the right to reject all proposals.”

There appears to be a widely held view among Council members and even some City staff that

language such as this enables the City to do whatever it wants with the proposals it receives. As

will be seen later in this memorandum, this is a misconception.

The courts have made it clear – in cases that will be cited later in this memorandum – that

owners who engage in procurements similar to this one have duties to the proponents who

respond. Courts have shown an unwillingness to allow owners to treat proponents “unfairly”,

unless the owner expressly states – in the procurement documents – that it reserves the right to

treat proponents unfairly. A clause that announces that an owner may well be unfair is likely to

15 Section A, paragraph ix of the Stage 1 RFP



deter many prospective proponents, who will not want to make a considerable investment of time

and money to prepare a detailed proposal and then have it rejected unfairly.

What constitutes fair treatment has been defined by the courts with some particularity, although

fairness requirements will necessarily vary with the facts of the case. What is important to

understand is that the legal notion of “fairness” in procurement has a specific legal meaning that

is not to be confused with the commonly held concept of fair play or the notion of a level playing

field. Rather, in the procurement process, the duty of fairness is determined by the terms of the

procurement documents – in this case, the RFP. Where those documents are silent on a

particular issue or question, the courts will “imply”, or read in, such terms as they consider

reasonable to reflect the true intentions of the parties. The courts have also ruled that self-

protective language – such as that quoted above – does not entitle the owner to do whatever it

pleases with the proposals it receives.

Does The City Have Legal Obligations as a Result of Issuing the RFP and Receiving

Proposals?

The short answer is “yes”.

In 1981, the Supreme Court of Canada decided a case called Ron Engineering16

, which

fundamentally changed the bid process in the common law provinces of Canada. As a result of

Ron Engineering, when an owner institutes a procurement process with certain elements, that

owner is, in law, not only soliciting offers, but also, is making offers. The owner’s offer – to

each proponent – is to enter into a “bidding contract”, which the Court called Contract A. The

object of the procurement – in that case a building project – the Court called Contract B. The

intentions of the parties are a key factor in determining whether a contract will be entered into.

Where a procurement process does not state – one way or the other – that Contract A is intended,

the courts will usually determine that it was the intention of the parties to create the “bidding

contract”, upon the submission by proponents of responses that are compliant with the terms of

the procurement process, if that process includes the following elements:

specified closing time;

sealed submission;

identified form or contract;

bid bond to secure monetary offer made;

agreement to provide bonding, if successful;

financial offer, usually irrevocable.

A compliant response is one that is delivered on time and responds, in all material ways, to the

proposal requested by the owner. So, if the City’s RFP includes all, or most of the characteristics

of the “bidding contract” listed above, a court reviewing that process is likely to find that the

“bidding contract” came into existence between the owner and each compliant proponent.

16 The Queen (Ont.) v. Ron Engineering, [1981] 1 S.C.R. 111



Later in this memorandum we will address whether the City’s RFP had the necessary elements to

create the “bidding contract” between the City and proponents who submitted compliant

responses. It is important to understand, however, that if the RFP was capable of creating the

“bidding contract”, once that contract was formed by compliant responses, that contract is a real,

legally binding contract. Thus, both the City and compliant proponents would have legally

binding obligations under it.

Stated broadly, the owner’s obligations include treating all compliant proponents fairly by

following the terms of its own bid process. The proponents’ basic obligations include keeping

their proposals open for the required period, and entering into Contract B when it is awarded by

the owner; or, in the case of this RFP, entering into good faith negotiations for Contract B.

Since Ron Engineering, there has been a significant volume of new case law defining the duties

and obligations of both parties to the “bidding contract” (Contract A). In particular, there are two

additional Supreme Court of Canada decisions which bear upon most procurement processes –

including this one – once it is found that the “bidding contract” exists.

M.J.B Enterprises v. Defence Construction17

involved the interpretation and application of a

clause similar to the one quoted above in this memorandum. The clause read, more or less,

“…the lowest or any bid not necessarily accepted…”. After finding that the “bidding contract”

had arisen between the owner and each compliant bidder, the Court went on to decide that it was

an implied term of the “bidding contract” that, where there was at least one compliant bidder, the

owner had a contractual obligation to the compliant bidders not to award the contract to a non-

compliant bidder. The Court also held that because of this clause (known as a “privilege

clause”), the low compliant bidder did not have an absolute right to an award of Contract B. The

Court agreed that the owner may bypass the low compliant bidder – and rely on the privilege

clause in doing so – provided that the owner has a valid commercial reason for doing so (for

example, all compliant proposals are for prices above the owner’s budget).

The second Supreme Court of Canada decision which is useful to this analysis is Martel Building

v. The Queen 18

. In this decision the Court held that the “bidding contract” included an implied

duty on the part of the owner to treat all compliant proponents fairly and evenly.

In the Martel case, the owner breached this duty when it added a new evaluation criterion to the

procurement process after the proposals had closed. Not only did the owner add a new criterion,

it applied that criterion to Martel only. The Court held that the owner had breached its implied

duty of fairness under the “bidding contract” when it imported a new evaluation criterion (this

was unfair) and then applied it to Martel only (this was uneven). The Court went on to say that

this duty of fairness will be an implied term of every “bidding contract” unless there is a term in

the procurement documents which expressly excludes it (i.e. “the City does not intend to be

fair”). While Martel does not go quite so far as to say that in no circumstances can an owner

17 M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. [1999] 1 S.C.R. 619

18 Martel Building Ltd. v. R., [2000] 2 S.C.R. 860.



ever reserve to itself the right to be unfair, it makes it a requirement to reserve that right so

explicitly that anyone who accepts the owner’s offer to enter the “bidding contract” (by

submitting a compliant proposal) cannot complain that the owner breached the “bidding

contract” if it later treats that proponent unfairly.

There is a common public policy theme in all three cases, Ron Engineering, M.J.B. and Martel:

to protect the “integrity of the bidding system”. Over a span of two decades, different judges of

the Court have held that it is important to taxpayers of all levels of government, as well as to

private sector businesses, that the issuance of a call for tenders or of an RFP receive a positive

response from the largest possible number of motivated proponents. Prospective proponents will

be reluctant or unwilling to invest the time and money to prepare a response to an RFP unless

they have some confidence that the owner initiating the RFP will follow its own procurement

process.

Did the City’s RFP Process Create Contract A, the “Bidding Contract”?

The RFP required two separate submissions.

Stage 1

In Stage 1, proponents were required to provide information on project organization, safety,

building commissioning, schedule, quality control and related items. There was no requirement

to submit a financial offer for the 400 Building, nor any design proposal, nor any information on

how the prospective proponent might address the two options the City had in mind for the 400

Building.

Stage 1 was only to hear about the qualifications of all proponents who had responded to an

earlier request for expressions of interest. This request for qualifying responses is colloquially

referred to as a “beauty contest”. The Stage 1 portion of the RFP contained the representations

to prospective proponents that (i) all proponents’ responses would be reviewed against the

evaluation criteria in the matrix in Appendix B to the RFP, and that (ii) no more than five

proponents would be selected to proceed to Stage 2.

Our review of the submission requirements for Stage 1 shows that very few of the criteria giving

rise to the “bidding contract” were present. There is no language in Stage 1 which expresses an

intention to create the “bidding contract” upon the submission of a compliant proposal.

Accordingly, in our view, at the conclusion of Stage 1, the “bidding contract” did not arise

between the City and any of the proponents who submitted materials in response to Stage 1.

Stage 2

Stage 1 provided that only five proponents would be given the opportunity to submit the more

detailed proposal represented by Stage 2. Nonetheless, the City extended an invitation to six



proponents, the sixth being Vindella, even though Vindella had finished out of the top five in the

Stage 1 review19

.

Of the six proponents invited to submit proposals in Stage 2, two dropped out, and only four

submitted proposals. This suggests that there may already have been a concern on the part of the

two proponents that dropped out that submitting a detailed proposal to the City was not worth the

effort. Of the four that did respond, we have reviewed only the submissions of the two finalists,

Vindella and EllisDon. These two were the proponents whose submissions received the most

attention, with Vindella ultimately being contracted to design and build the 400 Building.

The submission requirements for Stage 2 are partly described in Stage 1 and partly described in

Stage 2. Taken together, the Stage 1 and Stage 2 submission requirements include the following

indicators of an intention to create the “bidding contract”:

identified form or contract

stipulated submission time;

price for the design and construction of the building (not irrevocable);

a bid bond;

an agreement to bond.

The form of contract is not defined in Stage 2, but the Stage 1 RFP had attached to it CCA-CSC-

RAIC Document 14-2000, an industry standard form.

As stated in Stage 1, Stage 2 provides for negotiations to occur between the City and the

preferred proponent. While this reduces the certainty that the “bidding contract” was intended, in

our view, a court would probably still conclude that the Stage 2 process was intended to create

the “bidding contract” with proponents who submitted a compliant proposal.

Were the Proposals of Either EllisDon or Vindella Compliant so as to Create the “Bidding

Contract” Between the City and One or Both of These Proponents?

The manner in which the “bidding contract” came into being in this case is not intuitively

obvious, but is the result of the legal creation of the Supreme Court of Canada in Ron

Engineering. When the City invited proponents to respond to Stage 2, it was deemed in law to

be extending an offer to the invited proponents, even though Stage 2 did not specifically say that.

The proponents would then have been deemed to accept the City’s offer to enter the “bidding

contract” by submitting a proposal that responded in all material respects to the proposal

solicited in the procurement documents. This deemed offer and acceptance was all that was

necessary to create Contract A.

19 As identified in the interview commentary. The Stage 1 RFP evaluation conducted by the Administration staff

resulted in the recommendation to go forward in the process to Stage 2 with only the top 4 proponents.



(i) EllisDon Proposal

There is no suggestion that the EllisDon proposal was received late. Had the proposal been

received late, the offer to enter the “bidding contract” with the “City” would have expired and

the proposal would have been non-compliant.

From a review of the materials provided by the City, it appears that EllisDon responded with

details on both option 1 and option 3 (as described in the Stage 1 RFP). As well, the proposal

included the required agreement to bond and bid bond.

The bid bond submitted by EllisDon has a term of thirty days running from the date of proposal

submission. As there was nothing in the Stage 2 RFP which required a particular term for the

bid bond, no particular term is required in order to be compliant. Similarly, the agreement to

bond submitted by EllisDon has a thirty day term. Again, there was no requirement in the RFP as

to the term of the agreement to bond.

As stated in Stage 1, the Stage 2 process provided for negotiations between the preferred

proponent and the City. Given the two options being investigated, given the size of the project

and given the complexity of the design, it is highly unlikely that EllisDon (or any other

proponent) and the City would be in a position to sign a contract within thirty days of proposal

delivery (meaning that the bid bond will probably expire prematurely). As this is a structural

shortcoming in the RFP, we do not believe that it renders the EllisDon proposal non-compliant.

So far as the City’s assessment of the technical merits of the EllisDon proposal is concerned, the

materials we have reviewed, including the “RFP Assessment Matrix”, indicate that the EllisDon

proposal was very highly rated and, at least initially, deemed significantly superior to that of

Vindella (EllisDon rating 87; Vindella rating 25).

Based on the information at our disposal, we believe the EllisDon proposal was compliant and

that it had the “bidding contract” with the City.

(i) Vindella Proposal

There is no suggestion that the Vindella proposal was late and we will assume that it, like the

other proposals, was submitted on time.

In considering the compliance of the Vindella proposal, it is important to identify the corporation

that was invited by the City to respond as a Proponent to Stage 2. In a letter dated March 15th

,

2002, that invitation was extended to “Vindella Enterprise Inc.”.

The Vindella proposal begins with an undated cover letter which reads, in part, as follows:

“The Proponent, Vindella Enterprise Inc., and its participants, Oscar Construction Company

Limited, Sterling Ridge Investments Inc., J.P. Thomson & Associates Ltd. And Martini Barile

Marusic LLP., are pleased to present for your consideration their Proposal…” [emphasis added]

Later in the same letter, Vindella acknowledges its invitation to participate in Stage 2 by making

the following statement:



“Needless to say, Vindella Enterprise Inc. is honoured in having been selected to submit this

Proposal…”

There is an important distinction made in the RFP between two words which sound similar –

“Proponent” and “Participant” – but have different meanings which should not be confused. In

Appendix A to the Stage 1 RFP, Section A., the prospective Proponent is required to provide a

significant amount of information about itself, its corporate history, business and experience.

Included in the information that it is to provide to the City is the following:

iv. Provide and summarize the legal agreements which describe the relationship between the

Proponent and any Participants.

In its Stage 1 Proposal at Tab A, Vindella responded to the required information about itself, as

Proponent. It then included, at Tab A, section iv., a list of Participants who would be part of its

team. Four Participants were listed, including Oscar Construction Company Limited. Of its

team, Vindella included the following statement:

“Vindella Enterprise Inc. has worked in the past as a team player with the other Participants noted

herein (as is noted in the examples of similar developments listed below) to ensure the

requirements and objectives of the occupants of the development are always achieved. The

combination of Vindella Enterprise Inc. as the project developer/manager and Oscar Construction

Company Limited as the general contractor has been a recipe of success within the County of

Essex for years.”

Vindella goes on to give a more complete profile of each of the four Participants.

It is clear that both the City and Vindella intended a distinction between the Proponent and a

Participant. The Proponent is the contracting party. The Participants are those who will support

the Proponent in carrying out the Project.

In the financial portion of its proposal, Vindella submits a bid bond which is in the amount

required by Stage 2 – 10% of its price. However, the bid bond has two deficiencies, one minor,

the other major.

First, as stated in Stage 1, the Stage 2 RFP requires that the bid bond be in the form of a standard

document, “CCDC220”. The bid bond is not in the form CCDC220. While the bid bond is not on

standard form CCDC220, its terms are substantially similar, and therefore this deficiency is one

of form, not substance. For that reason it is excusable. (The term of the bond is sixty days and

hence it would also have expired before any contract was signed – as was the case with

EllisDon).

Second, the bid bond, rather than supporting the Proponent, Vindella, alone, supports both

Vindella and Oscar Construction Company Limited, a Participant. In the bid bond, these two

companies are defined, jointly, as “Principal”. The issue of who is the “Principal” is more

fundamental, and goes beyond mere form. If the Proposal from Vindella is in fact a proposal

from a joint venture including Oscar, then the proposal is non-compliant because Oscar did not

participate in Stage 1 as a Proponent and the City’s invitation to participate in Stage 2 as a

Proponent was extended to Vindella only. On the other hand, if only Vindella had made the

proposal, then the bid bond would be supporting a proposal by a joint venture between Vindella

and Oscar – a proposal that was not submitted. The agreement to bond has the same problem as



the bid bond – it represents the agreement of the surety company to issue bonding jointly to

Vindella and Oscar. In our view, neither the bid bond nor the agreement to bond are compliant

with the Stage 2 RFP.

It is difficult for us, as lawyers, to form any independent opinion on whether the proposal

received from Vindella/Oscar was also non-compliant in its failure to meet the technical

requirements of the Stage 2 RFP. We do know that the proposal was extensively criticized by

City staff in numerous memoranda and emails saying that it had failed to address certain key

issues set out in the RFP as requirements, or had addressed them so superficially as to be

unsatisfactory. The City Solicitor also criticized it, at one point in time, as being ambiguous in

the sense that the written text of the proposal and the drawings were inconsistent, making it

impossible to determine which was the “real” proposal. We understand that his concern was

subsequently resolved, however that may have been because the Vindella proposal was

significantly changed. Four sets of very specific questions were sent to Vindella seeking to fill

these gaps, and Vindella submitted a significant amount of additional data to augment its initial

proposal. So, the Vindella submission may also have been non-compliant because it was

seriously deficient in failing to provide the design, construction and pricing proposal required by

the Stage 2 RFP. If that was the case, then the specific questions addressed to Vindella were

more than merely questions seeking clarification of what was already in the proposal. They were

really questions, the answers to which could be considered “nursing” Vindella into appearing to

be compliant by inviting Vindella to complete and improve its proposal, long after the deadline

for submitting complete and compliant proposals had passed.

Given the Nature of the RFP, What Are the Obligations of the City?

(i) Stage 1

As indicated above, Stage 1 of the RFP did not have the ingredients to create the “bidding

contract” between the City and proponents who submitted compliant proposals. While this

means that the City had no contractual obligations to any of the proponents at that stage, it still

does not mean it was free to do whatever it pleased.

In Mellco Developments Ltd. v. Portage la Prairie (City)20

, the Manitoba Court of Appeal dealt

with a request for proposal process run by that City respecting the sale and development of

certain municipal land. An unsuccessful proponent sued the City on the basis that the request for

proposal created a “bidding contract” between the proponent and the City upon submission of the

proponent’s proposal. The plaintiff contended that the City had breached the “bidding contract”,

entitling the disappointed proponent to damages.

The Court held that the request for proposal was never intended to create the “bidding contract”

(and actually expressed the intention not to enter a contract) and dismissed that aspect of the

case. The Court went on to comment on the obligations of an owner that has created a request

for proposal process that does not create the “bidding contract”. The Court concluded that the

20 [2001] 11 W.W.R. 282, Aff’d 222 D.L.R. (4

th) 67 (Man. C.A.)



City had an obligation to conduct itself fairly and in good faith when running its procurement

process. Otherwise, proponents would incur significant expenses, become disillusioned over

futile proposals and cease to participate in future procurements.

Our sense is that this obligation of fairness described in the Mellco Developments case is not

limited to Manitoba, but would, in Ontario as well, be held to be an obligation of the City – in

this process – to follow its own process when carrying out Stage 1.

(ii) Stage 2

By the time the proponents submit their Stage 2 proposals, they have been through a request for

expressions of interest and a Stage 1 evaluation/pre-qualification. What these earlier processes

mean to Stage 2 is that the City is satisfied that any of the six proponents invited to submit a

Stage 2 proposal would be satisfactory to the City if they met the evaluation criteria set out in

Stage 2. The Stage 2 evaluation criteria include an assessment of the design and financial

solutions proposed for the two options described by the City. In effect, the two processes that

preceded Stage 2 narrow the City’s scope for evaluation. In some respects, this means that the

outcome of the evaluation process – using the “R.F.P. Assessment Matrix” should have been

determinative of the outcome unless some extraordinary and unanticipated circumstances

occurred.

As indicated earlier, Stage 2 includes the ingredients to create the “bidding contract” with

proponents who submitted a compliant proposal. The “bidding contract” requires the City to

treat all compliant proponents fairly and either to select a preferred proponent or to cancel the

entire process, all in keeping with the terms of the RFP. This means that the City cannot import

new evaluation criteria into the evaluation process. Neither can it decide – after proposals have

been submitted – not to comply, or not to require proponents to comply with the terms of the

“bidding contract” (for example, to accept a proposal from a proponent not invited to participate

in Stage 2).

In the M.J.B. case discussed earlier, the Court held that the “bidding contract” includes an

implied term that an owner will not award the ultimate contract (Contract B) to a non-compliant

proponent where it has the “bidding contract” with at least one proponent. In this RFP, the duty

of the City to a compliant proponent is to refrain from selecting a non-compliant proponent as

the preferred proponent.

Earlier in this memorandum we mentioned the Martel case which established – at the Supreme

Court of Canada level – that the “bidding contract” includes an implied duty on the part of the

owner to treat all compliant bidders fairly (unless there is a specific term in the procurement

documents negating that obligation). There is no such specific term in the Stage 2 RFP. So, in

this case, the City would treat a compliant proponent unfairly were it to change the evaluation

criteria set out in the RFP after the deadline for the submission of proposals.

(iii) Summary of RFP Obligations

The City had duties to the proponents in Stage 1. It was open to any of the five highest ranking

proponents to complain to the City that a sixth proponent was added to the process. The City



could have avoided the risk of such a complaint by issuing an addendum and amending the Stage

1 RFP as to the number of invitations that would be extended.

With respect to Stage 2, we believe that the proposal from EllisDon was compliant, creating the

“bidding contract” between it and the City. The City had developed an “RFP Assessment

Matrix” for use in the evaluation process. This matrix was not in the original Stage 2 RFP, but

was issued to the proponents by letter on April 19th

, 2002. It is reasonable to treat this letter as

effectively amending Stage 2 by adding the matrix as the evaluation methodology. The

implication of the matrix becoming part of the RFP was that the highest ranked proponent on the

matrix would become the preferred proponent, and would be given the first opportunity to

negotiate a contract with the City.

It appears that the City – perhaps inadvertently – breached its “bidding contract” obligations by

(i) accepting a bid bond and an agreement to bond from a party other than just Vindella, (ii)

permitting it to amend its possibly non-compliant proposal (through four sets of questions and

answers), (iii) by ignoring the scores on the matrix and by considering the selection of the

preferred proponent using a single criterion – initial cost – not disclosed in the Stage 2 RFP.

This new criterion is evidenced by a City In Camera report of August 21st, 2002 which concludes

with the following:

“Based on the documentation provided by the proponents, the EllisDon proposal is the preferred

option if the building’s attributes and long-term operating costs are the predominant criteria for

judging whether to risk investing in this building as a municipal asset, while the Vindella proposal

is the preferred option if building price is predominant judgment criterion.”

The Councillors on the selection committee acted as if they believed that they could,

individually, do whatever they wanted in selecting the successful proponent, including ignoring

the result of applying the matrix table, and applying different criteria. This apparent belief was

based on the theory that there were enough “weasel words” in the RFP to provide them with

such unlimited discretion. This belief was incorrect. Therefore, any action taken upon it was

without legal foundation. It amounts to changing the rules of the game in the middle of the

game, which amounts to attempting to amend a contract without first obtaining the agreement of

the other party to the contract.

Assuming Vindella’s Proposal Was Compliant, Was EllisDon Treated Fairly in the

Evaluation?

Earlier in this memorandum we concluded that the Vindella proposal was non-compliant because

of the bid bond issue. In this section, we give Vindella the benefit of the doubt and examine the

way in which the City did its comparative evaluation of the Vindella proposal and the EllisDon

proposal.

The way the RFP process was handled makes it difficult to determine when the City closed the

competition and declared a winner. The actual sequence of events can be summarized in the

following steps:



1. After the matrix had been applied at Stage 221

, around May 17, 2002, EllisDon

was the clear leader, as shown in the table below.

Proponent Total Weighted Score

EllisDon 87

Mady 60

MKT 55 (arithmetic corrected)

Vindella 25

2. The Vindella proposal appeared to have the lowest immediate capital cost,

although no analysis was done to determine whether this initial appearance would be sustained

through the lifecycle of the building by taking into account the differences in maintenance and

operating cost resulting from the various different buildings proposed. Nevertheless, and despite

the opposition of the City staff, the Councillors, believing that they had the sole authority to

make decisions about the RFP process at this stage, decided to put the Vindella proposal into

competition with the EllisDon proposal. As well, City staff found that the Vindella proposal was

vague on a number of important specifics, so that the apparently low price could not be

definitively tied to design details indicating what was to be provided at that price. While such an

inconsistency would normally result in a finding that the proposal was noncompliant, and

therefore ineligible to proceed further, Vindella was given the opportunity to amend/rectify its

proposal22

.

The first round of proponent interviews and written questions were held with the 4 proponents on

June 20, 2002. Once narrowed to 2 proponents, interviews were conducted and questions were

asked on August 2, 2002. Thereafter, the first subsequent round of written questions was dated

August 8, 2002.

The first four written questions to Vindella were seeking information to fill in the gaps (material

deficiencies) in its proposal, thereby inviting Vindella to revise its proposal, and showing

Vindella how to revise it:

1. Please resubmit your elevations on page 21 & 22 of your submission and detail all

exterior material finishes.

21 The matrix result was never publicly disclosed. It was attached to the May 17, 2002 and July 18, 2002 in-

camera Council reports. EllisDon obtained a copy, likely through filing a formal request under the Municipal

Freedom of Information and Protection of Privacy Act. 22

The September 4, 2002 Report to Council on September 11, 2002 stated:

“During the [RFP] interview process Vindella presented the City of Windsor an additional option consolidating the

office and parking structure all on the single site to the east of City Hall. The option presented by Vindella resulted

in a revised price of $22,532,791. Members of Council on the working committee directed administration to

conduct a comprehensive financial review of all proposals and report back to Council with the findings of the

review.”



2. Please resubmit plans on pages 14 to 19 inclusive indicating square footages for each

individually labelled space. Please include a plan for the provision of a second

underground floor of parking and provide your revised quoted total price.

3. Please provide an outline specification of exterior finishes identified in the requested

resubmitted elevation drawings referred to above.

4. Please provide an outline specification identifying the buildings structural systems.”

Also, Vindella was provided with the opportunity to give the City an additional option, as

described in footnote 22, above. This occurred some time between the May 17, 2002 and July

18, 2002 in-camera Council reports, and likely happened on June 20, 2002, when the four

proponents were interviewed.

On August 1, 2002, EllisDon was asked, “What cost savings might be available for the City to

consider which do not impact the value and sustainability of the design?”. That is quite a

different question. It asks EllisDon to suggest building substantially the same building as it had

designed, but for less money. It is really just a request to offer a discount from the proposed

price. It does not request a change in design to meet a target price.

3. However, Stage 2 does not contemplate amendments to proposals after closing.

Giving either Vindella or EllisDon the chance to amend would represent amending the rules on

the fly, after closing, which is a breach of the implied duty of the owner to treat all compliant

proponents fairly and evenly.

4. Only Vindella was encouraged/permitted to amend its design, and to re-price its

proposal based on a different design. It is not clear that Council knew that Vindella – contrary to

the RFP – had been given this opportunity. Council may also have been unaware that

negotiations that were proceeding at the same time with both EllisDon and Vindella were

inconsistent with the RFP Stage 1 stated intention to negotiate with one proponent.

5. The Committee’s recommendation to Council placed a great deal of weight on the

factor of the “risk” inherent in each proposal. Risk analysis can be a useful contribution to RFP

analysis, and therefore, is to be encouraged. However, it must be a complete analysis. Council

would have been left with the impression that EllisDon was riskier than Vindella. And which

municipal Council would not want to reduce risk, or avoid it entirely? Yet the recommendation

does not use the ordinary meaning of the word “risk”, but rather, “risk” was narrowly and

specially defined as meaning only the risk that the annual impact of the proposal on the City’s

operating budget would be greater than zero. This risk analysis was potentially misleading to

Council in that (i) other, potentially much greater material risks were not taken into account at

the same time and in the same analysis; and (ii) the number provided actually represented only

one thing, speculative space rent, the amount of which was hypothetical and speculative in both

cases. As well, the relatively minor dollar value of the difference in budget increase risk

between the two proposals was not compared with the overall magnitude of the project – a

comparison that would have shown that any difference in such narrowly defined, speculative risk

estimate was trivial and unlikely to be meaningful, given the far greater risk that either proponent

would come in over budget, or that the project would require spending on “extras” that would

swamp any minor difference in forecasting at the pre-construction stage.



6. In the earlier reports to Council, the Vindella proposal was shown as having a

lower risk than the EllisDon proposal, thereby suggesting that prudence and safety lay with

accepting the Vindella proposal. In the final report to Council, the September 4, 2002 Council

Report for the September 11, 2002 Council meeting, which led to the decision of Council as to

which proponent to choose, the final risk calculation was entirely omitted. Had it been included,

and calculated in the same manner as before, it would have shown that the EllisDon proposal

actually had the lower risk of increasing the annual operating budget. According to the City’s

Auditor General Staff, if this calculation had been done at this time, in a manner consistent with

the July 18, 2002 and August 21, 2002 in-camera Council reports, the final numbers would be

Vindella = $642,060 and EllisDon = $595,500. The lower number had in previous reports been

treated as identifying the less risky proposal, and therefore, EllisDon would have been presented

as less risky than Vindella. We have been unable to obtain any explanation as to why this

calculation was presented in two earlier reports but not in this report, and therefore, cannot

determine whether the omission was inadvertent or intentional. In any event, Council was not

informed, prior to its decision on the selection of the winning proposal, of even the limited risk

analysis conducted, showing EllisDon as having the less risky proposal.

There is also the matter of the City’s existing purchasing By-Law, By-Law 9-2000. In some

procurement processes the purchasing policy or By-Law is incorporated by reference into the

procurement and becomes part of the “bidding contract”. We have not been able to find any

language which clearly imports the purchasing By-Law into the RFP. That is not to say that the

By-Law would not have a bearing on the outcome of litigation, were litigation to occur. The

court is likely to take the By-Law into consideration when determining how the duty of fairness

might be articulated where the City is involved. The By-Law might also have the effect of

negating some of the discretion described in Stage 1 (and carried over into Stage 2). For

example, if the By-Law said that the City always awards contracts to the low compliant bidder,

then that aspect of the policy might make it easy for the low compliant bidder to prove that, but

for the breaches of the “bidding contract” by the City, it was entitled to receive the contract. A

detailed analysis of the City’s two purchasing By-Laws is provided below.

What is the Exposure of a Party Like the City Upon Breach of its Obligations Under the

“Bidding Contract”?

The “bidding contract” is a real contract. The fact that the contract is implied by a court rather

than written by the parties themselves does not make it any less binding a contract. A party that

breaches its contract is exposed to an award against it of contract level damages. A concise

statement of damages for breach of contract is found in the Supreme Court of Canada decision in

BG Checo International Limited v. B.C. Hydro and Power Authority23

: a successful plaintiff in a

claim for breach of contract is to be put in the position it would have occupied had the contract

been performed as agreed.

23 [1993] 1 S.C.R. 12.



A breach of the “bidding contract” by an owner can result in an award to the contractor ranging

from zero damages to the profit it was likely to have enjoyed had it been awarded the project for

which it was competing.

Were EllisDon to sue the City for breach of the “bidding contract”, it would be entitled to

recover the overhead and profit it would have earned had it been awarded the 400 Building

contract, provided that it can establish the following:

that, but for the breach of the “bidding contract” by the City, it would have been

awarded the contract;

that the amounts estimated for the recovery of overhead and profit were

reasonable;

that there was nothing in the conduct of the project to suggest that the amount

carried by EllisDon for overhead and profit should be discounted.

Faced with this kind of case, a court must first determine whether EllisDon would have been

successful in obtaining the contract at all. The RFP Stage 2 process called for negotiation and it

is quite possible that the negotiation could have proven unfruitful. So, the first hurdle which

EllisDon would have to clear has some difficulty, as it requires the court to speculate as to the

outcome of a negotiation process. However, EllisDon might be able to persuade the court, with

the assistance of expert evidence, that the outcome in most RFP processes is that the first ranked

proponent is given the contract, and therefore, on a balance of probabilities, that would have

been the likely outcome. Nevertheless, EllisDon may have to explain away the possibility that

the City could invoke the broad discretion clause described in Stage 1 to cancel the process or,

for good reason, could award the contract to someone other than EllisDon.

If EllisDon clears the first hurdle and proves that, but for the breach of the “bidding contract”, it

would have been the victor, it will still have to convince a court that its estimate of overhead and

profit was reasonable and that there were no factors that would have made the job more difficult

or expensive to complete. For example, if Vindella – in the course of carrying out the 400

Building – had encountered problems with buried telecommunications facilities that had to be

moved, or found adverse soil conditions that would also have affected EllisDon and that cost

Vindella money, that circumstance may cause the court to discount any award it was

contemplating to make to EllisDon.

Speaking generally, however, on a project with a construction value of approximately

$25,000,000, the hypothetical EllisDon recovery could easily be in the low millions.

The events giving rise to these issues happened in mid 2002. By October 30th

, 2002, EllisDon

was on record as complaining to the then-Mayor that it had been treated unfairly and that if it so

chose, it could successfully prosecute an action against the City for breach of the “bidding

contract”.

On January 1st, 2004, Ontario’s new Limitations Act, 2002 came into effect. This new Act

stipulated that a party who became aware of an act or omission giving rise to a claim must start

litigation within the two years following the date it knew or should have known of its claim. This

applies to claims discovered after January 1st, 2004. The predecessor to the Limitations Act, 2002



allowed a six year period after discovery of a claim within which a party had to begin litigation.

In this case, the former Act would apply and EllisDon is subject to a six year limitation period.

Unless there is something we do not know, any claim by EllisDon for a breach of the “bidding

contract” expired six years after its recognition that it had a claim. At some point prior to

October 30th

, 2002 – when EllisDon wrote to the then-Mayor – it recognized it had a claim. We

believe any claim which EllisDon might be able to make on this RFP is now, in all likelihood,

statute barred as being beyond the limitation period.

How Might the City Minimize its Exposure on Future RFP’s?

Implementation of the following steps will improve the City’s procurement process and, at the

same time, help avoid exposure to litigation:

(i) Understand Procurement Law

It is now 2009 and many lessons may have been learned from the RFP of 2002. Nonetheless, we

recommend that procurement staff be exposed to seminars and materials which will acquaint

them with the implications of a process that creates the “bidding contract” and the duties and

obligations that flow, even from a process that does not create a “bidding contract”.

(ii) Process Selection

The City – like any other owner – is able, under the law, of convening a competitive

procurement process without employing the “bidding contract” to do so.

When a procurement process for a significant expenditure is being planned, it would be prudent

for the City to ask itself whether this process should be one which includes the ingredients that

will create the “bidding contract” (and say so) or not. If the City elects a process that does not

create the “bidding contract”, it still has a broad obligation – one which the courts have

expressed as an obligation of fairness – to follow the process which its own documents describe.

(iii) Preparing the Procurement Documents

The procurement documents – whether they create the “bidding contract” or not – should state

the intention of the City clearly, ideally at the beginning of the document. For example, a

paragraph expressing the intention of the City might read:

“The City does not intend to create any contractual obligations (sometimes referred to as a bidding

contract or Contract A) with any proponent by virtue of issuing this RFP and/or by receiving

and/or by evaluating the proposal received from any vendor. In no event shall the City be

responsible for any costs incurred by any vendor and/or its affiliates in the preparation and

submission of a proposal or further participation in the RFP process.”

Although the vast majority of any procurement document should be directed toward the object of

the procurement, it is important that the elements of the procurement document which describe

the process be carefully prepared so that the legal implications – “bidding contract” or not – are

properly set out. For example, words like “may” and “shall” need to be used carefully as they



can fundamentally alter the nature of the process and restrict or enlarge the discretion of the City

– discretion being an important tool.

It would be helpful to the City if it established model documents for its bid processes and for its

true request for proposal so that the process elements are constructed with the needs and

obligations of the City in mind, while risk is controlled.

(iv) Special Clauses

If the “bidding contract” is to be utilized in a procurement, there are clauses that can be added

which reduce the risk to the City and to the proponents in the event of a breach of the “bidding

contract”. For example, courts in Canada have approved the use of limitation of liability clauses

which, if properly employed, reduce the incentive to a wronged party to commence litigation.

Another useful clause is an alternative dispute resolution provision which gives the right to the

City only to convene an arbitration with a disgruntled proponent and thereby head off litigation

over the terms of the “bidding contract”.

These are but two examples of clauses that can lower the risk of litigation arising out of

procurement processes. There are other clauses now being used in procurement processes which

provide considerable flexibility to the owner while still observing and respecting the implied

duty of fairness.

(v) Resisting Temptation

In many procurement processes the most carefully prepared procurement documents cannot

anticipate everything. Often an owner will find itself in the position where the best result to it is

not the result that the procurement documents – properly applied – will produce.

If recommendation (iii) is followed, the City will have a good deal of flexibility in dealing with

the evaluation. But, if it is necessary for the City to change the evaluation criteria after the

submission of proposals, claims are a likely result.

As trite as it sounds, the City staff and any Councillors involved in procurement have to learn to

resist the temptation to force a particular outcome of a procurement process when the process, if

properly followed, would produce a different outcome.

(vi) Local Preference

It appears from our review of the materials that the 400 Building evaluation and selection

process were influenced by the lack of a local proponent among those to be invited to make the

Stage 2 proposal. Purely on merit, it appears that Vindella would not have been invited to

participate in Stage 2.

Although there are some restraints on the degree to which local preferences can be included in

procurement documents (the Agreement On Internal Trade being one restraint) there is some

room for preferring local content. However, experience has suggested to us that local preferences

do not achieve better procurement outcomes for taxpayers.



Many owners who have used local preferences have discovered that, once local vendors learn

that there is a local preference policy, whether written or unwritten, their incentive to be

competitive is reduced. At the same time, outside vendors learning of a local preference are less

likely to submit proposals, as they do not believe the playing field is level. So, while it may not

be politically attractive in the short run, our advice is to resist the temptation to employ local

preferences in the City’s procurement processes. Of course, using a local preference in the

evaluation process when none has been written into the procurement documents is a breach of

the “bidding contract” because it is – among other things – unfair.

III. THE REQUIREMENTS OF THE PURCHASING BY-LAWS

There are two successive purchasing By-Laws that were in force during the relevant time period

for the project. Both of them had as a common feature the delegation of all procurement

responsibility to various management levels of the City staff, with no role contemplated for

individual Councillors.

There were, in both By-Laws, dollar thresholds above which staff could not enter into an

agreement to purchase without Council approval. There was nothing in either By-Law that would

even suggest that the process of obtaining such above-threshold approval could involve Council

members. In other words, the general rule was and still is that the entire procurement process is

to be administrative and apolitical. This apolitical principle also covers the process of obtaining

approval for above-threshold procurements, in the sense that the staff would make an apolitical,

administrative recommendation for approval of the expenditure. What Council did with that

recommendation was another matter. That was the Council process, which would be expected to

be political.

By-Law 9-200024

The very first numbered paragraph of this By-Law states that:

1. The civic administration is authorized to deal with all contracts for purchases of goods,

services and equipment at a price not exceeding the preauthorized expenditure limit referred to in

Section 2 herein and in conformity with the procedures set out in Schedule “A”…

The dollar threshold for requiring Council approval was $100,000.

This is a clear delegation of power to the civic administration over all procurement contracts, and

this delegation is reinforced by other parts of this By-Law and its Schedule “A”, which forms

part of it.

For example, section 2.4 (1) (c) of Schedule “A” states:

24 Passed and effective January 4, 2000, this By-Law was in force until By-Law 400-2004 was passed and

effective on December 13, 2004.



All goods, equipment or services shall be purchased only by the Purchasing Manager or designate

upon authority of a resolution of Council and/or a written and properly authorized requisition

within the limits and conditions set out.

Paragraph 3 of the By-Law specifically authorizes the CAO to make policies respecting

procedures for the opening, evaluation and recommendation of tenders and proposals.

With respect to construction projects in particular, section 8.6 (1) (f) states that the Purchasing

Manager must reject any bid which contains a major irregularity. “Major irregularity” is a

defined term:

… a deviation from the bid request which affects the price, quality, quantity or delivery and is

material to the award.

“Minor irregularity” is also a defined term, meaning a deviation from the bid request which

affects form rather than substance. Thus, a deviation from the bid request can be permitted if

and only if it is both immaterial to the award and one of form rather than substance.

The subsection specifically acknowledges that if a deviation that is material and of substance

were to be permitted, the bidder could gain an unfair advantage over competitors. The

Purchasing Manager is required by the By-Law to reject such a deviating bid or proposal, to

prevent such unfair advantage. As that is the duty of the Purchasing Manager, if three

Councillors assume his duties in procurement for a project (whether validly or invalidly), the

duty of fairness to all proponents imposed upon them is the same.

The RFP does not specifically incorporate the purchasing By-Law. In law, therefore, the By-Law

has not been made a term of Contract A. However, the Courts may still examine the By-Law to

determine how the City might have behaved under certain circumstances. For example, if the By-

Law provides that the City always awards contracts to the low compliant proponent, then, had

EllisDon sued, it may have used this By-Law provision to help it prove that, but for the breach of

Contract A, it would have been the proponent involved in negotiations for the project. Since the

By-Law is not specifically adopted in the RFP, it will not have the effect of providing By-Law

guidance as to what is and is not a compliant proposal.

By-Law 400-2004

This new purchasing By-Law is much lengthier and more detailed than the one it replaced. It

was not in force at the time the decisions were made regarding the 400 Building, but remains in

force now, and thus, is important for future procurements.

It also contains a number of provisions which could be interpreted as attempting to give the City

the right to treat proponents unfairly. If these very broad provisions were to be tested in a court

of law, in the absence of the appropriate language in an RFP to give the City such rights, the

court would probably treat them as merely unenforceable verbiage.

If there is a pre-defined evaluation plan, made public as part of the RFP process (as there was in

this case) then that is part of the offer made by the City to proponents, and becomes part of the

“bidding contract” when the offer is accepted through the submission of a compliant proposal.



The Purchasing Principles defined in Part III of the new By-Law state, in subsection 5 (1), that

General Managers and Department Heads have the responsibility for the oversight of all

purchasing activities within their department(s) and are accountable for achieving Best Value

while following the purchasing principles of this By-Law. Obviously, they cannot be held

accountable for achieving Best Value if they are, in future, prevented by individual Councillors

from selecting the proposal that, in their opinion, represents that Best Value. Subsection 5 (2) (a)

delegates authority to the Manager of Purchasing and Risk Management to act as the legal

purchasing agent for the City, under the direction and supervision of the City Solicitor. Nowhere

does the purchasing By-Law say that the person occupying this position may be placed under the

direction and supervision of three members of Council appointed to an ad hoc committee.

Section 16 deals specifically with requests for proposals. Subsection (6) requires the Purchasing

and Risk Management Division to maintain a list of suggested Evaluation Criteria for assistance

in formulating an evaluation process when there is an RFP. Subsection 8 then states that an

“Evaluation Committee” composed of a minimum of two representatives from the department...

shall review all proposals against the established criteria and reach consensus on the final rating

results. Unfortunately, the By-Law does not say explicitly what is to be done with those final

rating results. Presumably, however, the intention is that the Evaluation Committee, having used

the Evaluation Criteria and arrived at a consensus as to Best Value, would ensure that the

proponent offering the Best Value was chosen as the successful one. Otherwise, all of this

careful process of evaluation would be a meaningless exercise in keeping up public appearances,

which would be inconsistent with the ethical considerations set out in section 9 of the By-Law.

Section 9 requires:

(i) open and honest dealings with everyone who is involved in the purchasing process;

(ii) fair and impartial award recommendations for all contracts and tenders, without extending

preferential treatment to any vendor including local companies25

; and

(iii) an irreproachable standard of personal integrity on the part of all of those designated as

purchasing agents...”.

It is important to note that neither the old purchasing By-Law nor the new one contemplates any

role in the procurement process for individual Councillors. The appointment of Councillors to

an Evaluation Committee is neither specifically permitted nor specifically prohibited by the By-

Law. This gives rise to two related questions: is it permissible to appoint Councillors to such a

committee; and, if so, what role or function can such Councillors lawfully play on such a

committee, consistent with the other requirements of the By-Law. In answering these questions,

it is safe to assume that the role of Councillors cannot be broader than the role of Council itself.

Council cannot delegate to individual Councillors power it does not have itself because it has

already delegated such powers to City managers.

25 Section 55 also explicitly prohibits granting preference to local suppliers. Vindella was a local supplier and was

granted preference.



The role of Council itself in the procurement process is limited to approving purchases with a

price in excess of $150,000 (in the new By-Law) and $100,000 (in the old By-Law).

Presumably, this approval process was not limited to being a mere rubber stamp, but would

include the right to determine, subject to the legal constraints of fairness and of consistency with

the RFP, whether the successful proponent chosen by the Evaluation Committee should or

should not be awarded Contract B.

The right to review and approve purchases in excess of a certain price does not mean, however,

that Council, having delegated the entire evaluation process to the staff in a By-Law, could

simply redo the entire evaluation process and select another proponent as the winner, using

criteria other than those which were publicly offered to proponents at the RFP stage, or using the

same criteria but with different weights. Similarly, it does not mean that Council could delegate

to three Councillors the task of redoing the entire evaluation process and selecting another

proponent as the winner. Such a re-selection would be inconsistent with the inclusion of the

requirements for “Openness and Transparency” and “Accountability” in subsection 10 (1) of the

new purchasing By-Law.

Do three Councillors appointed to an Evaluation Committee (that is not a committee of Council)

have the authority to overrule a By-Law, or to waive its normal operation, or to dictate a decision

to the Purchasing Manager that may be inconsistent with his duty under the By-Law? The

question must be given careful consideration.

The Canadian legal system, like that in all democracies, is marked by the constitutional

requirement that everyone in government must act in accordance with the “rule of law”. This

means that the law applies equally to everyone, and that everyone is equally obligated to comply

with the law. The courts will not accept the argument that the English monarchs used to make

centuries ago: “the laws do not apply to me because I make the laws”. Yet there may be a

belief, even today, that the civic administration may be bound by the purchasing By-Law, but

Council is not, and by extension, individual Council members are not. A moment’s reflection

demonstrates that this is a serious misconception.

Although the Provincial Legislature enacted the Highway Traffic Act, the Premier, all the

members of the Cabinet, all the members of the judiciary and all the members of the public

service of the Province have to comply with the speed limits on provincial highways. The law

applies equally to everyone. Whenever any legislative body – whether Parliament, the

Provincial Legislature or a municipal council – makes a law or By-Law, this law is binding on

everyone. If the intention is not to make it binding on someone, either generally or for a specific

set of circumstances, then that intention must be expressed clearly in the law itself. If that is not

done, the presumption is that the law was intended to apply to everyone.

Had Council so intended, it could have amended the purchasing By-Law specifically for the 400

Building. Legally, this could have been done through a special exception to the purchasing By-

Law. The exception would have had to be created through a By-Law amendment specifically for

the particular project. This amendment would, among other things, have defined the roles of the

staff and Council members of the Committee created for the project. When the building was

completed (or earlier, when the design was completed, if the need for the Councillors to be

involved in the procurement process had passed) the amendment could be revoked, again, by



Council enacting a further amendment to the purchasing By-Law. However, Council did not do

this in this particular case, and therefore, the power and authority it had delegated in the By-Law

to staff remained in force.

4009480.1


5.4 Phase 4 – “Price” Financial Analysis Discussion and Report Findings

Phase 4 – Detailed

discussion and

analysis.

Phase 4 – “Price” represents a change in direction from the Purchasing By-Law approved

process, an abandonment of The RFP Assessment matrix represented to proponents as being

the criteria for final selection to a new and previously undisclosed criterion, Price. Price,

which ultimately became the deciding factor, came from a brief and inadequate financial

analysis. It then led to the creation of simultaneous negotiations with the highest ranking

proponent in the RFP Assessment Matrix with another proponent who led the new “lowest

price” criterion:

In other words, The City switched to the use of considerations outside of the publicly

announced evaluation matrix to decide the award of the RFP Contract and outside of the

Purchasing By-Law. As a result of this change in decision criterion, many errors followed.

The issues of Phase 4, “Price” include discussion around two main topics,

5.4.1 The Working Environment of the RFP Evaluation Committee

5.4.2 The “Price” Financial Analysis and Information Reported to

Council for Decision Making Purposes

5.4.1 The Working Environment of the RFP Evaluation Committee

Pages 5 – 14 of the

legal memorandum

(Appendix A)

contain a detailed

legal analysis

regarding the

overall governance

structure of the City,

including the impact

it had on the project,

the City, City Staff

and Council as a

whole.

Finding 2.

The vague Council motion that approved the creation of the ad-hoc procurement committee

and the absence of an adequate, approved business case resulted in a division between the

Councillors and the Administration responsible for recommending the preferred proponent

for the award of the Design / Build Contract. The division was not contained within that

group, but extended to other Administration involved on the project and reporting to

Council. 13

a) The division was evident in the project reports to Council in July, August and

September of 2002. Due to significant concerns over the MFP procurement scandal

and the City’s 2002 debt load, the Council members on the committee, supported by

some Administration external of the committee were running the selection process

on “lowest price” and members of Administration on the committee were

committed to the RFP matrix (Purchasing By-Law).

13

Direct evidence which would reveal the identity of individuals will be held confidential by the Auditor General’s Office.


b) Between January 2002 and September 2002, members of junior Administration

brought concerns to the attention of some senior Administration and the message

reached the then-CAO regarding the City’s own departures from the announced

RFP process as represented to the prospective proponents.

c) Ultimately, the project environment became adverse. There are multiple project

documents and interview comments that strongly support our finding that the

working environment for certain members of Administration became one of

frustration and intimidation. Commendably, under the pressures of this

environment, some junior members of Administration showed significant strength

and resolve through repeated attempts to have the City return to fidelity to the RFP

process and the Purchasing By-Law.

d) Serious communication issues ensued. Project documentation and correspondence

among all levels of Administration through to February of 2004 shows that the

division continued even after the award of the RFP. This documentation shows that

some members of senior Administration, including the then-CAO were aware of the

problems and the expressed legal concerns with deviating from the RFP process.

e) The concerns about going offside legally reached the level of the then-CAO.

However, through the lack of documentation or comment support, it remains

unclear whether the then-CAO ever apprised the Councillors on the ad-hoc

procurement committee, or apprised Council as a whole, of the dangers of selecting

the final proponent without compliance with the applicable procurement rules.

About the Divide in the RFP Evaluation Committee

The issues of the

divide, as outlined

in the finding, are

discussed in detail

in Appendix A.

Here, we focus on

the how and why the

divide happened.

5.4.1 a) About The Division

The legal memorandum (Appendix A) goes into detail regarding the structural and

communications problems within the project organization structure. In addition to providing

supplemental support for the legal memorandum discussion, this section provides an

opportunity to emphasize how a solid business case, based on a good project management

methodology, would have assisted in avoiding some of the legal and other issues that occurred

on this project.


How was the divide

formed?

What was the

divide?

5.4.1 b) Junior Administration Managed the Project Until the Stage 1 Proposals Were

Received

Members of junior Administration managed the 400 CHS procurement process from June 25,

2001, up to and including issuing the EOI and Stage 1 of the RFP. The results of the audit

analysis verified that up to this point junior Administration, principally through the actions of

the Senior Property Negotiator, ran the RFP process in accordance with the Purchasing By-

law without any noted exceptions.

On January 14, 2002, Council established an RFP review and selection committee structure to

include both members of Council and Administration. The vague Council motion resulted in

a procurement process split into two divergent paths. Communication between the two

groups, operating on two separate paths, was not effective and eventually became adversarial.

1. The Councillors, out of real concern for the City’s then-current debt load,14

tried

to change the procurement process into one based on short-run purchase price,

not the RFP Assessment Matrix, and not even the lowest cost over the expected

lifetime of the asset, including maintenance and operating costs. 15

2. Administration, in recognition of its role of responsibility under the Municipal

Act, tried to run the procurement process based on the results of the RFP Matrix,

as required by the Purchasing By-Law.

3. Eventually, a division grew between Administration on the RFP Evaluation

Committee and those involved in reporting to Council on the project. There was

evident disparity between the RFP matrix requirements and the newly-created

“technical” versus “financial” winners information presented by Administration

in the July, August and September project reports to Council.

Communication between the two groups, operating on the two separate paths, was not

harmonious. As explained in the legal memorandum (Appendix A), junior Administration on

the committee, quite properly, complained to the City Solicitor about being overruled or

pushed aside by the Councillors.

The project documentation shows the message was carried to the then-CAO and that there was

14

We have been advised by Administration, that in 2002 the City was carrying a very large debt load. In light of this and the fact

that the City had just gone through MFP, Council was very concerned.

15

Many terms were used throughout the project to define the same thing: Price. This is explained later in the report. Budget

neutrality was interpreted at this time, as meaning that the impact on the City’s annual operating budget would be $0. However, the

analysis presented to Council did not take into account differences in operating and maintenance costs between two building

designs, one of which was more costly to construct initially, but may have been more budget neutral through savings in operating

and maintenance costs.


Another reason the

divide was

perpetuated - the

City did not use best

practice: a Business

Case, a Project

a level of comprehensive awareness of the ongoing problems among the various levels of

some Administration staff. However, there is no indication that the then-CAO raised the issue

with these Council members or dealt with these complaints. We have not found evidence that

the three City Councillors on the ad-hoc committee, or City Council itself, were made aware

of either the fact that the project had been taken outside of the legal framework of the

Purchasing By-Law and the common law applicable to such procurement contracts, or the

serious consequences that could flow from such conduct.

Some senior members of City Administration did not work directly with the Councillors, but

were involved in the review and approval of the Committee reports brought forward to

Council for information and decision making purposes. The reporting process for the 400

CHS project assisted to greatly muddy the responsibility and accountability for what took

place on this project.

The signatories to the reports to Council did not necessarily indicate participation in, or a

detailed level of involvement in preparing the project reports for Council. At times, a

signature was representative of an involved individual on the project, at times of an individual

involved only in reviewing the report to Council information (with limited knowledge of the

project history and detail) and at other times, the signature was representative of an individual

required as a formality to approve the report under the City’s protocol based on Procedural

By-Law 420-2001, which provides authority for the report to be released to Council.

In our meetings and interviews of this audit, we were advised of a concerning issue regarding

the project reports to Council. Report signatories were not necessarily aware of the serious

ongoing issues of the project RFP evaluation (the same is true of the Furniture Tender). We

were advised that some individuals participated in a review of the reports, provided

authorizing signatures, and even spoke to the reports at Council, absent knowledge that would

have afforded them the opportunity to step in and make attempts to rectify the situation. This

issue highlights a serious control issue in the City’s reporting to Council procedures, which

the AGO has addressed in a recommendation to this audit report.

5.4.1 c) No Approved Business Case & The City Did Not Follow Procedural By-Law 420-

2001 for this Project

The legal analysis starting at Page 5 of the legal memorandum (Appendix A) begins by

highlighting the following:

1) There was considerable confusion and inconsistency on the part of both Council

members and City staff, from the very beginning of the 400 Build project, about the

respective roles of the Council members and the Administration members on the

committee appointed to oversee the RFP process.

2) There was similar confusion and inconsistency about the very nature of the


Charter or the

Procedural By-Law

420-2001.

committee.

The legal risks identified in Appendix A may have been avoidable with a Council approved

project charter or project plan that clearly defined roles, authorities and decision rights in

accordance with the requirements of the Purchasing By-Law, the Municipal Act, the common

law governing procurement contracts and Council’s direction.

The inconsistencies and confusion made it difficult to determine the exact nature of the RFP

Evaluation Committee. We did not find documentation to support that the City carried out the

steps of Procedural By-Law 420-2001, required to take place when Council appoints a

Committee. 16

Therefore, it is unclear as to whether Council wished this committee to be a

committee of Council. Regardless of the confusion, it is important to highlight that a best

practice of project management for a defined project structure is already well-represented in

Procedural By-Law 420-2001, which requires the following to take place when Council

appoints a Committee.

Appendix B to Procedural By-Law 420-2001 states;

a) “That all requests for the formation of a Special Committee of Council/Advisory

Committee or Task Force be presented to Committee of the Whole for consideration.

b) That all requests, upon approved motion by the Committee of the Whole, be referred

to the Clerk for a report back on the following:

i. inventory of previous and existing activities related to the issue

ii. reporting structure, membership composition, mandate, objectives, legislative

requirements, work plan and timelines for the Special Committee of

Council/Advisory Committee or Task Force

iii. responsibilities of Committee members

iv. membership expertise requirements for the Special Committee of

Council/Advisory Committee or Task Force

v. proposed budget allocation requirement and source of funding

vi. staffing requirements

vii. other necessary resources, and

viii. term limits”

There is however, a weakness in this section of the By-Law which we have addressed in a

16

“Committee” per the Procedural By-Law 420-2001 means a Committee of Council which has been duly appointed to deal with

specific administrative matters and provides advice and/or recommendations to Council.


Control Issue:

Unclear

Responsibility and

Accountability for

implementing and

enforcing the By-

Law requirements.

How did Council

become involved in

the project?

recommendation to this report. It does not seem logical to expect the Clerk to complete such

tasks given the author of such a report would require specific knowledge of the purpose for the

committee and the task at hand. The By-Law is unclear as to who is required to fulfill these

requirements, or to report back to the Clerk. Further, the By-Law does not appear to include a

control mechanism to ensure that these requirements are carried out to the satisfaction of the

Clerk, or to another defined accountable Head.

5.4.1 d) How Council Became Involved in the Project

On June 25, 2001, Council approved the project in principle by resolution CR780/2001. Up to

the time the RFP Evaluation Committee was formed, the project was being managed by junior

Administration.

City Council became involved in the project because of the history of other projects going

over budget and the lack of communications to Council on those projects. On January 14,

2002, Council approved the recommendation, “That Councillors Hotham, Carlesimo and

Valentinis BE APPOINTED to a working committee with members of the Administration for

the purpose of undertaking a review and developing a short list of the RFP proponents for the

New Office Building at the former Police Headquarters.”

Chart A below, depicts the structure of the RFP Evaluation Committee that resulted from the

resolution of Council that approved the formation of the group and the assignment, by Senior

Administration, of members of Administration to be advisors to the Councillors on the

Committee.


What did the

structure of the RFP

Evaluation

Committee look

like?

Chart A: Project Structure During The RFP Procurement & Award Process17

This real concern

and the reason

Council got

involved, may have

added tension into

the working

environment of

Council and

Administration.

5.4.1 e) Why Council Became Involved on the Project

As explained in draft notes from a February 25, 2005 Steering Committee meeting:

“…in 2001 – 2002 the City was in the shadow of MFP and a significant debt load.”

“The mandate of the committee at that time [the RFP Evaluation Committee was

formed] was if this project cost the City any extra money, it would not go forward.”

“…If Administration could show the cost of the new building would reflect the

monthly payment of rent, then the project could be viable. The project was given the

go ahead on that basis.”

As was the case for the 400 CHS project, Council departed from its proper policy-making

governance role and ventured into the policy implementation role of Administration on more

than one project, perhaps as a result of strong concerns over the City’s debt load and MFP. In

our discussions with Administration, the AGO was advised that the Current Administration

believes that these reasons were known as the significant concern of Council during that time.

17

This Chart represents the Administrative Advisory group that worked on the RFP Evaluation Committee. Some of the members

listed were more involved than others, some worked intermittently, as needed, to provide advice, expertise and assistance to the

project.

Councillor 1 Councillor 2 Councillor 3

Assigned by Council resolution Jan. 14, 2002 (in-camera Council meeting)

Formed for the purpose of undertaking review & developing short list of R.F.P. with Administration.

Fund Accounting Manager

Director of Administration

Social Services Senior Property

Negotiator Director of

Facility Management

Legal Public Works

Project Engineer Director of Traffic City Centre

Revitalization Manager

Administrative Advisors assigned to assist the Working Committee.


According to current Administration, Council was also involved in the administration of a

large project concurrent with the 400 CHS project; the Western Super Anchor project. While

that project did not receive Council approval to go forward, Council and Administration

worked together through a number of tasks and there were significant challenges in the

Council / Administration work environment of the Super Anchor project. The reason Council

got involved on these projects may have added tension to the 2002 project environments.

Administration advised the AGO of an indicator of positive progress and performance of the

City’s debt load since 2002, as recorded in the 2008 / 2009 Municipal Financial Indicators

report of BMA Management Consultant Inc.

Debt Charges as % Total Expenditures (2002 figures were not Available)

Data 2003 2004 2005 2006 2007 2008

Windsor 6.3% 5.3% 3.8% 3.1% 2.4% 2.2%

Average 4.1% 3.8% 3.9% 4.4% 4.1% 4.2%

Council and

Administration have

worked hard over

the years. The

City’s debt load has

significantly

improved – Windsor

is now 48 % below

the municipal

average.

In 2003, Debt Charges as a % of Total Expenditures for the City of Windsor were reported at

6.3%, or 54% higher than the municipal average. Administration has advised that, “this high

debt level was headed even higher given the then planned debt issuances for major projects

such as the 400 CHS Project, the redevelopment of Huron Lodge, and the funding of a new

arena.” Owing to Council's focus and Administration’s diligence in reducing long term debt

over the last several years, by 2008, this dropped to 2.2%, or 48% below the municipal

average.

According to BMA, debt service costs as a percentage of the total expenditures reveals the

level of expenditures required to service past obligations, which is, therefore, not available for

other services currently required. The state of the City's high debt level of 2002, along with

the then-notorious MFP crisis may have been major contributing factors towards the primary

focus on the initial price of the 400 CHS Project, at the expense of the longer term value for

money RFP requirements. With these factors in mind, it may have been viewed by the then-

Administration that, while long term operating costs of the proposals were also important, the

initial price of the project would have been more highly weighed as it would reduce the

ongoing debt charges.

While this discussion presents a potential explanation for why the reports of Administration to

Council focused so heavily on the initial price of the project, the deviation from the stated and

legally correct RFP process cannot be condoned. The direction to deviate from the RFP

Assessment Matrix to become predominantly based on price – or for any reason at all – was

not in accordance with the law of procurement, with the City’s purchasing By-Law and with

the Municipal Act. This exposed the City to the risk of significant financial loss through

successful legal action against the City and higher costs for future procurements if the public

lost faith in the City’s fair treatment of RFP proponents and there were fewer respondents to


RFPs.

Communication

issue: From day

one, Council

communicated a

consistent message

– Budget Neutral or

no go for the

project.

As we move on in

the report, we will

identify that the

actual principal

concern was

“Price”.

“Price” and

“Budget – Neutral”

are financial

accounting terms

and there is a very

important difference

between the two.

5.4.1 f) The Councillors on the Evaluation Committee Were Concerned With Price

Many of the project problems were caused by unrealistic thinking about budget neutrality. As

discussed above, the Administrative side of the process wished to remain faithful to the RFP

evaluation process. Yet, from Day 1 through to the Award of the RFP Contract, Council’s

message was consistent – Budget Neutral18

or No-Go for the Project.

However, one cannot make the City’s desire for budget neutrality a criterion in an RFP

process. Preparing a response to this type of RFP is a very costly process for proponents.

Potential proponents would have no idea of the City’s budget, or what rental rate the City

expects or wishes to charge per square foot per year over the life of the asset. There would be

no responses to such a vague RFP. No one would be able to submit a proposal for a building

with determinative but unknown or undisclosed financial prerequisites. This is where the

business case becomes crucial.

If the City had developed a business case with stated assumptions that were debated and

agreed to, it could then have decided either not to construct and own the building (hence no

RFP) or to issue an RFP with detailed requirements for both City-occupied and rental space in

a building of specified square footage and maximum price.

On the Capital budget side, during the City’s 2002 budget deliberations, Council approved

budget resolution B42-200219

with respect to the Debt Management Strategy with the

following provision:

- “That no other major projects BE APPROVED in the 2002-2007 period other than the

Justice Facility, Richmond Landing, Training Facility, Multi-Use Recreation Facility,

Lou Romano Project and Huron Lodge. Debt identified in this report should be

considered in the context of this resolution and the other projects currently contemplated

or already approved by City Council...”

18

Budget – neutral means where the impact on the City’s annual operating budget would be $0. An appropriate process to

measure this goal on the operating side would require a complex financial analysis used to compare the proposals to determine the

lowest cost to the City.

19

This resolution carries a connected message from Council. There would be no capital projects approved outside what was

identified in

B42-2002. Any project going forward would need to fit into the existing debt strategy, and have a $0 impact on the

City’s debt load.


On the Operating budget side, the importance of the internal goal of Budget-Neutrality was

clear in project documentation such as Reports to Council, Steering Committee minutes, staff

emails and reports in the media quoting City staff and members of Council. A good example

of this message is reflected in the draft Committee notes discussed above.

And finally, the importance of Council’s message was carried forward to the conclusion of the

September 2002 Report to Council written by Administration, which recommended the Award

of the RFP to a proponent as the,

- “…proposal allows the City the potential to achieve a cost neutral position for the

project.”20

In the “Price” Financial Analysis of the September report, the concept of “any extra money”

was narrowly considered as equal to purchase price and the possibility not all extra space

would be rented, not cost over the lifetime of the building. Thus, potentially higher long-run

operating and maintenance costs were treated as irrelevant.

Good

communication

controls required

for the system of

governance to

effectively operate.

Given the global

environment under

which this project

5.4.1 g) Effective Communication Required for Good Governance

Conditions such as those discussed in this report which existed during the RFP evaluation and

selection process for this project have a negative impact on effective communication between

Council and Administration, which is integral to effective Corporate Governance.

It is incumbent upon Administration to preserve the flow of timely, accurate, appropriate,

relevant and critical (risk) information to the City’s decision makers. However, there are

structural weaknesses that exist which, under the right circumstances, will make this important

task of Administration difficult.

We have made recommendations for Administration to consider the development of policy

and By-Law amendments to address identified structural weaknesses and to remove structural

impediments21

to an effective corporate communication system.

5.4.1 h) City Wide Risk Events Had an Affect on the Project

The municipality of 2002 was much less structured than it is today and there were a number of

20

Cost – neutral, used in this context means the same thing as Budget – neutral. That the impact on the City’s annual operating

budget would be $0.

21

Related to or resulting from the organization or functioning of a political or economic system.


took place –

transparency and

accountability for

the issues is weak.

Risk events outside

of the project also

had an impact on

the project

environment &

effective

communication.

external risk events of the project that had an impact on the project. Because of the conditions

of the project environment and the conditions of the total environment (City wide) – the lines

of transparency and accountability for the issues on this project are not clear.

Concurrent Risk Events Created a Crisis for the City and Trouble for the Project:

- Some senior and experienced Administration who had witnessed the MFP crisis had

recently left the employ of the City. The remaining Administration was stigmatized by

MFP.22

- At that time, the City was low in senior staff with sophisticated risk management and

project management experience.

- The team of Administration that remained after these departures inherited a large problem;

rebuilding the trust, relationships and reputation of Administration, a condition they have

been steadily working at improving ever since.

Corporate Governance in 2002 was Not as Strong as it Is Today:

- Organizational instability was prevalent among the top levels of Administration, and this

was exacerbated by the intrusion of individual Council members into the procurement

function.

- There was a lack of a corporate risk framework, including a lack of strong risk analysis,

and risk communication policies.23

- There was a lack of supporting governance policies to provide an alternate forum for

concerned persons to come forward. For example, today Council has in place an Integrity

Commissioner, Auditor General’s Office, Hotline, Fraud Policy, Council Code of Ethics,

etc. Further, Administration is working on finalizing a City Staff & Administration Code

of Ethics to bring to Council for approval.24

22

The MFP crisis was discovered by the City in 2001. In July 2005, the County, City and EWSWA (the "Plaintiffs”) settled a

legal action commenced in the Ontario Superior Court of Justice against MFP Financial Services, Leasing-Infrastructure Financing

Trust 1 ("LIFT") and others in which the Plaintiffs had alleged that certain of the defendants had fraudulently and negligently

misrepresented the rate of interest payable by the Plaintiffs in respect of a head lease and sublease intended to be a loan to finance

certain costs incurred by the Authority to develop the Regional Landfill and pay the costs of future landfill expansions.

23

The City does not have a risk management or enterprise risk management (ERM) framework in place today. This is outside of the

scope of this audit but still important, as ERM would require effective communication policies to be in place to ensure timely

critical information reaches the City’s decision makers. Administration’s current OCI initiative should help improve this control

area.

24

The City has implemented a code of ethics policy for members of Council; however the code of ethics policy for Administration

and staff remains in draft.


Council has

completed a number

of initiatives

towards

improvement to

accountability,

transparency and

good governance for

the City of Windsor.

5.4.1 i) Council & Administrative Initiatives Since 2002, Have Significantly Improved

the Governance Structure, Corporate Culture, and Risk Environment of the

City

The City of Windsor website contains the following information which highlights recent

achievements of Council to improve municipal governance, transparency and accountability25

:

“In 2006, the Municipal Act was amended to include new provisions respecting the

accountability and transparency of municipal government and its operations. Since

that time, City Council has taken a number of important steps to meet the new

requirements of the Municipal Act to enhance transparency and accountability and to

improve on the corporate governance structure of the City of Windsor.”

The following list of initiatives and actions of Council, supported by the City’s

Administration, demonstrate the City’s deliberate path to increasing transparency and

accountability of the municipality:

1. Appointment of Accountability & Transparency Officers

- Integrity Commissioner (Approved October, 2007)

- Auditor General’s Office (Created July 2008)

- Audit Committee website 2008, where the public can access Auditor Committee

and Auditor General’s Office information through 311, Council Services or the

Audit Committee website at http://www.Citywindsor.ca/002781.asp

- Voluntary Lobbyist Registry26

2. Implemented Council Code of Conduct

- On October 22, 2008, Windsor City Council passed a new Code of Conduct for

Council.

- The code of conduct can be viewed on the web at:

http://www.Citywindsor.ca/DisplayAttach.asp?AttachID=12807

25

For more information, refer to the City’s Municipal Accountability and Transparency website located on the web at:

http://www.Citywindsor.ca/002634.asp

26

Council has approved the creation of a voluntary Lobbyist Registry, but has chosen not to appoint an Ombudsman at this time.


3. Appointed a Public Meeting Investigator

- The Act mandates that citizens have the right to request that an investigation be

conducted into the appropriateness of closed meetings of Council.

- The City of Windsor has appointed the firm of Amberley Gavel Ltd. as its

Meetings Investigator.

4. Corporate Culture Initiatives (IRIDE)

- IRIDE is a City initiative aimed at positive and effective change to the City’s

overall culture through a Council supported VISION and MISSION and principles

of IRIDE.

- IRIDE stands for Integrity, Respect, Innovation, Diversity and Empowerment.

- While upholding the principles of IRIDE, the Current Administration is in the

process of making improvements to this culture initiative.

5. Mandatory Policy Development

Municipalities have been mandated to have, and regularly review certain policies.

Administration has developed a number of policies for Council approval. For

example,

- In 2003, the City commissioned PriceWaterhouseCoopers to conduct a Controls

and Procedures Audit on Corporate Services. This report has led to a number of

initiatives and changes to the City’s core financial department which greatly

improved on municipal accountability and responsibility.

- New purchasing By-Law, 2004 (Currently in revision).

- Corporate Template for financial implications of reports dealing with capital

projects.27

- Office of Continuous Improvement (OCI) – For the improvement of internal

control and risk management. (Structure pending)

- Service Delivery Review.

- Draft code of ethics policy for employees.

27

This policy should address some of the control issues identified within this report regarding “information presented to Council

for decision making purposes.”


5.4.2 The “Price” Financial Analysis and the Information Reported to

Council for Decision Making Purposes

Additional audit

findings of the RFP

procurement

process review.

The information presented by the Administration to Council was inadequate for decision

making purposes in a number of ways. The presentation of whether and how the

proponents complied with the RFP’s requirements and among the compliant proponents,

and how they ranked in the RFP evaluation process was inadequate and incomplete. There

was also a lack of disclosure that the recommended process was a significant deviation

from the legally binding RFP procurement process by way of circumvention of that process

and of the Purchasing By-Law.

Finding 3.

It was not transparent in the reports to Council that Council was being asked to deviate

from the RFP process or to circumvent the Purchasing By-Law when the Administration

recommended that Council provide “direction” to the RFP Evaluation Committee to

negotiate with the highest ranking proponents in both the technical and financial reviews of

the RFP evaluation. Council was being asked to direct the Committee to go down a path it

legally could not go, without disclosing this.

a) This raises questions of unacceptable “Bid Shopping”, which “occurs when a

municipality opens the bids and then uses them to “negotiate” by approaching

bidders with the information and trying to get them to lower their bids. This

violates Contract A and the duty of good faith.” 28

b) It is unclear whether Council was ever advised that providing direction to negotiate

with proponents at this stage in the process would amount to Council approval to

circumvent the Purchasing By-Law. However, as Council could have amended this

By-Law to exempt the 400 Building from it with relative ease, it is doubtful that

this would have been presented, but left undone. The Stage 2 RFP and related

correspondence to the Proponents was clear – that the Award of the RFP would be

decided based on the RFP Assessment Matrix. What remains unclear, and unlikely,

is that Council was advised of this requirement or reminded of this requirement

when deciding on the RFP Award.

c) The RFP itself created no such division between “technical” and “financial”.

Rather, points were awarded only on a matrix that included a weighting for

financial as well as other criteria. It was not accurate to characterize this

comprehensive and publicly-announced matrix as merely “technical”, and the

28

Source: Fall 2008 Municipal Leader magazine, “Love Me, Tenderer: Municipalities, Tendering and the Law” by John D.

Stefaniuk, Partner , Thompson Dorfman Sweatman LLP.


narrow, short-run analysis of purchase price alone as “financial”. It was also

without legal foundation to declare two “winners” and to pit one against the other.

Finding 4.

The reports to Council failed to disclose the Vindella proposal was non-compliant to the

RFP, and therefore, had to be rejected, rather than declared a winner in the non-existent

“financial” category. The Vindella proposal was presented to Council as a compliant and

seemingly viable proposal, giving the false appearance that it was the lowest compliant

bid29

in the running for the award of the contract.

Finding 5.

After the Stage 2 evaluation and ranking of the RFP proponents concluded, the City turned

away from the RFP Assessment Matrix process to a “Price” Financial Analysis to decide

the award of the RFP contract.

Whether referred to by Administration as “Annual Operating Budgetary Impact”, “Cost

Neutral”, “Budget Neutral” or “Building Ownership Risk”, etc, the goal of the “Price”

Financial Analysis was to determine the lowest price of ownership (not lowest cost of

ownership) for the 400 CHS building.

The financial information brought forward to Council to determine this lowest price factor

was designed by Administration. There is a concern that Council was not told by

Administration that the Purchasing By-Law RFP Matrix which took into account both long-

term “Cost” & short-run “Price” (Value for Money) applied the maximum weight to the

Life Cycle Costing proposal requirement, which was clearly an appropriate and meaningful

evaluation tool to determine the lowest cost of ownership of a fixed asset over its useful

life.

To expand on this statement, the use of cheaper but less durable building designs and

materials, which require earlier replacement and more costly annual maintenance, only

serve to drive down the initial price by an amount which may be smaller than the total cost

of the building over its useful life. This may result in a transfer of costs from this

generation to our children, raising an issue of intergenerational equity.

29

Means the Bid that would provide the City of Windsor with the desired goods and/or services at the lowest per unit or overall

cost, meets all the Specifications and contains no major irregularity or qualifications.


Finding 6.

Based on the audit work performed, it is the opinion of the AGO that the “Price” Financial


unfair to Council and to taxpayers. There was incomplete disclosure of material facts,

which likely created the situation that Council did not have the information to make an

informed decision as to the award of the RFP Contract.

a) Council was advised, “…the variance between best and worst case scenario is the

amount of risk the Municipality must consider as the cost of owning this facility on

an annual basis.”

b) The presentation of the “Price” Financial Analysis “Risk” calculation along with

discussion of the RFP requirements in the same report, likely gave Council the

impression that the RFP requirements had relevance to the results of the analysis.

It is unclear whether Council was ever advised that the RFP Matrix information

included in the reports to Council became “for Council information” only.

c) The “Price” Financial Analysis did not include an adequate evaluation of real

project risks. The risk analysis was a simple calculation that only equalled the

current amount of speculative space rent. The same outcome was achievable

through a simple arithmetic calculation: current un-rented space x the estimated

lease rate per square foot.

d) There was a material omission in the September 2002 report to Council to

recommend the Award of the RFP Contract. No final risk calculation, Variance

(Risk), on a basis consistent with the previous report, was shown in the September

report. If the final risk calculation had been shown, in carrying through

Administration’s risk analysis methodology consistently, EllisDon would now have

been shown to be less risky. There was also no commentary to indicate that

contrary to prior reports, EllisDon was now the “winner” for this risk criterion.

Although we pursued the question with vigour, no one connected with the project

was able to provide us with any explanation for this material omission.


Finding 7.

Based on the audit work performed, the AGO has determined that the “Price” Financial


unfair to the Proponents. Any proposal which met the stated City requirements or requests

of the RFP (any proponent that gave the City what the City asked for), was placed at an

immediate and uncontrollable disadvantage in comparison to a proponent that did not meet

the City’s requirements or requests. Conversely, the less compliant the proposal, the better

chance the proponent had to be declared the winner of the RFP process.

Finding 8.

The financial analysis in the reports to Council dated July 18, 2002 (in-camera), August 21,

2002 (in-camera) and September 4, 2002 (open session # 8652), consistently used, but did

not clearly state the total office space requirement as 111,500 sq. ft., a material decrease of

31,100 sq. ft. from the City’s RFP Stage 2 requested estimate of 142,600 sq. ft. Any office

space greater than 111,500 sq. ft. was now treated by Administration to be “speculative”

space, and thus, as a risk.

It was not appropriate to use the 111,500 sq. ft. value in the financial analysis without

disclosing the nature and consequences of that newly-adopted number. The presentation of

the information regarding the 111,500 sq. ft. in the reports to Council was incomplete and

unclear. Based on the audit work performed, the AGO determined that:

a) The number represented a material change from the stated requirements of the RFP

as presented to the proponents, and the change had a distorting, punitive effect on

the evaluation of the proposals that came closest to meeting the building size

requirement presented by the City’s RFP.

b) The number was changed by Administration as a result of the loss of the Provincial

tenant, to reflect the then-current risk to the City. The information should have

been used to highlight the risks to Council, to assist Council in its decision whether

to approve the project to proceed. Instead, the information was used in a manner

that punished the RFP proponents that met the stated requirements of the RFP and

rewarded one that did not.

c) By material error or omission, what the reports to Council did not provide was a

discussion of the risk impact to the City that would result from this opaque change.

As stated in the legal memorandum (Appendix A), this change is one part of the

process leading to the breach of the City’s “bidding contract” obligations to

EllisDon. If not for the passage of time, the City would be facing the risk of

compensating EllisDon for the overhead and profit it would have earned.


d) More broadly defined, the City risked damage to its goodwill, damage to future

business relationships including the ability to attract quality proponents and quality

investment, damage to relationships between Council and City staff, and caused the

risk of legal action against the City, members of Council and members of senior

Administration.

Discussion: The “Price” Financial Analysis

What was the

“Price” Financial

Analysis?

May 2002 was the last time the RFP Matrix results reported to Council held any weight on

the outcome of the RFP Award. By the July 2002 report to Council, the outcome of the

RFP Award was driven by the results of the seriously flawed “Price” Financial Analysis.

The “Price” Financial Analysis introduced by Administration had two components: (1)

Price and (2) Risk, which presented itself as calculating the annual operating budget impact

as (i) a best case scenario, (ii) a worst case scenario, and (iii) the “variance between best &

worst case = RISK”.

Therefore, as defined by Administration:

Difference in Annual Operational Budgetary Impact =

Variance (worst case scenario minus best case scenario) = Risk

Council was not advised that the “risk” calculated only equalled the estimated price of

speculative space rent. 30

In actuality, the calculation for the “Price” Financial Analysis

meant:

Difference in Annual Operational Budgetary Impact =

Estimated Speculative Space Rent

That is by no means a comprehensive analysis of the relevant risks of a major project like

this. The calculations in the “Price” Financial Analysis were described by several different

terms in the project reports to Council. Whether the results of the calculation were referred

to as “Annual Operating Budgetary Impact”, “Cost Neutral”, “Budget Neutral” or

“Building Ownership Risk”, etc, the goal of the “Price” Financial Analysis was to

determine the lowest short-run price of ownership (not lowest actual, long-run cost of

ownership) for the 400 CHS building.

30

Speculative space is un-rented space.


The discussion of the audit findings is presented in the following sequence:

A. “Price” vs. “Cost” – What’s the Difference?

B. May 2002: Concerns with the Information Presented to Council for Decision

Making Purposes.

C. July 2002: The Deviation From the RFP Process & Issues of Fairness to the

Proponents.

D. August 2002: Issues of Transparency in Reporting to Council & Fairness to the

Proponents.

E. September 2002: Continued Issues through to the Award of the RFP.

The decision of the

City to move away

from the “RFP

Assessment Matrix”

to “Price” shows

the limited

understanding of the

nature and purpose

of the purchasing

By-Law, which is to

achieve the lowest

overall cost to the

City.

A. “Price” vs. “Cost” – What’s the Difference?

A central conclusion of the legal memorandum (appendix A) was that “Council members

and some senior staff members demonstrated a low level of awareness and understanding

of some of the most basic principles of the laws governing the City…” The findings and

discussion to follow help to demonstrate the effects of this conclusion around financial

terms: “Price”, “Cost” and “Value for Money”.

1. The difference between “Price” and “Cost.” To clarify the commonly

misunderstood difference between price and cost in the 400 CHS building31

project:

- “Price” is the lowest immediate capital cost, the one-time value of money paid for

the building to be completed. In this case, the total project price paid for the

construction of the 400 CHS building was $ 23,367,173.

- “Cost”, includes the price paid for the building and the money it will take to

maintain the building during its lifetime. The cost of the 400 CHS building will

continue to be paid by taxpayers for years after the price was paid.

2. The difference between “Price”, “Cost” and “Value for Money”

- Simply put, “Value for Money” means the best available combination of “Price”

and “Cost”. 32

- The decision to steer away from the RFP Matrix shows there was a limited

31

This discussion refers to the construction price of the building known as 400 CHS. The discussion does not include

consideration of the other project expenditures, i.e., furniture fit-ups, district energy, sale of social services assets, etc.

32

To achieve Value for Money means the City has obtained the maximum benefit from the goods and services it both acquires

and provides, within the resources available to it, in accordance with the laws, principles, guidelines and standards of the

municipality.


understanding of Council and some Senior members of Administration that “Value

for Money” was the better financial measurement tool for minimizing the total bill

for taxpayers.

- The RFP assessment matrix is thus, for good reason, the approved Purchasing By-

Law method used by the City to ensure decisions on RFP Awards result in “Value

for Money” for the taxpayers of the City of Windsor.

Council was first

introduced to the

RFP ranking results

in a May 17, 2002

In-Camera report.

Proponents’

“Price” rankings

were not

consistently

reported.

B. May 2002: Concerns with the Information Presented to Council for Decision

Making Purposes:

Administration first reported RFP evaluation results in an in-camera report dated May 17,

2002. The evaluation results were presented as preliminary and Administration requested

and received approval to continue to evaluate the RFP’s including necessary interviews

with the intent to bring a further report to Council.

“While six proponents for our R.F.P. were shortlisted following the Stage 1 review, only

four submitted responses to the Stage 2 request for detailed information. The Stage 2

respondents were:

1) Vindella Enterprise Inc.;

2) Mady Development Corporation;

3) M.K.T. Development Group;

4) Ellis Don”

May 17, 2002 RFP “Price” Rankings Reported:

Chart B: RFP Design / Build Price

Mady Ellis Don MKT Vindella

29,850,000

27,300,000

30,476,588

26,742,000

Correction: Vindella price excluding GST

24,992,114

- In terms of clarity of presentation, the financial values were not consistently presented

for each proponent.

- The Vindella proposal was reported inclusive of GST and the other proposals were

reported net of GST. (The actual price net of GST included in Vindella’s proposal was

$24,992,114).

- The presentation was Apples to Oranges. It was not adequately explained that these


were different prices for substantially different buildings, not different prices for the

same type of building.

- As noted earlier, these numbers were for purchase price only. They were not a full

costing to show the different impacts on the City’s budget in future years of differences

in operating costs and maintenance costs resulting from differences in basic design and

in the construction materials used.

May 17, 2002 Final RFP “Technical = Non-Price” Ratings Reported33

:

The “Non-Price” ratings (referred to as “Technical” by Administration) of the RFP

Evaluation Committee rankings were presented as follows: “The administrative technical

committee has evaluated the proposals based upon the attached “assessment matrix”. The

weighted scores for the proposals, excluding the “Price Proposal” section are shown on

the matrix.”

Chart C: Stage 2 RFP – Assessment Matrix (May 17, 2002 In-Camera Report to Council)

RFP Assessment Matrix Weight Factor Mady Ellis Don MKT Vindella

Matrix Requirements Points Weight Points Weight Points Weight Points Weight

Product

Drawings 1 5 5 5 5 5 5 3 3

Building Design / Function 3 2 6 4 12 2 6 3 9

Parking Requirements 3 4 12 5 15 1 3 2 6

Additional Amenities 1 5 5 5 5 0 0 1 1

Compliance Civic Sq. Urban Design 2 2 4 4 8 2 4 2 4

Sustainable Design (LEEDS) 2 3 6 5 10 3 6 1 2

Outline Specifications/ Standards 1 4 4 5 5 4 4 0 0

Cost Price Proposal 3

Life Cycle Costing 3 4 12 5 15 4 12 0 0

Schedule Project Schedule 3 2 6 4 12 5 15 34 0 0

Total 60 87 55 25

Converted to a % out of 95 points 63% 92% 58% 26%

Weight Factor: Marked the importance of the RFP requirement, 3 being of the greatest importance.

Product, Cost & Schedule: The main categories of the RFP requirements to be met by the proponents.

33

Although reported as preliminary, these values did not change and therefore represent the final RFP technical rating scores.

34 Arithmetic corrected: May 2002 report showed MKT scored a 13 in this category. Weighting corrected 5 X 3 = 15.


The results of the

Matrix evaluation

show the Vindella

proposal is deficient

in some areas

The legal memorandum (Attachment A) discusses the non-compliance of the Vindella

proposal on the basis of a Bid-Bond requirement that is widely unknown outside of

procurement specialists. Additionally, the results of the RFP Evaluation Matrix show the

Vindella may have been non-compliant on common evaluation factors. Before

consideration of the “Price Proposal” requirement, the Ellis Don proposal was compliant

and the Vindella proposal may have been non-compliant due to major irregularities.35

That

is why Vindella received a score of 0 (zero) in two of the five most important categories –

Life Cycle Costing and Project Schedule.

A review of the Vindella Stage 2 proposal confirmed that both the Life Cycle Costing and

Project Schedule requirements were not adequately addressed by Vindella. There was very

little submitted with Vindella’s proposal response for these two requirements that would

provide meaningful data for the RFP Evaluation Committee to consider in its review.

Barring the previous

opportunities, it

would have been

prudent for the City

to stop at this point,

and declare

EllisDon the winner

of the RFP.

There was a

material difference

in technical quality

– a 62 point

difference between

the compliant

EllisDon and the

non-compliant

Vindella.

Despite the fact that the Vindella proposal was non-compliant, in July 2002, Vindella was

kept in the RFP process to be placed in direct competition with EllisDon. It does not seem

to have been a prudent business decision to accept the legal risk of forgoing the RFP

process to bypass a superior proposal, and put it into a bidding competition with a non-

compliant proposal.

- Taking into consideration clarifying questions, before material changes to the

Vindella proposal (which occurred between May and July 2002), the price of the

Vindella proposal was $24,992,11436

and the price of the EllisDon proposal was

$26,288,555.37

- Refer to Chart C above: In consideration of the total weighted score of the RFP

proponents, the Vindella proposal, even if it had been given full marks for Price

Proposal = 15 points, and everyone else was given 0 for price, would achieve a

total of 40 points in the matrix. This value would not reach the next lowest ranking

competitor, (if given 0 for price consideration) which was ranked a score of 55

points.

- Looked at more globally, to come ahead of EllisDon’s 87 points, Vindella would

have needed not only a compliant proposal, but also, a total of 88 points, which was

35

Purchasing By-Law 400-2004 definition of “Major Irregularity”: A deviation from the Bid request which affects the price,

quality, quantity or delivery and is material to the Award. If the deviation is permitted, the bidder could gain an unfair advantage

over competitors. The Manager of Purchasing and Risk Management must reject any Bid which contains a major irregularity.

36

Vindella’s original proposal price.

37

EllisDon’s original proposal price of $27,300,000 – ($1,011,445) for the optional restaurant & fitness area, electrical vault

adjustment and the underground parking development levy not required.


63 points more than it received. Somehow, at least implicitly, Vindella was given

the equivalent of these 63 points. This was possible only by departure from the

RFP process that the City represented to the prospective proponents would be

followed.

This special in-

camera meeting of

Council marks the

“official” point in

time the City turned

away from the RFP

Evaluation Matrix

(Purchasing By-

Law) to – “Price”

Financial

Evaluation.

C. July 2002: The Deviation From the RFP Process & Issues of Fairness to the

Proponents

Administration reported to Council, at a special in-camera meeting of Council, on July 24,

2002 (Report date July 18, 2002), the results of the RFP Evaluation Matrix and

recommended that:

“If Council wishes to proceed with this project, it is recommended that direction be

given to the review committee to negotiate with the highest ranking proponents in both

the technical and financial reviews (Vindella for financial and EllisDon for technical),

to obtain a “best deal” for the City under the ownership and leasing scenarios.

Discussions with both proponents should promote competitiveness.”

A different course of action was adopted through the following resolution of Council:

“That the Administration BE DIRECTED to negotiate with the highest ranking

proponents in both the technical and financial reviews to obtain a “best deal” for the

City under the ownership scenario for the Income Security Building Project, as detailed

in the Confidential report dated July 18, 2002 from the Commissioner of Corporate

Services et al, with the expectation of a future report to City Council on the outcome of

those negotiations.”

There was no mention of the fact that the normal and expected outcome of an RFP process

such as this one was that there would be only one highest ranking proponent, who would be

given the exclusive first right to negotiate the contract. The usual (although not invariable)

result is that the highest ranking proponent is also awarded the contract. Pitting the highest

ranking proponent against a non-compliant proponent, or against a proponent with a

ranking for “financial” that was not part of the RFP ranking process announced to

proponents, and was developed only after the proposal deadline had passed, is highly

irregular.

The July RFP Matrix Discussion

The RFP matrix received limited representation in the report comments. This undervalued

the legal importance of the matrix evaluation of each of the proponent’s proposals in

compliance with the RFP criteria.


The RFP matrix was

not given adequate

attention or

consideration in the

report analysis.

The report is silent

on the subject of

RFP compliance.

This implies

compliance was not

treated as a

threshold issue.

- The report’s discussion of the RFP assessment Matrix was limited to a note that the

matrix was attached as an appendix. Only the RFP criteria for the Windsor Civic

Square Urban Design Study, Parking and Price requirements are evaluated in the report.

- The report indicated the matrix evaluation was based on information forwarded by the

proponents to meet the criteria established by the committee.

- The Vindella proposal was non-compliant due to major irregularities however; this fact

was not reported. The report is silent on the subject of RFP compliance, which wrongly

implied that compliance was not an issue.

- The inclusion of a non-compliant proposal at this stage is inconsistent with the

reasoning in several decisions of the Supreme Court of Canada dealing with fairness in

the RFP/bidding processes.

The July Financial Analysis – The Introduction of the “Price” Financial Analysis

The focus of the July 2002 report was to present the financial evaluation of the decision to

purchase or lease – to compare the “operational impact” that ownership and leasing would

each have.

The report was prepared by Administration to address CQ 75-2002 (C), asked at a March 4,

2002 Council meeting:

CQ 75-2002 (C) - “Asks for a cost benefit analysis regarding the consolidation of

the Social Services Department based on the square footage of the proposed

development adjacent to City Hall compared to the square footage of existing

Social Services facilities, with the evaluation to include existing operating costs as

well as projected leasing costs in the new headquarters.


Numerous issues

followed:

Numerous Significant Issues Would Follow

a) There were inconsistencies between the financial costs presented in July 18, 2002 and

the May 17, 2002 report.

Chart D: Talks Result in Changes in 1 out of 4 Proposals

Mady Ellis Don MKT Vindella

May-17

29,850,000

27,300,000

30,476,588

24,992,114

Jul-18

29,850,000

26,975,880

30,476,588

22,532,79138

Change -

(324,120)39 -

(2,459,323)

b) The Vindella proposal was materially changed – before Council provided, by way of

influence through the information and recommendations of the Administrative reports

to Council, the direction and approval to negotiate with the highest ranking proponents

in both the official RFP ranking and the subsequent “financial” review.

- An obscure fact reported to Council in the September 2002 Report to Council (#8652)

was that the Vindella proposal which was allowed to proceed to be in competition with

EllisDon on the “Price” financial analysis, was not the same proposal that had been

submitted in response to the RFP, and had been evaluated in the RFP matrix. (This

topic is covered in the detailed legal analysis of Appendix A, pp. 23 – 26.) The legal

consequences of so doing were not reported.

- Excerpts from the Miller Thomson legal memorandum:

The first four written questions to Vindella were seeking information to fill in the gaps

(material deficiencies) and revise its proposal…

Also, Vindella was provided with the opportunity to give the City an additional

38

We have adjusted the value reported in the July 18, 2002 report to Council, to correct a transposition error. The financial

analysis for Vindella used the price $22,352,791. A difference of $180,000 less than the actual revised Vindella price. The

transposition error was corrected by Administration in the September 2002 report to Council.

39

$324,120 was to exclude amenity space provided as an option by EllisDon in their Stage 2 proposal. There was no change to

the EllisDon proposal.


So what changed?

option… This occurred sometime between the May 17, 2002 and July 18, 2002 in-

camera reports to Council, and likely happened on June 20, 2002 when the four

proponents were interviewed.

- Report to Council #8652, to Council on September 11, 2002 stated:

“During the [RFP] interview process Vindella presented the City of Windsor an

additional option consolidating the office and parking structure all on the single site to

the east of City Hall. The option presented by Vindella resulted in a revised price of

$22,532,791. Members of Council on the working committee directed Administration

to conduct a comprehensive financial review of all proposals and report back to

Council with the findings of the review.”

- What was Changed After the Deadline for Completed Proposals to be Filed?

The Vindella proposal price changed from $24,992,114 (as at May 17, 02) to

$22,532,791 (as at July 18, 02). The net reduction in price of $2,459,323, included the

following changes.

o A permanent parking structure to be built on the former police site valued at

$6,345,977 was eliminated from the Vindella proposal. The Vindella proposal,

pre-change, would have provided a total of 569 parking spaces.40

o The revised proposal reduced that number to 435 (a reduction of 134 parking

spaces).41

o $3,071,654 was added to provide 1 additional level of underground parking.

o $815,000 was added for work requested by the City to demolish the former

police building.

c) The revised Vindella proposal was never re-evaluated against the RFP matrix, the use

of which was by then abandoned. However, the City no longer had a then current RFP

assessment grade to measure Vindella against any other proponent. As learned in our

interviews and meetings for this audit, some Administration, outside of the RFP

Evaluation team, were unaware of this fact.

40

Speaking to the issues of a lack of risk based project planning and ERM; the City did not identify the link between the 400

CHS project and the Tunnel expansion project before the RFP documents were released. The former police site land was

earmarked for the Tunnel expansion and a permanent parking structure or building on the former police headquarters site would

not have fit into the City’s strategic objectives. The OCI, once in place, should minimize the risk of this type of issue recurring.

41

The value 435 represents the Vindella parking deliverables of the project identified by Administration in report to Council

#8652 dated September 4, 2002. Due to the unclear deliverables within the RFP documents and main construction contract, we

were unable to determine the contractual obligation for parking spaces that Vindella was required to meet.


d) It was never stated that Council was actually being asked to consider Vindella’s non-

compliant proposal, contrary to the law in both the Purchasing By-Law and the

common law of bidding and tendering as laid down by the courts. The mere

presentation of the Vindella proposal to Council would have given Council the

impression that Vindella was at least a compliant proponent, if not the lowest

compliant proponent. If Council had been told that it was being asked to approve a

non-compliant proposal, improperly amended at the request of, and with the assistance

of the then-Administration, all contrary to law, it is doubtful that it would even have

entertained the thought of doing so.

There was a

material omission of

financial

information – Mady

may have been a

lower price

proposal than

Vindella, however

this was not

reported.

Vindella went on to

be placed in

competition with

EllisDon.

e) There was material financial information that appears to have not been reported to

Council. Further, it is unclear who in Administration had knowledge of this

information. According to project documentation, given fair presentation of financial

facts, Mady was the lowest priced proposal at this time. We identified an undated

financial document within the Project Management files in which someone in

Administration had summarized the following results:42

- “On the RFP assessment matrix, Mady scored second to EllisDon while Mady’s

price was lower than all prices. Notwithstanding, Mady’s proposal was not short

listed.”

- “Vindella’s original price per sq. ft. was identified as $182.50. Mady’s was

$164.00.” After adjustments: “Vindella’s overall price is $154.00 per sq. ft.”

“Now Mady’s price is $157.00 per sq. ft.”

- “Keep in mind this is for a 10 storey building. If we adjust for the difference in

cost between a 4 storey [Vindella] and a 10 storey [Mady] building …makes

Mady’s final price $126.00 per sq. ft.

- Even if this adjustment were not made, Mady’s final price was $157.00 per sq. ft.

with a huge score advantage in the assessment matrix over the Vindella proposal

which was $154.00 per sq. ft.”

- If Mady had the opportunity to revise his proposal to a 4 storey building, it is

reasonable to assume that his price would have come in much less than the $154.00

per sq. ft. of Vindella. Mady was given no opportunity to submit an additional

proposal while Vindella was given that opportunity.”

42

The financial data prepared by Administration appears to be feasible. Audit completed an independent analysis to test the

reliability of the information contained in the undated / unsigned Administrative analysis. The audit analysis, using information

reported in Council documentation, and without consideration of the change from a 10 storey to 4 storey building, came within +

$5 / sq. ft. for the Mady proposal after “adjustments”.


f) As a result of the omission of material financial data, Vindella – not Mady – may have

been selected as the winner on price and the proponent to move on in the RFP process

to compete in negotiations with EllisDon.43

g) The “Price” Financial Analysis is introduced. Administration calculated the annual

operating budget impact as (i) a best case scenario, (ii) a worst case scenario, and (iii)

the “variance between best & worst case = RISK”. Council was not advised that the

“risk” calculated only equalled the price of estimated speculative space rent.

- The “Price” Financial Analysis had no foundation in either the Purchasing By-Law or

the ordinary law governing RFPs and tendering.

- By July 2002, Administration had gone through the motions of the RFP process – but

the importance of the process was only in appearance. Ignored in the “Price” Financial

Analysis were material cost factors of the RFP requirements, such as LEEDS, Life

Cycle Costing and the Civic Urban Design Study.

- The weaknesses of the “Price” Financial Analysis were significant and will be

presented in a detailed analysis later in the audit report.

D. August 2002: Issues of Transparency in Reporting to Council & Fairness to the

Proponents

The following comments represent examples of the division within Administration on

the evident disparity between the “technical” and “financial” aspects of the RFP

matrix requirements in the information presented by Administration in the various

reports to Council.

a) The RFP requirements continued to be discussed in the project reports to Council,

giving the appearance that they were being considered in the financial analysis, but

they were not.

b) The reporting discussion of the Vindella proposal provides clear examples of how the

proposal is deficient – without going as far as to acknowledge that it was non-

compliant, or to accept that it should not be permitted to proceed further because of

these deficiencies.

43

The purpose of this audit comment is to show examples of the errors in the process. The legal memorandum is clear, that

EllisDon should have been declared the winner in the RFP process, which won EllisDon the exclusive right to enter into

negotiations with the City. Because the City formed a “Contract A”, it was not lawful to put a non-compliant proponent with the

lowest ranking in the RFP matrix against one with the highest ranking in the RFP matrix into a bidding contest.


c) Certain members of junior Administration attempted to stand firm in support of the

RFP process by providing comments for inclusion within the reports to Council to

reflect the impact of the RFP evaluation. For example:

“The Windsor Civic Square Urban Design Study may be understood as having

established a quality benchmark for all development in the City Hall Precinct”…

“The Vindella submission explicitly rejects incorporating certain important

features…”

And, “EllisDon’s LEEDS rating is 30% higher than Vindella’s…this superior

rating offers the advantage of more favourable building operating costs…”

And, “The EllisDon proposal is the preferred option if the building’s attributes and

long-term operating costs are the predominant criteria for judging…” “While the

Vindella proposal is the preferred option if building price is predominant…”

The problem with this last quotation is that building price had already been given a certain

weighting in the RFP matrix that was not predominant, and that weighting had been

presented to the proponents as the basis for the competition, in effect, as the rules of the

game. This wording in the presentation to Council, “if building price is predominant”, gave

the impression that it was permissible – and fair to compliant proponents – to change the

rules in the middle of the game to make building purchase price predominant, without

redoing the entire RFP process.

Further, these quotations show that some members of the Administration were aware of the

important differences between “Price”, “Cost” and “Value for Money” and addressed these

financial considerations in the discussion of the report to Council. However the “Price”

Financial Analysis remained focussed on “Price” and "Speculative Space" and ignored

“Cost” and “Value for Money”.

The problem

information

repeated.

E. September 2002: Continued Issues through to the Award of the RFP:

a) This report to Council presented the non-compliant Vindella proposal as an eligible

proponent, maintaining the appearance that it was still the lowest compliant bid in the

running for the award of the contract.

b) The inclusion of Vindella at this stage of the process gave the appearance that (i)

although one proposal was “technically” superior to the others, that superiority was

merely “technical” (a somewhat negative description) that had not taken the very

important factor of cost into account at all; and (ii) all had passed the RFP evaluation,

thus leaving price as the final decision criterion for Council to consider.


At the time the

Award decision was

placed before

Council,

Administration

included specific

examples of

Vindella’s possible

non-compliance and

areas of the

proposal that

Administration was

unsure of.

c) As was done in August, only some of the RFP requirements are discussed which gave

the appearance that the matrix was given consideration in the financial analysis or

final decision, when it was not.

d) As was done in August, the report’s discussion of the Vindella proposal provides clear

examples of how the proposal is deficient in attempting to meet the RFP requirements;

without going as far as to include the word “non-compliant”, and recommending its

outright rejection. Examples include:

The Civic Square Urban Design Study. Compliance required per CR292/93.

- The report states “The following table summarizes how the documents provided by

each proponent address the most important aspects of the 8 design guideline

areas.”

- The following compliance concern comments are reported for the Vindella

proposal. It is reasonable to anticipate, that in order to address these concerns,

Vindella would be required to change the price of the proposal and / or design of

the building, which cannot lawfully be permitted once the deadline for submitting

complete proposals has passed.

o “Arcade of unspecified dimensions offered as $50,000 extra. If provided would

reduce office sq. ft’g on ground floor.” “Streetscape development approach not

documented”

o “..one important functional aspect of the building project which needs to be

confirmed is how loading docks and refuse collection would be accommodated

in the Vindella proposal while maintaining required ground floor spaces

specified in the RFP.”

o EllisDon is identified as “Strong” adherence to the Urban Design Study

guidelines, and Vindella is identified as “Moderate”.

The LEEDS Rating

- EllisDon is reported as achieving a “Silver” grade, which was 30% higher than

Vindella’s “Bronze” rating.

- LEEDS costs were not considered in the “Price” financial analysis. The report

states, “Higher LEEDS scoring translates into ongoing operating savings;

however, we are unable to quantify the potential impact at this time.”


Life Cycle Costing (LCC)

- The report to Council is silent on this material long term cost consideration.

- Life Cycle Costing was not considered in the financial analysis.

- LCC has a major impact on the ability of the City to achieve value for money. The

importance of LCC is so strong, that it has been addressed in a recommendation to

this audit report.

5.5 The Adequacy and Fairness of the “Price” Financial Analysis

The closer a

proposal came to

fully meeting the

RFP wish list, the

lower the

probability of being

chosen.

How and Why did

this happen?

The City asked for

the proponents to

meet requirements

and to suggest

amenities – but the

financial analysis

did not take many of

these factors into

consideration.

Result: The less

responsive the

proposal, the better

As noted above, it appears that the City’s final decision to select Vindella was based on its

“Price” analysis, which had two parts:

1. Comparison of total construction price, and

2. A narrow financial risk analysis

The calculation of building ownership risk (as defined by Administration: Difference in

Annual Operational Budgetary Impact) encompassed consideration of only one variable –

the current price of the current un-leased space in the 400 CHS building. Audit found it

unexpected and unreasonable for a project of this magnitude that building ownership risk

would be defined this narrowly.

The City’s RFP set out various essential requirements and further requests for additional

amenities. The financial risk calculation of the “Price” Financial Analysis was so flawed

that any proposal which fully met the stated City requirements or requests was placed at an

immediate and uncontrollable disadvantage in comparison to a proponent that did not meet

the City’s requirements or requests. Conversely, the less responsive the proposal, the

greater the probability the proponent had to be declared the winner of the RFP process.

This was obviously a perverse result.

The City required proposals to meet the RFP’s product, cost and schedule requirements of:

- Drawings

- Building Design / Function

- Parking Requirements

- Additional Amenities

- Price Proposal

- Life Cycle Costing

- Total building size

- Compliance to the Windsor Civic Square

Urban Design

- Sustainable Design (LEEDS, Leadership in

Energy and Environmental Design)

- Outline Specifications / Standards

- Project Schedule


the proposal looked

in the financial

evaluation.

The “Price” Financial Analysis ignored this balanced, comprehensive approach to quality

and cost. It consisted, in part of a narrow, risk based financial analysis that returned results

in what Administration defined as the annual impact of the proposal on the City’s operating

budget greater than zero dollars. (Budget Neutrality).

Ignored in this analysis were material cost factors of omitted RFP requirements, such as

LEEDS, Life Cycle Costing and the Civic Urban Design Study. The City had asked for all

of these things, presumably because it believed that each required item would have an

intrinsic value with an attached cost. Yet, ultimately, the City went with the lowest short-

term price proposal, which did not meet the RFP requirements and received the lowest score

on some of these City-requested items.

The best way to demonstrate the impact of the “Price” Financial Analysis is to quantify the

effect of the omitted RFP requirements. Given the lapse of time and the absence of

financial estimates and information, it would be extremely difficult and subjective to

attempt to quantify the impact of LEED’s, Life Cycle Costing and the Windsor Civic Urban

Design Study. However, we were able to analyze the “Price” financial risk analysis which

was defined as the annual impact of the proposals on the City’s operating budget greater

than zero dollars. (Budget Neutrality). Our analysis is based on the City’s Requested Total

Building Size.

5.6 Building Size as the Sole Risk Analysis Criterion & the Impact on the

“Risk” Criterion Used for the Recommendation to Award the RFP

A. The City’s Requested Total Building Size

It would appear logical from the RFP building size requirements that if a proponent

submitted a Stage 2 proposal with 142,600 sq. ft., the City would view this proposal

favourably for this criterion, as it would meet the City’s stated need. However, under the

risk analysis of the “Price” Financial Analysis of procurement, this was not the case.

The City’s “Total Building Size” requirement was consistent through stage 1 and stage 2:

- The City’s RFP Stage 1 stated: “The City of Windsor has a requirement for up to

13,250 usable square metres of office space…”

- The City’s RFP Stage 2 seemed to be consistent with Stage 1, which stated: “The

total building size is estimated to be 13,250 m2 (142,600 sq. ft.).”


The City asked for

an estimated

building size of

142,600 sq. ft.

The City’s estimated

building space

needs changed, but

only after the RFP

Stage 2 proposals

had been received

and the deadline

had passed.

B. Change in the City’s Building Size Needs

May 10, 2002 was the deadline set by the City for the Stage 2 RFP proponent submissions

to be received by the City. After this deadline had passed the City was informed that a

major expected tenant would not be leasing space. Therefore, approximately 30,000 sq. ft.

of the City’s requested total building size no longer had a designated tenant. The

alternatives then were to remove the space from the design requirements or to keep the

space and hope to find another tenant.

The July 2002 Administration in-camera report to Council states: “…during the interview

process (June 2002) the City of Windsor received notification that MCSS (province) would

no longer be part of the project…As a result there is now additional speculative space in the

building based upon the original terms of reference and the corresponding proposals.”

City Administration

redefined the total

office space need to

be 111,500 sq. ft.

C. City Administration’s Analysis of the RFP Stage 2 Proponents’ Proposals

There were three key Administration reports to Council providing information and analysis

of the proposals responding to the RFP. These reports were dated July 18, 2002 (in-

camera), August 21, 2002 (in-camera) and September 4, 2002 (open session # 8652).

Consistent throughout these three reports (but not clearly stated), Administration redefined

the total office space requirement as 111,500 sq. ft., a decrease of 31,100 sq. ft. from the

City’s RFP Stage 2 requested estimate of 142,600 sq. ft. Any office space greater than

111,500 sq. ft. was now treated by Administration as speculative space, and a risk. The

proponent who had offered to provide the most space for the City’s dollar thus

automatically became characterized as having the riskiest proposal.


The use of this new

value was

inadequate for

Council's purposes

and unfair to the

proponents.

Table 1: Various Table Extracts from the July 2002 Administration Report to Council

Vindella Mady MKT Ellis Don

(1) Net Rentable Office Space (sq. ft.)

136,980

181,242

142,596

142,800

(2) Speculative Square Footage

included above (including space that

held for provincial government)

25,480

69,742

31,096

31,300

(3) Rent for Speculative Space

($15.00 per sq. ft. excl. c.a.m.)

$382,200

$1,046,130

$466,440

$469,500

(4) Variance (RISK)

$382,200

$1,046,130

$466,440

$469,500

Table 1 Comments: Speculative Square Footage, on line (2) above:

The least amount of speculative space was considered the least risky. Based on the above,

Vindella, with the least speculative space, was considered favourably as the lowest risk.

The AGO considers the analysis to be flawed as:

a) Vindella’s proposal was considered favourably even though the building size was 5,620

sq. ft. less than the City’s RFP Stage 2 request for a building size estimated at 142,600

sq. ft. This non-compliance with the space requirement may well have contributed to

the lower price in the Vindella proposal.

b) As at May 10, 2002, the RFP Stage 2 deadline date, the province was still anticipated to

be a tenant, and its estimated space needs were included in the RFP Stage 2 building size

estimate of 142,600 sq. ft. Yet the City based the analysis on 111,500 sq. ft. as if the

province was not going to be a tenant, without allowing all of the proponents to reduce

their proposed building designs and the resultant costs to 111,500 sq. ft.

c) The “Price” Financial Analysis effectively penalized the highest ranked proponent for

the City’s loss of a planned tenant (a risk that was not within the control of the RFP

proponents). Administration’s definition of speculative space as space greater than

111,500 sq. ft. was inconsistent with the RFP Stage 2 request for an estimated 142,600

sq. ft. Illogically, this put any space-compliant proponents at an immediate

disadvantage, compared to a proponent that failed to comply by offering significantly

less than the RFP-required space.


If the province had

decided to become a

tenant, the Vindella

building would have

been too small to fit

them.

d) The City was still negotiating a potential lease with the Province up to June of 2002, a

month after the RFP closed. Vindella’s proposal was too small by 4,520 sq. ft, to

accommodate the provincial Government’s space needs.

e) Project documents include comments from Administration stating that the Province did

not elect to withdraw, but rather, the City responded with lease rates that were too high

to win the contract under the Province’s RFP process. The Vindella proposal’s space

shortfall now became a winning attribute.

f) MKT’s proposal fell short of the RFP request by an insignificant 4 sq. ft., but was shown

as having 31,096 sq. ft. of speculative space. Illogically, MKT was placed at an

immediate disadvantage when compared with Vindella who was 5,620 sq. ft. short of

the RFP space request, and therefore showed a lower, 25,480 sq. ft. of speculative space.

Analysis: Numbers

if the City’s RFP

Stage 2 building size

estimate of 142,600

sq. ft. was used.

Table 2: What Would Have Been the Result Using the City’s RFP Stage 2 Building Size

Estimate of 142,600 sq. ft.?

Vindella Mady MKT Ellis Don

(5) Net Rentable Office Space (sq. ft.)

136,980

181,242

142,596

142,800

(6) Speculative Square Footage

included above (excluding space that

was held for provincial government)

0

38,642

0

200

(7) Rent for Speculative Space

($15.00 per sq. ft. excl. c.a.m.)

0

$579,630

0

$3,000

(8) Variance (RISK)

0

$579,630

0

$3,000

Table 2 Comments:

g) Vindella’s proposed space was insufficient by 5,620 sq. ft. The analysis would not have

identified the risk that the building was too small (a situation that would not have existed

had the RFP been followed).

h) Reflected here, the EllisDon proposal shows a trivial risk variance. Even at this stage, in

consideration of price and the overall superiority of the proposal, EllisDon seems the

prudent choice for the award of the RFP.


D. July 2002 Report to Council: Administration’s Definition of Building Ownership

Risk

Administration’s July 2002 in-camera report defined building ownership risk as:

“The risk in this option is one of annual operational budgetary impact on the

Municipality with ownership.”

The expression “the risk” implies that there was only one risk. However, this “risk”

represented only one factor, which was Administration’s revised definition of speculative

space. Therefore, the other, more significant risks were ignored in reports to Council, and

in assessing the RFP proponents.

As a reminder, Administration calculated the annual operating budget impact of (i) a best

case scenario, (ii) a worst case scenario, and (iii) the “variance between best & worst

case=RISK”.

However, as can be seen above in Table 1, lines (3) and (4), the “risk” calculated only

equalled the estimated speculative space rent. After these calculations were shown,

variance/risk was set out as per Table 1 line (4) above. Administration then went on to say:

By way of the report

recommendation,

Administration

placed focus on the

project award solely

on the financial

analysis (which

disregarded most of

the requirements of

the RFP)

“The variance between best and worst case scenario is the amount of risk the

Municipality must consider as the cost of owning this facility on an annual basis.

The level of risk the Municipality is willing to accept should always be minimal.

Therefore, in evaluating risk of the above the proponent with the lowest risk under

ownership to the City is the Vindella proposal. This is because their proposal has

the least budgetary impact on the City. However, this proponent was ranked the

lowest in our RFP technical review. Ellis Don ranked the highest in the technical

reviews. It should be noted that the building and parking amenities of both

proponents are very similar. Both have two floors of underground parking and are

very similar in size.”

There were

significant cost

savings

opportunities that

were not in the

financial analysis.

E. Additional Cost Savings Were not Considered

The material RFP attributes of Life Cycle Costing and LEEDS energy savings were

captioned, but not included, in the financial analysis by Administration. The August and

September 2002 Administration reports’ best and worst case scenario calculations are

footnoted with, “this does not reflect potential operating savings of the development”.

Why not? That major omission was never explained.


At a minimum, the reports to Council should have stated why potential operating savings

were not shown. The exclusion of potential annual operating savings, in a project of this

magnitude, for the lifetime of the building, would seem sufficiently significant to require

disclosure and discussion within the body of the report, instead of being shown as an

incomplete table footnote.

To illustrate potential operating savings, we provide the following simplified examples:

- The EllisDon proposal purported to have qualified the City for a capital cost rebate

to a maximum amount of $250,000 under the Government of Canada Commercial

Building Incentive Program (CBIP).44

- The completed 400 CHS building under the Vindella proposal did not qualify for

this incentive.

- The EllisDon proposal purported a savings of 20% in annual lighting and electrical

power, by way of its building design and materials. The 400 CHS building hydro

costs averaged $232,000 per year for 2007 and 2008. A 20% annual savings of

these energy costs would amount to an estimated $46,400 every year, over the life

of the building. Over 20 years, the cost savings forgone is estimated to be

$928,000.45

In July and August

of 2002, Vindella

was in the lead in

the RFP, based on

the “Price”

criterion.

F. A Material Omission Causing a Critical Error

Table 3: Risk Results Reported in July and August of 2002

Variance

(RISK)

Vindella Ellis Don*

Jul 02 $382,200 $469,500

Aug 02 $382,200 $595,500

* August report to Council: EllisDon’s total office space, speculative space, best and worst case scenarios

and variance “risk” include 8,400 sq.ft. of optional amenity space from EllisDon’s Stage 2 proposal.

Inconsistently, in the same reports, EllisDon’s price was shown without the optional amenity space.

To note: there was no actual change to the EllisDon proposal, the change in value shown from July to

August is a result of the inconsistency of reporting optional amenity space.

44

CBIP offers a financial incentive for the incorporation of energy efficiency features in new commercial/institutional building

designs.

45

This is a simplified analysis that does not take inflation or present value of money into consideration.


In September, the

tables turned and

EllisDon was now in

the lead – now being

“less risky” than

Vindella.

Table 3 Comments:

Administration’s August 2002 report to Council was consistent with the July 2002 reported

risk presentation, although with less commentary. In both reports, Vindella was shown as

less risky.

Table 4: Risk Calculation for Variance (Risk) Not Shown in September of 2002

Variance (RISK) Vindella Ellis Don**

Best Case Scenario ($91,019) $263,738 ***

Worst Case Scenario $551,041 $859,238

Net Variance (Risk)* $642,060 $595,500 ****

* The September report included the values for the best case and worst case scenario, but the net calculation

for Variance (Risk) was not shown.

** September report to Council: EllisDon’s total office space, speculative space, best and worst case

scenarios and variance “risk” include 8,400 sq.ft. of optional amenity space from EllisDon’s Stage 2

proposal. Inconsistently, in the same reports, EllisDon’s price was shown without the optional amenity

space.

*** Calculation error corrected. Report to Council shows Best Case Scenario as $363,738

**** There was no change to the EllisDon proposal, the change in value shown from July to August,

carried through to September is a result of the inconsistency of reporting optional amenity space.

Table 4 Comments:

Administration’s September 2002 report to Council was generally consistent with the

August 2002 report’s risk presentation. However, the final risk calculation, Variance

(Risk), included in Table 4 above, was not shown in the September report.

If the final risk calculation had been displayed, in a manner consistent with the previous

reports, EllisDon would now have been shown to be less risky. There was no commentary

to inform Council that contrary to prior reports, EllisDon was now the “winner” under this

risk criterion. This was a critical omission, for which we were unable to obtain any

explanation.


What happened?

Why did the risk

results switch?

Why did the risk results switch?

- During post-closing negotiations with Vindella, it was allowed to increase its space in

order to become compliant with the RFP, including ground floor requirements, and also,

to meet the City’s requested building setbacks.

- Under the flawed “Price” Financial Analysis, Vindella’s building was now the larger of

the two, now had the most speculative space, and now was the more risky of the two

proposals.

What does all this

mean? What is the

risk involved?

The City should be

concerned. Based on

the results of the

audit, the AGO found

the unfair “Price”

analysis and reporting

to Council exposed the

City to significant risk.

The practices

highlighted in this

audit have the

potential to damage

the City’s goodwill

and have a negative

affect on future

investment and

business relationships.

G. The Conclusion of the Legal and Audit Review of the 400 CHS RFP Procurement

Process

The results of this audit demonstrate that if this procurement process had been faithful to the

principles of the City’s Purchasing By-Law, the process would have been consistent with

best practice.

a) By design, the By-Law stipulates a fair and even process that, if followed properly,

encourages numerous competitive proposals in future RFPs and protects the City

from making wrong choices that are likely to be unfair and result in costly law suits.

b) The RFP procedures that are governed by the Purchasing By-Law and consistent

with the common law of bidding and tendering provide a best practice approach for

the City of Windsor, to achieve “Value for Money” 46

in procurement activities.

c) When, as in this case, these laws are circumvented, the legal and value for money

protection is lost.

These actions of the City under this project had the following impact: The City risked

damage to future business relationships including the ability to attract quality proponents

and quality investment, damage to relationships between Council and City staff, and created

the risk of legal action against the City, members of Council and members of senior

Administration. Of lesser importance, but still important, were the costs, time and resources

expended to achieve this outcome.

We have made recommendations to address the conditions that caused the problems on the

400 CHS RFP evaluation. If implemented, these should effect positive change to the City’s

management culture and municipal governance. This will involve some changes to the

City’s By-Laws, procurement practices and internal controls.

46

Value for money is a term used to assess whether or not the City has obtained the maximum benefit from the goods and

services it both acquires and provides, within the resources available to it, in accordance with the laws, principles, guidelines and

standards of the municipality.


6.0 LEGACY COST REPORTING

We cannot report on the

legacy costs at this time.

We are requesting the

Audit Committee provide

direction to the AGO as

to how to proceed.

The Audit Committee, at the meeting of February 17, 2009, requested the staff of the

Auditor General’s Office work with Administration to report back on the “Legacy

Costs” of the 400 CHS building for the following topics of an Administrative

response to the 400 CHS review Report I.

"The audit report should also consider whether the City received good value for

the money such as:

– The building accommodation of 200 more City staff (and workstations)

than originally planned totalling an additional 29,690 square feet of fit

up.

– The replacement value of the building is substantially greater than actual

construction costs (reference: R.S. Means Building Construction Cost

Data)"

The goal of the “Value for Money” analysis was to report on the value of the cost

savings achieved by the City. We requested, but were not provided with the

information from Administration required to conduct the necessary audit steps in

order to complete the value for money analysis. We would like to advise Council

and the Committee that this information insufficiency arose in dealing with a past

member of senior Administration.

On November 9, 2009 the AGO brought this issue to the attention of the Current

CAO. She communicated that she is fully supportive of addressing the scope

limitation and was willing to provide any available information, should it be

available. On November 23, 2009, Administration provided the information to the

AGO.

The topic was added to the 400 CHS report II audit plan by the Audit Committee and

AGO staff is required to do the work as assigned unless otherwise directed by the

Committee. Based on the Lead Auditor’s preliminary assessment of the new

information, more time, data and cooperation from Administration would be required

to complete such a review. It is not recommended that Audit pursue completion of

this review, as the element of timeliness has passed, and the audit would delay work

progress on the annual audit plan.


Appendix B: Summary of Recommendations and Management Comments

Audit Recommendation

Agre

e

(X)

Dis

agre

e

(X)

Management Comments

(Required only for recommendations

where there is a disagreement)

Action Plan /

Time Frame

Recommendation 1.

Develop a Strategic Plan to Address Audit Recommendations

To maximize the opportunity to enhance effectiveness and to

achieve efficiencies in the implementation of the 400 CHS

recommendations, we recommend the CAO consider the merits of

addressing the recommendations of this review as a package,

through the development of a comprehensive strategic plan that

may include a review of risk, the City‟s current strategic plan &

corporate initiatives, resource requirements, etc, and to respond to

this audit recommendation with a date that Administration may

report back to the Audit Committee with an action plan and

timeframes of the packaged plan.

For a good chance of success, Council should be requested to

commit to the following:

(1) A long term advancement strategy to deal with the

recommendations of the review provided to assist Council

and Administration in addressing weaknesses in the City‟s

governance system that expose the City to significant risk.

(2) Long term support that empowers Administration to

develop, implement and maintain the strategy. Such

support will potentially require additional costs and

dedicated resources to achieve improvement.

To implement all of the

recommendations contained herein

through the use of a “task force” on a

concentrated effort basis would

require full time dedication of a

knowledgeable individual and part-

time effort of specialized resources

such as the Purchasing Manager and

City Clerk for an extended period of

time. This is estimated to be

approximately six (6) to nine (9)

months. Funding for these temporary

resources may be able to be directed

from the approved funding for the

Office of Continuous Improvement.

It is important to acknowledge,

however, that dedication of these

resources, largely to policy research

and writing, while a worthy task,

would detract from other worthy City

objectives that are underway or

planned for the near future. Another

approach worth considering is the

continuation of the steady, continuous

improvement that has taken place

over the past seven years as

evidenced in the management

Early in the new year, Administration

will bring a comprehensive report to

council in order for Council to be

able to make a fully informed

decision as to the best course of

action related to this matter.

The report will outline the

considerable progress already made

over the last several years with

regards to many of these

recommendations. Additionally, the

report will also provide options for a

deadline driven, “task force”

approach to dealing with any

remaining issues, and a more

incremental approach consistent with

the steady, continuous improvement

that has characterized our approach

over the past several years.

While both approaches have merit,

the deadline driven “task force”

method would require much more

human and financial resources and,

therefore, its benefits will need to be

weighed against the benefits that will



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comments contained in this

document.

not be achieved though other

initiatives that will by necessity need

to be postponed or eliminated.

These comments on the action

plan/timelines are applicable to each

of the recommendations in this

document.

Recommendation 2.

To Correct the Structural Insulation of Council‟s Access to Timely,

Independent Legal Advice through an Amended Procedural By-law

Number 420-2001 or a Separate By-Law

We recommend that the CAO review the merits of the legal

recommendation of Miller Thomson LLP, and develop a policy for

Council review and approval to correct the issue of the structural

insulation of the Mayor and Council, by way of By-Law or By-Law

amendment. This correction is recommended to provide the Mayor

and Council access to timely, independent legal advice from the

City Solicitor. And further, to remove the reporting independence

conflict of the City Solicitor, which currently serves as a barrier to

the City Solicitor‟s obligation to act in accordance with his or her

legal duties and other duties, such as those required as an Ontario

Lawyer under the Rules of Professional Conduct of the Law

Society.

Recommendation of Andrew Roman of Miller Thomson LLP:

“We would recommend that the independence of the City Solicitor

be enshrined either in an amended Procedural By-law Number 420-

2001 or within a separate By-law (to be made consistent with an

amended 420-2001) called “Terms of Reference for the City

Solicitor of the City of Windsor”. This By-law would be available

X

As a result of a senior management

reorganization approved by City

Council on 10/27/09, the City

Solicitor now reports directly to the

CAO. This aspect of the structural

concern expressed in Mr. Roman‟s

legal memorandum dated 10/27/09

was brought to the attention of City

Council as part of the verbal

presentation by the CAO on this date.



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to all Councillors and staff of the City and available to the public

on the City‟s website, like other municipal by-laws. This expanded

role for the City Solicitor would be set out in much the same way

that the Terms of Reference for the Chair, President and certain key

officers of many Canadian public companies are, and are made

available to the public as a function of good corporate governance.”

Recommendation 3.

The Removal of Structural Impediments to an Effective

Corporate Communication System through the Development of

Policy and Amendment to Procedural By-Law 420-2001

That Administration develop a protocol for Council review and

approval to correct the structural issues (relating to or resulting

from the organization or functioning of a political or economic

system) that threatens the health of the City‟s communication

system; the purpose of which is to preserve the flow of timely,

appropriate, relevant and critical information from the

Administration to the Mayor, Council and CAO.

We recommend the policy include the following development of

policy and amendments to By-Law number 420-2001:

i) A City policy that defines the duty of the CAO, General

Managers and each Department Head to report information

up a defined chain of command, where he or she becomes

aware of a level of risk being taken that is unacceptably

high to the City of Windsor. (Related City policy includes

the “Fraud Policy and Protocol”, CS.A2.05 under the

control of Corporate Services and “Hotline Protocols”, and

CAE-01-08 under the control of the Auditor General‟s

X

A policy with respect to duty to

communicate will also include a duty

to communicate risk information by

all members of Administration who

become aware of risks.

While there is no disagreement with

the spirit of this recommendation, any

such policy should also include

consequences for frivolous or

vexatious conduct or actions carried

out under these provisions.

It is further noted that this

recommendations appears to suggest

a policy/ protocol to govern the

development of policy. While in

theory this may be agreeable, the

value of such a document, when

written, may be difficult to discern.

Regarding 3 (v), while the value of

the Ethics policy is not questioned,

agreement with this recommendation

does not imply management‟s



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Office.)

ii) The guarantee of no career repercussions imposed on any

staff carrying out these duties should be enshrined by way

of an amendment to Procedural By-Law number 420-2001.

iii) Procedural By-Law number 420-2001 Section 24.1 “Each

Department Head shall act in accordance with any

statutory duties”, should be revised to define the

requirement for the CAO, General Managers and each

Department Head to act in accordance with his or her legal

duties and other duties, such as those required as Officers

and Employees of the Municipality and those under the

Rules of Professional Conduct of the various disciplines to

which he or she may belong. (I.e. Accountants, Engineers,

etc.)

iv) That Procedural By-Law number 420-2001, be amended to

revise the phrase “and control” of Section 24.2, in order to

remove implied structural barriers to the required level of

independence for the General Managers and each

Department Head to act in accordance with his or her legal

duties and other duties.

v) That Administration finalize the Corporate Code of Ethics

policy for City Staff, and bring forward the policy to

Council for review and approval. The City has

implemented a code of ethics policy for members of

Council; however the code of ethics policy for

Administration and staff remains in draft.

concurrence to any inference that

appropriate ethics principles were

contravened by any member of

administration involved in this

project.



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Recommendation 4.

Establish a “Top Down” Training Initiative, with Mandatory

Components, to Address the Risk of Legal Errors, Damage to

the City’s Goodwill Reputation and the Ability to Attract

Quality Proponents and Future Investment.

To address the identified control weaknesses which lead to the risk

of unintentional errors that may invite legal action against the City,

Council, members of Council and senior Administration, and / or

damage to the City‟s goodwill reputation and ability to attract

quality proponents in the City‟s projects and investment

endeavours, we recommend the following:

That the CAO consider the merits of developing a Corporate

training initiative for the review and approval of Council. The

training initiative should provide for mandatory and non-mandatory

opportunities for Council, Administration and City Staff to be

exposed to ongoing education about the roles and responsibilities of

the basic principles of the laws governing the City as well as

continued professional development and education on emerging

issues and high risk areas of purchasing and procurement or other

identified subject areas.

We recommended a course of mandatory training to include the

exposure to seminars and materials on the basic principles of the

laws that govern the City which:

i) For Council: Acquaints Council with the Municipal Act

and legal requirements for,

a) The Role of Council vs. the Role of

Administration,

X

The Corporation has an active corporate training initiative under the auspices

of the corporate staff development committee.

Additionally, under the direction of the Office of the CAO, staff development

introduced professional development opportunities to orient staff by way of:

o Corporate Coaching

o Employee Mentoring

o Leadership Windsor Essex participation

o Departmental Team Building activities

o Management Windsor Certificate Program

o Master‟s Certificate in Municipal Management

The culmination of these programs have resulted in two nationally recognized

awards for which the Corporation has recently been the recipient for

„recognizing commitment to workplace learning.

Some of the more relevant training courses afforded to management staff

since 2002 include: Project Management, An Introduction to Concepts and

Tools; Policy Development and Analysis; Project Management in Practice;

Technical Report Writing; Procurement Training: Understanding the Cycle;

A Guide to the Purchasing By-law; Procurement Training: Managing,

Designing and Drafting RFP‟s; Accounting and Corporate Budgeting:

Orientation to Risk Management; Report Writing for Council; Municipal Act

Training.

Recommendation 4(i)

The opportunity for training is provided to Councillors at the beginning

of every new Council term – currently this is on a four (4) year cycle.

The orientation includes material pertaining to the regulatory

framework which govern the municipality, the Mayor, Councillors and

Administration and covers such topics as:



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b) Council and Corporate Governance, and

c) Potential Risk and Liability for Errors Made by

Council, and Individual Members.

ii) For senior Administration: Enhance the ongoing and

valuable training program that acquaints Administration

with the Municipal Act and legal requirements for,

a) The Role of Council vs. the Role of

Administration,

b) Senior Administration, Council and Corporate

Governance, and

c) Potential Risk and Liability to Administration and

Council for Errors Made by the Council, Individual

Members of Council and the Administration.

iii) City Council, Administration and Staff (Purchasing and

Legal staff):

a) Acquaint Council, Administration and City Staff

with the implications of a process that creates the

“bidding contract” and the duties and obligations

that flow, even from a process that does not create

a “bidding contract”.

b) Enhance the ongoing and valuable training

program with other training opportunities to expose

Staff to current and emerging issues in purchasing,

procurement or others as defined by

Administration.

1. Legislative authorities;

2. The role of Council and Administration;

3. the Procedure By-law;

4. Current Corporate Policies and Plans; and

5. The City of Windsor Purchasing By-law.

This training is currently optional to all Councillors, however, in order

to fulfill this recommendation the City Clerk will ensure that the

training is amended to include all topics listed in the recommendation

and will recommend to Council that the training be made mandatory for

all Councillors on an annual basis with a control mechanism put in

place to ensure that the training has been received.

Recommendation 4(ii)

Training for all City Staff regarding the Municipal Act, its meaning and

applicability to the Corporation, has been available since 2008 and has

been provided to many staff members. The training covers material

such as:

1. The governance structure of the City;

2. Role of Council and Administration;

3. Introduction to Municipal Freedom of Information &

Protection of Privacy Act;

4. The process and structure for writing a Council Report, and

the required authorities;

5. The Delegation of Authority By-law;

6. The Procedure By-law;



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7. The role and governance structures for Agencies, Boards,

Commissions and Committees of Council.

As is the case for all training courses, we are constantly striving to

improve and enhance the content of this training and we will review the

course content with this recommendation in mind.

Recommendation 4(iii)

(a) Since the inception of the current Purchasing By-law in

2004, the following training has been made available to City

Staff:

- Purchasing By-law 101 – A Guide to the Purchasing By-

law

- Procurement Training: Managing, Designing and

Drafting RFPs and

- Procurement Training – A Guided Tour the Tendering &

RFP Process

While the Purchasing By-law training deals with issues specific

to that document, the training regarding the tendering and RFP

process deals with the topics mentioned in this recommendation.

We agree that this training should continue to be made available

to City staff and that Councillors should also be provided this

training.

In addition, in the former Manager of Purchasing & Risk

Management (2004-2007) was afforded the opportunity to



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attend a two day training session given by Paul Emannuelli, an

expert in the field of Procurement Law, which training was

sponsored by the Osgoode Law School Centre for Continuing

Education, which training focused on many of the procurement

issues raised in this report. Further, the incumbent in this

position who will be resuming her role in February, 2010 after a

return from parental leave, also recently attended this training in

November, 2009.

Finally, we would note that, since 2002, many issues have arisen

in the Municipal arena that have heightened the profile of

procurement issues and procurement law, particularly as related

to public procurement. Many of these issues, such as the

Bellamy Inquiry, have caused the City to review and re-write

the Purchasing By-law and to ensure that City staff be provided

with the training that is so critical and important in this area.

In addition, during the 2003 re-organization, the Purchasing

Division was re-aligned to report to the City Solicitor that is in

keeping with the heightened awareness of the legal issues

involved in every procurement process.

Notwithstanding all of the above, we note that the issues relating

to procurement within this audit report, were discerned with the

assistance of two pre-eminent experts in procurement law who

both indicted that these laws are not commonly understood by

lawyers who do not specialize in this field. Accordingly the

standard of due diligence recommended in this audit, may not be

practically achievable without significant additional funding

dedication on projects of sufficient magnitude to warrant this.



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Recommendation 5.

To Establish an Accountability Standard of Due Diligence and

Due Professional Care for the Improvement of Information

Reported to Council and the CAO for Decision Making

Purposes.

We recommend that the Administration establish a Corporate wide

control policy for Council review and approval that requires the

preparation of communications or reports to Council and the CAO

in accordance with due diligence and due professional care. This

type of control should lead to better decisions by improving on the

quality and usefulness of information reported to City Council and

senior Administration for decision making purposes, facilitate

transparency through full disclosure, communicate pertinent risk

considerations and establish accountability for the information

reported.

In the 400 CHS project, transparency of project accountability was

not clear due to several factors. Improvement of this condition can

be achieved through enhancements to the City‟s current reporting

protocols as recommended through the development of a Council

approved policy which would:

i) Establish the standard for information to be assigned and

prepared to a defined standard of due diligence and due

professional care as per the following definitions:

a) Due Diligence is the degree of care that a prudent

person would exercise. This would involve the

requirement to assign the work to be conducted to a

person with the requisite knowledge, skill and

experience to complete the required task.

X

As indicated in a previous response,

report writing is one of the courses

that are part of the corporate training

initiative. Additionally,

administration has provided the AGO

with the template currently in use to

guide in the preparation and review of

council reports which is meant to

ensure that reports are

comprehensive, factual, disclose risks

involved, etc. Administration believes

that current procedures and policies

address this recommendation.

However, ongoing improvements will

be implemented stemming from

future training, future developments,

and auditors recommendations.



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b) Due Professional Care calls for the application of the

care and skill expected of a reasonably prudent and

competent professional in the same or similar

circumstances. Due professional care is exercised when

the analysis and information reported are performed in

accordance with the Professional Standards under

which the author or signatories are bound. (I.e.,

Accountant, Engineer, Lawyer, etc.)

ii) The City should create a policy for the development of

Council reports which helps Council and Administration to

more fully assess the potential risks of making decisions

with full or partial information, and give Council the

opportunity and understanding to accept or reject those

risks. The policy should:

a) Enshrine the understanding that it is incumbent

upon Administration to review and report special

circumstances to Council.

b) Include the requirement for a standardized report

heading for “Important Risk Disclosures”.

c) Make mandatory, that Council reports include a

risk discussion with the requirement to clearly set

out within the report body any significant

information that is not disclosed, why, the potential

impact including the risk of not having that

information, and any compensating information.

d) Where appropriate, include Life Cycle Costing

information to facilitate value for money decision

making.



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iii) Such a policy should retain the standards and requirements

established in the existing Corporate Services control tool:

The finance checklist for council reports and delegation of

authority reports (r. April 16, 2009).

Recommendation 6.

Formalize & Enhance the City’s Life Cycle Costing (LCC)

Strategy to Provide for Increased Effectiveness, Efficiencies

and Value for Money for the City Of Windsor.

We recommend the CAO consider the merits of developing an LCC

strategy, which has significant value added potential to provide the

City opportunities to achieve better value for money in all its (1)

procurement activities, (2) the delivery of products and services and

(3) in municipal performance measurement.

This audit reviewed the importance of LCC as it relates to an RFP

evaluation and selection process on the basic principle of LCC,

which is to determine the cost of a particular product or service

through the consideration of environmental, social and economic

costs and benefits that occur throughout the life of a product or

service, rather than on price alone. This is but one aspect of the

benefit of LCC, which has far reaching applications:

LCC can assist in making more effective decisions and

better informed procurement choices such as, whether or

not to purchase or lease a specific product or service or

which to select from a range of options.

LCC provides the opportunity to maximize on

effectiveness and efficiencies within in every service,

program, project, etc. that the City delivers.

In this aspect of LCC, there is existing opportunity to

X

The City currently undertakes

significant work relating to Life

Cycle Costing (LCC). This is

especially well developed in the roads

and sewers area. A number of

initiatives are currently underway

aimed at strengthening this aspect of

asset management; initiative related

to the tangible capital assets

requirements being implemented for

municipalities, two projects under the

SDR initiative, as well as the formal

structuring of an asset

management/asset planning function

within the Office of the Chief

Financial Officer (anticipated to be

commenced within part of phase II of

the recent corporate reorganization).



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maximize on the effectiveness and efficiencies of ongoing

strategic initiatives. Performance Measurement, Asset

Management, the Service Delivery Review, City Projects

and City procurement, are all founded on the principles of

LCC.

As the LCC strategy progresses through maintenance,

experience and sophistication, the City should expect to

continue to achieve measurable improvements in value for

money.

Recommendation 7.

Transparency and Accountability Amendment to the

Purchasing By-Law 400-2004 for any Exceptions to or

Exemptions from the By-Law

Given the significant risk to the City of Windsor involved, it is not

recommended that Council provide approval for the circumvention

of the Purchasing By-Law controls. However, we recognize that

under extraordinary circumstances, such activity may become

necessary. We recommend that the City‟s Purchasing By-Law 400-

2004 be amended to establish accountability and transparency

where exceptions / exemptions from the By-Law are required. We

recommend such amendments to the By-Law include:

i) A statement of the legal authority under which Council is

authorized to approve exceptions / exemptions of the

Purchasing By-Law.

ii) Recognition of the Purchasing By-Law as the best practice

standard to achieve value for money in the City‟s

X

The By-law is currently being

amended. These suggestions will be

accommodated.



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purchasing and procurement activities. It should be noted

that a circumvention of the By-Law should be the

extraordinary exception rather than the rule.

iii) The requirement for a written report recommendation to be

brought forward to Council by Administration, which

clearly discloses that Council is being asked to approve the

circumvention of the Purchasing By-Law. (A consistent

problem observed by Audit in this, and past audit reviews)

iv) The requirement for the Council report to include a

statement of legal risk and / or recommendation, prepared

by the City Solicitor (or designate) and that the City

Solicitor (or designate) be in attendance to advise Council

during the discussion.

v) The requirement for the Council report to include a

statement of purchasing risk and / or recommendation,

prepared by the City‟s Purchasing Manager (or designate)

and that the Purchasing Manager (or designate) be present

to advise Council during the discussion.

vi) That the decision of Council to approve the circumvention

of the By-Law be clearly and comprehensively

representative of the decision and direction in the resolution

of the Committee of the Whole.



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Recommendation 8.

Legal Review, Amendments to Purchasing By-Law 400-2004 &

the Requirement for Appropriate Oversight Over the City’s

Purchasing and Procurement Activities

We recommend the CAO consider the merits of the following

recommendations to improve on Purchasing By-Law 400-2004 and

to address the risk of recurrence of purchasing and procurement

issues that were reported in the 400 CHS audit review:

i) That Administration establish within Purchasing By-Law

400-2004, a level of required oversight by the City‟s

Purchasing or Legal department on purchasing and

procurement processes of a specified dollar amount and

complexity. Administration should conduct a review of the

current Purchasing By-Law to determine whether the

coverage of defined Purchasing & Legal department

oversight on purchasing and procurement activities is

commensurate with the purchasing activity and level of risk

exposure to the City of Windsor.

ii) As part of the oversight framework, that the Purchasing By-

Law be amended to include the requirement for a Legal and

Purchasing review and sign off, on specific purchasing and

procurement activities in excess of a specified dollar

amount or complexity involving a Tender, RFP, or other

procurement tool that results in a formed Contract or

Agreement. I.e. Purchasing and Legal sign-off on RFP or

Tender documents to be issued by the City.

X

Recommendation 8(i)

There already exists within the by-

law a level of required oversight

by the Purchasing and Legal

Departments on purchasing

processes of a specified dollar

amount. Every procurement with a

value greater than $10,000.00

must be conducted by the

Purchasing Division

(procurements under this amount

can be done directly by City

departments with assistance from

the Purchasing Division). In

addition, all purchases with an

anticipated value in excess of

$50,000.00 must be made via a

tendering or RFP process that is

conducted by the Purchasing

Division and under the ultimate

supervision of the Manager of

Purchasing & Risk Management

and the City Solicitor. Finally, all

procurements of a value of

$150,000.00 or greater must be

approved by City Council and a

Council Report is written in

support of such procurements

which must be executed by the

City Solicitor and the City

Treasurer.

The current Purchasing By-law is

under review and all levels of



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iii) That Administration commission the City‟s Legal Services

department to conduct a legal review of the Purchasing By-

Law in comparison to the legal memorandum appendix A

to this report created by Andrew Roman of Miller

Thomson. The legal review should compare the By-Law

and the legal memorandum to look for additional

opportunities for improvement and / or legally required

changes to Purchasing By-Law 400-2004.

iv) We recommend that Administration address the specific

legal concern identified in Appendix A, that Purchasing

By-Law 400-2004, “contains a number of provisions which

could be interpreted as attempting to give the City the right

to treat proponents unfairly.”

oversight and authority will be

reviewed in this exercise.

Recommendation 8(ii)

Please see item 8(i) above.

Recommendations 8(iii) and (iv)

This will be undertaken as part of

the current review of the

Purchasing By-law.



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Recommendation 9.

Amend Procedural By-law Number 420-2001 to Ensure The

Requirements of the By-Law for the Establishment of

Committees Approved by Resolution of Council Are Carried

Out

By-law Number 420-2001, Part 19 and Appendix B, b), ii sets out

specific actions that are required to take place, upon approved

motion by the Committee of the Whole to form a Special

Committee of Council/Advisory Committee or Task Force.

However, there is no control mechanism in place to ensure the

required actions are carried out.

We recommend that Procedural By-Law 420-2001 be amended to

include language which defines the responsibility of person(s) or

position(s) required to report back to the Clerk in order to fulfil

requirements of Appendix B, b), ii of the City‟s Procedural By-

Law. And that the By-Law be revised to include a control

mechanism to ensure that the requirements of the By-Law are

carried out to the satisfaction of the Clerk, or other defined

accountable Head.

X

Recommendation 9

As part of the Corporate re-

organization of 2003, the position

of Manager of Council &

Committee Services/Deputy Clerk

was created. It is the role of this

position to ensure that the

Committees of Council are struck

in accordance with the Procedure

By-law and that all have clearly

defined roles and mandates. As a

result, since this position was

filled in 2004, all Council

Committees have prepared

mandates which are reviewed

annually and which are revised as

required after this review. This

position is also responsible for the

supervision of the

Council/Committee Coordinator

and the Committee Coordinator,

both of which positions provide

ongoing support to Council

Committees. The Manager

engages in continuous

improvement with the

Coordinators to ensure that the

Committees stay within and fulfill

their mandates. In these ways,

Administration is of the view that

the Corporation has progressed

substantially since 2002.

Further, as part of the Service



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Delivery Review, one of the

foundational projects is the

governance review of all

Agencies, Boards, Commissions

and Committees of Council. As

part of this review, all aspects of

the governance and operation of

Council Committees will be

reviewed and streamlined keeping

in mind the requirements of the

Municipal Act and the best

practices of other municipalities.

As part of this review,

Administration is committed to

ensuring that this recommendation

is addressed and that any

necessary amendments are made

to the Procedure By-law.

Recommendation 10.

Governance / Project Management / Oversight Improvement

There should be a requirement for projects requiring City funding

in excess of a specified amount, that the City Solicitor (or

designate) be assigned to the upper tiers of project Committees

(such as those with a three-tier project management structure

recommended in the Brodele Report) with a defined role to be

present to provide pro-active legal advice and recommendations to

Council and Administration in order to keep projects from steering

off-side legally.

X

Dollar amount will be defined within

the purchasing by-law and the new

City Solicitor by-law.



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Recommendation 11.

Attach Project Management Improvement Recommendations

to Report I

The recommendations towards improvement to the City‟s

project management process within this report should be

incorporated into the Project Management Methodology

currently being developed by Administration as per the audit

recommendation adopted in the audit report issued in February

2009 entitled, “Post Construction Audit Report on the 400 City

Hall Square East Building”.

That the City of Windsor establish an adequate and effective

project management methodology that provides standard methods

and guidelines to ensure that projects are conducted in a

disciplined, well-managed and consistent manner and; to promote

the delivery of a quality project that will be completed on time,

within budget and in accordance with the project specifications.

X

As of the date of these comments,

City Council has not yet adopted the

Part 1 recommendations of the AG

Office as they have not been formally

presented.

Implementation will commence upon

adoption by City Council.

Recommendation 12.

Project Management Improvements

There should be a requirement, for all future discretionary City

projects requiring City funding in excess of a specified amount,

that Administration must prepare and submit a comprehensive

business case analysis for the purpose of making supportable and

prudent investment recommendations to Council.

Council decisions regarding the approval of major projects such as

the 400 City Hall Square building should be based on a standard of

X

Many of these suggestions have been

implemented. It should also be noted

that the project management

methodology recommended in the

Brodel report has already been used

on two large projects. A formal

threshold needs to be defined in order

to clearly identify those projects to

which this increased level of due

diligence (which can be very costly

and time consuming) will be applied.



Ag

ree

(X)

Dis

agre

e

(X)

Management Comments



Action Plan /

Time Frame

information established by Administration to include the

identification and documentation of key decision factors such as

clear objectives, analysis of alternatives, expected outcomes,

critical success factors, an environmental risk assessment and risk

mitigating measures, cost/benefit analysis, financing plans, scope

and impact of the project.

Recommendation 13.

Project Management, RFP and Tender Control Improvements

We recommend, as identified in the legal memorandums Appendix

A, Part I RFP and Part II Furniture Tender to this report, that

Administration should establish model documents for its bid

processes and for its true request for proposal so that the process

elements are constructed with the needs and obligations of the City

in mind, while risk is controlled.

The City, in the design of this control should include:

i) The RFP or Tender should specifically incorporate the

Purchasing By-Law to have the effect of providing By-Law

guidance as to what is and is not a compliant proposal.

ii) The development of standardized procurement documents

for Tenders and Proposals with the assistance of purchasing

/ procurement specialists. An advantage of such a control

is that it promotes effectiveness & efficiency, mitigates risk

and helps to preserve the continuity of operations where

experience leaves the corporation.

iii) The requirement for periodic reviews of the standardized

procurement documents to assess compliance to changes to

law and to fine tune for past experience in using the tool.

iv) The initial model documents to be approved by the City

X

Recommendation 13(i)

The City‟s current specifications already contain a provision that the

tenders will be reviewed for compliance in accordance with the

Purchasing By-law however, Administration will certainly review this

recommendation and enhance the current language as appropriate as

part of the current review of the Purchasing By-law.

Recommendation 13(ii)-(iv)

The City does currently have a “standardized” specification that has

been developed in accordance with the Purchasing By-law and industry

best practices, In addition, the City does have templates for Request for

Proposal Documents that have also been developed in accordance with

industry best practices. In the spirit of continuous improvement,

Administration would be happy to review this template as

recommended.

Recommendation 13(v)

Such a checklist does currently exist with respect to bid irregularities

and the action to be taken, and is found in the Purchasing By-law

(Schedule C). In light of this recommendation, this schedule will be

reviewed as part of the current review of the Purchasing By-law.



Ag

ree

(X)

Dis

agre

e

(X)

Management Comments



Action Plan /

Time Frame

Solicitor (Legal).

v) The development of a mandatory use checklist that includes

triggers such as, the required rejection of any bid or

proposal or the required interaction / approval of

Purchasing and / or Legal.


Appendix C: Glossary of Terms

Term Explanation

Summary of Terms to Define Staff, Persons and Council

City or The City Refers to events, actions and / or decisions made at the level of, or with the knowledge of the top

tier of the City’s governance structure, which includes Council, or members of Council and senior

levels of Administration.

Also meaning, the City of Windsor

Council or

City Council

The group of elected officials of the City of Windsor, with responsibilities defined under the

Municipal Act, 2001 and other, related laws, as including:

(a) to represent the public and to consider the well-being and interests of the

municipality;

(b) to develop and evaluate the policies and programs of the municipality;

(c) to determine which services the municipality provides;

(d) to ensure that administrative policies, practices and procedures and controllership

policies, practices and procedures are in place to implement the decisions of council;

(d.1) to ensure the accountability and transparency of the operations of the

municipality, including the activities of the senior management of the municipality;

(e) to maintain the financial integrity of the municipality;

Councillor The title assigned to a Member elected to represent electors of a specific Ward.

Administration Represents a collective of City Staff. Refers to events, actions and / or decisions made at the level

of, with the knowledge of, but by a combination of involvement of City staff in junior positions,

management, senior management and / or the then-CAO. The key factor being that senior

management and / or the then-CAO were involved in the process.

While there is a varying degree of accountability for different tiers of employee, it is the

responsibility of all officers and employees of the City of Windsor, per the Municipal Act, s. 227:

(a) to implement council’s decisions and establish administrative practices and

procedures to carry out council’s decisions;

(b) to undertake research and provide advice to council on the policies and programs of

the municipality; and

(c) to carry out other duties required under this or any Act and other duties assigned by

the municipality. 2001, c. 25, s. 227.

CAO

Then-CAO

Chief Administrative Officer, head of all Administration (except those exempt by Law).

Per the Municipal Act, s. 229 (a), defined responsibilities include exercising general control and

management of the affairs of the municipality for the purpose of ensuring the efficient and

effective operation of the municipality.

Due to unusual circumstances leading to several rapid changes in who was the actual and/or the

acting CAO, we cannot say definitively which of one or more persons was the CAO, or the acting

CAO at specific decision points of the RFP evaluation and approval process.


Term Explanation

Senior

Administration

Refers to events, actions and / or decisions made at the level of, or with the knowledge of City

staff in the positions of senior management, which would likely include the then-CAO. Under

former City structures, this includes the CAO, General Manager or Commissioner and City

Directors, etc.

Junior

Administration

City staff employed in a middle or junior management role below the level of senior

Administration.

Staff City staff employed in a non-management role.


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