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To / Destinataire |
Diane Blais, Coordinator, FEDC |
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From / Expéditeur |
Rosemary TheriaultCoordinator, Transit Commission |
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Subject / Objet |
Applying Financial Penalties to Contracts Issued by OC Transpo |
On 29 February 2012, by Motion OTC 18/4, the Transit Commission referred the attached report to the Finance and Economic Development Committee.
This is for your information and action as appropriate.
Rosemary Theriault
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Report to/Rapport au :
Commission du transport en commun
30 January 2012 / 30 janvier 2012
Submitted by/Soumis par : Rosemary Theriault, Coordinator / coordonnatrice
City Clerk and Solicitor / Greffier et Chef du contentieux
(613) 580-2424 x, 21624
Contact Person/Personne resource: Councillor / Conseiller Stephen Blais
(613) 580-2489, Stephen.Blais@ottawa.ca
SUBJECT: |
APPLYING FINANCIAL PENALTIES TO CONTRACTS ISSUED BY OC TRANSPO |
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OBJET : |
INCLUSION DE PÉNALITÉS FINANCIÈRES AUX CONTRATS ÉMIS PAR oc tRANSPO |
REPORT RECOMMENDATION
That the Transit Commission recommend that the Finance and Economic Development Committee recommend to Council that contracts issued by OC Transpo include a Liquidated Damages clause where the potential or actual consequences to it would be significant from a financial or service delivery perspective for failure to deliver on-time or to expected standards.
RECOMMANDATION DU RAPPORT
Que la Commission du transport en commun recommande que le Comité des finances et du développement économique recommande au Conseil que tous les contrats émis par OC Transpo comprennent une clause relative aux dommages-intérêts extrajudiciaires lorsque les conséquences potentielles ou réelles seraient importantes, au niveau financier ou affectant la prestation de service, pour tout manquement par rapport à la livraison des services en temps opportun ou selon les normes attendues.
BACKGROUND
On 18 January 2012, the Transit Commission received a Notice of Motion with respect to the above. A full copy of the Motion is attached as Document 1 to this report.
DISCUSSION
The protection of tax payers’ dollars is of utmost importance and the delivery of timely service is a priority for OC Transpo and the City of Ottawa.
This motion is in keeping with a previous motion from Councillor Blais, adopted by Council, to blacklist any contractors that do not provide timely and quality service.
In relation to the contract for the development of an app for OC Transpo, it was discovered that no penalty clause was included.
Given that the Supply branch oversees all contracts, including those emanating from OC Transpo, a financial penalties clause should be a standard inclusion. The Treasurer’s recent update to Council on Contract Performance also noted that a guide is now available for staff regarding Contract Administration and Reporting on Supplier Performance.
RURAL IMPLICATIONS
N/A
CONSULTATION
Finance Department
The Supply Branch currently uses a number of strategies to ensure that its contracts are properly managed and delivered on time. Examples of such strategies include; requiring various forms of security; obtaining a pre-determined sum to mitigate financial risk; requesting production schedules; and monitoring supplier performance through an e-procurement database.
By definition, “Liquidated damages” are not a “penalty” but rather a true pre-estimate of the loss to the City should a supplier fail to deliver the goods or services defined in the contract. The calculation of liquidated damages must be based on an actual calculation of potential losses.
COMMENTS BY THE WARD COUNCILLOR(S)
ACCESSIBILITY IMPACTS
There is no accessibility impact associated with the recommendation in this report.
LEGAL IMPLICATIONS
There are no legal impediments to implementing the recommendation in this report.
RISK MANAGEMENT IMPLICATIONS
The implementation of a proposed blanket provision mandating the inclusion of financial penalties in all OC Transpo contracts is not without significant risk. Costs of goods and services purchased by OC Transpo could increase, as suppliers will seek to hedge their potential exposure through increased bid prices. The general practice within the Construction industry is for financial penalties for late delivery to be accompanied by associated financial incentives for early delivery. This reciprocal practice could increase the cost of a project should the incentives for early delivery be achieved.
CITY STRATEGIC PLAN
N/A
TECHNICAL IMPLICATIONS
FINANCIAL IMPLICATIONS
By including financial penalties OC Transpo runs the risk of paying a premium with little return on investment.
SUPPORTING DOCUMENTATION
Document 1 – Notice of Motion from 18 January 2012
DISPOSITION
Staff will undertake to implement the recommendation of Council.
Document 1
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City Council and Standing Committee Motion Conseil et comités permanents Motion |
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Commissioner Blais |
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Applying Financial Penalties |
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WHEREAS the protection of taxpayers dollars is of utmost importance;
AND WHEREAS the delivery of timely service is a priority for OC Transpo and the City of Ottawa;
THEREFORE BE IT RESOLVED THAT all contracts issued by OC Transpo include financial penalties for failure to deliver on-time or to expected standards.