Report Template

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

16 October 2007 / le 16 octobre 2007

Submitted by/Soumis par : Marian Simulik, City Treasurer/trésorière municipale

Contact Person/Personne ressource : Phil Andrews, Manager, Supply Management

Financial Services/Services financiers

(613) 580-2424 x, Phil.Andrews@ottawa.ca

City Wide / À l’échelle de la ville

Ref N°: ACS2007-CMR-FIN-0027

SUBJECT:	Report on Payments without reference

OBJET :	Rapport sur les paiements sans renvoi

REPORT RECOMMENDATION

That the Corporate Services and Economic Development Committee and Council receive this report for information.

RECOMMANDATION DU RAPPORT

Que le Comité des services organisationnels et du dévéloppement économique et le Conseil municipal prennent connaissance du présent rapport.

BACKGROUND

On September 4, 2007, the Corporate Services and Economic Development Committee (CSEDC) requested that staff submit a report providing details and suggested resolutions with respect to the purchases identified as non-compliant to the Purchasing By-law (being By-law No. 50 of 2000) in the Professional and Consulting Service Contracts With A Cumulative Total Value Of $100,000 Or More, Sponsorship And Advertising, Legal Outsourcing Costs, And Related Purchasing Activity For 2006 Report (ACS2007-CMR-FIN-0024), hereinafter referred to as the Professional and Consulting Service Contracts Report for 2006.

DISCUSSION

The Professional and Consulting Service Contracts ~~With A Cumulative Total Value Of $100,000 Or More, Sponsorship And Advertising, Legal Outsourcing Costs, And Related Purchasing Activity For 2006~~ Report for 2006 ~~(ACS2007-CMR-FIN-0024)~~was tabled at the CSEDC meeting on September 4, 2007. In response to a recommendation in the Auditor General’s 2005 Annual Report, Chapter 4, the report included a list of purchases greater than $25,000, generally paid without reference to a purchase order. In addition, this list indicated which purchases were and were not in compliance with the Purchasing By-law.

Payment without reference to a purchase order describes a method of payment and is not a reflection of the method used to procure the goods or services. All procurement actions that go through the Supply Division have a purchase order created therefore these are known to be in compliance with the Purchasing By-law. Payments without reference is a legitimate payment method permitted within corporate procedure and recognized in the Purchasing By-Law. These types of payments provide a cost effective process for low dollar value goods and services and are the standard method used for paying utility and telecommunication costs. As payments without reference do not go through the Supply Division an assessment of their compliance with the Purchasing by-law can only be made by Supply after the fact.

In the Professional and Consulting Service Contracts Report for 2006, Document 5 provided details of approximately $54 million spent on purchases and services paid without reference to a purchase order. Of that amount approximately $34 million was for payments to utility and telecommunication companies, which would not be paid through a purchase order. Another $13.4 million in purchases were determined to be in compliance with the Purchasing By-law as they were appropriately sourced and in compliance with the corporate procedure for payment without reference.

In the same report, Supply Management Division identified forty incidents as being non-compliant to the Purchasing By-law with a total expenditure of $6.6 million dollars. T~~here~~The City Manager committed to report back on the following:

Ø the circumstances surrounding the non-compliant purchases

Ø whether or not best value ~~for dollar~~ had been achieved in those cases

Ø whether the ~~people~~ staff who made these purchasing decisions had the authority to do so and

Ø if necessary, the corrective action that has been or will be taken in these cases.

Details on these expenditures, including an assessment of whether the City received best value for these purchases and any actions taken to ensure compliance in the future is provided in this report. In order to facilitate the explanations, the payments to each vendor have been grouped by like purchases into the following categories:

Ø Automotive and heavy equipment parts and services

Ø Retail fuel outlets

Ø Print related services outsourced

Ø Library material

Ø Computer Software purchases

Ø Police Service Contracts

Ø Consulting services

Ø Other miscellaneous purchases

The results of this further review, indicate that:

1. Approximately $1.5 million were purchases made by the Library and by Police and approved by their respective Boards. These Boards are not regulated by the City’s Purchasing By-law and therefore should not have been included in the original report.

2. Approximately $2.5 million of purchases of automotive parts and printing related services were procured using the procedures stipulated within the Purchasing by-law for procuring goods and services of a low dollar value. This would ensure that the City received best value on an individual basis. As each of these purchases was of a low dollar value they were appropriately paid as a payment without reference. However as the cumulative value of the purchases made from the various vendors is significant Supply Management Division has advised the clients to utilize the competitive process required for higher dollar levels pursuant to the Purchasing By-law. Standing Offers have been commenced and will be in place for printing related services before the end of the year. The automotive parts issue will require extensive discussion and agreement with our Fleet client, and several separate procurement initiatives. Staff propose to complete those initiatives between Q4 2007, and Q2 2008.

3. Approximately $250,000 of the miscellaneous purchases identified was, upon further review, inappropriately identified as non-compliant in the report. These purchases were either outside the Purchasing By-law, or were refunds of deposits or lease fit-up payments required through contract. In the case of Nepean Cement Works Ltd., the appropriate procurement process was followed, but the contract should have been formalized through the issuance of a purchase order. In the case of Belair Recreational Products Inc., the branch involved has been advised that a purchase order is required in advance of the work proceeding and will comply in future.

4. Approximately $100,000 of computer software and maintenance costs was for proprietary goods and services that could not be purchased from other vendors. Under the Purchasing By-law these goods and services can be obtained on a non-competitive basis. The client will in future issue a Purchase Order before receipt of these goods.

5. Approximately $2 million spent on retail fuel outlets were reported as non-compliant. As these purchases were made from retail fuel outlets the City paid market price. A standing offer agreement has been implemented with seven local firms, which will result in annual savings in the 2% to 3% range.

The table attached outlin~~ing~~es these transactions in more detail ~~is attached at Appendix A~~.

To improve accountability, the reporting requirements around payments without reference were recently amended in Tthe Purchasing By-Law. ~~has recently been amended to include a reporting requirement in t~~The final quarter’s delegation report in each year, (October to December) will identify cumulative ~~with respect to~~ payments made without reference to a purchase order greater than $25,000 and identify whether or not theses payments comply to the Purchasing By-law. The non-compliant purchases will be fully investigated and the corrective action being proposed and or taken by the Finance Branch will be outlined in the report. This amendment will allow the Supply Management Division to review decentralized purchasing activity on a regular basis and take corrective action in a timely fashion upon discovering the irregularity.

CONSULTATION

There has been no public consultation regarding this item.

FINANCIAL IMPLICATIONS

There are no financial implications as a result of this report.

STRATEGIC DIRECTION

Not applicable.

SUPPORTING DOCUMENTATION

Appendix A - Payment Without Reference Reported to CSEDC September 04, 2007 as Non-Compliant to the Purchasing By-law

DISPOSITION

The Supply Management Division will ensure the action outlined in the attached table is completed.

APPENDIX A

Payment Without Reference Reported to CSEDC September 04, 2007 as Non-Compliant to the Purchasing By-law

Vendor	# of Invoices	$ Amount	Action taken or proposed
Automotive parts and services
AUTO PARTS EXTRA (3 vendors)	2325	153,978	Automotive and heavy equipment parts and services are required for a large and diverse fleet, and immediate delivery is often critical. Many parts are readily available from a large local vendor community, and ordering as needed with a delivery guarantee is often more economical than keeping parts in stock. Where no standing offer is in place, or where the part is unavailable from inventory, staff ~~will~~ obtain quotes, confirm best value, and order from a local vendor. The purchases referenced here were all made in that manner. Best value has been achieved in each case, and the appropriate management level has approved ~~the~~ each purchases. Services were all purchased using authorized procedures for procuring goods and services (low dollar value). ~~However~~However, due to the cumulative value of the various vendor payments, the Supply Management Division and Fleet Services Branch will issue a competitive process for each of these significant opportunities through the internet based bid distribution network (MERX). Standing offer agreements will be authorized in accordance with the Purchasing By-Law. The majority of the procurement activity will be commenced or complete by year-end 2007.
KEMPTVILLE TRUCK CENTRE	24	47,344
B AND N TRANSMISSION	49	106,188
MICHELIN NORTH AMERICA CANADA INC	321	193,127
FRANCIS CANADA TRUCK CENTRE INC FREIGHTLINER OF OTTAWA	431	281,992
JOE JOHNSON EQUIPMENT INC	538	354,954
Retail Fuel outlets
CANGO INC CITI COMMERCE SOLUTIONS	4	91,114	These expenses relate to 2006 fuel purchased for city vehicles from fuel retailers, at which point there was no ~~the previous~~ standing offer ~~had expired~~ in place. In each case, market rates were ~~in effect~~paid, and appropriate management level approval was obtained. In 2007, the Supply Management Division, working in conjunction with the numerous City stakeholders, issued a competitive standing offer, which closed in Q3 2007. ~~The analysis of the offers has been completed, and~~The standing offer agreements have been approved with seven vendors, representing 36 locations within the City, to commence November 1^st, 2007. The new standing offer agreements provide the City with discounts of on average 2% to 3% from pump prices.
SAAB GAS CENTRE	10	138,473
PIONEER PETROLEUMS	13	239,720
DRUMMOND FUELS OTTAWA LTD	15	482,422
MR. GAS LIMITED	13	102,921
ECONO GAS	12	107,188
IMPERIAL OIL	13	828,623

APPENDIX A

Vendor	# of Invoices	$ Amount	Action taken or proposed
Printing related services
INKWORKS QUALITY PRINTERS	22	80,795	Printing services are managed in the Copy Centre. Staff ~~will~~ obtained quotes from the appropriate vendor community, confirmed best value, ~~get~~ got the appropriate management level approval and then individual small contracts were awarded. Services were all purchased using authorized procedures for procuring goods and services (low dollar value). However, given the cumulative magnitude of spending, the Supply Management Division ~~and~~ will~~have~~ initiated a procurement process on behalf of the City Clerk’s Branch to allow competition for one or more standing offer agreements, to be in place by Q1 2008.
GILMORE REPRODUCTIONS	331	580,722
FND GRAPHICS INC	35	120,979
DAVID GORDON LLOYD ENT.	42	141,700
SUPREMEX INC	47	151,439
TRI CO PRINTING INC	40	280,750

Library materials
EBSCO CANADA LTD	15	266,261	These issues relate to a subscription broker for magazines at the library, the purchase of books as well as consulting services for the Library. The Library Board has delegated all spending authority to the City Librarian. ~~Best value has been obtained and the appropriate management level approved the purchases in each individual instance.~~ These were inappropriately identified as non-compliant as the Library is not governed by the City Purchasing By-Law. ~~The Supply Management Division has removed these purchases as non-compliant issues in the report.~~
WHITEHOTS INC	290	569,795
UNIQUE MANAGEMENT SERVICES	5	50,633

Computer software, maintenance
CREDITRON INC	2	28,721	These purchases are related to software which is proprietary to a specific vendor. ~~Proprietary software related purchases.~~ The appropriate management level approved the purchases in each individual instance. The sole sourcing of proprietary products is allowed under the Purchasing By-law. The client will involve Supply Management in the future, for approval and issuance of purchase orders for these types of purchases.
FDM SOFTWARE LTD	7	71,520
Police Service contracts
HUNT CLUB MOTORS LTD	1	28,158	These purchases were made by the Ottawa Police Services. ~~were approved appropriately in accordance with~~ The Ottawa Police Services Board has authority to approve purchases of this nature. ~~Best value has been obtained and the appropriate management level approved the purchases in each individual instance.~~ These were inappropriately identified as non-compliant as the Ottawa Police Services are not governed by the City Purchasing By-Law.~~The Supply Management Division has removed these purchases as non-compliant issues in the report.~~
PATHWAY HYUNDAI	28	140,873
VERSATERM	5	440,332

APPENDIX A

Vendor	# of Invoices	$ Amount	Action taken or proposed
Consulting services
ROSE VICTORIA	3	32,682	These are individual consulting services obtained by various branches and the payments were approved at appropriate management levels. With respect to Rose Victoria, the client obtained quotes and this vendor was the only provider able to meet the client’s needs and expectations. Delta Media is on the City’s standing offer to provide communication services and was selected based on their expertise and the tight timelines around the work required. Gentium Consulting was sole sourced to leverage the knowledge previously gained in undertaking a related contract. Payment of this contract was cost shared with the Province. These particular purchases were non-compliant in that a Purchase Order was not established, and the Supply Management Division has advised the clients of their obligation to comply with the Purchasing By-law.
DELTA MEDIA INC	1	37,635
GENTIUM CONSULTING	4	78,384
Miscellaneous services
CLARKE PROPERTIES	1	31,725	This purchase relates to a one-time maintenance fee for fit-up work pursuant to a lease agreement. This work was properly sourced through the landlord and approved appropriately in accordance with the lease agreement. This was inappropriately identified as non-compliant.
NEPEAN CEMENT WORKS LIMITED	2	33,636	These purchases were from an authorized standing offer, at best value rates, however the wrong payment method was used. The Supply Management Division has advised the client that proper contract approval must be obtained, and that a purchase order must be issued.
FRISBY TIRE CO	3	26,316	This issue relates to the return of financial deposits held by Finance. As such this was inappropriately identified as non-compliant.
DUNCAN MACLENNAN	3	61,500	The City and the Canadian Policy Research Network participated in a 100% federally funded project related to Social Infrastructure. The City was responsible to facilitate the billing and payment process and submit quarterly claims for reimbursement. As this is not a City contract and is not funded by the City this was inappropriately identified as non-compliant.

APPENDIX A

Vendor	# of Invoices	$ Amount	Action taken or proposed
FITNESS DEPOT	5	58,663	Majority of purchases were made on behalf of the Active Living Centre funded from members’ dues, and not city funds. Payment without reference was appropriate in this case.
SAW VIDEO ASSOCIATION	8	71,248	Arts & Cultural Services – grant payment approved by Council in budget, and paid appropriately without reference.
BELAIR RECREATIONAL PRODUCTS INC	6	127,540	One time issue where Supply Management Division was unable to issue a purchase order after work had begun. The Supply Management Division has advised the client of the appropriate procurement process and the client has a clear understanding of its responsibilities with respect to future purchases of this nature.

Rapport sur les paiements sans renvoi

Automotive parts and services

Retail Fuel outlets

Printing related services

Library materials

Computer software, maintenance

Police Service contracts

Consulting services

Miscellaneous services