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7. REVISED REPORTING TO COUNCIL FOR PURCHASING ISSUES MODIFICATION DU
PROCESSUS D'ÉTABLISSEMENT DE RAPPORTS |
Committee Recommendation
That Council
approve that By‑law No. 50 of 2000, the Purchasing By-law, be amended in the
form contained in Document 1 to revise the reporting to City Council for
purchasing contracts.
Recommandation du comité
Que le Conseil approuve que
Règlement municipal no 50 de 2000, Règlement sur les achats,
soit modifié de la façon détaillée dans le document 1 afin d’examiner le
processus d’établissement de rapports sur les contrats d’achat au Conseil
municipal.
Documentation
1. City Treasurer's report dated 20 November
2007 (ACS2007-CMR-FIN-0031).
2. Extract of Draft Minute, 19 November 2007.
Report to/Rapport au :
Corporate Services and
Economic Development Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
20
November 2007 / le 20 novembre 2007
Marian Simulik, City
Treasurer/trésorier municipal
Contact Person/Personne ressource : Phil
Andrews, Manager, Supply
Financial Services/Services financiers
(613) 580-2424 x 25176, phil.andrews@ottawa.ca
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SUBJECT: |
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OBJET
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modification
du processus d'établissement de rApports au Conseil sur les achats |
That the Corporate Services
and Economic Development Committee recommend to Council that By‑law No.
50 of 2000, the Purchasing By-law, be amended in the form contained in
Document 1 to revise the reporting to City Council for purchasing
contracts.
RECOMMANDATION DU RAPPORT
Que le Comité des services organisationnels et
du développement économique recommande au Conseil de modifier le Règlement
municipal no 50 de 2000, Règlement sur les achats, de la
façon détaillée dans le document 1 afin d’examiner le processus
d’établissement de rapports sur les contrats d’achat au Conseil municipal.
BACKGROUND
On September 12, 2007, City
Council discussed the current reporting requirements contained within the
Purchasing By-Law, specifically the current process which includes four
quarterly information reports on contracts awarded under delegated authority,
and one annual report which is more focussed on consulting and professional
services, sponsorship, legal outsourcing, amendments and purchases which were
paid without reference to a purchase order.
Council expressed a clear preference for more timely reporting on some
of these issues, in order to allow more meaningful oversight over the contracts
awarded by staff under delegated authority.
As a result of this discussion the Purchasing by-law was amended to
eliminate the annual report and to incorporate the elements it included into
the quarterly reports.
At the same meeting, Council gave direction to staff to develop a method to report the reasons why a professional service would be outsourced, and to better differentiate between consulting and professional services. This report proposes clarifications around those issue and goes further to suggest a refinement to reporting of contract amendments.
DISCUSSION
Currently, Supply Management Division reports quarterly on all contracts awarded under delegated authority exceeding $25,000. Highlighted in those reports will be an identification of professional and consulting service contracts, and amendments to existing contracts.
The Purchasing By-law does not
differentiate between a professional service and a consulting service
contract. As the amount the City spends
on professional and consulting services is always a subject of debate and is
often misconstrued as being solely spent on consulting services, providing
definitions of both terms and reporting on them under the two terms would be
beneficial. Therefore, it is
recommended that the Purchasing By-law be amended to include the following definitions:
“Professional Services” means services requiring the skills of professionals for a defined service requirement or for a specific project related deliverable including but not limited to the areas of engineering, architecture, design, planning, information technology, financial auditing and fairness commissioners;
“Consulting Services” means assistance to management, including but not limited to the areas of strategic analysis, organizational design, change management, policy development, feasibility studies and other services intended to assist decision making within the organization.
Typically consulting services are charged to the operating budget, whereas the majority of professional services are charged against an approved capital budget item.
The quarterly reports will also
highlight which of the contracts authorized amend an existing contract. As a result of the discussion that followed
the release of the list of contract amendments in 2006, it became apparent that
a further refinement of the term “amendment” was required. Whereas amendments are typically
unanticipated, a number of the contracts which were characterized as amendments
in the 2006 report were anticipated.
For this reason, it is recommended that the Purchasing By-law be amended
to include a defintion for “follow-on contracts”.
A follow-on contract differs from an amendment in that the original
contract or bid solicitation document recognizes the fact that it is likely,
that the initial defined contract scope may be expanded to include a number of
related phases that are either included in the tender document, or are
customary in relation to the work assignment. An example would be a contract
for a consulting engineer to provide a detailed design and contract
specification. After the construction
work has been tendered, and the contract awarded, it may be advisable to engage
the consultant who prepared the original specification to oversee the
construction on behalf of the city, in a capacity that was recognized (but not
guaranteed) in the initial Request for Proposal. Rates charged for the
follow-on contract are reviewed by Supply Management, and must be based on
those rates proposed by the service provider in the original competitive “bid”.
An amendment is an increase in the scope of an approved contract,
which is unanticipated. Those
amendments that are both greater than $50,000.00 and 50% of the original
contract will be identified in the quarterly report. Follow-on contracts will be identified as such within the
description of the work.
Council also gave direction that they would like to be provided with explanations as to why work is contracted out as opposed to being undertaken by existing internal resources. Staff reviewed the contracts for professional services that were let in the previous year and were able to identify the following general reasons why the City contracts externally. These explanations and a system for identifying them in the Council report are as follows:
(a) Fluctuations
in workload, or temporary lack of internal resources, identified by letter
“W”, for example workload fluctuations
due to the demands imposed during the heavy summer construction period, where
obtaining external resources for a fixed term is a more cost effective solution
than staffing an internal position, or where workload capacity varies during
the year and extra resources are necessary to assist during the peaks.
(b) The need for
specialized expertise that is unavailable within the City’s resources, identified
by letter “E”, for example the hiring
of an executive search firm in order to staff
a key management position, or where the task demands a very specialized
knowledge such as an actuary.
(c) The
need for independent third party oversight, identified by letter “I”, for example an external audit function, or a
Fairness Commissioner.
(d) Regulatory
requirements, identified by letter “R”, in order to comply with regulated
requirements, certification by a specialized professional is required. For
example the need for the Electrical Safety Association (ESA) to provide
legislated annual facility inspections. The ESA is the only agency authorized
to complete this work.
(e) Proprietary
service or unique market position, identified by letter “P”, for example the
need for software maintenance for licensed specific applications that is only
available from one provider.
(f) Business
model required outsourcing, identified by letter "O", which
recognizes that certain City work units were structured as a business model
which required outsourcing of all or a percentage of the professional services,
for example in the case of legal for certain legal services, and engineering
services for the design and construction of capital projects. Outsourcing differs from contracting in that
it is a strategic management tool.
Under the workload and outsourcing explanation, where the outsourcing of a service is repeated every year, management must periodically review and assess whether there is a cost benefit and an ability to have internal staff assume this work. The Legal Branch undertook such a review in 2005 and the Infrastructure Services Branch is undertaking a similar review now.
CONSULTATION
There has been no public consultation regarding this item.
FINANCIAL IMPLICATIONS
There are no financial implications as a result of this report.
SUPPORTING DOCUMENTATION
Document 1 – Draft By law outlining amendments to the Purchasing By-law, No. 50 of 2000,
STRATEGIC
DIRECTIONS
Not applicable
DISPOSITION
Subject to Council approval, starting with the upcoming report for Q3 2007, the Supply Management Division will ensure the quarterly report is updated to include the action outlined in this report.
Document 1
BY-LAW NO. 2007-
A by-law of the City of Ottawa to amend By-law
No. 50 of 2000 with respect to reporting to Council.
The Council of the City of Ottawa enacts as follows:
1. Section 3, Definitions, of By-law No. 50 of 2000 entitled “Being a By-law respecting the purchasing of goods, services and construction for the City of Ottawa”, as amended, is amended by adding the following definitions thereto:
“Amendment” means an increase to an existing contract related to a change in scope that is unanticipated;
“Business model required outsourcing” means a business model in which a Branch outsources all or a percentage of the professional services it provides;
“Consulting Services” means assistance to management, including but not limited to the areas of strategic analysis, organizational design, change management, policy development, feasibility studies and other services intended to assist decision making within the organization;
“Follow-On Contract” includes situations where the City, in the original contract or bid solicitation document, has communicated the potential for the award of subsequent phases of a project to the successful service provider and fees for any follow-on contract are to be based on the same unit or per diem rates proposed under the original contract or bid.
2. Section 3 of the said
By-law No. 50 of 2000 is amended by repealing the definition of Professional
Services and substituting the following definition therefor:
“Professional Services” means services requiring the skills of professionals for a defined service requirement or for a specific project related deliverable including but not limited to the areas of engineering, architecture, design, planning, financial auditing and fairness commissioners;
3. Section 39 of the said
By-law No. 50 of 2000 is repealed and the following section is substituted
therefor:
39. (1) The
City Treasurer shall submit to Council an information report quarterly
containing the details relevant to the exercise of delegated authority for all
contracts awarded by Directors exceeding $25,000 and Supply Management shall
certify in the report that the awards are in compliance with the Purchasing
By-law.
(2)
This quarterly
information report shall identify all contracts for Consulting Services and
Professional Services for Follow-on Contracts and for Amendments.
(3) For all contracts for Consulting
Services and Professional Services, this quarterly information report shall
identify the reason for the outsourcing of the service in accordance with the
following categories by use of the identifying letter:
(a)
workload related or
lack of internal resources by a “W”;
(b)
need for specialized
expertise by an “E”;
(c)
need for independent
third party oversight by an “I”;
(d)
regulatory requirement
by an “R”;
(e)
proprietary service or
unique market position by a “P”; and
(f) business model required
outsourcing by an “O”.
(4) In addition to the information required
by subsections (2) and (3), the final quarterly information report of each
calendar year shall include,
(a)
the annual totals for
legal outsourcing costs and sponsorships and advertising; and
(b)
payments with a
cumulative value greater than $25,000 made without reference to a purchase
order including confirmation of compliance with the Purchasing By-law or steps
to be taken to ensure future compliance.
ENACTED AND
PASSED this day of , 2007.
CITY
CLERK MAYOR
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Corporate Services and Economic
Development Committee Report 17 28 november 2007 |
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Comité des services organisationnels et du développement économique rapport 17 le 28 novembre 2007 |
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Extract
of draft Minutes 18 19 november 2007 |
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Extrait de l’ébauche du procès-verbal 18 – le 19 novembre 2007 |
REVISED REPORTING TO COUNCIL FOR PURCHASING ISSUES
MODIFICATION DU PROCESSUS D'ÉTABLISSEMENT DE RAPPORTS
AU CONSEIL SUR LES ACHATS
ACS2007-CMR-FIN-0031 CITY-WIDE / À
L'ÉCHELLE DE LA VILLE
In response to questions from
Councillor El-Chantiry with respect to the definitions contained in the report
and a breakdown of the money spent in 2006, Ms. Simulik circulated a hand-out,
which served to demonstrate the various categories of professional and consulting
services and the amounts spent in each category in 2006 as well as in each of
the first two quarters of 2007. She
then walked Committee through the hand-out noting that: of the $78M spent in
2006 on professional and consulting services, $69M was for professional
services and $9M was for consulting services; and of the $69M spent on
professional services, $52M related to outsourcing based on the business model,
approximately $15M was for specialized expertise, $343,000 was for independent
3rd party oversight, $481,000 was related to regulatory requirements
and approximately $836,000 was related to workload or lack of internal
resources. With respect to the $52M for
outsourcing based on the business model, she indicated this primarily related
to Infrastructure Services and she reminded Committee that at amalgamation, a
decision was made to not have all engineers in-house so that the majority of
these services would be contracted out.
A copy of Ms. Simulik’s hand-out is held on file with the City Clerk.
Councillor El-Chantiry referenced
the $52M related to outsourcing based on the business model and wondered if the
time had come where it might be beneficial to have in-house staff instead of
outsourcing. Ms. Simulik indicated that
Legal Services had conducted a review a couple of years prior and as a result,
a decision had been made to have more in-house lawyers instead of
outsourcing. She advised that the
Infrastructure Services Branch was undergoing a similar review and that a
report would be coming forward in the first quarter of 2008.
Responding to a further question
from Councillor El-Chantiry, Ms. Simulik referenced page 119 of the agenda
package, where staff provided definitions for “professional services” versus
“consulting services”.
Councillor Wilkinson noted that on
one hand, the City was often criticized for the amount of money spent on
consulting services while on the other hand, it was being told to do more
outsourcing. She maintained the two
were effectively the same and she wondered if there was a way to get
information to the public in a way that they could understand it. Ms. Simulik indicated the intent of the
present report was to better define the various terms used in order to clarify
what the City purchased and why it did so.
She maintained this report represented staff’s best attempts at
clarifying the language.
Responding to a question from
Councillor McRae, Ms. Simulik indicated that engineering contracts used to
contained 10% contingencies but that, pursuant to a recommendation of the
Auditor General, they now contained 5% contingencies. She explained that contingencies were included so that, if
additional work needed to be done, it had to be done within that 5%. She also advised that each year, staff
looked at the entire capital projects list, closed all completed projects and
returned any unused funds to the source.
Councillor McRae wondered what
happened if a company was awarded a contract and then discovered it had made a
mistake and could not fulfill the contract for the specified dollar
amount. Mr. P. Andrews, Manager of
Purchasing, explained that the City’s contracts with engineering professionals
incorporated a level of effort plus per diem with an upset limit. Therefore, a contract would specify a
deliverable and, although the consulting firm will commit to a level of effort
and a per diem rate, they accept the risk of any extra cost that they may need
to invest.
In response to a further question
from Councillor McRae, Mr. Kirkpatrick indicated that at amalgamation, there
were 15 different legal firms providing services to the 12 different
municipalities. Through the process of
convergence, that was brought down to 8, which Mr. O’Connor further reduced to
four (4). He noted that at this level,
the City was able to get a lower blended rate.
He referenced his previous commitment to find $35M in savings from
purchasing and re-iterated his intentions to review all City purchasing,
including purchasing services.
Councillor McRae felt this was good
news. She submitted it may be that the City was getting good value for
money. However, she noted the public
perception was otherwise and she indicated she looked forward to hearing more
about the review referenced by the City Manager.
On the last point, Councillor Jellett
cautioned that when looking at lower blended rates, the City might
inadvertently eliminate the ability for small firms to compete for City
contracts because they may not have the resources to meet the needs of
city-wide projects. He submitted that
sometimes, smaller was better.
Speaking to beliefs and
perceptions, the Councillor thought the City generally believed that the
industry was providing the municipality with a valued service when providing an
engineering report. However, he felt that
was a public perception that the City was being gouged; that when working for a
government, engineering firms were charging a higher fee than they would charge
a private sector client. He wondered
how this perception could be dispelled.
Mr. Andrews submitted that the City trusted in the marketplace. He noted that a certain component of staff’s
evaluation criteria related to financials and that they had to rely on the
marketplace to respond accordingly. He
explained that in evaluating proposals, staff considered technical skills,
expertise, experience and cost. He
noted that, pursuant to a recommendation of the Auditor General, the City
required bidders to confirm the best rate to clients. He submitted that, based on staff’s experience and market
research, the City did reasonably well.
Responding to a further question
from Councillor Jellett, Mr. Andrews confirmed that staff will sometimes go
back to a preferred vendor to negotiate a lower price. However, he indicated staff would not
negotiate with two or three vendors and play one against the other.
Councillor McRae suggested having
this listed on a future agenda so that Committee could have a fulsome debate,
based on facts, on the issue of consultants and purchased services.
Responding to questions from
Councillor Desroches, Ms. Simulik indicated the figures provided in staff’s
reports did not include GST because the City received a full rebate on any GST
it paid. However, she advised that the
figures included PST because it was not recoverable and had to be included in
total costs. With respect to an
upcoming contract to be awarded related to the organics program, she explained
this would not be considered a professional service. It would be treated the same way as the City’s garbage pick-up
contracts.
Following this exchange, Committee
approved the report recommendations.
That the Corporate Services and
Economic Development Committee recommend to Council that By-law No. 50 of 2000,
the Purchasing By-law, be amended in the form contained in Document 1 to revise
the reporting to City Council for purchasing contracts.
CARRIED