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4. Purchasing
by-law – litigation exclusion Règlement sur les achats –
Exclusion pour cause de litige |
That Council approve a litigation exclusion amendment to its Purchasing By-law on a trial basis as described in this report and
that the City Treasurer report back to Corporate Services and Economic
Development Committee and Council on the outcome during the Mid-Term Governance
Review in 2012.
Recommandation du ComitÉ
Que le Conseil approuve une modification
à son Règlement sur les achats afin d’y intégrer une exclusion pour cause de
litige, et ce, pendant une période d'essai, tel que décrit dans le présent
rapport et que la trésorière municipale présente un rapport sur les résultats
de cet essai au Comité des services organisationnels et du développement
économique et au Conseil municipal au cours de l’examen sur la gouvernance en
2012.
DOCUMENTATION
1.
City Clerk and Solicitor’s report dated 25 May 2010
(ACS2010-CMR-FIN-0040).
Corporate Services and
Economic Development Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
June 24 2010 / le 24 juin 2010
Submitted by/Soumis par : Marian Simulik, City Treasurer Finance
Department/Service des finances and/et M. Rick O’Connor, City Clerk and
Solicitor/Greffier et Chef du contentieux
Contact
Persons/Personnes ressource : Jeff Byrne, Manager, Supply / Gestionnaire,
Approvisionnement Finance Department/Service des finances
(613)
580-2424 x25175, Jeff.Byrne@ottawa.ca and/et Carey Thomson, Deputy City
Solicitor / Chef du contentieux adjoint, (613) 580-2424 x21365,
Carey.Thomson@ottawa.ca
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Ref N°: ACS2010-CMR-FIN-0040 |
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SUBJECT: |
Purchasing by-law –
litigation exclusion |
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OBJET :
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Règlement sur les achats
– Exclusion pour cause de litige |
That the Corporate Services and Economic Development Committee
recommend that Council approve a litigation exclusion amendment to its Purchasing By-law on a trial basis as
described in this report and that the City Treasurer report back to Corporate
Services and Economic Development Committee and Council on the outcome during
the Mid-Term Governance Review in 2012.
RECOMMANDATION DU RAPPORT
Que le Comité des services organisationnels et du développement
économique recommande au Conseil d’approuver
une modification à son Règlement sur les achats afin d’y intégrer une exclusion
pour cause de litige, et ce, pendant une période d'essai, tel que décrit dans
le présent rapport et que la trésorière municipale présente un rapport sur les
résultats de cet essai au Comité des services organisationnels et du
développement économique et au Conseil municipal au cours de l’examen sur la
gouvernance en 2012.
BACKGROUND:
In 2008,
Council inquired about the ability of the City of Ottawa to temporarily suspend
both business relationships and grants to persons or organizations engaged in
litigation with the City.
In response,
the City Clerk and Solicitor provided to Corporate Services and Economic
Development Committee and Council his legal opinion, on November 10th,
2008: a copy of the memo, “Procurement
and Grants Policies – Litigation Exclusion”, being ACS2008-CMR-LEG-0026 IPD,
can be found as Document 1 to this report.
In short, the legal opinion stated that there was sufficient legal authority for the City
of Ottawa to initiate a litigation exclusion to its Purchasing By-law. Such an
amendment would prohibit vendors and suppliers of goods, services or
construction who have legal actions pending against the City from doing any
new/additional business with it while such matters are unresolved.
On July 8th, 2009, Council directed “Legal and Procurement staff to review the Purchasing By-law and report back to Committee and Council before the end of 2009 with options to further ensure that the City’s procurement processes reflected best practices. In response to Council’s direction, the staff report entitled, Purchasing Bylaw – Review (ACS 2009-CMR-FIN-0058), was tabled with the CSED Committee on December 1st, 2009. In that report, the original Recommendation 5 of the Purchasing By-law- Review report (ACS2009-CMR-FIN-0058) recommended that:
The Purchasing By-law be amended to add to the discretion of the City Treasurer, in consultation with the City Clerk and Solicitor, the authority to prohibit a bidder from bidding on future contracts when engaged in litigation with the City of Ottawa.
CSED
Committee tabled this report and directed, following further consultation, that
the matter be considered at the meeting of January 19th, 2010.
In light of the Committee’s direction, the Business Advisory Committee (BAC) received a comprehensive presentation from staff at their meeting on January 12, 2010 on the proposed changes to the Purchasing By-Law. In a memo dated January 18, 2010, the Committee provided the following comments with respect to the proposed Litigation Exclusion:
The BAC members support the concept of not allowing certain suppliers
to bid on certain contracts under certain circumstances however we are not in
agreement with the proposal to grant blanket powers to the City Treasurer.
It is recommended that a policy be drafted which clearly lays out
conditions under which a supplier may be prohibited from bidding on future
contracts.
For example a supplier may be prohibited from bidding on future
contracts when that supplier had committed fraud and or has a history of
failing to perform under the terms of a contract and has been in breach of
health and safety conditions, etc..
Exclusions based on a well thought out policy considered and put into place in advance are more easily accepted and defended than ad-hoc decisions made in the midst of a heated process.
On January 19th, 2010, the Corporate
Services and Economic Development Committee (CSEDC) amended Recommendation
5 of the Report as follows:
Staff be directed, prior to implementing a bidding
prohibition against suppliers engaged in litigation with the City, to clarify
the grounds upon which such discretion would be exercised (e.g. when a supplier
has committed fraud against the City or one of its boards or corporations, has
a history of failing to perform under the terms of a contract or has been found
to be in breach of health and safety conditions) and to report back to
Corporate Services and Economic Development Committee and Council.
On January 27th,
2010, City Council approved the above-noted direction.
DISCUSSION:
Original
Criteria
In compliance with Council’s direction, City staff researched
litigation exclusion provisions of other Ontario municipalities and formulated
the following criteria in order to clarify the grounds upon which the proposed
litigation exclusion may be engaged:
(a) whether the litigation is likely to
affect the bidder’s ability to work with the City, its consultants and
representatives;
(b) whether the City’s experience with the
bidder indicates that the City is likely to incur increased staff and legal
costs in the administration of the contract if it is awarded to the bidder;
(c) whether the supplier has committed fraud
against the City or one of its boards or corporations;
(d) whether the supplier has a history of
failing to perform under the terms of a contract;
(e) whether the supplier has been found to
be in breach of health and safety conditions;
(f) whether the supplier has failed to
satisfy an outstanding debt to the Corporation;
(g) there are reasonable grounds to believe
it would not be in the best interests of the City to enter into a contract with the supplier.
City Staff then
sought input on these proposals from the following key stakeholders:
Consulting Engineers of Ontario (Ottawa Chapter); Electrical
Contractors Association of Ottawa; General Contractors Association of Ottawa;
Greater Ottawa Truckers Association; National Capital Heavy Construction
Association; the Ottawa Construction Association as well as the Business Advisory
Committee.
The following
is a high level summary of the feedback from the various stakeholders. Full responses are attached as supporting
documentation to this report.
The Business
Advisory Committee suggested that criteria 2 (c) be revised to read “convicted
of a criminal act”. Both the
National Capital Heavy Construction Association and the Ottawa Construction
Association recommended unsatisfactory
performance and health and safety should be removed as a criteria to be
considered as it is already addressed under Section 37 of the City’s Purchasing By-law.
The Consulting Engineers
of Ontario (CEO) (Ottawa Chapter) agreed that what is proposed is a
fair and reasonable approach, assuming of course that the City exercises good
business judgment. The key is that disputes where the facts are yet to be
clarified are not used to exclude a firm from bidding on new work. In
other words stick to the innocent until proven otherwise standard where
possible. The CEO’s
feedback can be found as Document 2 to this report.
1. The City’s proposal will give them power
to discourage contractors from pursuing their rights through the courts.
2. Contrary to the spirit of a “comprehensive
complaint process”.
3.
Reduce the level of competition. In the heavy
construction sector, there are some services that are provided by only a few
potential suppliers.
4.
No incentive for the City to settle any potential
disputed issue in a friendly manner
5. Puts the City in a position of
disproportionate power and thus discourages the city from working with the
contractor to reach an amicable solution.
The NCHCA’s feedback can be found as
Document 3 to this report.
The General Contractors Association of Ottawa vigorously
opposed the Litigation Exclusion provision as follows: “It is most inequitable to discriminate
against a firm because it is involved in a litigation against the City and
assigns guilt where none has been decided.”
Moreover, the establishment of such a blanket band could well operate
against the City’s best interests by the ensuing reduction of competition and
paying of a premium to have the work completed.
The General Contractors Association feedback can be found as
Document 4 to this report.
The Ottawa Construction Association (OCA)
is opposed to a blanket or
discretionary bidding prohibition against suppliers engaged in litigation
against the City. They were of the
opinion that the litigation exclusion translates into a potential threat when
addressing contract disputes and is held as a “hammer” over the head of the
contractor. The OCA prefers to let the
courts decide fault and remedy.
The most significant challenge to
implementing a blanket provision in the opinion of the OCA is the fact that the
City purchases many goods and services from limited and or specialized markets
with limited suppliers, which aptly describes segments of the construction
industry. Any exclusion of a firm would
unintentionally hurt the City by limiting the number of bidders.
The Association also does not support the criteria proposed by staff when exercising this discretion as they are felt to be discretionary and some subjective. The OCA’s feedback can be found as Document 5 to this report.
Staff made a subsequent presentation on
the Litigation Exclusion Provision to the Business Advisory Committee (BAC) on May 10, 2010 and the BAC shared many
of the same concerns as the supplier associations. The BAC felt that absolute discretion needs
to be linked to established criteria but even using the criteria, the provision
is extremely broad. The BAC also felt
that the Litigation Exclusion Provision should only be applied to current
litigations and not past ones and whenever possible suppliers be told in
advance that the City will not accept their bids while legal actions are
pending against the City and remain unresolved.
Revised
Criteria
In an attempt to
overcome the stakeholder’s concerns associated with an overly broad litigation
exclusion, staff is recommending an approach similar to the existing unsatisfactory
bidder approach set out in Section 37 of the City’s Purchasing By-law.
At present,
Subsections 37(1) and 37(2) of the City’s Purchasing By-law provide a
discretion to the City Treasurer, in consultation with the City Clerk and
Solicitor, to prohibit an unsatisfactory supplier from bidding on future City
contracts where the performance of the supplier has been unsatisfactory in
terms of failure to meet contract specifications, terms and conditions or for
Health and Safety violations.
The proposed Litigation Exclusion Provision to
be inserted into the Purchasing By-law
would read as follows:
(1) The City, acting through its City Treasurer in consultation with the City Clerk and Solicitor, may in its absolute discretion after considering the criteria outlined in subsection (2), reject a quotation, tender or proposal submitted by the bidder if the bidder, or any officer or director of the bidder is engaged, either directly or indirectly through a corporation or personally, in a legal action against the City, its elected representatives or appointed officers and employees in relation to:
(a) any other related contract or services; or
(b) any matter arising from the City’s exercise of its powers, duties or functions.
(2) In determining whether or not to reject a quotation, tender or proposal under this clause, the City Treasurer and the City Clerk and Solicitor will consider;
(a) whether the litigation is likely to adversely affect the bidder’s ability to work with the City, its consultants and representatives; or,
(b) whether the
City’s experience with the bidder indicates that the City is likely to incur increased
staff and legal costs in the administration of the contract if it is awarded to
the bidder; or,
(c) whether the bidder has been convicted of a criminal act against the City or one of its
local boards or corporations; or,
(d) whether the bidder has failed to satisfy an
outstanding debt to the City or one of its local boards or corporations; or,
(e) there are reasonable grounds to believe it
would not be in the best interests of the City
to enter into a contract with the bidder.
In addition,
staff are recommending that this proposal be reviewed and evaluated after two
years to determine its overall value.
The report was originally tabled at Corporate Services and Economic Development Committee on December 1st, 2009 and considered by the Committee and Council in January 2010, thereby allowing sufficient public consultation on the report’s recommendations including presentations to the Business Advisory Committee. In addition, staff sought input from various supplier associations, including Consulting Engineers of Ontario (Ottawa Chapter), Electrical Contractors Association of Ottawa, General Contractors Association of Ottawa, Greater Ottawa Truckers Association, National Capital Heavy Construction Association and the Ottawa Construction Association as well as the Business Advisory Committee.
There are no Legal/Risk Management impediments to implementing any of the recommendations in this report.
There are no direct financial implications with regards to this report. However, reduced competition on bidding opportunities could result in the City paying premiums for goods and services on certain procurements.
RURAL
IMPLICATIONS
There
are no rural implications for this report.
Document 1: Procurement and Grants Policies – Litigation Exclusion Memo (City Solicitor, November 10th, 2008)
Document 2: Consulting Engineers of Ontario Comments re: Draft Litigation and Health & Safety Exclusions (May 17th, 2010)
Document 3: National Capital Heavy Construction Association Comment on Proposed Purchasing By-law Revisions (April 22nd, 2010)
Document 4: General Contractors Association of Ottawa Bidding Prohibition Against Suppliers Engaged in Litigation with the City (February 11th, 2010 and May 10th, 2010)
Document 5: Ottawa Construction Association Bidding Prohibition Against Suppliers Engaged in Litigation with the City (May 10th, 2010)
Pending Council’s deliberations on this
report, staff will prepare an amendment to the City’s Purchasing By-law and consult with the Business Advisory Committee to assist in the
development of a communication plan to disseminate these changes to the
business community by Q4 of 2010.
Purchasing by-law – litigation
exclusion
Règlement sur les achats – Exclusion pour cause de litige
ACS2010-CMR-FIN-0040 CITY WIDE/À L'ÉCHELLE DE LA VILLE
Chair Jellett reminded Members
that this item was before Committee in order to approve the criteria for the
litigation exclusion. Rick O’Connor,
City Clerk and Solicitor added that staff was directed to develop criteria
prior to implementing for Committee and Council approval.
John DeVries Ottawa Construction Association provided committee members with a copy of Journal magazine which he referenced an article titled “City Stimulus Project on Time and Under Budget”. Mr. DeVries felt this to be a ‘good news’ story with the City only committed to spending $371 million with a $30 million savings. He gave Councillors, the Mayor and all staff great praise because when the program was announced, the City among all cities was a leader in getting their list of projects approved.
The Board of Directors and City
staff have had a great, ongoing relationship over the years, resulting in very
little litigation with the construction industry. Mr. DeVries was before the Committee to note
that his Association was engaged with this issue throughout the process and
they took a bottom line position that they did not want to see any ban on firms
from bidding because there are so many industry members that rely on the City
works for their businesses. Having said
that, staff have listened to concerns from his group and the general
contractors for heavy construction and they have modified the provision to
narrow down the scope. At the end of the
day, they are still opposed in principle to any ban, even if it is
minimal. He believed the City currently
has the right to ban repetitive offenders from bidding in which he supports
rather than a general ban.
Chair Jellett reiterated that
because the concept of having a litigation exclusion has already been approved
by Council, Committee cannot reject that unless Council reconsiders the
issue. In response to a question from
the delegate, Chair Jellett confirmed that if the criteria were not approved,
it would have to go back for further study.
Councillor McRae appreciated the
delegate’s comments and asked if staff were provided with the Journal magazine
as there was a comment in an article attributed to the City of Ottawa from Mr.
Byrne saying that “staff were scheduled
to make the recommendation for or against the proposed prohibition. She asked if that would be considered an
incorrect statement. Marian Simulik,
City Treasurer was aware of the article and agreed that it was an incorrect
statement. She explained that at the
time during discussion with the various associations, there may have been an
impression that there was an ability to change but upon discussing it with the
City Solicitor, it was explained that it was already approved; therefore that
avenue was not available.
With respect to the next term of
Council, Councillor McRae asked if this policy could be overturned. Mr. O’Connor confirmed that the next Council
could indeed overturn any policy. He
suggested that if this Committee was dissatisfied with the draft criteria and
the notion of moving forward with this project, there was a possibility of
replacing the word “approve” with “receive”.
In turn, Council could receive it, which technically would be the end of
the issue.
Councillor McRae reminded the delegate that this was a trial process but asked Mr. DeVries if there was a particular motion that would be more palatable to him other than a rejection. Mr. DeVries felt that it would be better not to go ahead with it as the real fear comes from the heavy construction agencies that rely on City business as stated in the article that “the City could use the threat of a procurement ban to scare suppliers out of taking appropriate legal action”. Mr. O’Connor clarified that what is being proposed is a series of criteria to ensure that should these circumstances come to light at the end of the day, that staff do their due diligence and work with the business community as done in the past. Council does not want to be in the position of publicly awarding suppliers for future contracts when they have been less than amiable partners with the City and litigate on a variety of others.
Mr. O’Connor clarified that the
City would not ban people for life; rather it would be for a specific period of
time. Staff would also monitor
situations and meet with people prior to any actions being taken. Through discussion with the Treasurer, it was
determined to do a two-year trial and if the parties could not agree, then a
fairness commissioner could be hired to mediate a particular approach before
issuing letters.
In response to a follow up
question from Councillor McRae on how some contractors get away with not
completing their work due to the weakness in some of the wording in contracts,
Mr. O’Connor noted that Section 37 of the existing Purchasing By-law says “the Director shall document evidence and
advise Supply Management in writing where the performance of the supplier has
been unsatisfactory in terms of failure to meet contract specifications terms
and conditions or health and safety”.
He or the Treasurer may make that determination, but that does not cover
situations where someone is litigating with the City on a regular basis over
their business relationships. This was
the extra tool that Council was looking for in January.
Councillor McRae noted that she
was unsure of supporting the report given that a large number of people who
contract with the Corporation are opposed of a broad policy. This could be considered a pilot project but
cautioned that that the next term of Council overturn this Council’s
decision. She asked if there was a way
of amending it to ensure it is more of a targeted ban. Chair Jellett observed that the revised recommendations
do just that. Mr. O’Connor noted that in
January, staff approached the Business Advisory Committee (BAC) and they
supported a ban but were not in favour of a broad ban and recommended that
criteria be developed. Subsequently,
CSEDC recommended to Council that criteria be developed. Staff originally developed seven criteria
based on input from the BAC but since then removed two because they were
statutory; therefore not required, and another criterion was amended. He assured that staff will meet with BAC to
discuss issues prior to making any decisions and ensure that they are fully
apprised.
Councillor McRae stipulated that
she would feel assured if a preamble could be prepared that would speak to the
spirit of the by-law and Mr. DeVries can explain to his membership that he was
heard by Council. Being a Councillor,
she explained that sometimes when dealing with by-laws that are enacted by many
previous terms of Council, the spirit of the intention at the time may have
been lost.
In response to a question from
Councillor El-Chantiry, Jeff Byrne, Chief Procurement Officer advised that
there is a provision in the Purchasing By-law that requires staff to thoroughly
document the non-performances, and then take action to exempt the repeated offenders
from bidding.
That the Corporate Services and Economic Development Committee
recommend that Council approve a litigation exclusion amendment to its Purchasing By-law on a trial basis as described in this report and
that the City Treasurer report back to Corporate Services and Economic
Development Committee and Council on the outcome during the Mid-Term Governance
Review in 2012.
CARRIED
DIRECTION TO STAFF:
That the City Clerk and Solicitor
prepare a preamble that captures the spirit of the Purchasing By-law prior to
the Council meeting.