Item - 2016.AU6.11

The Audit Committee recommends that:

1.  City Council request the General Manager, Transportation Services Division, in consultation with the Director, Purchasing and Materials Management Division, to implement a process to assess the impact of awarding construction contracts to materially unbalanced bids tendered by the Division.  Steps to be included in the process should consist of:

a.  Performing a reverse bid analysis of unit price Transportation contracts on an annual basis to quantify the negative financial impact of materially unbalanced bids; and

b.  Performing reconciliations between planned and actual road construction contracted services and costs to identify negative impact of materially unbalanced bids on service delivery, such as cancellations or delays in work.

2.  City Council request the General Manager, Transportation Services Division, to take steps to ensure quantity estimates in tender documents are reasonably accurate.  Steps to be taken should include but not be limited to:

a.  Analyzing historical information on prices and quantities;

b.  Ensuring that road resurfacing tender documents contain actual field measurements such as original handwritten notes and drawings from the field, and documented rationale for changes to the estimated quantities;

c.  Ensuring staff justify the significant variances between estimated and actual quantities and such explanation clearly indicate why the variances could not have been anticipated;

d.  Requiring staff responsible for estimation to sign off on the estimated quantities and any subsequent changes to the estimated quantities; and

e.  Ensuring measurements taken for estimation purposes are reviewed by management for reasonability.

3.  City Council request the Director, Purchasing and Materials Management Division, in consultation with the General Manager, Transportation Services Division, to:

a.  Develop and implement specific criteria for identifying potentially unbalanced bids in road related contracts;

b.  Ensure appropriate data is captured to allow unbalanced bid analysis;

c.  Train staff on how to apply the criteria; and

d.  Develop a decision framework for accepting or rejecting materially unbalanced bids. 

4.  City Council request the General Manager, Transportation Services Division, and the Director, Purchasing and Materials Management Division, to ensure that bid information and contract documents are organized in a manner that facilitates analysis of historical tender information.

5.  City Council request the Director, Purchasing and Materials Management Division, in consultation with the City Solicitor, to develop and implement an effective policy to address potential risks arising from sub-contracting arrangements between competitive bidders.

6.  City Council request the General Manager, Transportation Services Division, to review differences in district practices in relation to preparation of tender estimates and record keeping with a view to ensuring best practices are incorporated in all district offices. 

7.  City Council request the City Manager to forward the audit report (June 27, 2016) from the Auditor General, to other relevant City divisions and major agencies and corporations which acquire contracted construction services on a regular basis for information.

The following City officials gave a presentation to the Audit Committee on this Item:

- Beverly Romeo-Beehler, Auditor General

- Jane Ying, Assistant Auditor General

- Ruchir Patel, Senior Audit Manager

- Stephen Buckley, General Manager, Transportation Services

- Michael Pacholok, Director, Purchasing and Materials Management.

The Auditor General’s 2015 Audit Work Plan included a review of City-wide major contracts for road construction and resurfacing.  The audit focused on a review of 55 local road resurfacing (also known as paving), 94 utility cut, and 14 sidewalk repair contracts, totaling $169 million, $187 million, and $27 million respectively, in contract value delivered by the Transportation Services Division since 2010. 

The objectives of the audit were to assess whether proper management controls were in place to ensure fair and competitive tendering processes, and whether the City received value for money in acquiring road resurfacing, utility cut, and sidewalk repair contracted services.

Our findings underscore the importance of identifying and addressing potentially unbalanced bids during a tendering process to protect the City from financial loss and ensuring a level playing field for bidders.