Audit sounds alarm over $900m in civic projects

By Stanley Tromp, Vancouver Sun, 27 July, 2006


Ran with fact box "Major infrastructure program projects", which has been appended to the end of the story.

Provincial review cites poor business practices, untendered contracts



A $900-million program to build civic projects across B.C. is plagued by poor business practices, untendered contracts and improper expense claims, an internal government audit warns.

The review of the Canada-B.C. Infrastructure Program found problems with four of the six projects audited last year.

But the provincial Liberal government has so far opposed its own auditors' advice to require competitive bids and conflict-of-interest rules for contractors. Internal documents, obtained through the B.C. Freedom of Information Act, show the province has insisted that municipalities be entrusted to oversee the $900 million in taxpayer-funded projects.

"This is a huge story," said Vancouver municipal lawyer Jonathan Baker in an interview. "It's shocking to oppose having rules on these procedures, on a billion dollars in public money. That's banana republic politics ... Even with rules, there are plenty of dangers."

The federal and provincial governments launched the infrastructure program in 2001. Under the program, the two senior governments and the local government each contribute one-third of the money for infrastructure projects. The program as of June had funded 312 projects across B.C.

The government says the six projects audited by the B.C. comptroller-general, a branch of the Finance Ministry, are a representative sample of all 312 projects.

The auditor's May 2005 report, obtained by The Vancouver Sun, raised concerns about a watermain project to link Lions Bay with Brunswick Beach.

"We noted poor practice regarding tendering," the report says. "The project administrator position ... was not put out to tender but directly awarded."

As well, the lowest bidder was allowed to resubmit after misreading the contract. The bid was still the lowest and it won the contact, but as a result the audit warns: "the municipality may be exposed to claims by unsuccessful contractors."

The Sunshine Coast Regional District received $3.8 million to construct a water filtration plant.

"Poor business practice observed," said the audit.

In this case, the engineering contract was tendered but the audit noted: "No evidence was kept regarding the evaluation or the bids themselves (successful or not), thereby not allowing us to substantiate that value for money was achieved."

The audit also raised concerns about a sports complex in Salmon Arm, noting "no tendering" and "poor business practices." The report does not elaborate in this case on the nature of the poor practices.

The fourth project identified as a problem is a recreation centre on Saturna Island.

The report cites $56,000 in "ineligible expenses" and "poor business practices." Three bids were submitted and the contract did not go to the lowest bidder, the documents say.

The auditors found no significant faults with the other two projects: the North Cowichan Advanced Treatment for Phosphorous Removal and the White Rock Operations Green Building.

Two B.C. ministries -- Small Business and Economic Development and the Ministry of Community Services -- helped administer the infrastructure program. The audit reports contain a response from the community services ministry on behalf of both ministries to problems identified by the auditor.

The ministry argued that responsibility for project management rests with the municipalities because "under the Community Charter, local government is recognized as an order of government within its own jurisdiction, which the province acknowledges and respects."

Premier Gordon Campbell has often spoken passionately about giving more autonomy to municipalities in the charter.

The ministry argued against the province managing the infrastructure program, because "local governments have more at stake (greater vested interest in the project) and it is reasonable to assume that they will carry out the project with due diligence." As well, the standard contract states the recipient "is solely responsible for all aspects of the project."

The auditors advised the ministry to consider establishing conflict-of-interest guidelines on tendering, so the directors of non-profit societies benefiting from specific projects "could not take advantage of their position in awarding contracts."

But the ministry replied: "No action. When a proponent informs (program) staff that they are going to award a contract to someone associated with the society -- we discourage them from doing so. However, as there are no tendering provisions in the contract, we cannot prohibit them from awarding contracts to those associated with the society."

The auditors asked the ministry to recover ineligible and unsupported costs that should have been reimbursed. "Agreed," the ministry responded. "This is already in place, and we have recovered a small number of overpayments from local proponents."

The auditors insisted that project contracts go out to tender, but the ministry disagreed.

"Value for money is somewhat subjective; it goes well beyond getting the lowest bid," the ministry said. It argued that most of the projects are technically complex, and it is useful if a local supplier has developed the necessary skills both to construct and upgrade the project.

"The current situation in B.C. makes it extremely challenging for local government," the ministry said. "There is so much construction activity, it is often difficult to get interested parties to submit tenders."

Ministry spokesman David Crebo said more than 90 per cent of the projects are managed by established local governments with strong financial controls.

Lions Bay Village finance director Robin Hicks said in an interview that it's not fair to demand equivalent granting practices in a village and a city.

"This village has about eight employees, and 1,500 people. Here we don't even have a purchasing agent or a professional engineer. The District of North Vancouver has over 300 employees and dozens of engineers."

The Lions Bay mayor and councillors could not be reached for comment.

Regarding the Sunshine Coast project, Sunshine Coast Regional District chair John Rees said: "That was a great project, it's working extremely well, and it's right on budget."

He referred the financial details to district administrators, who could not be reached for comment.

Asked what would happen if the B.C. government demanded tendering, Rees said: "We always look for as much local control as we can possibly get.... I wouldn't be opposed to such a policy, but I expect the private sector would. . . . ."

He added that "It seems impractical.

"It doesn't matter to me what level of government audits us," said Rees. "This district is religious in our handling of grant funds."

But Baker, who is also a former Vancouver city councillor, said proper tendering is not a difficult process.

"The smallest town can do tendering for taxi and tow truck contracts," he said. "It's not like they're reinventing the atomic bomb."

To date, 158 of the 312 projects have been completed. The rest are under construction, with an extended deadline to March 31, 2008. The costliest project is the Greater Vancouver Water District's Seymour filtration plant project at $100 million.

Last June, the two senior governments created the new Canada B.C. Municipal Rural Infrastructure Fund (MRIF), in addition to the earlier infrastructure program.

The new $153-million fund consists of $51-million contributions from each of the federal, provincial and local governments over the coming year for infrastructure projects across the province. A minimum 80 per cent of funding will be targeted toward communities with a population under 250,000 people.

The six-member MRIF Management Committee (with senior federal, provincial and Union of B.C. Municipalities' representatives) will manage the MRIF and chose proposals based on staff advice, just as a management committee oversaw the previous infrastructure program.

However, the MRIF committee will develop requirements on the awarding of contracts, which might also mandate tendering.

"Municipal governments have far too much autonomy already," said Baker. "Instead of protecting these governments from the people, we need rules to protect the people from these governments.





A look at the most expensive construction projects funded by the Canada-B.C. Infrastructure Program


Seymour Filtration Plant Project (GVWD) $100,000,000

Kamloops Water Treatment Facilities $23,333,332

China Creek/Canoe Creek Basin water/sewer (Vancouver) $18,266,664

Whistler Wastewater Treatment Plant Upgrade $12,666,666

North Burnaby Combined Sewer Separation Program $9,466,666

Nanaimo Old Downtown Infrastructure Rehabilitation $9,287,930

Enhanced Water Supply Disinfection (Greater Victoria) $8,631,000

Squamish Sewage Treatment Facilities $7,486,664

Norrish Creek Filtration Phase 2 (Fraser Valley RD) $6,697,100

West branch CSO detention square (New Westminster) $6,666,666

Surrey Water Meter Incentive Program $6,180,000

Sunset Community Centre Renewal (Vancouver) $4,000,000

Burrard Bridge Seismic upgrade $2,000,000

Vancouver Museum Revitalization Phase 3 $2,000,000

Vancouver Aquarium Marine Science Centre upgrade $2,000,000

Christ Church Cathedral upgrade $538,000