The devil is in the detail

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The city is poised to hire an international engineering giant to manage about $2 billion in spending on sewage treatment over the next 30 years, but all we really know about the contract is that it was awarded to the best bidder.

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Opinion

Hey there, time traveller!
This article was published 17/05/2010 (4579 days ago), so information in it may no longer be current.

The city is poised to hire an international engineering giant to manage about $2 billion in spending on sewage treatment over the next 30 years, but all we really know about the contract is that it was awarded to the best bidder.

That is usually enough information when a contract is for short-term garbage collection, or the supply of concrete for wading pools, but the sewage contract is one of the largest and most complicated deals in the city’s history. It is also part of a larger plan to create a sewer and water utility, with rates set by the Public Utilities Board, although neither of these major initiatives has been formally approved.

City councillors will be asked on Wednesday to approve the contract with Veolia Environment based on trust alone.

The city originally wanted a strategic partner to manage the water and sewage system, but that description was dropped because it was politically volatile. The terms of the deal with Veolia suggest it will act as a project manager and consultant.

Veolia will supervise a $660-million expansion of the north and south end sewage treatment plants and use its expertise to ensure costs do not rise and the work is done properly. It will also manage the operation of the plants and the entire civic system for the next 30 years. The operating costs alone have been pegged at $1.2 billion during this period.

In return for its expertise, the city will cover the company’s direct costs, including employee salaries, plus a management fee. The company will also earn an incentive for completing the work under budget, but it will lose its management fee and receive no bonus if the work is over budget.

By this means, the city hopes to avoid the debacle that occurred at the West End Sewage Treatment Plant, which was over budget and plagued with ongoing operational problems. Lawyers are still trying to decide who is responsible for the mess.

The theory of the pending contract with Veolia is that the company will be motivated to ensure the work is done properly, rather than doing shoddy short-term work.

The city seems to have accepted that it’s not very good at managing megaprojects, or even modest projects. An audit into cost overruns for the construction of the Main-Norwood bridges, for example, said the problem was caused, in part, by the city’s weakness in project management. Former mayor Glen Murray was so upset when he learned of the overruns that he threatened to fire everyone responsible, although no heads ever rolled.

The problem with the Veolia contract, however, is that it’s devoid of details for public consumption. Councillors do not know the value of the management fee, the direct costs or even an estimate of the bonuses that could be paid.

The city says its hands are tied by the Freedom of Information Protection of Privacy Act, which protects third party information, particularly information that is considered commercially sensitive. Veolia could wave the protection, but most companies do not like to share their business secrets.

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Unfortunately, it is difficult to assess the deal without some numbers. It’s hard to say if there’s a cheaper or better way of doing business when no one knows the value of the contract.

Veolia describes itself as a world leader in environmental services. It operates on every continent and employes more than 312,000 people. It had revenue of about $60 billion in 2009.

In other words, it knows its business. And that’s what councillors will be told on Wednesday when they’re asked to vote in favour.

Some councillors, however, have expressed frustration at being asked to approve a deal they do not understand. Under these circumstances, the city should do two things. First, it should ask Veolia to agree to release more details about the deal. And second, Mayor Sam Katz should hold a seminar on the contract for councillors so that everyone has the best possible understanding of this pivotal agreement.

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