A high price to relocate 18,000 public servants a year,
A $62-million lawsuit against the government is at the heart of one of the most complex procurement disputes in Canadian history. As KATHRYN MAY reports, the fight is over the fairness in the awarding of the lucrative contract to relocate 18,000 federal
It’s one of the most complicated, multi-layered and longestrunning procurement disputes in Canadian history. It had its start in the late 1990s, wound its way through channels of hearings, investigations and audits before unfolding in a dense and detailed courtroom battle a stone’s throw from Parliament Hill, where politicians have washed their hands of the fiasco.
Ontario Superior Court Justice Peter Annis, who presided over the 15-month civil trial that ended last month, has called the case a “whodunit” and, as lawyers presented their final arguments, mused that he’s never seen anything like it. The bureaucratic paper trail unfurled at the trial even produced a proverbial “smoking gun.”
At the heart of the matter is a $62-million lawsuit filed by Oakville-based Envoy Relocation Services against the federal government over a multi-milliondollar contract to relocate Canada’s military, RCMP and public servants to new postings.
The contract, it seems, was doomed to controversy from the start.
It sparked an internal Public Works Department investigation over conflict-of-interest allegations when a key bureaucrat involved in the contract went on the same Caribbean cruise as the vice president of Royal LePage Relocation Services, the company that won the contract when it was first tendered in 2002.
The contract was cancelled, re-tendered, again awarded to Royal LePage in 2004 and then dragged through a Canadian International Trade Tribunal before a parliamentary committee turned it over to the Auditor-General Sheila Fraser to investigate.
And then the fireworks began. It was Fraser’s revealing 2006 report that landed the whole mess in court.
“Let’s face it, the auditor general basically brought this lawsuit on,” Justice Annis said at one point in the civil trial. “They exposed that Royal (LePage) had bid zero, and then charged (people being relocated), and ... forced the Crown to pay back. That’s what got this whole lawsuit going.” Here’s what’s at the heart of the case. The government spends an estimated $500 million a year on various services and expenses to help settle the 18,000 or so employees uprooted for transfers across the country. Royal LePage Relocation Services — known as Brookfield Global Relocation Services since 2009 — has held the contract for 14 years.
Royal LePage counsels and manages the moves for those being transferred, organizing out-of-town trips to hunt for and buy a new home, looking after the costs for such items as house appraisals and the fees to get out of mortgages or leases, money which is then reimbursed by the government. The cost of actually moving furniture and household goods is dealt with in separate contracts with moving companies.
The contract, it seems, was doomed to controversy from the start. It sparked an internal Public Works investigation over conflict-of-interest allegations. The contract was then cancelled, re-tendered, again awarded to Royal LePage and dragged in front of a trade tribunal before a parliamentary committee turned it over to the auditor general to investigate.
The lawsuit comes down to whether federal bureaucrats overseeing the awarding of the 2004 contract were aware the bidding process favoured Royal LePage, which as the incumbent contract-holder had a much clearer idea of what was involved than other firms.
Envoy owner Bruce Atyeo alleges public servants turned a “blind eye” to what he calls a “property management scam” that was rooted in the bid documents to steer the contract to the favoured supplier, Royal LePage.
What Justice Annis has to decide is whether bureaucrats were biased and intentionally overlooked the fact Royal LePage had an advantage, as Envoy alleges, during the bidding process for both the 2002 and 2004 contracts.
During final arguments, the judge, playing devil’s advocate to test the government’s arguments, said to federal lawyers: “This case is — I mean the facts are kind of unique ... in fact, it’s Royal (LePage) that’s acting unlawfully and you, are in effect colluding with Royal in allowing that unlawful act to occur, you’re turning that blind eye. I mean it’s quite an interesting set of facts. Quite frankly, I don’t know if you’ll find a case like it.”
THE INTEGRATED RELOCATION PROGRAM
The saga began in 1999 when the government, worried about the soaring costs of relocating employees, decided an overhaul was needed and launched a pilot project. Royal LePage was hired to manage it.
At the time, the government was not only covering the costs of real estate commissions on homes with sale prices approaching $1 million in hot markets, but some bureaucrats were resisting transfers fearing they would lose the built-up equity in their homes if they sold.
The new program was designed to deal with these concerns, and was also aimed at improving “quality of life,” especially for the military, which accounts for roughly 85 per cent of all transfers. The government was being swamped with complaints from soldiers about the personal and financial hardship of uprooting families for new postings.
The government decided to offer an inducement of up to $12,000 to transferees if they kept and rented their homes when they moved, thereby saving the government the cost of reimbursing stiff real estate commissions.
That gave homeowners two options: sell their homes and the government would pay all the costs, including commissions; or keep their homes and a get a payment worth 80 per cent of the commission — to a maximum of $12,000 — in “personalized accounts” they could spend on property management or however they wished.
THE PROPERTY MANAGEMENT ‘SCAM’
It was Sheila Fraser who dropped the bomb on property management in her 2006 report. Unhappy with 2004 bidding process for the relocation services contract, Envoy had successfully lobbied MPs on the Commons public accounts committee to look into the contract. Eventually, the MPs asked the auditor general to investigate.
In her report, Fraser minced no words. Not only was the bidding process unfair and inequitable, she said, it was stacked in Royal LePage’s favour. She assailed Public Works, the contracting authority, for allowing false and grossly inflated business volumes for property management in the bid documents that Royal LePage would know, from experience, were wrong.
She concluded the government should have taken steps to offset Royal LePage’s advantage as the incumbent and to ensure all bidders had correct and complete information. She argued the bungled contract was a black eye on the integrity of the government’s procurement process.
The 2004 Request for Proposal sought two contracts — one for the military and another for RCMP and public servants sent on new assignments. It assumed 40 per cent of all transferees were homeowners and 60 per cent were renters. The RFP asked bidders for two proposals — one for price and one for technical compliance.
For the first, bidders submitted a price for the administration fee it would charge to open and manage a file and a second batch of maximum prices that third party suppliers would charge for their services. These services included property management, building inspection, realtor services, rental search, appraisals and legal services.
Some of the bidders, including Envoy, were stumped by the business volumes given for property management services, which were based on figures suggesting 60 per cent of the transferees were renters. To the bidders, this made no sense since property management would only be a possible option for the 40 per cent of transferees who owned homes they may want to keep while posted.
Bidders questioned Public Works why the RFP used the 60-per-cent figure to determine the property management volumes and not the 40-per-cent number used to calculate all other services. They got no response.
They also asked for actual volumes from the previous five years, but were told none was available. Envoy said the volumes cited in the RFP were completely out of whack with its experience in the market.
People typically don’t want to return to previous homes because their families have grown or shrunk, or they may not be posted there again.
That’s exactly what Fraser found in her audit.
Take the military, by far the biggest movers.
The bid documents assumed 60 per cent of military families that would be moved — 50,400 over the life of the contract — would use property management services.
But Fraser found only a minuscule 0.22 per cent of the 81,000 personnel the military moved between 1999 and 2005 actually used property management services and only six of the 16,000 RCMP and bureaucrats who moved used them.
Royal LePage, which managed those moves, bid zero. Envoy, using the volumes cited in the RFP, bid $48 million.
This is the heart of the “scam” alleged by Envoy.
Bidders were instructed to use highly inflated volumes for pricing property management, allowing Royal LePage to use its knowledge as the incumbent that hardly anyone uses these services to bid zero and gain a $48-million advantage over its closest rival, Envoy.
Envoy’s lawyers argued that Royal LePage’s zero bid not only gave the company a huge price advantage but offered plenty of wiggle room to raise the administration fee it charged for every file, and thereby increase its profits.
Fraser’s report was the first to reveal the false business volumes and that Royal LePage not only bid zero but then charged for the service. On top of that, she found the same inflated volumes were used for the 2002 contract.
Fraser did not go so far as to conclude that Envoy won the bid, but evidence at the trial showed she concluded in an early draft of her report sent to Public Works that Envoy could have won. She was persuaded by then-deputy minister David Marshall to drop that passage to avoid the risk of a lawsuit.
Public Works never accepted Fraser’s conclusions that the process was unfair, and none of the bureaucrats paraded before the Commons public accounts committee at the time could explain how wrong information found its way into the bid documents — not once, but twice. All claimed they didn’t know Royal LePage charged for the service after bidding zero until they saw Fraser’s report.
Although Fraser’s report hardened Envoy’s resolve to sue the government, her conclusions could only be used as a “finding of fact” in the civil trial and because the auditor general and her staff have immunity from being called to testify in court. As a result, Fraser’s findings had to be proven independently.
GOVERNMENT: FRASER AND ENVOY GOT IT WRONG
From the start, Public Works disagreed with Fraser’s harsh criticism of the way the department handled the bidding process, so it’s no surprise federal lawyers categorically rejected Envoy’s claims.
They dismissed them as extreme and rife with “speculation” and “innuendo.” Allegations that bureaucrats who don’t even work in the same department could pull off such an elaborate scheme are farfetched and unproven, said Justice Department lawyer Derek Rasmussen. He argued the process was conducted fairly, public servants followed the rules and a zero bid is compliant and shouldn’t have raised any alarms.
As for the scam alleged by Envoy, the inflated volumes were never presented as actual volumes and since all bidders had the same information for “evaluation purposes,” their accuracy was of no consequence. The government also pointed out that Envoy would have lost even if correct volumes had been used.
Rasmussen said the government is entitled to set the terms and conditions of an RFP and it’s up to bidders to decide whether to take a run at it. He argued it’s also a “business reality” that incumbent suppliers will have some advantages gained from experience and that can’t all be eliminated in a procurement.
The federal lawyer argued that if Envoy really believed the volumes were so out of whack it, too, could have bid zero — something that Envoy did consider. In short, he said, Envoy is suing because it picked a losing bidding strategy and not because it was misled.
“The fact that the plaintiffs bid and were unsuccessful does not make the procurement processes unfair, and it’s the (government’s) position that they were not unfair,” he said.
The government’s most controversial legal position was that it didn’t breach its obligation to Envoy because it has no “duty of fairness” with bidders until the bids are evaluated to determine if they are compliant.
At one point, that argument triggered an incredulous response from Justice Annis: “You’re really going to try and tell me that you’re allowed to draft a biased RFP that will basically give the contract to one of the bidders on the terms that are drafted and that there would be no remedy for that? Is that — I mean I understand that’s what you’re saying, but can you really imagine me concluding that?”
The government argued from the start the court had no jurisdiction in a procurement dispute because CITT had already heard Envoy’s complaint.
THE ‘SMOKING GUN’
By 2002, the government was ready to make the relocation program permanent and called tenders. An interdepartmental working group with representatives from key departments — Defence, Treasury Board, Public Works and the RCMP — put together the RFP and decided how bidders would be evaluated.
Among the key players were Treasury Board’s Ram Singh, the project authority, and Public Works’ David Pyett and Richard Goodfellow, who oversaw the bidding process for 2002 and 2004, respectively. Later, all three said they didn’t know Royal LePage charged transferees until Fraser’s report.
Among his colleagues, Singh was seen as the most experienced and knowledgeable about relocation. He is the only bureaucrat who was involved in the relocation program from the pilot project until the most recent contract was awarded in 2009. He was on the interdepartmental working group that wrote the RFPs and set the evaluation criteria for both the 2002 and 2004 contracts.
During the civil trial, Royal LePage vice-president Ray Belair was asked whether he ever donated, or was asked to donate, to the Sai Nilayam Spiritual Organisation, a charity that provides food and school supplies to the needy in Canada and abroad. Singh, who retired from the public service this month, is said to be the spiritual leader of the charity, which was created in 2004 and has raised more than $1.2 million in donations. Belair said he hadn’t.
A turning point in the hearings, laden with testimony about process and procedure, came amid a slew of documents that suggested public servants knew or should have known as early as 2003 that transferees were being charged for property management services.
Both the 2002 and 2004 contracts required that Royal LePage deliver information kits that would be distributed to transferees to explain the relocation program, as well as the written agreements it signed with third party suppliers across the country for various services. The winning bidder also had to have a directory of firms across the country that would provide various services
What Ontario Superior Court Justice Peter Annis has to decide is whether federal bureaucrats were biased and they intentionally overlooked the fact Royal LePage, the incumbent contractor, had an advantage during the bidding process for both the 2002 and 2004 relocation contracts.
at the “ceiling” price agreed upon in the contract. As required, Royal LePage sent that information to bureaucrats for review within six weeks of winning both contracts.
The government argued these documents weren’t relevant and never turned them over as part of trial preparation. Months into the trial, Envoy’s lawyers proposed a motion to get the documents admitted as evidence over the government’s objections. The judge finally ordered that they be surrendered as evidence and later chided federal lawyers for holding them back.
“They were the most important documents in the whole lawsuit apart from, I guess, the contract itself,” he said during closing arguments. “But how they could not have been produced originally with these issues is just gigantic. I mean, you have to understand my position. I’m saying: How could these documents not have been in there?”
When questioned by government lawyers, Singh said he couldn’t recall seeing prices in the 2002 package. It was only after the judge ordered the government to turn over the written agreements, the directory of suppliers and other documents — clearly showing prices — that Singh admitted he knew Royal LePage was charging transferees fees for property management.
A big unanswered question is when Goodfellow, who oversaw the evaluations and tallied the financial bids for the 2004 contract, learned Royal LePage was charging transferees. He received two sets of written agreements with suppliers, one just before the 2004 contract was awarded and the other in the package due six weeks after LePage won the contract.
But written agreements and other documents that Justice Annis ordered were not admitted as evidence until after Goodfellow testified, and he was never called back as a witness.
The information kits weren’t the only documents suggesting bureaucrats knew within weeks of the winning the 2002 deal that Royal LePage wasn’t honouring the zero contracted price.
In 2002, bureaucrats had a meeting at which the zero price was discussed. Singh’s handwritten notes of the meeting say “bid is zero because given back to the Crown” and the fees would be paid by transferees “personalized accounts.”
Singh has maintained the zero didn’t concern him because he understood that meant the Crown that would be getting the service for free and the nine-per-cent charge mentioned in the forms was what the transferee would pay.
The next month, Belair sent Pyett a letter “clarifying” the zero bid and explaining property management fees would be taken out of transferees’ personalized accounts. Pyett admitted he thought Belair’s letter contradicted the zero bid but said he did nothing with the letter and couldn’t recall telling anyone about it.
Envoy lawyer Ronald Lunau argued the letter was intended to “pad the file” and legitimize the scheme. Royal LePage put on the record what it was doing and the government gave its blessing by receiving and filing it, he said.
Bureaucrats, however, could have questioned the zero bid before the contract was even awarded. The technical part of the bid asked bidders to submit mock-ups of the information kits, including the sample written agreements with third party suppliers. Those samples showed Royal LePage was charging a fee for property management.
PUBLIC WORKS CANCELS 2002 CONTRACT AND RETENDERS IN 2004
The 2002 contract quickly unravelled. All the bidders — except Royal LePage — were disqualified during the technical evaluations, and two were chomping at the bit to challenge it. The Canadian International Trade Tribunal eventually upheld a complaint by the giant Prudential Relocation, backed by Envoy, that the scoring scheme was unfair and portions of bids should be re-evaluated.
But the government never reevaluated those bids before the contract went off the rails over an internal investigation that found a “perceived” conflict of interest between bureaucrats and Royal LePage.
Envoy’s Atyeo sparked that investigation when he took rumours that bureaucrats were taking gifts and hospitality from Royal LePage — including Caribbean cruises — to Public Works minister Ralph Goodale’s office. The department asked Michel Genest, a former RCMP investigator working in its fraud unit, to see whether there were conflicts that could have biased the process.
A furor erupted in the Public Works’ senior ranks when it was learned Genest told Atyeo he’d finished his report and found evidence of conflict. Envoy immediately asked that Genest’s report be sent to the CITT before it made its ruling on the 2002 contract.
The government and Envoy don’t agree what happened next, but emails flew back and forth among senior bureaucrats about what to with the CITT, the report and the appropriateness of Genest divulging his findings to Atyeo.
Finally, Envoy threatened to file another complaint to the CITT based on Genest’s findings. The next day, deputy minister Marshall decided to cancel the contract and retender.
Envoy argues that Public Works, already at the centre of a firestorm over the sponsorship scandal, wanted the report — rewritten and revised — buried to avoid another public mess.
The government denies the contract was scrapped to cover up the report, claiming the gifts and meals public servants took were within “acceptable” federal guidelines. The contracting officer who took the same cruise as a Royal LePage vicepresident was in a “perceived” conflict situation at worst and paid his/ her own way.
“We believe that this course of action is the correct one to maintain the integrity of the process, and ensure complete fairness and transparency,” Marshall wrote to Goodale.
The CITT never learned of the report and Public Works kept the lid on Genest’s findings for years. The report was sealed by a confidentiality order that was partially removed during the trial.
By time the 2004 contract went to tender, Public Works was taking steps to ensure all the concerns that unravelled the 2002 deal were fixed.
It appointed Goodfellow, who had nothing to do with the 2002 bid, as contracting officer. It tried to open up competition to more bidders, scrapped the controversial scoring scheme and evaluation criteria that CITT nixed, appointed a new team to evaluate the bids and hired a fairness monitor.
But the interdepartmental group that called the shots about drafting the RFP and evaluation criteria included two of the same members from 2002. They decided to use many of the same requirements that were used in the ill-fated 2002 RFP, including the inflated business volumes.
When questioned in court whether the group used the same estimates, Singh replied, “Yes, it was the same document we rolled over.”
He continued: “When we started working on the 2004 RFP, we felt that we were simply continuing with the same document and just addressed the areas of concerns that were raised during the 2002 process ... We weren’t going to reinvent the wheel. We used the same document and addressed the areas that were raised by the CITT or from the prospective bidders. “
Once again, Envoy went to the CITT, which concluded Atyeo’s three proposals were wrongly evaluated and the points it lost should be restored. Envoy argues those extra points, coupled with the elimination of LePage’s $48-million advantage, would make it the winner. That’s for Justice Annis to decide. “It’s over to me,” the judge said as he adjourned the trial in December. “So we’ll get back to you with a decision, at some point, unless I get hit by a bus. All right. And I make no promises. That’s all I can say. It certainly won’t be this year.”