Audit of Procurement Practices related to Separated Source Organics Contract July 9, 2014

1. Audit of Procurement Practices related to Separated Source Organics ContractJuly 9, 2014 Office of the Auditor General

2. Audit Background • Originally part of 2011 Audit of Procurement to be tabled in November 2012 • Issued to management for response in August 2012 • No final response could be provided until conclusion of the arbitration process

3. Audit Background (continued) • Additional information in December 2013 up to June 2014 • OAG reviewed additional information to ensure all relevant information considered

4. SSO Contract - Background • 2001-2005 Pilot Projects • July 15, 2005: Council approves SSO Concept • 2006: RFQ and site selection • March 2007: RFP

5. SSO Contract – Background (cont.) • Fall 2007: Report to Committee and Council • March 2008: Contract signing • January 2010: Site is operational • Estimated minimum value of $140 million over 20-year lifecycle • 100,000 tonnes per year capacity

6. Key Findings • Documentation missing from official records • Unclear oversight • Pilot project data was not correctly interpreted and analysis had fundamental errors • Available organic matter, excluding leaf and yard waste (LYW) was between approx. 21,000 and 57,000 tonnes

7. Key findings (continued) • 38,000 tonnes of LYW collected and processed at Trail Rd in 2009 • Net cost of $15.65 per tonne at Trail Road vs $103.77 per tonne at Orgaworld (2014 rates) • 60% of available peak volume is separately collected • Possible cost savings for internal processing not factored into business case

8. Key findings (continued) • 38,000 tonnes of LYW processed at Trail Road at much lower cost • Premium of $3.35 million annually and $67 million over 20 year contract • Premium not brought to Council’s attention during review and approval process

9. Key findings (continued) • Ramp up period not considered • Negotiation for a smaller processing facility not considered

10. Key findings (continued) • Ambiguous communication to Council: • Unclear that LYW was to be included in 100,000 tonnes threshold • Gave the impression that 100,000 tonnes easily achievable • Little discussion of options • Risks not properly identified to Council

11. Key findings (continued) • Estimated unnecessary payments 2010-2013: • $4.7 million for unutilized capacity • $3 million premium for processing separately collected LYW at Orgaworld • Total estimated unnecessary payments: $7.7 million

12. Key findings (continued) • Staff does not appear to have pursued Orgaworld offer to acquire LYW at “acceptable price” • Put-or-pay threshold raised from 70,000 to 80,000 tonnes cost approx. $3 million from inception of project to end of 2013 • Rationale for increase not documented

13. Key findings (continued) • Further potential unnecessary costs with processing separately collected LYW at Orgaworld $4.9 million (2014-2023) • Environmental Services not in a position to know true costs of proposed contract as critical analysis not conducted until March 2014

14. Key findings (continued) • Orgaworld raised concerns regarding volume during Spring and Fall peak collections • Orgaworld facility capacity could be less than 135,000 tonnes • Staff follow up required

15. Key findings (continued) • External legal costs associated with arbitration significantly impacted due to absence of complete corporate records • $1.7 million external legal costs incurred as of June 2014

16. Key findings – Market place • Market place changed for processing SSO • Gatineau obtained significantly better cost per tonne for 2010 • Estimated savings for Ottawa for a similar contract would be $30.7 million (2016-2029)

17. Conclusion • 10 recommendations, Management Agrees • Documentation not available in City records • Analysis incomplete and confusing • Appropriate information not provided to Council • Examine early contract termination and assess other options including a City owned and operated facility

18. Thankyou.

19. Figure 1: SSO Project Timeline