Nanaimo waterworks supply agreement: serious concerns

Councillor Kipp really let it fly at the last Nanaimo council meeting when describing the City of Nanaimo’s exclusive five year waterworks supply agreement with Corix in Duncan which began in May 2010 and was extended. Kipp used words like ‘kickback’, ‘wrongdoing’ and ‘poor business practice’.

Councillors were to vote on accepting an updated report from KPMG regarding the value for money of the exclusive waterworks deal with Corix when troubling details emerged.

Kipp: “…I have concerns about freight charges which were not to be part of the original contract. As part of the contract Corix would cover the freight charges. So why did the City agree to pay $11,000 in freight charges then settle for a $5,000 discount? So the final freight bill was $6,800…This is a typical example of padding up costs, which is a real concern.

All throughout this contract there is a lack of a paper trail on returned or exchanged items. Right from the beginning the City knew there was a problem.”

In 2010, City Manager Kennings emailed Kipp regarding his concerns about the exclusive waterworks contract.  Kipp read Kenning’s email to council:

“I appreciate all your work on this pricing issue. We need to give them [Corix] a chance to give us their best price on everything we buy.  In my view we are a way bigger client than Cumberland and we should get a least as good a price as they do on everything. I don’t really feel sorry for Corix because they are the ones who are playing with pricing. I think that we should have to lock into large quantities because we know they are going to sell us lots of stuff, assuming they stock it and sell it. I am sure they want their special pricing deal to others to be a secret but the reality is that this stuff is out there. I expect you think I am being unreasonable and that I have a bone in my head about this. If we are not offered the same pricing as others this can make it difficult for us to have a long term relationship with Corix.”

Kipp: “When KPMG interviewed me they didn’t want any of the information I had. They went to Corix first before they talked to me [yet] who is the complainant. I sent in 13 pages to Mr. Gunn and not one of them made it into the report.  He could have cared less, I showed him invoices.  I talked to staff about these invoices as well, and they could care less about it. We have done nothing since 2010 about keeping a paper trail. Even Mr. Gunn’s first report said, there is a problem from ordering to delivery. That is the biggest thing with a purchase contract like this.

They call this an audit—it is not an audit. KPMG  didn’t take in all the concerns about pricing, inventory. We have worked on this for over three years to show pricing irregularities, this is SO disappointing.  I have asked questions and had no answers.

The original contract said that staff would have less work to do by going to one supplier.  Even in the report it talks about building up our inventory which we have talked about getting rid of.  This whole thing is so manipulated, it is almost corrupt.”

Bestwick:  “…as of April 2014 staff has come up with a scorecard to track inventory… KPMG noted a lack of a paper trail to track items going back and forth between the City and Corix. This has been going on far too long…Shame on us…. It took all this time to figure out that we need to have a performance evaluation process on this contentious contract. This was to save us time, money, and inventory.

I cannot be convinced with all of the information that we have that this was a good deal. I am extremely disappointed we extended it. Why did it take all this time to realize we don’t have a paper trail? Now four years later we have a scorecard system. …no paper trail, we don’t know the value of savings… I am extremely disappointed.”

McKay: “…  What can we do to give council confidence in this program that this is a good deal?”

Swabey: “So far the majority of council has confidence in this contract and the review.”

McKay: “We have one Council member [Kipp] who has stacks of information that this isn’t a good program. What can we do to assure him that we are listening to him? This won’t go away.”

Ruttan: “I am concerned, we all are, we have taken some action, it’s late but it’s there, the scorecard is established.  I don’t know what we can do? Obviously, we have to do something. I am concerned about KPMG, they are auditors and yet I am not sure the information we received was in a timely fashion and all the things that we could have gotten were in the report with Corix. I support this report but I would like some conditions on this… I am uncomfortable as well.”

Brennan: “…we all read the report and accepted it, we questioned him [KPMG auditor] on the report, everyone had the opportunity to ask questions… the report said it was a good contract and we got value for money… corrections were made…

If people [Kipp] are suggesting that there has been wrongdoing and he has information to back it up, the proper thing to do is go to the police station…. Report it to the authorities…the police should be the ones to review it…”

Kipp: “…this business is full of kickbacks if you really understood it, you get to see the price they offer you and they get a discount if you buy it and they sell more pipes then get a bigger discount.  It is all based on volume. If you understood the business, it’s not wrongdoing it’s poor business practice; it’s us signing up millions of dollars and not getting the best price…

When you say everyone read the report, I know not everyone read the report. One person saw someone passing notes saying that. So not everyone read it….

Wrongdoing would get me to say they got some hats and t-shirts or maybe someone is getting money. The invoices are there, I will give them to staff and they can audit them, we are getting different prices.

We don’t want to listen when the reports are bad. We just guestimate things, ‘maybe it’s $30 million maybe it’s not’. The guy [KPMG] even admitted that the savings were ‘anecdotal’. Lots of council bought into it.”

There were no comments or questions from Johnstone, Pattje, Anderson or Greves.

At question period the President of Four Star Waterworks raised the following points:

  • Why is the City giving all business to Corix, including deals not part of the contract?
  • Why didn’t they put the Protection Island and Harewood projects out to tender?
  • Why was KPMG not interested in hearing my concerns? I had pages of information.

Report Omissions 
In the KPMG audit they list the President of Four Star Waterworks and Councillor Kipp amongst the individuals interviewed for the audit.  However, KPMG did not address Kipp’s  13-page report nor the 3 years’ worth of analysis and spreadsheets submitted by Four Star in both the original and updated reports.

At the May 26th meeting Council voted to accept KPMG’s updated report.  Councillors Kipp, Bestwick, McKay and Anderson opposed and the balance were in favour including Mayor Ruttan.

Are sole sourcing contracts the best use of public funds? At the Charbonneau Commission in Quebec they have spent two years so far looking into corruption, which takes many forms especially with public contracts.