Nanaimo taxpayers lose out with no bidding process

On Monday March 24, 2014 at the Nanaimo Council COW meeting there were concerns raised about the City of Nanaimo’s exclusive five year waterworks contract with Corix in Duncan; speakers raised alarms about a ‘no bidding process’.

Before May 2010, annual tenders for waterworks supplies were issued by product categories based on estimated volumes, and suppliers were selected on a ‘lowest unit price’ basis. For categories that were not tendered and for items not stocked in Central Stores, products were ‘spot bought’ by getting quotes from suppliers when they needed them.

Exclusive waterworks deal:

This all changed in May 2010 when the City Council voted to award a five year contract to Corix Water Products in Duncan.  At the time the contract was awarded, two other suppliers outlined their concerns that this exclusive contract with Corix was not a good deal for Nanaimo taxpayers.

KPMG report:

Four years into this contract the City requested a report from accounting firm KPMG to find out if this was a good deal. Unfortunately, the scope of the KPMG report was very limited. The audit looked at 30 invoices totalling $1,513,060 and gained responses from four out of fifteen staff members at the City of Nanaimo.

Of concern, the report by KPMG found that no formal performance management plan exists for the waterworks supply arrangement with Corix.  Data is not being collected for:

  • average monthly waterworks inventory
  • waterworks inventory turnover
  • order fulfilment errors
  • stock outages resulting from supplier failure
  • performance in supporting emergency product needs

Also, Corix failed to locate a warehouse yard in Nanaimo as proposed in their original submission.

Freedom of Information request reveals problems:

Before this exclusive contract was signed in 2010, Four Star Waterworks in Parksville was getting $250,000 in business from the City.  This all dried up; last year they lost their vendor status with the City and only received orders for a total of $738.

Using three years’ worth of documents obtained through the Freedom of Information Act, Four Star Waterworks discovered that Corix billed Nanaimo taxpayers $4.8 million. In comparison, Four Star’s bid was $1.035 million for 3 years.

At the COW meeting last Monday, Four Star Waterworks raised the following concerns about the City’s exclusive contract with Corix:

  • 90% of City of Nanaimo waterworks purchases are with Corix
  • no paper trail on returns or items sent in error
  • unusually high number of items sent in error
  • Freight charges $6,800 paid by City (extra billing because of errors?)
  • no up-to-date inventory at the City of Nanaimo
  • all transactions are FOB destination freight prepaid, not the best for City
  • Harewood dam project: $322,000 spent on waterworks- no bids taken
  • Protection Island Project went to IWC Contracting – City had to purchase all waterworks materials that contractor needed, when there is a problem with waterworks – up to City to handle liability
  • Corix pricing ‘all over the map’; supposed to have one price list and 2% early payment discount
  • example: 30″ butterfly widget – one invoice charged $12,400 and another $900 less
  • example: 4 water meters purchased at $84 each;  600 @ $99 each; 12 @ $109 each (30% increase)

According to the speakers, the City’s no bidding process has cost Nanaimo taxpayers an estimated $3.76 million so far.

For those of you who are closely watching the Charbonneau Commission in Quebec you will recognize that corruption easily bores its way through when there is loose paperwork and invoicing and especially when there is no bidding process.

Why would staff recommend an exclusive agreement?

Councillor Mckay spoke in favour of the deal, Councillor Kipp was opposed, Councillors Bestwick and Johnstone had questions. Councillor Pattje asked if a three year contract would have been better. Mayor Ruttan asked the accountant if this was a good deal for Nanaimo. The remaining councillors had no questions or comments.