Towing Services Review

Recommendation:
That this report be received for information.

Report Summary

  • This is a follow-up information report regarding a further review of the Towing Services contract concerning allegations of fraud and collusion between two of Edmonton Police Service’s (EPS) towing service contractors (Cliff’s Towing Services Ltd. and Auto Rescue Ltd.).

Previous Council/Committee Action

At the July 31, 2001 City Council meeting, the following motions were passed:

  1. That the July 3, 2001 Edmonton Police Services report be received for information.
  1. That this matter be referred to the City Auditor to meet with Charlotte Hamblin to review her materials and report back to City Council through the August 22, 2001 Executive Committee meeting.

Report

  • The Office of the City Auditor (OCA) met with Ms. Hamblin on several occasions. Information provided to the OCA included: hardcopies of documents, photographs, sworn statements and a video segment. The OCA has reviewed all those materials including the videotape discussed at the July 25, 2001 Executive Committee meeting. The OCA was also provided full access to information Ms. Hamblin had requested from the City Administration under the terms of the Freedom of Information and Protection of Privacy (FOIP) Act. Since the requested information by Ms. Hamblin involves a third party, it is still going through the process associated with the FOIP procedures for consulting with third parties.
  • Attachment 1 is a copy of an earlier OCA report that was directed to the Administration, titled Towing Services Contract Award Process Review and dated 1999 May 19. This report presents in more detail the various allegations and the OCA’s analysis of each one. Matters covered include: independence of bidders, yard size, yard security, shared dispatch, vehicle ownership, business license, timeliness of response, limited number of vendors, and required size of tow trucks. This earlier report found no evidence that Materials Management, Mobile Equipment Services, or EPS conducted themselves in a manner that would indicate improper behaviour.
  • Attachment 2 shows the timelines for corporate registrations, name changes, etc. for Auto Rescue Ltd., Auto Rescue Towing Inc., Cliff’s Towing Services Ltd. and other companies cited in Corporate Registry source documents. As reported previously, the two companies do not have “shareholders, directors or partners in common.” Consequently, there has been no breach of the conditions of the tender. It is recognized that the two companies have formed some business alliances such as sharing of dispatch and some other administrative functions. In the opinion of Law Branch, these types of business alliances do not constitute a violation of the terms of the tender.
  • The information that Ms. Hamblin provided over the past several weeks to the OCA added no new dimensions to the review.
  • Following our exhaustive analysis of accessible documents, there is insufficient prima facie evidence at this time to prove that any fraud, collusion, or other fundamental breach has occurred in a form that would invalidate the contracts.
  • The findings and conclusions in the OCA’s previous report (November 21, 2000) to Executive Committee and City Council have not changed as a result of this follow-up effort.
  • Unless hard evidence demonstrating more than business alliances and sharing of functions is available, further investigation by the OCA will not be value-added.

Background Information Attached

  1. Towing Services Contract Award Process Review (1999 May 19)
  2. History of Relevant Companies

(Page 1 of 2)

Towing Services Review

(Page 1 of 2)

Attachment 1

Towing Services Contract Award Process Review

Towing Services Contract Award

Process Review

1999 May 19

Background

The City went to tender with specifications for towing services to be provided on an as-needed, when-needed basis on November 13, 1998. Edmonton Police Services (EPS) and Mobile Equipment Services Branch (MES) provided separate specifications for the tender and bidders responded to each set of specifications in their responses to the tender. Following receipt of queries from potential vendors, the due date for the bids was changed from November 26, 1998 to December 3, 1998.

The MES portion of the tender required that towing equipment providing a wide variety of capacities be available and that a single contact phone number be supplied. Price was also a factor in the bid evaluation. The EPS portion of the tender eliminated price considerations by specifying the acceptable maximum price. EPS also specified in their tender documentation that they would award contracts to a maximum of four vendors using a rotational call system because of operational limitations (based on their experience).

Eight vendors were solicited and five responded to the tender with offers to supply towing services to the City. There was a public tender reading on December 3, 1998 with representatives from Custom Auto Carriers, Kingsway Towing, Cliffs Towing, Edmonton Police Services, Mobile Equipment Services Branch, and Materials Management present.

The MES portion of the contract was awarded in its entirety to Cliff’s Towing since it was the only vendor able to supply the full range of services required by MES. The estimated value of the MES contract is $270,000 over two years. The EPS portion was split four ways between Cliff’s Towing, Custom Auto Carriers, Kingsway Towing, and Auto Rescue. Each of these vendors was awarded a two-year contract valued at $550,000 over two years. The contracts include an option to renew for an additional one-year period.

On February 23, 1999 Mike’s Towing filed a written complaint with the Office of the Auditor General alleging improper connections between two of the vendors who were successful in obtaining portions of the City’s towing business (Cliff’s Towing and Auto Rescue). The complainant also alleged that a variety of procedural lapses had occurred during the RFP and bid evaluation process. The nine allegations were investigated by the Office of the Auditor General (OAG) in February and March 1999. The findings and observations are discussed in the following sections.

  1. Allegations and Analysis
  2. Independence of bidders

Allegation: That Auto Rescue and Cliff’s Towing are corporately connected or otherwise violated the requirements of the tender through improper activities.

Finding: Based on the information obtained from Alberta Registries, the companies are independent. They do not have board members, shareholders, or officers in common. Neither was there was any evidence of a material connection between the companies (see points 1.4 and 1.5).

1.2.Yard size

Allegation: That at least two vendors’ yards are smaller than required by the tender documents.

Finding: Each bidder submitted a declaration of their yard size. All declared yard sizes exceeded the minimum size requirement identified in the tender documents. The bid evaluators did not conduct independent verification of the accuracy of the size claims made by the vendors. They did, however, assert that they noted the stated sizes of each yard and were generally satisfied with the accuracy of the claims based on their visits to the yards. They indicated that if they had suspected that any yard was smaller than the minimum, they would have independently verified its size.

The minimum required lot size was 1300 m2. The smallest lot size declared by a vendor was 1575 m2 (the complainant). In the complainant’s letter to the OAG, however, they claim that their yard size is 1465 m2 (110 m2 less than stated on their supplementary bid documents). The lot sizes declared by the other vendors ranged from 2034 m2 to over 16,000 m2. Site visits by the OAG confirmed that the relative sizes of the yards were approximately as stated.

1.3.Yard security

Allegation: That yard security at competing vendors is not compliant with the requirements of the tender and that the complainant’s bid was unfairly rejected because of their failure to meet all the security requirements EPS imposed.

Finding: EPS informally required that storage yards have security features comparable to theirs in order to be considered fully adequate at each point of evaluation. The physical security requirements were not, however, identified in any of the request for quotations and were applied inconsistently. For example, the yard at Cliff’s Towing was never visited because “…EPS is familiar with their facilities due to the number of current and past contracts with Cliffs.” A site visit by the OAG determined that a significant portion of the barb wire at the top of the chain link fence surrounding Cliff's yard is either not installed or in disrepair. The complainant alleges that while their yard was held to strict standards, other yards were approved with obvious non-compliance. Review of the evaluation sheets indicates that one vendor was penalized for missing or inadequate lights, three for missing or inadequate electronic surveillance, and two for failure to maintain 24x7 on-site security. There were no deductions made for the condition of the security fences or hours of operation for any vendor. Two of the successful vendors received the same total number of evaluation points for yard security as the complainant. Yard security was not a decisive factor in the evaluation.

1.4.Shared dispatch

Allegation: That evening dispatch is shared between Cliff’s Towing and Auto Rescue in violation of the requirement that there be no agreement not to bid by another company or any form of collusion or fraud between two or more companies bidding on the contract.

Finding: There is some evidence (supplied by the complainant) that Cliff’s and Auto Rescue share night dispatch services. The OAG attempted to confirm this, but each time reached different dispatchers for each of the two companies. Law Branch indicated that, in their opinion, this was not a violation of the terms of the contract regarding subcontracting since it is not in law materially related.

1.5.Vehicle ownership

Allegation: That Cliff’s Towing vehicle #17 is a Ford 4x4 wrecker that is owned by Guy Huta (owner of Auto Rescue) in violation of the requirements of the tender that subletting of the contract has to be approved in advance by the City.

Finding: Review of Cliff’s Towing’s bid submission indicates that vehicle #17 is a 1988 Ford 4x4 owned by Carter Motors, not by Cliff’s Towing. There was no evidence in the bid materials or the evidence provided by the complainant that the vehicle was being operated by Auto Rescue. The OAG did not investigate to determine actual ownership of this vehicle through the provincial registries since Cliff’s Towing readily acknowledged that it is owned by a second party.

1.6.Business license

Complainant’s observation: That vendors were required to have held business licenses for the previous four consecutive years including 1998 (i.e., since 1995).

Finding: All of the vendors who submitted bids have held valid business licenses from the City of Edmonton for the minimum required time (Kingsway 1993, Cliffs 1981, Mike’s 1989, Custom Auto 1990, and Auto Rescue 1987). During the evaluation process, EPS used the total years a company had been in business in the City, not the number of years a business license had been continuously held (as required by the tender). This discrepancy was factored into corrected calculations of the evaluation matrix. The correction lowered the overall rating of one vendor, but did not effect on the outcome of the tender evaluation process.

During review, it was noted that Cliff’s Towing and Kingsway Towing have more units listed in the bid documents than they are licensed to operate (through Business Licensing). The Licensing Section of EPS Policing Services Division will be notified of this discrepancy.

Supplementary note: During the 2000 review of towing services, this matter was subject to further review and the following conclusion was reached:

Auto Rescue Ltd. cited a business license in its bid documents that was originally issued in the name of a company that amalgamated with Cliff’s Towing Service Ltd. in 1993. The EPS Licensing Section was not notified of the change of legal entity until 1999. This information was reviewed with EPS Licensing Section, Materials Management, and Law Branch. Transferring a business license from one entity to another is not prohibited.

1.7.Timeliness of response

Allegation: That the Purchasing section of Materials Management did not respond to the complainant’s queries in a timely fashion and the previous purchase order was extended for a “lengthy period.”

Finding: Contract extensions for the convenience of the operating department and with the agreement of the current vendor to hold current pricing for the extension period are not uncommon and occur for a variety of reasons. There is no indication that this situation was abnormal. The response time following tender opening was well within the normal bounds of tender notification to vendors (successful and unsuccessful). There may have been a discrepancy between the complainant’s expectations and Materials Management practice that should have been clarified. For example, the complainant indicated that “numerous calls” were made to obtain information about the tender award and that the buyer did not return the calls until January 18, 1999. The tender files, however, indicate that the buyer had responded to one of their calls and advised them that they would be contacted after the evaluations were complete. The complainant was also advised that the evaluations might be complete by January 15, 1999. (The buyer was on holidays from December 21, 1998 till January 4, 1999.)

1.8.Limited number of vendors

Allegation: That the number of vendors that was allowed under the terms of the EPS rotational contract specification was unreasonably restrictive.

Finding: The complainant indicated concern about the limitation on the maximum number of successful vendors that would be allowed. EPS indicated that based on their experience, they could handle up to four vendors without adding additional staff or impacting operational efficiencies. Since the maximum number of vendors that would be allowed on the rotation list was specified in the tender documents, there was no impropriety.

1.9.Size of tow trucks

Allegation:That the City does not require 50-ton tow trucks and that 40-ton trucks would be adequate for the work required.

Finding: MES included in their tender specifications a history of use that demonstrated significant usage of large wreckers (35 calls/year for 50-ton wreckers, 10 calls/year for 40-ton wreckers, and 10 calls/year for 10-ton deck trucks). MES has indicated that the largest vehicles for which they would require recovery services are sewer flusher/vacuum trucks (GVW 30 T) and Quint fire trucks (GVW 35 T). The scenario of towing one of these trucks fully loaded was discussed with a Peterbilt representative. He indicated that he would not recommend a tow truck with a rating of less than 50 tons for that type of job. He commented that a 50-ton wrecker would be able to haul the truck in either back-up or front-up configuration as required by the type of failure. There is independent confirmation that 50-ton wreckers are required in order to ensure that the City’s towing requirements are met.

  1. Conclusion

There is no evidence that Materials Management, Mobile Equipment Services, or Edmonton Police Services conducted themselves in a manner that would indicate improper behaviour. There were, however, some procedural lapses that should be addressed. Those items will be reported to the appropriate personnel to ensure that appropriate action is taken to prevent recurrence.

Attachment 1 - Page 1 of 6

Attachment 2

History of Relevant Companies

Note: D = Director; S 999 = Shareholder and percentage of shares held.

Attachment 2 - Page 1 of 1