2016-12-05

Recommendation report regarding various contracts (or planned to be awarded) to the non-profit organization “Montréal en histoires” within the context of the 375th anniversary of Montreal (Boroughs of Lachine and South-West and Service des grand parcs, du verdissement et du Mont-Royal)), tabled December 5, 2016

Summary

Contracts awarded without tenders between the non-profit organization “Montréal en histoires” (MEH) and service providers because MEH was unable to properly execute the mandates alone. To that effect, they must negotiate with suppliers, consultants and sub-contractors to execute important clauses included in the contracts since they possess neither the necessary equipment, personnel, nor the expertise and qualifications.
MEH in fact serves as a front for the commercial enterprise Torrentiel, owned by the officers of MEH, who therefore benefit from a competitive advantage vs other potential competitors/ private enterprises. The management, the administrative direction, and the oversight of the mandates obtained by MEH are entrusted to Torrentiel. It was recommended to terminate these contracts.

SUMMARY

The Office of Inspector General conducted an in-depth investigation of the process used by the Lachine and Sud-Ouest boroughs to award contracts by mutual agreement to the non-profit organization Montréal en histoires (MEH) for projects as part of Montréal’s 375th anniversary celebrations. More specifically, the investigation focused on a contract by mutual agreement awarded by the Lachine borough for a lighting plan for a maximum amount of $974,367.14, taxes included (resolution CA16 190190), and the contract by mutual agreement awarded by the SudOuest borough for a project involving an illuminated pathway along the Lachine Canal with lights on bridges and pedestrian overpasses for a maximum amount of $988,000, taxes included (resolution CA16 220260).

During the investigation, the process followed for two (2) projects of the Large Parks and Greening and Mont-Royal department were also examined by the Office of Inspector General. The first is the project for the development and implementation of a mobile application for the Promenade Fleuve-Montagne for an amount of $953,832.60, taxes included; the second is the Viger Square redevelopment project for a maximum amount of $346,079.98, taxes included. These projects were supposed to be awarded to MEH as contracts by mutual agreement but the Municipal Administration decided not to proceed with the award process. Still, in light of the very risky practices identified during his investigation, the Inspector General considers it essential that certain facts be brought to the attention of Montréal’s City Council and Agglomeration Council.

The investigation reveals that the non-profit organization Montréal en histoires obtained contracts that it could not execute on its own. The contracts awarded by the Lachine and Sud-Ouest boroughs essentially involve lighting or illuminating buildings or structures. The fact is that MEH does not have the equipment, expertise, skills or personnel to execute the main part of these contracts on its own. Three quarters of the costs of both the Lachine and Sud-Ouest borough projects were associated with the purchase and installation of equipment, for which MEH would have had to rely on suppliers and subcontractors.

Although some MEH executives claim that the organization develops concepts, manages projects and supervises the work of subcontractors, consultants and suppliers, the Inspector General’s investigation shows that the concepts and scenarios designed and developed as part of feasibility studies were in fact the work of outside consultants who worked with the organization’s director of development. Furthermore, the investigation reveals that the administrative management and executive production of projects obtained by MEH are entrusted to Torrentiel, a business venture contractually tied to the non-profit organization.

The services contemplated by the contracts are therefore not actually being provided by MEH but rather by business ventures acting as suppliers, subcontractors or consultants.

What the Inspector General finds striking is that the investigation reveals the same type of irregularities and schemes that he found during his investigation and indicated in the report and recommendations filed in March 2015 regarding the Horizon 2017 Rehabilitation and Development project, Jean-Drapeau Park Society. MEH obtains contracts by mutual agreement because of its status as a non-profit organization even though a large part of them cannot be executed by its staff and must be entrusted to suppliers, consultants or subcontractors. MEH is therefore acting as a veritable conduit, allowing businesses to obtain public funds through mutual agreement contracts of close to one (1) million dollars with a non-profit organization, whereas the rules for the awarding of contracts were not followed.

As for the Large Parks and Greening and of Mont-Royal, although the Municipal Administration did not follow through with the award by mutual agreement to MEH, the investigation shows that the process followed raises the same concerns as the contracts awarded by the Lachine and SudOuest boroughs. The Inspector General is of the opinion that the projects were going to be awarded by mutual agreement to MEH even though the organization did not have the resources to execute the entire contract and would have had to entrust several parts to suppliers and subcontractors. An examination of the process followed also reveals risky practices concerning the sound management of public funds and failure to respect a legal opinion issued by Montréal’s legal affairs department.

Lastly, the evidence compiled by the Inspector General during his investigation shows that MEH, besides being a conduit organization for suppliers and subcontractors, is actually a front for Torrentiel, a business venture held by Martin Laviolette and Georges Fournier, respectively MEH’s general manager/executive producer and administrative director.

By way of the contract between the organization  and  Torrentiel,  the  business  owned  by  Martin Laviolette and Georges Fournier can obtain public funds through mutual agreement contracts with MEH, which poses as a non-profit organization but is in fact managed and controlled by a business venture. The confusion between Torrentiel and MEH distorts and compromises MEH’s status as a non-profit organization. The City and boroughs believe they are doing business with a non-profit when in fact, they are dealing with business ventures without the competition afforded by the call for tender process, as required by law and the rules ensuring good governance and sound management of public funds.

The principle that applies to any public client is that when a services contract involves expenditures of $100,000 or more, the contract must be awarded through a public call for tenders unless a legislative exception can be used, such as, for example, when the contract is awarded to a nonprofit organization. This is a mandatory public policy that constitutes an essential element of a valid contract. The goal is to make the process competitive with a view to obtaining the best price, allowing free competition and giving interested parties that have the requisite expertise, skills and capacity to contract with an equal opportunity to access public procurement. This is the only way for public clients to protect taxpayer interests and prevent the waste of public funds.

The exception that applies to non-profit organizations is an exception to the principle of equal opportunity for all persons qualified to contract with a municipality. However, in order for it to be awarded a mutual agreement contract, the non-profit must be the one delivering the service contemplated by the contract. It cannot subcontract the bulk of the project it has agreed to carry out and cannot, in any manner, act as a conduit organization for business ventures, because doing so would circumvent the client’s obligation to proceed by public tender.

In this case, by their very nature, certain important parts of these contracts seemingly had little to do with the mission of MEH and it was unlikely that its staff could execute them. The contracts awarded by the Lachine and Sud-Ouest boroughs to MEH primarily involved the purchase and installation of equipment. In light of these facts, the Lachine and Sud-Ouest boroughs should have proceeded by public call for tenders in accordance with the  general  principle  enacted  by  section 573 of the Cities and Towns Act and could not benefit from the exception applicable to non- profit organizations.

The Inspector General concludes that the exception allowing a non-profit organization to obtain a mutual agreement contract was misused. The exception was used as a “catchall” to delegate to the organization parts of the contract that should have been obtained by specialized firms by way of public tender, in order to stimulate competition. Under the pretext of convenience, the mandatory public rules governing the awarding of contracts were breached.

The Inspector General wishes to point out that in the case of the Lachine borough project, some elected officials and city employees stated they were uncomfortable with the process used and the awarding of the mutual agreement contract to MEH. With respect to the projects developed by the Large Parks and Greening and of Mont-Royal, the City’s legal affairs department and Political Cabinet also raised concerns about compliance with the rules governing the contracting process.

The contracting processes followed in this case by the Lachine and Sud-Ouest boroughs adversely affect free competition, equal opportunity and the possibility of obtaining the best possible price. In addition to affecting the integrity of the contracting process, the methods used run counter to the spirit of the law and the principles of sound management of public funds.

Non-compliance with the law must be sanctioned in this case and the contracts awarded declared null and void ab initio since the rules that were breached are essential elements of a valid contract. However, the Inspector General believes he is at the limit of the power to cancel contracts conferred on him by the legislator in section 57.1.10 of Montréal’s City Charter since failure to comply with   the mandatory provisions of the law and the major irregularities noted unfortunately  do  not  constitute a condition for exercising such power. As such, the Inspector General can only recommend that the mutual agreement contracts awarded to MEH by the Lachine and Sud-Ouest boroughs be cancelled by their respective borough councils. The Inspector General wishes to point out, however, that if it were in his power to cancel these contracts, he would not have hesitated to  do so, given the seriousness of the irregularities noted.

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Recommendation report regarding various contracts (or planned to be awarded) to the non-profit organization “Montréal en histoires” within the context of the 375th anniversary of Montreal (Boroughs of Lachine and South-West and Service des grand parcs, du verdissement et du Mont-Royal)), tabled December 5, 2016