2018-05-28

Report of the Inspector General of Ville de Montréal on the contract-awarding process for the Formula E race, filed on May 28, 2018

Summary

The City broke the legislative framework in awarding of the contract for the promotion and organization of the event. The NPO “Montréal, c’est électrique” was used to circumvent the rules for awarding contracts and was only a conduit between the City and Evenko. The mayor’s office acted in such a way that the City effectively assumed the roles and responsibilities traditionally held by the local race promoter. It was recommended that a call for proposals be issued in cases where the City initiates and funds a major event.

SUMMARY

This report covers the process followed by the City for contract awarding as well as the observance of contractual rules regarding the Formula E event held in Montreal on July 29 and 30, 2017.

Ville de Montréal decided to hold a Formula E (FE) race as part of the City’s 375th anniversary. To this end, a series of meetings bringing together the mayor of Montréal, other City employees, a representative of Evenko, and representatives of Formula E Operations (FEO) and the Fédération internationale de l’automobile (FIA) took place to finalize the project to bring an FE race to the streets of Montréal. This began in March 2015, when the mayor, together with his senior adviser and Tourisme Montréal’s President, attended an FE race in Miami and met with FEO representatives to initiate talks.

Upon his return from Miami, the mayor asked the Deputy Director General of Ville-Marie borough to examine the possibility of making an FE racetrack with a target time frame of 2016, which was postponed to 2017.

Given the nature of the race, the event could not be held at the Gilles Villeneuve circuit due to specific requirements; therefore, downtown was the chosen location. The race was informally announced by the mayor on May 26, 2015 during a press briefing.

In fulfilling its responsibilities, the City then had to issue several calls for tenders:

Call for tenders VMP-16-023 for road resurfacing, launched on June 22, 2016, awarded for 4.4 million CAD;

Call for tenders VMP-16-029 for the purchase of temporary concrete barriers and protection elements, launched on October 17, 2016, awarded for 7.5 million CAD;

Call for tenders VMP-16-030 for track assembly and dismantling, launched on October 9, 2016, awarded as a 3-year contract with a possible extension of 3 years for 8.9 million CAD.

In fact, the Inspector General had to examine some of these contracts. As early as summer 2016, a denunciation was made to the Office of Inspector General regarding call for tenders VMP-16-023, and another denunciation arose in fall 2016 regarding call for tenders VMP-16-029. After analyzes and requests for clarification from authorities responsible for these contracts’ awarding, the process could continue as everything was in accordance with contractual rules.

As for the event’s promotion and organization, this report shows that the City had several options ranging from the conclusion of a contract with a private promoter to the creation of a nonprofit organization. It is in this regard that the Inspector General intervenes in this report. The Inspector General is of the view that the City broke the legislative framework in awarding of the contract for the event’s promotion and organization. Indeed, the mayor personally contacted a private promoter, in this case Evenko, to have him take part in the Montréal FE project and help make the event a great success.

Evenko participated in meetings with Ville de Montréal and FEO as early as September 2015 regarding holding of the event. Evenko even signed a confidentiality agreement required by FEO, of which the Inspector General received a copy.

From the start, Evenko was not confident that the FE project would be profitable and was aware that its concept would be hard to sell. Evenko thus conducted several financial analyses, and the results indicated that, no matter the scenario projected, the FE project was foreseen as facing a large shortfall. The figures were estimated to be between 11 million and 20 million CAD for each of the first 3 years. These financial analyses were sent to the mayor’s senior adviser so that the cabinet would be informed of the risk associated with the race. Evenko decided then not to act as the event’s promoter.

The mayor and his cabinet were nevertheless confident that subsidies from the provincial and federal governments would be awarded and insisted on maintaining Evenko in the project. Since legally, such subsidies can only be granted to an NPO, the cabinet decided to create one in order to facilitate financing, even before any confirmation of funding from the different levels of government.

In this regard, the City Legal Department repeatedly formulated caveats to the mayor’s office maintaining that if an NPO was created, its mission had to be larger than the FE project and it had to be more than a channel between the City and the organizer of the race. Furthermore, the NPO could not be used to transfer subsidies to the private company.

Montréal, c’est électrique (MCE) is the NPO that was formed on October 14, 2016, registered in the Enterprise Register of Québec on October 21, 2016 with a mission to promote electric transportation and organize the FE race in Montréal. However, the investigation revealed that all MCE activities were built around the FE project, and it appears that, had it not been for the race, MCE would probably never have been created.

On October 21, 2016, the mayor held a press conference during which he announced the FE race would take place on an urban track. Neither MCE Director General nor MCE Executive Board Chairman participated in negotiations of the contract between the organization and FEO. It should be noted that MCE Executive Board Chairman was appointed in September 2016, while MCE Director General was hired on October 16, 2016.

Despite the recommendations of a member of the City Legal Department, the mayor’s cabinet did not allocate the necessary independence to the NPO it had created. The investigation showed just the opposite in the sense that the mayor’s cabinet kept a check on MCE’s decisions, including the selection of its Director General and Executive Board members.

The mayor’s cabinet even prepared letters for subsidies requests to the other levels of government. For the rest of everyday operations, duties associated with the promoter’s role were performed by Evenko.

Another important contract negotiated mostly by the mayor’s cabinet, and not by MCE, was that involving Evenko as a provider of the local promoter responsible for the event’s

organization with MCE. Essentially, the contract provides that Evenko takes on all the responsibilities related to the race’s management and organization.

Evenko thus realizes ticketing, subsidies’ management, programming and production of all the events relating to the race, marketing, promotion, and communications. Besides, Evenko is responsible for commercialization, sales, underwriting of insurance policies, and obtaining licenses and permits as well as any other authorization required for the event.

All management fees are charged to MCE. The contract provides 2 million CAD in management fees, a bonus of 500,000 CAD, and a percentage of 20% on subsidies. To these fees are added the re-invoicing of three (3) employees’ salary, who were hired by Evenko specifically for the FE project.

As declared by Evenko: [TRANSLATION] “MCE was an organization with one employee who needed a machine to do promotion”.

MCE ceased operations on February 5, 2018.

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Report of the Inspector General of Ville de Montréal on the contract-awarding process for the Formula E race, filed on May 28, 2018