Toronto Computer Leasing Inquiry Toronto External Contracts Inquiry REPORT Volume 1: Facts and Findings The Honourable Madam Justice Denise E. Bellamy, Commissioner 2005 Copyright © 2005 by the City of Toronto ISBN: 1-895739-57-8 (set) ISBN: 1-895739-53-5 (v.1) All rights reserved. No part of the Toronto Computer Leasing Inquiry/Toronto External Contracts Inquiry Report may be copied, reproduced, or used in any form or by any means without the express written permission of the City of Toronto. Copies of this report, in print or on CD-ROM, may be obtained by contacting Access Toronto at 416-392-7410. An online order form for City of Toronto publications is available at www.toronto.ca/publications. The City of Toronto has a link from its website www.toronto.ca/inquiry to the Toronto Computer Leasing Inquiry/Toronto External Contracts Inquiry website, where this report will be posted. This link will be maintained until the Toronto Computer Leasing Inquiry/Toronto External Contracts Inquiry website is closed, at which time the City will post this report, along with the papers issued by the inquiries on conflict of interest, munic- ipal governance, lobbyist registration, and procurement, directly on its own website and maintain them there until further notice. CONTENTS ACKNOWLEDGMENTS 15 ABBREVIATIONS 21 PREFACE 23 I. A SMALL CRACK REVEALS A BIG PROBLEM 33 A. An Answer Raises More Questions 34 B. The Flaws in the Photocopier Report 38 C. Disturbing Calls 39 D. Waterloo and MFP 41 II. THE TIES THAT BIND 43 A. The City with a Heart 43 1. The Mayor and the Protégée 44 2. The Treasurer and the American Consultant 45 3. An Intimate Relationship, by Any Other Name 46 4. It’s Not the Fire, It’s the Smoke 48 B. The Winding Road to a New Tax System 50 1. How the Consultant Got His Foot in the Door, and Kept It There 50 2. The Chill in the Office 54 3. Amalgamation: How Seven Municipalities Became One City 57 4. Two Tax Systems, One City: How the Choice Was Made, and Made, and Made Again 62 5. The Turnabout 66 6. Bowing to the Inevitable: The Switch to TMACS 79 C. Other Problems 82 1. The Beacon and Remarkable Contracts: What Was the Deal? 82 2. The Terms: All He Had to Do Was Ask 84 3. Invoices and Expenses: No Questions Asked 85 4. Hard Currency Lessons 86 5. Ownership Ambiguity 87 6. Dependency 88 7. Who Was Irreplaceable? 90 8. Is It Better to Buy Locally? 91 9. Family Ties 91 10. Instant Contract: Just Add Water 91 11. Deception as Damage Control 92 D. Intimacy and Detachment 93 III. THE LEASE FOR THE COUNCILLORS’ COMPUTERS: MFP’S FOOT IN THE DOOR 97 A. Leasing 101 98 1. To Buy or to Lease? 99 2. Possible Pitfalls 101 3. Types of Leases 101 B. MFP Financial Services Ltd. 103 C. A Relationship Company 105 D. Relationship Marketing and the Public Sector 106 E. An MFP “Farmer” Plants a Seed 107 F. MFP Throws a Low Ball 110 G. The Bid 111 H. The Seed Begins to Grow 113 I. Error on Top of Error 115 IV. THE DELL COMEBACK FROM NOWHERE 117 A. The Backdrop: A Race against Time 117 1. Lana Viinamae Takes on Responsibility for Y2K 119 2. The Year 2000 Business Continuity Plan 120 3. Special Measures for Y2K Spending 120 a. Year 2000 Steering Committee 120 b. Business Cases 121 c. CAO’s Delegated Approval 121 4. Post Y2K: Serious Questions Surface 122 B. Dell Loses, Wins a Bit, and Loses Again: The September 1998 RFP 122 1. Drafting the RFP: Jim Andrew Stays Away 122 2. Dell Is Eliminated, and a Small Victory Is Lost by Omission 124 3. Flashback to September 1998: Jim Andrew Gives Dell a Referral 125 4. The Jeff Lyons Lobbying Style 126 5. Mr. Lyons Goes to Work for Dell 128 C. Dell Is Poised for a Comeback 130 1. Jeff Lyons Thinks Jim Andrew Is Listening 130 2. A Lunch, a Phone Call, an Amendment, and Excessive Credit for Mr. Lyons 131 D. Dell’s First Big Win: The December 1998 RFQ 133 1. The VARs Are Sidelined 133 2. A Ready-or-Not RFQ 135 3. Where Was the Approval? 135 E. Dell’s Second Big Win: The City Buys More Computers 136 V. MFP HIRES A HUNTER 143 A. The City Swings into Action on Y2K 143 B. How to Pay for It All? 144 C. MFP Swings into Action on the City 145 D. Rob Ashbourne: The “Farmer” 145 E. Hiring the Hunter 146 F. Supplanting the Farmer 149 G. Relationship Building Goes into High Gear 153 H. The Willing Beneficiaries 155 1. Wanda Liczyk 155 2. Jim Andrew 160 I. The Attitude at the Top Trickles Down 163 J. Buying Influence Is No Bargain 164 VI. HOCKEY NIGHT IN PHILADELPHIA 171 A. “They Haven’t Got Anything” 173 B. The Truth Comes Out 175 C. “It Has Never, Ever, Ever, Been My Intent to Mislead...This Inquiry” 177 D. Caught in a Web of Lies 179 E. Earlier Strands in the Web of Lies 180 VII. THE WORD ON THE STREET 185 A. Dell Financial Services and Dell Computer Corporation 186 B. DFS Buys the Jeff Lyons Package 188 C. Mr. Lyons and the Mole 191 D. Mr. Lyons Gets DFS a Meeting at the City 193 E. One More Pooh-bah to Go: A “Bizarre” Meeting 194 F. MFP Buys the Jeffery Lyons Package—and Sends It Back 197 1. He’s In 197 2. He’s Out 198 3. Divided Loyalty 200 G. Meanwhile, the Draft RFQ Goes Out of Bounds 201 H. Crunch Time: The City Releases the RFQ 204 I. The Mole Digs Some More 205 J. Ten or Fifteen Minutes with Mr. Lyons 206 1. Flash Forward: A Rival Lobbyist Hears a Jeff Lyons Story 206 2. The Meeting, as Told by Rob Simone 207 3. The Meeting, as Told by Scott Marentette 208 4. The Meeting, as Told by Jeff Lyons 209 5. The OPP Investigates 209 6. The Inquiry Sifts through the Evidence 210 7. Who Was Telling the Truth? 210 8. A Shakedown? 212 9. A Shakedown by Proxy? 214 K. All Is Forgiven at MFP—Jeff Lyons Is Back 215 VIII. HOW THE CITY MADE ITS SHOPPING LIST 217 A. No Leasing Expertise and No Expert Called In 218 B. Breakdown in Communication 219 C. An Explosion of Paper: Purchasing after Amalgamation 220 D. RFP or RFQ: Who Made the Decision? 222 E. One Problem Purchasing Didn’t Have: Code of Conduct 225 IX. DRAFTING THE RFQ: A BAD BARGAIN STARTS WITH A BAD SHOPPING LIST 227 A. Brendan Power at the Helm of a Rudderless Ship 228 B. Starting with the Wrong Template: Karim Kassam’s Draft RFP 232 C. A Strange Request from Tom Jakobek 233 D. The Catalogue of Errors 233 1. The Wrong Document in the First Place 233 2. The Bidders Didn’t Know What They Were Bidding On 234 3. Only a Cryptic Clue to the Sale and Leaseback 234 4. One Hand Didn’t Know What the Other Was Doing 235 5. An Exclusive Relationship 235 6. The 90-Day Rate Guarantee: Cutting It Too Close 236 7. No Mandatory Requirements, No Disqualification 237 8. Expert Advice: Too Little, Too Late 237 9. The Provincial Auditor’s Report: A History Lesson Ignored 238 E. Who Was to Blame? 239 X. MFP’S RESPONSE TO THE RFQ 241 A. What Was the Deal Really Worth? 241 B. Exactly What Would be Leased? 242 C. How Many Winners Would Share the Prize? 243 D. Encouraging Signs at the City: The Pitch to MFP’s Investment Committee 243 E. Squeezing from Both Ends: The Pricing Strategy 245 1. The Front End: The Lease Rates 245 2. The Back End: The Residual Value 247 3. The Little Extras: Value-Added Services 248 4. Pay When You Can 249 F. “Dear Wanda” 250 XI. DECISION TIME 251 A. The Bids Are Opened and Read—Maybe 251 B. Evaluation of the Bids Gets Short Shrift 252 1. Treasury Asks the Wrong Question 253 2. IT Leaves Finance to Guess 256 C. Should MFP Have Been Out of the Running? 257 D. Report to the Policy and Finance Committee 260 1. Nadir Rabadi’s Early Drafts 261 2. Wanda Liczyk Makes Notes 262 3. Brendan Power Ignores Wanda Liczyk’s Notes 262 4. A Few More Changes, the Golf Course Beckons, and Wanda Liczyk Approves a Faulty Report 263 5. What Was in the Report? 264 6. What Was Wrong with the Report? 265 a. No Reference to Vendor of Record 265 b. What Did “Three Years” Mean? 266 c. The “Cap” Was Buried in the Report 266 d. No Reference to the 90-Day Lease Rate Guarantee 267 e. No Reference to Sale and Leaseback 268 f. No Looking Ahead 268 E. Democracy Misfires: The July 20, 1999, Policy and Finance Committee Meeting 269 1. Tom Jakobek 269 2. The Jakobek Amendment 272 a. A Redundant Move 274 b. Questionable Motive 276 c. Staff Interpretation of the Jakobek Amendment 277 F. The Blackout Period 280 1. When Did the Blackout Period Begin and End? 282 2. Contacts and Leaks 283 3. What Are the Right Rules for a Blackout Period? 286 G. Council Votes 286 XII. WHEN DID MFP KNOW IT HAD WON? 289 A. Looking “Ready to Go” 289 B. Thickly Veiled Sarcasm? 290 C.