Whitewash

In early January, Council was presented with a report by outside consultants on the state of the shared service agreement between Collus/Powerstream and the town. The report, however, was rejected by council as flawed – wisely, it turns out – and the following motion was made (emphasis added) that night:

THAT the motion be deferred for one month to allow the president and CEO of Collus/Powerstream to review and comment on the report, and that the report be further circulated to the interview participants and CPUSB to provide any corrections/clarifications that may be reflected in an updated report.

This report, however, was now public and widely seen as negative in the community, although few realized how flawed and inaccurate it was. But council made it clear in the motion that it wanted to see ANY corrections or clarifications and to have them all included in an updated REPORT. It got neither.

As one of those interviewed, I was sent a copy of the report and asked to comment on it according to the motion above. My response, provided to staff on Jan. 26,  was 27 pages long, detailling what I saw as numerous factual and perceptive errors. I’ll get to my concerns, a bit further below. The Collus/Powerstream board also provided a 12-page response highlighting inaccuracies and misconceptions it found in the report, plus there were several other responses.

Council was provided only two of these responses by staff prior to last week. The majority of the responses were not provided to council by staff until late Friday, Feb. 13, and only then a single copy was placed in one binder in the council room, labelled ‘confidential” by the administration, with instructions not to remove the contents from the room. This despite several emails I sent to staff requesting my comments be shared with council.

How many councillors do you think spent several hours in a small, dingy room in town hall on a holiday weekend reading these comments? Consider, too, that they also had 295 pages of agenda to crawl through before Tuesday’s meeting. Looks to me like the administration didn’t want them read. How utterly open and transparent.

Instead, what council got in its agenda – and the only thing to enter the public record – was merely a two-page letter from the consultants – not the updated report council as directed – that said, basically, that the concerns raised by the responses were ignored. A list of minor word changes was included – not the full list of ANY corrections and clarifications as council directed:

Based on the responses received, the recommendations and conclusions in the Report remain the same.

That was followed by 17 pages of self-aggrandizing resumes to let us know how experienced the consultants are at this sort of report. La-dee-dah. None of this was what council directed staff to provide.

In my opinion, the administration whitewashed this one, in part because it looks like the administration made a serious strategic error in releasing the report prematurely and is now trying to cover its collective ass. In part, It’s also my opinion that there is a political agenda at town hall that I see causing a growing rift between admin and Collus staff and the water operations. Morale, I’ve been told, has plummeted.

And the result may end up costing taxpayers millions of dollars.

First, I have to state that I believe that an overview and analysis of the existing agreement is entirely appropriate and necessary in order to craft a new agreement and bring it up-to-date, as well as to more clearly define the services provided, their performance, and costs thereof. After all, the agreement was out of date. The original shared service agreement was struck in 2000 and things have evolved since.

Powerstream had asked for this agreement to be updated before the merger took place, but local circumstances prevented it from being completed in time. That the agreement needed to be updated, not simply reviewed, was also referenced in staff report CAO-COO 2014-01 (July 21, 2014).

But presenting the report before it had gone through due diligence and been thoroughly reviewed for accuracy by the interviewees and others involved strikes me as entirely inappropriate, even calculated.

The consultants clearly did not intend for this report to be made public this soon because they include a disclaimer on the very first page that states,

“Before using this information for a specific purpose, appropriate professional advice should be sought.”

That advice was not, to my knowledge, sought. The letter that accompanied the report also stated:

We recommend that Council distribute copies of the report to all those interviewed during this review.

This, too, was not done until after it had been made public and the report had been rejected by council.

I believe subsequent issues with morale and negative public perception could have easily been avoided had the report gone through the due diligence of professional, interviewee and peer reviews.

Then the consultants tell us:

The information contained in this document is of a general nature and not intended to address the circumstances of any particular individual.

I don’t believe the intent of the RFQ was to receive a “general” report but asked for specific analysis and recommendations. The RFQ for the report stated (emphasis added):

The primary objective of this RFQ is to obtain an independent opinion with recommendations with respect to value for money. Good value for money can be defined as the optimal use of resources to achieve the intended outcome. This review will focus on water and wastewater services provided to CPU under the 2003 services agreement to the present date in terms of service necessity and value for money estimated.

Having read the report several times, I question whether the mandate as stated in the RFQ was actually fulfilled. The terms of reference stated in staff report CAO-COO 2014-01 (July 21) included (emphasis added):

This review is intended to establish if this agreement reflects a resourcing strategy that facilitates the delivery of the most competitive, efficient and effective water and wastewater services. Should this not be the case then the review will provide recommendations with respect to possible cost savings either through recommendation for modification of the agreement or the identification of alternative means of meeting the support determined necessary by the consultant.

Did the report clearly state whether the agreement offered the best delivery of those services and possible cost savings? I don’t believe it does.

It does offer some recommendations for modification of the agreement – albeit mostly couched in generic rather than specific terms – as well as some general recommendations on performance indicators and management. However, I don’t think it offers any substantial “alternate means.” Does this mean that the consultants found the agreement met the criteria for best delivery of those services? Otherwise, I assume they would have outlined alternatives.

The wording of the report has too many conditional words used where more definition or accuracy and fact are required for clarity and confidence. Strategic decisions cannot be properly made on conditional terms:

• The frequent use of the words “appear” or “appears” suggests a guess, not actual evidence or the result of an investigation in many key areas and may represent an area not fully researched. Yet “appear” or “appears” is used seven times.
• The word “might” is used 28 times in the report, “likely” is used 17 times, “possible” or “possibly” 19 times, and the word “may” is used 116 times.
• “Could” appears 21 times, often in places where the verb “should” would be more appropriate. Could often suggests a choice or a passive voice rather than a direction or recommendation; the verb “should” makes it a clear best practice; and “can” makes it active.

While some of these words may be necessary or appropriate in context, many suggest a vagueness and a lack of concrete solutions or even knowledge. What a person, municipality or corporation may or might do or could do is not necessarily what they can or should do. What is possible may not even be common or best practice. What is likely is not necessarily appropriate or desired.

Comments are mostly unreferenced or unattributed, which also suggests to me they are merely the consultants’ opinion, rather than based on interviews or evidence. For example, on page 45, the report states,

The current logos and names related to CPU are likely unclear for customers… There appear to be opportunities to better reflect and differentiate the services being delivered through the logos being used.

On what basis is this statement made? Was any study done of the logo and customer response? Were customers even polled? No reference to any interview or study of the logos is provided. Further, one has to wonder why the consultants were even looking at logos – something well outside their mandate as I understand the RFQ as quoted above.

The list of services provided or not provided on page 6 is also incorrect. I have been told all of the services were provided when required and that the town was not billed for services not provided.

Some of those services were provided “on-demand” – when the town or in some cases a developer or contractor required them. If they are not needed, they are not provided – nor billed. They may not have been fully documented, but I must raise the old epithet that “absence of proof is not proof of absence.”

Page 7 of the report notes:

Provincial legislation requires water and wastewater facilities to operate on a breakeven basis (13) and this was not achieved from 2009 to 2013.

Footnote 13 continues:

Bill 13, The Sustainable Water and Wastewater Systems Improvement and Maintenance Act, 2010

Bill 13 was first proposed as a private member’s bill in 2009 (by Liberal MPP, David Caplan, originally as Bill 237). It was dropped when the provincial election was called, but brought forward again in early 2010 by the current government. It went through first reading only, in 2010, but was met by complaints about potential costs from municipalities and municipal organizations. It has never gone further – never passed or proclaimed, and there has been no indication from the government since that the bill would be further moved through the process. Hence this is an irrelevant reference.

The non-existent Bill 13 is again referenced on page 14.

Page 7 also states:

There is no documented evidence that any of the business support services provided by Solutions to CPU under the Agreement have ever been delivered cost-effectively or provided value-for-money for rate payers.

Yet on page 15 the report also states:

Currently the rates Solutions charges CPU for its resources are only used to cover the internal costs of operations and do not reflect a profit margin. In the future, any service provider would supply a fully burdened rate (i.e. charge-out rate) for each of its resources. This rate would include a mark-up based on a target profit margin.

These statements seem contradictory. On the one hand it questions whether the rates have been cost-effective or provided value for ratepayers, yet the second statement suggests the PUC should charge more. If no one knows whether the rates are adequate, how can anyone state with certainty that they should be higher?

Page 8 adds to the confusion by stating the costs are reasonable:

The overall water service delivery cost is reasonable and this cost includes the business support services provided by Solutions. There is very little evidence, however, that further describes whether those services are cost-effective or not outside the high cost of customer billing and the cost-effective provision of IT Services.

I also question whether the consultants can even make a comment on cost-effectiveness here, because on page 8 they state they could not do so:

It is therefore not possible to identify if any of the services were ever provided in a cost-effective manner, have improved or deteriorated over time.

In the entire document, I could not find a single definition of what the term “cost-effective” means to the consultants. Yet the term is used five times in the report, without it ever being defined or matched to any measure of productivity.

Nor are any complementary costs-for-services provided by others for readers to assess for themselves whether what the PUC or Collus/Powerstream charges compared to what other municipalities or even the private sector charge.

But are these comparisons even relevant? Municipalities charge what they need to charge for local services, not what the market dictates. As such, there is no way to benchmark any service – it devolves down to being merely an opinion about whether a service is or is not “cost-effective.” What it means to me might be something different from what it means to someone else.

Page 9 states:

PowerStream, a private corporation acquired 50% of Collus Power Corp, including Solutions and created Collus PowerStream.

I think a point has to be made here that Powerstream is wholly owned by three municipalities. While it may exist as a private corporation because of various legal and financial necessities, it is 100% municipally owned and has considerable municipal and provincial oversight.

Page 9 again:

Thus Solutions is no longer an organization wholly owned by the Town. In addition, PowerStream, its 50% owner, has a stated objective of earning stable, regulated returns while the Town has a break-even mandate.

The mandate of the province’s approximately 70 LDCs in Ontario is dictated by the province (through the Ontario Energy Board), not by the individual LDC. Collus/Powerstream operates under the same OEB mandate that every other LDC in Ontario operates under.

Page 11:

The EMT (Executive Management Team) includes employees at various levels with titles including Manager, Officer, Vice-President and President & CEO and several employees hold the same titles in both organizations. This kind of “double-hatting” is no longer advisable in the new governance structure as it causes confusion for customers and staff alike.

First, the notion of public “confusion” seems like an opinion, since it does not identify any interview(ee) or study. If it confused the consultants, it should have been thus stated. I doubt staff are confused about a situation they have worked within for many years. As for customers, I could not find any documentation describing customer confusion about who was wearing what “hat” while performing his or her duties.

Second, in a small municipality, “double-hatting” is not only common, it makes economic sense because we simply cannot afford the costs associated with hiring additional high-level or executive staff. It is also much more efficient use of resources and helps prevent silos from being erected.

In fact, the RFQ specifically states:

Good value for money can be defined as the optimal use of resources to achieve the intended outcome.

“Double-hatting” would appear to me to be a clearly optimal use of resources because efficiencies and economies are achieved. It avoids the fragmentation of effort that can come when there are too many people in a bureaucracy. In the private sector such cooperative efforts are called synergies and are praised for their efficiency.

In a Harvard School of Business paper on “The Flattened Firm” (April 9, 2012), it describes the synergies and benefits achieved in the private sector with “double-hatting” executive positions (emphasis added):

An accompanying cost of having no COO is the difficulty of developing successors without the general-management training of the COO position. To address this problem, CEOs have adopted alternative mechanisms, such as horizontal rotation and “double-hatting” so executives acquire both staff and line experience. Relatedly, flattened firms limit “vertical” promotion opportunities for division managers and firms partially address the associated executive development challenges via multiple assignments at the same level for development (e.g., same job, but different business or location).

It also notes that,

…by centralizing the functions, firms realized synergies across their increasingly related and interdependent businesses.

This was further addressed as a good and trending business practice in the Harvard Business Review (April, 2012 issue), which noted (emphasis added):

…new CEOs in particular are taking on a broader array of responsibilities as they seek a comprehensive understanding of the business and as new technologies allow them to reach more people more directly.
New CEOs increasingly choose to go without a deputy and take on the COO role of “span breaker” themselves… Accordingly, functional specialists like the chief information officer and the chief marketing officer are more frequently reporting directly to the top, bringing relevant strategic capabilities to bear on direction setting and execution.
Some CEOs are “double hatting” key executives, giving them significant responsibilities outside of their official jobs. A functional executive might take on operational initiatives, while general managers might be tasked with projects meant to expand their functional skills. Ian Read, the chairman and CEO of Pfizer, shifts responsibilities among his leaders to foster individual and team development. “I try to look for ways to help top individuals bond as a team, so if I’ve got somebody running a business unit, I might also charge him with running a cross-functional team looking at sustainable cost-reduction ideas…”

Rather incongruously, the report itself recommends a “double-hatting” approach to oversight on page 61:

Notice that one Client Representative may have delegated responsibility for more than one service, as in the example where Client Representative C1 is responsible for Services S1, S3, and S4.

It has been the continuous decision of the boards, with council’s approval, to use this concise structure, to save taxpayers money and streamline operations. It looks to me like councils and our utility services have been in the forefront of modern business practices by this efficient “double-hatting.” Why criticize what works so well?

The Worst Recommendation?

To me the most the most troubling suggestion appears on page 14: changing the structure of the utility board to insert inexperienced town staff into its operation and removing experienced members. This has – again – nothing that can be found in the mandate, which I reiterate was…:

…to obtain an independent opinion with recommendations with respect to value for money. Good value for money can be defined as the optimal use of resources to achieve the intended outcome. This review will focus on water and wastewater services provided to CPU under the 2003 services agreement to the present date in terms of service necessity and value for money estimated.

I can find no justification in the report for the recommended town staff participation – one might even call it interference – especially in a voting role, in providing oversight outside that already provided in what has long proven a both adequate and appropriate fashion. Yet on page 14 it recommends:

• Place Town CAO or his/her designate on the CPU Services Board to increase Town oversight
• Remove the President and CEO of Collus PowerStream from the CPU Services Board to avoid having a service provider on the Board
• Consider using the Town Clerk to provide clerking services to ensure:
  • All appropriate documentation is stored in one location and readily accessible
  • Better compliance and increased alignment between CPU’s and Town’s policies and procedures

It seems to me that putting the CAO on the board as a voting member will create a potential for conflict no less than having the CEO of Collus on it. Nor is it explained why an interim CAO with no experience in water or wastewater services I am aware of would be more effective than the CEO of Collus – with almost 40 years of that experience and widely respected across the province for his expertise.

Nor am I aware of any example of any other provincial PUC board where a town CAO has a voting seat.

And I cannot recall the structure or composition of the utility board or the possibility of replacing experienced people with inexperienced was ever raised during my interview.

Had the recommendation been to have only elected public representatives and appointees on the board, supported by non-voting staff resources from the town and Collus/Powerstream, I would agree it made political sense. But replacing one staff person with another – one without the technical background or expertise in complex and challenging utility issues – certainly does not.

Town staff are expected to be scrupulously neutral and above politics – giving any of them a voting role on an independent board could seriously undermine the public perception of that neutrality.

There is no suggestion in the report that there has been any historical problem with the current structure or explanation why one stakeholder would represent a conflict any more or less than another.

As for involving the clerk’s service: this adds another burden of responsibility on the clerk and her office without explaining why this could not be accomplished more efficiently with simple training on the requirements and processes as is done with other town boards and committees. I suspect this will require hiring additional people to cover the additional work: another cost to the taxpayer.

The Bottom Line

Page 52 has what I think is the most important statement in the report (emphasis added):

Interviewees were generally satisfied with the working relationship between the Collus PowerStream and CPU/Town

There is, the consultants found, overall satisfaction with the relationship, even if it needs to be improved and updated. This is buttressed by the later statement that,

In summary, a general consensus exists that cites that the shared services “just seem to work” somehow, with or without the appropriate content and legal framework of the Services Agreement.

It’s too bad this gets buried way at the back in a dense section of reference material where few can find it. It should be up at the front in the executive summary.

I have other criticisms of the report – such as using the US medical system as a comparator (page 78), providing a link to a study on business performance in the “entrepreneurial sector” and return of capital in the private sector (p.80), as well as the unsourced and generally irrelevant quotations scattered throughout the appendix, and the general content of the appendix which mostly looks like mere filler and puffery to me. But these are just icing on the cake.

The Hidden Costs: Millions

Why does all this matter to you, resident and taxpayer? Because the shared services agreement not only works, it saves this town a lot of money. A LOT.

If the town moves to cancel the agreement, that will change. First, the town will need to buy its own computers and computer infrastructure – from servers to wiring, laptops and iPads, phones, wireless routers, software – or purchase the current hardware and software. Then it will have to hire its own IT staff and manage all the town’s computer services and maintenance, to maintain and manage its websites, cell phones, printers, and other equipment.

The town will have to hire and train its own billing staff for water services. It will have to hire line workers and utility staff and get them vehicles. Plus it will have to hire the reception, customer service, accounting, engineering and management staff currently shared with Collus (right now there are 17 shared staff that perform functions for both companies).

Currently, all of this staff, service and support cost the town $744,000 in 2014. But from that amount, the town is repaid rent by Collus for the shared use of the building on Stewart Road – $293,000 a year! So the net cost to the town for this wealth of services, hardware and support is only about $451,000.

That’s not even the combined salaries of the top three or four bureaucrats in town hall!

Hiring what may be as many as 15 to 20 new staff members, getting them equipment, vehicles, training, benefits, putting them on the town payroll – that will cost several millions of dollars to start. Then it will cost the town significantly more than $450,000 a year to keep them on the payroll (municipal salaries are not even near the bottom of the wage scale!), to keep the equipment updated, services and replaced through its life-cycle, to train and employ them to service customers and provide regular billing services.

I estimate the annual cost of taking over these services could easily be closer to $1.5 million, but even then, I may be too low.

And that means your taxes will skyrocket.

So the best solution is to craft a new shared services agreement, one that provides mutual benefit to both parties, and to stop interfering in a system that works. Don’t try to fix what isn’t broken.