Transportation Project Office TPO Audit Task Force Final Report AC200343

1
Transportation Project Office (TPO)Audit Task
ForceFinal ReportAC2003-43

• 2003 JULY 24
• The City Of Calgary
• Audit Committee

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Table of Contents

• I. Executive Summary
  ...
• II. Mandate of the TPO Audit Review Task
  Force
• A. Background on the Establishment of the Task
  Force...
• B. Committee Members and Resources
  .
• C. Nature of the Report
  ..
• D. Reporting Protocol
  .
• III. TPO Background..
  
• A. Formation of the TPO
  
• B. TPO Goals
  ..
• C. TPO Structure
  .
• Capital Budget Organizational Structure
  
• ii TPO Organizational Structure
  
• D. Recent Developments
  ..
• E. Project Highlights Past, Present
  Future..
• F. TPO Fees
  
• Project Management Services
  ..
• ii Governance and Overall Management
  ..
• iii Innovative Project Development
  
• iv TPO Budget Calculation
  

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Table of Contents

• iii Providing the Most Cost Effective Product
  (Cost Quality) ...
• iv Ensuring the Least Amount of Disruption During
  Construction...
• v Increasing Possible Revenue Sources
  ....
• vi Achieving Projects within Capital
  Budget
• B. Management of Conflict of Interest
  Issues..
• Policy Procedures
  
• ii Contract Tendering Process
  
• iii Allocation of Contracts
  
• C. Competitiveness and Cost Performance
  ....
• Benchmark Analysis to CCA 25 Guide
  
• ii Payroll Factor Analysis
  
• iii Innovative Project Development
  ..
• iv Design Cost Comparison
  ....
• D. Accountability
  ..
• VI. Summary of the Benefits and Challenges of the
  Current TPO Arrangement.
• APPENDICES
• Appendix A Documents Reviewed
  ..

27 28 29 31 33 33 33 34 38 38 39 41 42 43 45 46
47 48 49 50 51 52
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I. Executive Summary

• TPO Background
• Established in 1999, the TPO is an organization
  structured for outsourced project management,
  specifically management of large-scale
  transportation infrastructure capital projects.
  The arrangement is the subject of a comprehensive
  contract, executed by the parties the City of
  Calgary, and the yyC.T consortium. The City is
  the customer, TPO the supplier of services under
  the contract. Members of the yyC.T consortium
  provide much of the manpower and expertise which
  delivers the services.
• The contract provides for annual performance
  reviews, although these have not been formally
  completed to date. As with any customer-supplier
  arrangement, it is prudent to periodically review
  not only actual performance, but also the
  underlying premises and concepts of the
  arrangement for continuing relevance in a
  changing world.
• Review Process
• The work of this Task Force is one step in
  consciously evaluating and challenging the TPO as
  the most effective vehicle for the delivery of
  critical transportation infrastructure projects
  in Calgary.
• The Task Force evaluated the performance of the
  TPO against its stated goals. It also evaluated
  processes used for managing potential conflicts
  of interest, the process for allocation of
  capital and consulting projects and the
  competitiveness of TPO as a project delivery
  organization.
• A public submission process was conducted in
  which members of the public were invited to
  provide comments regarding the TPO.
• Findings of the Task Force
• Generally there is consensus that the TPO is an
  effective vehicle for delivery of focused project
  management services. Capital projects allocated
  to the TPO have been delivered on time and under
  budget within acceptable quality parameters and
  with managed disruption to traffic.

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I. Executive Summary

• Findings of the Task Force Contd
• Certain goals set for the TPO at the time of its
  establishment were far reaching. In addition to
  conventional on time/on budget types of goals,
  TPOs goals included such things as pursuing
  enhanced revenue streams to fund additional
  projects, and maximizing the scope of
  transportation improvements. The funding
  environment changed shortly after the
  establishment of the TPO through the allocation
  of provincial gasoline tax revenue to the City.
  And while this welcome allocation of provincial
  funds took the heat off for a period of time,
  the transportation infrastructure deficit in
  Calgary is once again becoming increasingly
  obvious and urgent.
• In the context of the funding environment
  post-excise tax, the pressure on both the City
  and TPO to pursue creative funding alternatives
  was reduced. It requires strong will to change
  established patterns, and that will was
  apparently lacking. As a result, TPOs
  performance under its more far reaching goals was
  less than expected.
• Given the participation of yyC.T consortium
  members in the provision of consulting services
  to the TPO, there is always a risk of real or
  perceived conflict of interest or favoritism.
  The processes and procedures surrounding
  conflicts of interest and allocation of work to
  both yyC.T-related and unrelated contractors and
  consultants were found to be in accordance with
  City of Calgary procurement policies. Senior
  representatives of the City are consistently
  involved in work allocation and consultant
  selection, and are satisfied that work goes to
  the most qualified party in a competitive
  environment. Compliance with City procedures and
  senior management review have been strengthened
  through a recent re-organization of the TPO
  Management Committee and reporting structure.
• As with any outsourcing arrangement, there is
  attendant cost, and the services provided by the
  TPO are fully priced by industry standards.
  There are associated benefits, principally around
  access to a very deep talent pool available to
  step in to complex situations, and the ability to
  terminate the arrangement upon six months notice
  without severance.

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I. Executive Summary

• Conclusions/Recommendations
• Four years into the TPO arrangement, The City of
  Calgary faces a fundamental choice in selecting
  its future.
• The TPO could be left largely as is to provide
  effective project management services for
  projects planned, selected and funded by the
  City.
• The fundamental concept of the TPO could be
  challenged, its goals modified, its financial
  terms re-negotiated or put out to tender.
• The TPO concept could be re-embraced by the City
  with a focus on defining clear methodologies to
  extract greater measurable value from the
  relationship through innovations such at
  Public-Private Partnerships, commercialization
  initiatives.
• More meaningful TPO participation in the planning
  and prioritization of future transportation
  projects.
• TPO Goal 1 Maximizing Mobility of Calgarians
• Conclusion
• The TPOs direct impact on mobility is difficult
  to quantify, however, through the successful
  implementation of projects, the TPO has had a
  positive impact on Calgarians mobility.
• Recommendation
• When appropriate, the City should integrate TPO
  input into transportation project planning and
  prioritization at an earlier stage in order to
  gain additional value from the TPO arrangement.

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I. Executive Summary

• Conclusions/Recommendations
• TPO Goal 2 Maximizing the Scope of Improvements
• Conclusion
• The TPOs goal of maximizing the scope of
  improvements has not been fully or effectively
  addressed. This goal was established at a time
  when future infrastructure funding was uncertain,
  and the role contemplated for TPO in sourcing
  additional funding was more significant than it
  has actually been.
• Recommendation
• City Council should consider the appropriateness
  of Maximizing the Scope of Improvements as an
  ongoing goal of TPO in the current funding
  environment. If it is judged to be a suitable
  ongoing goal, greater definition should be added,
  focusing on areas where the TPO can exert the
  greatest influence on scope of improvements.
• TPO Goal 3 Providing the Most Cost Effective
  Product (Cost Quality)
• Conclusion
• TPO has access to the expertise necessary to
  deliver the most cost effective solutions, and
  has achieved its objectives in the context of its
  ability to influence planning and priority
  decisions.
• Recommendation
• When appropriate, the City should integrate TPO
  input into transportation project planning and
  prioritization at an earlier stage in order to
  gain additional value from the TPO arrangement.

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I. Executive Summary

• Conclusions/Recommendations
• TPO Goal 4 Ensuring the Least Amount of
  Disruption During Construction
• Conclusion
• There is consensus that the TPO has been
  effective in delivering major construction
  projects on time, with well-managed impacts on
  traffic and commuters.
• Recommendation
• The TPO and City administration should continue
  to work together to review and implement
  innovative methods to ensure the least amount of
  disruption during construction.
• TPO Goal 5 Increasing Possible Revenue Sources
• Conclusion
• To date, initiatives aimed at generating revenue
  from transportation infrastructure development
  have not been adopted by the City.
• Recommendation
• City Council should consider whether pursuing
  enhanced revenue sources continues to be a
  relevant goal for the TPO in the current funding
  environment.

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I. Executive Summary

• Conclusions/Recommendations
• TPO Goal 6 Achieve budgets
• Conclusion
• TPO has been effective at delivering projects on
  or ahead of approved capital budgets.
• Recommendations
• The TPO and City administration should continue
  to monitor the projects to ensure the achievement
  of projects within their capital budget.
• The TPO and City administration should work
  together towards further improvements in budget
  performance.

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I. Executive Summary

• Management of Conflict of Interest Issues
• Conclusions
• It is the view of the Task Force that due to the
  nature of the TPO arrangement, which involves
  participation by private sector companies, there
  will always be opportunity for real and/or
  perceived conflicts and favoritism. However,
  given the controls which are in place and in
  particular the involvement of senior City
  personnel on all material contractor/consultant
  selection decisions, conflicts of interest are
  appropriately managed.
• The allocation of contracts to yyC.T has
  increased, however the increase is reasonable
  given the increase in capital spending in their
  areas of expertise.
• Management of Conflict of Interest Issues
• Recommendations
• The City should continue the diligent
  implementation of the existing governance
  procedures.
• The City should ensure that TPO implements the
  new City policies for the consultant selection
  process for non-tendered contracts once approved.
• Annual performance reviews of the TPO should
  include an assessment of conflict of interest
  issues management.
• Competitiveness and Cost Performance
• Conclusion
• The Task Force believes that the City of Calgary
  is being charged fully for project management in
  accordance with the terms of the contract with
  the TPO. The additional cost of administrative
  support vs. City-paid personnel is balanced
  against the benefit derived in terms of expertise
  instantly available to TPO in dealing with
  challenging technical issues.

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I. Executive Summary

• Competitiveness and Cost Performance Contd
• Recommendations
• The City should continually challenge and
  evaluate whether it is receiving value from the
  TPO arrangement versus other alternative project
  delivery options.
• The City should consider renegotiating the
  payroll factor in the current agreement with TPO.
• The City should have more city personnel involved
  in the TPO to lower costs and provide valuable
  exposure to major infrastructure project
  management.
• Accountability
• Conclusion
• Even in the absence of a formal annual
  performance review, it is the view of the Task
  Force that the current monitoring and reporting
  structure provides the means to assess the
  performance of the TPO. It is also the view of
  the Task Force that the TPO has performed well
  against its communications objectives, both in
  terms of public notification and updates of
  actual projects in progress (disruption
  objective), and also in terms of the public
  engagement process.
• Recommendations
• The contract between the City and the yyC.T
  consortium allows for periodic (annual)
  performance reviews. These should be planned and
  conducted regularly with feedback to TPO
  management, administration and Council.
• Establish performance criteria to be used for
  future reviews of the TPO.
• The quarterly audit be discontinued and unaudited
  quarterly reports be submitted to TTP, and an
  annual financial audit be undertaken. A review of
  operation areas identified by Audit, Executive
  Officers, and TPO Management Committee and
  members of Council, could be included in the City
  auditors annual work plan.

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II. Mandate of the Transportation Project Office
Audit Review Task Force

• A. Background on the Establishment of the Task
  Force
•   The Citys Audit Committee requested a special
  study of the Transportation Project Office (TPO),
  which was delegated to the TPO Review Task Force.
  The focus of the special study is the review and
  analysis of
• 1. The performance of the TPO relative to
  original goals.
• 2. Conflicts of Interest
• 3. Competition and Cost Performance
• 4. Accountability
• The Task Force conducted its special study
  following the terms of reference approved by
  Audit Committee that included a budget of
  65,000.
•   B. Committee Members and Resources
•   Task Force members
• Alderman Diane Colley-Urquhart, Chair
• Alderman Craig Burrows, Vice-Chair
• Alderman Gord Lowe
• Alderman John Schmal
• Executive Officer Jim Vennard
• City Auditor, R.D. MacLean
• Citizen Member, Mike Moore
• Task Force Resources
• Senior Research Officer, Ray Belot
• Audit Supervisor, David Cornberg

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II. Mandate of the Transportation Project Office
Review Task Force

• C. Nature of the Report
• The special study conducted herein is a review
  of TPO performance against its original goals and
  investigation of other issues as described above.
  The review is based on enquiry, analysis and
  discussion of materials largely provided by the
  TPO, and is not an independent audit of its
  financial results, contracting procedures or
  other procedures. The Annual Report of the TPO
  for the year ended December 31, 2002 makes
  reference to consideration by City Council of
  undertaking a value for money audit of the TPO
  during 2003. It is important to note that the
  review undertaken by the Task Force and reported
  herein is not a value for money audit, but
  rather a special study of the TPO.
• The Task Force engaged the assistance of KPMG
  Corporate Finance Inc. (KPMG) in completing the
  Review. KPMGs role was that of project
  facilitator and technical advisor. KPMG did not
  provide audit or other assurance services in this
  matter, but rather provided assistance to the
  Task Force based on its experience with joint
  venture and Public-Private Partnership
  arrangements generally, and its previous
  experience in assisting the City of Calgary with
  the tender call and selection process around the
  establishment of the TPO in 1999.
• D. Reporting Protocol
• The report of the TPO Performance Review Task
  Force will be delivered to the Audit Committee of
  the City of Calgary for consideration, and
  brought forward in whole or in part for the
  consideration of City Council, as deemed
  appropriate by the Audit Committee.

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III. TPO Background

• A. Formation of the TPO
• In 1999, under the Calgary Transportation Plan,
  the City identified over 1 billion of Critical
  Transportation Infrastructure requirements over
  the next 10 years, in addition to further capital
  and operating expenditures required to maintain
  existing infrastructure.
• On March 16th 1999 City Council approved the
  first phase of capital projects in parallel with
  the initiation of a proposal call to interested
  firms or consortia wishing to form a Public
  Private Partnership (PPP) with the City to
  provide Project Management Services for managing
  the delivery of long term Critical Transportation
  Infrastructure.
• On July 26 1999 City Council approved and
  appointed yyC.T Joint Venture for the provision
  of project management services for Calgarys
  major transportation infrastructure.
• yyC.T consortium is currently comprised of
• SC Infrastructure Inc.
• Stantec Consulting Ltd.
• SNC Lavalin Inc.
• CANA Management Ltd.
• Earth Tech (Canada) Inc. (formerly Reid Crowther
  Partners Ltd.)
• During the months of 1999 October and November,
  several strategic policy and implementation
  meetings were held among City Administration and
  yyC.T Joint Venture members to determine the
  management structure, objectives, work scope and
  budget for the Transportation Project Office
  (TPO). Details of this were outlined in TTP
  report TTP2000-09 which was approved by City
  Council on March 20th 2000.
• An Agreement for TPO Project Management
  Services was signed March 20th 2000. The report
  and the agreement detail the TPO objectives,
  terms of reference, scope of work, fees, and
  projects and form the basis for the City/TPO
  relationship.
• This agreement is subject to maintaining an
  acceptable standard of performance at annual
  performance reviews, and continues until December
  31, 2007. The agreement could be amended if
  mutually agreeable by the parties. Either party
  may terminate this agreement upon six months
  notice in writing to the other party.

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III. TPO Background

• B. TPO Goals
• 1. Maximize the mobility of Calgarians
• 2. Maximize the scope of improvements
• 3. Provide the most cost-effective, (cost
  quality) product lowest life cycle cost
• 4. Ensure the least amount of disruption for
  Calgarians during construction
• 5. Increase the possible revenue sources
• 6. Achieve budgets
• It is important to note that in the background
  during the proposal call and selection process,
  the City had two additional goals 
• 1. To increase the Citys capacity to deliver on
  large capital infrastructure projects without
  building an associated long-term fixed cost
  structure, and
• 2. To be seen to be pursuing innovative
  approaches to financing and developing
  incremental infrastructure by its funding
  sources, the Governments of Alberta and Canada.
• Understanding these supplemental goals of the
  City of Calgary assists in understanding the
  context of the establishment of the TPO.

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III. TPO Background

• C. TPO Structure
• Capital Budget Organizational Structure

CITY COUNCIL
S.P.C. on Transportation, Transit and Parking
CEO

• EXECUTIVE OFFICER
• LAND USE AND MOBILITY
• Financing
• Accountability
• Recommendations to City Council
• Projects and Priorities
• Capital Budget

• ROADS
• Road Maintenance
• Design and Projects
• Traffic Field Operations
• Traffic Signals
• Construction and Materials
• Traffic Assessment
• Support Services

• TRANSIT
• Operations
• Service Design
• Service Planning
• Bus and Auxiliary Vehicle Maintenance
• LRT Maintenance

• TPO
• LRT Expansion
• Interchanges
• Road and Bridge Linked Projects
• Land Development

17
III. TPO Background

• TPO Organizational Structure (see appendix C for
  further detail)

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III. TPO Background

• D. Recent Developments
• As a result of certain personnel changes among
  senior City administration a number of changes
  have been implemented
• The composition of TPO management was adjusted in
  February 2003. Reporting structure revisions
  include
• Jim Vennard Executive Officer LUM appointed
  Chairman, TPO Management Committee
• Ian Norris appointed General Manager
  Transportation Infrastructure
• Alec McDougall appointed Project Director TPO
• Arne Andreasen General Manager Roads appointed to
  Management Committee
• Larry Brown formerly from Corporate Properties
  added to TPO Real Estate Development Team
• David Jacobs appointed Citizen at Large
• Enhanced Process / Controls
• TPO to prepare a five-year budget plan showing
  proposed expenditures for Project Management,
  Governance and Innovative Project Development.
  This budget will be updated every six months and
  presented to and reviewed by the Management
  Committee and The City Finance Manager.
• All work conducted under Innovative Management
  will be approved in advance by the management
  committee.
• Time sheet documentation will be completed on a
  project by project basis.
• Confirmation all staff have signed the Conflict
  of Interest and Non Collusion Declaration
• Regular meetings are held with Calgary Transit
  and Calgary Roads to maintain client relations

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III. TPO Background

• E. Project Highlights Past, Present Future
• Upon establishment of TPO in 1999, assumption of
  three major projects under construction - budgets
  totaling 140 million
• South LRT Extension
• Anderson/Macleod Interchange
• Crowchild/Shaganappi Interchange 
• Presently under construction or planning -
  projects with capital budgets exceeding 330
  million
• NW LRT Extension
• South LRT Phase 2
• NE LRT to Prairie Winds
• Sarcee Trail _at_ Fish Creek Anderson to 146th Ave.
• Macleod/Shawnessy Interchange
• Crowchild / 50th Ave Interchange
• Future developments - projects with capital
  budgets exceeding 138 million
• Glenmore/Elbow/5th St. Interchange
• NE LRV Storage Garage
• Anderson Rd. Widening 24th St. to 37th St.
• Foothills/Children's Hospital connector
• 14th St SW 90th Ave Anderson Rd widening
• Barlow /CN Rail Crossing at 50th Ave South

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III. TPO Background

• F. TPO Fees
• The original TPO fees were quoted through the
  RFP process based on capital projects totaling
  556,295,000. The consulting and other services
  provided by yyC.T include project management
  services for the approved projects, governance
  and overall management services, and innovative
  project development services.
• The following table outlines the original
  breakdown of the fees and expenses. The Basic fee
  as a percentage of capital is derived from the
  approved capital spending budget and the
  respective fees. For example, Project Management
  has a total budget of 18.9 million which
  translates to 3.39 of the 556,295,000 budget
  for approved capital projects. The practice has
  evolved where 3.39 of projected annual capital
  spending has become the ceiling for annual
  project management budgets.

The following table details the cumulative fees
and expenses invoiced by the TPO for the
corresponding 254.4 million of capital spending
from inception to the end of 2002.
4 is recovered by the City
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III. TPO Background

• Project Management Services
• As defined by Canadian Construction Association
  document 25, A guide to project management
  services, Project Management consists of the
  comprehensive management of all aspects of a
  construction project from conception to
  completion of construction and commissioning.
  Project Management may include, but is not
  limited to the following activities
• Defining Owners Requirements
• Selection of consultants
• Liaison with authorities having jurisdiction
• Project accounting
• Reporting and maintenance of records
• Preparation of design and contract documents
• Selection of contractors and contract awards
• Quality assurance and control
• Project publicity and public relations
• Governance and Overall Management
• The Management Committee is responsible to the
  Executive Officer, LUM, for the stewardship of
  the TPO and operates under the overall framework
  of the agreement between the City and the yyC.T
  consortium. The Management Committee oversees
  the conduct, direction and results of the TPO.
  The five principal responsibilities are
• Establishment of project objectives
• Managing risks and ensuring quality
• Monitoring senior staff
• Communications policy
• Internal control and management information
  systems.

• Functional programming
• Conceptual design and planning
• Budgeting and cost controls
• Scheduling
• Project organization and administration
• Procurement and expediting
• Construction management
• Commissioning and warranty
• Safety programs

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III. TPO Background

• Innovative Project Development
• Innovative Project Development is defined in the
  agreement in CL 1.3(b) as services including
  but not limited to identifying or otherwise
  assisting with LRT supportive land development
  opportunities at or in the vicinity of C-Train
  stations, value engineering, alternative means of
  project delivery such as design-build and public
  private partnerships, as well as other means of
  funding and building transportation
  infrastructure.
•  
• TPO Budget Calculation
• The total cost of the TPO is comprised of the
  following
• Basic Fee
• The budget is a function of the time required to
  perform the services of the three respective
  functional areas for the assigned projects.
• Actual manhours are multiplied by the
  individual's hourly rate and a factor (3.0x)
  which covers direct costs, benefits, select
  overhead and profit.
• Expenses
• 8 is added to the basic fee to cover
  disbursements
• 7 GST is applied to all expenses, of which 4 is
  recovered by the City
• Overhead
• The City agreed to provide, or arrange at its
  cost, for the overhead of a reasonably furnished
  office to house the TPO.
• Budget Amendment Process
• The City (Executive Officer, LUM) may alter the
  list of projects for which yyC.T will be
  providing services, subject to the approval of
  funds.
• The TPO must inform the Executive Officer, LUM,
  of fees that are projected to exceed the maximum
  limit for a given year and receive approval for
  the additional expenditures.
• yyC.T shall not proceed to perform any altered or
  additional services which if performed would
  cause the limits of the fees and disbursements to
  be exceeded unless notice has been given and
  until the written approval of the Executive
  Officer, LUM, has been obtained.

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IV. TPO Review Process

• In order to conduct the mandated Performance
  Review, the Task Force followed the following
  process
• 1. TPO Management was asked to provide a written
  self-assessment, focusing on the following areas
• TPO Performance relative to original goals
• Management of conflict of interest issues
• Management of competitive process and cost
  performance
• TPO Management presented its self assessment
  conclusions to the Task Force followed by an
  extensive question and answer period
• 2. Additional meetings enquiries were conducted
  by the project consultant. KPMG conducted
  interviews with key stakeholders
• TPO Management Committee Comprised of Jim
  Vennard, Chris Wade, Arne Andreasen, David
  Jacobs, Paul Giannelia, Barry Lester
• TPO General Manager Ian Norris
• TPO Project Director Alec McDougall
• yyC.T Members Dean Slater, John Simpson, Allan
  Cuthbert
• Former Management Committee members John Chaput
  (City), Mike Maher (Citizen at large)
• Competitors CH2M Hill, John Murray
• 3. Quantitative Analysis by City Auditors office
  and KPMG
• Analysis of allocation of work to consultants and
  contractors
• Analysis of TPO expenses
• Project Management
• Disbursements
• Overhead

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V. Findings of the Task Force

• A. TPO Performance Relative to Original Goals
•   The stated goals of the TPO are as follows
• 1. Maximizing mobility of Calgarians
• 2. Maximizing scope of improvements
• 3. Providing the most cost-effective product
• 4. Ensuring the least amount of disruption during
  construction
• 5. Increasing possible revenue sources
• 6. Achieving projects within their budgets
• The following sections deal with performance
  against these goals. Most of the TPOs goals are
  not susceptible to strict quantitative
  measurement. Therefore, there is an element of
  subjectivity in the evaluation. The limitations
  on measurement of TPOs performance against these
  goals are implicit in the goals themselves, and
  this fact should be considered in any discussion
  of ways in which the TPO could be made more
  effective.
• Conclusion
• The City should evaluate whether the goals
  established for the TPO in 1999 are relevant, in
  whole or in part, looking forward from 2003.
• Recommendation
• Performance measures should be developed which
  would allow for an objective and consistent
  measurement of TPO achievement against
  established goals. This may require enhancements
  to TPO and/or City departmental reporting
  accounting processes and systems.

25
V. Findings of the Task Force

• TPO Goal 1. Maximizing Mobility of Calgarians
• Background Analysis
• There is evidence that the mobility of
  Calgarians has been enhanced during the TPOs
  existence. Completion of the South LRT
  extension, the NW LRT extension, and various
  interchanges including McLeod/Anderson have
  impacted mobility in the City. It is highly
  subjective as to whether mobility has been
  maximized. The ability of the TPO to fully
  manage outcomes must be evaluated in the context
  of its relatively limited input to overall
  transportation planning and prioritization.
  Mobility is impacted to a greater degree at the
  planning and project selection stage than at the
  project delivery stage. The City retains primary
  responsibility for project prioritization through
  the Transportation Planning and Parking Standing
  Policy Committee.
• The scope of transportation infrastructure
  improvements undertaken has been enhanced by
  meaningful budgetary savings on certain aspects
  of the completed projects. This is within TPOs
  ability to influence. TPO management also points
  to innovative techniques deployed to manage
  traffic disruption during project construction
  (contractor charges for lane closure for
  example), and the impact of achieving or beating
  scheduling targets in addressing the goals of
  mobility.
• Conclusion
• The TPOs direct impact on mobility is difficult
  to quantify, however through the successful
  implementation of projects, the TPO has had a
  positive impact on Calgarians mobility.
• Recommendation
• When appropriate, the City should integrate TPO
  input into transportation project planning and
  prioritization at an earlier stage in order to
  gain additional value from the TPO arrangement.

26
V. Findings of the Task Force

• TPO Goal 2. Maximizing the Scope of
  Improvements
• Background Analysis
• Scope of infrastructure improvements is
  principally a function of capital budget
  available. Given the way the funding model has
  evolved, overall capital budget constraints are
  largely outside the ability of the TPO to
  influence. The TPO can influence how allocated
  budgets are managed, create favorable spending
  variances and generate incremental capital
  through savings. In addition to accommodating
  additional work within the budgets the TPO has
  had a net positive transfer of funds back to
  Council. The TPO has added to the scope of
  improvements through techniques such as recycling
  a pedestrian bridge over Macleod Trail.
• While these contributions toward maximizing
  scope of improvements are positive, in the
  context of Calgarys transportation
  infrastructure requirements, they are not highly
  material.
• Conclusion
• The TPOs goal of maximizing the scope of
  improvements has not been fully or effectively
  addressed. This goal was established at a time
  when future infrastructure funding was uncertain,
  and the role contemplated for TPO in sourcing
  additional funding was more significant than it
  has actually been.
• Recommendation
• City Council should consider the appropriateness
  of Maximizing the Scope of Improvements as an
  ongoing goal of TPO in the current funding
  environment. If it is judged to be a suitable
  ongoing goal, greater definition should be added,
  focusing on areas where the TPO can exert the
  greatest influence on scope of improvements.

27
V. Findings of the Task Force

• TPO Goal 3. Providing the Most Cost Effective
  Product (Cost Quality)
• Background Analysis
• Delivering a cost-effective product, measured at
  the intersection of Cost and Quality, is another
  TPO goal difficult to measure in quantitative
  terms. TPO has utilized innovative approaches to
  procurement such as the combined rail supply
  contract for NW, South and NE LRT extensions in
  order to maximize competition and minimize price.
  It has made other recommendations which have not
  been adopted such as open tendering for LRVs
  without restriction for compatibility with the
  existing fleet. Major construction contracts are
  always tendered using City of Calgary procedures
  and personnel, with low price bid winning. Other
  examples include design-build methodology for
  the NW LRT roadworks.
• Meaningful issues around project quality were
  not disclosed to the Audit Task Force, and do not
  appear to be an issue for TPO-managed projects.
• Conclusion
• TPO has access to the expertise necessary to
  deliver the most cost effective solutions, and
  has achieved its objectives in the context of its
  ability to influence planning and priority
  decisions.
• Recommendation
• When appropriate, the City should integrate TPO
  input into transportation project planning and
  prioritization at an earlier stage in order to
  gain additional value from the TPO arrangement.

28
V. Findings of the Task Force

• TPO Goal 4. Ensuring the Least Amount of
  Disruption During Construction
• Background Analysis
• Construction delays, lane closures and detours
  contribute to the frustration of Calgary
  commuters even as meaningful improvements to
  transportation infrastructure are under
  development. One of the TPOs goals is aimed at
  minimizing disruption during construction. In
  addressing this goal, the TPO has utilized
  techniques such as
• 1. Extensive communication with affected
  communities so commuters can plan around
  construction.
• 2. Delivering projects on time in order to
  minimize duration of construction impacts.
• 3. Utilizing creative techniques such as
  charging contractors for lane closures.
• 4. Integrated approach to project planning with
  traffic expertise built in to team.
• Conclusion
• There is consensus that the TPO has been
  effective in delivering major construction
  projects on time, with well-managed impacts on
  traffic and commuters.
• Recommendation
• The TPO and City administration should continue
  to work together to review and implement
  innovative methods to ensure the least amount of
  disruption during construction.

29
V. Findings of the Task Force

• TPO Goal 5. Increasing Possible Revenue
  Sources
• Background Analysis
• The objective of increasing possible revenue
  sources was an important goal to the City of
  Calgary in 1999, as the list of Critical
  Transportation Infrastructure Projects was long,
  and the range of potential funding sources
  limited. Numerous ideas were considered
  including commercial tenancies, enhanced user-pay
  concepts, true Public-Private Partnerships, and
  others. Some ideas were developed, but didnt
  come to fruition, for example
• TPO initially attempted to inventory the land
  adjacent to LRT stations (both public and
  private) in order to offer comprehensive
  solutions that add value to the strategic LRT
  asset. TPO believed its mandate was to be
  responsible, and accountable to develop stations.
  Not all City business units saw things the same
  way, and real estate development goals around LRT
  stations were frustrated.
• Shortly after the establishment of the TPO, the
  Government of Alberta announced that revenues
  from gasoline excise taxes would be shared with
  the City of Calgary. This allocation of tax
  revenue, based on 0.05/litre, provides an
  ongoing revenue stream to the City of Calgary of
  approximately 85 million per year, and goes a
  long way in addressing transportation
  infrastructure needs.
• There appears to be consensus among City and TPO
  participants that once the gas tax allocation was
  delivered, the focus on developing other forms of
  revenue enhancement declined.
• The establishment of the TPO in 1999 achieved
  the City of Calgarys goal of pursuing new and
  innovative approaches to addressing
  transportation infrastructure improvements.

30
V. Findings of the Task Force

• TPO Goal 5. Increasing Possible Revenue
  Sources Contd
• Limitations in the ability of the City to fund
  required transportation infrastructure projects
  are once again being felt, even with the
  continuing stream of gasoline excise tax
  revenues. Growth in population and development
  patterns in combination with a physically
  challenging geography, demand an ongoing
  commitment of resources to mobility.
• Conclusion
• To date, initiatives aimed at generating revenue
  from transportation infrastructure development
  have not been adopted by the City.
• Recommendation
• The City of Calgary should consider whether
  pursuing enhanced revenue sources continues to be
  a relevant goal for the TPO in the current
  funding environment.

31
V. Findings of the Task Force

• TPO Goal 6. Achieve Budgets
• Background Analysis
• One of the principal measurable objectives of
  the TPO is to achieve projects within their
  capital budgets. Capital budgets are approved by
  the City and refined in consultation with TPO.
  In some circumstances they are reviewed by
  external cost consultants retained by the City.
  Actual costs are subject to audit by the City
  Auditors department.
• Since 1999/2000 the TPO has completed and is
  currently working on a number of significant
  transportation projects. The following table
  summarizes the final project cost relative to
  budget for completed and nearly completed
  projects managed by the TPO.

• The percentage breakdown of the variance
  is as follows
• Additional work accommodated within the
  budget 61
• Relinquishments or transfers approved by Council
  36
• Unexpended budget 3
• A significant amount of the additional work was
  done on early projects inherited by the TPO. The
  additional work was requested by individual
  business Units and/or citizen requests.
  Subsequently, procedures have been revised so
  that all significant change orders acquire
  Council approval.
• Appendix B provides more detail on the capital
  budgeting process. Appendix F provides a summary
  of the additional work accommodated within the
  budget.

32
V. Findings of the Task Force

• TPO Goal 6. Achieve budgets contd
• The delivery of these projects within capital
  budgets addresses one central goal. The TPO has
  been able to provide additional work within the
  capital budget as well as relinquish funds back
  to Council. More capital available, whether
  through government funding, alternative revenue
  sources or savings on committed projects means
  more projects may be undertaken and completed.
• Conclusion
• TPO has been effective at delivering projects on
  or ahead of approved capital budgets.
• Recommendation
• The TPO and City administration should continue
  to monitor the projects to ensure the achievement
  of projects within their capital budget.
• The TPO and City administration should work
  together towards further improvements in budget
  performance.

33
V. Findings of the Task Force

• B. Management of Conflict of Interest Issues
• The opportunity for perceived and actual
  Conflicts of Interest arise due to the fact
  members of TPO partner yyC.T consortium are also
  members of the engineering, consulting and
  contracting community in Calgary. There is
  always a risk in such circumstances of
  self-dealing or favoritism in the allocation or
  pricing of contracts where an owner company is
  competing with other bidders. For these reasons,
  the TPO Task Force made specific enquiries about
  these topics.
• Background Analysis
• Policy Procedures
• Schedule 3 of the Agreement includes the TPO
  Conflict Of Interest Policy and well as the
  Conflict of Interest and Non Collusion
  Declaration.
• 1. The management committee is responsible to
  ensure the implementation of the Conflict of
  Interest policies.
• The Project Director and the General Manager
  (both City employees) have recently reviewed the
  Conflict of Interest policy and code of ethics
  documents to ensure compliance by the TPO and its
  staff. The Project Director has indicated that
  all employees have signed a document confirming
  that they will observe these policies.
• The management committee Citizen At Large,
  investigated several informal complaints of
  potential conflicts and found satisfactory
  explanations for himself and for the concerned
  parties.
• There were no formal complaints or submissions
  lodged as a result of the public input
  solicitation run as part of the Task Force
  process
• Contract Tendering Process
• 1. All tendered and non-tendered contracts are
  selected using City of Calgary Supply Management
  Services approved Vendor List.
• Final selection of tendered projects is
  determined by the best tendered price
• Final selection for non-tendered contracts is
  based on qualifications with a negotiated price
  based on industry standards and practices
• 2. All awards are signed by the Project
  Director, General Manager- Transportation
  Infrastructure and Financial Analyst and
  finally the Executive Officer Land Use and
  Mobility, and are presented at the monthly TPO
  Management Committee meetings for information,
  discussion and ratification.
• 3. The Citys Office of Corporate Engineering
  has completed a review of the existing
  consultation selection practices and will be
  recommending a more formal selection process

34
V. Findings of the Task Force

• B. Management of Conflict of Interest Issues
  Contd
• Allocation of Contracts
• The increase in the dollar value of the
  contracts awarded is highly correlated to the
  increase in capital spending on critical
  infrastructure spending and the design work
  involved with these projects. The following
  graphs highlight the respective increases in
  spending for corporate wide design fees and
  capital spending for years 1993 through 2002.

35
V. Findings of the Task Force

• B. Management of Conflict of Interest Issues
  Contd
• Allocation of Contracts Contd
• Since the inception of the TPO in 1999 / 2000
  there has been a significant increase in Capital
  projects in Calgary. yyC.T includes three
  engineering firms within the consortium, Stantec
  Consulting, Earth Tech and SNC Lavalin. The
  historical allocation of contracts to the members
  of yyC.T was analyzed to determine if the
  consortium members have received a
  disproportionate share of contracts as a result
  of their position in the TPO. As depicted in the
  graph on page 36, these firms have historically
  provided a significant amount of design services
  to the City and since the creation of the TPO and
  the corresponding increase of capital spending,
  the allocation of design work has increased.
  Members of yyC.T have not been awarded any
  construction contracts out of the 300 million in
  capital construction works completed to date by
  TPO.
• The increased allocation is due to
• Significant increase / concentration in capital
  spending on transit and roads projects.
• Member firms have significant expertise in
  transportation infrastructure.
• Member firms have the capacity to handle the size
  and complexity of the projects.
• Member firms are national firms with a strong
  local presence.

36
V. Findings of the Task Force
B. Management of Conflict of Interest Issues
Contd
37
V. Findings of the Task Force

• B. Management of Conflict of Interest Issues
  Contd
• Conclusions
• It is the view of the Task Force that due to the
  nature of the TPO arrangement, which involves
  participation by private sector companies, there
  will always be opportunity for real and/or
  perceived conflicts and favoritism. Given the
  controls which are in place and in particular,
  the involvement of senior City personnel on all
  material contractor/consultant selection
  decisions that conflicts of interest are
  appropriately managed.
• The allocation of contracts to yyC.T has
  increased, however the increase is reasonable
  given the increase in capital spending in their
  areas of expertise.
• It is the view of the Task Force that no evidence
  has been found to indicate any conflict of
  interest principles were contravened in the
  allocation of contracts to consultants or
  contractors.
• Recommendations
• The City should continue the diligent
  implementation of the existing governance
  procedures.
• The City should ensure the TPO implements the new
  City policies for the consultant selection
  process for non-tendered contracts once approved
  as planned.
• Annual performance reviews of the TPO should
  include an assessment of conflict of interest
  issues management.

38
V. Findings of the Task Force
C. Competitiveness and Cost Performance Compariso
n of Project management Cost versus Canadian
Construction Association Benchmark Benchmark
Analysis to CCA 25 Guide

• The base remuneration for Project Management
  appears competitive with accepted industry norms.
  The TPOs adjusted rate for Project Management
  is 4.24 vs. 5.15 per the CCA standard.
• The appropriate range for the Cost of Work factor
  according to CCA 25 guide is 2.0 3.0 of the
  total project value. The midpoint of 2.5 is used
  in the analysis. Variables to be considered when
  determining the appropriate factor include
• Cost of work under managers control
• Duration of the contract
• Manhours required

Notes 1. Does not include disbursements or
GST 2. Based on 2002 actuals, project management
allocation of non-project specific
costs. 3. Annual average contracted
amount 4. Adjustment to CCA benchmark to adjust
for use of the Project Managers office and
equipment. 5. Adjustment for owners
representative, cost estimate based on the
proportion of General Managers time spent on
these duties.
The City pays for additional services that are
not contemplated in a traditional project
management consulting arrangement. Additional
costs that are not included in the Canadian
Construction Association Benchmark for project
management include Innovative Project Development
Costs and additional administrative expenses
incurred by the City as a result of the
outsourcing agreement. The city has incurred an
average annual expense of 565,000 for Innovative
Project Development charged by TPO and 400,000
for Administrative Expenses directly incurred by
the City, related to the administration of the
TPO.
39
V. Findings of the Task Force
C. Competitiveness and Cost Performance Contd
Payroll Factor Analysis The payroll factor
multiplier is used to cover direct costs,
overhead costs and profit. APEGGA publishes
general guidelines for selecting an appropriate
payroll factor. Variables that influence the
payroll factor include 1. The duration of
the project and manhours required. 2.
Operations at owners premises and the coverage of
overhead costs 3. The use of contract
versus regular full-time employees. The payroll
factor is typically applied to a payroll cost
(salary plus benefits). The negotiated rate in
the Agreement is 3.0 times flat salary. The
APPEGA guide Consultant Fees for General
Engineering Assignments - A Guideline suggests a
range of 20 to 30 of salary be used for fringe
benefits. The following table converts a flat
salary factor to the equivalent payroll factor
using 30 benefits for comparison purposes.
Benefits at the high end of the range is used to
reflect the seniority and experience of TPO
employees. Conversion Table A payroll factor
of 2.3 is equivalent to the 3.0 flat salary
factor currently used as per the agreement.
According to the APEGGA guide the payroll factor
ranges from 2.0 to 2.75. A payroll factor of
2.31 is in the middle of the APEGGA range. Given
the seven year duration and size of the contract
and the fact the City covers the overhead
(detailed in the following page) of the TPO, a
payr