Auditor flags big change to Toronto's $100M per winter snow-clearing plan

Transportation staff are significantly reducing a key liquidated damages provision for the contractors that handle most of the city's snow clearing, even after a winter marked by sharp criticism from the public and councillors alike.

Staff have agreed to lower one of 10 liquidated damages contractors face — "Failure to leave a depot within the applicable mobilization period" — from $200 to $10 per minute per piece of activated equipment in the depot after the expiry of the mobilization period, and the daily rate for each of those pieces of equipment, according to a new report released by the city's auditor general.

At Friday's audit committee meeting, staff confirmed its decision reduced the liquidated damages contractors were facing by some $5.5 million after the last winter, though Transportation Services General Manager Barbara Gray said damages are "not a revenue source."

Liquidated damages are an amount of money, agreed to by both sides during a contract negotiation, to be paid out by one of the parties if a provision of that contract is breached.

So, why does this contact change matter for your neighbourhood when the snow starts flying? The biggest problem, an industry source told CBC Toronto, is that creates an environment where contractors will now have less urgency to get their snow-clearing machines out on the roads.

CBC Toronto is not naming its source because they have done work with the city before and continue to bid on contracts.

The steeper liquidated damages in the original contract, the source said, indicated the city wanted the snow cleared and "they wanted it fast."

City staff denied that in a statement to CBC Toronto, calling the change a "standard matter of contract management" that will not affect the snow-clearing budget, nor the city's service levels and operations.

New rate comparable to other municipalities

Vincent Sferrazza, another top city official in charge of this work, told the audit committee the change was "a correction of an error."

He said the city's previous auditor general had asked staff to review its liquidated damages rate, however that was not done before a controversial negotiated Request For Proposals process was launched for the latest round of snow-clearing contracts, which are worth some $1.5 billion over the next decade.

Contractors bidding on the work flagged the $200 per minute rate was problematic, with some going as far as calling it "ridiculous," Sferrazza and the auditor general confirmed. Staff didn't change the dollar amount at that time. (The new rate of $10 per minute matches the rate the city had in place before launching its latest round of contracts and is comparable to other municipalities.)

When the companies that won the work — two companies and their joint venture, now dubbed "Snow T.O.," which won nine of 11 possible contracts — were told they were on the hook for more than $6 million in liquidated damages in April, they claimed the city's financial claim was not "fair and reasonable" and the city agreed.

In total, $604,769 worth of liquidated damages is being sought for the companies' failure to meet the contract terms so far, transportation staff confirmed to CBC Toronto this week, though that dollar amount is not final.

Tara Anderson, the city's auditor general, confirmed she looked into the contract change after a complaint to the city's internal fraud and waste hotline.

The move comes as councillors have been calling on staff to more rigorously police the snow-clearing work.

New contractors took over last winter

"Snow T.O." took responsibility for almost all non-highway snow clearing in Toronto for the first time last year. The city then went $26M over budget and dealt with a barrage of snow-related complaints.

Coun. Jamaal Myers put it bluntly when the season was over: "This contracting fell well below the standards that I think most people expect and most people deserve."

Councillors were assured the contracts came with stringent penalties when voting on them in 2021.

But city transportation staff only began applying liquidated damages form February to March. 

City management didn't seek damages earlier that winter, Anderson revealed in July. Staff explained that decision by stating, in a report: "if we'd issued [liquidated damages], of that size, these companies may not have been able to be financially viable."

Move takes pressure off contractors: industry source

City staff made the move to lower one specific liquidated damages provision in September, but didn't tell councillors.

Staff deemed that unnecessary because it "did not alter the fundamental service levels and operations, and would not generate revenue for the City," according to the audit committee report where the decision was made public. 

Staff and some councillors also pointed out Friday that it has no affect on how much the city is set to pay contractors this winter.

However, Anderson told committee while there's "no financial impact" the change remains "a significant difference."

"I felt that it was important enough to report," she said.

The industry source said it should matter to councillors because the city is likely now in a situation where it's paying more for less. That's because when contractors bid for the work they baked some assumed damages into their price (the source said their own bid went up by a double-digit percentage) assuming an occasional fine due to broken machinery or other issues.

"The city is now paying for a level of service that's far more than what they're getting," the source said.

The contracts "Snow T.O." won are worth at least $647 million over the next seven years, and an extension could bring that total closer to $900 million.

Changes debated Friday

Chair Stephen Holyday noted snow clearing is among the largest contracts the city handles, and one with literally many moving parts. It's also something councillors hear a lot about from the public, he said.

"At the end of the day, taxpayers should feel confident and assured that the money they pay to pay for important services like this are being used both economically and wisely by the city," Holyday said. 

"The expectation is that this critical service is going to be performed, that we're going to have a city that operates and that we have roads that are safe."

Coun. Paula Fletcher, who is also a member of the audit committee, said she wants to understand why councillors weren't notified about the change prior to this report. 

"It's a change in the contract," she said, adding that the shift in liquidated damages is a significant reduction. 

"That is a 95 per cent change," she said. "And I don't think that happens that often."

Contractor still recruiting workers 

CBC Toronto has also learned that "Snow T.O." is still looking for seasonal workers as winter looms.

The company is recruiting for a range of jobs, including but not limited to: "Class G snow plow drivers," skid steer operators and grader operators. 

The jobs were advertised in a flier sent to the International Union of Operating Engineers Local 793 last week. The same industry source who commented earlier noted that it was sent to their employees and those of other snow-clearing companies as well. 

There have been well-documented struggles to recruit snow plow drivers in recent years, both in Ontario and across the United States.

The city said there's no cause for concern.

"The City has been informed by all its contractors, including 'Snow T.O.,' that they are ready to perform their contractual duties for winter road operations, including having sufficient staff to operate the salting and plowing equipment," staff said in a statement.

"It is normal for companies to continue to hire throughout the year."

Toronto hasn't seen much snow yet, but it's becoming a more frequent possibility in weather forecasts.