Sorry about that chief: The old secret uncompetitive bid process involving a foreign vendor trick

Posted on August 5, 2011


“Our problem is they’ve given a foreign company, in a secret uncompetitive process, 2,500 megawatts of installed capacity, a portion of the grid that’s larger than (the power from) Niagara Falls,” said Wilson. “Ontario families are tired of secret deals, they’re tired of skyrocketing hydro prices and they’re tired of Dalton McGuinty’s energy experiments.”

from August 3rd Canadian Press article “Ontario saves $327 million in Samsung deal” by Keith Leslie

Given that we are in the midst of our Losing Vendor Litigation series I will take a slight detour of sorts to talk about the latest public sector procurement scandal from Canada’s biggest Province Ontario.

The Samsung Deal?

On the heals of an announcement by the reigning Liberal Government that they have re-negotiated a wind and solar energy deal with Samsung that would make Ontario home to North America’s first green energy manufacturing sector, that will save taxpayers $327 million, the opposition parties have once again raised issues with the controversial contract.

Conservative Leader Tim Hudak who, earlier this year referred to the contract that was signed by Premier Dalton McGuinty as a sweetheart deal, that was concluded behind closed doors with massive subsidies, indicated that they would tear up the agreement with the Korean manufacturer if they win the October 6th election.

Now one may reasonably wonder why a renegotiated contract that significantly reduces the cost of an important project such as this one would arouse cries of protestation from the opposition parties, or for that matter anyone else?

Besides the purported dubious nature under which the contract was awarded, there are two main issues that those who oppose the deal have cited as being problematic; 1) the suggestion by NDP energy critic Peter Tabuns that the Liberals must have been terrible negotiators on the original deal with Samsung if they could find more than $300 million of wriggle room one year into the agreement and, 2) the accusation that the real benefit of the deal for Samsung, is that it represents a “gold mine” by way of the Liberals guaranteeing the company about 10 per cent of the capacity on Ontario’s crowded electricity grid.

It should be noted that the renegotiated price tag represents a 75% (that’s right 75%) reduction in the costs associated with the original contract, which is at the heart of the above referenced criticisms.  In other words , for a vendor to reduce the dollar amount of an awarded contract by such a large sum means that they are likely going to gain significant traction on the back end of the deal re the gold mine comment relative to what was already considered to be a sweetheart deal.

Of course back-end gains on government contracts are nothing new as vendors are often willing to take a significant hit up front based on their knowledge of the market, and the fact that the ultimate payout down the road will be significant.

So here is the question . . . in the absence of a formal protest being registered by a vendor, are cries of foul play made by the opposition parties any less credible, being viewed as little more than bi-partisan rantings?

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