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Audit highlights weak bid process on Olympic village, city risks

October 6th, 2009 · 12 Comments

It was a field day for media today in trying to report once again on the very complicated Olympic village project. You could tell people were a little overwhelmed by the material today, as city manager Penny Ballem gave an update on the project and presented the KPMG audient results that had been ordered last winter, because media were all reporting wildly different pieces of it.

Some of the reporting was just plain confusing. Over at my old paper, the Sun, Miro Cernetig was reporting that the project’s overruns have escalated to $131 million — a number no one else I know could find anywhere in or out of the audit report. Others ended up reporting old news, e.g. the cost overruns could eliminate the profits, the cost overruns could be bad news for the social housing, etc.

From my read and what Penny Ballem told me directly, the cost-overrun projection of $125 million hasn’t changed in about nine months. What was news in the audit, which was turned into the city in mid-January and only released now, was the audit team’s assessment of the way Millennium was awarded the bid (not good), its assessment of how well Millennium was doing in terms of meeting project deadlines or providing regular information to the city or paying its contractors (not so good) and what the potential risk was to the city if the condo-market didn’t recover ( a little to a lot, depending).

Ballem also provided some bits of information more recent than last January in her briefing. The Tyee noted that the project has missed a couple of deadlines for turning buildings over to Vanoc. And others focused on what the mayor had to say about the previous administration’s management of the project. (“A train wreck”)

It could be a fun exercise for all of you to a) read the audit report and b) listen to the video from Tuesday’s meeting and decide what you, if you were a reporter or editor, would decide was the most important fact or development to lead with. I urge you to try it. As for me, this is what I ended up focusing on in my story for the Globe here.

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  • Michael Phillips

    I believe the 131 million comes from the difference between the original Millenium budget and the Altus Group’s estimate of current costs on page 15 of the report (950M – 1081M).

    The underreported news from this seems to be that the project is almost sure to make money as evidenced in Table G which uses Dec. ’08 trough prices. Most articles are saying “its too difficult to predict”. Well, try people. If I was writing this story my headline would be “Olympic Village should make profit unless market dips 15%, says KPMG”. I’d read that.

  • I have more points at my post:

    but here are the salient points about how the bidding process was flawed:

    * Millennium was indeed the third placed bidder after the first evaluation matrix with 57 individual criteria was compiled. It is significant to note that no points were allocated to the offer price in the Matrix.

    * Following the results where Millennium had the lowest point total, the scores developed using the Matrix were reevaluated by undertaking a sensitivity analysis that ended up allocating between 0% and 90% to the offer price.

    * Miraculously, once a figure of 14.5 per cent was weighted to the offer price, Millennium jumped from third place to first.

    Millennium was in last place by way of the first set of criteria, and then the offer price was given just enough weight to put them on top after the evaluation process was conveniently reworked. Pretty simple.

    It is easy for Anton and her blogging pals to dismiss the report as she does in Frances’ Globe story, but those are the facts.

    Now here is the most important question, as far as I am concerned:

    What due diligence did the city engage in to ensure that Millennium had the money necessary to fulfill the commitments of their bid beyond the initial $22 million deposit?

    If Anton or Daniel Fontaine could answer that one, maybe we can get to the bottom of why cash flow for the project became such an issue towards the end.

  • This is tedious!

    What else can KPMG do other than blame the process: they are in the business of staying in business.

    The city should never have become involved in the “train wreck”: other than panic, there was no need.

    “Real estate is on the rebound!” In rarefied quarters that is called “a dead cat bounce.”

    Vancouver has only one “industry” . . . inflated real estate: and that in a continuing and damaged world economy bodes ill for the “biz as usual green shooters.”

    We should not have invited to 5 O’s. Huh!

    But all we can do now is wait and see . . . and hope!

  • Hoarse Whisperer

    I agree with all posters, but, I would be surprised to learn that the City didn’t check on Millenium’s financing and found it lacking —at the time. Since the developer Millenium was backed by Fortress, (in effect ,their banker) and there was unsold inventory and the whole market and credit crisis was coming to a head last fall, Fortress was in the driver’s seat. Did the city have an obligation to check out Fortress, too? Did they? Would the Bank of Montreal or any other Canadian bank have pulled out of a Millenium project under similar similar circumstances? I don’t know the answer to that piece of speculation —that would be an interesting question, given that perhaps their lending criteria are different from Fortresses’? But I dare say that other projects in North America faced similar situations, and that is of interest to me. For instance, I understand that HSBC pulled out of the Bear Mountain development in Victoria—I don’t know if that was due to market conditions or to some fancy bookkeeping by Len Barrie and his group.

    We will know how the city fare’s when that last Millenium condo is sold—possibly, before the next election cycle? 😉

    Prognosticators, Futurists: Please, post your headlines on that great occasion, now!

    The one closest to the actual headline will be treated to a fantastic Triple O hamburger and fries at the White Spot on Cambie by City Hall.

  • Joe Just Joe

    What happens if that White Spot closes down, with the reducation in manpower at cityhall and the pursestrings being closed I wouldn’t be surprised if that location closed. Did you know that location happens to be unionized and is already has some of the lowest margins.

    Here’s my prediction for the a headline, just before Fall 2011.
    Gregor announces Olympic Village profits to fund new bicycle crossing for False Creek.

  • Denis

    The folks who set up the origional deal were either stupid or uncaring. The city is going to pay and pay and pay.

  • T W

    The saddest part of this mess is the confirmation that for the past 9 years, the previous mayors (as chair of the council) and the previous city managers (as chief operating officers) either would not or could not assess risk properly.

    And we are (probably) left with a distasteful tax burden as a consequence of the council either not asking enough questions, or council not being given sufficient information or the respective mayors and city managers falling into the (well known) trap of optimism bias.

  • The tangled tale of the Athlete’s Village spans three administrations including pivotal decisions taken by the last COPE administration of Larry Campbell, which featured a prominent role by now-Councillor Geoff Meggs, our Mayor’s right-hand man.

    It also features important votes cast by David Cadman, Ellen Woodsworth, Raymond Louie and Tim Stevenson, among other councillors in Mayor Robertson’s governing coalition.

    Miro Cernetig said explicity in his article on Monday that voters should be angry, very angry, a point with which I completely agree.

    But he also goes on to state: “And don’t fall into the trap of making it a left-right, Non-Partisan Association-versus-Vision blame game, as the local spin doctors hope. This fiasco stretches back a few administrations, touches both civic parties and it isn’t over yet.”

    My take, like Mr. Cernetig’s, is that there’s plenty of blame to go around. So I find the Mayor’s remarks intemperate at best, and at worst a cynical attempt to politicize the Athlete’s Village and the entire Olympics by extension.

    The Olympics should be above this kind of petty partisan squabbling. That it’s not is a failure of leadership.

  • FBT

    A reasoned voice from the NPA….good job Mr. Bickerton.

    Unfortunately you’re on the board and not in public office and getting the media attention your councillor gets from time to time.

    Anton is not doing a very good job considering how much fodder Vision continues to give your party to work with.

  • Hoarse Whisperer

    Joe Just Joe,

    I don’t expect the White Spot to close down, but pending my report from KPMG on “possible future scenarios” taking place at the venerable west coast culinary institution (one being that that possible/pending city staff lay-offs might see personnel trotted across 12th Ave in order to ‘beef’ up table service at WS—at a reduced hourly minimum wage of course. They can then continue working on city business in between serving up Chicken Pik’ns and Pirate Paks, with the benefit of having private enterprise pay some of their wage, while lessening the burden on taxpayers and freeing up some of that propoerty tax money. We could declare that particular location a special economic zone, sort of a maquiadora North, in order to avoid nasty union fights), I reserve the right to change the venue to the McDonald’s at Terminal and First.

    Now, will that be fries with your “six of one, half a dozen of the other” report?

  • Frothingham

    The sad truth is that Big Events have transpired to overwhelm the meagre talent pool at City Hall and the Provincial Libs. The naive belief that the “olympic games” would bring …what.. prosperity? fame? the world to our doorstep? … was over hyped. There was this dreamy view that Manna from Heaven would rain down on us. Make us Rich! Well the big events are about to lay a big doo-doo on us.

    PS there were many in the developed world, if they are honest, who had predicted that disaster was in the offing for such a short time-lined project. No way , many said, will the project come in on budget much less be of a high quality. Bingo!

  • Ed Thoma

    Please could you give the name of the executive in charge of the millennium olympic village.
    His photo was shown on the front page of the
    Vancouver Sun Feb. 18th 2009 edition