April 2014

Awarding of a CRD sewage treatment project contract to Stantec that turned out to be worth $43 million was overseen by two former Stantec employees.

LET'S PARSE STANTEC'S expected $43 million share of the $783 million CRD sewage treatment program, one meeting at a time, and figure out how that happened. To start, we need to crank our minds back—way, way back—to 2006. That’s when it all began.

Just three working days after Environment Minister Barry Penner wrote the Capital Regional District and ordered it to develop a plan for sewage treatment, Dwayne Kalynchuk was promoting his former employer— Stantec—as the go-to company to meet the Minister’s challenge. Kalynchuk was then General Manager of the CRD’s Environmental Services Department.

In a July 26, 2006 report to the Core Area Liquid Waste Management Committee (the sewage committee), Kalynchuk wrote, “t is recommended that a comprehensive report on treatment options, procurement strategies and update costing be prepared.” Kalynchuk argued that his former employer ought to be given the job because “Stantec has already provided estimates in the past for treatment at Clover and Macaulay, so any proposed changes at these locations should be consistent with work already done.” Stantec’s previous experience with the CRD, Kalynchuk asserted, “will facilitate a review in both a timely and cost-effective fashion.” A schedule included with the report showed the study could be completed in three months. Kalynchuk’s report put the “expected” cost at $125,000 and recommended Stantec be awarded a contract without calling for competitive bids.

The CRD’s minutes for that meeting stated, “Mr. Kalynchuk pointed out that the staff report had been written prior to the receipt of Minister Penner’s letter. However, staff felt the proposed action to prepare a comprehensive treatment options and strategy report was in line with the Minister’s direction.” The minutes then recorded that “Considerable discussion ensued. General concern was expressed regarding sole sourcing the work.” The upshot? CRD directors didn’t bite on Kalynchuk’s recommendation to hire Stantec.

Kalynchuk had started working for the CRD just 10 months earlier. His past employment included a stint with Stantec in their Edmonton headquarters. A news story from the October 2003 edition of Peg, the official publication of Alberta’s professional engineers, noted his recent appointment at Stantec and stated, “Mr. Kalynchuk will assist in the areas of infrastructure management and pavement engineering, as well as transportation and environmental infrastructure practice, primarily in their marketing efforts.”

In the parlance of the engineering community, “environmental infrastructure practice” means sewage treatment facilities.

It’s not unreasonable to ask: Was Kalynchuk still “marketing” for Stantec at that July 26, 2006 meeting when he proposed by-passing a competitive bid process? (Kalynchuk declined to comment for this article.)

Over the next three years the CRD gathered information needed to develop the plan Penner had ordered. A team of private consulting firms—which didn’t include Stantec—inched the CRD forward. In July 2008, Tony Brcic  was hired as the treatment program’s project manager. Brcic, too, had worked at Stantec—for 18 years before leaving in 2005.

In March 2009 Kalynchuk and Brcic made a pitch to the sewage committee in which they argued for contracting with a firm that would serve as the “program management consultant.” Their report described the work that firm would do, including “finalizing site selection, preparing a Class C estimate for the project to satisfy the requirements of the business case and providing services to enable the CRD to submit the Liquid Waste Management Plan amendment by the end of 2009...”

Kalynchuk and Brcic argued for a “quality based selection process” rather than a competitive process. Their report stated, “The system configuration and method of procurement for the [Core Area Waste Treatment Plan] will not be know until approved by the minister of environment in early 2010. Therefore, it is difficult at this stage to establish a defined scope of work for consulting firms to price. It is on this basis that CRD staff recommends using the [quality based assessment] process to hire the program management consultant.”

Even though Kalynchuk and Brcic pointed out that “the provincial and federal governments require a transparent and competitive process and may not find [quality based assessment] acceptable,” their report recommended it anyway.

The minutes of the meeting at which that report was delivered make it clear that Kalynchuk “provided…the estimated cost of a [program management consultant] over the entire project, and the comparison of hourly rates with industry standards.” The minutes did not record what either of those were, but as we will see later on, the recipient of a great deal of tax money was about to be decided.

Using a quality based assessment process would allow Kalynchuk and Brcic to define the parameters by which they could narrow the field of interested engineering companies down to a recommendation. It was a less-than-transparent, subjective process that could—if someone wanted to—be shaped to produce a desired outcome.

On June 10, 2009, Kalynchuk and Brcic brought their recommendation for the program management consultant to an in camera meeting of the sewage committee. Three justifications were given for closing the meeting. The first was that holding the meeting in public might harm the business interests of a third party. The second reason given was Section 90(1) (e) of the BC Community Charter, which gives directors the choice of going in camera if they’re going to discuss acquisition, disposition or expropriation of land or improvements and they decide that disclosure could reasonably be expected to harm the interests of the regional district. The third reason, also from the Community Charter, was that Kalynchuk’s and Brcic’s recommendation could somehow be construed as “negotiations and related discussions respecting the proposed provision of a municipal service that are at their preliminary stages and that, in the view of the directors, could reasonably be expected to harm the interests of the regional district if they were held in public.”

Was the CRD justified in closing the meeting? The recommendation of a management consultant doesn’t appear to have anything to do with “acquisition, disposition or expropriation of land or improvements.” Moreover, how could open discussion of Kalynchuk’s and Brcic’s recommendation of a program management consultant—and how they arrived at that recommendation—be harmful to the interests of the CRD? Only three months beforehand Kalynchuk and Brcic had reported that “the provincial and federal governments require a transparent and competitive process…”

Of the three reasons the CRD gave for closing the meeting, only the “harm to the business interests of a third party” seems to be in play. 

The minutes of the closed June 10 meeting only show that directors voted to “rise and report,” which means they decided to record, in the briefest terms possible, the outcome of the closed meeting. Their report noted that Stantec had been “approved as the program management firm” and that CRD staff had been “authorized to enter into negotiations with Stantec to develop a consulting service agreement…” It’s not a big leap to assume these were the recommendations of Brcic and Kalynchuk, both former Stantec employees.

On July 22, 2009, having negotiated with Stantec, Kalynchuk and Brcic came back to the sewage committee directors with a list of initial tasks that Stantec would undertake for the sum of $3,565,220.

Looking through that list, it’s hard to say why it couldn’t have been used to define the scope of work in the first of a series of competitive bids. The minutes for this meeting show  no indication anybody made this objection. In fact the minutes record little more than that “Staff noted the hourly rates of the selected firm were competitive with the others, and the costs fit in with the planning budget and work plan.” Sewage committee directors approved Stantec’s contract with only Directors Derman, Gaul and Saunders opposed.

Thus Kalynchuk’s and Brcic’s quality based assessment process set up a routine where, periodically, Stantec would estimate the cost of completing or advancing progress on a list of tasks; CRD staff would note that Stantec’s hourly rates “were competitive;” and sewage committee directors would vote to approve a renewed contract with Stantec. But in this routine there was never any way of telling whether the number of hours Stantec was estimating a task would require was “competitive” or outrageous.  

Press reports of that meeting show that Kalynchuk had told sewage committee directors the Stantec contract would “likely be around one percent of the project’s total cost.” At that time, the CRD were saying the project would cost $1.1 billion. At one percent, Stantec’s expected haul over the life of the project would have been $11 million.

Instead, by mid-November 2013 Stantec had already billed the CRD for $11.3 million and the estimated cost for their services over the life of the project had grown to over $43 million. CRD Director Vic Derman, who has been on the sewage committee since its inception, told journalist Rob Shaw at the time, “Maybe I missed something, but I didn’t think it would be that high.”

Shaw also reported that the sewage treatment program’s Project Director Albert Sweetnam told him, “Stantec is not being overpaid. I’ve looked at the rates. The rates are reasonable.”

Shaw, who reported extensively on the sewage treatment issue for years before leaving for the Vancouver Sun, speculated on one possible source of the increase in what Stantec will be paid: “Some of the Stantec advice has led to key decisions on the project’s size and scope. Other advice, such as a report used to recommend the application of sewage sludge to land, has been shot down by local politicians.” In other words, some of Stantec’s work had been wasted.

But an examination of Stantec’s billing of the CRD since 2009, obtained by FOI, shows that the vast majority of the $30 million difference between Kalynchuk’s “one percent” and the current estimate has nothing to do with work that has already been done. The $30 million will be paid for work Stantec has yet to do.

It seems possible that Kalynchuk low-balled the cost of a program management consultant in 2009 to help convince sewage committee directors to avoid an open and competitive bid process. A competitive process would have been more transparent and could have eliminated the uncertainty over whether the number of hours a consultant estimated for future work was reasonable or outrageous. This likely would have saved taxpayers millions of dollars.

Of course, this project has just begun. If Stantec’s “Class C” estimate of costs turns out to be as inaccurate as Kalynchuk’s estimate of how much Stantec would cost taxpayers, the project cost could rise to $3 billion.

David Broadland is the publisher of Focus Magazine.