Thursday, July 12, 2012

#LiquorLeaks examines the issue of influence

The picture became clearer July 12 when the NDP released the results of its Freedom of Information request for records about the privatization of the Liquor Distribution Branch's warehousing and distribution. We now have even more proof -- since my exclusive May 8 story in Business in Vancouver -- that all roads lead to Exel. A summary is in this July 12 BIV story.

There was a pivotal meeting on Aug. 25, 2011 between Exel vice-president and lobbyists Mark Jiles and Rob Madore with then-liquor minister Shirley Bond and Roger Bissoondatt, the chief financial officer of the LDB and the acting-general manager, since Jay Chambers left July 4. 

This pursuit, however, dates back to 2005 when John Les was the liquor minister. 

We now have proof that Exel was trying to influence the writing of the RFP. It is contained in a Sept. 24, 2010 letter from Lyons to Rich Coleman. 

Exel encourages the Government following a proper, timely, and effective procurement process that meets the business needs and objectives of the Government, industry, and consumers. We suggest the criteria for selection emphasize: 
> Actual experience operating alcohol beverage warehousing and distribution networks for entire provinces across an extended period 
> The long-term stability of the company, the financial capability to take on a project' of this size, and the ability to scale its operations as needed> A record of achieving excellent results in unionized environments and in particular a relationship with the BCGEU ' 
> Ability to demonstrate long-term successful operations of a similar size, scope, and complexity as the LOB warehousing and distribution operations 
> A record of successful start-ups including the availability of resources locally, nationally, and internationally to support the implementation 
> A commitment to and record of reducing green house gas emissions and waste 
> IT Infrastructure, systems redundancy and' data management capability including experience Integrating IT systems to government ERP systems and other third party applications 
> Proven record of successfully securing and controlling beverage alcohol products for provincial governments 
> Engineering and design capability 
> Availability to provide services beyond warehousing, and, distribution such as forecasting and demand planning, global freight services, real estate development
Did the attempt to influence Coleman, with whom Exel claimed a close relationship, carry over into the April 30, 2012-published  Distribution of Liquor Project Negotiated Request for Proposals? Compare the above with this excerpt from page 44: 

7.2.1 In Scope Evaluation Criteria 
1. (a) Proponent Capability and Capacity
a) Proponent Profile (Lead and subcontractors if any)
b) Demonstrated experience in large scale warehousing and wholesale distribution of retail products and controlled substances such as the beverage alcohol business
c) Demonstrated experience with transition planning and transitioning services of similar size and magnitude to the In Scope requirements
  1. Demonstrated experience in inventory, demand and delivery management on a scale similar to the requirements described in the NRFP
1. (b) Proponent Corporate and Financial Capacity
  1. Corporate and financial capacity

I exclusively obtained the "Project Last Spike" Exel internal memo, which was authored by Lyons from Oct. 6, 2009. Here is a key section which must now be viewed through the lens of the documents published July 12 by the NDP. Exel, it seemed, wanted to influence the writing of the RFP. But it also hoped to do a private-public partnership with government to avoid an RFP process altogether.

Options to Overcome BarriersThere are three options to overcome the opposition of private bonded warehouses.  
Convince the government to award the contract to Exel without an RFP. 
This avoids the risk of losing an RFP. It may also enable the government to realize savings more quickly as time is not lost in the RFP process. It will require a high degree of industry support. Vocal complaints from unions or industry participants could generate public scrutiny and force the process to RFP. This option may require the purchase of ContainerWorld to be successful.
 Win a competitive bid process. 
This option does not require the purchase of ContainerWorld, and follows standard government procedures. It does carry the risk the Exel might not win the bid. This risk can be mitigated if Exel can influence the writing of the RFP. Exel would push to include criteria such as previous industry experience, appropriate resources, and a solution incorporating the BCGEU. A likely response from the private bonded warehouses may try and limit the scope of the RFP to not include their activities. Failing this, the private bonded warehouses will use their influence to have the RFP written in their favour. 
Purchase ContainerWorld. 
It is by far the largest of the approximately 7 private bonded warehouses. Once ContainerWorld is onside the opposition of the remaining private bonded warehouses would be much less. 
This would enhance the odds that the government does not go to tender or Exel wins a tender. Dennis Christmas (sic) the principal owner of ContainerWorld is a key player in the current BC industry. Treating him fairly and getting him onside will assist bringing the BC government and the industry along. An added benefit of this approach is that ContainerWorld has a brand new 495,000 sq. ft. site that is expandable to 600,000 sq ft. This should meet the needs of this initiative, though Exel requires further analysis to confirm this site is sufficient. Dennis Christmas could be retained as a consultant and public relations specialist. The downside to this option is sharing the economic benefits with ContainerWorld. Though it may be possible to amortize the purchase price across a number of years and build the cost in to the operating model. Another consideration is the complex internal approvals required to purchase ContainerWorld. Further details on this option include:
ContainerWorld's revenues are estimated at $40M. Exel estimates that $20M is
generated from freight forwarding activity, and $20M from distribution activities for BC Wineries and BC Small Brewers. A high level estimated purchase price ContainerWorld's business is $24M assuming a 7.5% margin and paying eight times earnings. This is a dimensional number which needs to be confirmed but supports the premise that an acquisition approach is overall economically viable.
0 The union representing ContainerWorld's employees is the Teamsters. Exel will •be represented by the BCGEU. Upon purchasing ContainerWorld, and consolidating operations the BCGEU would take over the Teamsters members.
This is not a certainy, but the BCGEU membership is almost two times the size of the Teamsters membership, and the BCGEU collective agreement is more lucrative.
0 Deutsche Post DHL holds a 100% stake in Giorgio Gori. Giorgio Gori does not have an ownership stake in ContainerWorld, but has a long standing relationship where it is understood that at some point they would purchase ContainerWorld. Exel could use this avenue to negotiate a reasonable deal with Dennis Christmas.

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