This whole liquor logistics privatization, which was announced Feb. 21, has produced more questions than answers. Mainly because it was not accompanied by the publication of a business plan or cost/benefit analysis that would justify the sell-off. Also because of the contents of the intriguing internal Exel Logistics memo that came to light in my Business in Vancouver story on May 8, revealing the leading bidder's deep connections with the ruling BC Liberals and its clever strategies to gain the monopoly.
Does a business plan exist? Liquor minister Rich Coleman told NDP critic Shane Simpson in budget estimates that it doesn't, yet. A list provided to me by the Liquor Distribution Branch via Freedom of Information indicates there are several reports that examine the dollars and cents of selling the warehouses and moving the business to a private operators. They don't want me to see the actual reports.
That does not inspire confidence in the process or the people involved. The uncertainty is multiplied for those who work for LDB, who wonder what the future holds under a private operator.
As always, stay tuned to this space for more developments and documents.
On June 4, two days before he secretly tendered his resignation (and 10 days before it went public on this blog), LDB general manager Jay Chambers invited employees to send him questions by email. He said he would make an effort to answer them. His interim replacement, chief financial officer Roger Bissoondatt (right), has carried on the gimmick.
Highlights of Bissoondatt's Sept. 11 email to employees include:
- LDB will become a customer of the private warehouser and distributor, but Bissoondatt writes, "until the agreement is signed, we will not know what these delivery costs will be."
- Eighty-three LDB head office employees are retiring in 2012. Those who are displaced from the warehouse under the new operator can bump retail workers with less than three years of service out of their jobs.
- There remains confusion and skepticism over the March 21-signed memorandum of agreement with the B.C. Government and Service Employees' Union that is supposed to grant warehouse workers post-privatization job security and buyouts or early retirement.
- Bissoondatt does not fully answer a question about the rumoured $200 million replacement cost of the Vancouver LDB warehouse being a reason for privatization. Instead, he sticks to the government line about improving the current distribution model and selling the warehouse to realize a financial gain for the province.
- Question 18 wonders "how can the general public be assured that the system of awarding the best company was done honest and fairly?" Bissoondatt parrots more government lines about the process being managed by "professional public servants" and that a fairness monitor, George Macauley, was hired. (NDP critic Shane Simpson found that Macauley's power to ensure and enforce fairness is somewhere between slim and none.)
- And, we find out that Viti Wine and Lager general manager Ralf Joneikies did get his 10 cases of Rogue Voodoo Doughnut Bacon Maple Ale order filled on May 22, despite his July 20 anti-LDB op-ed in the Vancouver Sun. Bissoondatt wrote that he was "troubled" when he read the Joneikies article: "We considered responding to him but decided that a response would draw attention to his unfounded allegations." (Huh? If there was an error, why not seek to have it corrected?)
Below is the Sept. 11 company-wide email in its entirety:
From: Dahlke, Cindy LDB:EX
Sent: Tuesday, September 11, 2012 3:49 PM
To: LDB D All Employees
Subject: AskRoger - LDB's Wholesale and Distribution Services
Message from Roger:
Over the past month, a number of employees have sent questions to my AskRoger@bcldb.com email address regarding the privatization of the LDB’s Wholesale and Distribution services. Thank you to those who have taken the time to write me.
Attached are the questions I have received and my responses. Some questions have been slightly abbreviated because of their length. Please do not hesitate to send any other questions you may have to AskRoger@bcldb.com.
With regard to the RFP process, the government evaluation team is currently working with the four shortlisted bidders to provide them with information they have requested so that they can refine their proposals. It is expected that the bidders will submit refined proposals in early October and the evaluation team will recommend the successful bidder by the end of October. The four shortlisted bidders, in alphabetical order, as announced in my July 20, 2012 email to you, are: ContainerWorld Forwarding Services Inc.; Exel Canada Ltd.; Keuhne + Nagel Ltd. (sic); and Metro Supply Chain Group Inc.
Acting General Manager
Questions and Answers.
Q1: What guarantee is there that the stores will not be privatized shortly after?
R1: Government has said on numerous occasions there are no plans to privatise government-operated liquor stores.
Q2: Dear Jay/Roger,
On Thursday May 31st, Minister Rich Coleman was the guest on “The Voice of BC” – a local talk show hosted by Vaughn Palmer. At about the 36 minute mark, Matthew Phillips of Phillips Brewery asked this question:
We’re concerned about the Liquor Distribution Branch distribution costs and service levels and so we’re wondering if he [Rich Coleman] can commit that the new privatized scheme will have the same price and the same service levels that we’ve been accustomed to?
In response, Minister Coleman offered the following:
But really what it all comes down to is: Is there a way to better distribute and warehouse liquor to the advantage of us and find savings and efficiencies to get service up? We actually do get a number of complaints about service from our private sector partners whether it be liquor stores, pubs and those things about how we are servicing them in our present distribution systems. So, to find out whether there is a better way of doing it, I don’t think anybody should be afraid of that.
As the Foreman of the Parts Department, which oversees the order picking for the Wholesale Customer Centre, it is my job to ensure that our private sector customers get the best possible customer service in terms of timeliness, productivity, accuracy and general load quality. If there are complaints in this regard, it is my responsibility to follow-up on them and then to initiate corrective measures that will lead to improvements. So, my question is:
Is there anything I can do, within the context of my current responsibilities, to address the complaints that Minister Coleman has received from our private sector partners?
Thank you for giving me the opportunity to ask my question.
R2: I am confident that we provide our customers with good service and work hard to address any concerns they may have. As Minister Coleman and Government have noted, the purpose of the RFP process is to determine if a privately operated liquor distribution model will be an improvement over the current one.
Q3: I was wondering if this RFP is considered to be a done deal? There are protests going on about this process, the public is beginning to question why this is being done, is there any chance the government is going to reconsider? Or, is it already too late?
R3: The decision of whether to proceed with privatizing the warehouse and distribution services rests with Government. Minister Coleman and Minister MacDiarmid have said on a number of occasions that in order to proceed there must be a benefit for taxpayers and the liquor industry. The RFP process will allow government to determine if there is a benefit to proceeding with privatization.
Q4: Thanks for the update to the RFP. I have a question though. After March 2013, how will I know I will still have a job to come to every day? I imagine that there is a lot of controversy around who will lose their positions, and probably lots of rumours flying around but nobody seems to have a definitive answer to this question. Perhaps you could let us know where our positions are headed (like mine [IS Security] team …).
R4: Until a new distribution/wholesale model has been approved and the related system requirements are determined, the LDB will not know the extent to which LDB positions could be affected. If an employee is affected, then Article 36.2 of the Collective Agreement will apply. This article outlines the employee options with respect to placement should positions be affected. I appreciate that this uncertainty is stressful and I will ensure that employees are provided with timely information as it becomes available.
Q5: …In the meantime, I refer you to the Sun article by Ralf Joneikies on July 20, 2012 (attached) where he fires a number of criticisms at the LDB including WCC errors, reprisals for speaking up about service, order cancellations, Spec product appropriations and last but not least (if you can believe it) the Stockholm Syndrome. In his article he alleges that we cancelled an order for 10 cases of Rogue’s Voodoo Bacon Maple beer and insisted that it be released to another customer. Well, I looked into this and found that Ralf Joneikies’ order for 10 cases of Rogue Voodoo Bacon Male Ale – SKU # 206730 was filled on May 22nd. So, my second question is:
Are we (meaning the LDB) going to craft a response to Mr. Joneikies in an effort to reassure him that we do indeed take customer service seriously and that we are dedicated public servants acting in good faith at all times – this includes the men and women who work in the Wholesale Customer Service Centre and the many others, like me, who support them?
Again, thanks for allowing me to ask my questions!
R5: Like you, I was also troubled when I read Mr. Joneikies’ letter in the Vancouver Sun and I wholeheartedly agree with your description of the people who work in our organization.
We considered responding to him but decided that a response would draw attention to his unfounded allegations. During this time of significant public and media attention on the distribution privatization issue, we can expect many people to express a range of opinions. Rather than get drawn up in the debate, I believe that our best approach is to remain calm and continue to work hard to serve our customers.
Q6: What is the Provincial Government of BC’s issues with the present LDB operations that have driven them to put the privatization of the Distribution Centres out for bid?
R6: Government has stated on a number of occasions that they are interested in determining if a private sector distribution model will be an improvement over the current system and will benefit taxpayers and the liquor industry. Government has also stated that privatizing distribution will free up the LDB’s warehouse real estate that could be sold to help balance the budget.
Q7: How is selling and privatizing the warehouse and distribution of the LDB going to directly and indirectly affect the Liquor Stores and its employees?
R7: The RFP is not related to our government-operated liquor stores, however if a private service provider is selected we can anticipate there will be a number of implications for our retail operations. For example, BC Liquor Stores will become a customer of the new service provider and the full impact of this will not be known until a formal agreement is implemented.
There is a possibility that BC Liquor Store employees could be affected depending on the decisions of displaced Distribution Center employees, some of which may elect to remain within the LDB. According to the Collective Agreement, only regular employees with less than three years of service seniority can be displaced or bumped. Currently, the majority BC Liquor Stores regular employees have seniority levels greater than this.
Q8: Given the time frame for the completion of the RFP, the closing date could possibly put 7 full time regulars in #079 Columbia Place in jeopardy of being bumped to the auxiliary list from the Kamloops or Vancouver Distribution Centre (KDC or VDC) employees;
a) How does the LDB promote privatization as a positive move when we will have present full-time employees in jeopardy of losing their homes and vehicles due to a drastic cut in hours and now being in Auxiliary positions and getting part time hours?
b) How would a present fulltime Regular employee be affected by being bumped out of a fulltime position into an on call Auxiliary position? I.e. Loss of benefits, wage rate, etc.
c) What is the plan from Store Operations for having the stores affected by a large number of bumps transition through training and successfully operate by getting as many as 7 people from the warehouse in Full time Regular positions with no customer service skills, product knowledge, till training, shelf stocking, beer and liquor invoice receiving, picking, staging, or the shipping of licensees from a liquor store perspective?
R8: (a) The LDB is not promoting privatization. Government has made the decision to examine the distribution model and determine if it can be better operated by the private sector.
(b) A regular store employee who is displaced or bumped and chooses to move to the auxiliary recall list is covered under Article 13.3 (4) of the Collective Agreement. The employee would maintain their regular status (benefits) unless they have not worked 1,200 hours within the previous 26 pay periods. The employee’s wage rate and benefits would not be impacted. However, the employee would be considered to have auxiliary status for the purpose of vacation scheduling (15.3) and layoff notice (15.4).
(c) According to the Collective Agreement, only regular employees with less than three years of service seniority can be displaced or bumped. Currently, the majority BC Liquor Stores regular employees have seniority levels that make it unlikely that any one store will have a significant number of displaced employees.
Prior to being offered a BC Liquor Store position, a displaced LDB employee would have to be deemed suitable and qualified. These employees will receive appropriate training similar to that provided to all new LDB employees and the ongoing training regular employees receive.
Q9: What is the projected profit in dollars for the LDB in what used to be called the Distribution Channel or Warehouse contribution for the fiscal year 2013 encompassing a full year of Private Distribution?
a. What are the five year numbers for projected profits?
b. What are the ten year numbers for projected profits?
R9: The LDB’s warehousing and distribution system is a cost center for the LDB, not a profit center. One of the objectives of the RFP process is to determine if a private sector service provider can operate the system more efficiently.
Q10: What will the process be for the distribution of alcohol to stores?
a. Who will be buying the product from the Wineries, Distilleries, and Breweries?
b. Who will be receiving the initial mark-up dollars before selling it to wholesale channels?
c. What will the discount % be for the BC Liquor Store Chain from the supplier?
d. What will the discount be for the wholesale sector (LRS, RAS, etc...)?
e. What will the profit margin be for BC Liquor Stores?
(a) It is anticipated that suppliers would own the inventory that would be stored in the private sector service provider’s warehouse(s). The process for ordering the product into the warehouse(s) would depend on the agreement between government and the service provider.
(b) It is anticipated that the LDB would purchase the liquor at the time it is shipped and sell it to the wholesale customers. The LDB’s mark-up would be collected when the LDB sells the liquor.
(c) , (d), (e) At this time, consideration has not been given as to how pricing policies may be impacted by the new distribution model.
Q11: Will all customers be on a level playing field for product availability? Specifically SIPS products and cold beer being available for all sellers of beverage alcohol in 1BC?
R11: The RFP process relates to warehouse and distribution services, not services provided by government liquor stores. At this time, there are no plans to change services offered by government stores.
Q12: How will the stores be affected in terms of the numbers of deliveries we now get being reduced to maximize profits by the distributing company trying to deliver more products less often? Example – a few years back Commercial Logistics/BDL cut the number of Beer deliveries from three to two deliveries per week in larger stores and from two to one in some others as it was more cost effective for them.
R12: One of the key components of the RFP for the privatization of the LDB’s warehousing and distribution services is product delivery. The RFP evaluation team will be looking closely at how each of the four shortlisted companies plan to deliver products to our network of 195 stores across British Columbia.
Q 13: How will delivery costs affect BC Liquor Stores?
R13: If a contract is signed with a private service provider, BC Liquor Stores will become a customer of the service provider, along with private liquor stores. Until an agreement is signed, we will not know what these delivery costs will be.
Q14: How will delivery costs affect the present Wholesale Channel Customers given they have been subsidized for the past few years and will now have to pay the full shot?
R14: Until an agreement is finalized, we will not know what the delivery costs will be. As a result of the new model, there may also be other changes. We will not know the total cost structure of the new model until all of the pieces are in place.
Q15: How will delivery costs vary dependant on where you are located in the Province of BC under the new distribution system?
R15: The Wholesale and Distribution Services RFP requires all potential service providers to base their proposals on a “postage stamp” pricing model (same price for product delivery anywhere in BC).
Q16: What is Store Operations plan in the event that a Wholesale Customer who is presently getting deliveries from the Wholesale Centre chooses not to order their product from the new distributors (due to increased delivery costs, concerns of customer service drop off, etc...) and decides on going back to getting their product from BC Liquor Stores, thus putting increased pressure on the stores? (less staff on the floor to provide customer service to Counter Customer thus affecting sales and lost warehouse space due to more custom orders)
What contingency plans are there to combat the above scenario as far as labour control, picking charges, etc...?
R16: An important consideration in choosing the successful bidder for the RFP will be the level of service they will provide to wholesale customers. I am confident that an agreement signed with the successful bidder will ensure that the LDB’s direct delivery wholesale customers will receive a high level of service and will not have an interest in accessing products from our stores.
Q17: If costs are going to increase due to delivery charges from the Private Distributor, then how will the shelf prices be affected one month later when the HST is gone on April 1st 2013 and we go back to the old system of PST/GST?
R17: Delivery charges will not be known until a final agreement is signed with a private service provider. When the HST was introduced in July 2010 and the provincial portion of liquor sales tax was reduced from 10 per cent to 7 per cent, LDB liquor mark-ups were increased to generally keep shelf prices constant. The PST rate of 10 per cent on liquor will be reinstated with the re-implementation of the PST and liquor mark-ups will be reduced to their pre-HST levels to generally keep shelf prices constant.
Q18: With the bad press that was received by Excel Transport and leaked documents how can the general public be assured that the system of awarding the best company was done honest and fairly?
R18: The process to select a service provider is being managed by professional public servants that have been involved in many government procurement projects and will ensure fairness and integrity in the process. The Government has also hired a Victoria lawyer, economist and consultant George Macauley to augment the process and serve as a Fairness Monitor. In this role, Macauley is responsible for the following:
a) Review the procurement documentation so as to understand the RFP process;
b) Monitor the procurement process for adherence to the terms of the RFP, including participating at the Proponents’ meeting, site visits, oversight during evaluation of submissions and subsequent Proposal refinement process as well as final selection of the Selected Company; and
c) Prepare a fairness summary based on observations made during delivery of the procurement process. This report will be available to the public.
Q19: What are the anticipated changes to the BC Liquor stores ordering programs and procedures and timeline to transition into a new system supported by the new distributor?
R19: The private sector service provider would be expected to have a robust ordering system to facilitate orders from LDB stores and private stores. The details of the ordering system and the timing of implementation will be based on the agreement that government and the service provider would negotiate.
Q20: How can the employees be positive in their future job prospects when the Captain of the ship and other long term employees in major areas of Head Office are leaving in large numbers to other jobs outside of the LDB?
Q21: Why are so many employees leaving Head Office?
R20/21: The number of employees throughout the Branch who have left the LDB so far in 2012, for reasons other than retirement, is consistent with previous years – about one per cent. However, a large number of employees are reaching retirement in 2012 – 83 to this point.
The LDB continues to have a strong core of experienced employees and will fill vacancies as they arise with competent replacements.
With respect to Jay Chambers, he clearly stated that after 15 years as the LDB General Manager, he felt it was time for a change.
Q22: Why are most recent Head Office postings only temporary positions?
R22: This is nothing new at Head Office. From June to September, it is peak vacation time at LDB Head Office. This is the time when many long term Head Office employees take extended periods of time off and these key operational positions are back filled by posting them as temporary opportunities. Backfilling these roles provides employees with an opportunity to expand their knowledge and skills. When regular, full-time opportunities become available, they are posted as a vacancy not a temporary position.
Q23: How are jobs that are coming available in the next year being affected by the possibility of VDC/KDC employees that don’t choose to go to the new employer?
R23: A Memorandum of Agreement (MOA) has been signed between the government and union regarding the privatization of the LDB’s Distribution and Wholesale operations. Auxiliary employees will be converted into vacant positions where possible.
Vacant positions (e.g. supervisory positions) will continue to be posted. However, these positions will be reviewed to determine if a potentially affected employee might be eligible for the position.
Q24: It was once brought into the public spotlight that one of the reasons privatization has surfaced is the VDC Warehouse is in need of replacement and it would cost in the neighbourhood of $200 million to replace it in a new Lower Mainland or Fraser Valley location, can you comment on this?
R24: Government has stated a number of times that the interest in considering privatization is to determine if the current distribution model can be improved and to realize a financial gain from the sale of the LDB’s warehouse real estate.
Q25: What is the estimated selling price for the Distribution Centre/Service and how does it compare to the annual revenue now?
R25: The intent of the RFP for Warehousing and Distribution Services is to determine if there is a private sector company that can assume the warehousing and distribution services in a manner that meets the needs of taxpayers and the liquor industry. Government will not receive a cash payment from the service provider.
With respect to the VDC and KDC property, government intends to sell these through a separate process in the future. The value of those properties will depend on their market value at the time of sale.
Q26: Will buyouts be offered?
R26: Government has signed a Memorandum of Agreement with the BCGEU to address impacted LDB Distribution and Wholesale Center employees. One of the options that will be available to employees, depending on their circumstances is a Voluntary Departure Plan.
As always, stay tuned to this space for more developments and documents.