#LiquorLeaks: Curious about George

During the Distribution of Liquor Project -- the fancy name given the process to privatize the warehousing and distribution of B.C.'s profitable Liquor Distribution Branch -- liquor minister Rich Coleman has defended the process by heralding the hiring of a "fairness monitor." Coleman has also called the job "fairness auditor" and "fairness commissioner." More fancy words from the cabinet minister who has bucked all of my requests for interviews since the privatization was announced in the Feb. 21 budget. If the privatization is such a good idea, why does Coleman refuse to sit down with me to answer my questions and defend it?

The fairness monitor is George Macauley, a Victoria lawyer and economist who has extensive experience working on contract with the provincial government. Macauley and Associates has been paid $1.3 million for contracts over the last decade. Macauley's resume indicates that his primary work and specialty is government contracts.

Records requested and obtained by me via Freedom of Information (below) indicate Macauley was among six people invited to bid on March 12 and he was awarded the contract on March 26. Doug Benson, Alistair Duncan, Owen Pawson, Jane Shackell and John Singleton were the unsuccessful bidders. The contract is worth $74,900, which is $100 shy of the $75,000 threshold that triggers a public advertisement, and runs March 27, 2012-March 31, 2013. The contract states Macauley must:

a) Review the procurement documentation so as to understand the negotiated request for proposal process that will be used on the distribution of liquor project;
b) Monitor the procurement process for adherence to the terms of the NRFP, including participating at the proponents meeting, site visits (if any), providing advice related to fairness in the NRFP, oversight during evaluation of submissions and subsequent proposal refinement process as well as final selection of the selected proponent; and
c) prepare a written fairness summary report based on observations made during delivery of the procurement process.
...provide a draft written fairness summary report to the Province on the NRFP process within two weeks of notification to proponents, by the Province, of the identification of the selected proponent. A final written fairness summary document will be provided to the Province at a date to be stipulated by the Province and to take place no later than two weeks prior to the end of the Term of this Agreement. This report will be made publicly available by the Province.
The contractor may be required to provide verbal reports as required by the Province to the executive procurement steering committee, vendors, cabinet, public or media. 

Macauley's bid to the government shows that he had a hand in the oversight of some of the biggest government contracts awarded to private companies during the post-2001 BC Liberal era, such as:

• $572 million, 10-year revenue management contract with EDS Advanced Solutions;
• $324 million, 10-year health benefits operations with Maximus BC;
• $300 million, 10-year workstation services and IT contract with IBM Canada, and 
• $1 billion, 10-year telecommunications services contract with Telus. 

That's almost $2.2 billion of taxpayer-funded contracts!

NDP liquor critic Shane Simpson wrote a complaint to Macauley on June 22, seeking him to intervene and recommend the government postpone the tendering while various issues of integrity are resolved. Here's my story on BIV.com. See Simpson's letter at the bottom of this post.

Macauley politely declined my request for an interview and would not comment on Simpson's letter or provide me his response.

"My previous engagements with the projects you identified were different from the current DLP engagement.  My role then was of an ongoing advisory nature to provide advice and course correction if I identified any fairness issues as the process proceeded. I was not asked to provide a written report or documentation, and such reports and documentation were accordingly not created. In the present project, as you know, I will be preparing and providing a written fairness summary report in addition to providing ongoing advice and course correction on fairness matters."

Macauley was one of many people involved in those processes listed above, which were ultimately decided by cabinet. But the contracts were targets of criticism. The B.C. Government and Service Employees' Union drew attention to how a company related to Maximus was accused of fraud in the United States. The government battled to keep the Maximus contract secret. The government spent more than $125,000 to keep the whole IBM contract secret since 2004, but a B.C. Supreme Court judge ruled in June 2012 that it should be published. The omnibus telecommunications contract for Telus raised the ire of competitors Rogers, Shaw and Bell, who accused the government of breaking interprovincial trade accords and running an unfair procurement process.

And now there is the Distribution of Liquor Project, which is happening without a business plan or formal industry consultation. Frontrunner Exel Logistics, I revealed, considered how it could use its BC Liberal-connected lobbyists and close relationship with Coleman to influence the writing of the RFP and get the 10-year contract -- which it estimated in October 2009 was worth at least $55 million a year.

All that and more in the #LiquorLeaks files.

More to come...

Macauley Fairnessmonitor Mackin

NDP critic complains about integrity of LDB privatization

Exclusive: Tell us, why Brown petered out of PavCo?

The mystery continues over why Peter Brown suddenly resigned from the B.C. Pavilion Corporation board of directors on Feb. 13.


All signs point to the Howe Street wheeler-dealer being frustrated over B.C. Liberal cabinet members overturning the PavCo recommendation for Telus to be the 20-year, $35 million to $40 million naming rights sponsor of B.C. Place Stadium. But the government wants to sweep it under the rug.


Brown's departure didn't become public knowledge until March 9, a week after Premier Christy Clark was a no-show at a Telus news conference where NDP leader Adrian Dix mugged for photos with the Vancouver-based, Liberal-friendly telecommunications giant's boss Darren Entwistle. 


The Liberals promised that some of the costs of the $563 million, taxpayer-funded renovation would be  paid by sponsorship. When they went into damage control mode, Clark, Finance minister Kevin Falcon and PavCo minister Pat Bell laughably said the deal was not in the best interest of taxpayers and claimed the B.C. Place name was "iconic." Such feeble excuses.


I received, via Freedom of Information, a copy of correspondence between Brown and Falcon, including Brown's Feb. 13 letter of immediate resignation from PavCo.


A key paragraph was censored, under section 13 of the FOI act, which broadly covers "advice or recommendations" for a public body. 


The missing section comes after a line that says: "In almost every case, the government dealt with us and third parties professionally, respectfully and in good faith." It appears Brown was setting up a paragraph in which he was going to give the government a piece of his mind. 


Evidently, the Liberal government is embarrassed to show you and me why one of the party's biggest donors and one of the province's best-known businessmen skedaddled from the Crown corporation.


The official explanation from Brown and Podmore after the news broke in March was that Brown wanted to lessen his busy schedule and that PavCo was transitioning from a construction phase to a marketing phase. Podmore has been in no apparent rush to fill Brown's empty spot at the board table. Nor is he in any rush to tell taxpayers the final price tag for the most-expensive stadium renovation in Canadian history.

Brown's letter was an immediate notice of resignation and, based on the tone of the third paragraph, it indicates that Brown had more on his mind than a desire to lessen his schedule or assist PavCo in evolving from construction to marketing functions. Within the documents below, you might also notice how Brown mentioned he was going to visit the High Commissioner in London? That would be a certain Gordon Campbell, the former Premier of B.C. who appointed Brown to the PavCo board. 


Neither Brown nor Podmore responded to my requests for comment. When will the government come clean, and just tell us the truth?


(The B.C. Lions' season opener at B.C. Place on June 29 against the Winnipeg Blue Bombers. The rematch of the 2011 Grey Cup is sponsored by Telus. Could that be the night the consolation prize, the exclusive telecommunications supply deal for Telus, is announced?)
PeterBrownFOI Mackin

Will the Gendarmes guzzle in Green Timbers?

The RCMP wants a liquor licence for its new billion-dollar-plus regional headquarters at 14200 Green Timbers Way in Surrey.

That's the grand edifice being built under a private/public partnership scheme by a giant French concern. Municipalities already under pressure to sign a 20-year deal to continue RCMP service are fearing the bill for Green Timbers. Burnaby, for example, estimates it could be dinged $1.5 million-a-year for the Surrey HQ. (Read my story in The Tyee here and my story from Business in Vancouver here)

This is the same RCMP whose Sgt. Don Ray got into trouble for drinking on the job. And it's the same RCMP whose Cpl. Benjamin "Monty" Robinson got in trouble for drinking off the job. Both are still employed by the force. Robinson was convicted March 23 of obstructing justice and the RCMP's top B.C. cop, Craig Callens, says he's trying his darnedest to fire Robinson. Ray was found to have had "nooners" in the lie detector suite and enjoyed wobbly pops on the job. His discipline included transfer from Alberta to B.C. He may even get to work in Surrey at the new headquarters.

"The intent of the proposed liquor primary license is to provide liquor service only to Commissioned Officers, Non-Commissioned Officers, civilian members, public service employees (RCMP personnel), and their adult guests," the City of Surrey planning and development report says. "The proposed liquor primary license will operate like a private club for RCMP personnel. There will be approximately 2,700 employees at this location."

If the licence is granted as-is, hours would be 11 a.m. to midnight, Sundays through Thursdays, and 11 a.m. to 2 a.m. Fridays and Saturdays, and the maximum permitted capacity would be just shy of 1,200.

The report says E Division already has a liquor primary licence at its officers' mess in the existing headquarters in Vancouver. The nearest off-campus bar in Surrey is Amber Jack's Taphouse, 1.2 kilometres away at 9850 King George Blvd.

"It should be noted that the person capacity requested on the Liquor Control and Licensing Branch application is 1,198 people, and that the seating capacity proposed is 561 seats. As the building is currently under construction, the total person capacity of 1,198 people is subject to final approval of the floor plans," says the report.

An unidentified area resident called Surrey city hall to express concern "about recent media publications of allegations of officers driving drunk, causing crashes and injuring civilians. This caller was concerned about providing a liquor establishment for the specific use of officers."

The report says RCMP mess establishments are insured and those who've had one-too-many can be supplied taxi chits.

Surrey city council decided June 25 not to hold a public hearing. Mayor Dianne Watts said she is not opposed to liquor being served at special occasions, such as formal regimental dinners, but not on a daily basis. So now the matter is referred to the Liquor Control and Licensing Branch, whose general manager is Karen Ayers. Her boss is liquor minister Rich Coleman, who just so happens to be an ex-RCMP officer. He was profiled in Vancouver Magazine in 2009, which included photos of Coleman in RCMP red serge and under a stetson.

What do you think? Should the City of Surrey allow the RCMP to have what would essentially be a sanctioned beer hall? Should the long arm of the law be allowed to bend an elbow at the workplace? You can let Ayers and Coleman know your thoughts.

For the time being, share your comments below.

RCMP Green Timbers liquor licence application

#LiquorLeaks reveals the "Ask Jay" memo

Ten days before he announced his resignation, British Columbia Liquor Distribution Branch general manager Jay Chambers told employees in a memo that he would guide them through the coming months of uncertainty while private companies jockey to take over the taxpayer-owned company's warehousing and distribution.

Chambers even launched an email address to which curious employees could send him questions about the privatization.

Sources have told me post-privatization retirement was on Chambers's mind. (Chambers has not responded to several of my interview requests.) Now he is instead counting the days until his July 6 departure from LDB to start a new job as president of the Motor Vehicle Sales Authority of B.C., a B.C. Liberal-friendly, industry self-regulator.

The full memo is below. (The italicized emphasis is mine.)

Two items of note:

• The list of key dates at the end of the memo shows the negotiated request for proposals' release date as March 30. It was actually published April 30. 
• The body of Chambers's memo says that three companies would be shortlisted by July 20. In the timeline, it says "up to three." The NRFP documents says "up to the top three." On April 30, liquor minister Rich Coleman told reporters at the Legislature that the shortlist could be as short as one company. On May 8, I revealed in Business in Vancouver that one company, Exel Logistics, may have an advantage over the rest because of its intriguing connections to Coleman and the ruling B.C. Liberals.

Without further ado...

June 4, 2012  

Good afternoon,

As you know, the Provincial Government announced in its Budget speech that it would privatize the warehousing and distribution of beverage alcohol in British Columbia.  

Since this announcement, there has been extensive and ongoing media coverage about the government’s privatization plans. I appreciate that you will have many questions about how this decision may impact you and your colleagues.

We have a proud history of serving British Columbians for over 90 years and I often have opportunities to share stories about the long term dedication and commitment of LDB employees.  I am aware that uncertainty is stressful, so in the coming months, I will provide you with regular information updates about these privatization plans. 

Below you will find the timeline of the Request for Proposal (RFP) process. Some of these milestones have already passed. The next significant date is June 29 which is the RFP submission deadline. 

Currently, there are eight parties that have expressed an interest in submitting proposals for this  RFP — Centric Retail Logistics Inc., ContainerWorld Forwarding Services Inc., Dimex Distribution Corp., Exel Canada Ltd., GL Distribution, Green Light Distribution Services Inc., Kuehne + Nagel Ltd. and Schenker of Canada. The three shortlisted parties will be announced on or about July 20. 

It is not known how many of these interested parties will submit a formal proposal by the deadline. Once the RFP submissions are received, they will be reviewed by the RFP team and narrowed to a list of up to three qualified proponents by late July.  

I am sure you will have many questions as we move through this process. During this challenging time, I would like to invite you to send your questions to me at askjay@bcldb.com. These questions and their answers will be shared with all LDB employees on a regular basis.

Jay  

Key Dates  Request for Proposal (RFP) Process

February 21   Provincial government announces distribution privatization plans

February 27   First meeting of RFP team

March 21        BCGEU signs Memorandum of Agreement with the government for post-privatization job security 

March 27        Victoria lawyer, economist and consultant George Macauley is appointed "Fairness Monitor" to oversee the procurement and evaluation process  

March 30        RFP is issued and posted on BC Bid website (http://www.bcbid.gov.bc.ca/open.dll/showDisplayDocument?sessionID=27492391&disID=22111058&docType=Tender&dis_version_nos=3&doc_search_by=Tend&docTypeQual=TN) 

May 9               Industry information session 

May 10             LDB’s RFP information session and warehouse tour of Vancouver Distribution Centre

June 29           Deadline for RFP submissions 

July 20            The provincial government announces RFP shortlist (up to three potential candidates) 

October 16     Announcement of successful proponent 

March 1/13     Agreement negotiated and signed with successful Proponent by March 1, 2013.

P.S.: As usual, I remind kind and loyal readers that I gladly accept envelopes containing credible documents addressed to me at the following addresses:

Business in Vancouver

102 4th Ave. E., Vancouver, B.C. V5T 1G2 

The Tyee
PO Box 88484, Vancouver, B.C. V6A 4A7

Booze Barn Boss Bolts!

Amid the most controversial privatization in British Columbia since BC Rail was sold to CN Rail in 2003, Jay Chambers, the $200,000-a-year general manager of the Liquor Distribution Branch, dropped a bombshell on June 14 by announcing his resignation.

Here is the memo to staff, obtained by #LiquorLeaks:

"I am writing to advise you of my decision to resign from the Liquor Distribution Branch effective July 6, 2012.

"It is with very mixed emotions that I have made this decision. Words cannot properly describe just how much I have enjoyed being the General Manager of the LDB. However, I have been in this job for over 15 years and I feel that it is time for a change, both for me and the LDB.

"I have accepted an offer to be the President of the Motor Vehicle Sales Authority of BC. In this role I will continue to have the opportunity to work with government, stakeholder associations and consumers. These are the areas I have learned so much about during my time at the LDB and I look forward to being involved in them at the VSA.

"Upon my departure, Roger Bissoondatt, our Chief Financial Officer, will be acting as the General Manager of the LDB until the process of finding a permanent replacement has been completed.

"On a personal note, what I will miss most about working at the LDB is you, the great employees. It has been a pleasure and privilege to work with you. The LDB was a very well-run business when I joined the company and I am very proud to say that, because of your efforts, it continues to be a very well-run business. This is a reflection of the quality of staff that work at the LDB – no individual or single department has been responsible for your success – it is a team effort."

Jay

A source told me there was an employee breakfast at the LDB headquarters in Vancouver where Chambers was serving flapjacks with a smile to workers on the morning of June 14. Workers were flabbergasted when, about an hour later, they received the resignation memo from Chambers.

There you have it. The general manager of the province's liquor retail authority isn't sticking around to complete the taxpayer-owned company's biggest strategic move in its history. He is instead going to oversee the retail of automobiles and trucks. From the drinking industry to the driving industry, in a legal fashion.

Driving away

The Motor Vehicle Sales Authority was established in 2004 as a non-profit, industry self-regulator during Premier Gordon Campbell's first term. MVSA regulates and licences 1,600 dealers and 7,000 salespeople and now reports to Justice Minister Shirley Bond. Former Nanaimo mayor Graeme Roberts is the chairman of an 11-member board. Directors include Langley lawyer and onetime Liberal nominee Rebecca Darnell and Richmond chiropractor Dr. Don Nixdorf, also a Liberal donor. Darnell, according to the Elections B.C. database, donated $14,475 to the BC Liberals since 2005. Nixdorf donated $1,170 since 2006. The most-prominent director is the province's biggest car dealer, Moray Keith of Dueck GM.

Keith is also chairman of the new B.C. Sport Agency, director of B.C. Lottery Corporation, co-founder of the B.C. Lions Waterboys and chairman the 2011 Grey Cup Festival. His Chiefs Development Corporation built the Langley Events Centre. One of the tenants is liquor minister Rich Coleman's constituency office.

Keith donated $95,000 to the BC Liberals via Dueck, $3,825 through the B.C. Automobile Dealers Association and New Car Dealers Association of B.C. The latter entity is a client of lobbyist Mark Jiles, who is also a lobbyist for Exel Logistics, the German-owned, leading bidder for the LDB logistics contract. Exel boasted in an internal memo that it had a close relationship with Coleman and pondered influencing the writing of the request for proposals.

It's a small province, after all.

Doug Longhurst, MVSA's Director of Finance and Operations and Director of Learning and Communications, told me previous president Ken Smith announced his retirement last fall “as his contract required six months notice” after serving eight-plus years.

“The recruiting and advertising was handled by (corporate headhunter) Pinton Forrest Madden," Longhurst said. "The process was directed by a three-member committee of the board beginning in the fall. The process included the normal process of development of the position description for the posting, a long list, a short list and final selection. The position was on the PFM site for two months (plus or minus).”



Coleman did not respond to yet another one of my interview requests. (Yes, "Mr. Coleman Country," I'm like a broken record.) Neither did Chambers reply to repeated requests.

In a statement provided by Coleman's office, the liquor minister claimed the Chambers shuffle is unrelated to the LDB privatization and his departure won't affect the process. NDP critic Shane Simpson is, understandably, in disbelief. Chambers is the key bureaucrat on the file, heading a committee of LDB executives charged with sifting through the bids and picking the best one.

Bids are due June 29 and the shortlist of one to three companies is expected July 20. The winner is expected by October and the contract to be executed by March 2013 -- right before the May 2013 provincial election.

In the summer of 2006, then-liquor minister John Les was pondering a corporate shakeup, including hiring a new GM, at LDB. That never came to fruition. My sources tell me Chambers was planning on retiring from LDB after the logistics privatization was complete.

You can hear his voice in the audio below recorded May 9, 2012 at an industry information session at the LDB Vancouver headquarters about the privatization.

Boost your volume. It's especially entertaining at the 3:30 mark after the first of several pointed questions by Spirits Canada executive vice-president C.J. Helie, who opposes the set-up of an Alberta-style, private monopoly to store and move booze in B.C.

#LiquorLeaks and the Chambers of Secrets

Thanks to #LiquorLeaks, you know more about the ambitious plan by Exel Logistics to privatize the B.C. Liquor Distribution Branch's warehousing and distribution than the government is willing to tell you about why it is in such a rush to sell a key part of a profitable public asset.

In case this is your first time here, Exel is the world's largest third-party logistics company and an arm of German giant Deutsche Post DHL, one of the biggest corporations in the world and a Formula 1 auto racing sponsor. Exel gained the Alberta liquor warehousing and distribution monopoly in 1994. Expansion to B.C. is part of a strategy to gain dominance in liquor logistics throughout Canada and the U.S.

Back in 2005, Exel hired BC Liberal insiders Mark Jiles and Patrick Kinsella to pressure the government to let it take over the province's liquor warehousing and distribution. In a 2009 internal memo (called Project Last Spike), Exel pondered using its close relationship with liquor minister Rich Coleman to influence the writing of the request for proposals. Read the basics here in Business in Vancouver and here in The Tyee. 

Since Feb. 23 -- two days after the privatization was announced by Finance Minister Kevin Falcon in the latest provincial budget -- I have diligently sought any and all of the government's business cases and cost-benefit analyses justifying the privatization. I have requested interviews with Coleman and his predecessors Shirley Bond and John Les. Les was in charge of the liquor file from 2005 to 2008. He was not only a target of heavy lobbying by Jiles, but I know for a fact that he also offered Jiles confidential advice on several occasions.   

My repeated interview requests have been denied. My Freedom of Information requests have been an adventure, to say the least. Join me as I recount the roller-coaster journey that is far from over. 

My Feb. 23  request to LDB for the business cases and cost-benefit analyses became a hot potato for LDB, which transferred the matter to Victoria for the Justice and Attorney General Ministry to handle, according to this April 2 reply from LDB.


My simultaneous attempt to access the full benchmarking study that is mentioned on page 18 of the latest LDB service plan was kiboshed entirely; LDB cited section 12, claiming it's a cabinet document in this April 12 FOI denial and deferral letter.

Jay Chambers (right) starstruck by Arnold Schwarzenegger.

In the meantime, I also sought a copy of LDB general manager Jay Chambers's agenda and diary. Lo and behold, on March 1 he convened a meeting for 90 minutes to discuss my Feb. 23 request, according to this April 27 FOI release. This wasn't a chit-chat in the corridor over coffee or watercooler small-talk. Chambers spent a whole hour-and-a-half conferring on the vat of information to keep inside and what drips, if any, might be allowed to trickle out. Chambers is the top executive of a corporation that grosses $2.6 billion a year, so his time is supposed to be valuable. 

My curiosity was piqued, so I sought the notes from that meeting. And I finally got them on June 5. Although the records are undated and unsigned, it appears to be a list of reports dating back to 2001. The titles and topics of the reports listed evidently fall under the umbrella of a "business case" or "cost-benefit analysis." 

There were several reports commissioned in the 2001 to 2004 period, the first three years of the BC Liberal party's mandate when it controlled the Legislature under Premier Gordon Campbell. Then the trail went dead. The privatization concept was resurrected in 2011, shortly after Christy Clark became Liberal leader and premier. She took control of the party thanks to Kinsella, who was registered as a lobbyist for Exel until March 30 -- exactly a month before the negotiated request for proposals was published. 

The Alliance of Beverage Licensees and Craft Brewers Guild have gone public with their opposition to the privatization. Same with Spirits Canada, the trade association for Canadian distillers. Their theme is the same. The industry has not and will not be consulted. Costs will increase, and that will mean higher prices for consumers. There is no business plan. 


At least, there is no business plan that the BC Liberal government wants to show you or me. The government's response via FOI was a rather underwhelming pair of heavily censored December 2011 and January 2012 reports to cabinet. The only information visible is copied from publicly available LDB annual reports and service plans. However, one chart looks eerily similar to a diagram included in the Last Spike memo. 

In a budget estimates committee hearing on May 29, NDP critic Shane Simpson asked Coleman this:

"Is there any form of business case that was developed by the LDB or through government which motivated the decision to go out and not explore the issue, but advance an RFP to actually make the change? Was there such a business case? Does it exist? If so, why is the government not prepared to make it available?"

Replied Coleman: 

"First of all, it wouldn't have been developed by the LDB. This came through the budget process and the budget speech. Then after the budget speech and the process, they said: "We're going to go out and look at an RFP for privatization." The direction is then passed through to the ministry or minister who's responsible…"The business case is actually a bit reversed on some of this stuff when you do it. If the RFP comes back with savings for the consumer, has more efficiency for the government and if it save us money and actually provides some money to us for the fiscal plan, then that is the business case. Until we actually get the bids, we won't know what the total case is."

So, Mr. Chambers and Mr. Coleman, what's the truth? Is there really no business plan or cost-benefit analysis? Was the list of reports that was disclosed to me bogus? Or are you hiding inconvenient truths from the public? 

While I press the LDB FOI office to respect the Freedom of Information and Protection of Privacy Act, especially Section 6 (Duty to Assist "openly, accurately and completely"), I await a reasonable response from the Justice and Attorney General Ministry. I am seeking, at the earliest convenience, a two-hour, supervised viewing of the records in the historical list compiled from the pivotal March 2 meeting hosted by Chambers. 


That is, if the records exist at all. 


When an arm of the government is for sale in a process of questionable integrity, the government owes it to citizens to be transparent. Especially when it's a government that should have learned its lesson from the bungled and corrupt BC Rail sale of 2003.




P.S.: I also remind all readers out there that I gladly accept envelopes containing credible documents (hint, hint) addressed to me at the following addresses: 

Business in Vancouver

102 4th Ave. E. 

Vancouver, B.C. V5T 1G2

The Tyee
PO Box 88484
Vancouver, B.C. V6A 4A7

June 5 FOI records from LDB

#LiquorLeaks reveals Exel's ContainerWorld strategy

In the May 29 edition of Business in Vancouver, I examine the potential symbiotic relationship between Exel Logistics and ContainerWorld, the largest liquor "pre-distribution" warehouse under contract to the B.C. Liquor Distribution Branch. Read it here. The government's privatization of LDB's warehousing and distribution will phase out the "pre-distribution" program, meaning ContainerWorld may be in trouble.

Or is it?

ContainerWorld hired a lobbyist to oppose any changes to the distribution model. But now it is bidding for the contract. Founder Dennis Chrismas (below) and lobbyist Mike Bailey even went to meet liquor minister Rich Coleman on March 2!

ContainerWorld also has an intriguing business relationship with an arm of the Deutsche Post DHL empire, Giorgio Gori of Italy. Gori is a sister company of Exel. In the Oct. 6, 2009 "Project Last Spike" internal memo, Exel's vice-president Scott Lyons considers what to do about ContainerWorld, which is also connected to the B.C. Liberal Party that is rushing to privatize LDB logistics before the May 14, 2013 election. Exel wants to merge the B.C. LDB warehousing and distribution with Connect Logistics, the monopoly it owns and enjoys in Alberta.

Among the many questions to ponder about this controversial government sell-off: Are ContainerWorld and Exel foes? Or might they really be friends? Read more below, from "Project Last Spike."

Barriers to this Project
- This initiative will mean the services of private bonded warehouses will not be required. As a result, this group will oppose this initiative and they will likely lobby industry and government against any changes. Private bonded warehouses will argue that jobs will be lost, and the government is driving them out of business. They will also contend that costs will be higher because of the BCGEU's higher wages and benefits, and if there are any savings the government will keep them for itself. Lastly, they will make a case for improved service by expanding their participation in the industry

Options to Overcome Barriers
There 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:
0 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 certainty, 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.

Richmond East Liberal MLA "Linda (Reid) pictured with Dennis Chrismas (left) while touring a local Richmond East business" 01/06/2010

Check out ContainerWorld's $36,261 donations since 2007 to the B.C. Liberals (including $500 to Rich Coleman's 2009 re-election campaign) via the Elections BC website. Chrismas gave an additional $1,300 under his own name in 2007 and 2010.

Compare that to the $85,704 donated to the Liberals by Gordon Campbell and Christy Clark's friend and (until March 30) Exel lobbyist Patrick Kinsella, and $57,500.50 donated by his right-hand man, Exel lobbyist Mark Jiles. Exel vice-president Scott Lyons donated $433.08 to the NDP before the 2009 election and $3,500 in 2011 to the Liberals, according to his disclosure.

ContainerWorld's Richmond warehouse on Port Metro Vancouver's Fraserport logistics campus.

#LiquorLeaks reveals Exel Pursuit Plan

In April 2008, executives of Exel Logistics, DHL Express, DHL Global Forwarding and since-sold ETS huddled for a corporate strategy workshop and decided that they would "leverage the capabilities" of Deutsche Post DHL companies. One of the strategies to achieve that goal was to import beverage alcohol goods into Canada, according to the Oct. 6, 2009, "Project Last Spike" internal memo:

Expanding the LDB mandate to offer importing and consolidation services for products destined to other provinces in Canada is a major step in executing this strategy. It combines the service offerings of DHL Global Forwarding, Exel and ETS.

The Last Spike memo, written by Exel vice-president Scott Lyons, includes two key pages on the Pursuit Plan and Owners. It is, essentially, a shopping list of things to do and a timeline. There are 11 references to "Rich Coleman" and "Rich," who was then and is now the BC Liberals' minister responsible for liquor. Key members of the Pursuit Team include Lyons and Mark Jiles, who is Kinsella's right-hand man in the Progressive Group lobbying firm. Read about the Pursuit Team here and see the two-page Pursuit Plan and Owners below.

Ultimately, Exel wanted to start the new fiscal year on April 1, 2010, with a 10-year contract to privatize the Liquor Distribution Branch's warehousing and distribution. For reasons not yet clear, the government of Premier Gordon Campbell did not go ahead with the LDB privatization as proposed, promoted and desired by Exel.

That changed when Christy Clark became premier in February 2011 and Coleman regained the liquor portfolio in February 2012. Clark's successful leadership campaign was backed by Exel lobbyist Patrick Kinsella, who was all smiles at the new premier's March 14, 2011 swearing-in ceremony. Kinsella de-registered on March 30, 2012 -- exactly a month before the Distribution of Liquor Project negotiated request for proposals was issued.

The government has published no business case or cost/benefit analysis for this privatization. Only two heavily censored Cabinet documents, obtained via Freedom of Information, that include a diagram oddly similar to one in the Exel memo.

Exel Logistics Pursuit Plan

#LiquorLeaks Privatization Primer

A pause to refresh and compile a list of links to media coverage and news releases about the controversial move by the British Columbia government to privatize the Liquor Distribution Branch's warehousing and distribution. 


Finance Minister Kevin Falcon revealed the plan in the Feb. 21 budget. Rich Coleman, whose portfolio includes gambling and liquor, launched a negotiated request for proposals on April 30. Deadline for bids is June 29 and a shortlist, that could be as small as one company, is expected July 20. 


Full coverage in Business in Vancouver

Logistics giant targets lucrative LDB contract

NDP blasts liquor privatization process

Alberta’s experience: product diversity booms, costs balloon

Industry irked over Liberals' push for liquor privatization 


LDB privatization a ContainerWorld game changer - B.C.'s biggest bonded liquor warehouse: Exel's friend or foe? 

The Tyee: Exel's long march to control B.C.'s liquor distribution 


#LiquorLeaks


Reveals Exel's expansion strategy


Reveals Exel's contract terms 

The influence of Rich 


Whither the workers in booze privatization?


Launching #LiquorLeaks 


Libs keep lid on privatization plan 


The Province's Mike Smyth: Booze brawl brewing in B.C. 

Glacier newspapers' Keith Baldrey: Liquor sale smells fishy 

Shaw TV's Sean Leslie: This Week in B.C. 

Global TV's Marisa Thomas: Are liquor prices set to get higher? 

Alex G. Tsakumis: Rebel With A Clause


B.C. Conservatives news release -- Cummins: Don't sell the Liquor distribution branch if it means higher prices for consumers

B.C. Craft Brewers Association news release -- B.C. Craft Brewers Guild opposes privatization of B.C. Liquor warehouse  

B.C. Legislature video: NDP critic Shane Simpson challenges liquor minister Rich Coleman in Question Period 

Canadian Restaurant and Foodservices Association news release -- CRFA applauds intention to privatize Liquor Distribution Branch  

Note: CFRA cites the 2005 Ontario government's Lacey Report and a Montreal think-tank's 2005 report, both recommending an increased private role in the liquor industry. Neither, however, offer in-depth analysis of the supply chain and its costs. The B.C. government did no such study before embarking on the distribution and warehousing privatization.

Ontario Ministry of Finance report: Strategy for Transforming Ontario's Beverage Alcohol System  

Montreal Economic Institute report: Is government control of the liquor trade still justified?  

Note: In 2007, the Alberta government was reeling from 2006 supply chain chaos at Connect Logistics, the Exel-owned company that became the private monopoly in 1994. The labour shortage and management of the warehousing and trucking created a perfect storm of trouble for the industry. 

PricewaterhouseCoopers report for Alberta Gaming and Liquor Commission: Liquor Warehousing and Distribution in Alberta Supply Chain Analysis

CFRA's key comments are on page 23: 

"AGLC and CLS (Connect Logistics Services) must do a better job forecasting demand and planning for spikes in volume. There must be performance incentives in CLS' contract to ensure service levels are maintained and delivery times are guaranteed during busy peak times. Given the monopoly CLS enjoys there is no risk of losing market share due to poor service. Why would CLS increase their costs by providing more staff to ensure service levels are maintained when there is no risk of losing customers? In the absense of competition AGLC must ensure CLS maintains service and delivery standards without passing on additional service costs to retailers and licensees."

Mark Hicken: Two wine neighbours, two approaches to liquor regulation

Conclusion:

All evidence so far shows that the privatization tender in B.C. is driven by one company, Exel, and its B.C. Liberal-connected lobbyists. There are serious questions about the integrity of the bidding process, but my repeated requests to interview Minister Rich Coleman have been denied. 


Did the government learn any lessons from the tainted BC Rail sale? This is a process governed by a hard deadline of March 1, 2013. The next scheduled election is May 14, 2013. The cash-strapped government desperate to hold onto power is hungry to cut costs and increase revenue by any means necessary. 

There is no business plan or cost/benefit analysis and the government does not want to show you or me what's hidden in the cabinet documents. If the idea to privatize liquor logistics is solid, if there is data to back it up and if it will benefit the province, why does the government refuse to show us proof? 

The sale of alcohol is a major revenue generator and contributor to our economy and I'm among many proud supporters of B.C. wines and microbrews. LDB poured $890.4 million of profits into provincial coffers in 2010-2011. Some of those dollars helped fund the operation of schools and hospitals. The government wants more, so it's opening up a new sales channel via movie theatres. Cineplex hired lobbyist and Liberal insider Marko Dekovic to arrange a meeting with liquor minister Rich Coleman.

In the rush to wring more revenue out of the taps, is the government neglecting the social side of the equation? Alcohol is a legalized drug that is addictive. Visit any Provincial courthouse on any weekday and you will be shocked at how frequent the misuse or abuse of alcohol is in the foreground or background of trials. You will see sad, broken people from disintegrated families. They are the opposite of the smiling, young people having fun in beer ads. Maybe you know someone who has battled alcoholism?

The Centre for Addictions Research of B.C. study called Alcohol Pricing and Public Health in Canada: Issues and Opportunities is worth a read. The pricing and taxation of booze, it says, "is arguably the single most important issue to tackle when addressing alcohol misuse from a public health perspective. It is also the hardest to engage because of the multitude of interests involved." Among its many recommendations are tying alcohol taxes and markups to the rate of inflation and simplifying alcohol volume and strength-based taxation to encourage the consumption of lower-alcohol drinks.