#LiquorLeaks examines Clark's "liquor cabinet"

When Premier Christy Clark shuffled her cabinet on Sept. 5, she also refreshed her "liquor cabinet." 

Several cabinet ministers and MLAs are involved in one of the government’s biggest, most controversial priorities of 2012: to sell the warehousing and distribution operations of the Liquor Distribution Branch to a private operator. 

No business plan has been published by the government to justify the Feb. 21-announced breakup of LDB, which made a $911.1 million profit for government coffers on $2.89 billion of sales last year. 

Much has been written about Exel Logistics, which operates Alberta’s private since 1994 system and hired high-powered BC Liberal insiders Patrick Kinsella and Mark Jiles to lobby for the B.C. gig since 2005. No other company that submitted bids by the June 29 deadline has been as aggressive as Exel, which originally wanted to do a private-public partnership and skip a public tendering process altogether.

Clark is head of cabinet and, what I call, the liquor cabinet. Kinsella was co-chairman of her successful 2011 leadership campaign, a guest at her swearing-in on March 14, 2011 and a guest at the B.C. Place Suite for the Sept. 30, 2011 reopening of B.C. Place Stadium. Kinsella ended his lobbying registration for Exel on March 30, a month before the request for proposals was published.

Rich Coleman (upper right) is the minister responsible for the Liquor Distribution Branch and Liquor Control and Licensing Branch. His business card became more crowded in the shuffle with the designation of Deputy Premier. Coleman's name is mentioned in the Exel "Project Last Spike" internal memo: company vice-president Scott Lyons told his superiors that the company's relationship with Coleman could be used to influence the writing of the RFP. 

Mike de Jong (middle right) replaced the resigned Kevin Falcon as Finance Minister and was given the responsibility to “lead the work on the possible asset sale,” according to a Finance Ministry representative on condition of anonymity. De Jong was the waffling Attorney-General when Dave Basi and Bob Virk made surprise guilty pleas on Oct. 18, 2010 after the ex-Liberal ministerial aides accepted $6 million of taxpayers' money to pay their legal bills. A still-secret transaction that the Auditor-General John Doyle and intervenor/ex-Liberal MLA John van Dongen are seeking a court order to bring to daylight. (Hear more about the controversial sale of BC Rail to CN in The Investigators documentary here.)

Ben Stewart (lower right) replaced Margaret MacDiarmid as the Citizens’ Services Minister. Stewart is responsible for government-wide buying and contracting and it is the staff of his ministry who are handling the LDB tendering process. Three executives of the Coleman-overseen LDB (including acting general manager Roger Bissoondatt) and four executives from the Stewart-overseen Citizens' Services are on the evaluation committee, weighing the bids from four companies (Exel, ContainerWorld, Kuehne + Nagel and Metro Supply Chain Group).

“They will continue in their current roles in the procurement process,” said the Finance Ministry representative.

”Given Minister's Stewart's previous involvement in the industry, out of an abundance of caution and to ensure no perception of conflict, responsibility for this project was transferred to the Minister of Finance.”

Let’s not pussyfoot around the issue, eh? Stewart is both a client of B.C.’s LDB and Exel’s Alberta monopoly, Connect Logistics, through his family company Quails’ Gate Estate Winery of Kelowna. He was also lobbied by Lyons. Stewart advocates private distribution and said in the Legislature on May 7, the day before my story exposing Exel’s "Project Last Spike" broke and NDP critic Shane Simpson stood up in the Legislature during Question Period to demand answers from Coleman. 

Coincidentally, I spoke with Stewart on Sept. 4, the night before he was sworn into cabinet. (Stewart gave no hint about his imminent job promotion). Here's what he said about Exel's push to privatize: 

“We probably only have a very very tiny piece of the utilization of that, we've been working with LDB successfully almost 25 years and this new model is probably comparable a little bit to the Alberta model... 
“Sometimes it takes the initiative of some catalyst to make sometimes these things to happen. I think that Exel may have asked the question. Is the province willing to consider it. They knew that there was other competitors. There's people that house and store wine for imported wines and other products here int he province. The LDB doesn't have the capacity or the interest to be becoming a warehousing depot is what I think Exel is probably more their field of expertise.
“My only point of contact is I knew the distribution systems around the country and other parts of the world because of my background. That's the only reason I probably talked to Scott at any point and was supportive of the concept that if they thought they could do it better, we should look at an open process.” 

Stewart told me he had spoken with Lyons over a year ago. Lyons, we found out in July, had also spoken with Stewart’s brother, Tony Stewart. 

“I think Scott mentioned that he had met with my brother, my brother is responsible as CEO of our company to essentially maintain and do what's necessary to run our business.
“When I chose to go into politics I completely moved everything into a blind trust and have a friend that actually is the trustee, I have no contact at all with the winery. I don't know what my brother is doing in terms of whatever discussions. On a personal note we see each other for Christmas and family events, but it's not about the business. I have the trust in the trustee and him and the board of directors I put in place beforehand to make certain these things were done in a proper manner before I considered giving up a business that I'd spent 35 years creating.” 

Meanwhile, De Jong chairs Treasury Board, the 10-member committee that will approve the winning bidder in mid-October. Coleman and Stewart are also on Treasury Board. Same goes for Jobs and Tourism Minister Pat Bell, Ex-Finance Minister (and co-father of the Harmonized Sales Tax) Colin Hansen and John Les, who was liquor minister in 2005. Exel lobbyist Mark Jiles held several meetings with Les from 2005 to 2007, at which Les apparently expressed his encouragement. De Jong's vice-chair on Treasury Board is Justice Minister Shirley Bond, who was lobbied on Aug. 25, 2011 by Lyons in a meeting at the Premier's Vancouver Office and signed reports to Treasury Board and Cabinet supporting the Exel proposal to privatize LDB's logistics. Earlier that summer, Lyons had lobbied another Treasury Board member, Ida Chong, who helped connect Lyons with Tony Stewart. 

#LiquorLeaks wonders why Christy met Rich on a Saturday?

Below is Premier Christy Clark's agenda for December 2011.

There is only one entry on Dec. 3 for an hour-long Saturday meeting with Rich Coleman.

There is no clue about the reason for the meeting. The location was censored. We don't know if anyone else attended.

Politicians often appear at weekend community festivals and parades and fundraising banquets. But I have read enough agendas of politicians over the years to know that a weekend meeting among senior members of a provincial cabinet is out of the ordinary. Frankly, it is unusual. Especially for Clark, who has a hockey-playing son that deserves her attention on weekends.

Why is Dec. 3, 2011 an interesting date? A Cabinet Concept Paper dated Dec. 1 is about "Liquor Retail and Distribution Model Options." Then-liquor minister Shirley Bond signed the report on Dec. 5. Bond had met on Aug. 25, 2011 with Exel vice-president Scott Lyons and lobbyists, including Mark Jiles and Rob Madore, after previously telling Exel the government wasn't interested in privatization. 


The liquor portfolio has never really strayed far from Coleman, who enjoys his whiskey. It keeps finding its way back to his desk. Coleman regained the responsibility on Feb. 8, 2012. 


Then, 13 days later, the liquor logistics privatization was announced in the Feb. 21, 2012 budget. 


Almost three months after he met with Clark on the first Saturday in December, Coleman met with Dennis Chrismas of ContainerWorld and his lobbyist, Mike Bailey on the first Friday of March. ContainerWorld is the only B.C.-headquartered and owned company among the six seeking the LDB monopoly, yet it has an interesting association with Exel.


Learn more about Exel's Long March to Control B.C.'s Liquor Distribution here, from The Tyee.

Premier Christy Clark's Agenda Dec. 2011

#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.

#LiquorLeaks presents NDP's Exel FOI documents

NDP liquor critic Shane Simpson dropped a bombshell July 12 at a Vancouver news conference where the results of a Freedom of Information request by the NDP Caucus were revealed. The 38 pages show the depth and breadth of Exel Logistics' lobbying to privatize the B.C. Liquor Distribution Branch. 

The company, which hired BC Liberal-connected lobbyists Mark Jiles and Patrick Kinsella, was not seeking to compete in a tendering process. It wanted to cut a direct, private/public partnership deal. That was part of the strategy mentioned in the "Project Last Spike" Exel internal memo of Oct. 6, 2009. Plan B was to go through a bid process, but Exel contemplated using its relationship with liquor minister Rich Coleman to influence the writing of the request for proposals. It's plan C was to strike an alliance with or take-over Richmond's ContainerWorld, which has a business relationship with Giorgio Gori, an Exel sister company.

Much more to come. Remember, #LiquorLeaks is the #hashtag, this is the story that started it all, in the May 8 edition of Business in Vancouver and here are the new documents below.

LDB Privatization FOI-NDP

#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

Whither the workers in Liberal booze privatization

A key part of the Exel Logistics strategy to privatize B.C.'s liquor distribution and warehousing involves labour peace.

Getting an agreement with the B.C. Government and Service Employees' Union is a vital ingredient to the company's estimated $55 million to $95 million annual revenue haul. (That equates to $550 million to $950 million over Exel's hoped-for 10-year deal.)

Excerpted from my May 8, 2012 Business in Vancouver story:

"There are three key steps selling this project," said the Oct. 6, 2009 Last Spike internal memo, prepared by Toronto-based Exel vice-president Scott Lyons. "First, the (BC Government and Service Employees' Union [BCGEU]) must be onboard. Second, the government needs to be onside. Third, the industry cannot object in a meaningful way, and ideally supports the initiative."

"When the B.C. government awards the LDB work to Exel, the BCGEU workers and the new collective agreement will follow the work," the memo said. "Going forward the extent of the relationship between Exel and the BCGEU will be that of employer and union representing the workers."

The liquor privatization was announced on Budget Day, Feb. 21, 2012. Lo and behold, a month later on March 21, 2012, the BCGEU had a deal with the B.C. Liquor Distribution Branch for post-privatization job security and orderly separation, for those who qualify.

The BCGEU announced this deal on March 23, 2012. Just before the privatization RFP was released, the union announced a "Fight Back" campaign to stop the privatization.

The Memorandum of Agreement is below. More to come.

BCGEU LDB Memorandum of Agreement