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February 18, 2002
Toronto City Council votes to pursue public inquiry into computer leases and computer contracts (includes BACKGROUNDER)
On February 14, Toronto City Council passed a resolution requesting that the
Ontario Superior Court of Justice conduct a public inquiry into the City's
computer and computer leasing contracts with MFP Financial Services. The
resolution contains terms of reference for the public inquiry, which will be
forwarded to Ontario's Chief Justice of the Superior Court of Justice, the
Honourable Patrick J. LeSage.

At its meeting, Council also passed several amendments and pre-conditions to
the proposed minutes of settlement presented to the City of Toronto in December
by MFP Financial Services Limited to ensure that the City's interests and those
of its taxpayers are protected.

The contracts that will be the subject of a public inquiry stem from late 1997
to 2000 when contract controls for the amalgamated City were not fully in
place. Over the past year, the City's executive management team has begun to
establish more rigorous internal management controls to improve purchasing
processes, management of consulting contracts, human resources management and
the review of administrative internal controls.

At its December 2001 meeting, City Council adopted an implementation plan
presented by Chief Administrative Officer Shirley Hoy that recommended strong
corrective action based on standard business protocols, accountability,
transparency and building human resources and staff capacity in the

Backgrounder - Terms of Reference - Public Inquiry in Respect of MFP Contracts

The following is contained in a resolution adopted by Toronto City Council on
February 14, 2002.

WHEREAS, under section 100 of the Municipal Act, R.S.O. 1990 c. M.45, a Council
of a municipality may, by resolution, request a Judge of the Ontario Court
(General Division), now the Superior Court of Justice, to inquire into or
concerning any matter connected with the good government of the municipality,
or the conduct of any part of its public business;

AND WHEREAS any Judge so requested shall make inquiry and shall report with all
convenient speed, to Council, the result of the inquiry and the evidence taken,
and for that purpose shall have all the powers of a commission under Part II of
the Public Inquiries Act, R.S.O. 1990 ch. P. 41;

AND WHEREAS on approximately January 1, 1998, computer equipment acquired for
the newly elected City Councillors¬° offices was leased from MFP Financial
Services Ltd. ("MFP") for a three year term pursuant to a Master Equipment
Lease Agreement numbered "784" and subsequently by equipment schedules under
the Master Agreement for assets totaling approximately $1,093,731;

AND WHEREAS there is no written documentation that the procurement of the
equipment was lawfully approved or that a competitive process was followed in
awarding the leasing contract to MFP;

AND WHEREAS in early 1999 staff were exploring financing options for the
large-scale software and computer acquisitions anticipated as necessary to deal
with what is commonly referred to as the "Y2K problem" and a Request for
Quotations ("RFQ") was issued in May 1999 to solicit bids for computer leasing;

AND WHEREAS pursuant to a report from the City's then Chief Financial Officer
and the City's then Executive Director, Information Technology, Council
approval was obtained to lease $43 million of computer and related equipment by
the adoption of Clause No. 11 of Report No. 4 of the Policy and Finance
Committee at Council's meeting of July 27, 28, 29 and 30, 1999;

AND WHEREAS the report indicated to Council that the bid by MFP was the
preferred bid and Council authorized the City of Toronto to enter into a
leasing contract with MFP for three years;

AND WHEREAS the report to Council failed to mention that the rates quoted in
the responses to the RFQ were only in effect for 90 days and staff entered into
a Master Equipment Lease Agreement and a Program Agreement after the 90 day
period expired, which agreements contemplated various Equipment Schedules to
the Master Equipment Lease Agreement that would identify the equipment to be
leased and lease terms and rates in respect of the equipment;

AND WHEREAS in the fall of 1999, staff initiated a sale and lease back
transaction with MFP of the City's computer equipment which had been bought
prior to the Council authority of July 1999 and there was no mention of a sale
and lease back to be bid on in the RFQ and no authorization of a sale and lease
back was sought in the report to Council;

AND WHEREAS, through the execution by staff of Equipment Schedules, the City
has leased up to $85 million of computer equipment although the Council
approval indicated an estimated cost of acquisition of $43 million of equipment;

AND WHEREAS with two exceptions, the initial Equipment Schedules were not for
three years as approved by Council, but were for longer terms, most commonly
five years and in the summer of 2000 a number of the equipment leases were
restructured to extend the term of some of the Equipment Schedules beyond even
the five year period;

AND WHEREAS the report to Council indicated that the preferred bid by MFP
contained an implicit interest rate of 4.6 per cent and the Equipment Schedules
executed by City staff contained lease rates with implicit interest rates
significantly in excess of the 4.6 per cent interest rate;

AND WHEREAS in or about December 1999, the City's Director of the Y2K Project
recommended the acquisition by the City of 10,000 Oracle Database enterprise
software licences, the acquisition was approved by the City"s then Y2K Steering
Committee, with subsequent approval by the City"s then Chief Administrative
Officer, and the 10,000 licences were then acquired by lease through MFP by the
addition of an Equipment Schedule to MFP"s Master Equipment Lease Agreement;

AND WHEREAS the acquisition of the 10,000 Oracle licences was a serious
miscalculation and it is unclear as to whether such acquisition was
co-ordinated with the City's agencies boards and commissions, why leasing was
undertaken as opposed to the continued purchase of the licences directly from
Oracle and how MFP was selected for leasing of the Oracle software;

AND WHEREAS the concerns of the City in respect of the MFP and Oracle
transactions are more fully detailed in the attached reports from the Chief
Administrative Officer and City Auditor, dated respectively in respect of the
MFP transactions and the Oracle transaction, November 29, 2001 and February 6,
2002 and in respect of the 1998 computer lease numbered "784", the report from
the City Auditor, dated January 28, 2002;

AND WHEREAS the public inquiry would permit (i) the Commissioner to investigate
the existence of any malfeasance, breach of trust or misconduct, (ii) the
Commissioner to make recommendations that would be a benefit for the future
conduct of the public business of the City, and (iii) the public to understand
and evaluate fully the above noted transactions;

NOW THEREFORE the Council of the City of Toronto does hereby resolve that:

1. an inquiry is hereby requested to be conducted pursuant to section 100 of
the Municipal Act which authorizes the Commissioner to inquire into, or
concerning, any matter related to a supposed malfeasance, breach of trust or
other misconduct on the part of a member of council, or an officer or employee
of the City or of any person having a contract with it, in regard to the duties
or obligations of the member, officer, or other person to the corporation or
to any matter connected with the good government of the municipality, or the
conduct of any part of its public business, and

2. the Honourable Chief Justice Lesage, Chief Justice of the Superior Court of
Ontario, be requested to designate a judge of the Superior Court of Ontario as
Commissioner for the inquiry and the judge so designated is hereby authorized
to conduct the inquiry.

AND IT IS FURTHER RESOLVED THAT the terms of reference of the inquiry shall be:

To inquire into all aspects of the above transactions, their history and their
impact on the ratepayers of the City of Toronto as they relate to the good
government of the municipality, or the conduct of its public business, and to
make any recommendations which the Commissioner may deem appropriate and in the
public interest as a result of his inquiry.

And it is further resolved that the Commissioner, in conducting the inquiry
into the transactions in question to which the City of Toronto is a party, is
empowered to ask any questions which he may consider as necessarily incidental
or ancillary to a complete understanding of these transactions;

And, for the purpose of providing fair notice to those individuals who may be
required to attend and give evidence, without infringing on the Commissioner's
discretion in conducting the inquiry in accordance with the terms of reference
stated herein, it is anticipated that inquiry may include the following:

1. an inquiry into all relevant circumstances pertaining to the various
transactions referred to in this resolution, including the relevant facts
pertaining to the various transactions at the relevant time as contained in the
reports dated November 29, 2001, February 6, 2002 and January 28, 2002, the
basis of and reasons for making the recommendations for entering into the
subject transactions and the basis of the decisions taken in respect of the
subject transactions;

2. an inquiry into the relationships, if any, between the existing and former
elected and administrative representatives of the City of Toronto and the
existing and former principals and representatives of MFP and Oracle at all
relevant times; and

3. an inquiry into any professional advice obtained by the City of Toronto in
connection with the subject transactions at the relevant times.

Media Contact
Media contact:
Margaret Dougherty, Corporate Communications



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