FAQs: Procurement Myths, Facts and Counter-Facts for Ontario's School Bus Industry

In April 2012, following the release of the Coulter Osborne Student Transportation Competitive Procurement Task Force Report, the Independent School Bus Operators Association (ISBOA) produced a competitive procurement primer for school board officials and trustees entitled “Options DO Exist – Student Transportation Procurement Myths and Realities”. 

Click here to view the document. 

Following the distribution of this document to all school boards across Ontario, another document – author and origins unknown - was produced and distributed to Consortia Managers through the OASBO Transportation Committee. While no attribution or ownership appears on the document, thereby minimizing its credibility and contribution to a meaningful debate, the falsehoods and malfeasance it circulates demand a documented response.  For a complete analysis of competitiveness in the school bus industry, click here.

Myths

Ministry of Education “Myths and Facts”

ISBOA Rebuttal

Myth 1
The provincial government can impose a moratorium on competitive procurement for student transportation, just as they did in 2011.

  • The government did not impose a moratorium, but approved a six-month exemption in the BPS Procurement Directive that expired on December 31, 2011
  • During this exemption period, school boards retained the full authority to procure competitively, but all chose to allow the Task Force time to review existing competitive procurement processes.
  • All BPS organizations, including school boards, are required to comply with the BPS Accountability Act and the BPS Procurement Directive.
  • The BPS Procurement Directive requires that BPS organizations receiving more than $10 million annually from the province engage in competitive processes for contracts with a value greater than $100,000.

Recommendation 6-15  of the Drummond Report used the word moratorium (“The province should immediately lift the moratorium on the competitive procurement requirement for student transportation…”) as did the Minister of Education Leona Dombrowsky, in her letter of June 23, 2011 to Board Chairs, announcing the Student Transportation Competitive Procurement Task Force.

Quibbling about terminology detracts from the real issue – that the government has created a deadline of 2013 which compels school boards and their transportation consortia to abandon past practices and adopt a new approach to procurement, or face continued claw backs to their transportation funding. 

Whether the word we use is moratorium or not, the intent was to allow concerns expressed by school boards and operators to be investigated, understood, and acted upon.  In a show of bad faith, some consortia went to RFP in January 2012, before the recommendations of the Coulter Osborne Task Force were known. 

For clarity, and as a result of the expert legal advice provided to ISBOA, there is no need for a moratorium because student transportation is already procured by a process that is, in substance, competitive.

Myth 2
The Auditor General did not recommend RFPs for student transportation.  The Auditor General specifically left student transportation out of the 2006 and 2008 AG Reports.

  • In 1991, the Auditor General suggested that a competitive process for student transportation would “produce savings and better demonstrate fairness to potential operators.”  He also suggested that in moving forward with a “tendering” process, school boards should consider grouping routes in packages, and limiting the proportion of routes awarded to any one operator, to avoid monopoly situations  These have become common competitive procurement practices in Ontario school boards.
  • Though the Auditor General did not specifically refer to student transportation in his 2006 and 2008 reports, he did set up a public expectation that school boards would procure goods and services competitively.  The Ministry of Education has a responsibility to ensure that the Auditor General’s concerns are addressed and the recommendations be implemented across school board business lines.

The Auditor General in his 1991 report, while advocating a competitive process for student transportation procurement, was alert to the monopoly seller risk.  He also recommended analysis of real costs, which has happened since the 1991 report, most recently through the Benchmark Costing Study.  That study clearly demonstrates the value for money in student transportation as compared with other transportation services procured by the provincial government, namely municipal transit.

The 2006 Auditor General Report uses one sentence to indicate that the report does not address student transportation.  This is important because school boards are obligated to assess local market conditions to ensure a sustainable long-term market.

The ISBOA’s original “Myths and Realities” document, and the subsequent memo dated June 1, 2012, entitled “Non-Negotiated Fixed-Price Contracting” provide a comprehensive treatment of the concept of competition, and helps school boards understand the range of legal options that are available to them.

Myth 3
RFPs in student transportation create a false market, and competitive procurement just won’t work.  Smaller operators are squeezed out by multinationals.

  • We are seeing that some Ontario family-owned operators have grown their market share through competitive processes.  The most recent competitive procurement initiatives in 11 consortia have resulted in the multinational bus operators’ market declining from 60% to 49%, while private/family-owned operators have seen their market share increase from 40% to 51%.

This bullet point is disingenuous and highlights the selectiveness of the Ministry’s assessment of RFPs to date.  A proper assessment would evaluate the sustainability of the market long term, as the Auditor General’s 1991 report suggests.

The “family-owned” companies that have won routes operated fleets in excess of 500 vehicles before RFPs.  One is a 1000 bus operator.  Moreover, multinational companies lost routes “out of the hop”, only because of the strategic selection of geographic areas where there was already a monopoly provider.  These outcomes cannot be extrapolated to the sector as a whole when RFPs are rolled out across the province.

In economic terms, student transportation IS an artificial market whether the Ministry of Education acknowledges it or not.  And in an artificial market, RFPs have the counter-intuitive effect of eliminating competition, to the detriment of the public interest.  Evidence to this effect was documented in a report by Transport Economist Prof. James Cooper of Edinburgh Napier University’s Transport Research institute, and accepted as fact by Task Force Chair Coulter Osborne.  RFPs are not the only form of competitive procurement, and have been used as a blunt instrument without due regard to the downstream risks or market impacts.  It is unacceptable to address one form of market failure by introducing another or to remove barriers to entry for one business model by creating barriers to entry for others, especially when the businesses that have financed the capital cost of transportation have yet to be paid back for their investment (essentially a subsidy to the education system.)

Myth 4
The government is forcing school boards to use RFPs. There are other forms of competitive procurement that are more appropriate for this industry.

  • School boards are designated broader public sector organizations under the BPS Accountability Act and must comply with the BPS Procurement Directive for the procurement of goods and services.
  • RFPs were identified by operators at the Contracting Practices Advisory Committee (CPAC) as an option preferred over tender (RFT) desired by school boards.  The Ministry has always understood that RFPs are one of several approved competitive procurement methods available to all BPS organizations. The responsibility for determining the appropriate procurement method resides with school boards.
  • The BPS Procurement Directive and supporting resources provide a menu of competitive procurement methods including RFT (Request for Tender), RFQ (Request for Quotation), RFP (Request for Proposal), and RFSQ (Request for Supplier Qualifications)
  • Though these are the most commonly used competitive procurement methods, should any BPS organization wish to explore other competitive procurement options, they would need to seek legal counsel to ensure that they met the requirements of the BPS Procurement Directive.

 

ISBOA has identified school boards and transportation consortia that do not want to go to RFP.  Without exception, those school business officials feel they have no choice, given the way that the Ministry’s E&E Reviews reward those who have gone to RFP with high scores.  In more than one case, a consortium that was planning a non-RFP procurement for 2013 was pressured to continue with plans for an RFP.  Ministry staff have also made public statements at OASBO workshops, leaving no doubt as to the consequences of refusing to jump on the RFP bandwagon.

The BPS Procurement Directive has been misinterpreted and misapplied by the Ministry of Education.  In rolling out the BPS Procurement Directive, line ministries were responsible for implementation, without having the expertise to address the unique policy issues they would encounter.  There is no other supplier market more unique than the school bus industry: (1) sole purpose vehicle; (2) one customer; (3) power position of the buyer; (4) transparency of the supplier business expenses, and buyer control over profit margins; (5) supplier required to finance capital costs (which amounts to a form of subsidy); (6) operator takes on all risk for the government.  This kind of a unique relationship establishes a quid pro quo that has been fundamentally altered – but not yet fully revealed - by RFPs.

 

Myth 5
School boards are being pushed to adopt RFPs as the only way to get a “high” score on their Ministry E&E review.

  • As of January 2011, all 33 transportation consortia have undergone an E&E Review.  The Ministry will re-visit a consortium if a consortium requests a follow-up review.
  • E&E ratings are based on a series of leading practices in the areas of consortia management, policies and practices routing and technology and contract management.  No one leading practice determines a “high” rating.

A high score in the E&E Review process could mean an end to a claw back of as much as $1.4 million.  To suggest that transportation consortium would risk that kind of funding by gambling on a process not specifically endorsed the Ministry is, again, disingenuous.  If the Ministry genuinely wanted to establish school boards’ autonomy, authority and accountability in this process, they would endorse the “Myths and Realities” brochure.

Coulter Osborne’s concluding commentary to the Task Force Report makes it clear that RFPs are not a leading practice when applied to student transportation.  Moreover, he witnessed examples of such intellectual dishonestly and heavy-handedness on the part of the Ministry that he went so far as to recommend a third-party independent review.

Myth 6
Competitive procurement drives the market to monopoly.

 

  • School boards understand the need for a sustainable and viable marketplace.  In their competitive procurement processes, they have adopted features like groupings of routes, ensuring there are multiple awards, and limiting the percentage of routes won by a single operator.
  • We are seeing that some Ontario family-owned operators have grown their market share through competitive processes.  The most recent competitive procurement initiatives in 11 consortia have resulted in the multinational bus operators’ market share declining from 60% to 49%, while private/family-owned operators have seen their market share increase from 40% to 51%.

As demonstrated by Prof. Cooper’s research, his analysis considers the current trends in procurement and purchasing policy, and questions the effectiveness of current Requests for Proposals.  He cites European examples where the market has shrunk to an average of 1.4 proponents per RFP.

Closer to home, the Sudbury Student Services Consortium (SSSC) is a case in point – going from 23 to 3 school bus companies after two rounds of RFPs, resulting in a 13% increase in the latest contract.  The SSSC has no trustees on its board.

If the positive outcomes for 3 companies are relevant, then the fact that 18 companies have been wiped out should be significant.  The Ministry has cherry-picked results and has failed to do a sound economic impact assessment.

Myth 7
The sector has a transition date of the 2013-14 school year to implement competitive procurement for student transportation.

  • While the Ministry had endorsed a three-year competitive procurement transition strategy in 2009, the BPS Procurement Directive under the BPS Accountability Act 2010 became effective April 1, 2011.  School boards are now required to follow the provisions of the Accountability Act.

Debating whether or not 2013 is the transition date misses the point – the Ministry is pushing change on the sector and on consortia in the form of one-size-fits all RFPs.  Twenty three (23) consortia have indicated to their operators that they plan to go to RFP this fall.  That is an unprecedented amount of change that can only be attributed to the Ministry’s deadline. 

As per the assessment of procurement expert and lawyer Denis Chamberland, the Non-Negotiated Fixed-Price (NNFP) contracts that have historically been used do in fact meet the BPS Procurement Directive.  Consortia that wish to continue with NNFP contracts for existing routes would be in compliance with the Directive and Act.  To ensure they are, consortia should hire Denis Chamberland as their procurement advisor, as described in the March 29, 2012 B8 Memo.

Myth 8
School boards, as self-governing bodies, can use alternative competitive procurement processes.

  • School boards are responsible for developing procurement policies and practices that are incompliance with the provisions of the BPS Accountability Act and the BPS Procurement Directive.

This is not a myth.  The Directive allows – indeed requires – boards to assess local market conditions, and to select an approach WITH TRUSTEE INVOLVEMENT.

The Thames Valley District School Board (TVDSB), at its April 24th meeting, expressed concern that the Southwestern Ontario Student Transportation Services consortium had been delegated budget authority beyond the thresholds established, such that TVDSB was in violation of the BPS Accountability Act.

Myth 9
Elected trustees can oversee the board’s competitive procurement processes.

  • Trustees are responsible for developing the school board’s procurement policy, in compliance with the BPS Procurement Directive.  Under the Education Act, trustees are required to entrust the day-to-day management of the school board including the implementation of these policies to the administration.  Staff are required to develop supporting procedures to operationalize these policies.

Trustees have a legitimate policy role to play in the selection of the form of competitive procurement that will used.  Decisions about long term ability to secure service, and long term implications for the cost of services are most certainly policy and not day-to-day operational decisions.  Trustees have not been engaged enough to be able to discharge their obligations.  Moreover, the purchasing decisions of the transportation consortia are impacting the ability of individual schools to afford charters for trips.  Only trustees have a global perspective, which makes this an important governance issue.

Again, the example of Sudbury is timely, since some trustees are pushing back on the increased consortium budget, demanding answers to questions about the finances, and getting none of the information necessary to discharge their duties.

Myth 10
School boards are not ready for competitive procurement.

 

  • School boards have the capacity to understand competitive procurement…. 
  • Numerous resources and best practices have been made available to all school boards including the BPS Procurement Directive, the BPS Procurement Implementation Guidebook, the BPS Procurement web-based toolkit…..as well as best practices and lessons learned from both of the ministry’s supported pilots, and the Task Force Report.

Then why is the Ministry of Education telling them what to do so explicitly?

The Task Force Report only makes three (3) recommendations – and one of them is for more time for a better transition.

The other is for an independent third-party review, to ensure a more balanced, objective assessment of options is undertaken, given the size of the sector and the potential implications to safety.

Myth 11
The Ministry of Finance has not met its obligation to articulate the scope and intents to implement the provisions of the BPS Procurement Directive.

  • The Ministry of Finance was responsible for ensuring all related ministries understand the new legislative requirements of the BPS Accountability Act….
  • The Ministry of Education will be required  to report back on school boards’ compliance with the BPS Procurement Directive…
  • The BPS Accountability Act protects the Ministry of Finance, the Ministry of Education and school boards from legal action for meeting the compliance requirements of the Directive as detailed below:
    Part VII Enforcement Provisions/Section 22 (Limitations on Remedies) – No cause of action arises against the Crown, or any of the Crown’s ministers, agents, appointees and employees, or an organization subject to this Act, as a direct or indirect result of:
    (a) the enactment or repeal of any provision of this Act;
    (b) the making or revocation of any provision of the regulations, directives or guidelines made under this Act; or
    (c) anything done or not done in accordance with this Act or the regulations or the directives or guidelines.
    Part VII/Section 23 (No compensation)
    Despite any other Act or law, no person is entitled to any compensation for any loss or damages, including loss of revenues or loss of profit, arising from the enactment or application of this Act or anything done in accordance with this At, the regulations or directives.

The provisions of Part VII of the BPS Accountability Act that protect the government miss the point.  What is in issue is the government's duty to understand the school bus industry from more than just the superficial cocktail party economics that has been applied to date.  There are significant labour market, cost structure and capital investment differences from other sectors, for example construction, which changes the analysis and the impacts. 

The BPS Accountability Act does not purport to grant the government authority to act recklessly in implementing any aspect of the legislative requirements.  While the government may initially have been well intentioned in devising the legislative framework and in making resources available to facilitate training and implementation, its duty does not end there. In the face of mounting evidence of casualties being caused by the direction offered by the government, including the recommendation of The Honourable Coulter Osborne to appoint an independent third party reviewer, there is a current responsibility on the part of the government to genuinely assess the obvious consequences suffered by its policy and implementation decisions.  That the government enjoys the benefit of protective provisions in certain circumstances is separate from its obligation to act responsibly.