TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on July 29, 30 and 31, 1998

CORPORATE SERVICES COMMITTEE

REPORT No. 10

1Project Proposal, Financial andHuman Resources/Payroll Systems

2Natural Gas Supply to the City of Toronto

City of Toronto

REPORT No. 10

OF THE CORPORATE SERVICES COMMITTEE

(from its meeting on June 22, 1998,

submitted by Councillor Dick O'Brien, Chair)

As Considered by

The Council of the City of Toronto

on July 29, 30 and 31, 1998

1

Project Proposal, Financial and

Human Resources/Payroll Systems

(City Council on July 29, 30and 31, 1998, amended this Clause by:

(1)adding thereto the following:

"It is further recommended that:

(a)the joint report (July 27, 1998) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer, embodying the following recommendations, be adopted:

'It is recommended that:

(1)all City Agencies, Boards and Commissions be strongly urged and requested to use the recommended City's FIS/HRIS systems, on a timetable that is mutually agreed upon, but within five years at the latest; and

(2)on a priority basis, that City staff accommodate those Agencies, Boards and Commissions with non year 2000 compliant FIS/HRIS systems i.e., the Toronto Police Services by including their participation in the City's implementation program.';

(b)the report (July 28, 1998) from the Chief Financial Officer and Treasurer and Chair, FIS/HRS Steering Committee, embodying the following recommendations, be adopted;

'It is recommended that the Budget Committee and City Council:

(1)receive the attached report from Brian Dunk Consulting Services Limited; and

(2)approve the FIS/HRIS transition project, at a total cost of $26.3 million, and approve 1998 project financing of $6.1 million from the Transition Reserve Fund, with a report back in September 1998, outlining project financing requests for 1999 and 2000 based on contract terms and conditions to be negotiated with SAP that have regard to matching cashflow to project milestones and project risk.'; and

(c)the Chief Financial Officer and Treasurer and the Chief Administrative Officer be requested to report to the Corporate Services Committee every three months on:

(i)the progress of implementing the system; and

(ii)whether this project is on track and has achieved the expected savings; such report to also include a demonstration of those savings."; and

(2)referring the following motion to the Corporate Services Committee; and the Commissioner of Corporate Services was requested to report thereon to the Corporate Services Committee:

Moved by Councillor Jakobek:

"It is further recommended that:

(1)the Chief Financial Officer and Treasurer and the Commissioner of Corporate Services be requested to obtain fixed prices and commitments for the inclusion of all Agencies, Boards and Commissions, the Toronto Transit Commission and Fleet Management prior to signing any final agreements; and

(2)with respect to this project, if approved by City Council today, that the Chief Administrative Officer be requested to engage independent experts to review any of the Agreements for this project prior to such Agreements being signed; and that the necessary funds therefor be provided from the Transition Projects Reserve Fund.")

(City Council on July 8, 9 and 10, 1998, deferred consideration of this Clause to the next regular meeting of City Council to be held on July 29, 1998.)

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(Clause No. 1 of Report No. 9 of the Corporate Services Committee)

The Corporate Services Committee:

(1)recommends the adoption of Recommendations Nos. (1) and (3) embodied in the joint report (June 10, 1998) from the Chief Financial Officer and Treasurer, the Commissioner of Corporate Services and the Executive Director of Human Resources; and

(2)reports having recommended to the Budget Committee the adoption of Recommendation No. (2) embodied in the aforementioned report; and having requested the Budget Committee to report thereon to the meeting of Council scheduled to be held on July 8, 1998, when this matter is being considered.

The Corporate Services Committee further reports, for the information of Council, having:

(1)referred the following motion to the City Solicitor for report thereon directly to Council for its meeting scheduled to be held on July 8, 1998:

Moved by Councillor John Adams:

"That City Council adopt the following policy:

"(i)if any director, officer, employee, agent or other representative of a proponent/respondent, including any other parties that may be involved in a joint venture or a consortium with the respondent, makes, from and after Council's decision on July 8, 1998, any representation or solicitation to any elected representative or employee or agent of the City of Toronto, with the exception of the contact person designated by the Chief Administrative Officer with respect to the respondent's proposal or any other respondent's proposal, City Council is entitled to reject the proponent/respondent's proposal;

(ii)a representation can be considered to be anything said or written to any Member of Council, employee or agent which provides information advancing the interests of a proposal;

(iii)this requirement does not extend to representations made to the designated official or to any public deputation made to a Committee of City Council in accordance with the Procedural By-law;

(iv)should a respondent desire that any information be presented to Members of Council, the Respondent may request the Designated Official to do so and that official shall distribute such information to all Members of Council and appropriate staff;

(v)should Members of Council wish to receive information from any respondent(s), then the request shall be made through the Designated Official, and if any Member of Council directly approaches a respondent for information, the respondent is at jeopardy if he or she does make any representation to any Councillor in response; and

(vi)in the event of any alleged breach of the foregoing protocol, City Council shall be the arbiter of the effect of such a breach to the process";

(2)requested the Chief Administrative Officer and the Chief Financial Officer to submit a joint report directly to Council for its meeting scheduled to be held on July 8, 1998, providing recommendations respecting the inclusion of all Agencies, Boards and Commissions, including the Toronto Hydro Commission, in the FIS/HRS system being proposed; and

(3)requested the Chief Financial Officer, in consultation with the outside independent consultant from LGS Inc., to submit a written brief to all Members of Council, as quickly as possible, respecting the risks involved regarding this project and the concerns expressed by Members of the Corporate Services Committee.

The Corporate Services Committee submits the following joint report (June 10, 1998) from the Chief Financial Officer and Treasurer, the Commissioner of Corporate Services and the Executive Director of Human Resources:

Purpose:

To recommend the acquisition of financial and human resource systems essential to the operation of the City and the effectiveness of amalgamation.

Recommendations:

It is recommended that:

(1)the acquisition of financial and human resource/payroll systems from SAP be approved in principle, as outlined in this report;

(2)funds not to exceed $6.1 million be authorized for expenditure in 1998, $3.4 million in 1999, $6.5 million in 2000, $6.5 million in 2001, and $3.8 million in 2002 with total capital expenditures for the financial and human resources/payroll systems not to exceed $26.3million for the necessary hardware, software and project implementation; and

(3)the appropriate city officials be authorized to enter into contract negotiations with SAP for the supply of financial and human resource/payroll systems.

Funding Implications:

The 1998 requested capital expenditures of $6.1 million have been included in the ranked list of transition projects envelope of $40 million in a separate report to the Budget Committee. Future year's requests are also included in that report with other city transition projects. Given that the minimum required investment for financial and human resources/payroll systems is $19 to $20 million, the total requested capital expenditure of $26 million represents the greatest financial and operational benefit to the City.

Background Summary:

Upon amalgamation, each of the seven municipalities entering the new City had their own systems for managing financial and human resource information and administration. Payroll, purchasing, position management, salary and benefits administration, time and attendance reporting, payment of accounts, budgeting, staffing, collective agreement administration and many other administrative tasks are handled by these systems. For the most part, the existing systems are still functioning independently. In these interim months, summary financial information is being consolidated in the former Metro system, but financial detail is only available from the systems in the previous municipalities, which continue to require maintenance and support.

It is essential that the City's administrative systems be consolidated as soon as possible, for several reasons:

(i)it is impossible to exercise appropriate financial and staffing control when the necessary information is distributed among several systems;

(ii)most of the existing systems are not year 2000 compliant, and will not function properly when this issue begins to arise in 1999;

(iii)administrative efficiencies for 1999 and beyond cannot be achieved without the benefits of consolidated systems, and savings potentially associated with amalgamation become unattainable without the necessary investment in systems; and

(iv)it is essential that a single system be in place to support activity based costing and charge-back of the costs of administrative systems, as this capacity is required in order to achieve administrative savings

The City has also received expressions of interest in outsourcing of administrative systems, through partnership with private-sector organizations. While these possibilities have not yet been subject to full analysis, it is clear that installation of effective administrative systems serving all of the new City will enable the City to realize significant savings itself. Once these immediate benefits have been realized and internal efficiencies achieved, it may be appropriate to entertain proposals for alternate service delivery arrangements.

Movement to a single system, or set of systems, is a massive and difficult undertaking. In an organization the size of the City, a normal time-frame for implementation of a new suite of business systems would be a minimum of two years, from approval of the project and selection of vendors to full functionality. Because the City does not have a single set of administrative systems in place, and consequently does not have the necessary mechanisms to support management accountability or to achieve the available administrative efficiencies, it is necessary to move much more quickly.

In late 1997, RFIs were issued requesting information from vendors on the supply of systems to support the City's financial and human resource requirements. Several vendors were asked to provide product demonstrations. Separate staff groups evaluated the proposals for financial and human resource/payroll systems, using systematic criteria determined in advance.

Both the HR/Payroll and Finance groups reviewed detailed information on the functional capabilities of the various products, and the cost structures proposed by the vendors. Extensive presentations were conducted by each of the vendors for each of their products (when a single vendor proposed both financial and human resource/payroll products, each was presented separately). In addition, extensive presentations by each vendor were made to City technical staff, focusing on the technical features and support requirements for the products.

During February and March of 1998, there were extensive discussions with vendors, and a number of site visits were conducted. Also during March, the separate financial and human resource/payroll systems projects were consolidated under the FIS/HRP Steering Committee. The Committee reviewed the staff recommendations, and the financial impact of the proposals. In light of the City's financial circumstances, and the need to ensure that the most cost-effective solutions to the City's requirements be identified, the Committee directed that further review of all options be conducted.

Technology and management consultants LGS Group were retained to assist in the evaluation of options. LGS Group has wide experience in the application of technology to the business needs of both private and public sector organizations, including municipalities.

Subsequent analysis included detailed consideration of the financial impact of the most viable options, including estimates of the impact of each on the staffing requirements of the City over the next few years. Reports were also obtained from the Gartner Group, consultants specializing in analysis of technology companies and products, on the financial status and viability of each of the "qualified" vendors, and on the strengths of each product line

The results of this extensive evaluation process are summarized in this report. A minimum investment of $19 to $20 million is required to meet the basic needs of the City. The recommended additional investment of $6 million brings the total required investment to $26 million. This will generate additional savings of almost $6 million per annum, and will position the City well for future reengineering and efficient operations.

What is a Financial Information System (FIS)?

A Financial Information System is the set of computerized business tools used by organizations to perform a variety of finance-related tasks, and to track and control expenditure and revenue. It provides essential support to an organization's operations. Even the smallest businesses make use of automated accounting systems; all large organizations require the support of sophisticated and integrated financial systems in order to conduct business efficiently and with appropriate financial control. At the City of Toronto, this system will track $5.6 billion of annual expenditures and revenue. The very wide variety of FIS components has an impact on virtually all areas of the City's operations, as can be seen from the following FIS component summary.

General Ledger (G/L):

The G/L is at the core of any financial system, and is central to all accounting operations. All revenues and expenditures are recorded in the G/L, and the structure of its Chart of Accounts allows these to be tracked at any required level of detail. It is through the G/L that budgets can be assigned to operating units, authority for expenditures assigned to individuals, financial reports produced, and so on. All of the financial transactions accomplished through other modules of the FIS are reported to the G/L, requiring that all of these be integrated with the G/L in a single system.

Budgeting:

Financial information systems provide budget development support, allowing for the systematic preparation and modelling of budgets. Managers can model and prepare their budget proposals on a decentralized basis, and these are consolidated and subject to analysis, with necessary amendments made prior to final submission. Once the budget is adopted, the final figures are loaded into the G/L, allowing funds to be expended within the budget parameters.

Purchasing:

The purchasing applications provide for the specification of product requirements, the sourcing of supply, vendor management and the preparation and management of tender processes (including the creation and management of Requests for Information and Requests for Proposals). When goods are to be purchased or otherwise obtained, these systems provide for requisitioning, and the subsequent issuing of purchase orders. In an effective integrated system, requisitions are created, approved, and submitted for action electronically. Purchase orders may also be forwarded to vendors electronically. Under normal circumstances, a requisition will not be allowed unless funds are available, and the appropriate approval obtained. Available funds are determined by looking up the necessary information in the G/L, which will have the up-to-date available balances (which include any previous requisitions, even if the goods have not yet been received or paid for). This is all accomplished electronically.

Accounts Payable:

The accounts payable system is closely linked to the purchasing system. When goods have been received after a purchase order is issued, their receipt in good order is documented electronically. Invoices are matched with the purchase order and the receiving information, and payment scheduled to optimize the City's interests. Once payment has been made, the expenditure is recorded in the G/L.

Accounts Receivable:

When the City provides goods or services to individuals or other organizations, payment or reimbursement is accomplished through the A/R application. Examples include program registration, license fees, property rentals, etc. The A/R module ensures that appropriate amounts are charged, and that the revenues get properly posted to the general ledger.

Fixed Assets:

An organization's property (including real estate, buildings, equipment and other tangible items) is tracked and managed through the fixed assets module of an FIS. Where appropriate, depreciation is recorded, and all transactions reported to the G/L.

Inventory:

Closely linked to fixed assets and purchasing, the inventory module of an FIS allows tracking of the current status of goods that are stocked, for instance, in a warehouse or store-room, and to document distribution of the goods. When a critical level is reached, re-ordering of the product is accomplished automatically. It is essential that an inventory system use standardized coding systems, and support tools such as bar code identification. An inventory system will also be closely linked to any future fleet and equipment maintenance system used by the City.

Project Management:

An effective project management component allows the creation of project budgets (e.g. capital), and the tracking of expenditures over a multi-year period against the budgeted amounts. This allows the early identification of potential cost overruns and of delays in the completion of projects. To be effective, a Project Management component requires efficient links to the information generated by or contained in Human Resource/Payroll systems.

Cost Accounting:

In some instances, tracking costs across organizational units is necessary in order to identify program costs, where programs involve more than one department or other organizational unit. As well, a cost accounting module provides the mechanism through which the costs associated with an activity can be tracked, and subsequently charged to a purchasing department or outside organization. As in Project Management, effective Cost Accounting requires an efficient link to the HR/Payroll system.

Performance measures:

Tracking the effectiveness of an organization requires that activities be monitored and costed, and that comparisons be made to external standards. The performance measures component of an FIS provides the mechanism through which this is accomplished.

Fleet Management:

Fleet Management is sometimes included as part of an FIS, and provides for acquisition control, cost tracking, maintenance, assignment and disposition of fleet assets. Although several of the vendors reviewed here can provide a Fleet Management application, it was not included in our original specifications, and has not been explicitly evaluated.

What is a Human Resource Information and Payroll System (HR/P)?

Human resource and payroll systems are the mechanisms through which an organization's human resources are managed. Payroll costs are by far the largest single component of the budgets of municipal organizations, and efficient allocation of those resources, and tracking and control of payroll costs, are essential.

There are several functions within an HR/P system, which fall logically into two categories - those related to attendance and compensation, and those related to the management of positions and employees. There are complex relationships among the various elements of the HR/Payroll system, and between HR/Payroll and the financial systems of the organization.

Payroll:

The payroll module collects information about employee salary rates (taking into account overtime and special rates), time worked, sick time used, etc., and pays employees appropriately. Payroll staff throughout the organization use the payroll system, in order to record necessary data. The system must interact with the general ledger in the finance system, in order to post salary expenses to the appropriate chart of accounts features, in order that both total expense and detail relating to projects and programs is reflected properly.

Pensions and Benefits:

Pension and benefits administration ensures that appropriate pension contributions are made and recorded, and that benefit options are implemented correctly for each employee. Where there are benefit systems allowing for wide choice (e.g. "cafeteria" or flexible arrangements), the benefit system provides the mechanism through which the choices are exercised.

Time and Attendance:

Recording work time and attendance is an essential element of the overall payroll system. It is this system which provides data to the payroll system, triggering employee pay. It is also this system that records absences and bank balances (sick time, vacation time, lieu time), according to the multiple variations on employment terms. Attendance management systems rely on the time and attendance module for information on absence patterns. The Time and Attendance system is also closely linked to project management and fleet and property maintenance systems.

Position management:

Most public sector organizations control staffing levels and expenditures through a position management system. Positions are created, each of which has an authorized number of employees who may be assigned to it, and a salary range. Hiring more employees into a position than the "authorized establishment" is not allowed by the system unless an exception is approved by someone in an appropriate position of authority. The position management module provides the mechanism through which positions are defined and created, and through which control of staffing levels is achieved.

Compensation and Salary Administration:

Job Evaluation programs allow for the description and rating of jobs according to a defined set of criteria. Salary rates have to be administered, including provision of mass increases, stepping of employees through salary levels, etc. Together, the compensation and salary administration functions of an HR/Payroll system support these functions.

Staffing:

The staffing module supports all the recruitment and promotion activities of the organization, and is the first point through which information about employees enters the system. Information from résumés and applications is captured electronically, and entered into employee or applicant databases. Movement of employees through jobs is tracked.

Grievance Tracking:

In a large organization, managing grievances, tracking each one individually and recording outcomes, is essential if the organization is to exercise proper control. An effective HR/P allows labour relations staff to enter information and associate the data with employees and workplaces. Pattern analysis allows problem areas to be anticipated and addressed before the grievance problems become unmanageable.

Training and Organizational Development and Competency Management:

Training strategies are supported by HR/P systems in several ways, including scheduling of employee attendance at courses, and the generation of information about organizational structure and operations. Employee skills and competencies can be recorded and tracked, and the information used in the identification of individuals with skills suitable to particular assignments.

Health/Safety/WSIB:

Every employer has statutory responsibilities with respect to the health and safety of employees, and must record and process information about any incidents involving injury. As well, workers' compensation claims must be recorded, processed and managed. Data can be entered initially from the field, with all follow-on events recorded as part of the same record. The HR/P is essential to these processes.

Existing FIS and HR/P Installations (Former Municipalities):

All seven of the former Toronto municipalities have functional systems for management of financial and human resource/payroll processes. These systems represent a wide diversity of vendors and installation types, with very little overlap. Many of the systems would have had to be replaced in order to address problems associated with the "Year 2000" (Y2K) issue - these systems would likely become non-functional on January 1, 2000. In other cases, the applications provide relatively limited functionality, not appropriate for a large organization.

Table 1 shows the products in use in the various organizations, as well as the date of installation and Y2K status.

There has been concern that the recent substantial investment in business systems at the former City and Metro will all have to be "written off". Both organizations were very large, with many complex operational needs. However, at the same time as the new systems were installed, a great deal of technical infrastructure was also put in place. This included networks, servers and desktop computers. The infrastructure was necessary to support the modern business systems being installed, but was also necessary to support electronic mail, geographical information systems, etc. At the time that decisions were made to install these business systems, the amalgamation of the seven municipalities into a new City of Toronto was not yet even under consideration. Most of the technical infrastructure will remain in place after the business systems are replaced, and will be utilized with any new installation, as well as the other technical requirements of the organization. It is expected that most of the infrastructure components implemented within the last two or three years at the City and Metro will be Y2K compliant, or readily made Y2K compliant, although final analysis has not yet been completed.

The total cost of the installations at the City and Metro are shown in Table 2, along with the amounts attributable to the business systems themselves and the amounts that represent a reusable investment.

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¹ "Yes" indicates existing system is already Year 2000 compliant. "No" indicates existing system requires a version upgrade or significant rework in the case of an internally developed system to become Year 2000 compliant.

Evaluation Process

The City's requirements for business systems were determined by a thorough analysis of the City's business needs and amalgamation-support requirements. Detailed business analyses conducted by Metro, the former City of Toronto, North York and Etobicoke were also reviewed.

Separate Requests For Information (RFIs) were issued for the FIS and HR/P software were issued in late November, 1997.

The FIS RFI was issued to seven vendors after a survey of municipalities and the financial systems in use. Four of these vendors' financial systems are currently in use at four of the former seven municipalities. These are SAP (former Etobicoke), Computron (former Metro), SCT Government Systems (former Toronto) and American Management Systems (former North York). SCT and AMS declined to respond, indicating that they were not in a position to address the requirements of the new City. Submissions were received from SAP, Computron, J. D. Edwards, PeopleSoft and Oracle. Oracle later withdrew from the process when it could not comply with the timetable for presentations.

The HR/P RFI was issued to five vendors, three of whose systems are currently in use within the seven former municipalities. These are Cyborg (former Metro HR/P and Scarborough payroll only), SCT Government Systems (former Toronto) and PeopleSoft (former Scarborough HR only). SCT declined to respond. Submissions were received from SAP, PeopleSoft and Cyborg.

Information about the responding vendors and their products is outlined in Table 3.

Evaluation teams composed of business and information technology staff were assembled, and detailed evaluation criteria were prepared for each of the two separate (FIS and HR/P) processes. Product demonstrations were conducted by vendor representatives during December, 1997, following demonstration scripts prepared by the evaluation teams. Follow-up requests for information were forwarded to the vendors, and responses considered in determination of ratings. Further discussions were held with each vendor to investigate implementation strategies and to refine software, hardware and implementation costs.

After the formal evaluation was completed, contact was made with several client sites to assess the level of product and vendor satisfaction. Site visits were conducted for the FIS systems by a team of accounting, information technology and library representatives.

Functional and Technical Analysis:

Data on the current business and product status of each of the vendors was obtained from the Gartner Group, a consulting organization that produces widely used analyses of technology companies and products.

A summary analysis of each of the products is provided in Table 4.

System Integration:

There are two approaches possible to installation of Financial and HR/Payroll systems. The first is the "best of breed" strategy, which separately identifies the best available options (all things considered) for the Finance and for the HR/Payroll systems. Excellent functionality can be obtained, but appropriate interfaces must be built between the Financial and the Human Resource/Payroll systems. In most cases, this means that the FIS and HR/P will come from different vendors.

The alternative approach see the Financial and HR/Payroll systems fully integrated, and that they share data seamlessly without the necessity for building interfaces. This can only be provided by a single vendor supplying both HR/Payroll and Financial systems.

The initial intention was to adopt a "best of breed" strategy, and to separately evaluate and acquire the financial and human resource/payroll systems. The original project structure reflected this intent, with separate project teams conducting separate product evaluations.

Over time, however, it became clear that integration issues would have to be considered in the evaluation. In particular, analysis from the Gartner Group, and from LGS Group, the consultants retained to assist the City in the decision process, indicated that substantial benefits would accrue from an integrated system. The LGS analysis, attached as Appendix B, concludes:

"We strongly recommend that the City pursue the integrated alternative as the target solution for the City's administrative system. This path will help the City maximize the benefits of amalgamation, transform its administrative operations and provide the City with a solution flexible to sustain future business improvements and technology advances."

Of particular concern was the likelihood that non-integrated systems would require either cumbersome multiple-entry of data into the financial and human resource/payroll systems, or the expense of creating and maintaining electronic interfaces among the products. In either case, real efficiencies are difficult to achieve. Specific issues revolve around the need to obtain financial information for certain human resource actions (e.g., funds availability for position creation), and the need to obtain payroll information for financial transactions (e.g., time worked on a project, for billing purposes). These are more fully documented in Appendix B.

A careful review of the issues led to the conclusion that substantial additional savings would be achieved by an integrated solution, relative to a "best of breed" solution. These savings will come through the elimination of multiple data-entry functions, and greater efficiency of transaction processing. While it is not possible at this stage to identify specific positions which would be effected, we are confident that savings in the affected administrative areas will exceed 15percent relative to non-integrated solutions, and this analysis is supported by industry experience.

Ranking and Short-Listing of Products:

All available information was reviewed in order to determine which applications or combinations of applications could serve the City's needs, so that detailed financial and implementation analyses could be conducted. The issues were complex and many variables entered into the analysis. Ultimately, four factors were considered in short-listing products for detailed analysis, and in determining the ultimate recommendations:

(a)relative scores on the functional and technical evaluation, as determined by the original evaluation teams

(b)ability of the vendors to support an implementation on the scale required by the City and within the required timeframe;

(c)degree of functional integration available across financial and human resource/payroll functions; and

(d)the presence of existing installations at the City, which could provide a base for a new installation, as well as staff with familiarity with the products.

An investment has been made in the Computron/Cyborg installation at Metro, as documented in Table2, of which approximately 50percent is infrastructure investment necessary to support the new City and is reusable, subject to year Y2K compliance. In any event, it is essential that future costs and benefits be a significant criteria on which the evaluation is conducted.

It is not possible to simply add additional data or hardware to the existing Computron/Cyborg installation to support the new organization. Entirely new financial structures must be created, a multitude of new business rules implemented, new hardware installed and a vast amount of existing data converted to the new system from the seven existing municipalities (including Metro, whose existing data will have to be converted to the new standard necessitated by amalgamation). As a result, all software including both current and new modules would have to be reinstalled (or installed for the first time) and appropriately configured. It would be necessary to treat the implementation of Computron and/or Cyborg as a new installation, at a capital cost of $10.5 million.

Neither Computron nor Cyborg ranked high in the head-to-head evaluation. In particular, Cyborg was identified as lacking the minimum functionality necessary to support the City's Human Resource and Payroll needs. Its Payroll module is unable to support sufficient earnings categories to support the complex operational and labour relations realities at the City. Position Management could not be successfully demonstrated, or otherwise evaluated, as it was still in development without any implementations. Employee self service capacity was very limited, and the company has no apparent plan to move toward web-enablement, which would facilitate ease of access with a standardized web browser user interface through either the internal intranet or remotely via the internet. The Cyborg product cannot be used by the City, and was not included in the final short-listed analysis. As a result, the minimum investment required in FIS and HR/P systems by the City is $19 million because of the need to completely replace the HR system.

Computron did not evaluate well relative to the other products, but not quite so dramatically as Cyborg. It has been determined that Computron could be acceptable for the City's financial systems needs, at least for the short term. Because of the existing installation at the former Metro, and the possibility that implementation of Computron financials could be accelerated as a result, this product was included in the final implementation and cost/benefit evaluation.

PeopleSoft provided both Financial and HR/Payroll systems for evaluation. It is clear that PeopleSoft is committed to production of an integrated suite of business systems, and will likely be very competitive in the integrated systems market in the future. However, our evaluation suggests that the version of the PeopleSoft financial systems product submitted for evaluation does not yet meet the City's needs, and therefore an integrated PeopleSoft system is not possible.

However, the PeopleSoft Human Resource and Payroll applications are clearly "state-of-the-art", and provide a very good fit relative to our needs in those areas. PeopleSoft HR/Payroll systems were included in the implementation and cost/benefit evaluation.

Although J. D. Edwards financials were evaluated highly, the absence of either an integrated HR/Payroll system or an existing installation at the City on which to build a new implementation were significant factors in the decision not to pursue the JDE applications. In addition, Gartner Group analyses have identified J. D. Edwards as a niche player, with strength in AS400-based smaller organizations, but with limited capacity to service organizations the size of the City.

Only the SAP product line provided the potential for achieving an integrated solution across the Financial and HR/Payroll applications. Both of the SAP products were rated highly in the separate evaluations, just slightly behind the 'best of breed" leader in each category. Because of the very good quality of the individual products, along with the integration factor, both SAP Financials and SAP HR/Payroll were shortlisted in their respective categories.

Implementation and cost/benefit analyses have been conducted on the financial systems products from Computron and SAP, and on the HR/Payroll products from SAP and PeopleSoft, in various combinations, as follows:

(a)SAP Integrated Systems: SAP Financials and SAP HR/Payroll, implemented together, with the Etobicoke installation of SAP Financials as the base.

(b)Computron Financials with SAP Human Resource/Payroll: Computron Financials would be implemented by building on the existing Metro implementation where possible, although significant reworking would be required. SAP Human Resource/Payroll would be implemented as a new installation. If it were decided at a later date to implement SAP financials, this would allow migration to a fully integrated solution.

(c)Computron Financials and PeopleSoft HR/Payroll: As in b) above, but with PeopleSoft HR/Payroll instead of SAP.

(d)Computron interim Financials to SAP Financials/Human Resource/Payroll: The Computron Financial system and SAP HR/Payroll is implemented initially, to allow for reduced risk of delays in availability of the necessary financial systems. The full suite of SAP financial products would be implemented after the initial Computron implementation was completed.

Implementation and Cost Analysis:

With the assistance of consultants LGS Group, a detailed analysis of the costs and benefits associated with each of the options was conducted. The results of the analysis are shown in the table "Cost and Benefit Analysis, Financial/HR Systems", attached as Appendix A.

Cost analyses are based on information provided by the vendors for licensing and implementation, and upon additional information generated by staff.

Benefits through staffing efficiency have been calculated using conservative assumptions. All products will provide similar levels of benefits (primarily through staff reductions) within the Finance and HR/Payroll organizations. It is anticipated that reductions of about 80 positions can be achieved within these organizations as a function of implementation of the new systems across the organization.

Additional savings have been identified from within the Operating organizations, primarily as a function of integration of Finance and HR/Payroll applications. As outlined previously and in Appendix B, an integrated system will provide significant gains in efficiency. We have calculated that about 90 positions (out of a total of about 600 positions involved in these kinds of administrative activities) should be eliminated upon full implementation of an integrated solution. Of the vendors with products providing acceptable functionality, only SAP is able to provide this high level of integration. These savings are shown only in the figures for SAP implementation.

Net present value uses discount rates appropriate for the products involved. In general, discount rates are higher where risk is higher, and lower where risk is lower. For instance, the initial discount rate for installations involving Computron is relatively low, because the risk of being unable to implement on the projected time-frame is low. The initial discount rate for SAP installations, on the other hand, is moderately high, because of increased on-time risk. However, the long-term Computron risk is high, because of the uncertain future of the company and its product line, and potential associated difficulties obtaining support and upgrades, while the corresponding SAP risk is low.

Net present value and internal rate of return calculations show that installation of SAP products for the FIS and the HR/P provide by far the best financial return over the life-cycle for product installations of this type. Even though initial capital cost is relatively high, net present value and internal rate of return favor this combination as early as the third year.

The recommended solution, SAP Financials with SAP Human Resource and Payroll, has the most favorable bottom line over both three and seven year terms. Total capital investment for the SAP solution will be $26.3 million, with operating costs to 2005 of $10.7 million. Total benefits and savings to 2005 will be about $89 million, including reduced staff requirements in the core administrative functions (finance, human resources, payroll) and about a 15percent reduction (90positions) in staff requirements for administrative functions in the operating departments. Over the life of the average installation (seven years), we expect an SAP installation to produce net savings of about $52million.

An installation of Computron financials with SAP human resource/payroll would have lower capital and operating costs ($19 million and $4.3 million respectively), but would also have significantly lower downstream benefits ($54.8 million) as a consequence of the reduced efficiencies in administrative systems. The net savings over the life of a Computron/SAP installation are expected to be about $32 million.

Figures for an installation of Computron financials with PeopleSoft human resource/payroll are similar to those for Computron/SAP, except that costs for PeopleSoft are somewhat higher. An interim installation of Computron financials, with SAP financials and human resource/payroll as the target installation, has significantly higher costs and somewhat lower benefits than a "pure" SAP installation.

All analysis is predicated on an aggressive implementation schedule, which focuses on implementation of the essential financial components by early in 1999. Supplementary financials would be fully implemented by September of 1999, as would be the full suite of HR/Payroll products. Complete installation is required by the end of the third quarter in 1999, in order to avoid Y2K problems in the period leading up to the millennium.

Degree of product integration has some effect on the implementation scheduling. Meeting the third quarter 1999 deadline for complete installation is most achievable using an integrated system on an accelerated and closely vendor-coordinated schedule. While use of an existing system such as Computron will make achievement of the financial systems target in early 1999 more readily achievable, the creation of custom interfaces to any HR/P product will be difficult to achieve within the target timeframes.

All vendors have undertaken to meet this schedule. Schedule definition will be an important element of the contracting process with the selected vendor(s).

Future Partnering Issues:

It has been anticipated that many of the City's Agencies, Boards and Commissions will make use of the new business systems to be implemented. In particular, the Toronto Police are in the process of considering options to address the inadequacies of their existing systems relative to the Year 2000 issues. We have been advised that the Police do not believe that Computron can adequately address their complex needs. The Police are prepared to work closely with the City, towards a joint system, if SAP is selected.

The police have just recently implemented PeopleSoft products for their HR and Payroll needs, and will have to re-evaluate this strategy if they partner with us on financial applications. They may choose to continue with PeopleSoft HR/Payroll for the time being, pending an evaluation of the costs and benefits associated with migration to an SAP HR/Payroll installation, in partnership with the City.

In addition, the Toronto School Board has recently opted to pursue a contract with SAP for installation of financial systems. It is anticipated that synergies could be obtained through collaboration with the Board, and initial discussions have been held. In particular, it is possible that joint training ventures could be set up, significantly reducing costs for both parties.

It is also possible that broader administrative efficiencies could be obtained through partnership with these and other public sector organizations jointly or with an outside agency. Such partnerships are more likely to be possible when the organizations share a systems infrastructure. However, it is felt that such a proposal should be considered once the initial implementation period is complete and when the City has captured the maximum savings itself.

Conclusions:

The absolute minimum financial investment required is $19 to $20 million in order to provide a basic solution for the City. After review of the all of the data (functional evaluation, third-party assessments of the companies and applications, cost analysis and partnering possibilities), it has been concluded that SAP applications for Financial and Human Resource/Payroll systems, with a financial investment of $26 million, provide the greatest functionality, best cost/benefit analysis (i.e., most opportunities for staff efficiencies) and most opportunities for partnering, and are the recommended solution. The company is a leader in the field, and is very stable with a well-articulated vision for its product line. In addition, affiliated organizations such as the Toronto Police and the Toronto School Board will be able to partner with the City most effectively if SAP is implemented as the City's business systems. The additional investment of $6 to $7 million will generate savings of almost $6million per annum on an ongoing basis.

It is therefore recommended that the City contract with SAP for supply of Financial and Human Resource/Payroll systems.

Other options have been considered, and are potentially viable. In particular, Computron financials could be implemented more quickly than the SAP application, with a somewhat lower capital and operating cost. However, functionality and potential returns through staff savings would be lower, and it will be more difficult to implement a non-integrated HR/Payroll system within the target timeframe. It is also possible that this option would not allow the Police or the School Board to partner with the City.

Either SAP or PeopleSoft HR/Payroll applications could be used in association with Computron for a cost of $19 to $20 million. Our analysis suggests that SAP implementation would provide slightly lower costs, and would allow future consideration of an integrated solution, with the associated benefits. These options should be considered only if medium-term net costs are the principle deciding factor.

A third option (the most expensive at $30 million) is an interim installation of Computron, with SAP Financial and HR/Payroll systems as the target product line. The single advantage of this strategy is that it would somewhat reduce the risk of delayed implementation of the financial applications, relative to an SAP installation. However, costs would be significantly higher, and it is likely that the risk associated with the alternatives can be managed successfully. This option will also preclude involvement by the Police and the School Board, at least until the SAP applications were installed. This option should be considered only if short-term risk reduction is the principle deciding factor.

Contact Names:

Alan Deans, Ron Myhr, Al Shultz, Lana Viinamae, Stephen Wong, Ivana Zanardo

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Appendix A: Cost and Benefit Summary Analysis

Financial/HR Systems

The figures for Net Present Value and Internal Rate of Return are indicators for how favourable an investment is - the higher the positive numerical value, the more favourable the investment.

Assumptions:

(1)Transition plans:

(a)the business cases use either the transition strategies, plans and resource requirements provided by the software vendors with respect to their products; or the estimates provided by the City staff for "internal" activities such as conversion, internal training, interfaces, etc.; and

(b)the distribution of the costs and benefits for each alternative over the cost benefit period is consistent with the corresponding transition plan for this alternative.

(2) Cost benefit period:

(a)the life cycle of administrative software is approximately seven years; and

(b)the cost benefit models demonstrate the financial impact of the transition alternatives not only after seven years (2005), but also after three, five and nine years to demonstrate a shorter-term (capital) expenditure impact and a longer term impact as some "target" solutions are likely to last beyond 2005.

(3)Capital costs:

(a)Capital costs can be grouped into three broad categories - hardware, software, and HR costs;

(b)HR costs include software / hardware configuration, enhancements, conversion, training, etc. The cost benefit models assume that City staff (IT and business) be used whenever possible during the transition; and

(c)all transition costs except internal HR costs are considered capital.

(4)Hardware costs:

(a)hardware requirements are essentially the same for all alternatives; and

(b)all cost benefit models use the same transition (capital) and ongoing annual (operating) costs of $4,570,000.00 and $75,000.00 respectively, the estimates provided by Sun Systems.

(5)Software costs:

(a)the business cases use software costs, both licensing and maintenance, as per software vendor quotations; and

(b)the software licensing costs of SAP and PeopleSoft are accrued once the software is in production, and are capitalised over three years. These vendors have indicated that they will be flexible with respect to this issue, but there is no official proposal from either vendor at this time.

(6) HR costs:

(a)the business cases use external consulting costs as per software vendor quotations;

(b)conversion and training costs are essentially the same for all alternatives;

(c)the estimates for conversion, training and other "internal" costs were based on analysis of the former City's SCT Banner experience, and extrapolated to the other cost benefit models; and

(d)the business cases use the following City staff rates to calculate the operating HR costs:

(i)$1,000.00 per diem for IT staff; and

(ii)$500.00 per diem for business staff.

(7)Benefits:

(a)the business cases include only additional savings resulting from implementing the considered alternatives, but do not include the projected amalgamation savings; and

(b)in addition to staff efficiency gains attributed to implementing any of the solutions, the business cases for the SAP alternatives include the following "integrated solution" benefits:

(i)additional $160,000.00 per annum, or 15 percent of IT support, as per Gartner Group research; and

(ii)additional $5,400,000.00 per annum in the Operating organizations resulting from the reduction in the HR/Finance data capture duplication and the management information preparation.

(8) Risk Factors:

(a)the business cases consider key risk factors associated with the transition to, and the ongoing maintenance of each alternative by applying variable rates of discount to the cash flows in the Net Present Value (NPV) calculation. Higher risks mean higher discounts; and

(b)the following are the three risk groups and associated discount rates used in the business cases:

(i)Low - 7.5 percent;

(ii)Medium - 19 percent; and

(iii)High - 30 percent.

(9)Transition risks:

(a)the risk assessment of various transition paths is based mainly on the ability to meet successfully the transition constrains (see Assumption 1 above), and, thus, reflects such factors as:

(i)use within the City;

(ii)availability of experienced resources; and

(iii)scalability.

(b)the following is the relative risk assessment of the transition alternatives as used by the business cases:

(i)Computron / Cyborg - Low;

(ii)Computron / PeopleSoft - Medium; and

(iii)SAP - Medium.

(10) Ongoing risks:

(a)the assessment of ongoing risks of maintaining various software products reflects such factors as:

(i)vendor's viability;

(ii)vendor's commitment to the City and to the municipal market;

(iii)product's viability;

(iv)product improvement; and

(v)availability of support.

(b)Gartner Group research suggests that:

(i)"best of breed" products are likely to lose their market share to integrated solutions;

(iii)Computron customers "watch" the vendor closely and conduct an annual re-assessment of their relationship and potential buyers consider other alternatives;

(iv)Cyborg is a small vendor with a limited product line, and is high risk; and

(v)SAP leads the integrated solution vendor race.

(c)the following is the relative risk assessment of the ongoing maintenance of the target solutions considered in the business cases:

(i)Cyborg / Computron - High;

(ii)PeopleSoft HR / Computron - Medium;

(iii)SAP - Low; and

(iv)SAP HR / Computron - Medium.

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Appendix B

City of Toronto

Administrative Systems Evaluation

"Best of Breed" vs. Integrated Applications

Introduction:

The new City of Toronto is working on a complex and pressing task of consolidating its administrative services and systems, a critical element of its overall amalgamation effort. The City is faced with two fundamentally different alternatives in its application system evaluation- an integrated HR/Payroll/Financials and a "best of breed" package. The "best of breed" solution is a combination of HR/Payroll and Financials. Normally, these products are developed (but not necessarily distributed) by different vendors, and are chosen for their relative strength in their respective functional areas, in this case, HR/Payroll and Finance. On the other hand, the integrated solution is a product which is comprised of tightly integrated modules with a common underlying data base and a common access tool set. The functional superiority of "best of breed" components, unquestionable a few years ago, has practically disappeared as leading ERP (enterprise resource planning) vendors have dramatically improved the functionality of their products in all areas, while maintaining their integration focus.

In this document, we review the business needs of the City and analyze the impact of the aforementioned alternatives on its business operations. We highlight the principal differences between these solutions and illustrate them with a few examples representing some typical City needs. Finally, based on this analysis, we make a recommendation.

City of Toronto Business Needs:

The City has aggressive improvement targets for its administrative services with respect to both staff efficiency and quality. In order to achieve the expected results, the City should consider a holistic approach to change. While technology is a necessary and very important element of change, its alignment with business processes, organization, and culture are extremely important.

Therefore, prior to reviewing the aforementioned technology alternatives, we consider the business environment the technology solution will have to be aligned with.

The administrative services will need to reduce cost of transaction processing, and focus on value-added activities (e.g., analysis, planning). According to Gartner Group, the following are some strategic imperatives in transforming these services:

(1)Finance - in addition to traditional general accounting, should focus on cost and management accounting and treasury issues; its analytical capabilities should span the entire enterprise, not just focus on financial metrics.

(2)Procurement - in addition to processing user requests and contracting with vendors, should focus on negotiating deeper discounts, reducing transportation and other carrying costs; influencing the vendor's R and D, yield and production capacity, and watching operational, decommissioning and disposal costs of capital goods.

(3)HR/Payroll - in addition to administering the organization and its employees, should focus on HR planning which is becoming increasingly complex with the proliferation of business process outsourcing/insourcing options and project-based organizations.

This shift in focus encourages capturing (with edits and controls), and ensuring quality of information at the source. Capturing information at the source also strongly suggests it should be done once. The fact of (re-)entering the same information into loosely connected systems for different purposes was not obvious before, as it was done by different administrative areas (often based on colourful multi-part documents produced by the originating department), but pushing the activities to the source has exposed the problem. Gartner Group expects 1999 investments in data capture and sharing technologies to deliver a 50 percent better return on investment than those in refreshing transaction-processing capabilities.

The strategies described above are consistent with the direction the City is taking (New City New Opportunities, Transition Team, December 1997):

(a)benchmarking against private sector;

(b)move budgets for support services to operating departments;

(c)responsibility for results; and

(d)balance centralized and decentralized functions.

Integrated vs. non-integrated HR/Payroll/Financials:

In this section, we discuss how these technology options would function in the business environment described above. There are several key areas of the City's business operations where the alternatives will result in a strikingly different impact on the business users.

Integrated Applications "Best of Breed" Applications

Data Capture:

The integrated alternative enables information capture and validation at the source while the non-integrated alternative requires either re-entry of the same information into the software components or maintenance of interfaces which would simulate this re-entry. The interfaces are normally specified and controlled by vendors and represent compromise solutions aimed at satisfying their user group needs.

The following are a few examples of how the alternatives would impact the City's operations.

(1)Create a Position:

Normally, creating a new position using a HRMS (HR Management System) first requires checking if the organizational unit has sufficient budget, and, if it does, adjusting the budget upon creation of the position. The integrated alternative allows on-line real time validation, position creation and budget adjustment while the non-integrated alternative, at best, will validate the position budget against financial information captured at some point in the past (FIS-to-HRMS interface) and upon creation of the position will create a transaction to revise the budget (another interface, HRMS-to-FIS). As the validation was not real time, this transaction may be rejected and thus may trigger a manual process of reversing the creation of the position.

(2)Process a Salary Increase:

Processing a salary increase first requires checking to see if the G/L salary account has enough money in its free balance, and, if it does, adjusting the free balance and salary encumbrance according to the increase.

The integrated alternative allows on-line real time validation, salary increase processing and free balance adjustment, while the non-integrated alternative, at best, will validate the increase amount against financial information captured at some point in the past (FIS-to-HRMS interface) and upon increasing the salary will create a transaction to revise the free balance budget (another interface, HRMS-to-FIS). This validation will be impossible to perform in the latter case at all if the funds checking rules include both the salary budget and the bottom line budget of the organizational unit. As the validation was not real time, this transaction may be rejected and may trigger a manual process of reversing the salary increase.

(3)Time and Activity Reporting:

An employee working on a project /program(s), reports his/her Time and Activity information to his/her project manager as well as to HR/Payroll for payroll, vacation, benefit and other purposes.

The integrated alternative allows on-line real time validation and updates both the project/program information and HRMS. On the other hand, very few project management systems have interfaces with HR/Payroll systems and vice versa. Therefore, this example is likely to result in duplication of data entry (following with reconciliation).

Operational Management Information:

The integrated alternative provides an integrated information view and allows the end-user relatively easy access to up-to-date cross-modular (e.g. HR and Financials) operational management information. The non-integrated alternative requires development and maintenance of a data warehouse which would serve as a repository for gathering and synchronizing information from various software components, e.g. HRMS and Financials, for reporting and analytical purposes. This information is historical and may not be current enough for tactical purposes. This data warehouse would likely be a product from a niche vendor, and would have a tool set different from the tools supplied by the main software products.

The following are examples of enquiries which could be satisfied by an integrated solution, but not by a non-integrated one:

(a)ability to view departmental salary budget (maintained in FIS) and to "click" on it to view the positions (maintained in HRMS) comprising the budget;

(b)ability to view summary payroll actuals (FIS) and to zoom into corresponding employee-by-employee payroll detail (HRMS);

(c)ability to view overtime summary payment (FIS) and to see, employee-by-employee, what it is comprised of; and

(d)ability to view project/program information (FIS-Project Management) and to view HR costs (regular salaries, overtime, benefits) for the project/program or, with proper access clearance, by project member (HRMS);

The previous example is just an indicator of the value of the integrated project/program and HR information. HR planning (skills, training, competencies) can be driven by project plans, schedules and required skills; and, conversely, employee competency always includes his/her project experiences.

Workflow:

Workflow plays a critical role in implementing business processes by gluing operational units and administrative services together. While workflow permeates all functions by enabling employee self-service, routing purchase requisitions, purchase orders and other electronic objects for approval and further processing in all business areas, workflow roles are driven by organizational structure maintained in HR. According to Gartner Group, "If HR is integrated, common workflow definitions ¼ should be part of the integrated design. To reach the same level of functionality, best-of-breed HR implementations must create interfaces to share and manage responsibility information beyond the HR application, across workflow for applications in other business areas. Few HR vendors have made provisions for exporting this information. Conversely, few outside workflow systems (particularly those produced by enterprise application vendors) have facilities for importing such information. This makes interfaces difficult and often leads to dual data entry and maintenance with no reconciliation of differences in organization structure representations in competing systems. The more cross-business-area-workflow is a requirement, the greater the appeal of an integrated system."

Further Integration Opportunities:

Selecting the integrated HRMS/Payroll/FIS/Project Management alternative now will pave the way for further integration. If in the future the City chooses to acquire software to support its fleet and equipment maintenance operations, and implements the modules of the integrated solution that are designed for this purpose, the City will reap further benefits of integration. Imagine preventative maintenance programs triggering automatic ordering of parts, work order information concurrently affecting equipment records and mechanics' HR/Payroll, resource planning capabilities, etc. This list can go on and on. Clearly, the more encompassing the integration is, the more beneficial it becomes, the more interface maintenance and dual data entry headaches can be avoided.

City Staff Efficiency Gains:

In addition to the qualitative benefits described above, selecting the integrated HRMS/Payroll/FIS/Project Management alternative should result in significant staff efficiency gains in various areas of the City. The single most important benefit in this area is the virtual disappearance of the role of "information broker". This role does not easily translate into a position or positions, full- or part-time, on the City's organizational chart. The role includes everyone who is presently involved in:

(a)preparation, capture and reconciliation of cross-functional information and/or information required by multiple systems (e.g. HRMS and FIS);

(b)packaging and "massaging" the information above to support operational managers; and

(c)maintaining system interfaces described above.

This change should affect HR, Finance, IT and especially operational departments.

Moreover, IT staff complement dedicated to multi-vendor systems (support and help desk) is expected to be 15 - 20 per cent. higher than for an integrated solution.

Conclusion:

We have reviewed a number of advantages, both short-term and longer-term, of proceeding with the integrated alternative. Based on this analysis, our understanding of the City's circumstances and business needs, our experience in the application of technology to the business needs of private and public organizations, we strongly recommend that the City pursue the integrated alternative as the target solution for the City's administrative system. This path will help the City maximize the benefits of amalgamation, transform its administrative operations and provide the City with a solution flexible to sustain future business improvements and technology advances.

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The following persons appeared before the Corporate Services Committee in connection with the foregoing matter:

-Ms. Mina Wallace, Vice President and General Manager, PeopleSoft Canada Inc., and filed a submission in regard thereto;

-Mr. Tim Conroy, and Mr. John Nye, Computron Software, and filed a submission in regard thereto; and

-Mr. Yakov Matusevich, Management Consultant, LGS Group Inc.

The Chief Financial Officer gave an overhead presentation to the Corporate Services Committee in connection with the foregoing matter, and filed a copy of her presentation material.

(City Council on July 8, 9 and 10, 1998, had before it, during consideration of the foregoing Clause, the following communication (June 26, 1998) from the City Clerk:

Recommendations:

The Budget Committee on June 25, 1998, recommended that:

(1)consideration of the Project Proposal, Financial and Human Resource/Payroll Systems, be deferred to the meeting of Council to be held on July 29, 1998;

(2)the Chief Administrative Officer, the Chief Financial Officer and Treasurer, the Chair of the Corporate Services Committee, the Chair of the Budget Committee, and the Executive Director of Information Technology, be requested to:

(a)select a third party, who is not associated with any software-related companies, to review the financial analyses of the total capital expenditure of $26.3 million; and

(b)report to a joint meeting of the Budget Committee and Corporate Services Committee, for a recommendation directly to Council on July 29, 1998, together with the recommendations adopted by the Corporate Services Committee on June 22, 1998; and

(3)the Chief Administrative Officer be requested to report on the number of computer consultants that have been selected recently, how much money the City is spending on them and whether there was any type of tendering process, including expressions of interest.

Background:

The Budget Committee on June 25, 1998, had before it the following:

(a)Transmittal Letter (June 22, 1998) from the Corporate Services Committee;

(b)Communication (June 23, 1998) from Mr. Jeffery S. Lyons, Q.C., Morrison, Brown, Sosnovitch, Barristers and Solicitors;

(c)Communication (June 24, 1998) from Mr. Peter J. Smith, Vice President, Sales, PeopleSoft Canada;

(d)Facsimile (June 24, 1998) from Mr. Gennaro Vendome, Vice President, Computron Software; and

(e)Communication (June 19, 1998) from Mr. Tim Conroy, Sales Manager, Computron Software.

Mr. Peter J. Smith, Vice President, Sales, PeopleSoft Canada, appeared before the Budget Committee in connection with the foregoing matter.

(Letter of Transmittal dated June 22, 1998 addressed to the

Budget Committee from the

Corporate Services Committee)

Recommendation:

The Corporate Services Committee on June 22, 1998, recommended to the Budget Committee, and Council, the adoption of Recommendation No. (2) embodied in the joint report (June 10, 1998) from the Chief Financial Officer and Treasurer, the Commissioner of Corporate Services and the Executive Director of Human Resources; and requested the Budget Committee to report thereon to the meeting of Council scheduled to be held on July 8, 1998, when this matter is being considered.

The Corporate Services Committee reports, for the information of the Budget Committee, having:

(1)recommended to Council the adoption of Recommendations Nos. (1) and (3) embodied in the joint report (June 10, 1998) from the Chief Financial Officer and Treasurer, the Commissioner of Corporate Services and the Executive Director of Human Resources;

(2)referred the following motion to the City Solicitor for report thereon directly to Council for its meeting scheduled to be held on July 8, 1998:

Moved by Councillor John Adams:

"That City Council adopt the following policy:

"(I)if any director, officer, employee, agent or other representative of a proponent/respondent, including any other parties that may be involved in a joint venture or a consortium with the respondent, makes, from and after Council's decision on July 8, 1998, any representation or solicitation to any elected representative or employee or agent of the City of Toronto, with the exception of the contact person designated by the Chief Administrative Officer with respect to the respondent's proposal or any other respondent's proposal, City Council is entitled to reject the proponent/respondent's proposal;

(ii)a representation can be considered to be anything said or written to any Member of Council, employee or agent which provides information advancing the interests of a proposal;

(iii)this requirement does not extend to representations made to the designated official or to any public deputation made to a Committee of City Council in accordance with the Procedural By-law;

(iv)should a respondent desire that any information be presented to Members of Council, the Respondent may request the Designated Official to do so and that official shall distribute such information to all Members of Council and appropriate staff;

(v)should Members of Council wish to receive information from any respondent(s), then the request shall be made through the Designated Official., and if any Member of Council directly approaches a respondent for information, the respondent is at jeopardy if he or she does make any representation to any Councillor in response; and

(vi)in the event of any alleged breach of the foregoing protocol, City Council shall be the arbiter of the effect of such a breach to the process";

(3)requested the Chief Administrative Officer and the Chief Financial Officer to submit a joint report directly to Council for its meeting scheduled to be held on July 8, 1998, providing recommendations respecting the inclusion of all Agencies, Boards and Commissions, including the Toronto Hydro Commission, in the FIS/HRS system being proposed; and

(4)requested the Chief Financial Officer, in consultation with the outside independent consultant from LGS Inc., to submit a written brief to all Members of Council, as quickly as possible, respecting the risks involved regarding this project and the concerns expressed by Members of the Corporate Services Committee.

Background:

The Corporate Services Committee on June 22, 1998, had before it a joint report (June10, 1998) from the Chief Financial Officer and Treasurer, Commissioner of Corporate Services, and the Director of Human Resources, recommending that:

(1)the acquisition of financial and human resource/payroll systems from SAP be approved in principle, as outlined in this report;

(2)funds not to exceed $6.1 million be authorized for expenditure in 1998, $3.4 million in 1999, $6.5 million in 2000, $6.5 million in 2001, and $3.8 million in 2002 with total capital expenditures for the financial and human resources/payroll systems not to exceed $26.3 million for the necessary hardware, software and project implementation; and

(3)the appropriate City officials be authorized to enter into contract negotiations with SAP for the supply of financial and human resource/payroll systems.

The following persons appeared before the Corporate Services Committee in connection with the foregoing matter:

-Ms. Mina Wallace, Vice President and General Manager, PeopleSoft Canada Inc., and filed a submission in regard thereto;

-Mr. Tim Conroy, and Mr. John Nye, Computron Software, and filed a submission in regard thereto; and

-Mr. Yakov Matusevich, Management Consultant, LGS Group Inc.

The Chief Financial Officer gave an overhead presentation to the Corporate Services Committee in connection with the foregoing matter, and filed a copy of her presentation material.

(Communication dated June 23, 1998 addressed to

Councillor Tom Jakobek, Chair, Budget Committee from

Mr. Jeffrey S. Lyons, Q.C., Morrison, Brown, Sosnovitch

Barristers and Solicitors

One Toronto Street, P.O. Box 28, Suite 910, M5C 2V6)

I understand that the aforesaid matter is on the budget Committee Agenda for Thursday, June 25th next.

I am enclosing the response of Computron Software Inc. who made a deputation at the Corporate Services Committee on April 22nd last.

I have been asked by Computron Software Inc. to put forward their response to the Staff Report for your consideration.

(Communication dated June 24, 1998 addressed to

Mr. Tom Jakobek, Chair, Budget Committee, City of Toronto from

Mr. Peter J. Smith, Vice President, Sales, PeopleSoft Canada

181 Bay Street, Suite 769, M5J 2T3.)

As you know, the Year 2000 problem is the single most significant challenge facing business and government today. These systems will be crucial to the success of your initiatives. Many businesses have solved their problems already by acting early and minimizing their risks. your decision is being made at the last minute. They had time. You do not.

The recommendation that is before you, has the City investing its entire future in a single software system for Financial, material management, Procurement, human Resources, Time and Attendance and Payroll. this effectively puts all of your Year 2000 eggs in one software basket.

By investing its entire future in a single software system, the situation is analogous to an investor putting all of his/her savings in the stock of a single company. It is a high-risk venture and an inadvisable investment strategy in any and all circumstances, regardless the track record of the stock. No financial advisory would advance such a strategy.

Staff have recommended a higher cost, integrated Financial and Human Resources solution that they believe presents a higher Internal Rate of Return. Your decision is not whether "integration" is better than a "best-of-breed" solution for Financial and Human Resources/Payroll. That could have been your decision months ago and indeed, under the circumstances, it is probably a decision to be made in a more rational environment in the months after the year 2000 has passed.

Your decision is how to approach and move through the very small window of opportunity. Do you really want to take a chance on a unproven payroll system? There is an axiom that says, "Go with proven technology." A beta version of software, even a version 1.0, simply allows a vendor into the marketplace. It does not prove capability, nor does it provide any assurance of deliverability. We were there once, many years ago.

PeopleSoft has a proven track record, with scores of public sector installations in Canada and the USA. Our Canadian references are large Human Resources and Payroll implementations in unionized public sector environments, like you. During the Corporate Services Committee meeting, staff referenced the recommended solution as having been implemented AT&T Canada in 9 months. We do not believe that a non-union, private sector implementation of 2,000 employees who have been using the system since January 1998 can be extrapolated to predict success at the City. Our Human resources/Payroll software applications are state-of-the-art and have been in-production at our customers in Canada since 1992.. Recently PeopleSoft was proud to release

"PEOPLESOFT CANADA PAYROLL REACHES MILESTONE

More than 500,000 Canadians now paid by industry-leading payroll system

TORONTO, Ontario - (May 1st, 1998) - PeopleSoft Canada, a leading provider of enterprise application software, today announced that more than half a million Canadian employees are now paid using PeopleSoft Payroll - making PeopleSoft payroll the top enter prise payroll application suite in Canada. Available in Canadian-specific form since 1992, PeopleSoft Payroll is licensed by more than 100 of Canada's largest companies and public sector institutions including bell Canada, Canadian Airlines International, the Province of British Columbia, AlliedSignal Aerospace Canada, Metro Toronto police, Ontario Hydro, Air Canada, CIBC Wood Gundy, Bombardier, and Bank of Montreal.

Even your staff agree that we are the industry leader. We are the only solution that can guarantee delivery on time and within budget.

PeopleSoft suggests that the City minimize its risk by "risk averaging" much as an investor would dollar average an investment. We recommend that the City utilize the very best, proven technology available for Human Resources and Payroll.

Getting over the Year 2000 obstacles is the issue. you have two different, core systems, so use two equally capable, stat-of-the-art applications to solve the problem. Make the decision on integration at a point after the problem has been solved. We have many customers who are successfully running combined PeopleSoft and SAP systems such as the City of Mississauga, the City of Edmonton, the Canadian Federal Government and Bell Canada.

PeopleSoft has innovative ways to allow you to do this, including "Catalyst", our year 2000 postpone option, which allows you to rent a solution for 3 years and the make a long term strategic decision that is right for the City.

At the outset of this project you issued for two separate RFP's to help solve your financial problems and human resource/payroll problems. Integration does not solve any of your problems; indeed, if an unproven product line fails to deliver then an integrated solution may cause even more problems.

Select the very best technology on the market at the very best prices.

Select PeopleSoft to be your Human Resource/Payroll system partner.

Attached to above letter:

PEOPLESOFT CANADA LTD. LAUNCHES NEW SOLUTION TO

BRIDGE YEAR 2000 CHALLENGE

PeopleSoft Catalyst delivers rapidly implemented, low-risk alternative for organizations to

replace legacy computer systems and build future competitiveness

TORONTO, Ontario - (January 13, 19998) - PeopleSoft Canada Ltd., a leader in enterprise business management software, today announced an innovative strategy for companies that have not begun to replace legacy computer systems in time for the year 2000 deadline. Available immediately, PeopleSoft Catalyst features a complete bundle of software, hardware and services in an IT outsourced environment that will allow organizations to postpone the decision of full replacement while solving year 2000 issues quickly. PeopleSoft Catalyst lowers the business risk of the decision -- organizations avoid incurring high up-front financial costs, don't have to compete in the market for scarce technical resources, and do not pay until the software is ready for use.)

(City Council also had before it, during consideration of the foregoing Clause, the following report (July 7, 1998) from the Chief Financial Officer and Treasurer:

Purpose:

To respond to the request from the June 22, 1998 meeting of the Corporate Services Committee that a written brief be submitted to Council regarding the risk assessment performed by the external consultants LGS Group and other questions raised by members of the Committee.

Financial Implications:

N/A

Recommendation:

It is recommended that this report and the attachments be received as information.

Background:

First, as a matter of context, the Steering Committee feels that it is important to state that the recommended solution meets three objectives: (1) it allows for the benefits of an integrated solution without sacrificing the functionality of a "best of breed" solution; (2) it is implementable within the required time frames for the FIS and HRIS system i.e., by the year 2000; and (3) it will serve as the foundation for the efficient operation of the City's financial and human resources administration for the future.

Discussion:

In March 1998, when the separate Financial and Human Resources/Payroll projects were merged into a single project, the City requested quotations from several consulting companies to provide assistance in completing the evaluation process. LGS Group, an independent consulting firm with no alliance with any of the software vendors under consideration, was selected. Their role in the process is described in detail in Attachment A titled "On LGS Role".

The Project Steering Committee and the staff evaluation team considered the various options, determined the best solution, and made the recommendations in the report to the Corporate Services Committee. LGS provided research and analytical assistance. They tested our recommendations and also reached an independent opinion that an integrated SAP Financial and Human Resources/Payroll solution is the best solution for the City (see Conclusion in Attachment A). This as well, formed part of staff's analysis and final recommendations.

Risk assessment was an integral part of our analysis in formulating the business case. AttachmentB titled "Risk Assessment" is a detailed discussion of the analysis done by LGS Group for the various options considered.

In order to mitigate risks associated with the tight implementation timeframe, a formal risk management methodology is being incorporated into the overall project management. The recommended solution is feature rich. Implementation of the features will be prioritized and phased-in as necessary and possible. It is however, intended to fully utilize all applicable features as quickly as possible to achieve the noted benefits.

On the FIS side, the City's projected implementation date is April 1999. The City, in the meantime, will be reducing the number of operational FIS systems over the next 6 months, being in a position of having year 2000 compliant system left for final conversion. It is important to note that in implementing the SAP FIS that we are building on an already successfully implemented FIS in the former City of Etobicoke. The final cutover to SAP would not occur until adequate testing of operations is complete.

On the HRIS side, the City's projected implementation date is September 1999. The City, in the meantime, is reducing the number of HRIS systems in operation for many reasons, not the least being, maintaining good internal controls. Already, there are only 5 systems operating today. The shut-down of two systems occurred over the period of one month. Planning is underway to reduce the City's risk of project implementation by continuing to reduce the number of HRIS system by year end. Since none of the existing systems is year 2000 compliant, the HRIS implementation will require significant resources - regardless of which product is chosen. Having the vendor as the prime implementer, and taking responsibility directly, as SAP is prepared to do, is critical to the City's success.

As noted, significant to minimizing the risk in the recommended solution is the "prime" or "lead" role that the vendor SAP is prepared to take with the City. Generally the vendors considered by the City in all the business cases only sell their software and then "contract out" the project implementation to third party consultants - some who are certified by the vendor and others who are not. SAP has agreed to mutually share the risk associated with our implementation by taking responsibility for project implementation. They will put together the necessary team to deliver results as expected by the City. SAP, the recommended vendor and the City will therefore jointly manage implementation risks. A separate document has been prepared to address issues associated with the recommended vendor and its solution.

Conclusion:

Staff have completed an intensive and extensive evaluation process. The independent analysis supported staff's own recommendations (and extensive findings of the external consultant who assisted in the process.) It is essential that project approval be expedited to maximize the available time for implementation before the Year 2000, to achieve appropriate financial and staffing control, and to attain administrative efficiencies associated with amalgamation. I am confident that based on the work performed to date by staff, the work of the independent consultant, the vendor, it products and track record, that the recommended solution of a SAP Financial and Human Resources/Payroll System will not only assist the City in achieving these goals but will also position the City well for future re-engineering efforts and efficient operations. The staff resources from all the former municipalities are dedicated to implementing the recommended solution on time and within budget and bring a significant track record of successful implementation skills.

Contact Name:

Stephen Wong,

Phone: 394-8135.

(A copy of Attachments A and B, referred to in the foregoing report, is on file in the office of the City Clerk.)

(City Council on July 8, 9 and 10, 1998, also had before it, during consideration of the foregoing Clause, the following report (July 7, 1998) from the City Solicitor:

Purpose:

The purpose of this report is to comment on the motion by Councillor Adams pertaining to adoption of a policy pertaining to lobbying by proponents in the above-noted proposal call.

Funding Sources, Financial Implications and Impact Statement:

N/A

Recommendation:

It is recommended that this report be received for information.

Council Reference/Background/History:

At its meeting on June 22, 1998, the Corporate Services Committee, in consideration of the matter of the acquisition of financial and human resource/payroll systems, referred a motion by Councillor Adams (set out in Appendix 1 to this report) to the City Solicitor for a report directly to Council for its meeting scheduled on July 8, 1998 (see Clause No. 1 of Report No. 9 of The Corporate Services Committee).

Comments and/or Discussion and/or Justification:

The motion would adopt a policy to prevent (given the potential consequences to a proponent) the lobbying of Councillors and staff and would require that the "flow" of information to and from proponents and Councillors, including staff, occur through a designated staff person or in public by deputations to Committee. Failure to adhere to the process would result in the discretion of Council to reject a proponent's proposal.

The policy is in effect a repetition of the policy that was adopted for the Proposal Call issued in 1995 by the former Metropolitan Toronto for disposal of Metro's residual solid waste (the "SWRFP"). That policy was in turn modelled on that contained in the proposal call for the National Trade Centre (the "NT RFP").

In the prior processes, the policy was incorporated within the issued SW RFP and NT RFP and the instructions to proponents. In particular, the fact that a proposal could be rejected based on contravention of this "anti-lobbying clause" was set out in the calls together with other relevant grounds for rejection and the criteria that would be used in recommending the successful proponent. As an example, the relevant clause used in the SW RFP is set out in Appendix 2. This was in keeping with essential principles of tendering law that the bidding rules for rejection and award, including evaluation, be set out for the bidders in the bid documents and be adhered to.

Should Councillor Adams' motion be adopted, there is a concern that this could be considered the adoption of other criteria (in so far as rejection of a proposal is concerned) not initially disclosed to bidders.

Conclusions:

Adoption of the motion would initiate a process for the distribution of information not contemplated in the information given to respondents at the time proposals were requested. Given that the adoption of the policy at this stage in the process could result in the rejection of a proponent's proposal and was not shown as a basis of rejection in the proposal call, I would recommend against its adoption in this case. Any provision against lobbying should be undertaken in the context of explicit instructions to bidders in the bid call, if deemed appropriate for that call, or in the context of an overall policy adopted by City Council on lobbying.

Contact Name:

J. Anderson392-8059

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Appendix 1

Motion by Councillor Adams:

"That City Council adopt the following policy:

(i)if any director, officer, employee, agent or other representative of a proponent/respondent, including any other parties that may be involved in a joint venture or a consortium with the respondent, makes, from and after Council's decision on July 8, 1998, any representation or solicitation to any elected representative or employee or agent of the City of Toronto, with the exception of the contact person designated by the Chief Administrative Officer with respect to the respondent's proposal or any other respondent's proposal, City Council is entitled to reject the proponent/respondent's proposal;

(ii)a representation can be considered to be anything said or written to any Member of Council, employee or agent which provides information advancing the interests of a proposal;

(iii)this requirement does not extend to representations made to the designated official or to any public deputation made to a Committee of City Council in accordance with the Procedural By-law;

(iv)should a respondent desire that any information be presented to Members of Council, the Respondent may request the Designated Official to do so and that official shall distribute such information to all Members of Council and appropriate staff;

(v)should Members of Council wish to receive information from any respondent(s), then the request shall be made through the Designated Official, and if any Member of Council directly approaches a respondent for information, the respondent is at jeopardy if he or she does make any representation to any Councillor in response; and

(vi)in the event of any alleged breach of the foregoing protocol, City Council shall be the arbiter of the effect of such a breach to the process."

Appendix 2

Clause contained in Metro's Request for Proposals for the Disposal of Residual Solid Waste

"Solicitation:

If any director, officer, employee, agent or other representative of a respondent, including any other parties that may be involved in a joint venture or a consortium with the respondent, makes, from and after November 10, 1995 (the Closing Date of the RFP), any representation or solicitation to any elected representative or employee or agent of Metro or the media, with the exception of Mr.ShaunHewitt of Metro Treasury or his designate, with respect to the Respondent's Proposal, Metropolitan Council will be entitled to reject or not accept the Respondent's Proposal. This requirement does not extend to any public deputations that may be made to any Metro committee in accordance with Metro's Procedural By-law.")

(City Council also had before it, during consideration of the foregoing Clause, a communication (July3, 1998) from the Vice-President, Sales, PeopleSoft Canada Co., providing an outline of issues with respect to the Financial and Human Resource/Payroll systems project proposal and enclosing background material in this regard.)

(City Council on July 29, 30 and 31, 1998, had before it, during consideration of the foregoing Clause, the following joint report (July 27, 1998) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer:

Purpose:

To respond to a request from the Corporate Services Committee at its meeting of June 22, 1998 to provide recommendations respecting the inclusion of all Agencies, Boards and Commissions, including the Toronto Hydro Commission in the FIS/HRIS system being proposed.

Financial Implications:

Consolidating all City Agencies, Boards and Commissions into the City's FIS/HRIS systems will create an efficient mechanism for various administrative functions including financial reporting, internal controls and data management. Capital and operating costs for the acquisition of FIS/HRIS systems for the Agencies, Boards and Commissions would be reduced if not eliminated.

Recommendations:

It is recommended that:

(1)all City Agencies, Boards and Commissions be strongly urged and requested to use the recommended City's FIS/HRIS systems, on a timetable that is mutually agreed upon, but within five years at the latest; and

(2)on a priority basis, that City staff accommodate those Agencies, Boards and Commissions with non year 2000 compliant FIS/HRIS systems, i.e., the Toronto Police Services by including their participation in the City's implementation program.

Discussion:

As a general vision, all of the City's department, Agencies, Boards and Commissions should be using the same FIS and HRIS systems. The vision promotes efficient recordkeeping, efficient database management, efficient and accurate reporting and analysis of financial information and consistent financial controls. Adequate security exists within FIS/HRIS systems to ensure that each department, agency, board and commission's detailed financial information is kept confidential.

One FIS and HRIS system for all departments, Agencies, Boards and Commissions would reduce the cost of auditing the internal controls once fully implemented since the review of the systems which produce the financial statements of all entities would only need to be done once. Similarly, any requests for financial analysis including variance reporting can be done on a much more timely basis with one system.

The City currently has 214 Agencies, Boards and Commissions that are under review by a Task Force on Agencies, Boards and Commissions. The largest of the consolidated Agencies, Boards and Commissions includes:

-The Toronto Police Services Board

-The Toronto Public Library Board

-The Toronto Transit Commission

-The Toronto Public Health Board

The Toronto Public Library and Toronto Public Health have generally previously operated within the City's financial and human resources systems with some exceptions. Discussions have been held with the Library and Public Health. These services have agreed to use the City's FIS and HRIS systems.

The Toronto Police Services are in need of a new FIS system for the year 2000. A request at Budget Committee on July 28, 1998 for $200,000 to modify their existing FIS to be year compliant was not recommended by the Budget Committee but rather that the City's own FIS/HRIS implementation schedule be inclusive of Police staff on the project teams from day one. With respect to the HRIS, the Police have been in the process of implementing a different HRIS than recommended by City staff. It is not inconceivable that in the future that the Police could join the City's HRIS in order to achieve the administrative efficiencies possible with the integrated SAP solution.

The TTC currently has FIS and HRIS systems that are year 2000 compliant. Hence their current focus for technology upgrades are focussing on year 2000 compliance in their operational systems. Discussions with TTC staff indicate that they are certainly open to using the City's new systems if their business requirements can be met but not until the year 2000 issues in their operational systems are dealt with.

The largest non-consolidated Boards and Commissions include Toronto Hydro and the Toronto District School Board. We have been advised that at this time that Toronto Hydro will be proceeding to use Oracle Financials currently used by the two of the former PUC's across all six former enterprises. With respect to the School Boards as reported in the original report, the Toronto District School Board has chosen SAP Financials and is yet to make a decision on its HRIS system.

Conclusion:

The efforts to date by City staff to bring in the City's Agencies, Boards and Commissions that are consolidated into the City's financial statements need to continue. We are confident that we can include those ABC's that need year 2000 compliant systems in the current City implementation schedule and that with our success at implementing the new FIS/HRIS for the City that the remaining ABC's can be brought in within the next three to five years. Given the robustness and diversity of clients served by SAP for its FIS/HRIS products, it is anticipated that the needs of all the ABC's can be accommodated in the recommended solution.)

(City Council also had before it, during consideration of the foregoing Clause, the following transmittal letter (July 29 1998) from the City Clerk:

Recommendation:

The Strategic Policies and Priorities Committee submits the transmittal letter (July 29, 1998) from the Budget Committee to Council without recommendation.

Background:

At its meeting on July 29, 1998, the Strategic Policies and Priorities Committee had before it a transmittal letter (July 29, 1998) from the Budget Committee recommending that the report (July28, 1998) from the Chief Financial Officer and Treasurer and Chair, FIS/HRIS Steering Committee, recommending that the report from Brian Dunk Consulting Services Limited be received and the FIS/HRIS transition project at a total cost of $26.3 million with approval of the 1998 project financing of $6.1 million from the Transition Reserve Fund with a report back in September 1998 outlining project financing requests for 199 and 2000 based on contract terms and conditions to be negotiated with SAP that have regard to matching cashflow to project milestones and project risk be approved, be forwarded to Council, without recommendation.

(Report dated July 28, 1998 addressed to

the Budget Committee from the

Chief Financial Officer and Treasurer and Chair,

FIS/HRIS Steering Committee)

Purpose:

To respond to the Budget Committee request with respect to the project's risk assessment.

Financial Implications:

The 1998 requested capital expenditures of $6.1 million and the total project cost and financing of $26 million have been included in the ranked list of transition projects envelope in a separate report previously submitted to the Budget Committee.

Recommendations:

(1)Receive the attached report from Brian Dunk Consulting Services Limited;

(2)approve the FIS/HRIS transition project at a total cost of $26.3 million; and

(3)approve 1998 project financing of $6.1 million from the Transition Reserve Fund with a report back in September 1998 outlining project financing requests for 1999 and 2000 based on contract terms and conditions to be negotiated with SAP that have regard to matching cashflow to project milestones and project risk.

Discussion:

The Budget Committee, at its meeting of June 25, 1998, considered Clause No. 1 of Report No.9 of The Corporate Services Committee dated June 26, 1998, respecting project financing approval of $26.3 million.

At its meeting, the Budget Committee adopted the following recommendation:

"¼the Chief Administrative Officer, the Chief Financial Officer and Treasurer, the Chair of the Corporate Services Committee, the Chair of the Budget Committee, and the Executive Director of Information Technology, be requested to:

(a)select a third party, who is not associated with any software-related companies, to review the financial analyses of the total capital expenditure of $26.3 million; and

(b)report to a joint meeting of the Budget Committee and Corporate Services Committee, for a recommendation directly to Council on July 29, 1998, together with the recommendations adopted by the Corporate Services Committee on June 22, 1998; ".

Although Council did not deal with the Budget Committee recommendations and the FIS/HRIS project at its meeting of July 8, 9 and 10, 1998, the Executive Director, Information Technology began a search for consultants that fit the criteria established for the review. Three consultants were identified on Friday, July 10, 1998. One consultant was interviewed by Councillor Jakobek, Councillor Rae, the Executive Director of Information Technology and myself. The other two consultants were not available until later in the month. Mr. Brian Dunk of Brian Dunk Consulting Services Limited highly recommended to the Executive Director, Information Technology was not available until Friday, July 17, 1998 for an interview. On Friday, July 17, 1998, interviews were arranged for Mr. Dunk and another consultant but due to scheduling issues for the original panel, they were cancelled.

On Friday July 24, 1998, Mr. Brian Dunk of Brian Dunk Consulting Services Limited was contacted to determine his availability and ability to complete the assignment by Tuesday, July 28, 1998. The Executive Director of Information Technology advised me that Mr. Dunk was available. As a result, I requested that Mr. Dunk be retained to complete the review as requested by the Budget Committee. The terms of reference and package of materials were delivered to Mr. Dunk in the afternoon of Friday, July 24, 1998.

Attached is the report from Mr. Brian Dunk of Brian Dunk Consulting Services Limited in response to the Budget Committee recommendations as well as a copy of his Resume. The recommendations of the report support the work performed by staff and the LGS Group Consultants.

Also attached is the report that was before Council as requested by the Corporate Services Committee with respect to the project risk assessment.

With respect to managing ongoing project risk, the project team organization structure includes a Project Quality Assurance position. This position will provide objective critical ongoing risk assessment on the project implementation to the Project Director and to the FIS/HRIS Steering Committee on a regular basis in order to ensure that implementation timelines are being met.

The FIS/HRIS project has aggressive timelines that need to be met for amalgamation/efficiency purposes as well as Year 2000 compliance. Both staff and the proposed vendor are committed to meeting the project objectives and are prepared to negotiate contract terms and conditions that match significant project milestones with payment schedules.

Conclusion:

The condition requested by the Budget Committee has been met. A second consultant, Mr. Brian Dunk of Brian Dunk Consulting Services Limited supports the staff recommendations.

TERMS OF REFERENCE

Second Consultant Review

Review the financial and risk analysis conducted by the consultant for the recommended solution including:

-Review the risk assessment document prepared by the consultant as part of the analysis with particular emphasis on the implementation timetable;

-assumptions with respect to costs and benefits;

-calculation of benefits;

-calculation of Net Present Value and Internal Rate of Return.)

(A copy of the report dated July 27, 1998 from Brian Dunk Consulting Services Limited and of the report dated June 26, 1998, addressed to City Council from the City Clerk, entitled "Project Proposal, Financial and Human Resource/Payroll Systems," referred to in the foregoing report, is on file in the office of the City Clerk.)

2

Natural Gas Supply to the City of Toronto

(City Council on July 29, 30and 31, 1998, adopted this Clause, without amendment.)

(City Council on July 8, 9 and 10, 1998, deferred consideration of this Clause to the next regular meeting of City Council to be held on July 29, 1998.)

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(Clause No. 34 of Report No. 9 of the Corporate Services Committee)

The Corporate Services Committee recommends the adoption of the following joint report (June 10, 1998) from the Commissioner of Corporate Services and the Chief Financial Officer and Treasurer:

Purpose:

To enter into a new natural gas supply arrangement for the City of Toronto facilities.

Financial Implications:

Cost of natural gas is included in existing operating budgets of the City's various operating departments, Agencies, Boards and Commissions. It is expected that this purchasing arrangement will provide the least cost arrangement to the City.

Recommendations:

It is recommended that:

(1)authority be given to appropriate City staff to negotiate and enter into a three year agreement for the period November 1, 1998 to October 31, 2001, with yearly renewal clauses, with Coral Energy Canada Inc. to arrange a natural gas supply for the City of Toronto facilities including Agencies, Boards and Commissions;

(2)authority be given to appropriate City staff to enter into an Agency Billing Collection and Transportation agreement with Consumers Gas related to the direct purchase of natural gas;

(3)the Energy Management office in the Corporate Service Department administer the agreements through the Finance Department;

(4)all administrative costs, including outside consulting costs, be included as part of the costs to be passed on to all the City's natural gas end users;

(5)in the event that a gas supply arrangement is not successfully negotiated, the City would elect to return to a system gas supply through Consumers Gas; and

(6)the appropriate City officials be authorized to take any action necessary to give effect thereto, including the execution of any required agreements with the Supplier and Consumers Gas, in respect of the direct purchase arrangements, on terms and conditions satisfactory to the Commissioner of Corporate Services, the Chief Financial Officer and Treasurer and the City Solicitor.

Background:

The former City of Toronto, the former Municipality of Metropolitan Toronto, the former City of Scarborough, the former City of York and the former City of Etobicoke have, since 1987/88, been purchasing natural gas through a direct purchase program. Direct purchase programs have been available to natural gas end users since the natural gas industry began to deregulate in 1985. Cumulative savings of approximately $14 million have been realized by the City of Toronto participants through the direct purchase program.

By adoption on July 5, 1995, of Clause No. 36 of Report No. 20 of The Corporate Administration Committee of the former Municipality of Metropolitan Toronto and by adoption on June 26 and 27, 1995, of Clause No.15 of Report No.17 of the Executive Committee of the former City of Toronto and by adoption on August 21, 1995, of Item 20-2 of the Administration Committee of the former City of Scarborough, authority was given to enter into a three year natural gas supply contract with Suncor Energy Inc. This contract expires on October 31, 1998. The former City of Etobicoke and the former City of York have contracted with ECNG Inc. to arrange their gas supplies and these contracts also expire on October 31, 1998.

Discussion:

Since the current natural gas supply contracts are expiring and since the direct purchase of natural gas has provided savings in comparison to the Consumers Gas's cost of gas, it would be to the City's benefit if the direct purchase arrangements can be renewed.

Current direct purchase arrangements are based on a "buy-sell" arrangement whereby the City purchases natural gas from the supplier at an agreed upon price. Consumers Gas then purchases this gas from the City at the Ontario Energy Board regulated Western buy-sell reference price (WBSRP). Consumers Gas takes title to the gas at an agreed upon junction point on the TransCanada Pipeline in Western Canada. The City continues to purchase gas from the distributor at each location under current rates and continues to receive the same level of service. The savings to the City are realised from the difference between the price at which it bought gas from the supplier and the higher price at which the City sold the gas to the distributor, Consumers Gas. This buy-sell arrangement provides the City with a guaranteed savings since the City purchases gas at a price below the WBSRP.

A request for proposals for the supply of natural gas to the City of Toronto, Cityhome and the Town of Markham was issued on April 21, 1998 by the Purchasing and Materials Management Division. Proposals were received from the following firms by the May 7, 1998 closing date: Comsatec Inc., Consumersfirst Ltd., Coral Energy Canada Inc., Direct Energy Marketing Ltd., ECNG Inc., El Paso Energy Marketing Canada, Engage Energy Canada, L.P., Enron Capital & Trade Resources Canada Corp., Suncor Energy Inc., and TransCanada Gas Services.

All proposals were reviewed by the City's Manager of Energy Management, the Purchasing and Materials Management Division and the City's natural gas consultant A.E. Sharp Limited.

Following a detailed analysis of the proposals and the natural gas market, it was concluded that the proposal submitted by Coral Energy Canada Inc., offered the City the greatest opportunity to minimize natural gas costs. Coral Energy Canada Inc. is offering the City an indexed price with the flexibility to choose, on a monthly basis, any combination of fixed, floating or indexed pricing. An analysis of the proposals, prepared by the natural gas consultant, A.E. Sharp Limited, is on file with the City Clerk.

The natural gas business and natural gas pricing has seen many changes in the last few years and especially in the past year. The buy-sell pricing arrangement, whereby the City could realize guaranteed savings, is no longer being offered by natural gas suppliers. It should be noted that over 80 percent of Consumers Gas' Commercial/Industrial customers purchase their natural gas through some type of direct purchase program. It is also expected that Consumers Gas will be exiting the merchant gas business, (the actual buying and selling of natural gas) within the next few years.

The direct purchase arrangement recommended for the City is the Consumers Gas' Agency Billing Collection and Transportation service (ABC-T). Under this arrangement gas is supplied to the City by the supplier at an agreed upon Alberta based price (the unit price). Consumers Gas transports the City's gas through the TransCanada Pipeline to Toronto. The unit price would appear on the Consumers Gas invoices, for each gas-using City facility, which are to be paid in the usual manner. Consumers Gas will forward funds to the City, on a monthly basis, equal to the amount of gas shipped by the supplier to the City at the agreed upon unit price and this money in turn will be used to pay the natural gas supplier. All transactions are reconciled at the end of each contract year. This payment arrangement is very similar to our current payment arrangement under the buy-sell agreement.

Experience and history has shown that a direct purchase based supply price, has almost always been lower than the Consumers Gas based supply price. A direct purchase program will also allow the City to better manage its natural gas costs. Consumers Gas, historically, has had to change its rates through the year to account for changing gas costs. At times this has meant retroactive charges going back a number of months. A rate increase effective May 1, 1998 increased the gas supply charge by almost 20 percent for an overall rate increase of over 10percent. The recommended direct purchase arrangement will avoid these retroactive charges and rate increases related to the gas supply charge. Based on forecasted pricing by A.E. Sharp Limited, and the forecasted Consumers Gas pricing for natural gas for the period November 1, 1998 through October 31, 1999, savings to the City could amount to over $500,000.00 (after expenses noted in the following paragraph are deducted). However, due to ongoing fluctuations in the natural gas market, the price from our recommended supplier is not guaranteed to be lower than the Consumers Gas' gas supply charge.

The Energy Management office in the Corporate Services Department has been arranging and administering the direct purchase program for the former Municipality of Metropolitan Toronto and would administer this direct purchase program, in consultation with its natural gas consultant, on behalf of the City's natural gas using departments, agencies, boards and commissions. The cost to administer this program would include some staff time, Consumers Gas' ABC-T fees which would amount to approximately $5,000.00 annually and some outside consulting services which would amount to approximately $20,000.00 annually. These costs would be recovered proportionally from each of the City's gas using locations through the unit price put on the Consumers Gas bill.

The total value of the contract, for a one year period, based on current market pricing and volumes, is estimated to be $7.2 million.

It should be noted the City's total cost of natural gas, invoiced each month by Consumers Gas is comprised of two main components, commodity and distribution, which amounts to approximately $14.4 million. The distribution charge is regulated by the Ontario Energy Board (OEB). This report relates to the commodity portion only. Natural gas is used at some 700 city facilities.

The Manager, Fair Wage and Labour Trades Office, has reported favourably on the firm recommended.

Conclusions:

Through deregulation of the natural gas industry, end users, such as the City of Toronto, must adapt their purchasing strategies to obtain the best available, market sensitive pricing for this commodity. Using the purchasing arrangement outlined in this report will allow the City to obtain the best available price for its natural gas requirements.

Contact Name:

Jim Kamstra, Manager, Energy Management, Corporate Services Dept., Tel: 392-8954,

Fax: 392-4828

Respectfully submitted,

DICK O'BRIEN

Chair

Toronto, June 22, 1998

(Report No. 10 of The Corporate Services Committee, including additions thereto, was adopted, as amended, by City Council on July 29, 30 and 31, 1998.)