November 17, 1998

To:Emergency and Protective Services Committee

From:City Auditor

Subject:Collision Reporting Centres (CRC's) and Their Profit Margins

Recommendation:

It is recommended that this report be received for information.

Council Reference:

The Budget Committee in approving the Toronto Police Services budget included the amendment that: " the Auditor be requested to report on the collision reporting centres' operations and their profit margins."

Further, on June 3, 4, and 5, 1998, Council adopted clause No. 2 of Report No. 5 of the Emergency and Protective Services Committee as amended, requesting:

(1)the Chief Administrative Officer "to submit a report to the Emergency and Protective Services Committee for its meeting to be held on September 11, 1998, on the benefits and possible establishment of three additional Collision Reporting Centres (CRC's) in the City of Toronto, ..." and

(2)"the City Solicitor and the City Auditor also be requested to report to the Emergency and Protective Services for its meeting to be held on September 11, 1998, on the question of liability for the City in light of the existing Collision Reporting Centre contracts."

Both of these reports have been prepared and have been submitted to the Emergency and Protective Services Committee.

In addition, the Police Services Board Collision Reporting Centres Sub-Committee, in its July 28, 1998 meeting, requested the Chief of Police to prepare various reports by September 15, 1998, including "an assessment of the impacts on stakeholders options, costs and benefits of the Police Service establishing an accident reporting Centre to serve the City centre." The report proposed by the Chief of Police recommends that a fourth centre in the downtown area not be opened.

Background:

In response to a directive from the then Metro Council in May 1997, the Metropolitan Auditor prepared a report on various aspects of the Collision Reporting Centres. This report was in response to the following Metro Council motion:

"Be it resolved that the Metropolitan Solicitor and the Metropolitan Auditor be required to conduct such investigations as are necessary and submit a joint report to Metro Council, through the Human Services Committee on the propriety of the Request for Proposals and tendering process for the Collision Reporting Centres, and the propriety of the monopoly enjoyed by the operators of the Collision Reporting Centres."

A report dated July 3, 1997, prepared by the Metropolitan Auditor entitled "Collision Reporting Centres" was subsequently submitted to both the Police Services Board and Metro Council. The following information regarding the establishment of the CRC program contained in that report is provided for background purposes.

Establishment of Collision Reporting Centres

In the early 1990's, senior Police staff, as a part of the "Beyond 2000" philosophy, re-examined their role in the investigation and administration of motor vehicle collisions. This re-evaluation was prompted by the philosophy of community based policing, as well as the budgetary concerns facing the Service. In general terms, the re-evaluation of this role led to the development and implementation of the Collision Reporting Centre program in Metropolitan Toronto.

In the early stages of the program, a number of pilot projects were conducted by the Police Service. For example, in November 1991, a pilot project was developed at East Traffic Division to manage "fail to remain" accident reporting. Following this pilot project, it was determined that further operational efficiencies could be achieved in the reporting of "damage only" collisions where vehicles could be safely driven to a Collision Reporting Centre. The program was implemented in October 1992 in East Traffic Division and was staffed by police personnel.

During the preliminary planning stages of the full service Collision Reporting Centre concept, a number of cross-representational meetings were held with various interested parties, including representatives from the insurance industry, the Ministry of Transportation, the Ontario Provincial Police and the towing industry. These meetings were held to discuss the concept, and to address and resolve any issues. As a result of these meetings, North York Accident Services, Ltd. approached the Police Services with an offer to participate in a pilot project.

At the Police Services Board meeting held on May 6, 1993, the Board approved a full service Collision Reporting Centre pilot project which essentially was a joint venture "with the Insurance

Industry, the Ontario Provincial Police and a private company to provide, at no additional cost to police agencies, a full service Collision Reporting Centre."

In addition, the Board was advised in the May report that North York Accident Support Services Ltd. "have made an offer to provide facilities to Metropolitan Toronto Police and Ontario Provincial Police to establish a full service Collision Reporting Centre to service the City of North York and the King's Highway patrolled by OPP Downsview Detachment."

An agreement dated November 1, 1993, between North York Accident Support Services Ltd. relating to the pilot project was signed by both parties. The agreement was for "the purpose of providing police services for the operation of the Centre as a collision reporting pilot project for the six-month period from January 1, 1994, up to and including June 30, 1994." The agreement also provided that the Board, following the six-month period at its sole discretion, would have the right to continue to operate at the same location for an additional two-year period. In addition, a further provision in the agreement stipulated that the operator would not be permitted to operate or have ownership of any automobile body repair shop or automobile rental facility.

The Request for Proposal Process

Subsequent to the six-month pilot project, a report was submitted to the Police Services Board meeting of December 15, 1994, wherein the Board approved entering into an agreement "for the provision of Collision Reporting Centre facilities with North York Accident Support Services" and that the "Board call for a Request for Proposals for two additional Collision Reporting Centre facilities." The Request for Proposals required that proposals will be received "to service the eastern end of the Municipality and one to service the central and southwestern area of the Municipality." The report to the Board recommended that North York Accident Support Services Ltd. be awarded the contract for the North York location in recognition of its involvement in the pilot project.

The Board was further advised that the Company had invested considerable funds in the program in terms of facilities, renovations, promotion, administration, technical equipment, employee salaries, furnishings, etc. An agreement with North York Accident Support Services Ltd. was signed by both parties on January 3, 1995. While the original document with North York Accident Support Services, Ltd. permitted the Police Service to continue occupancy under the same terms and conditions for an additional two years, it was recommended by staff that a new agreement for 10 years with an option at the sole discretion of the Board, for a further five-year period be signed.

The request for proposal documents indicated that the agreement for both the East and West locations would be for a period of 10 years with an option at the sole discretion of the Board, for a further five-year period be signed. Staff recommended that the agreements with the other locations be consistent with the agreement with North York Accident Support Services, Ltd.

Included in the December 1994 report to the Board was a detailed document which outlined the Collision Reporting Centre program concept, the results of the pilot project, the rationale for the recommendations made to the Board, the highlights of a draft agreement and an outline of the request for proposal process.

The Metropolitan Toronto Police Services Board By Law No. 100, as amended by Board By Laws 103 and 109, governs the appropriation and commitment of funds, payment of accounts, procedures relating to requests for proposals and other related matters. The By law stipulates that a request for

proposals shall be in such form and be conducted in such manner as the Board, in consultation with the Solicitor, may prescribe. The report to the Board outlined the request for the proposal process recommended by staff. In the context of the tendering process, the Board was advised of the following:

• the required number of Centres;
• the proposed approximate location of each Centre;
• the proposed length of the agreement with the successful proponent;
• specific time frames imposed in the request for proposals;
• financial conditions imposed on proponents;
• the establishment of an evaluation committee; and
• the evaluation of proposals which stated that proposals will be rated on the perceived ability to meet or exceed the requirements of the Collision Reporting Centre program.

The request for proposals documents are consistent with the report to the Board and were reviewed by the Metropolitan Solicitor.

The Request for Proposal document was initiated and developed by the Traffic Services Unit of the Police Service in consultation with Metro Legal. In January 1995, a Request for Proposals was issued by the City of Toronto Purchasing Department and was advertised in local newspapers. The proposal was conducted in two separate stages. Stage 1 proposals were essentially general in nature although proposals were required to include as much supporting documentation as possible to show the ability of the proponent to meet the requirements of the proposal call.

The Evaluation of the Proposals

A committee was struck to evaluate all proposals. The Evaluation Committee was chaired by a Staff Superintendent from the Metropolitan Toronto Police Traffic Operations Division. Additional members of this Committee were two Staff Sergeants and one Sergeant serving within the traffic component of the Service, one Staff Sergeant from the Ontario Provincial Police and four representatives from the Insurance industry acting under the authority of the Canadian Insurance Claims Managers Association.

Seven proposals were submitted by five different groups. Two proposals were for the West location while the remaining five were for the East location. The Evaluation Committee reviewed all proposals and determined that only four proposals, presented by two groups, should advance to the second stage of the process.

The final submission of stage 2 proposals were required by April 28, 1995. Stage 2 proposals were to include detailed plans and significant documentation in support of the proposal. On April 28, 1995, the Evaluation Committee were advised by the President of one of the proponents that his group had been dissolved and would not be making a submission. Nevertheless, a representative from this group requested that a submission be made even though the Committee were advised that this individual was not authorized to represent the original proponent. This individual indicated that he represented a "new" group with a "new proposal".

The Metropolitan Solicitor was contacted and advised the Evaluation Committee that the organization before the committee was technically a new company and not the same entity that had originally entered the proposal process. Consequently, this proposal was not considered.

A report to the Board dated May 25, 1995 recommended to the Police Services Board that it enter into agreements with Toronto East Accident Support Services, Ltd. and Toronto West Accident Support Services, Ltd. to operate Collision Reporting Centres. The Police Services Board was also made aware that the owner of these two companies was the same owner that operated the North York Collision Reporting Centre.

The report to the Board was approved and separate contracts were signed by the Police Service with Toronto East Accident Support Services Ltd. and Toronto West Accident Support Services Ltd. Both agreements were dated October 10, 1995, with an effective date of September 5, 1995. The contracts were for a 10-year period with an option, at the sole discretion of the Board, for a further five years. All agreements were reviewed by the Metro Legal Department.

Issues Raised in the July 1997 Report:

1.In a report submitted to the Police Services Board on May 6, 1993, it was determined that CRC operators would be restricted to operating a single venue. Contrary to this direction, the CRC's in Toronto are operated by three different companies, each owned by the same individual.

2.Documentation prepared by the Committee whose responsibility it was to evaluate all proposals submitted was not retained. No minutes of such meetings were prepared.

3.The contracts with the CRC operator would be for a period of ten years. In view of the uncertainties relating to a program as new as the CRC's, questions have been raised regarding the appropriateness of contract with a duration of ten years.

4.In various reports submitted to the Board it was estimated that annual cost savings of the program were in excess of +$4.7 million. At the time of the preparation of the July 1997 report, an analysis of such cost savings had not been conducted.

The July, 1997 report addressed each of these issues as follows:

1.Included in a report dated December 1994 to the Board was a detailed document which outlined the CRC program, the highlights for a draft agreement and an outline of the request for proposal process. In terms of the request for proposal process, this document indicated that no recommendation "will be made to prohibit multiple centre ownership by a single party. It is believed that this discussion can be delayed by the Board until proposals are received and evaluated and a recommendation is made to the Board."

Based on discussions with staff, the view was held that to prohibit the possibility of single party ownership of multiple sites would unnecessarily limit the options of the Board to contract with the best possible operators and was in any event a decision to be ultimately decided by the Board. The Police Services Board was made aware that the companies selected to operate the three CRC's were owned by the same individual.

2.The ten year contract with the CRC's were reviewed with the Metro Legal Department and were approved by the Police Services Board. The actual contracts are for ten years with an option at the sole discretion of the Board for a further five-year period. The ten year duration and the contract was recommended for the following reasons:

• It would be difficult for the private sector to recover its investment over a shorter time period.
• Police Service relocation costs would be minimized over a long-term contract.
• A constant location would be preferable from a general public perspective.

3.The absence of documentation relating to the evaluation process was discussed in detail with the then Chair of the Police Services Board. I have been advised that a detailed documentation process is in place for all future evaluations.

4.Subsequent to the July 3, 1997 report a cost benefit analysis relating to the CRC's has been completed by the Police Services.

This cost benefit analysis was completed by the Traffic Services Unit and presented to the Police Services Board on January 30, 1998. The report dealt with factors such as actual dollar savings in officer deployment costs, as well as savings in building overhead costs. The report also identified non quantifiable benefits such as improved customer service and the reduction of insurance fraud.

The total savings estimated by the Police Services was in excess of $7 million. These savings however did not take into account the loss of revenue from the sale of accident reports of approximately $2 million.

This report also itemized the following benefits which were not quantified:

• reduction in the incidence of insurance fraud due to the work of special police insurance investigators assigned to the Centres;
• a 1996 reduction of over 39 hit and run traffic investigators was facilitated in part due to the assignment of a hit and run officer to each of the collision reporting centres;

• the development of a Centralized Accident Registry System, a computer program networked with the three centres.

Estimated Profit Margins of the Private Operator and Operational Comments

The three Collision Reporting Centres each of which is owned by the same individual operate as individual private corporations under separate contracts with the Police Services Board. The CRC's also operate independently from the Police Service in relation to contractual arrangements with the insurance companies. The contractual arrangements with the insurance companies are between two private organizations and as such, financial information relating to these contracts is not available. The Police Services does have access to various information concerning the operations of the CRC's, however, they are contractually limited in their ability to disclose such information without the consent of the private operator. In this context I have no access to the financial statements of the operator.

However, in spite these restrictions, I have been able to compile an estimated profit and loss statement of the Collision Reporting Centres. This financial statement is based on statistics pertaining to collision volume and incudes a significant number of assumptions in terms of salary levels, occupancy and other overhead costs. In addition, included in the revenue projections are estimated amounts for such items as rental income received from insurance companies as well as vehicle storage costs, etc. In addition, a report prepared by the Insurance Bureau of Canada indicates that insurance claims are initiated in about seventy percent of the 65,000 collision reports filed each year at a charge of $35 to $37 per report depending on the services requested by an insurance company. Based on the information compiled, it is my view that the estimated profit generated by each of the Centres is not unreasonable when viewed in the context of the operator's return on his projected investment.

In terms of customer satisfaction with the program we reviewed a sample of customer comment sheets made available to motorists using the Centre. The results of these comments indicate that public support for the program continues to be high with "more than 92 per cent being satisfied or very satisfied with the services provided by the CRC's." From an audit perspective a review of customer comments sheets is not particularly useful as there is no evidence to support the premise that we were given all such reports. However, we did discuss the customer satisfaction issue with the Acting Superintendent of the Traffic Services Unit and the General Manager of The Toronto Licensing Commission who indicated that they have not received any official complaints concerning CRC operations.

During our review of the operations of the CRC's two recurring issues however were raised:

• The allegation that insurance companies on site as well as CRC employees were directing customers to preferred Auto repair shops.
• The location of a downtown Collision Reporting Centre.

During our visits to the Collision Reporting Centres we saw no evidence of customers being directed to preferred auto repair shops.

In terms of the potential regarding the operation of a downtown CRC location we discussed this particular issue with both Police Services staff as well as the President of the CRC program. The President of the existing CRC's has indicated that "a fourth centre would divide the volume in such a way that it would render the operation of the Collision Reporting Centre program not viable for private operators." The Police Service in a report to the Police Services Board dated October 8, 1998, concluded that "additional financial resources and the personnel requirements combined with the negative impacts on the members of the public suggest the Police Service should not entertain the opening of a fourth Collision Reporting Centre in the downtown area at this time."

There is also an issue in regards to potential liabilities that might arise for the City of Toronto in the event it was to establish additional Collision Reporting Centres in light of current CRC contracts. An in-camera report prepared by the City Solicitor dated August 11, 1998, was forwarded to the Emergency and Protective Services Committee in regards to this particular issue.

Notwithstanding the above, we have compiled a financial analysis in regards to the operation of a City owned facility at the downtown core. We have compiled this analysis for two separate scenarios - a 24-hour facility and a 9-hour facility. Our analysis is based on limited public financial information in relation to the existing CRC's and contains a number of assumptions. Nevertheless, it is our view that the projections are reasonable.

The report prepared by the Chief of Police in relation to the opening of a fourth centre assumes that additional police resources will be required to staff this location. Due to the fact that the volume of collisions will remain the same for four centres as they have been for the existing three, we have assumed that police staff requirements for the downtown location could for the most part be redeployed from the other three locations. While additional police staffing in our view would not be required for a 9-hour facility, it is likely that it would be more difficult to completely redeploy staff for a 24-hour operation. However, in our view the incremental police staffing costs to operate a fourth centre would not be significant.

Non police administration staff would however be required. Such staff would now be the responsibility of the City and consequently would require funding from the City. Based on our review of the levels of staff at the other three Centres we estimate that 15 staff would be required for a 24-hour facility and 6 staff would be required for a 9-hour facility. Estimated staffing costs would be $475,000 and $240,000 respectively.

In addition, we have estimated ongoing facility costs to be in the range of $120,000 per annum based on proposed lease costs relative to a suitable property currently available for lease. This property is currently not owned by the City. If a City property was available then the costs would be substantially reduced or eliminated. Overhead costs at $30,000 per annum include such items as utilities, maintenance, etc. and are approximations.

An estimate of the incremental costs are as follows:24 Hr Facility 9 Hr Facility

$ $

Police Traffic Unit Staff - -

Private staff and accident councillors 475,000240,000

Facility cost and overhead 150,000150,000

Total incremental cost of the service 625,000390,000

In its report to the Collision Reporting Centre Sub-Committee the Chief of Police estimated one time equipment costs to be in the range of $146,000. In addition, one time capital costs in regards to the building at the fourth centre would also be required. The type of facility required would of course determine the cost.

We have also reviewed the potential of a downtown CRC in terms of estimated revenue. We have discussed and confirmed with Police Services staff that the number of collisions which would likely be reported to the downtown location would be somewhere in the range of 6,200 at the lowest level. Based on average statistics, this volume would generate approximately 10,800 reports which represents 9.5 percent of the annual total. This equates to revenue earned from the sale of accident reports to the insurance company of somewhere in the range of $283,000 assuming a selling price of $37.50 per report and a 70 percent purchase rate by the insurance company.

These statistics represent an annual projection based on actual data for the first six months of 1998 taken from the Police Centralized Accident Registry System. They represent collisions reported and attributed to Police divisions located within the central downtown core. These statistics however, do not take into account the possibility that collisions occurring outside this particular area might nevertheless be reported to a downtown location if it was more convenient to do so. In our view the 9.5 percent figure attributed to the downtown core is likely a low end statistic.

It is reasonable to assume that the existence of a downtown centre would result in a significant diversion of collisions reported to this location. A reasonable volume might be in the range of 15 percent level and could be as high as 25 percent of the total annual volume of collision reports. At the lower end, the 15 percent is the equivalent of 16,950 reports, with revenue estimated at $445,000 and at the upper end 25 percent represents 28,260 reports, with revenue estimated at $741,800 using the same assumptions on price and purchase rate. The major assumption in relation to this revenue involves the continued participation of the insurance companies in a downtown location.

Based on the above financial analysis the opening of a fourth centre appears to be financially viable. However, there are a number of assumptions that require further review. The key assumptions are summarized as follows:

• There are no legal impediments to the opening of a fourth centre.
• The shift in collision volumes to the fourth centre facilitates a redeployment of police staff.
• The continued participation of the insurance industry at the fourth centre.

Conclusion:

This report addresses a wide range of issues concerning the CRC program including the following:

• The establishment of the program.
• The request for proposal process including concerns raised in relation to the award of the contract to the private operator.
• The award of the CRC contracts to those corporations owned by the same individual.
• The duration of the contract with the CRC operator.
• The estimated profitability of the operation.
• The potential for the establishment of a downtown CRC location.

The program has evolved from its inception in 1994 and steps have been taken to address concerns raised since that time. Similar programs have recently been initiated in other major locations throughout Ontario.

The program requires ongoing monitoring in terms of its service to the public. The contract with the operator clearly stipulates the obligations of the operator in relation to the program. The recent establishment of a Collision Reporting Centre Sub-committee specifically has a mandate to:

• Evaluate the performance of the centres.
• Hear complaints from representative of the towing industry and auto body repair shops regarding Collision Reporting Centres.
• Review ongoing problems related to Collision Reporting Centres.

It is anticipated that future issues and concerns will be addressed through this Committee.

The establishment of a CRC in a downtown location will inevitably reduce the volume of reporting at the existing privately operated facilities. The private operator has indicated that a fourth centre would render the operation of the CRC program not viable for private operators. In this regard the City and or the Police Services Board might be legally liable if this were to occur. In addition, there is the potential for the existing operator to withdraw from the program, a situation which may have significant implications in the short term.

In a report to the Police Services Board from the Collision Reporting Centres Subcommittee dated October 8, 1998, it was noted by the Chair of the Board in relation to the opening of a fourth CRC that the Police Services Board has decided to establish a long-rang strategy for parking, towing and accident reporting and this strategy will address issues such as the ideal number and location of accident reporting facilities.

Contact Name and Telephone No.:

Steve Harris 392-8460

Jeff Griffiths

City Auditor

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