December 3, 2001
The purpose of this report is to obtain instructions from Council to pay to MFP Financial Services (“MFP”) the amount recommended by the City’s consultants as owing to MFP and to retain the balance of funds to set off amounts claimed against MFP in the event of future litigation.
The City has been retaining approximately $8 million which would have otherwise been paid to MFP but for the investigation of the MFP contract. The payment of $4 million at this time to MFP would minimize the exposure to MFP in the event that current settlement negotiations are unsuccessful and MFP commences a court action for unpaid monies.
It is recommended that staff be authorized to proceed strategically with the payment of monies to MFP Financial Services as set out in the body of this report.
At its meeting on November 29, 2001, the Audit Committee had before it a confidential report from the Chief Administrative Officer and City Auditor in respect of the investigation of the Information and Technology Computer Hardware and Software contract with MFP. The City has been withholding monies otherwise owing to MFP under the contract pending the results of the investigation. Settlement discussions are ongoing with MFP to resolve this matter without resort to litigation.
The City’s outside counsel in this matter, Alan Lenczner of Lenczner Slaght Royce Smith Griffin, is recommending a course of action in relation to the monies held back in order to reduce the exposure of the City in the event the settlement negotiations are unsuccessful. In such an event, litigation is likely to ensue. In the opinion of outside counsel, the City has an arguable claim against, MFP for an amount of $3- $4 million. Counsel believes there is considerable strategic advantage for the City to be a plaintiff as opposed to a Defendant and Counterclaimant.
Given (a) the risk that MFP may launch an action against the City for outstanding payments (b) that $8 million remains unpaid to MFP and (c) the City’s arguable claim is in the above-noted range of $3-$4 million, outside counsel recommends immediate payment to MFP of $4 million. The remainder of the $8 million would be held back and used to set off amounts claimed against MFP in the event of future litigation. Outside counsel are also seeking instructions to prepare a draft Statement of Claim in order that the City would be in a position to move quickly as a plaintiff in the event settlement discussions break down.
It is in the City’s interest to strategically make an immediate payment of $4 million to MFP and to instruct outside counsel to prepare a Statement of Claim for the balance of the $8 million held by the City in the event settlement discussions with MFP prove unsuccessful.