CITY OF VANCOUVER
ADMINISTRATIVE REPORT

 

Date:

February 26, 2004

 

Author:

Ken Bayne

 

Phone No.:

873-7223

 

RTS No.:

03733

 

CC File No.:

1805

 

Meeting Date:

March 9, 2004

TO:

Vancouver City Council

FROM:

General Manager of Corporate Services / Director of Finance

SUBJECT:

Contracts for the Supply of Financial Services: RFP PS03039

RECOMMENDATION

COUNCIL POLICY

PURPOSE

The purpose of this report is to recommend that Council approve the selection of successful proponents for the provision of a number of financial services to the City as identified in this report. This recommendation is based on the evaluation of responses to a public process through Request for Proposal PS03039: The Supply of Financial Services.

BACKGROUND

The City purchases banking and other financial services from a number of vendors. The Bank of Montreal has been the City's corporate financial institution since incorporation in 1886. The Royal Bank of Canada and Canadian Imperial Bank of Canada provide "collector bank" and limited payment processing services, respectively, and CIBC Mellon Global Services provides custodial services for the City's investment portfolio. The purchase of these financial services has occurred over a number of years as they were required, with vendor selection based on a decentralized view of service provision. This service structure presents some challenges to the City in terms of managing the services received and their costs. While respecting the historical role that the Bank of Montreal has played with the City, the City undertook an RFP process for a variety of financial services to ensure that it is receiving best value for these services.

i) The Request for Proposals

Beginning in February 2003 staff began a review of the financial services required by the City and developed a Request for Proposals (the "RFP").

A Working Group consisting of eight departmental staff (including Library, Parks, Community Services, & Corporate Services) and the City Treasurer was created to prepare the banking services RFP. This group:

The outputs of the Working Group were provided to an Evaluation Committee comprising senior staff from Finance, Business Support, Community Services and Library with the Director of Finance as the sponsor. A representative from Park Board sat on the Evaluation Committee during the RFP development phase but was not involved in the evaluation or interview phases. The Evaluation Committee:

The RFP requested proponents to provide responses for a number of financial services including: core banking services; processing of parking meter coin; provision of "collector bank" services; provision of debit and credit card merchant services; on-line bill presentment and home owner grant processing; provision of custodial services; and provision of purchasing card services.

ii) Evaluation Process

The RFP was structured in sections reflecting a variety of services for which the City was seeking service providers. While proponents were encouraged to respond to each service separately in order to provide as many alternatives as possible, it was considered to be in the bests interests of the City to consolidate the requested services with as few providers as possible.

A total of ten proponents responded to the various sections of the RFP. The working group reviewed the proposals and provided a summary analysis to the Evaluation Committee. The Evaluation Committee individually reviewed and scored each proposal based on a set of weighted criteria developed specifically for this RFP. The weighting of the evaluation criteria reflected the relative importance the evaluation committee attached to a number of items respondents were required to address including, proponent qualifications, products and services offered in response to the RFP, the ease and cost of any transition requirements; offer of value-added services; accessibility to financial services; and financial offering. The scores developed by the members of the evaluation committee were tabulated by Purchasing Services and reviewed by the Evaluation Committee. For each service included in the RFP, the proponents that met the requirements of the RFP and scored the highest on the qualitative evaluation were short-listed for the interview process. Financial offerings were considered only for the proponents identified as being able to satisfy the service requirements. After completing the interview process, the evaluation committee then selected a recommended proponent for each of the services.

DISCUSSION

The evaluation process eliminated several of the proposals because they did not meet the requirements outlined in the RFP or were considered by the Evaluation Committee as being unable to deliver an appropriate level of services. The following summarizes the rationale for selecting between the short listed proponents for each of the services and the recommendations of the Committee in each category of the RFP.

1. Corporate Banker

Short listed proponents:
Royal Bank (RBC)
Bank of Montreal (BMO)

The successful proponent in this category will become the City's corporate financial institution. Services required from the corporate banker include, maintenance of bank accounts, deposit services, cheque-cashing and other manual withdrawal services, processing of electronic payments to vendors and employees (payroll), processing of pre-authorized payments from customers as well as audit and reporting functions. The corporate banker also carries the City's line of credit.

The City is a large and complex customer for any financial institution because of the volume of transactions that are processed daily as part of our normal routine. In seeking a financial institution capable of providing these services, the Evaluation Committee took into consideration a number of factors, including: company profile; key personnel experience; products and services offered, which were measured against several important service level criteria; availability of other value-added services as well as the financial offering, quality of references and any transaction costs that might be incurred in a change of financial institution.

Three financial institutions submitted proposals to become the City's corporate banker. Two proponents were short listed, the Bank of Montreal and the Royal Bank of Canada. Both of these financial institutions scored well on the evaluation of service quality and online banking technology. The Royal Bank did not submit a proposal to provide coin handling services for the City's On-Street Parking Program - a position strongly recommended in the RFP for financial institutions wishing to become the City's corporate financial institution. The financial offering from the Royal Bank would also have resulted in a significant increase in overall costs compared to that offered by the Bank of Montreal.

The City's financial arrangement with it corporate banker has two primary components: the transaction costs associated with the banking arrangements, and the interest paid to the City on cash on deposit. Based on current transaction volumes, the City's costs for core banking services are approximately $114,000 annually, while the City earns prime minus 2% on its cash balances equivalent to approximately $250,000 annually. Under the proposal submitted by the Bank of Montreal, transactions costs will increase by approximately 25% ($26,000) while the interest earned on cash balances will increase to prime minus 1.75% resulting in anticipated increased earnings of $25,000. These two changes should leave the net cost of the City's arrangement with the Bank of Montreal in approximately the same position as under the current arrangements. Based on the proposal from the Bank of Montreal, these transaction costs would remain constant for the five year duration of the contract.

Corporate Financial Institution

Short Listed Proponents

Evaluation Score1

Estimated Annual Cost

Additional Interest Revenue

       

Bank of Montreal (BMO)

80

$140,000

$25,000

Royal Bank (RBC)

79

$260,000

$15,000

1. In this table and each of the following tables, evaluation scores are based on the Evaluation Committee's qualitative review of the proponent submissions only. Financial offering is shown separately.

The Evaluation Committee recommends that the City contract with the Bank of Montreal to continue as the City's corporate financial institution and provider of the core banking service described in the Financial Services RFP for a period of five years, including a provision for two twelve month extensions.

The award of this contract to the Bank of Montreal will mean a change in the financial institutions handling the transfer of the City's payroll to employees. This service will move from the Canadian Imperial Bank of Commerce to the Bank of Montreal. There are not expected to be significant transition issues and the pricing provided by the Bank of Montreal includes provision of this service.

2. Parking Meter Coin Services

Short listed proponents:

The City currently collects in excess of $20 million annually in coin from its On-Street Parking Program. The volume of coin involved makes it difficult for the City's corporate banker to receive this coin directly so that special handling arrangements are required. Currently, the Bank of Montreal, contracts with Churchill Armoured Car Service (Churchill) to receive, wash, count and roll the coin and deliver it to the Bank of Montreal. As noted in the RFP, the City views the handling of this coin as a basic deposit service and has a strong preference for the core banker to provide this processing service. This alleviates potential security and financial risks involved in the City dealing directly with a third party provider.

The Evaluation Committee was aware that a number of other firms had the capacity to provide these services to the City. In order to ensure the City was receiving best value from its arrangement with the Bank of Montreal these services were included in the Financial Services RFP and the City reserved the right to award this service to an organization other than our corporate financial institution.

The Bank of Montreal (with Churchill) was the only short listed proponent for corporate financial institution of the RFP (Section 1 above) that submitted a proposal for coin handling. A second proposal from Coast Mountain Bus Company (CMBC) scored well on the evaluation of service quality however, CMBC was unable to meet our requirements for seven day per week drop-off and was not considered further in the competition.

Parking Meter Program staff in Engineering indicated that they are pleased with the service currently being provided and supported leaving the business with the Bank of Montreal / Churchill consortium.

Parking Meter Coin Services

Short Listed Proponents

Evaluation Score1

Estimated Annual Cost

     

Bank of Montreal with Churchill Armoured Car Service

63

$213,000

Coast Mountain Bus Company2

66

$171,000

At present, parking meter coin handling costs the City approximately $212,000 annually. The proposal from BMO/Churchill will essentially hold those costs constant for the duration of the contract.

The Evaluation Committee recommends that, as part of its contract for core banking services recommended above, the City contract with the Bank of Montreal for the processing of parking meter coin for a period of five years, with the option to renew for two 12 month extensions.

3. Collector Bank Services

Short listed proponents:
Royal Bank (RBC)
Bank of Montreal (BMO)
VanCity with Credit Union Central of BC

A collector bank provides consolidation and reporting services for payments made through financial institutions or automated bank machines. Each day, payments made at banks and credit unions are transferred to the collector bank along with any supporting documentation. The collector bank then ensures the funds are credited to the City's accounts, provides electronic updates of payment information to the City's billing systems, and provides separate reporting to support reconciliation of payments by City staff.

Collector Bank services are currently provided by the Royal Bank at a cost of approximately $26,000 annually.

As noted in the RFP, the City has a strong preference to integrate its financial services to the greatest extent possible. The Evaluation Committee also considers the collector bank service to be a key component of core banking services we expect from our corporate financial institution.

Collector Bank Services

Short Listed Proponents

Evaluation Score1

Estimated Annual Cost

     

Bank of Montreal (BMO)

58

$27,000

Royal Bank (RBC)

77

$25,000

VanCity Credit Union with Credit Union Central of BC

62

$20,000

In the initial evaluation, the Royal Bank scored higher than both the Bank of Montreal and the VanCity/Central Credit Union partnership. However the committee concluded that there are strong arguments (reconciliation time, funds transfer costs and single point of contact efficiencies) in favour of consolidating this business with the corporate financial institution rather than leaving the business fragmented. As consolidation was felt to be the most important factor in this decision, the ability of the corporate financial institution to provide the service was a major focus during the interview process. As a result of these discussions, the committee was satisfied that the Bank of Montreal was able to provide the service quality required by the City. With the recommended proponent the net costs of this service are anticipated to be approximately $27,000 annually, almost identical to those currently incurred, however, the internal City costs to manage this business should be reduced.

The Evaluation Committee recommends that the City contract with the Bank of Montreal to provide Collector Bank services to the City for a period of five years, including a provision for two 12 month extensions.

4. Credit & Debit Merchant Card Services

Short listed proponents:
Moneris Solutions

In order to accept credit and debit card payments from customers the City requires the services of a merchant card services provider. This service provider supplies the City with the equipment that is used to process credit and debit card payments, ensures that the payments are processed to the City's accounts on a daily basis and provides reporting on the payments processed each day to assist in reconciliation of the City's accounts. The City pays for this service through a discount charged on each transaction processed by the service provider. The total cost of these discounts paid to merchant card service suppliers is currently approximately $443,000.

Moneris Solutions is currently the predominant provider of merchant card service to the City, although there are a few locations in the Park Board that utilize other service providers.

There were three responses to this component of the RFP, however, Moneris Solutions scored significantly higher than the other proponents in the evaluation of service quality and in the overall evaluation, including pricing. Moneris Solutions offered a slightly lower discount rate that currently paid by the City, however, their proposal includes additional charges for some card related services and for access to their web-based reporting system that will enhance the service received by the City. As a result of the financial offering from Moneris, and the proposed consolidation of these services with a single supplier, the City's costs associated with these services will remain consistent with current levels.

Credit & Debit Merchant Card Services

Short Listed Proponents

Evaluation Score1

Estimated Annual Cost

     

Moneris Solutions

72

$443,000

The Evaluation Committee recommends that the City consolidate its credit & debit merchant card service with Moneris Solutions, including a provision for two 12 month extensions.

5. Investment Custodial Services Decision

Short listed proponents:

In today's investment markets, the purchase, holding and maturity of an investment is handled almost entirely electronically. The City utilizes the services of a custodian to settle investments after they are purchased from a broker; for holding the investments during their term; for providing on-line reporting of the City's investment accounts; and for managing the payment of principal and interest at maturity.

CIBC Mellon Global Securities Services ("CIBC Mellon") is the current provider of investment custodial services for the majority of City investments. In addition, the Bank of Montreal provides custodial services for City investments placed with the BC Credit Union system.

Both of the proponents that responded to this part of the RFP - CIBC Mellon and RBC Global Services - scored well in the evaluation of service quality. However, RBC Global Services have a local service presence which enables them to provide custodial services for all of the City investments, including those with BC credit unions. Moreover, the pricing offered by RBC Global Services was slightly lower than that offered by CIBC Mellon, resulting in anticipated savings to the City.

Investment Custodial Services

Short Listed Proponents

Evaluation Score1

Estimated Annual Cost

     

RBC Global Services

79

$34,000

CIBC Mellon Global Securities Services

83

$43,000

The Evaluation Committee recommends that the City contract with RBC Global Services for the provision of investment custodial services, for a period of five years, including a provision for two 12 month extensions.

6. Purchasing Card Services Decision

Short listed proponents:
Bank of Montreal
Canadian Imperial Bank of Commerce (CIBC)
National Bank

Purchasing Card services provide the City a convenient way to purchase services and supplies required for daily operations without the difficulties associated with handling petty cash, reimbursing employees or utilizing the traditional paper-based purchase order processes. Qualified employees carry a credit card in the name of the City of Vancouver to make purchases as necessary. The credit card company bills each card holder on a monthly basis, providing details of individual purchases that can then be charged to the appropriate expenditure accounts. Based on the volume of sales, the City receives a rebate from the service provider, further reducing costs.

As a member of the Vancouver Purchasing Group - a consortium of Lower Mainland municipalities that collectively contract for a variety of services - the City of Vancouver uses Purchasing Card services provided by the Bank of Montreal. The contract under which these services are provided expires in January, 2007. However, the agreement provides the City with an option to withdraw from the group at any time and arrange for Purchasing Card services on its own.

As part of the Financial Services RFP, the City sought proposals for the provision of these services to ensure that we were receiving best value from the existing contract. Three proponents provided bids for this work, including the Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank. All of these proponents scored well on the evaluation of service quality. However, National Bank offered a rebate scheme that will save the City approximately $25,000 annually above the existing contract with the Bank of Montreal.

Purchasing Card Services

Short Listed Proponents

Evaluation Score1

Estimated Annual Rebate

     

Bank of Montreal (BMO)

79

$6,000

Canadian Imperial Bank of Commerce (CIBC)

81

$6,000

National Bank

77

$31,000

The Purchasing Card is a service where there is no clear advantage to dealing with the corporate financial institution. As the Evaluation Committee is satisfied that National Bank can provide a similar level of service quality at a significantly reduced cost to the City, it is recommended that the City withdraw from the current contract under the Vancouver Purchasing Group and contract with National Bank for the provision of Purchasing Card services, for a period of five years, including a provision for two 12 month extensions.

7. Online Bill Presentment & Home Owner Grant Processing Services

Short listed proponents:

The City was seeking proposals from vendors capable of providing electronic billing options for a variety of services provided to the public, including property taxes, utility payments, and business and dog licences. These services would provide customers with a paperless process for receiving invoices from the City and for processing payments. Electronic billing of property taxes presents special difficulties for the City because of the requirement to process Homeowner Grant Applications as part of the payment.

In reviewing the responses, the Evaluation Committee concluded that, while this is a service that the City should provide to its customers, it was premature to introduce these services at this time. Implementation would require significant programming in the City's legacy billing systems that are expected to be replaced in the near future. New systems will offer the option of electronic billing through a number of portals as standard features. As a result, the Evaluation Committee recommends against implementing these services until after the implementation of new billing systems - anticipated to be before Council shortly. A delay will also give time for the market for these services to mature.

FINANCIAL IMPLICATIONS

Based on the recommendations included in this report, the cost of contracting for the services included in the RFP will be approximately net $801,000 annually (based on current transaction levels), compared to the current benchmark costs of approximately $828,000. In addition, the consolidation of the core banking and collector bank services will result in a reduction of transaction and administrative costs in City departments. Based on the financial offerings of the recommended proponents, these costs are anticipated to remain constant for the five year period of the contracts.

IMPLEMENTATION PLAN

It is anticipated that the implementation of each of these services will be completed before the end of 2004. Detailed implementation plans will be developed with each of the successful proponents as part of contract negotiations.

CONCLUSION

An interdepartmental staff team, lead by the Director of Finance, has completed the first comprehensive request for proposals for financial services in the City's history. The objectives were to identify best value partners for a range of services. The evaluation of responses has resulted in a number of recommendations for the provision of services to the City, including corporate financial institution, provision of collector bank services, provision of debit and credit card merchant services, investment custodial services and purchasing card services. The recommendations confirm the Bank of Montreal as the City's corporate financial institution and consolidate two related services with the bank. The recommendation to authorize agreements with the Bank of Montreal, Moneris Solutions, RBC Global Services and National Bank for the supply of financial services is deemed to provide best value for the City over the term of the agreement. Based on the proposals submitted, these were the leading proponents for the supply of financial services demonstrating that their companies would be able to meet the product, service and technological objectives of the City. Moreover, the agreements will ensure that the cost of these financial services will remain at current levels during the five year term of the contracts.

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