MWDigest (August 2016) - Municipal World's monthly digital digest by Municipal World

August 2016

DO WE HAVE THE

ENERGY FOR THIS?

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CONTENTS

AUGUST 2016

MUNICIPAL WORLD – CANADA’S MUNICIPAL MAGAZINE

DO WE HAVE THE ENERGY FOR THIS? Key choices being made today in the energy sector will have long-lasting implications.

PUTTING A VALUE ON NATURE’S SERVICES Gibsons, B.C. has started a revolution in the asset management world – by committing to place a value on the services that nature provides.

THE VALUE OF GREEN FCM research shows that perceptions of high risk and low value for green initiatives are unfounded. 13

GETTING OUT OF THE DARK As water protection becomes a greater issue in B.C., new research demonstrates that a revised approach is needed for watershed governance.

SUPPLYING B.C.’S DRINKING WATER Supplying drinking water is an onerous and highly regulated task – so, a sound knowledge base is essential to ensuring public health and safety.

Municipalities face a new reality as infrastructure costs related to climate change continue to rise.

THINGS YOU NEVER KNEW ABOUT TREES Pugwash, Nova Scotia partners with Dalhousie University to build a tree inventory and get recommendations for improving its tree canopy.

MW MAGAZINE

MUNICIPAL WORLD INC.

EDITOR & PUBLISHER

PRESIDENT

SUSAN M. GARDNER, MPA, AMCT

NICHOLAS R. SMITHER, BESc

ASSISTANT EDITOR

BETH WILSON

JAMES WILSON

ACCOUNTS RECEIVABLE & CLIENT CARE ASSOCIATE

ANTHONY GIBBONS CLIENT COORDINATOR

KIM COSTA CREATIVE CONTENT & MARKETING COORDINATOR

GABI FORTIN-SMITH

THE IMPORTANCE OF PERFORMANCE DATA Vaughan’s entry into the World Council on City Data provides insight on the importance of data and comparison in building a sustainable city.

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SMART CITIES: MORE THAN JUST TECHNOLOGY While the idea of a smart city is becoming more popular, it is people, rather than tech-friendliness, that makes a city truly “smart.”

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One municipality shows how embracing the winds of change and adopting Lean methodology can improve culture and cut costs for the organization. 33

THE R E GUL AR S

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DIRECTOR OF BUSINESS DEVELOPMENT

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NOW

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MWDigest is a monthly digital publication, highlighting and supplementing content available to Municipal World magazine subscribers. For information on advertising and submitting content for this publication, please contact Anthony Gibbons at 1-888-368-6125 ext. 206.

INSIDE THIS ISSUE Do We Have the Energy For This? Key choices being made today in the energy sector will have long-lasting implications.

Putting a Value on Nature’s Services Gibsons, B.C. has started a revolution in the asset management world – by committing to place a value on the services that nature provides.

Bottled water Sustainable solutions for a circular economy Both traditional curbside programs and unique recycling opportunities provide sustainable solutions to minimize the environmental impact of water bottles by decreasing plastic in the waste stream. Presented by the Canadian Beverage Association.

Online Exclusive!

Editor’s Flashback This online-only feature column highlights select articles from past issues of Municipal World’s monthly print magazine. In this issue, we share “Municipal Outsourcing ” – from the April 2011 issue.

Coming Events

The excitement and uncertainty of a rapidly evolving electricity sector by Dane Labonte & Ian H. Rowlands

DO WE HAVE THE

ENERGY FOR THIS?

Â©istockphoto.com/monicaodo

The electricity system is important, but more complicated than most people realize. The modern lifestyle of most Canadians is dependent on access to reliable and affordable electricity. We are surrounded by electronic devices that we rely on for work, communication, and entertainment.

of things; but, at a basic level, it refers to integrating more communication and information technology into the electricity system. By increasing real-time data gathering, these technologies open up the potential for system automation and give system operators more information about the grid that they are managing. By creating a smart system with better communication and more data availMost Canadians take ability, it is easier to integrate equipment for granted that, when like small generation stations, renewable they ﬂip their switch, the energy generation, and battery storage. It also allows customers to interact with the lights will come on; or electricity system in new ways. Rather that, when they plug in, than customers only consuming electrictheir phone will charge. ity, some are now able to sell electricity back to the grid. It may also be possible to create a more flexible and responsive We rarely think about the complisystem where some types of electricity cated and extensive system that powers a usage are programmed to automatically great deal of our lives, and that is a testa- reduce the burden on the grid during ment to a significant engineering feat. high-use times. Although these may not In Ontario alone, there are over 198,000 seem like large changes on the surface, kilometres of distribution lines, which they represent a major shift in thinking connect individual customers to the elec- about what an electricity grid is, and tricity grid1 (to put that into perspective, what it could be. that is just shy of enough wire to wrap Smart grid technologies present around the earth five times). exciting opportunities to reduce the Beyond the extensive infrastructure greenhouse gas emissions associated in place, the electricity system must with our electricity generation – and, constantly be balanced. As demand for with greater integration of electric veelectricity goes up – for example, when hicles, these benefits could spill over to someone turns on their dryer, or a factory the transportation sector as well. These starts up their machinery – it has to be technologies could also mean new value matched by increasing electricity supply for customers, by improving reliability, to the grid. System operators are conreducing outages, and offering new tinuously ensuring that there is neither services. However, in terms of planning too much, nor too little electricity being the system, these developments are both generated. exciting and uncertain. Given how much our economy reNovel Opportunities and lies on the electricity system, we have Greater Uncertainty to keep investing and maintaining what While the electricity system is we have. This raises the question: is our complicated and crucial to our modern traditional approach to planning and ineconomy, it is entering an era of change. vesting in the system suitable for dealing New technologies, which are broadly with an evolving and more innovative referred to as “smart grid technologies,” sector? are opening up novel possibilities for It is possible that we may be able to how the system is designed, constructed, smoothly and cost-effectively transition and managed. The term smart grid these new technologies into our current technologies can encompass a variety system. On the other hand, we could find that we invested in a lot of high-cost equipment that is suddenly made obsolete by even newer technologies. Con1 <www.ontarioenergyboard.ca/oeb/_Docusider the analogy of the telecommunicaments/RRR/2014_Yearbook_of_Electricity_Distributors.pdf>. tions industry in the 1990s: are we doing

the modern-day equivalent of investing in tried and true methods (landlines) just as new and disruptive technologies (cellphones) are about to take off? At this stage, we know that the new and exciting technologies are available; yet, there is a lot of uncertainty in predicting the extent to which – and the ways in which – they will take root and thus reshape the overall system design.

The Challenge of Rapid Innovation Generally, we expect that innovation, competition, and consumer choice will combine to spur new market opportunities and discard old technologies that are no longer suitable. But, unlike other sectors, electricity systems are considered natural monopolies. The high cost of creating the system’s infrastructure makes building a second complete set of wires uneconomical; as a result, electricity systems are unlikely to develop completely competitive markets. Once a company has established itself in a territory, they could increase cost to consumers well beyond what a typical market would allow. Without a conventional market structure, the electricity system develops through regulation and planning decisions. In the absence of a wholly-competitive market, regulation tries to compensate by prescribing specific approaches that the companies within the sector should take. This creates challenges for experimenting and testing new innovations. Whereas markets provide a good tool for considering many options, regulation tends to be less flexible. As new innovations develop, regulators need to

August 2016

DANE LABONTE is a Ph.D. Student in the School of Environment, Resources and Sustainability at the University of Waterloo. He can be reached at <dlabonte@uwaterloo.ca>.

IAN H. ROWLANDS is a Professor in the School of Environment, Resources and Sustainability at the University of Waterloo. He can be reached at <irowlands@uwaterloo.ca>.

MWDigest

Reshaping and redesigning the electricity system to take advantage of smart grid technologies requires purposeful decisions â&#x20AC;&#x201C; multi-decade bets that the system being planned now will be useful to customers in the future ... make decisions about how they fit into the current system. This often means not only considering the current applications, but also looking well into the future to consider the application of technologies over their useful lives. This is because the large capital investments, which are necessary for building such an extensive system, have traditionally been financed with long-term loans. The primary reason for the extended term of these loans is to help to keep the costs low for customers. When considering new technologies, regulators must decide if the investment made now will still be useful 20 years from now, when the loans that were re-

quired to buy the equipment have finally been paid off.

between 2010 and 2030.2 Integrating smart grid technologies may require redirecting these investments, or investing Significant Investments in even more to reshape the system. the Electricity System As Ontario residents know, these investments will need to be repaid whether Reshaping and redesigning the electhey successfully transition the system tricity system to take advantage of smart grid technologies requires purposeful de- or not. For the last 13 years, a debt recisions by regulators. These decisions rep- tirement charge appeared on the bills of Ontario electricity customers. The charge resent multi-decade bets that the system contributed to paying down $19.4 billion being planned now will be useful to cusof stranded debt from bets left unpaid by tomers in the future, and the investments the former Ontario Hydro.3 In other secbeing made are substantial. Conference Board of Canada has predicted that over $290 billion will be invested in the Canadian electricity sector just to maintain the 2 <www.conferenceboard.ca/e-library/abstract. aspx?did=4132>. current system and meet growth demands 3 <www.fin.gov.on.ca/en/tax/drc>.

MWDigest

August 2016

What Is the Big Picture and What Should We Do?

The authors of this article recently held a workshop for executives and senior management from several local electricity distribution companies in Southwestern Ontario to discuss the changing electricity sector. A report about the event can be accessed at <https://uwaterloo.ca/sustainable-energy-policy/news/workshop-report-available>.The authors would like to thank the Social Sciences and Humanities Research Council of Canada (SSHRC) for support as part of the research project entitled “Unlocking the Potential of Smart Grids: A Partnership to Explore Policy Dimensions,” available at <http://tinyurl.com/ SG-Partnership>.

SOCIAL, OPEN

& BIG

The idea of participating in government, and using technology to help individuals do so, has become a legitimate political reality, especially with younger and tech-savvy citizens. There is a robust and growing civic-hacking movement around the world that channels the creativity and problem-solving skills of civic-minded citizens into addressing the challenges of modern governments.

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In this thoughtful examination of our democratic roots, the evolving expectations of our government, and the context of today’s technologically-rich environment, author Rick Aitken debunks the idea that everyone hates government, pointing to an abundance of evidence demonstrating that, when given a way to interact directly with government, citizens will take the opportunity to do so again and again, with the only reward being contribution. Citizens are ready to help share the workload, says Aitken. “Local government will need to be open to, prepare for, and not be overly cautious of the opportunities that will present themselves. Governments that understand the Order this book importance of participation, and that protect from MW’s online the rights of their citizens to do so, can capitalbookstore ize on these opportunities.” available lso

The challenge moving forward is to find a planning and regulatory approach that will allow us to balance the risk and reward of transitioning our electricity system. The vision of a smart grid with more flexibility and greater integration of renewable technologies is exciting; however, to reshape our electricity system in that direction will involve significant investment. At this stage, while technologies are still maturing, we cannot be sure what the best design will be. In an uncertain planning environment, how can we keep our options open and maintain economical electricity services? Our historical regulatory approach does not seem well suited to manage a more rapidly innovating sector, but neither is there an obvious alternative. Given the public stake in the sector, and the large financial commitments involved, we need to start advancing a more purposeful conversation about our visions and goals for the electricity system. MW

RETHINKING PUBLIC PARTICIPATION

tors, customers can take advantage of new innovations while older technology falls by the wayside at no cost to the customers. With the electricity system, however, loans for obsolete technology are still paid for by customers (even if a new system is being used) because a good deal of the infrastructure is publicly financed. Even in Ontario, where parts of the system were privatized in the late 1990s, many municipalities remain the primary shareholder of the private company providing electricity distribution services in their community. The policy approach taken in this sector has implications for the environment, for the economy, and for the state of our public finances.

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If local governments can see past the risk and the unknown, and are able to look into the future with clear eyes, they just might be able to see that this is a moment of great potential for their communities.

August 2016

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RAW EXPERIENCES. REAL STORIES. RARE COURAGE.

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water by Rick Searle

Putting a Value on Nature’s Services The Town of Gibsons’ Municipal Natural Capital Initiative

There is a revolution sweeping through the municipal asset management world, and it’s shaking the very foundations of conventional thinking. It was sparked by residents of Gibsons, a small, quiet town on B.C.’s Sunshine Coast. In no uncertain terms, they told their municipal leaders and administrators to ensure adequate protection and maintenance of the aquifer upon which everyone in the community depended. In responding, the mayor and council along with

White Tower Park, described as the backbone of the community’s stormwater management system, has undergone significant revitalization as part of Gibsons’ initiative.

staff soon found themselves embarking on a truly pioneering journey into largely uncharted territory. In 2014, Gibsons became the first municipality in North America (and possibly the world) to commit to full system integration of valuing the services provided by the local and regional natural ecosystems into the very DNA of their asset management planning,

RICK SEARLE has spent his entire career as a writer, consultant, video producer, educator, and speaker focused on environmental protection and the pursuit of sustainability. Currently, he is investigating the use of natural capital and payment for ecological services as ways to protect and restore natural ecosystems. He can be reached at <rick.searle@ekoscommunications.com>.

August 2016

MWDigest

Emanuel Machado, CAO for the Town of Gibsons, notes, “We’re now investing in the natural capital we have. And, we’re expanding and enhancing our forests, wetlands, and creeks to deliver more and better services to people like flood reduction and clean water.”

as well as their Official Community Plan (OCP) and annual financial statements. “Water became the entry point for a much bigger conversation when we released a mapping survey of Gibsons’ aquifer,” says Emanuel Machado, CAO for the municipality. “From this work, it was clear that we were only accounting from the pumphouse forward and we were leaving the rest to nature.” “We’re now investing in the natural capital we have,” he adds with obvious delight, “and, we’re expanding and enhancing our forests, wetlands,

MWDigest

and creeks to deliver more and better services to people like flood reduction and clean water.” Plans are now afoot to take the best practices emerging from the Town of Gibsons’ “paradigm-shifting” journey and to scale them up through a number of pilot case studies to take what is called the Municipal Natural Capital Initiative national. There are good reasons to believe that the initiative will be very successful. As Victor Hugo, the French author and poet once observed: “There is nothing more powerful than an idea whose time has come.”

August 2016

Although the concepts of natural capital and ecosystem services have been around for at least couple of decades, they are suddenly catching the attention of municipalities keen on reducing the pain of having to replace aging and failing infrastructure. As many as 30 municipalities have stepped forward to volunteer to be pilots in the initiative. Meanwhile, there are a growing number of very interested observers among the rest. Darrell Mussato, who is serving his fourth term as mayor of the City of North Vancouver, is one of them. “I really think we need to look at the

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leadership that the Town of Gibsons has been doing,” he maintains, while adding: “We need to be asking how can we emulate them and how else can we show support for what they are doing.” For its part, the City of North Vancouver is planning to follow Gibsons’ lead. At present, the city is completing its inventory and assessment of its engineered assets; however, this work has not stopped them from proceeding with several initiatives to protect the forests, creeks, and estuaries within their boundaries. The engineered component of the asset management strategy is expected to be finished very soon and the plan is to next turn to integrating these natural ecosystems as natural capital into their OCP and accounting procedures as well. Lest the reader think that this revolution in asset management is spreading unchallenged, it is instructive to listen to what Duane Nicol, CAO for the City of Selkirk, B.C. has to say on the issue. “Is what the Town of Gibsons is doing with incorporating natural capital into its asset management plans revolutionary? Absolutely!” he quickly asserts. “Emanuel is a thoughtleader in this paradigm shift in asset management.” While he would like to see his city join the revolution, Nicol also recognizes that the time isn’t right. Selkirk is still in the early stages of tackling their asset inventory and assessment. Like many municipalities, it has some deeply-entrenched ways of doing things that are heavily reliant on engineers and regulations. So, instead of tackling this convention head on, Nicol and his staff have developed a different strategy. “What we’re doing is slowly building a robust asset management plan that incrementally lays the groundwork for eventually incorporating natural capital, along the lines of what the Town of Gibsons has done,” Nicol reveals. Entrenched ways of doing things and a resistance to change certainly pose significant challenges to the

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fledgling revolution; but, ultimately, it will prevail simply because it just makes good economic sense. Back in Gibsons, Machado makes a compelling business case for natural capital. “What we’re finding is that for roughly the same cost of building engineered infrastructure, we can protect and maintain something that could last in perpetuity, with a relatively low cost of maintenance and it provides many more benefits to the community, such as recreation and wildlife habitat.” “What we especially interested in right now,” he adds, “is understanding the value of the services we get from nature so we can integrate that information and make better decisions about where to invest public funds.” While Machado didn’t mention it, he likely could have underscored the political leverage that would result from having this ability. After all, a great many Canadian municipalities are experiencing significant financial pain because of infrastructure repair and replacement needs. If it can be shown quantatively that natural capital can help reduce the costs of certain services, then its business case becomes even more compelling, and its wide-spread adoption could be unleashed across the country. With this larger vision in view, Gibsons has partnered with the David Suzuki Foundation, Sustainable Prosperity, and Roy Brooke and Associates to launch the Municipal Natural Capital Initiative (MNCI). Its goal is to “support municipalities in recognizing, measuring, and managing the contribution natural systems make to people and municipal service delivery, using asset management business processes.” The initiative has three phases. The first phase focused on assessing the scope of the challenge and potential solutions, as well as developing key partnerships; it concluded in August 2015. Phase two kicked off in early April 2016 and will be completed in December 2017. During this time, an approach based on Gibsons’ model will be developed, tested, and refined through pilot studies with

August 2016

Derrick Thomson CAO, City of Guelph

The City of Guelph is pleased to announce the recent appointment of Derrick Thomson as its Chief Administrative Officer. Derrick has built a decades-long career in senior management roles with the City of Brampton, as CAO of the Township of West Lincoln, and most recently as Deputy CAO of Public Services at the City of Guelph. He has served in senior management roles with the Ontario Municipal Administrators’ Association, the Municipal Internal Auditors Association of Ontario and supported the YMCA-YWCA Board of Guelph. As CAO of the City of Guelph, Derrick is leading a passionate public service continually driving municipal innovation and providing exceptional public service.

several municipalities. The third phase would then entail the scaleup of the approach throughout 2018 and beyond, to hopefully encompass many more municipalities across the country. Michelle Molnar is an ecological economist with the David Suzuki Foundation. She and her team are tasked with developing and formalizing the approach for deriving a value for nature’s services. They are specifically focusing on surface water management, since it is a common challenge to many communities across Canada. As she explains, “What we’re trying to do is to capture those services of interest to municipal stakeholders. We’re doing this by seeking answers to a couple of questions. How much are they saving by maintaining natural systems, and how much is it going to cost if they’re going to have to be replaced?” “The nice thing about working with the Town of Gibsons is that they

recognize this,” she adds, “and so we’re working with them to develop the measures so they can track, maintain, and, where required, restore nature so that all those benefits that flow from them can continue.” Machado emphasizes the importance of Molnar’s questions by noting that, on paper, Gibsons has a net worth of $47 million dollars; but, he hastens to point out that the town could not buy another aquifer of some size and quality, let alone all the forests, creeks, wetlands, and foreshore for that price. In south-central B.C., the City of Grand Forks has expressed interest in being one of the pilot communities and is anxiously waiting to hear whether or not it will be selected. “One of our regional directors brought the Municipal Natural Capital Initiative to our council,” Doug Allin, the city’s CAO, explains. “The City of Grand Forks aspires to become the greenest city in B.C. So, it fits really well with our strategic goals.”

“We see a great opportunity to be a pilot with the initiative,” adds Graham Watt, the city’s engineering technologist. “To be a part of the collaboration with other leading-edge municipalities is like being a part of a dream green team.” Should municipalities be attempting to put a value on nature’s services? Couldn’t this become the beginning of a slippery slope leading to the commodification of nature itself? Machado has an answer to this. “It’s critical to distinguish between putting a price on nature’s services and not on nature. One cannot put a price on nature; it is priceless,” he contends. “But, not putting a value on nature’s services hasn’t been terribly helpful to nature. We burning through 50 percent of the natural capital of this world and faster than nature can reproduce. We’re burning through our savings very fast, so it’s imperative that we develop the tools to value nature services so we can make better decisions.” MW

August 2016

MWDigest

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I approached Ravenhill Group because I knew they recruited exclusively in the Municipal sector. Ravenhill

South Glengarry needed a new CAO and I wanted to make sure that we had a strong list of from.

candidates that would not have surfaced if I had just run an ad on line with the various associations … I was able to get a Commissioner that hit the ground running and he has

Ravenhill Group was able to come up with a great slate of candidates. The result was very good. Ravenhill provided a method to evaluate the candidates … we select-

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Ravenhill Group facilitated the process which allowed the township team to conduct the interviews and make its own selections.

Ravenhill gave me a good overview of each candidate and surpassed what I would have been able to garner with in

One thing I liked was the large number of capable candidates that were provided to the Township, plus Ravenhill’s understanding and evaluation of the strengths and weaknesses of each individual presented. I found the experience to be very thorough and professionally conducted. I would recommend Ravenhill Group

very positive … I would recommend Ravenhill Group to corporations that are looking for senior candidates.

Upon the retirement of our CAO, we approached Ravenhill Group because of their reputation for recruiting the ‘right person’ for the job. They had also previously recruited our CAO at SDG County. Ravenhill Group helped us by doing all of the pre-screening and setting up interviews for us. No time was wasted on the wrong people. The result was a successful hire and a CAO who is actively following up on Council’s priorities. I found the whole experience was done very I would recommend Ravenhill Group to any organization that is looking for a top professional and any municipality that wants to distance itself from the preliminary screening and reviewing of applicants.

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Bottled water Sustainable solutions for a circular economy In the midst of a Canadian summer, demand for all kinds of bottled beverages is on the rise. Consumer trends suggest that Canadians are increasingly choosing water as a bottled-beverage option. With this comes very real questions about packaging and the environmental footprint of the bottled water industry. Canadian municipalities should be very proud of the clean, safe tap water they provide for their citizens. They should also take comfort knowing that, according to Agriculture and Agri-Food Canada, bottled water does not compete with tap water, but only with other bottled beverages. Research shows that 91 percent of bottled water drinkers consume tap water at home and bottled water on the go. This is a positive relationship that promotes choice and proper hydration habits. As consumption of bottled water continues to grow, the beverage industry is conscious of its environmental footprint in all aspects of the production line. According to Environment Canada, the beverage industry uses less than 0.02 percent of annual fresh water withdrawals. In other words, the total water usage is approximately 50 litres per person – the equivalent of one three-minute shower using a standard shower head. Although accounting for only this small percentage, the Canadian beverage industry remains vigilant in responsible water practices, and supports increased investment in municipal water infrastructure. For decision makers and industry alike, product packaging and the environment are especially top-of-mind. Bottled water is packaged using Polyethylene Terephthalate (PET) – one of the most environmentally friendly, low-carbonfootprint packaging materials in the marketplace. When recycled, PET is used to make playground equipment, automobile parts, carpeting, fleece clothing, sleeping bags, shoes, luggage, and other plastic containers. In repurposing PET bottles, there is a 50 to 60 percent saving of en-

ergy compared to what would be required to make the same product from virgin materials. As a 100 percent recyclable material, PET bottles are valuable and a crucial component in creating a circular recycling economy. In some provinces, the sale of PET bottles recovered from blue box recycling programs provides a source of funding for municipalities and regional recycling programs. The end of the beverage container lifecycle is a constant priority for industry to improve the reduction of plastic waste and litter. Great strides have been made in recycling systems over the last few decades, and beverage containers in Canada are recovered at an average rate of 72 percent, one of the highest national rates in the world. The Canadian beverage industry, in many cases working with municipalities, has been instrumental in establishing programs to increase this rate. Above and beyond the curbside blue box, the beverage industry supports unique provincial programs such as Encorp Pacific’s Return-it program in British Columbia and the Alberta Beverage Container Recycling Corporation’s Love to Recycle Initiative. As at-home recycling programs are getting better, improvements are needed in public space recycling in Canadian communities. Though hugely important, curb-side programs are not enough to make recycling as easy and accessible as it needs to be to reduce material headed to landfill. To address this discrepancy, the beverage industry and its partners launched an innovative new program in Manitoba called Recycle Everywhere, which is a standout among public space recycling programs. Run by the not-for-profit Canadian Beverage Container Recycling Association (CBCRA), Recycle Everywhere marks North America’s first permanent, province-wide, away-from-home beverage container recycling program. Since the program’s 2010 launch, litter audits in

the cities of Winnipeg and Brandon have shown 34 and 50 percent less beverage container litter respectively, while the community of Steinbach has exhibited the lowest litter numbers ever seen by the auditors for any city in North America. In its first four years, Recycle Everywhere has raised Manitoba’s overall beverage container recovery rate by 22 percent. Recently, some communities concerned about plastic waste have considered banning the sale of bottled water. However, removing one product from the marketplace does not reduce overall waste. For example, a study published last year by the American Journal of Public Health regarding a ban at the University of Vermont concluded that, “the bottled water ban did not reduce the number of bottles entering the waste stream from the university campus.” In addition to not having the intended environmental effect, the study also showed a result in beverage substitution, as consumers chose to purchase other types of bottled beverages when the bottled water was removed. Other research has shown that when the purchase option of bottled water is unavailable, 63 percent of consumers would choose to drink another bottled beverage, compared to only 16 percent choosing tap water. When looking to improve community environmental initiatives, it’s important to provide sustainable solutions that support a circular economy – offering the best recycling solutions for product packaging, while being mindful of consumer choices and trends. By working together industry and government can find long-lasting, effective solutions based in fact and drawing on research from a variety of sources. • JIM GOETZ is the president of the Canadian Beverage Association, the national trade association representing the broad spectrum of companies that manufacture and distribute the majority of non-alcoholic refreshment beverages consumed in Canada.

August 2016

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RFP & BID LISTINGS

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by Denis Chamberland

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Municipal Outsourcing Understanding the business model and getting started

The January 2011 issue of Municipal World contained an article by J. LeRoy Ward that described five ways to reduce risk in outsourcing (“What local governments can learn from a global outsourcing study”). The piece offered some useful tips in risk management, and elicited some interest. Perhaps because of my practice in municipal outsourcing – covering solid waste collection and recycling, water and wastewater management services, the design, build, operate of various facilities, and information technology, among other types of outsourcing business processes – several individuals sent me comments and questions about the fundamental principles related to the business model of outsourcing. This article provides a general overview of some of those principles.

What is Outsourcing? Outsourcing involves the transfer of an organization’s regular business activities (functions and processes) to an outside service provider that provides the services back to the organization – such as a municipality – as defined in a (typically) long-term contract. The core of an outsourcing arrangement is that the control and ownership of the business activities are put into the hands of the service

provider. The service provider then owns and manages the business processes, including the resources that are used to provide the services to the municipality. In a typical outsourcing, the people, facilities, equipment and technology, if any, are transferred to the service provider. Given the magnitude and complexity involved, outsourcing relationships tend to be long-term propositions, usually in the five to 10-year range, and sometimes longer. The term tends to be longer where the service provider invests some capital up front; where it needs to acquire some solid waste collection trucks to allow it to provide the services, for example. The transfer of ownership of the business activities being outsourced is really what differentiates outsourcing from other business relationships. As a rule of thumb, if the municipality owns the process, it is usually a service relationship. The municipality is purchasing time. On the other hand, if the service provider owns the process, chances are the municipality is outsourcing. For example, a municipality that brings in outside help to fix a computer bug is not outsourcing. But, a municipality that transfers several of its business processes to an outside service provider

that will provide billing and customer care services back to the company for a 10-year period is outsourcing. The nature of the relationship will take on a very different character according to whether the relationship is contracting or outsourcing.

Types of Outsourcing There are many typologies of outsourcing. There is a distinction between “conventional” and “greenfield” outsourcing. In a “conventional” outsourcing, people, facilities, equipment are transferred to the service provider. In a “greenfield” outsourcing, the municipality buys new services from a service provider that it would normally have performed in-house (this is the “make vs. buy” decision).

DENIS CHAMBERLAND is a procurement law specialist. He is also author of the book Procurement: A Practical Guide for Canada’s Elected Municipal Leaders (Municipal World).

This article was originally published in the April 2011 issue of Municipal World.

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There is also a distinction between “tactical” and “strategic” outsourcing. “Tactical” outsourcing is typically driven by a problem-solving mentality. For example, a municipality finds that its payroll clerk is not able to process payroll changes, cheques, and tax returns, and make the required accounting entries on time. The municipality concludes that the payroll clerk is competent, but that there is too much work for a single person. So, the municipality outsources the payroll process (including the clerk), and ends up with all of the payroll work done on time and at a lower cost, therefore achieving a net gain in operational efficiency. “Strategic” outsourcing is more ambitious. Here, the outsourcing initiative is not designed just to fix a problem, but is structured so that it is aligned with the municipality’s long-term strategies. In this type of arrangement, the benefits that are expected from the outsourcing often do not materialize for many years, but when they do, they are significant. A sub-set of “strategic” outsourcing is “transformational” outsourcing. As its name implies, it promises to transform the municipality profoundly. In a “transformational” outsourcing, the end game is nothing less than redefining the way the municipality conducts some important aspects of its business, including the way it delivers services to the public. In an extreme case of transformational outsourcing, the article mentioned above noted how the municipality of Maywood, California recently voted to outsource virtually every public service it offers, going so far as to downsize all of its employees. The article recognizes that Maywood is an extreme example of outsourcing (though not the first, as the article erroneously indicates, the City of Sandy Springs, Georgia outsourced all of its services except police and fire services, in 2006). It also recognizes that the drivers behind it are not surprising. There are many types and sizes of outsourcing relationships. But, in

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all cases, it is the transfer of ownership of a business process to a service provider that defines the core of the outsourcing relationship. As a general rule, the larger and more strategic the outsourcing, the more the relationship between the municipality and the service provider will be re-defined (if one pre-existed the outsourcing). The service provider will start to look less like a service provider and more like joint-venture/ strategic partner. This is not surprising. Given the mounting layers of complexity and the significant investments on both sides, the parties realize that if they are to succeed, they will need to deal with each other in a way that qualitatively improves on the classic buyer-supplier mindset. The many varieties of outsourcings also mean that a standard-form outsourcing template is inappropriate for all outsourcing relationships. In fact, there is no one-size-fits-all approach to documenting an outsourcing arrangement. While a good template might be a helpful starting point – it can cut down a lot of drafting time and save some money – lawyers should be especially careful that the document they are working from is the right one. And, they should have a clear understanding of the municipality’s brand of outsourcing (which in many cases will be a moving target, as the business team struggles to come to grips with the business and legal complexities of outsourcing).

Ending Comment Many municipal outsourcing projects raise environmental law issues. In getting started with such outsourcing projects, however, it is important to recognize that the longterm success of the project will turn, in many respects, on the procurement and contracting expertise brought to bear to the project. While the environmental expertise may be sought, where appropriate, it is the procurement expertise that will ensure that a successful commercial relationship is established for the length of the arrangement. MW

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