By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

In its December 2018 report entitled Metrolinx – GO Station Selection, the Auditor General of Ontario found that the Ontario government and the City of Toronto interfered in the train station expansion plans of Metrolinx, an independent provincial agency. As the report detailed, after an extensive planning process, Metrolinx recommended a series of new train stations, but initially rejected new train stations at the proposed Kirby and Lawrence East locations because the cost of those stations significantly outweighed their advantages. However, the audit found that the Ontario provincial government and the City of Toronto interfered with those initial recommendations, resulting in Metrolinx adding those two stations:

Metrolinx’s 2016 original business-case analyses of the Kirby and Lawrence East stations noted that both stations were expected to result in a net loss of GO ridership, a net increase in vehicle use (driving) in the region and an overall decrease in fare revenue. The business-case analyses did note positively that the stations aligned with municipal land-use policy, which slightly improved their evaluation results, but they still concluded overall that these stations were “low-performing” and “should not be considered further during the next ten years.” However, the Metrolinx Board Chair and Chief Executive Officer guided the process whereby the Metrolinx Board ultimately supported the decision to add these two stations.

As the report noted, the proposed Kirby station represented a bad business case for the Ontario taxpayer:

The overall conclusion of the business-case analysis was that “the benefits which could be realized by a Kirby station are not large enough to outweigh the negative impacts to GO Transit and the economy.” Another finding was that for every dollar spent on the new station, “transportation users and society would pay an additional $3.60 [(CAD)].” In other words, the additional costs to the region because of increased auto travel and travel time delays for GO passengers would be more than three-and-half times the costs to build and operate the station.

The audit also found that there was a weak business case for the proposed new station at the Lawrence East location:

The overall conclusion of the business-case analysis was that the “area’s low employment and population densities and limited real estate market demand may not support RER [Regional Express Rail] service at this time”; and “its negative value results from the net loss in ridership due to the additional time required for trains to serve the station.” In other words, while the station would satisfy the City of Toronto’s growth and transit objectives, the analysis showed that it would have an overall negative impact on the regional transit network and its users.

Notwithstanding these initial recommendations, the Auditor General found that the Province of Ontario and the City of Toronto intervened to influence Metrolinx to change its recommendations so that the Kirby and Lawrence East stations made the new short-list of proposed stations:

In response to the Minister’s and the City of Toronto’s attempts to influence the station selection, Metrolinx planning staff tried to justify including the Kirby and Lawrence East stations by changing the criterion used in the business-case analysis to recommend which stations should be built.
An unpublished June 2016 draft of the Summary Report (initially prepared by the co-ordinating consultant and subsequently updated in consultation with Metrolinx) classified the 17 proposed stations into three distinct groups: “recommended” (five of the 17 stations); “contingent” (another five of the 17 stations); and “not recommended” (the remaining seven of the 17 stations, including Kirby and Lawrence East).
Metrolinx was planning in June 2016 to recommend to its Board both the five “recommended” stations and the five “contingent stations” (10 stations in total). In other words, “contingent stations” “made the cut” while “not recommended stations” did not.

The Auditor General found that attempts by Metrolinx to placate the interests of the Minister of Transportation and the City of Toronto compromised the ability of Metrolinx to meet its fiduciary duties in its decision-making process, and that other jurisdictions would be best to ensure an arm’s-length decision-making process in similar portfolios to protect against inappropriate interference:

Throughout June 2016, Metrolinx’s CEO and Board Chair corresponded frequently on the matter of the Minister’s support for Kirby GO station, and the City of Toronto’s desire for a Lawrence East GO station, neither of which were supported by the results of Metrolinx’s business case analysis. Ultimately, the apparent need for alignment and co-operation between the City, the Province, and Metrolinx could be perceived to have compromised the Metrolinx Board’s fiduciary responsibility.
In other jurisdictions, other practices ensure greater accountability when a decision is made to proceed—for political reasons—with transit investments that have a significant net economic cost. For example, when such situations are encountered in the United Kingdom, the most senior civil servant in each department has a duty to seek a Ministerial direction if they think a spending proposal does not promise good value for money. In May 2016, the Permanent Secretary of the Department for Transport wrote to the Secretary of State for Transport to seek Ministerial direction on the request to increase pre-construction funding on a proposed pedestrian bridge. He was concerned that there were several risks to the successful delivery of the project, which was ultimately cancelled in August 2017.
Since 2003, the Minnesota Department of Transportation has been governed by a Cost Effectiveness Policy when undertaking cost-benefit analysis. The policy requires that if a project’s net economic costs are estimated to be too high, further justification must be established. Varying levels of managerial approval must be obtained and documented at each stage when decisions are made to advance these projects toward development.

The Auditor General found that the changes made by Metrolinx to its original recommendations, and to the supporting documentation, helped to obscure the reasons behind its initial recommendations, so that the weaknesses of the two new added stations were less apparent:

Throughout the station evaluation process, Metrolinx revised both published analysis and supporting documentation. This obscured the net economic costs estimated in the original business cases, making the results of the business-case analysis—both on Metrolinx’s website and in the published report to the Board—much less clear and transparent.

While the Auditor General noted that the Minister of Transportation held ultimate approval authority over the Metrolinx recommendations, the audit found that the Minister did not use the appropriate legislative channels to override the Metrolinx proposals, but instead interfered with the Metrolinx planning process in a non-transparent manner that was outside of legitimate channels:

In its leadership role of regional transportation planning, Metrolinx is mandated to plan and achieve what is best for the region. What is best for the region may not always align with the desires of certain stakeholders and interested parties.
In past cases of such misalignment, the distinct positions of Metrolinx and opposing stakeholders were clear. For example, when Brampton City Council voted against Metrolinx’s approved route for Hurontario rapid transit, Metrolinx provided the best analysis and advice regarding the region’s interests, but the City—with its decision-making authority—overrode that analysis and advice.
In the above case, Metrolinx advised the adoption of a transit project that a municipality did not want built, and the municipality blocked it. The case of the Kirby and Lawrence East GO stations is the opposite misalignment: municipal stakeholders (an MPP, the City of Toronto) wanted transit projects built that Metrolinx had concluded were not in the region’s best interests. However, Metrolinx succumbed to the influence of the MPP/Minister of Transportation and the City of Toronto and overrode its initial, objective analysis.
The appropriate way to address the misalignment would have been for the Minister to use the legislated channels available to him to direct Metrolinx. The Metrolinx Act, 2006, provides for the Minister of Transportation to give written directives to Metrolinx, including direction to amend the regional transportation plan, and to take specific steps towards its implementation. These directives can be made public, such as the Minister’s mandate letter for the 2017/18 fiscal year (posted on Metrolinx’s website), or can be sent directly to Metrolinx, as occurred in April 2012, when the Minister directed Metrolinx to develop an implementation plan for Toronto light rail transit projects and related criteria.
Written directives ensure greater accountability in that they ensure clear ownership of decisions that significantly affect the regional transportation network. In cases where ministerial direction aligns with Metrolinx’s recommendations, Metrolinx gains further explicit support from the Province in advancing transit projects. However, in cases where a directive is misaligned with Metrolinx’s position as regional transit planner, the public benefits from the full knowledge that a government policy decision is overriding Metrolinx’s planning recommendation.
Metrolinx could have taken the position that its best analysis and advice do not support the Kirby and Lawrence East GO stations. If the Province and the Minister were committed to the stations for other reasons, a ministerial directive could have been issued, with the Province and Minister “owning” the decision in a transparent manner.

As this case illustrates, the failure to establish and follow clear project review and approval procedures can bring the entire project decision-making process into question. In this instance, the negative audit resulted in a December 2018 announcement by the newly elected provincial government that it would review the prior government’s decisions regarding the two stations, thereby creating further risk of uncertainty and of the politicization of project priorities. Ultimately, as this case study shows, long-term project planning would better serve the public interest if independent agencies were provided the mandate to make merit-based priority decisions shielded from political interference and short-term electoral priorities.