Logistics giant targets lucrative LDB contractCompany considered trying to influence the writing of B.C.'s liquor warehousing and distribution privatization request for proposals
The world's biggest third-party logistics company and its BC Liberal-connected lobbyists could pop corks this fall if their seven-year pursuit of the BC Liquor Distribution Branch's (LDB) warehousing and distribution business pays off.
But will taxpayers and industry be stuck with the hangover?
Front-runner Exel Logistics and party insiders Patrick Kinsella and Mark Jiles couldn't convince Gordon Campbell to privatize while he was premier, but that changed under successor Christy Clark.
The provincial government published a request for proposals April 30 to cede control of the LDB's Vancouver and Kamloops-based operations for up to 10 years, with two three-year options. The RFP's deadline is June 29, and the tendering document states that "up to the top three" bidders will be shortlisted July 20. The winner is scheduled to be announced October 16, and the deal will be signed before March 1, 2013.
NDP critic Shane Simpson said the government is "racing ... to get this out the door" before the May 14, 2013, election.
"The intention is to create a private monopoly," Simpson told Business in Vancouver. "It guarantees union rights, but doesn't guarantee a revenue stream to government."
Tibbett and Britten Group (which Exel bought in 2004) took over Alberta's government liquor warehouse in 1994 under the Connect Logistics banner. In 2005, Exel hired Jiles, Campbell's riding campaign manager, for more than $5,000 a month.
Jiles, his Progressive Group partner and 2001 and 2005 Liberal campaign architect Kinsella and ex-Connect general manager Rob Madore all registered to lobby for Exel in 2010 when laws were bolstered.
According to an October 6, 2009, internal memo obtained by BIV, Exel code-named its B.C. liquor privatization project "Last Spike." Like the 1885 Canadian Pacific Railway construction milestone, Exel's goal is to connect east and west. The unit of German-headquartered giant DHL Deutsche Post estimated in the memo it could gain $55 million to $95 million in annual revenue from the LDB contract, while the government could recover its $100 million inventory and sell the 220,000-square-foot East Vancouver warehouse for $40 million.
Exel speculated in the memo that higher beer, wine and spirits sales would offset the higher costs forecast to handle more product lines.
"There are three key steps selling this project," said the memo, prepared by Toronto-based Exel vice-president Scott Lyons. "First, the (BC Government and Service Employees' Union [BCGEU]) must be onboard. Second, the government needs to be onside. Third, the industry cannot object in a meaningful way, and ideally supports the initiative."
The internal memo indicates that Exel had hoped to secure the contract without a competition. If it had to go to tender, Exel wanted to "influence the writing of the RFP" by attempting to use its "strong relationship" with liquor minister Rich Coleman. Exel feared a competitor could also try to influence the RFP.
"Exel would push to include criteria such as previous industry experience, appropriate resources, and a solution incorporating the BCGEU," the report said.
The memo said that Jiles "has close ties" with Jeff Fox, the B.C. NDP president from 2003 to 2009 who retired as BCGEU director of organizing and field services in 2010.
"When the B.C. government awards the LDB work to Exel, the BCGEU workers and the new collective agreement will follow the work," the memo said. "Going forward the extent of the relationship between Exel and the BCGEU will be that of employer and union representing the workers."
The report goes on to suggest that the BCGEU might "leverage this concession to secure continuation of public liquor stores."
If successful, California-based Exel and Connect vice-president Greg Foreman would add the B.C. operation to his Alberta duties.
Exel speculated in the memo that it could minimize opposition to a direct award if it lobbied government together with the BCGEU and ContainerWorld, the 495,000-square-foot, domestic wine and small brewery warehouse in Richmond owned by Liberal supporter Dennis Chrismas. The memo said Chrismas has a "long standing relationship" with Italy-based, DHL-owned Giorgio Gori, and "it is understood that at some point (Gori) would purchase ContainerWorld."
Exel estimated such an acquisition would cost $24 million. There is no indication Chrismas became involved with Exel's lobbying nor that Gori bought his company.
Campbell, Coleman, Fox and BCGEU president Darryl Walker were listed as lobbying targets. Madore planned in October 2009 to meet LDB chief financial officer Roger Bissoondatt while Coleman was to meet with then-finance minister Colin Hansen.
Exel also "reached out" to five industry representatives who the memo said "are onside." They included Kazuko Komatsu, president of Pacific Western Brewing, a Progressive client, and Alliance of Beverage Licensees of B.C. executive director Kim Haakstad, now Clark's deputy chief of staff.
Exel aspired to take over as soon as April 1, 2010, but the government shelved privatization. In 2011, Kinsella advised Clark on her successful leadership campaign and donated $49,450 to the Liberals through Progressive. Jiles donated $18,715; Lyons gave the party $3,500. In 2009, Lyons donated $433.08 to the NDP.
Jiles and Lyons refused a BIV interview request, citing the RFP's confidentiality clause.
Walker, president since 2008, said he had met with Jiles, Lyons and Madore "on a couple of occasions. Part of our responsibility is seeking to understand the people that … might end up being the employers of our members."
Requests to interview Coleman were denied, but during Question Period on May 1, Coleman insisted that government would control pricing, taxation and revenue.
Finance minister Kevin Falcon originally revealed the sale plans in the February 21 budget. The BCGEU announced a memorandum of agreement with government on March 23 for post-privatization job security. A month later, the BCGEU publicly opposed privatization while girding for a possible government-wide strike.
Kinsella ended his undertaking for Exel on March 30, according to the Lobbyists Registry. "Even though my contract has ended and I am no longer registered on this undertaking, I still need to respect the (tendering) process," Kinsella told BIV.
On April 17, the BCGEU publicly opposed privatization while girding for a possible government-wide strike.
The Germany/Quebec joint venture Hillebrand Westlink and Quebec-based Metro Supply Chain Group are other potential bidders.