Nine Things to Know about the Proposed City of Toronto/PayIt Deal
Reading notes for this post:
These points are not listed in any particular order and this list is not exhaustive. There are links throughout this post, but the latest staff report on the deal is here and is an important background document. In addition, there are two other staff reports that are important as well: the first one from 2020, and this summary of the second procurement round from earlier this year. Finally, there is this public notice, about changes to the Municipal Act related to the deal and payments.
This post is an offer of a few sites for further discussion, it’s not any kind of deep analysis. We invite you to join us at our community information session on Monday April 26th, 6.30 pm ET to dig into them all a bit more.
We are scrambling to post this, which is part of the problem with the speed the public has to respond to these matters, but we’ll set that local democracy problem aside for another day. One more preface: there is a lot about the deal that is not here - so please consider this additional information to what is already very well detailed in the staff report. And finally, if you see any errors in this post we want to know about them, again, we’re going fast which is never ideal.
Here are the nine points we are considering in this post (more details on each in section below):
1. The City did not follow best practices for procurement. This deal is the result of an unsolicited proposal that came through the City’s Partnerships office. At the low end, the deal is valued at $20,000,000 CAD to the vendor for the first three years.
2. The deal is being described as a payments deal, but it’s more than that. It’s a digital government platform. And the functions of this relationship are about much more than payment.
3. The financial parts of the deal are complex (in terms of costs and cost savings) and the City has negotiated a defensible, even good, outcome on that front. But there are bigger shifts afoot in the payment space that are also important elements of this deal and its negotiations, and how billions in reliable government tax revenue is being used as a surface area for this business model.
4. The idea of a “digital wallet” put forward in this deal is only one of several ways to approach payments and it’s unclear how this approach intersects with current government digital identity work.
5. Vendor lock-in is highly likely, which is more cultural and economic than technical or legal.
6. The City has not completed its Digital Infrastructure Plan, and is behind on that process.
7. PayIt has no Canadian clients. Toronto would be the first.
8. As part of the deal, the City will earn money if the province or others cities/regions/towns adopt PayIt.
9. The City, using public funds, purchased a Gartner report to support the sole sourcing of this project. That report is not available to the public without a freedom of information request.
Clarification - added April 26, 2021. We’ve received the following point of clarification about the Gartner report from the City: “To help inform the July 2020 report the City leveraged the subscription it has with Gartner to conduct research and have a discussion about the digital government marketplace, including PayIt and its competitors (strengths and weaknesses of each). This was supplemented by our own research. The City did not pay Gartner anything additional for this.”
Details for each point:
1. The City did not follow best practices for procurement. This deal is the result of an unsolicited proposal that came through the City’s Partnerships office. At the low end, the deal is valued at $20,000,000 CAD to the vendor for the first three years.
To ensure fairness to all potential bidders, best practices for a public technology procurement require that the government define its requirements, ideally understand which parts of the technology should stay within public control (for public accountability purposes) then publish and circulate the tender. For some small projects, cities may experiment with new approaches - sometimes they issue challenges rather than write requirements, sometimes they try small unpaid pilots. For this deal, currently valued at approximately between $20,000,000 CAD to $25,000,000 CAD to the vendor, over 3 years, the City should not have used an unsolicited proposals approach. There is a lot more to write about this issue, but to try to summarize it, let’s break it into two pieces.
Part one: The City tried to sole source this project. The lead-up to that included some of the following, courtesy of City Hall Watcher #80, July 2020.
“PayIt has been lobbying City Hall for more than a year, represented by Maple Leaf Strategies’….[They] recorded 66 communications on the Lobbyist Registry between January 2, 2019 and February 19, 2020.. Since then, [Maple Leaf Strategies] recorded dozens of meetings with IT, Revenue Services, the Transformation Office, 311 Toronto, the Office of Partnerships and more. The lobbying effort culminated with the presentation of an unsolicited proposal from PayIt to the city, which led to the Office of Partnerships working with PayIt on a proof of concept that went well.”
Part two: When City Council said this deal should not be sole sourced last year, staff decided to use something called a Swiss Challenge process rather than redoing the process using best practices. This process used the supplier’s requirements as part of the tendering process, added some parts from the City side, and put it to market. One way to understand this is that the vendor had significant power in shaping the tender. It is vital to note that the City proper has used this Swiss Challenge process a total of two times in its history, and the Toronto Zoo has used it once.
All three cases in which this process was used were for tenders below $250,000 CAD. This one is worth between $20 million and $25 million CAD.
At a City Council session in April to present the results of this process, where no other bidders qualified, there was extensive back and forth between elected officials and staff about the process followed. There are several points of process drawn out here: https://www.youtube.com/watch?v=6lJHhNhDV-4. One of the outcomes of this session was council approval of a motion to ask the Attorney General to review the Partnerships Office processes from a procurement perspective. Start watching the video at 06:10:42. In this session, the City claims it followed a competitive bid process that did not favor the vendor.
2. The deal is being described as a payments deal, but it’s more than that. It’s a digital government platform. And the functions of this relationship are about much more than payment.
From the first staff report in 2020: “PayIt is a company that specializes in partnering with governments to transform the customer experience and making government more modern, convenient and mobile-first. Earlier this year CXi and Technology Services staff explored a concept validation with PayIt to deliver a building block of the City's digital government and payment platform. The concept is to strengthen the City's relationship with the public through positive customer service experience, leading to higher trust and confidence. This platform would be an integral building block as a foundation to the digital transformation.” [italics ours]
The issue with many governments is that they have significant legacy technology systems, so having a system such as this being used as connective tissue to patch them together is not just about the payments mechanism, but that’s the part that is visible to the public and to elected officials. Screenshots of mobile phones are being used to explain it. That’s showing the last mile of the journey. The domino-effect of infrastructural choices being made to enable it are not being put at the center of the discussion.
3. The financial parts of the deal are complex (in terms of costs and cost savings) and the City has negotiated a defensible, even good, outcome on that front. But there are bigger shifts afoot in the payment space that are also important elements of this deal and its negotiations, and how billions in reliable government tax revenue is being used as a surface area for this business model.
From the public notice related to this deal: “it is proposed that the amendments be adopted …..2. City Council amend City of Toronto Municipal Code Chapter 441, Fees and Charges, and any other relevant Code Chapter(s), to delete the current acceptable payment methods of fees and charges, and delegate authority to the Chief Financial Officer and Treasurer to establish polices and guidelines regarding payment methods for fees and charges to be accepted by the City, including accepted payment methods under the recommended agreement with PayIt Digital Government Inc., and ensuring such policies always include a free payment method option for customers.”
There is too much to analyze about credit card rules and regulations and trends in the payments space to write them up properly here, but we’ll get into that a bit at our event. It’s a highly confusing but critical element to PayIt’s business model. This level of complexity makes truly understanding the tradeoffs at play here, which is critical to any democratic policy choice, very very difficult.
4. The idea of a “digital wallet” put forward in this deal is only one of several ways to approach payments and it’s unclear how this approach intersects with current government digital identity work.
Digital wallets are one approach to managing payment accounts. This approach does not maximize choice and it highly favours the supplier in first-mover benefit. There is a high likelihood of significant uptake of this product with Toronto residents. There is also significant work being done in the government digital identity space right now, and it’s unclear if and how that work intersects with what is being proposed here. These are two of several potential conversations about the technology direction being proposed here.
5. Vendor lock-in is highly likely, which is more cultural and economic than technical or legal.
This deal fundamentally incentivizes the City to lock-in because staff want to earn money by promoting this platform for sale to the province, cities, etc. Beyond that, culturally and historically speaking, governments don’t like to reverse course on system changes like this. It is explicitly being described as a platform that enables broad modernization. This means that the human pieces of this - city workflows and processes - will now defer to the model this platform uses. Operationally speaking, products and approaches like this one get entrenched in ways that are different than the legal understanding of lock-in. There is no operational incentive to reverse course once you’ve got a product like this embedded in your workflows.
“The powerful capabilities of the PayIt Platform in a "myToronto" portal would be an integral building block as a foundation to the modernization of City services.” (page 8 - staff report 2020)
“Transfer risk of large technology initiatives and capital expenditures required to a partner, •Align costs associated with the partnership to the City's desired outcomes, i.e. shifting services to self-serve, •Explore the potential for additional benefits to the City through a partnership arrangement with the partner leveraging the City's size in the marketplace” (page 9 - staff report 2020)
6. The City has not completed its Digital Infrastructure Plan, and is behind on that process.
As was noted in the last Council session, the City is currently late to provide a report to Council on its Digital Infrastructure Plan. So, after more than a year of a two-year process, the policy that should be informing such a foundational technology decision does not exist. The staff report mentioned this plan’s principles, which are abstract, when held beside choices related to cloud computing. Senior leadership and elected officials have been enthusiastic about the cloud element of this deal. For another read on this approach, please see this piece from Ingrid Burrington in Reboot. Nothing about this cloud piece is right or wrong, but decisions about moving City service provision to cloud products demands a democratic conversation about a range of things, regardless how far down this path the City has already gone. This is exactly the kind of conversation we should all be having together in terms of our policy planning.
7. PayIt has no Canadian clients. Toronto would be the first.
From the staff report: “Negotiations between the City and PayIt LLC took place between February and April 2021. City staff ensured that negotiations addressed concerns raised by City Council previously, such as rent-seeking, data storage and security, and technology lock-in. With the negotiation stage now complete, this report is requesting that Council approve the award of the contract to PayIt Digital Government Inc. ("PayIt"), a Canadian entity.”
The company has now set up a Canadian company for this contract. They have also listed an office in Toronto.
8. As part of the deal, the City will earn money if the province or others cities/regions/towns adopt PayIt.
This element of the deal is challenging to understand. But basically, in terms of fairness, the City was already working on a partnership model with the vendor when they were trying to sole source the deal back in 2020. This is part of what is confusing about City claims that this process has been fair. The vendor has spent significant amounts of time working with the City - and yes, they have to fund that time as part of their risk assessment of this deal - but how does that square with fairness? How is that valued when assessing the fairness of this deal to other vendors?
9. The City, using public funds, purchased a Gartner report to support the sole sourcing of this project. That report is not available to the public without a freedom of information request.
There is something to be said about a procurement process where advice was purchased, with public funds, to support a sole source deal, then that very advice is not a publicly accessible document. Why wouldn’t the City release it so it could be part of residents’ understanding of how this deal came to be? If this information was helpful to staff, one has to imagine it would also be helpful to us?
Clarification - added April 26, 2021. We’ve received the following point of clarification about the Gartner report from the City: “To help inform the July 2020 report the City leveraged the subscription it has with Gartner to conduct research and have a discussion about the digital government marketplace, including PayIt and its competitors (strengths and weaknesses of each). This was supplemented by our own research. The City did not pay Gartner anything additional for this.”