1 2 3 TORONTO COMPUTER LEASING INQUIRY 4 5 6 7 ******************** 8 9 10 BEFORE: THE HONOURABLE MADAM JUSTICE DENISE BELLAMY, 11 COMMISSIONER 12 13 14 15 16 Held at: East York Civic Centre 17 850 Coxwell Avenue 18 Toronto, Ontario 19 M4C 5R1 20 21 ******************** 22 23 24 December 19th, 2002 25

2
  1                        APPEARANCES
  2  
  3  Ronald Manes            )Commission Counsel 
  4  Patrick Moore           )
  5  Daina Groskaufmanis     ) 
  6  
  7  Linda Rothstein         )City of Toronto 
  8  Lily Harmer (np)        )
  9  Robert Centa   (np)     )
 10  Gordon Capern           )
 11  
 12  David Moore             )MFP 
 13  Fraser Berrill  (np)    ) 
 14  Ken Jones (np)          ) 
 15  Brian Heller   (np)     )Ball Hsu and Associates Ltd.
 16  Melissa Kronick (np)    )CUPE 
 17  Raj Anand (np)          )Lana Viinamae
 18  Bay Ryley               )
 19  William Anderson        )Wanda Liczyk
 20  Valerie Dyer (np)       )Dell Computers
 21  Jennifer Lynch (np)     )
 22  Edward Greenspan (np)   )Jeff Lyons
 23  Todd White (np)         )
 24  Joyce Ihamaki           )Registrar
 25

1 TABLE OF CONTENTS 2 Page 3 4 Exhibits 4 5 6 PETER WOLFRAIM, Resumed 7 Cont. Examination-in-Chief by 8 Mr. Ronald Manes 5 9 10 Certificate of Transcript 146 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 No. Description Page 3 4 7 Three page unbound document 5 titled "McLean & Kerr Barrister 6 & Solicitors- Requesting 7 standing for Jim Andrew" 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:00 a.m. 2 3 THE REGISTRAR: This Inquiry is now in 4 session, please be seated. 5 MADAM COMMISSIONER: I had to colour 6 coordinated my outfit with the Registrar. Obviously, I'm 7 going to have to do this. The Registrar was the Registrar to 8 the Walkerton Inquiry and she assures me she never had to 9 deal with this issue with Justice O'Connor. 10 Sorry, Mr. Wolfraim. 11 THE WITNESS: Okay. 12 MADAM COMMISSIONER: Mr. Wolfraim, you have a 13 new chair? 14 THE WITNESS: Yes, I do. 15 MADAM COMMISSIONER: It's better? 16 THE WITNESS: Yes, thank you. 17 MADAM COMMISSIONER: We were here I have 18 received a letter from a Mr. Hugh M. MacKenzie, capital M-A-C 19 capital K-E-N-Z-I-E, from the law firm of McLean, M-C capital 20 L-E-A-N and Kerr -- K-E-R-R, requesting standing for Jim 21 Andrew. 22 I've asked that a copy of this letter be made 23 available to be made an exhibit, and each of you be provided 24 with a copy of the letter as you were for others who have 25 applied for standing.

1 Mr. Andrew has been quite central to all of 2 this, and I assume that there's no objection to him getting 3 standing? With all that resounding shaking of heads, I take 4 that -- 5 MR. DAVID MOORE: Ms. Groskaufmanis alerted us 6 yesterday to the fact that this letter had been received, or 7 was expected to be received and certainly my reaction and I 8 believe other Counsel's reaction was, that there would be no 9 issue whatsoever to the request. 10 MADAM COMMISSIONER: Well, it certainly seems 11 to me that he has a substantial and direct interest in the 12 subject matter of the Inquiry and also could provide me with 13 assistance in the making of my recommendations. He has only 14 applied for standing in the Toronto Computer Leasing Inquiry, 15 so that's the only one I'm dealing with at this point. 16 I don't know if he's asking for standing the 17 second Inquiry. All right. So, Mr. Manes, do you have a 18 copy of that to be made an Exhibit, please? 19 MR. RONALD MANES: Yes, I do. I'll just hand 20 that up Commissioner. 21 22 --- EXHIBIT NO. 7: Three page unbound document 23 titled "McLean & Kerr Barrister & 24 Solicitors- Requesting standing 25 for Jim Andrew"

1 MADAM COMMISSIONER: Thank you. 2 Mr. Manes...? 3 MR. RONALD MANES: Thank you, Commissioner. 4 MADAM COMMISSIONER: And Mr. Wolfraim, you're 5 still under oath. 6 THE WITNESS: Yes. 7 MR. DAVID MOORE: Madam Commissioner, if I 8 could just indicate at the outset that Mr. Wolfraim, has 9 asked me to make a request on his behalf to you, that he be 10 given a brief opportunity to clarify or put in context 11 certain aspect of his testimony yesterday. 12 And I indicated that I would make that 13 request. I don't think it will take very long. I've advised 14 Mr. Manes, that -- my intention to do so. I don't think 15 there's any issue about it. 16 MADAM COMMISSIONER: Okay. 17 MR. DAVID MOORE: But, if he might just be 18 permitted that opportunity briefly at the outset -- 19 MADAM COMMISSIONER: Sure -- 20 MR. DAVID MOORE: -- before the questioning 21 resumes. 22 MADAM COMMISSIONER: Mr. Manes, you don't have 23 a problem with that? 24 MR. RONALD MANES: No, I support that, in 25 fact, I have spoken with, Mr. Wolfraim, and advised him that

1 that would be satisfactory, it would be my first question. 2 MADAM COMMISSIONER: Perfect. We had the same 3 issue happen with Mr. Garrett when he was here. 4 THE WITNESS: Okay. 5 MADAM COMMISSIONER: And something was 6 clarified so that's perfectly fine with me. 7 THE WITNESS: Yes, there were two (2) issues 8 that I wanted to clarify a little bit and maybe put into some 9 context. The first one (1) had to do with our discussion 10 around MFP's conflict of interest and gift policy and I guess 11 the context there is, I'm not happy with MFP's conflict of 12 interest or gift policy as they presently are constituted. 13 MFP as a company is not an acquisitor of a 14 great amount of goods and services. We have financial 15 advisors, legal advisors. We have lenders that are -- try to 16 do business with us and develop relationships with us. 17 So, the number of people in our organization 18 that are either in a position to either influence choice of 19 suppliers or choose suppliers, there are probably six (6) to 20 eight (8) and those are all the senior management. 21 So, what I was thinking when we talked about 22 the gift issue. I think there were two (2) issues, one is I 23 did say you'd have to define exactly what a gift is or isn't. 24 And I would do that in the context of MFP and people may 25 define gifts differently for different organizations.

1 Secondly, when I came up with the twenty five 2 dollar ($25) number, my thought was that anybody below the 3 senior management level at MFP, wouldn't be -- it wouldn't be 4 logical that that -- those individuals would be entitled to 5 anything more than a good will, sort of gift, from a 6 supplier. 7 And if it was to be more than a good will 8 gift, then I would think that it would be appropriate to 9 raise that with the Company for some direction or guidance. 10 But, in terms of gifts at the senior 11 management level, I suppose to take one example, if Mr. Moore 12 wanted to take Mr. Berrill to a hockey game, I wouldn't have 13 a problem with that so that's -- 14 MADAM COMMISSIONER: You mean David Moore, 15 not Pat Moore? 16 17 (BRIEF PAUSE) 18 19 MR. DAVID MOORE: If I wanted to do it too, 20 it wouldn't be a problem. 21 THE WITNESS: I guess the other thing I did 22 comment on I think was that when we went into the se -- the 23 reseller business about eight (8) or nine (9) years ago, we 24 discovered that it was a practice, in that business' 25 administration, that the suppliers to companies like MFP in

1 that business would compensate sales reps directly and when 2 we became aware of that practice, we went on the record, in 3 writing, to our suppliers saying that while we respect the 4 practice of the industry, it's MFP's policy that our 5 employees are played entirely by MFP and if there was any 6 incremental compensation available, they could make it 7 available to the company or ideally, they'd reduce their 8 pricing to us. 9 What they actually did, was we received a 10 number of gift certificates and TV sets and so forth which we 11 donated to different organizations. 12 The second area that I want to clarify a 13 little bit, was just around the hiring of Dash Domi and it's 14 not unprecedented that one of the difficulties in our 15 business in the hiring process is that there's a -- about a 16 50 percent success rate when you're adding sales reps. 17 So if you add two (2), one (1) is probably 18 going to be there after a year, another one is going to be 19 moving on and it's not unprecedented at all for us to be 20 hiring people from unrelated backgrounds. 21 We have people who have backgrounds as 22 commercial airline pilots, as restaurant owners and the like 23 that -- that have joined us and -- and ultimately been 24 successful as sales rep. 25 So in the meeting that I had with -- with Mr.

1 Domi, and I wouldn't call it an interview as much as a 2 conversation. We didn't talk about the City of Toronto. We 3 didn't talk about what relationships he had. It was more a 4 -- to get a sense of -- of him as a person and anyway, enough 5 said. 6 MADAM COMMISSIONER: Thank you very much. 7 THE WITNESS: No, thank you. 8 9 CONTINUED BY MR. RONALD MANES: 10 Q: Mr. Wolfraim, yesterday I -- at -- at the 11 close, I advised that we would be turning to the company's 12 response to the 1999 City of Toronto leasing RFQ and I'd like 13 to do that now and that's at your Tab 24. 14 MADAM COMMISSIONER: 23413 15 16 (BRIEF PAUSE) 17 18 CONTINUED BY MR. RONALD MANES: 19 Q: Let me ask you just two (2) preliminary 20 questions in respect to MFP's response. Firstly, did you, 21 sir, see the RFQ when it came out? 22 A: I believe I did or -- or before it was -- 23 before we responded, let's say. Not necessarily when it came 24 out, but before we responded. 25 Q: Did you participate in any of the

1 meetings with Mr. Pessione or Mr. Domi, Ms. Payne, regarding 2 the strategy for responding to the RFQ. 3 A: Yeah. I would say there were two (2) 4 types of meetings. One -- once the RFQ came out, we probably 5 had, with that group of people and expanding that to include 6 Bob Wright, our Chief Financial Officer and Mike Flannagan. 7 We had two (2) or three (3) meetings which, I would say, were 8 very high level meetings. We didn't go through the RFQ in 9 detail but it was to discuss strategy. 10 There were actually working sessions that were 11 -- were more detailed. Prior to the RFQ coming out, I would 12 say I characterized the meetings more as kind of coffee 13 machine type meetings, not -- not structured or organized. 14 Q: Did you, in the course of those, sort of, 15 coffee machine type of meetings, discuss how you were going 16 to respond in terms of the pricing for the ninety (90) day 17 guarantee period? 18 A: The -- the -- I guess the way those 19 discussions would take place is rather -- the sales 20 department would work up what they -- what price they felt 21 was required and they would -- now when we say copy machines, 22 you're talking about pre -- the copy machine meetings are 23 sort of pre-May 31st and -- 24 Q: Oh -- I see. I'm talking about post May 25 31st now.

1 A: Oh, I beg your pardon, yes, those are more 2 structured -- 3 Q: All right -- 4 A: -- the meetings that I referred to that 5 included Mr. Wright and Mr. Flannagan, for example, would 6 have been a little more structured, still a little informal, 7 but, a little more structured. 8 And the discussion -- the nature of the 9 discussion that we would have is that we're responding to 10 recommendations made by the sales department. 11 So, the sales department would be explaining 12 their strategy of the deal why they -- what price they felt 13 was required to win the business and why and where they felt 14 the deal would go and their looking for us -- recommending 15 that we price the deal that way and looking for our support. 16 Q: All right. Let's just see if we can break 17 that down for a second. The sales department, who would be 18 participating in these sessions on behalf of the sales 19 department and making recommendations? 20 A: Sales department -- Irene would be leading 21 the discussion. Rob Wilkinson was the one with most of the 22 industry knowledge the competitive knowledge and he'd be a 23 supplying the -- sort of the intelligence, if you like, to 24 what deals he'd been involved in recently and where we felt 25 -- where we felt those transactions had gone.

14
  1                 Then you'd look at this -- this opportunity in
  2  that context and we bid on a lot of business so it's -- I
  3  mean, so it's -- we try to keep it a fairly active inventory
  4  of quotes as to where our competitors have been,
  5                 Q:  You've not mentioned Mr. Domi.  At that
  6  point, Mr. Domi, according to your evidence yesterday was the
  7  sales representative in charge of the City?
  8                 A:  You say he was the -- he was the sales
  9  representative on the City.  When you say, in charge of the
 10  City, I'm not sure what that entails, so I'll say he was the 
 11  sales representative assigned to the City.
 12                 Q:  Well, I thought in using the words, in
 13  charge, that I was repeating something that you had said
 14  yesterday, but, we'll let the transcript --
 15                 A:  Well --
 16                 MR. DAVID MOORE:  In fact, Mr. Wolfraim, took
 17  issue with that characterization yesterday and made the point
 18  that Mr. Domi was the sales rep, but, one of several people
 19  including Irene Payne et cetera.  But, I'm quite content to
 20  let the transcript stand for what it said and that is what it
 21  said.
 22                 MR. RONALD MANES:  Okay.  Well, I'm quite
 23  content to do that, as well.
 24  
 25  CONTINUED BY MR. RONALD MANES:

1 Q: He was, was he not, represented to be the 2 Regional Sales Manager for MFP? 3 A: He was the salesman who was assigned to 4 the City. So I -- 5 Q: Well, let's just -- let's stay there for a 6 second then, sir, because I do want to clarify what exactly 7 you feel that Mr. Domi was being represented to the City as, 8 and if you can turn to Tab 24 and the second page of your 9 proposal, that is 23414. Now, this is a letter dated June 10 11th, 1999 and it is to Wanda Liczyk, Chief Financial Officer 11 and Treasurer -- 12 A: I'm sorry, I'm not there yet. 13 MADAM COMMISSIONER: Tab 24, it's the second 14 page on Tab 24. 15 THE WITNESS: Second binder? 16 MR. RONALD MANES: First binder, sorry. 17 MADAM COMMISSIONER: You're right there, where 18 your hand is, turn the next page. There we go. 19 THE WITNESS: Okay, I'm sorry. 20 MADAM COMMISSIONER: No problem. 21 22 CONTINUED BY MR. RONALD MANES: 23 Q: Now, let me repeat it for you, a June 24 11th, 1999 letter MFP letterhead to Wanda Liczyk, Chief 25 Financial Officer and Treasurer, on this quotation request,

1 and it's signed MFP Financial Services Limited, Dash Domi, 2 Regional Sales Manager. Have you seen that letter before? 3 A: Yes. 4 Q: Had you seen that letter at the time that 5 the proposal was sent out on behalf of your company? 6 A: I doubt it. 7 Q: And you see here, that Mr. Domi, is 8 representing himself as Regional Sales Manager? 9 A: Yes. 10 Q: Do you agree then, that as far as the 11 company was concerned, Mr. Domi was the regional sales 12 manager? 13 A: He was -- yes, a regional sales manager. 14 yes. 15 Q: A regional sales manager? 16 A: I guess what we -- what we got to a 17 little bit yesterday was -- was what titles salesmen put on 18 their business cards. I don't know what the term sales 19 manager connotes to you or to anybody else but if that's what 20 Irene chose to call her salespeople then that's fine. 21 Q: Well, when you say if that's what Irene 22 chose to call her salespeople, this is what Ms. P -- 23 A: No -- you're right. That's what -- 24 that's what I'm at peace calling it, so he's a regional sales 25 manager.

1 Q: All right. Well, let's just -- would you 2 not have the sense, if you were receiving this from the City, 3 that Mr. Domi the person in charge of this tender process for 4 MFP? 5 A: Yes. 6 Q: From a sales point of view? 7 A: Absen -- any other -- any other 8 interfaces with MFP where -- where roles and responsibilities 9 might have been described, yes. 10 Q: And because, you see the last paragraph 11 says, "Please direct any questions regarding this RFP to me." 12 A: And -- and I think I said yesterday that 13 -- that -- that part of Dash's role was to get questions, get 14 answers and so forth so that's. 15 Q: I'm going to come back to that letter. I 16 just wanted to establish his relationship. I -- I take it 17 sir that at that point that you would no longer classify Mr. 18 Domi as a "observer", which is what you originally classified 19 him as -- 20 A: Yeah, that characterization. 21 MR. DAVID MOORE: Well, well, you know, Mr. 22 Manes knows in that interview with the OPP, Mr. Wolfraim went 23 on about six (6) lines later which was not read into the 24 record yesterday and indicated that Mr. Domi, upon being 25 assigned to the account, was one of the direct contacts with

1 the City so I don't know what -- what -- where this is going 2 but -- but that's the record. It's in the documentation. It 3 wasn't read into the record yesterday. 4 In fairness of the witness, that is what he 5 said to the O -- the OPP. If one reads his -- his statement 6 in its entirety, he made it clear that Mr. Domi was one of 7 the people who had the direct interface with the City. 8 MADAM COMMISSIONER: Mr. Manes? 9 MR. RONALD MANES: I guess I have two (2) 10 concerns. The first concern is that My Friend, Mr. Moore, is 11 giving evidence but the second concern is that I just asked 12 the witness a simple question, whether he would now say, 13 according to this, that Mr. Domi was no longer an observer, 14 which he originally classified Mr. Domi as, whatever he went 15 on to say at the -- at -- at -- in the remaining part of the 16 transcripts. 17 It's a straightforward question and nothing 18 invidious about it, whatsoever, to invite My Friend to jump 19 up in his Client's defence. 20 MR. DAVID MOORE: Well, excuse me. I have -- 21 MADAM COMMISSIONER: Wait -- 22 MR. DAVID MOORE: -- something to say -- 23 MADAM COMMISSIONER: Wait -- 24 MR. DAVID MOORE: -- about that. 25 MADAM COMMISSIONER: Wait, gentlemen.

1 Gentlemen. Maybe -- maybe because this is the last day or 2 something that -- that nerves are getting a little frayed. 3 MR. DAVID MOORE: Well, my nerves are going 4 to get frayed when I've got to continue to be afraid that My 5 Friend says that I'm giving evidence and simply referring to 6 something that's in the record. I'm not giving evidence, I'm 7 pointing to the record that was -- that I didn't interject 8 yesterday although I was tempted to when My Friend stopped 9 short of -- of referring the witness to the full passage of 10 the statement to the OPP. 11 I'm not giving evidence. I'm referring to the 12 record and it's not a matter of there being something 13 invidious about the question or otherwise. It's simply the 14 way the question is put per -- in the context of the 15 questions on this point yesterday that in fairness of the 16 witness, the record should reflect the full context. It's as 17 simple as that. 18 MADAM COMMISSIONER: Okay. Well, it -- it 19 seems to me what Mr. Manes did yesterday was take the witness 20 to a specific point in the transcript with the OPP where he 21 had referred to Mr. Domi -- where Mr. Wolfraim had referred 22 to Mr. Domi as being an observer at that point. 23 I -- I take it, Mr. Moore, what you're saying 24 is that you would have preferred that Mr. Manes, at that 25 time, continue on with reading it to show that later on Mr.

1 Domi was no longer an observer. I sort of took it as a 2 natural, that at some point Mr. Domi stopped being an 3 observer and would have had a more direct involvement with 4 the client. 5 I took Mr. Manes now to be saying to Mr. 6 Wolfraim, now that he -- now that Dash Domi has sent this 7 letter addressed to Wanda Liczyk and it's -- it's marked Dear 8 Wanda, that at this point, he would not, Mr. Wolfraim, would 9 not be classifying Mr. Domi, as an observer. That's all I 10 took it as. 11 MR. DAVID MOORE: Fine -- 12 MADAM COMMISSIONER: But, I anticipate then, 13 Mr. Moore, that when we get to your examination of Mr. 14 Wolfraim, that you'll bring out the rest of the OPP -- 15 MR. DAVID MOORE: No, that's -- that's 16 perfectly fair, I just don't want there to be any inference 17 and it may not be, My Friend's, intention and maybe I'm -- 18 I'm reacting in a way that isn't warranted, if it isn't his 19 intention. 20 But, I didn't want the record to suggest in 21 any way that Mr. Wolfraim, was saying one thing to the OPP 22 and something different, in fact -- 23 MADAM COMMISSIONER: For what it's worth, I 24 wasn't taking it that way. 25 MR. DAVID MOORE: All right. Thank you.

1 MADAM COMMISSIONER: All right. 2 Mr. Manes. 3 MR. RONALD MANES: For what it's worth to My 4 Friend, Mr. Moore, that's not what my intention was in asking 5 the question. 6 THE WITNESS: If I go back just a moment, what 7 I was responding to in the question from the OPP was, who 8 were the people working at the Company up to the bid and what 9 were their roles and I described Dash as being new to the 10 business and he was more of an observer, I guess, more than 11 anything else. 12 I don't know that I would -- certainly he's 13 being put, by virtue of his -- his role in -- as described in 14 the RFQ response in a different role. 15 But, I get the context is that Dash was new to 16 the business. At this point he'd been with the Company for 17 about seven (7) or eight (8) months. He was not experienced 18 in matters -- in leasing matters, significantly and still 19 learning every day. 20 And this was really the first significant deal 21 he worked on. So, if -- if he is the salesman on the 22 account, he's the contact point et cetera et cetera, I 23 wouldn't characterize him as being someone who was in charge 24 of the deal or the account. 25 Just because -- by virtue of the fact that

1 he's only been there six (6) or seven (7) months and as we've 2 discussed, he hasn't -- hasn't got a lot of financial or 3 technical background. So, if that helps, does that answer 4 the question? 5 6 CONTINUED BY MR. RONALD MANES: 7 Q: I appreciate that answer, sir. It is true 8 that Mr. Domi took over from Mr. Ashbourne? 9 A: Yes. 10 Q: And Mr. Ashbourne was a Regional Sales 11 Manager? 12 A: Yes, that's his title. And I suppose, I 13 think Rob mentioned, as well, that he had -- he had 14 management responsibilities as well, so we may be using some 15 titles inappropriately, frankly. 16 Q: That's my sense of what you're saying, is 17 that, from your point of view -- 18 A: The inside out versus outside in, slightly 19 different perspectives right? 20 Q: Right, exactly right. All right. I'm 21 going to come back to that in a moment, but, I'd like to get 22 back to MFP's strategy. We talked about the team that's 23 involved in responding to this RFQ and that obviously, Mr. 24 Domi, is only one (1) person and supported in writing this 25 letter by Irene Payne and -- and -- Rob Wilkinson, et cetera.

1 A: Right. 2 Q: I don't think anyone here would suggest 3 that Mr. Domi, at that point, would be capable of carrying 4 the responsibility for advancing this proposal on his own? 5 A: Correct, yes. 6 Q: That's what you're -- 7 A: -- appreciate it, thank you. 8 Q: -- saying. All right. In terms of the 9 strategy, I take it that MFP people knew that part of this 10 deal was a sale and leaseback? 11 A: Yes. I assumed -- I don't know what was 12 known and what was assumed. So -- from my perspective, that 13 might be a question better asked of other people, but, I 14 don't -- I think what the RFQ said, was that -- well, the 15 sale and leaseback is -- can mean different things. 16 For example, just to put it in some context, 17 if the City has vendors of record agreements in place, with 18 resellers and those resellers are -- are delivering, against 19 purchase orders from either MFP or the City, product of the 20 City which they're invoicing the City on, which the City then 21 wants to lease from MFP, the only way they're going to be 22 able to do that is if they do a sale and leaseback. 23 I think -- there's both, sort of a contractual 24 nuance and I guess the other part is -- was there are a pool 25 of equipment there that was going to be -- that the City had

1 already ordered, taken delivery of and paid for that was 2 going to be sold to the leasing company or leasing companies 3 and then leased back and I think we're assuming that? 4 Q: Assuming the latter -- 5 A: Assuming that -- that there may be that 6 opportunity. 7 Q: The -- did MFP have some intelligence or 8 other knowledge that the City had already purchased a 9 considerable amount of Dell Tier 1 computer equipment? 10 A: Dell equipment, yeah. I would debate the 11 Tier 1 part but -- 12 Q: All right, we knew that they were buying 13 equipment. 14 A: Yes. 15 Q: And did you have any understanding about 16 approximately how much had already been purchased by the City 17 to be leased back to the successful bidder? 18 A: Well, I've got two (2) -- two (2) 19 comments -- 20 Q: Under the successful bidder, I should 21 say. 22 A: Sorry? Yeah, bidders, that would be my 23 one (1) qualification. It was bidder or bidders. 24 Q: Bidders. 25 A: It didn't know -- we didn't -- frankly, I

1 didn't expect it would be a -- I expected it would be a 2 multi-vendor award. 3 Q: It would be? 4 A: A multi-vendor award, meaning it would 5 awarded to more than one. 6 Q: Let's -- and let's start -- stop you 7 right there. Not to go to too tangential on this, but 8 there's nothing in the RFQ, I take it, that led you to 9 believe that this was a bid for a vendor of record; a sole 10 source at the City? 11 A: No. 12 Q: All right and what you're saying is that 13 you assumed that the City was going to choose a number of -- 14 or more than one, I should say, successful bidders? 15 A: In -- in my -- my own words, and I don't 16 know whether I'd say I assumed. That was my expectation. 17 That's where I felt the contract would go. 18 Q: Now, I'm sorry if I -- I wanted to 19 clarify that because I -- I -- we were going to come to it. 20 You were -- you were in the middle of an answer? 21 A: And I -- I can't remember what the 22 question was. 23 24 (BRIEF PAUSE) 25

1 A: Were we awa -- 2 MADAM COMMISSIONER: Do you want to repeat 3 the question, Mr. Manes, please? 4 THE WITNESS: Unfortunately, I think I 5 interrupted you and went to the second part and I forget what 6 the first part was. 7 MADAM COMMISSIONER: I think he had asked you 8 if you had some information that the City had -- 9 THE WITNESS: Oh, I see. 10 MADAM COMMISSIONER: -- already purchased a 11 considerable number of -- amount of Dell equipment and he 12 said Dell Tier 1 equipment and you said that you did have 13 that information but you would debate -- debate the Tier 1 14 part. 15 THE WITNESS: Correct, yes. 16 MADAM COMMISSIONER: Does that help? 17 THE WITNESS: Yes. 18 19 CONTINUED BY MR. RONALD MANES: 20 Q: And we -- were proceeding -- we were 21 proceeding down -- down that road in terms of -- my next 22 question to you was going to be -- is, do you have any sense 23 of how much Dell equipment had been purchased by the City 24 that was subject to this -- this bid? 25 A: Well --

1 Q: Bids. 2 A: I think most of the equipment was 3 acquired in between February, March to August, September. So 4 we would have had a sense as to what the run rate was, I'm 5 sure, just -- and I'm not sure the ultimate numbers that had 6 been -- that had been delivered -- acquired and delivered but 7 certainly by May, June, we would have understood, generally, 8 what the run rate was and so forth. 9 Q: Wh -- could you explain what you mean by 10 run rate? 11 A: A run rate, what -- what's the delivery 12 rate? 13 Q: Right. 14 A: What is the rate at which product is 15 being ordered or has been ordered by -- by the City and is 16 being delivered to the City. Clearly, if you're doing a 17 major rollout like this that it's not something that happens 18 over a weekend; that it takes a period of time and a fairly 19 comprehensive plan. 20 Q: Now, at -- at that point, and -- and 21 given your experience with companies, knowing or not knowing 22 where their computer equipment is, did you have any sense of 23 the City's preparedness to -- to do a sale and leaseback? 24 Where they had a pool -- or an extensive pool of assets that 25 they had to identify to your satisfaction and turn over to

1 you for leaseback? 2 A: Well apart from -- we had no insights 3 into their record keeping abilities. If that answers your 4 questions then -- you know, by definition, it's a massive 5 project. We weren't sure how the City was resourcing itself 6 in terms of and -- and it was clearly -- it was clearly a 7 large project to undertake. 8 We didn't know what business processes that 9 might have been set up that might have made the process run 10 more or less smoothly. 11 Q: All you would know, given your 12 experience, is that it -- it would be this -- a challenge? 13 In terms of the -- 14 A: Yes. Yes. It's a project. 15 Q: All right. You knew, and your team would 16 know at that point, that the City was not only challenged by 17 Y2K, but, overall amalgamation meant that it likely did not 18 have any sophisticated infrastructure developed at that 19 point? 20 A: I don't know about that. When you say, 21 sophisticated infrastructure, are you talking in terms of 22 people or electronic systems or -- 23 Q: Both, people and systems? 24 A: I would have thought that for an 25 organization this size, you know, as we've heard, the fifth

1 largest government in North America, they would have had a -- 2 we heard certainly lots about a transition plan and 3 transition team and there are going to be glitches no matter 4 what. But, I would have thought that by the middle of '99, 5 which is a year and half into the Megacity, they'd have their 6 act together. 7 Q: You would then see that, at least in terms 8 of their IT infrastructure, the various networks that had to 9 come together, that wouldn't necessarily have come together 10 by that point, especially given the massive rollout that -- 11 A: No, in terms of the rollout -- 12 Q: -- yes -- 13 A: -- but, I would assumed that they would -- 14 and you wouldn't start something like this, a project this 15 size without having a very robust and detailed plan. 16 Q: One would think so. What did you think 17 about the ninety (90) day guarantee period specified in the 18 RFQ, that is, did you think that was, under these 19 circumstances, amalgamation Y2K massive rollout is that a -- 20 A: The time -- 21 Q: -- short time, medium time, long time? 22 A: Ninety (90) days is a typical time in the 23 industry. That, I would guess, that if you look at how this 24 ninety (90) day pricing mechanism probably 60 to 65 percent 25 of the business we do, is based on the use of that mechanism

30
  1  with public and private sector accounts.
  2                 Q:  Now, it just in looking at the ninety (90)
  3  day period specified, would you as a bidder -- did you as a
  4  bidder, assume that the City was capable of entering into the
  5  leases, including identifying the equipment et cetera, within
  6  that ninety (90) day period to take advantage of the rates
  7  that you and the other bidders were quoting?
  8                 A:  Oh, absolutely.  
  9                 Q:  Did you have any appreciation at that
 10  point, or any member of your team, that you know, have any
 11  appreciation of what the process was, by which the City would
 12  take in terms of evaluating the responses, the time it would
 13  take to go to Council, time it would take to negotiate
 14  agreements with MFP or the successful bidder, any sense of
 15  that?
 16                 A:  Well, we hoped it would have happened a
 17  whole lot faster than it did.  We didn't know what process
 18  the City had to go through.  We didn't know how they were
 19  going to evaluate the responses.
 20                 We didn't know what sort of time frame it
 21  might take to turn it around. I would say that we were
 22  surprised to see that it took sixty (60) days essentially
 23  just to get some of the basic mechanics turned around, but --
 24                 Q:  Did you, sir, or any representative of
 25  your company that you know, follow that process in the sense

1 of keep track of where MFP was in that process. 2 For example, when was the -- when were the 3 bids going to be evaluated, when was the successful bidder 4 going to be announced, when was the matter going to Council, 5 et cetera? 6 A: No, I don't recall. Normally there would 7 be a blackout on communication during that period. Once the 8 bids go in, I mean the bids were opened. So, we were -- we 9 were the low bid when the bids were opened and they were 10 opened publicly and -- and so after that it -- it's -- you're 11 pretty much in a blackout period until the City call -- until 12 or unless the City calls you back. 13 And I think it was at the end of the July that 14 -- I mean, you -- you certainly hear rumour and speculation 15 but the key City people would be, I think, were pretty 16 vigorous about not talking to us. 17 Q: So basically you have to just sit there 18 and wait? 19 A: Well and -- and gossip and start rumours 20 and field rumours and -- 21 Q: All right. 22 A: -- spread rumours and all that sort of 23 thing. 24 Q: This Tab 24, in response to the RFQ, I 25 just want to make a point with you and I want to take you to

1 a particular section, if I could find it -- and it's at page 2 -- Document 23430 and it's Page 15 of your response and it -- 3 that's in the lower right hand corner, Page 15. 4 5 (BRIEF PAUSE) 6 7 Q: Do you have that in front of you? 8 A: Yes, I do. 9 Q: I'm just referring to 2.7, "The City's 10 right to reject" and that was read and understood by MFP? 11 A: Correct. 12 Q: It -- this is a -- I take it, you correct 13 me if I'm wrong, pretty standard response that the City's not 14 obig -- obligated to select the quote with the lowest price. 15 A: Correct. 16 Q: So there is some discretion, in addition 17 to the lowest price, that's exercised by those who evaluate 18 these bids, apparently? 19 A: Well, I think it -- it's -- yeah. Plus, 20 it did suggest that they can -- the City can negotiate with 21 any or all respondents. So like one (1) quote, part of one 22 (1) -- part of a quote or a combination of more than one (1) 23 quote. So it -- it gives the City the -- essentially the 24 freedom to do what they like with whatever responses they 25 choose to do it with, I guess.

1 Q: Quite right. In that -- in exercising 2 that -- well, let me go back. Your team and you would know 3 that -- that lowest price doesn't not necessarily -- does not 4 necessarily win the bid? 5 A: Correct. 6 Q: And that basically you wanted to make 7 your case in your response for your value added? 8 A: Correct. 9 Q: Because that would be something that -- 10 that hopefully in the exercise of discretion, the City would 11 -- would assign a value to. 12 A: Yeah. Now, to back up a little bit. 13 From a strategic standpoint, we didn't feel that we were in 14 the strongest position going in and at the end of the day, 15 the only truly objective measure in any response is the price 16 so you want to be -- you're not going to be in the game, if 17 you like, if you're not close to being the lowest price, so. 18 Q: Quite right. You better be in the -- in 19 the lower end of -- of reasonable range or you're not going 20 to be in the running, no matter how good you are. 21 A: Right. 22 Q: So you had to ensure in your pricing 23 that, as you said yesterday, that you could compete directly 24 with the likes of Dell Financial? 25 A: Yes, well, essentially what -- what we

1 were -- our sales department would come up with -- with what 2 they felt the competitive scenario was and -- and where they 3 felt the winning bids would be and -- 4 Q: Now -- 5 A: And that's -- 6 Q: That's -- 7 A: I'm sorry. 8 Q: Sorry. Go -- go right ahead. 9 A: That's where we placed ourselves. 10 Q: That -- they -- you had made a -- a 11 considerable investment in Mr. Domi and his ability to 12 network and make relationships, had you not? 13 A: Yes. 14 Q: And hopefully those relationships would 15 pay off in some way, as well, in the evaluation process? 16 A: Well, hopefully but -- but we were, you 17 know, starting at a pretty significant disadvantage. We were 18 not known to people at the City outside of the IT Department, 19 when we started the process, particularly well and MFP 20 doesn't quite have the same brand recognition as IBM or -- or 21 Dell does or Compaq does or Bombardier does, for that matter. 22 So we were trying to establish a presence. 23 Q: At the start of the process, you were a 24 relatively unknown commodity, except for the fact, that you 25 had at least got some foot in the door on the Councillor

1 lease? 2 A: That's correct, yes. 3 Q: All right. But, if you go back to this 4 Tab 24, second page, Tab 24, the Begdoc is 23413 and the 5 second page 23414, which is that June 11th, 1999 letter from 6 Mr. Domi to Ms. Liczyk, attaching the -- the MFP response, 7 you will see that it starts out, Dear Wanda. 8 Would that be generally accepted in the tender 9 proposal to address the recipient the Chief Financial Officer 10 and Treasurer by her first name? 11 A: I don't -- that's a protocol question I 12 suppose, I -- 13 Q: Well, it just on the face of it, seems 14 like a very personal thing to put on a very business like 15 document? 16 A: No, that's true and frankly I'm not sure 17 whether these went to Wanda or they went to the purchasing 18 people. 19 Q: Well, actually, I was going to ask the 20 very same question, whether you knew whether it went directly 21 to Ms. Liczyk or it went to the person who was actually 22 specified to receive that, let's see if we can -- I don't 23 think we have it in these documents. I understand it was Mr. 24 Dave Beattie. 25 A: Yes, I had thought that the process was

1 that the bids were to be submitted to purchasing as of a 2 certain date, as of a certain time, and they would be opened 3 publicly and they, in fact, were. 4 So, I guess this is Dash putting a personal 5 touch to it, I suppose. 6 Q: All right. And I guess that what I -- on 7 the face of it it looks like, that rather than going directly 8 to purchasing, it went directly to Ms. -- 9 A: No, it went to purchasing. 10 Q: Well, it actually went to Wanda Liczyk, 11 Chief Financial Officer and Treasurer, Finance Department, 12 Purchasing and Materials Management Division, 18th Floor. 13 A: Okay. 14 Q: So, it -- 15 MADAM COMMISSIONER: Mr. Manes, I think we're 16 getting hung up perhaps. As you say, it went there, and we 17 know that it was addressed on this letter. Do we know that 18 the actual envelope -- 19 THE WITNESS: My understanding was that it was 20 delivered by Sandy Pessione at twelve o'clock on the day that 21 it was supposed to be delivered, and was delivered to 22 purchasing. So I don't know whether a -- a separate copy was 23 sent to Wanda for whatever reason, I don't know, or whether 24 this copy -- or whether the copy that went to purchasing was 25 with the one, but, it says purchasing and materials, I'm just

1 not sure. But, it was delivered by Sandy I'm pretty -- 2 3 CONTINUED BY MR. RONALD MANES: 4 Q: Well, the information about Mr. Pessione 5 is helpful, because I didn't have that, at this point. We 6 can always find out from Mr. Domi, he wrote the letter. He 7 can tell us where it went. 8 A: Absolutely. 9 MADAM COMMISSIONER: It was delivered by Mr. 10 Pessione, is that what you're saying. 11 THE WITNESS: That was my understanding, yes. 12 MADAM COMMISSIONER: Okay. 13 THE WITNESS: The sat and attended and I know 14 he come back with a report on where the pricing was. 15 MR. DAVID MOORE: In fact, if it's at all 16 helpful, I can interject, my recollection or understanding is 17 that Mr. Pessione and Mr. Domi physically drove down to the 18 City and just submitted the tender under the wire of twelve 19 o'clock, if you will, but, for which none of us might be 20 here. 21 That's my recollection of the events for 22 whatever assistance it may add at this point. 23 MR. RONALD MANES: If any further -- 24 MADAM COMMISSIONER: Don't go there, Mr. 25 Manes.

1 MR. RONALD MANES: In fact, I was going to go 2 to my next question and completely ignore that. 3 MADAM COMMISSIONER: The evidence that you 4 just heard? 5 MR. RONALD MANES: My Friend, I'm sure doesn't 6 give evidence so I didn't consider that as evidence. I just 7 consider that as Mr. Moore. 8 MADAM COMMISSIONER: All right. 9 MR. DAVID MOORE: I was just trying to remind 10 Mr. Manes, of what I think we've already told Commission 11 Counsel, but, I'll leave it at that. 12 I think we're on maybe a lighter note, which 13 is a good way to move on from our opening salvo, if you will, 14 this morning and hopefully we can stay there the rest of the 15 day. 16 17 CONTINUED BY MR. RONALD MANES: 18 Q: This letter, the Dear Wanda letter goes 19 on, in the third paragraph and maybe you can explain this, 20 with -- with whether this is standard MFP approach, 21 "We at MFP look forward to partnering with 22 the City to ensure the success of this very 23 exciting project." 24 Partnering is very aux courant these days -- 25 or those days, I should say. Is that -- is that a -- an

1 approach that MFP takes, sir, that you partner with your -- 2 with your clients? 3 A: I -- I think it's -- it's a -- I like 4 your term better than the word I was going to use. I was 5 going to call it a marketing jargon, but I -- I -- 6 Q: All right. 7 A: If it's a term that's used -- 8 Q: I think that -- that at this point we can 9 -- we can assume as between my questions and your answers 10 that you look at representations by salespeople and some of 11 the use of -- of jargon as -- as not the kind of approach 12 that you would take personally? 13 A: No. No, but having said that I also deal 14 with salespeople in my life so that's a -- 15 Q: All right. In any event, partnering is 16 not the -- the technical term for it. Partnering in like -- 17 in the marketing sense, working with you? 18 A: That's right. Yes. 19 Q: All right. 20 A: Right. Yes. 21 Q: In any event, this goes out and I take 22 it, it would have been vetted by your -- by yourself and your 23 team at some point? 24 A: Yes and it -- yes. 25 Q: The -- there are, if you go to page

1 23417. This is the introduction and this is a description of 2 your value added which is in response to the RFQ which above 3 says, 4 "However, respondents must clearly and 5 distinctly identify the value added cost as 6 separate from the leasing -- leasing costs 7 and failure to do so may result in the 8 quote being disqualified." 9 First of all, the cost was nothing? 10 A: Th -- 11 Q: Zero (0). 12 A: That's what it is. Right. 13 Q: And secondly, you give a -- when I say 14 you I'm saying MFP, give a detailed response to this section 15 and, in particular, customer service. 16 A: Correct, yes. 17 Q: All right and if I can just read from 18 this, 19 "MFP focuses on superior customer services 20 -- service for the term of the lease. Our 21 dedicated lease administration team is 22 diligent in managing portfolio information 23 and vigilant in seeking continuous 24 improvement in service performance." 25 If I can just take that for a moment. These

1 words like vigilant and dedicated, is that sales jargon to 2 you, sir, or is that more technical? 3 A: Well, I -- I think that the services, 4 we're suggesting we'll deliver here and the fact that our 5 people are dedicated and hardworking and we know what we're 6 doing. I mean, those are -- those are not marketing terms. 7 Those are -- that's what we do. 8 Q: And vigilant seems to suggest a high 9 level of -- of -- of oversight over a service that's 10 performed, not just keeping in touch with it but being 11 vigilant would seem to be a much higher level of oversight? 12 A: I -- I -- 13 Q: -- and caution. 14 A: And caution? Sorry, was caution? 15 Q: Yes, I added caution on; oversight and 16 caution. 17 A: Okay. Yeah. No, I would -- would say 18 we're -- we're trying to find new and better ways to help the 19 customer manage his business. 20 Q: All right. Well, let's see if -- if we 21 can go on and -- and see if that term is more explained. 22 Let's go to "Cost reduction", 23 "MFP employees industry specialist will 24 work with you" 25 That's a direct and true statement?

1 A: Yes. 2 Q: All right: 3 "As part of our ongoing service to the 4 City, MFP monitors technology, total cost 5 of ownership in the context of leasing and 6 asset cycles." 7 Now, if we can just take those apart: 8 "As part of our ongoing service to the 9 City, MFP monitors technology, total cost 10 of ownership, in the context of leasing and 11 asset life cycle." 12 What is total cost of ownership (TCO)? 13 A: Yeah, that's a concept in the industry, 14 and I guess the concept in the industry is that if you look 15 at the cost of hardware, that represents something around -- 16 if you look at -- there's a concept that was developed by an 17 industry consulting firm called, Gardener Group, a number of 18 years ago, total cost of ownership. And -- and they 19 estimated that the hardware cost of a PC is only about 20 to 20 25 percent of the total cost of the PC over its complete 21 life. 22 And the reason is that PCs need to be touched, 23 moved, people need to be helped, trained, there are 24 disposition costs, there are acquisition costs, there are 25 problems when people order the wrong product, problems when

1 people try to get warranty and service and so forth, and 2 those all add costs. 3 So we've provided a variety of services to our 4 customers over the years, from I guess cradle to grave, if 5 you like, that -- that starts with -- we have customer 6 service representatives that -- that can service an order 7 desk for -- for our customers. So if the City decided they 8 wanted to -- to put other orders through MFP, they could do 9 so and establish a -- let me back up a little bit from that. 10 This can be fairly long winded, as I remember. 11 I guess the theory starts with the fact that 12 what leasing companies do is own and manage assets well, 13 because that's where we make all our money, so the skill sets 14 that we have from ordering through buying, through making 15 sure products is delivered and installed, through managing 16 the asset through its term, through their disposition of the 17 asset, those are all skill sets that we have and we've 18 developed over the years, because that's really where we make 19 or lose our money. 20 Through, what we talked about yesterday 21 briefly, this life cycle management concept, we try to make 22 some or all of those skill sets available to our customers. 23 So starting at the ordering end, for example, if the City 24 established that different categories of users could order 25 different types of equipment, presumably the orders have to

1 go in to the resellers on some basis, and -- and it makes 2 sense potentially, to do that -- to do that through the 3 people that are going to end up owning the asset, if in fact 4 MFP is the company that's going to own the asset, because we 5 have people that can -- can explain what configurations may 6 or may not work, or what may or may not be an approved 7 machine level for a certain user or application. 8 Once the product's ordered, then it's 9 delivered, you want to make sure that -- that what was 10 ordered is in fact what's delivered, if the -- if there's a 11 problem with returns, it makes sense potentially to have the 12 -- the leasing company, if that's who you're using, or 13 leasing companies, if you're using a number of them, involved 14 in that process, so you're not duplicating effort. 15 We do sort of first level help desk work, 16 where if a customer has a problem, they can call into the MFP 17 help desk and -- and we can -- our people can -- can 18 determine whether or not it's a -- a hardware problem or a 19 software problem. If it's a software problem, is it a 20 Microsoft problem, is it an Oracle problem, or is it a -- a 21 Computer Associates problem or SAP problem, for example. 22 So then the call is properly directed, rather 23 than having the user calling around to different -- different 24 call centre, and -- and -- and getting a run around, because 25 chances are if you call IBM they'll tell you it's a Microsoft

1 problem, if you call Microsoft they'll tell you it's a -- 2 it's a -- it's an SAP problem. 3 So we offer that sort of service. We offer a 4 service which we call periscope, which -- 5 MADAM COMMISSIONER: Periscope? 6 THE WITNESS: Periscope. Where we will in a 7 -- in a single sort of data repository or -- or asset data 8 base, store all the assets the customer has on lease, and we 9 can provide different types of detail on the leased assets, 10 depending on what the customer wants. 11 It can be -- you know, you can list what the 12 assets are on a line by line basis, who the user is, what 13 cost centre he's in, what location he's at, and that way the 14 -- the customer can go online and check to see, for example, 15 if Parks and Rec decided that there was a new software 16 application that they wanted to -- wanted to order, they 17 could go and look -- look all of the assets up that they have 18 on lease from MFP. 19 They could see where they're located, they 20 could see what the status of warranty is, who has what, you 21 know what upgrades or changes might be needed to -- to the 22 equipment that's in place, in order to roll out that 23 application, and -- and then they could cost it out. 24 So that kind of stuff. And then at the end, 25 that -- that facilitates disposition and -- and sort of their

1 disk erasures and disposition of monitors and so forth. So 2 those are all types of things that -- 3 4 CONTINUED BY MR. RONALD MANES: 5 Q: And it's on -- and it's on the basis of 6 -- of having the capability of delivering those services, and 7 the expertise in technology leasing that you can confidently 8 say here, that you employ industry specialists to work with 9 the City? 10 A: Yes, and these are all services that we 11 provide to customers today, and -- 12 Q: So, one thing becomes perfectly clear, is 13 that MFP is not just a finance company? 14 A: Correct. 15 Q: And in terms of MFP not just being a 16 finance company, MFP has a full appreciation that the -- the 17 total cost of ownership is not simply the lowest acquisition 18 cost that a customer can achieve? 19 A: No, that's right, yes. 20 Q: So that a customer -- and what you're 21 saying here, a customer has to -- has to appreciate that 22 along the way, whether it's a roll up or whatever it is, 23 there are all kinds of different costs, and according to 24 Gardener especially, all kinds of different costs in 25 addition, just to like the simple cost of acquisition?

1 A: Well, there's -- there's the hardware 2 cost, there's the -- the administrative costs that are 3 associated with your ability to inventory and manage your 4 assets effectively, if you're looking at it purely as a 5 financing modality, I mean if you look at leasing and you 6 compare leasing as a financing modality to debenturing, for 7 example, there are circumstances under which it's going to be 8 cheaper, there are circumstances under which it's not going 9 to be cheaper. 10 Q: But what you have to offer, in addition 11 to price, is this -- that you have this value added industry 12 specialist to work with the City? 13 A: That's correct, yes. 14 Q: And in terms of that, you say here, and 15 again, when I refer to you, sir -- 16 A: Yeah, no, I -- 17 Q: -- I'm referring to MFP. You say here, 18 that, 19 "MFP monitors technology, total cost of 20 ownership in the context of leasing and 21 asset cycles" 22 What does that mean to -- to monitor? 23 MADAM COMMISSIONER: Where is that? 24 MR. RONALD MANES: That's under cost 25 reduction --

1 MADAM COMMISSIONER: Okay, sure. 2 MR. RONALD MANES: -- the second line. 3 MADAM COMMISSIONER: Hmm hmm. 4 THE WITNESS: I don't know what monitor means 5 in that context, we certainly don't keep a running total of 6 what we think it's costing any particular customer to own an 7 asset. I think it's more a -- it's more we're advertising 8 the concept of total cost of ownership and -- and saying that 9 to the extent you're familiar with, what the elements of -- 10 of cost of ownership are, there are certain areas where we 11 can -- we think we can help you meet your business 12 objectives. 13 14 CONTINUED BY MR. RONALD MANES: 15 Q: I appreciate that your point of view, 16 sir, but from the point of view of the -- of the City, 17 monitor would suggest some kind of process that would assist 18 it in determining the total cost of ownership in -- in the 19 context of leasing and life cycles? 20 A: I don't know, I guess -- 21 Q: All right. 22 A: -- you -- 23 Q: Could you explain what is meant here: 24 "We assist in streamlining acquisition, 25 administrative process, and managing

49
  1                   assets."
  2                 What kind of assistance do -- do you provide
  3  in that regard?
  4                 A:   Well, I guess on a high level it's what I
  5  described a minute ago.
  6                 Q:   Yes.
  7                 A:   If our assistance isn't required, that's
  8  fine too, but we're -- maybe it should say, we're prepared to
  9  assist in streamlining acquisition.  Well, I guess when
 10  you're entering a major roll out like this, one of the things
 11  you absolutely need to -- to nail down, are the business
 12  processes you're going to follow.  
 13                 So, I'm assuming what's meant by that is
 14  rather than -- than getting to the contract awards stage,
 15  negotiating contracts, and then saying to them, saying to the
 16  customer, okay give us all your assets and -- and we'll lease
 17  them from you, there's an appreciation there that -- that --
 18  a relationship and business processes need to be defined and
 19  established.  And -- and that's -- that's, I'm assuming, what
 20  we're referring to there.
 21                 Q:   All right, let -- let me see if I can --
 22  if I can help in that.  That I understand that MFP did send
 23  in a person by the name of Lee Ann Currie?
 24                 A:   Yes.
 25                 Q:   To assist the City in its administration

1 of the sale and leaseback? 2 A: Yes, for a period of time, yes. 3 Q: And in terms of Ms. Currie's assistance, 4 that assistance was at no charge to the City? 5 A: That's correct, yes. 6 Q: Okay. So -- 7 MADAM COMMISSIONER: Mr. Manes, could you 8 just spell her name for the record please? 9 MR. RONALD MANES: C-U-R-R-I-E, Lee Ann, L-E- 10 E then A-N-N. 11 MADAM COMMISSIONER: Is it hyphened, or no 12 hyphen? 13 MR. RONALD MANES: No hyphen. 14 MADAM COMMISSIONER: Okay. 15 MR. RONALD MANES: At least not in the 16 statements I've read. 17 MADAM COMMISSIONER: Thank you. 18 19 CONTINUED BY MR. RONALD MANES: 20 Q: That would be an -- an example of what 21 kind of service MFP does in assistance, streamlining or 22 managing assets? 23 A: Yes. And with our customers where we put 24 representatives on site, administrators, operate -- lease 25 operations, people on site. It -- it varies from -- it

1 depends on the individual customer's needs. 2 Q: Now, we're going to hear from Ms. Currie, 3 who I understand is no longer with -- with your company? 4 A: That's right. 5 Q: But we're going to hear, I take it, that 6 -- that there was a -- that the infrastructure in place at 7 the City was not ideal at the time she went into assist in 8 the sale and leaseback? 9 A: Well, with all respect to Ms. Currie, I 10 don't know whether -- where -- how she'd be in a position to 11 make that judgment, but there was lots of work for her to do 12 I guess. 13 Q: All right. 14 A: But you know, clearly there -- it was a 15 lot of work, it was a major project, and -- 16 Q: "Utilizing experiences gained from our 17 collective customers, we bring to the City 18 the benefit of best practises." 19 That's a word that's very aux courant as well. 20 What -- what do you think would be meant by MFP when it says: 21 "Bring to the City the benefit of best 22 practises." 23 A: A collective experience, might be a 24 better way to put it. Obviously we've been in business, 25 we've dealt with similar customers and similar projects a

1 number of times, so we have some understanding as to what the 2 challenges are and -- and we've also sort of got the scars 3 and wounds of -- of -- of other processes that haven't worked 4 perhaps, or -- or have evolved over time. Ex -- experience 5 is the best, probably, word to describe that. 6 Q: You -- you've got to admit that this is a 7 -- a bit salespersony (phonetic)? 8 A: Oh, sure, yeah, it's -- 9 Q: All right. If you go to customize asset 10 information. I don't think salespersony is in the dictionary 11 either. 12 A: No. 13 MADAM COMMISSIONER: It came up in spell 14 check. 15 16 CONTINUED BY MR. RONALD MANES: 17 Q: "Customized asset information, MFP will 18 work closely with the City to ensure that 19 all regular reporting of asset information 20 will suitably reflect the needs of the 21 City." 22 Does ensure mean to you guarantee? 23 A: I would -- I don't know that it's as 24 strong as guarantee, I would say that it's take all steps 25 necessary. One of the things about asset information is that

1 most of it comes from the City, in terms of where it's 2 located and what it's being used for and -- and you know, we 3 can't guarantee that -- that somebody didn't leave their 4 position with the City, and then their laptop went home with 5 them in the trunk of their car, on a particular Friday 6 afternoon, or something like that. 7 Q: Right. "The -- all regular reporting of 8 asset information will suitably reflect the 9 needs of the City." 10 What is that, what does regular reporting of 11 asset information mean to you? 12 A: Well, I think what we were -- what we 13 were expecting, and I don't know that we ever came to 14 agreement on, but is it -- that the City would be looking for 15 regular reports on the status of their assets. They would be 16 subscribers to this periscope service, where we would design 17 a -- some sort of a custom data base for their -- for their 18 use. 19 Q: The -- if it goes on to say, 20 "These needs may be IT asset inventory, 21 position reporting, lease expiry, planning, 22 or even the level of detail and -- and 23 summarization available on monthly 24 invoices." 25 Did MFP have the capability of assisting the

1 City in all those regards? 2 A: The periscope product has I think, 3 something like twenty (20) columns -- 4 Q: Twenty (20) -- 5 A: -- twenty (20) columns, so you can -- you 6 can take and I'm not sure exactly that it's twenty (20), but, 7 there might be twelve (12) or thirteen (13) of them that are 8 fixed and another six (6) or seven (7) of them that can be 9 customized for particular users. 10 Or it may be that we were looking at a 11 completely separate spreadsheet approach to the City if their 12 requirements were quite different and I gather what -- what 13 some of the requirements of the City evolved to, over time, 14 was they seemed to be more focused on the -- budget for 15 purposes. 16 MADAM COMMISSIONER: On what, I'm sorry? 17 THE WITNESS: On budget purposes, that's what 18 some of the questions were coming back; asset detail 19 reporting. 20 21 CONTINUED BY MR. RONALD MANES: 22 Q: All right. And if you go to the next 23 paragraph, I'm looking about four (4) lines down and after 24 the comma: 25 "MFP informs its customer thereby enabling

1 them to make better decisions in the 2 constantly changing field of information 3 technology." 4 A: Yes, we're providing market information, I 5 think. 6 Q: The -- it's only in that regard that that 7 is used then only in that context of providing marketing 8 information? 9 A: Well, if you look at what leads up to it, 10 it says: 11 "Combining market awareness with our 12 sincere concern for customer needs, MFP 13 informs its customers thereby enabling them 14 to make better decisions in the constantly 15 changing field of information technology." 16 No, I think it's providing information, which 17 really is our role, I think we provide information, feedback, 18 options, alternatives. 19 Q: Do you draw a distinction between 20 providing information and educating? 21 A: We deal with large sophisticated 22 organizations, so, I do. In the sense that if somebody asks 23 a question, we'll respond to the question. If somebody asks 24 us to educate them, then we'll educate them. 25 No where in here does it ask that we educate

1 the City. No where does it suggest anything except that the 2 City knows exactly what they're doing and they're quite 3 capable of doing their analysis and coming to their own 4 conclusions. 5 Q: What you are saying essentially, that 6 while you provide industry specialists, best practices and 7 all these services, you worked with the City people, you 8 don't work in substitution to them? 9 A: Correct, yes. No, that's a good way to 10 describe it. 11 Q: And so when you talk about partnerships, 12 that's what you meant when you say that's basically working 13 with? 14 A: Yes, and yes -- I go back to the aux 15 courant -- I've learned to stay away from the word, 16 partnership. That's -- 17 Q: Well, to be fair, these words are used by 18 many other bidders -- 19 A: Right -- 20 Q: -- when it talks about value added? 21 A: Hmm hmm -- 22 Q: Does it -- does it surprise you that all 23 of the other bids did not place any price on value added, as 24 well? 25 A: No, it's typical in the industry, is you

1 don't break them out, you bundle -- you bundle your service 2 and here's the lease rate and you tell us what you want. 3 That's -- most of these are things that we're doing anyways. 4 So there isn't much incremental cost, because 5 these services relate to functions we would perform anyway, 6 just because we own the assets. 7 Q: Is it typical to ask bidders to put a 8 price on value added services? Typical in a RFQ? 9 A: Oh, yes, yes. 10 Q: And the typical response is? 11 A: Typical response is, there's no charge. 12 Q: All right. Then it's a good question. 13 A: Oh it is. 14 Q: If I can take you to page 4 and that's 15 23419. 16 17 (BRIEF PAUSE) 18 19 Q: And go down to 1.1.3. You refer to your 20 current master lease agreement, which you attach here for the 21 benefit of the recipient, the City, correct? 22 A: Yes. 23 Q: And you say that -- that given that their 24 current master lease agreement is in place, the City can't 25 expedite the finding of the lease schedules? Correct?

1 A: Correct. 2 Q: But wouldn't you, in saying that, 3 anticipate that there was going to be some negotiation here 4 in terms of the MFP master lease? 5 A: Well, we had a master lease in place so 6 you would -- you would assume that assuming this is the same 7 or similar business, the easy way to carry forward, if they 8 were to pick MFP as one of the successful bidders or the 9 successful bidder, you don't need to negotiate a master 10 lease. 11 Q: All right. 12 A: The master lease already exists. 13 Q: I'm going to come back to that -- to the 14 discussions regarding that master lease in a -- in a -- it 15 will be just a bit. If you go to 1. -- the next page, 1.1.5 16 and this is what the -- this is what the City requires, 17 "The respondents must explain the mechanism 18 that will allow the purchase of leased 19 products at any during the term of the 20 lease, as well as provide a detailed 21 purchase price residual value and cost pay 22 to date for each item." 23 Now, let's just take that. That's -- does the 24 City say, using the word must it's pretty mandatory, you 25 better do this or else?

1 A: Yes. 2 Q: And I take it, if you don't respond in 3 the way the City likes, you can be disqualified for not 4 responding? 5 A: Correct. Right. 6 Q: And this is read and understood by MFP 7 and it goes on to say, 8 "The mechanism that will allow the purchase 9 of leased product during the term of the lease is:" 10 and then you have an equation here, 11 "Purchase cost = present value of remaining 12 lease payments at the lower of 5 percent or [italicized] the 13 current two (2) year Canada Bond Rate, minus one hundred and 14 fifty (150) basic points --" 15 MADAM COMMISSIONER: Basis. 16 17 CONTINUED BY MR. RONALD MANES: 18 Q: "-- basis points plus the present value 19 of the residual." 20 Did you consider that -- well, I should go on 21 to the next sentence. 22 "This mechanism takes into account the 23 residual value of the equipment and all 24 lease payments made -- made to date." 25 Did you, having read this response, did you

1 feel that accurately responded to the requirements of the 2 City as to method -- as to re -- requiring a mechanism that 3 will allow the purchase of leased product? 4 A: Yes. 5 Q: And what -- what you chose to do was tie 6 this to the lower of 5 percent or the two (2) year Canada 7 Bond Rate minus one hundred and fifty (150) basic point -- 8 basis points? 9 A: This would -- this would mirror whatever 10 terms we felt we'd be able to negotiate with our lenders. 11 We're not -- we wouldn't look to make or lose money in -- in 12 these situations. We're just looking to, in normal 13 commercial transactions where we go to a life company or 14 someone else, these are the typical early buyout provisions 15 or early termination provisions that they give us. 16 Q: This is common? 17 A: Yes. Oh yeah, yes. 18 Q: And I -- is there some reason that it's 19 common that -- th -- the two (2) year bond rate? 20 A: Well, that would be -- a three (3) year 21 lease would be funded against a two (2) year bond rate, 22 typically. Most leases are -- are financed as a -- off the 23 two (2) year Canada Bond Rate. Yeah. 24 Q: If this were a five (5) year lease? 25 A: It wouldn't make a significant

1 difference. 2 Q: It would still be a two (2) year bond 3 rate? 4 A: Yeah. Yeah, we wouldn't have changed 5 this as far as I know. It would be a -- there isn't a huge 6 difference between a two (2) or three (3) or four (4) year 7 deal. I mean, what you're really doing is typically these 8 are -- are priced against average term, average life. 9 So if you're doing a thirty-six (36) month 10 lease, the average life of the loan, or thirty-six (36) month 11 loan, the average life is eighteen (18) months. If you're 12 doing a sixty (60) month loan, the average life is thirty 13 (30) months. So, it's not much of a difference. 14 Q: The -- when you specify the present value 15 of the residual, isn't that sort of vague? What does that 16 mean, present value of the residual? 17 A: Well, I guess residual, I think in this 18 -- in the -- what, is residual not defined anywhere in here? 19 I would have assumed it's the 17 percent, or whatever can be 20 issued -- 21 Q: Yeah, if you go over to 1.1.10, the 22 residual value for all hardware items is 17 percent, or the 23 fair market value, whichever is less? 24 A: Okay. 25 Q: All right, so there's in fact a mechanism

1 by which in total, the City can calculate within -- within 2 reason, the -- the cost of purchasing a leased product? 3 A: Yes. 4 Q: All right. Now, while you never know 5 what the -- I won't ask the question that way. Let me then 6 take you, sir, to 1.1.17, which is at page 10, number 23425. 7 8 (BRIEF PAUSE) 9 10 Q: Let me read from what the City required, 11 and what your response is: 12 "The respondents must provide --" 13 That word again: 14 "-- must provide the monthly lease rate per 15 one thousand (1,000) of cost, which will be 16 used in calculating lease payments." 17 Now, let me just take that first part of that 18 response. Were you ever -- any bidder ever asked to provide 19 an interest rate, implicit interest rate, or anything in 20 relation to an interest rate in that -- in -- regarding that 21 response? 22 A: No. 23 Q: Is it usual to ask for a cost per 24 thousand (1,000), or is it usual to ask for an interest rate? 25 A: No, it's normal to ask for a cost per

1 thousand (1,000). 2 Q: Has that changed within the last little 3 while? 4 A: Not that I'm aware of. 5 Q: All right, I -- I just -- I understood -- 6 I don't know if this is right, that the Province is now 7 asking for interest rates? 8 A: Well, maybe they are, I'm -- I guess the 9 difficulty is that you end up having to look at these things 10 a variety of different ways. I mean you're going to have as 11 many different interest rates as you have scenarios for end 12 of lease options. 13 Q: All right. 14 A: But you could potentially, we talked 15 about the remarketing events yesterday, we identified -- you 16 can return the equipment at the end of the lease, you can 17 purchase the equipment at the end of the lease, or you can 18 renew all three (3) of those, and the third one (1) in 19 particular, are going to give you different interest rates, 20 so -- 21 Q: And that's total cost of ownership? 22 A: Right, that's -- that's -- 23 Q: That's the point? 24 A: -- and that is part of the leasing 25 process.

1 Q: Right. 2 A: That's right. 3 Q: And let's go to the next sentence: 4 "This lease rate must remain valid for a 5 minimum of ninety (90) days from the 6 closing of the RFQ." 7 Now, is that pretty scattered, first of all to 8 say minimum? 9 A: Well, I -- I -- I can't comment on the 10 minimum part, ninety (90) days. I -- I would have thought 11 that it's normally -- it -- it's a number, it's ninety (90) 12 days or it's not, it's -- 13 Q: All right. And this next sentence: 14 "The respondents must provide --" 15 That word again: 16 "-- a mechanism for any changes to this -- 17 to this lease rate, during the term of the 18 agreement. A complete description of this 19 mechanism must be included as part of the 20 respondent's response." 21 Now that would mean to you, that, in fairly 22 imperative terms, the City is requiring you to define, as 23 best as you can, the cost of any change to the lease rate 24 during the term of the agreement, and at least a complete 25 description of how it works; correct?

1 A: Yeah, well the cost of any change, or how 2 lease rates will be calculated in the -- in the future. Now, 3 having said that, there's no term in the agreement, neither 4 here or in the agreement, so -- 5 Q: I'm sorry there's no? 6 A: There's no term in this RFQ. This RFQ 7 doesn't say that -- that that implies that we're entering 8 into an agreement for a period of time and so -- 9 Q: There's no term, in other words, well, let 10 me query that for a second. 11 This was an RFQ for a three (3) year lease 12 term was it not? 13 A: Well, it gets a little confusing. Is the 14 City looking to write a three (3) year lease, or is the City 15 looking for a vendor of record agreement with one or more 16 leasing companies for a period of time? 17 Q: I thought you said that -- there's nothing 18 in this agreement where the City is really looking for a 19 vendor of -- 20 A: No, I agree -- 21 Q: -- of record? 22 A: -- there's no term. So what I'm not -- 23 what I don't mean to suggest and I guess where it gets 24 confusing is, does this -- and this was one of the 25 discussions we had with the City early on, because there was

66
  1  confusion in their minds.
  2                 And this when I say, early on, I mean let's
  3  say twelve (12), thirteen (13) months ago; is it the
  4  intention of this agreement that the lease rate will float? 
  5  So that's it's twenty five dollars and thirty cents ($25.30)
  6  per thousand for the first ninety (90) days and then it's
  7  going to float thereafter, like a floating rate loan might
  8  float.
  9                 Q:  Well, let me -- let me ask you about that,
 10  because I guess your answer just confuses me a little bit.
 11                 A:  Well, the question confused me when I was
 12  asked it, so --
 13                 Q:  All right.
 14                 A:  Not yours.
 15                 Q:  Well, if I'm confused and you're confused,
 16  I'm in good company then.
 17                 A:  No, no -- well, I'm easily confused, but,
 18  that's -- you're not confusing me.
 19                 Q:  Well, a thirty six (36) month residual
 20  lease, isn't that a three (3) year term?
 21                 A:  Yes.
 22                 Q:  And in your yellow sheets, did you not
 23  calculate this risk on the basis of a three (3) year term?
 24                 A:  Yes.
 25                 Q:  And am I right that the previous lease,

1 the Councillors' lease, 784-1, the one you attached here to 2 the -- to your proposal, is a three (3) year term? 3 A: Yes. 4 Q: All right. 5 A: What I don't know, is what the City means 6 here, by saying during the term of this agreement. So 7 that's -- 8 Q: If something is ambiguous, are you able 9 under the terms, I could take you to the terms -- 10 A: We would normally call and ask what's 11 meant by that. And -- 12 Q: So -- am I to assume that it was clear to 13 you or you would have called for clarification? 14 A: I'm assuming we called for clarification 15 and I'm not sure what answer we got. 16 Q: When you say you're assuming you called 17 for clarification, is that from personal knowledge or -- 18 A: I'm just assuming because -- 19 Q: All right -- 20 A: -- it's not consistent. It's an 21 inconsistency that's in the RFQ. 22 Q: Now, then the response to -- to this 23 1.1.17 provision, is that you agreed the attached pricing 24 grids located at section 5, provide the monthly lease rates 25 effective for ninety (90) days from June the 11th, '99 and

1 are shown per one thousand (1000) of acquisition cost. 2 Now, if you -- if you'll turn to that, just to 3 have a look at these for a moment, that would be at page 21 4 and that is June 11th -- I'm sorry -- that is 23436. 5 Is it right of me to say that the -- your 6 basic monthly lease rate for hardware, desktop servers, 7 notebooks, including a storage area network, is twenty five 8 dollars and thirty cents ($25.30) per thousand? 9 A: Right, yes. 10 Q: And that is as reflected in your residual 11 value response, that is a residual -- a residual value at the 12 end of the lease of 17 percent? 13 A: Correct. 14 Q: And there is no residual value for 15 software here -- 16 A: No. 17 Q: -- and it's thirty dollars and forty-eight 18 ($30.48) per thousand? 19 A: Correct, yes. 20 Q: Why isn't there a residual value for 21 software? Isn't it worth anything after three (3) years? 22 A: Well, typically it doesn't come back to 23 us. It's licensed to the user. Typically, what we're 24 financing is licenses and those licenses are -- are only 25 available to the user initially licensed.

1 Q: Is it unusual that software is leased? 2 A: To a certain extent, yes. I mean, we -- 3 we do and I would guess that 25 percent of the financing we 4 do is -- is software. 5 6 (BRIEF PAUSE) 7 8 Q: Is it because there's no residual value 9 that the price is higher than twenty-five dollars and thirty 10 cents? ($25.30) 11 A: Yes. There's no opportunity to re-market 12 at the end of the term, therefore we get -- any return we're 13 going to get from software we have to get during the term of 14 the lease. 15 Q: So I take it, when you say any return 16 again, any profit that you're going to make, if any, is going 17 to have to be in the thirty dollars and forty-eight cents 18 ($30.48)? 19 A: That's right. Yes. 20 MADAM COMMISSIONER: Mr. Manes, is this a 21 good time to do the break? 22 MR. RONALD MANES: Okay. 23 24 (BRIEF PAUSE) 25

1 MADAM COMMISSIONER: All right. We'll come 2 back at ten (10) to. 3 THE REGISTRAR: The INQUIRY will recess until 4 ten (10) to twelve (12). 5 6 --- Upon recessing at 11:30 a.m. 7 --- Upon resuming at 11:50 a.m. 8 9 THE REGISTRAR: The Inquiry will resume, 10 please be seated. 11 12 (BRIEF PAUSE) 13 14 MADAM COMMISSIONER: Yes, Mr. Manes...? 15 16 (BRIEF PAUSE) 17 18 CONTINUED BY MR. RONALD MANES: 19 Q: Mr. Wolfraim, just so that we can clarify 20 this one matter for the record; if you can turn to Tab 24, 21 page 23417. 22 23 (BRIEF PAUSE) 24 25 Q: That would be at page number 2 actually.

1 And this states in the introduction: 2 "In this request for quotes RFQ, the City 3 of Toronto is requesting respondents to 4 propose options to lease to the City, Tier 5 1 servers, desktops, notebooks, software, 6 and associated peripheral devices, for 7 thirty-six (36) months." 8 See that? 9 A: Yes. 10 Q: So, it's clear there that they were -- 11 the City was looking for thirty-six (36) month leases? 12 A: Oh, yes, yes. 13 Q: Yeah. The -- let's go back to this 14 document or continue with this document, we're -- we're at 15 1.1.17, and I'm not going to take you all through this 16 document. 17 A: I think there's one other point of 18 clarification in that -- in that sentence -- 19 Q: Yeah. 20 A: -- is Tier 1, what's meant by Tier 1? I 21 don't know whether you'd go to that eventually, but that's -- 22 that's not a defined term here. 23 Q: Aw gees, I didn't want to. 24 A: Okay. 25 Q: I appreciate that's not a defined term,

1 but that is a term that has some common meaning in your 2 business? 3 A: It does. And but if you look at that in 4 the context of our response and the sale/leaseback and so 5 forth, it has implications on pricing and all that sort of 6 thing, so that's a -- 7 Q: Well, I guess the point is though, that 8 -- that these are addressed -- these RFQs are addressed to 9 recipients who are presumed to be fairly sophisticated in -- 10 in reading them, like the MFPs -- 11 A: Of course, no, no, no, I haven't got a 12 problem with that, I -- just my -- my issue would be this -- 13 this, that if you look at our grids at the time, what we 14 would have described as Tier 1 or qualifying as Tier 1 15 equipment is PCs that are -- have a clock speed of four 16 hundred and fifty (450) megahertz, sixty-four (64) megabytes 17 of memory, and four (4) gig ram, or four (4) gigabyte hard 18 drives. And so anything below that, in terms of -- of 19 technology life, wouldn't be Tier 1. 20 And as it turned out, much of the 21 sale/leaseback equipment that the City gave to us, as we were 22 putting the leases together in the fall, fell below that 23 line. So there would have been a -- a discussion, had -- and 24 I think the other respondents, or some of the other 25 respondents made reference to that in their responses,

1 just -- 2 Q: What -- it brings up an interesting 3 issue. Would you have expected, if the City contemplated a 4 sale and leaseback, that the equipment, including its age 5 would have been specifically described to the bidders, so 6 they knew what they were bidding on? 7 A: Either the City would have said, here's 8 Tier 1 and here's what we mean by Tier 1 or the respondents 9 would have said, assuming this is what you mean by Tier 1, 10 here's our bid. 11 Some - where there's some qualification in the 12 bid and we didn't make a qualification and I think a couple 13 of the other bidders said that here's out bid, subject to a 14 review of the equipment that's involved in the sale 15 leaseback -- 16 Q: Right -- 17 A: -- part of the -- so I guess what I'm in 18 part alerting you to, is a lot of that equipment wasn't Tier 19 1, so would have likely been subject to some, either a 20 re-tendering or negotiation of lease rates or something like 21 that. 22 Q: I guess what you're saying though, it 23 would have been more -- it would have been clearer had the 24 City specified what it meant by Tier 1 and or what sale and 25 leaseback equipment they had --

1 A: Oh, absolutely, yes. 2 Q: -- and described it. 3 A: Yes. 4 Q: So you at least knew how old it was? 5 A: Absolutely and knew how to respond, 6 because the pricing is quite different so -- 7 Q: If we can go to your response here, we've 8 already gone to section five (5), where you responded by 9 giving a dollar figure, twenty five thirty (25.30) for 10 example, on the hardware and then -- and that's during the 11 ninety (90) day guarantee period that begins June the 11th. 12 A: That's correct. 13 MADAM COMMISSIONER: What page are you on now? 14 MR. RONALD MANES: We're still -- we are at 15 23425 -- 16 MADAM COMMISSIONER: Okay, I was at page 2. 17 MR. RONALD MANES: At page 10. 18 MADAM COMMISSIONER: Ten -- okay. 19 20 CONTINUED BY MR. RONALD MANES: 21 Q: Now, sir, during the ninety (90) day 22 period, you're saying this is our -- our best price, for the 23 hardware twenty five thirty (25.30) per thousand plus our 24 value added for free, that's the bottom line? 25 A: Yes.

1 Q: And then you say, for the future, beyond 2 that ninety (90) days, I take it that's beyond September the 3 11th, interesting coincidence, September the 11th? 4 A: I think we go on to say that we'll adjust 5 the rate factor October the lst so -- 6 Q: And what do you -- what do you mean by 7 that, first of all, you'll -- by providing the October the 8 lst date? Does that mean that you're willing to guarantee up 9 to that date? 10 A: Yes. 11 Q: So, if the City had entered into a master 12 lease agreement and equipment leases totaling $43 million by 13 September 30th, at 11:59 -- 14 A: Or frankly, October the 2nd or October the 15 3rd, you know -- 16 Q: All right. 17 A: -- absolutely, we would have closed on 18 this price. 19 Q: You would have closed on that price? 20 A: Yes. 21 MADAM COMMISSIONER: So, your price was good 22 for longer than ninety (90) days? 23 THE WITNESS: Yes. Yes it was so June the 24 11th to September the 30th or October the 1st, I suppose, is 25 the -- one hundred and ten (110) days or something.

1 CONTINUED BY MR. RONALD MANES: 2 Q: The lease rate factor shall be adjusted 3 every calendar quarter commencing October the lst, 1999. 4 What does that mean? 5 A: The two (2) things that make up a lease 6 rate or make up -- starting with the lease rate of twenty 7 five dollars and thirty cents ($25.30). There are two (2) 8 things that are going to affect that lease rate. 9 One is -- is interest rates and the second is, 10 I guess, you could say generally your residual issues, but, 11 what we're suggesting here is changes in technology and 12 prevailing market conditions. 13 Q: Yes, you're going on. I'm just talking 14 about the -- 15 A: Why would it change? 16 Q: No, the lease rate factors that you're 17 talking about is that every calendar quarter, commencing 18 October 1st, by this, you will provide the new lease rates? 19 A: Yes. 20 Q: And you will provide the City with revised 21 pricing grids which quote: 22 "...shall be amended to reflect changes in 23 technology and the prevailing market 24 conditions which include the underlying 25 base interest rate."

1 Unquote. 2 A: Correct, yes. 3 Q: So, basically you're saying that, while 4 you'll provide the lease rate factors of lease rates every 5 quarter, you can't provide anything more firm than saying 6 those lease rates will be adjusted according to prevailing 7 market conditions underlying base interest rate changes in 8 technology; that's the best you can do? 9 A: Yes. 10 Q: You didn't want to be committed to any 11 particular formula such as the -- such as you had in 1.1.5 12 when you committed to a particular formula in relation to the 13 purchase cost? 14 A: Well, that would -- that would take care 15 of the interest rate part of it but it wouldn't take care of 16 the market conditions and residual, so that takes care of 17 half of it but not the other half. 18 Q: Well, did you -- 19 A: I guess what we would refer underlying 20 base interest rate is what we are referring to as being the 21 rate at which we borrow money, so, interest -- it changes in 22 the interest rate environment. 23 Q: That might be known to you, the rate at 24 which you borrow money, but that's not going to be known to 25 the reader here. What you -- what the underlying base

1 interest rate means. 2 A: Well, I think the reader -- anybody 3 that's been involved in the business would understand that, I 4 would -- I would think. 5 Q: Would understand that that's the rate at 6 which you borrow money? 7 A: Yeah. I guess if they had a problem with 8 that or they didn't understand it, they'd call us and ask, I 9 suppose but that -- that -- they should understand how we 10 finance our business and -- and would certainly understand 11 how we finance our business. 12 Q: Here's what -- did you -- let me ask the 13 question this way. Did you understand or did you contemplate 14 that this proposal would be evaluated both at the ninety (90) 15 day rate and the future rate? Or were you relying really and 16 exclusively on the ninety (90) day rate to get the business? 17 A: I think we, and most of the people 18 responding, were relying on the ninety (90) day rate. 19 Anybody that said that they're price would be -- their then 20 price would be based on their then current residual value 21 assumptions is -- is -- is in the same boat, I assume. They 22 can -- they're not guaranteeing anything more. 23 Q: So basically while you're willing to 24 risk, I guess you'd call it in terms of the yellow sheet, et 25 cetera. You're willing to risk the twenty five dollar and

1 thirty cent ($25.30) rate on the hardware for ninety (90) or 2 one hundred and eleven (111) days. When it came to future 3 lease rate factors in any further orders by the City beyond 4 that, you were willing to commit yourself to any rate or 5 mechanism in that regard? 6 A: Well, you know, as I said earlier, this 7 is how we price sixty (60) to sixty-five (65) percent of the 8 business we do, right now. By virtually identical wording 9 and we present new rates every ninety (90) days to customers 10 and they can choose whatever they feel is the appropriate 11 course of action. 12 Q: Well, it -- it could be said by some, 13 sir, in reading this that you were not responsive because the 14 words in -- in the RFQ said that -- said that you must 15 provide a mechanism for any change and it uses the words, and 16 a complete description for this mechanism must be included. 17 In all -- in all fairness, you -- you -- you don't provide 18 that mechanism, do you? 19 A: No. 20 Q: In this -- in the -- 21 MR. DAVID MOORE: Well -- well, in all 22 fairness, that's a matter of argument. 23 MR. RONALD MANES: Well -- 24 MR. DAVID MOORE: I mean a mechanism is a 25 mechanism. A mechanism can just -- can very well be, here is

80
  1  the rate, here is the quarterly rate.  It prevails for the
  2  quarter and City, it's in black and white and you can choose
  3  or not choose but I don't mind My Friend asking the witness
  4  factual questions, but -- but some of this, this type of
  5  question in particular, is -- is -- is wording on -- on what
  6  My Friend knows or -- or -- or issues of interpretation.
  7                 MADAM COMMISSIONER:   Well, I don't see
  8  anything wrong with that question at all and, in fact, Mr.
  9  Wolfraim answered it by saying, no.  That it doesn't provide
 10  the mechanism and I -- I would think that what Mr. -- Mr.
 11  Wolfraim, as an experienced person responding to RFQs, RFPs
 12  understands the concept of mechanism and I didn't get any
 13  impression from him that he wasn't understanding the concept
 14  of mechanism.  Do you understand that concept, Mr. Wolfraim?
 15                 THE WITNESS:   Yeah.  Well, I understand both
 16  points but it's a -- I guess, from my standpoint, it is what
 17  it is and if the City had a problem with it they would either
 18  have come back and asked us about it, or thrown us out along
 19  with everybody else that responded the same way.  Does that
 20  -- or responded in a similar fashion, that's -- 
 21                 Q:   The -- if you'd let me go on, sir, from
 22  1.1.17, let me go on to 1.1.21, and then I'm going to take
 23  you to an issue that was raised previously about these four
 24  thousand (4000) and additional computers.
 25                 1.1.21 states:

1 "The City may from time to time, negotiate 2 separate corporate license agreements for 3 major software acquisitions and expect the 4 respondent to incorporate these costs in 5 the lease agreement. The respondent must 6 indicate a willingness and ability to 7 comply with this requirement." 8 A: Yes. 9 Q: Now -- now, in addition to that, if I can 10 -- that's at page 23427, if I can take you to page 20, and 11 it's 23435 and it's under usage assumptions. If you can just 12 keep your finger on 1.1.21, that paragraph at the twelfth 13 page of the -- of your response. 14 Now, under usage assumptions it says: 15 "Approximately nine thousand (9,000) 16 desktops will be installed in calendar year 17 '99. It is anticipated --" 18 That's 1999: 19 "-- it is anticipated that another four 20 thousand (4,000) desktops will installed 21 during the term of an agreement resulting 22 from this RFQ." 23 Now, taking those -- the usage assumptions, 24 together with 1.1.21, in terms of the prior intelligence that 25 you had received, and especially after reading this RFQ, were

1 you of the view that it was going to be a considerable 2 acquisition of hardware and software after Y2K? 3 A: Yes. 4 Q: Did -- did you -- were you aware, in any 5 way, that the City, through its IT Department, had a long 6 term roll out vision of about $80 million or more, consisting 7 of approximately fifteen thousand (15,000) desktop computers? 8 A: You know, I -- well, four thousand 9 (4,000) computers, if nine thousand (9,000) -- another four 10 thousand (4,000) computers would have been another $15 11 million, let's say $15 million, $12 to $15 million, I think 12 in addition we had from previous conversations dating back to 13 late '97 or early -- or late '98 it may be, that the Rob 14 Ashbourne had had with Jim Andrew, that -- that there was -- 15 there were potential software acquisitions planned as part of 16 the Y2K roll out that were in the order of about $40 million. 17 So, absolutely, the total amount that was part 18 of this overall project sounded, and then we'd heard this as 19 -- as I guess a year -- year and a half earlier, it could be 20 as much as $80 to $85 million. 21 Q: All right. And if we could just round 22 this out, sir, let me take you away from that document, and 23 take you to Tab 58 and that is document number 29457. 24 A: Hmm hmm. 25

1 (BRIEF PAUSE) 2 3 Q: This is the -- this is the yellow sheet, 4 on the -- on this RFQ, so it has -- this is for about -- this 5 is for about $20 million, and this would be for the October 6 1st, '99, the first -- the first lease? 7 A: Yes. 8 Q: This would be for the 838-1 lease? And 9 this is -- this is the first yellow sheet, in other words, 10 this deal doesn't go to the Investment Committee formally, 11 with yellow sheet until sometime after you've placed -- 12 you've placed your bid? 13 A: Correct. 14 Q: And, in fact, I see here, that in this 15 yellow sheet, that we've gone over to some detail that it's 16 not signed off on -- until -- well, this one is September 17 30th, October 5th, October 4th, correct? 18 You look at the bottom? 19 A: That's right. 20 Q: So, basically, this deal was not formally 21 placed before the Investment Committee, but, the top people 22 in the Company were involved in the decision to put the 23 price, as it did at twenty five thirty (25.30) per thousand? 24 A: Yes, that's -- you say formally put before 25 the Investment Committee, I'm not sure what you mean by that.

1 Q: Using the yellow sheet? 2 A: Wasn't there a yellow sheet for the $43 3 million deal? 4 Q: Well -- 5 MADAM COMMISSIONER: Ms. Groskaufamanis can 6 you help? 7 THE WITNESS: I think it was our guess what