Digital government teaching case study

Introduction

Over the last two decades, the City of Toronto, Canada's largest municipality, has struggled to integrate digital technology into public services. Registration for parks and recreation programs continued through an online system that was over 20 years old, leaving residents frustrated while they waited years for a digital solution that was said to be in progress.  Payments for property taxes, utilities, and permits each had individual systems with limited online payment options.   

In 2020, City staff proposed a collaboration with PayIt, a U.S.-based technology company, to create a single integrated platform for residents to pay for a variety of municipal services online. City staff recommended a sole source contract that arose from an unsolicited proposal by PayIt.  This was despite the City’s procurement policies, which had strict rules for dealing with unsolicited proposals and almost always required competitive processes for large contracts.  The City’s strict procurement policies and oversight mechanisms came from a judicial inquiry that followed a computer leasing scandal in the early 2000s.   

Citizen groups quickly voiced their opposition to the PayIt sole source contract, citing a lack of opportunity for local technology companies to offer solutions. Faced with this opposition, the City Council asked staff to go back and engage in a competitive process.  A Swiss Challenge procurement process was arranged, but the outcome resulted in the City moving forward with the contract with PayIt as originally proposed, while at the same time City Council asked the Auditor-General  to conduct a review of the contract’s procurement process and outcomes.   Four years later, the Auditor-General’s review was completed which revealed that the promised savings and revenue generation that was anticipated was not realized.  As an outcome of the review’s findings, City Council chose to end its contract with PayIt and decommission the platform as of June 2025,  despite the City and its residents having already paid $8.4 million in fees.

This case study explores the decisions made by public servants and elected officials in choosing to award the sole source contract to PayIt; it examines  the tensions inherent in their decisions to work around existing policies and procedures while under pressure to deliver a solution quickly. The case also explores how those tensions played out in the public sphere, given the transparent and open nature of municipal governments in Canada.  The opposition from citizen groups was easily voiced at City Council committees and impacted the decision made by City Council to demand a competitive process, however compromised it was.  The transparency of the Auditor General’s report investigating the matter also provided some accountability.This case  can help other public servants learn from this situation to avoid the costly exercise of decisions that are later reversed.

Working in the Open

The lessons from the case connect to the syllabus themes discussed in Unit 7“Working in the Open” of the Teaching Public Service in a Digital Age curriculum, Working in the Open.,”    The unit’s themes include power and control on the part of governments, and lines of accountability that are the hallmark of democratic and open governments. Municipal governments in Canada are governed by legislation that enshrines openness through freedom of information requirements and strict rules for open meetings by decision makers.   Compared with provincial and federal governments that rely on cabinet-based decision making, which are closed or private, municipal decision making includes significant engagement with the public.

In this case, Toronto public servants avoided compliance with existing procurement policies, which resulted in the engagement of citizen groups who came forward to speak directly to decision makers about their concerns. They were able to do so because the City’s decision-making process includes Council committee meetings,where members of the public are able to speak directly with decision makers before a matter goes to City Council.  Agendas and reports from public servants are made available one week before a Council committee meeting, giving members of the public time to prepare and attend the meeting.  This is significant when we start to compare public processes with the private and non-profit sectors, where decisions can be made more quickly and without the need to weigh the views of all stakeholders. When it comes to technology procurement, this creates an inherent tension with the speed and agility often desired for such decisions.

Open, transparent and accountable government is also advanced through the role of independent officers such as an Auditor General or Ombudsman, who provide oversight and transparency to how government decisions are made, whether they provide value for money, and whether there was fairness in the government process.  These officers can conduct investigations, compel evidence and report publicly on their findings.

In the case of the City of Toronto’s contract with PayIt, important questions are explored for how governments should approach technology and how citizen groups and independent officers play a role in ensuring public servants work in the open and are held accountable.  

The Public Servant’s Dilemma 

When PayIt contacted staff in the City’s Technology Services department with an unsolicited proposal, City policy required the proposal to be referred immediately to Procurement staff and the City’s Partnerships office for review. However, staff in the Technology Services division, some of whom had joined the City from a private sector organization, did not refer the proposal as required. Instead, they engaged in direct conversations with PayIT due to their interest in the proposal. It is possible that the Technology Services staff lacked familiarity with City procurement policies.  

Eventually, the Chief Procurement Officer and the Partnerships office were made aware that Technology staff had not followed policy and procedure, and they alerted more senior staff.  At this point, the Deputy City Manager for Corporate Services and the Technology Services staff were faced with a dilemma. They were now aware that policies and procedures made it clear that they should stop speaking with PayIt. If they had an interest in this type of vendor, the rules specified that they should pursue a competitive procurement process with independent criteria defined by the City, not based on PayIt’s proposal. They had to decide between three possible options.

Option 1 

The Deputy City Manager for Corporate Services could recommend that the City Manager move forward with a sole source contract with PayIt, despite this contravening existing procurement policies.  The advantage of this would be the fastest implementation of a software solution; however, the disadvantages included breaching policy, a lack of consideration of local vendors, missing out on better potential offers, and the  risk of perceived corruption or ethical lapses.

Option 2

The Deputy City Manager, Corporate Services, could follow City policy and refer the matter to the Chief Procurement Officer and Partnerships office for review. The Chief Procurement Officer could then offer recommendations for a procurement process that would balance the need for certain technology with the objectives of local economic development and social procurement.  The advantages of this would be to consider more than one City objective, rather than allow Technology Services to proceed with their perceived paramount objective.  The drawback would be additional time before a technology solution could be implemented.  While this was a risk, it could ensure greater value for money in the long term.

Option 3

The Deputy City Manager, Corporate Services, could raise the idea of longer-term policy changes to the City Manager to address this dilemma, enabling the City to respond to unsolicited proposals more efficiently and effectively in the future, balancing governance and accountability considerations with the needs of agile and responsive technology solutions.  The advantage of this was that a more systemic change could be made to enable greater agility for technology changes at the City of Toronto.  A disadvantage was that this would not address the desire for a quick technology solution.

Actions and Reactions

Despite staff not following procurement policies for an unsolicited proposal, the Deputy City Manager for Corporate Services, and the City Manager chose to move forward with recommending a sole source contract with PayIt to Toronto City Council in July 2020. 

The proposal from staff faced significant opposition from residents and stakeholders who felt that local technology companies did not have the opportunity to offer solutions, since no competitive process was engaged by the City. City staff argued that the partnership with PayIt represented an opportunity for innovation and technological advancement, and they needed to move quickly on it.  

Within the context of how open government works in most Canadian municipalities, residents and stakeholders were able to express their views directly to elected officials in open meetings of City Council committees. In Toronto specifically, there are no political parties and no cabinet-style government.

Municipal decision-making in the province of Ontario is done in the open with the following features:

• The deliberations of elected officials are done at Committee and Council meetings open to the public (including via livestream)

• Notice is provided to the public about meetings and agendas well in advance

• Committee meetings provide an opportunity for public comment directly to City Council members  

• The public can sign up in advance or arrive at the meetings (in-person or virtually) and sign up on the spot, and are provided five minutes to speak   

• The public can also provide comments in written form in time for the meetings

• The record of comments made by residents and stakeholders in the open at City Council committees can be viewed as a video record  

• Records of decisions at Committees and City Council are also posted publicly

Compared to other orders of government in Canada, this is a highly open government which enables a significant amount of public participation directly with elected officials, beyond any public consultations conducted by City staff in advance of committee or council meetings.  

In this case, given the concerns of residents and some Council members, City Council was not ready to move forward with the contract, and Council asked the City Manager to review the matter.  In response, the City Manager directed staff to engage in a competitive process, for which staff created a “Swiss Challenge,” based on PayIt’s existing proposal.   A Swiss challenge is where other companies are invited to submit competing proposals against the unsolicited proposal and if a better offer emerges, the original bidder gets the chance to match or exceed it. If they fail to do so, the contract is awarded to the company with the best competing bid.  In the end, staff once again recommended PayIT as an outcome of the Swiss Challenge. Despite continued public opposition,  this time the City Council approved the partnership with PayIt for a four-year renewable contract, while also directing further investigation by the Auditor-General into how City staff responded to unsolicited proposals.

Auditor General’s Investigation

To undertake that investigation, City Council requested the City’s Auditor General, an independent officer with statutory authority to compel evidence and witnesses, to look into what took place during the procurement process and assess the resulting outcomes.  

The City’s Auditor General undertook an audit that examined the following: 

• Did the procurement with PayIt properly follow the City’s policy and process for unsolicited proposals? 

• Did the implementation of the PayIt Platform achieve the intended financial and non-financial outcomes and benefits (as reported to City Council)?

The resulting report from the Auditor General  found the following:

• The policy and process for unsolicited proposals was not followed, even after concerns were raised internally amongst City management. 

• Expected benefits and outcomes of the PayIt implementation were not fully realized within the original timeframes indicated in the business case included in staff reports to City Council. 

• Records supporting key decisions were not properly retained.

The report provided nine recommendations aimed at strengthening the oversight, policy and process for receiving, reviewing and responding to unsolicited proposals.  These addressed areas such as additional training, clarification of roles, further criteria for unsolicited proposals , and more flexibility for such processes. The report also reinforced the importance of management’s leadership and commitment to ensuring openness, fairness, and transparency in City procurement.

As a result of the Auditor General’s report, City Council decided in November 2024 that the City would decommission the platform created by PayIt by the time the current contract ends in June 2025. It also made several  other decisions related to strengthening the City’s processes around procurement and oversight.

Public Sector Dilemmas

The role of the Chief Procurement Officer (CPO) is to ensure that procurement policies and procedures approved by the City Council are followed by City staff.  At the City of Toronto, procurement policies and accountability mechanisms are particularly robust ever since the City faced a computer leasing scandal in the early 2000s that led to a judicial inquiry.   

In that scandal, an investigation into allegations of bribery, conflict of interest and misappropriation of funds led to a judicial inquiry to investigate the matter and recommend changes to City policies and accountability mechanisms. Justice Denise Bellamy provided 241 recommendations to the City as a result of the inquiry, leading to strengthened oversight for lobbyists and elected officials and robust procurement policies.  

In this case, when the Chief Procurement officer became aware that staff in Technology Services department were entertaining an unsolicited proposal, he advised them of the requirements under the City’s procurement policies, as did the Director of the Partnerships office to whom the proposal should have been referred. However, Technology Services staff and their Deputy City Manager felt that stopping the process would prevent innovation and an important opportunity for advancement.  They may not have appreciated the role of procurement policies, including the context of the past procurement scandal.   

Missed Opportunity

From a public policy perspective, this was a moment where policy change could have been considered.  Technology Services, Procurement and Corporate Policy staff could have used the scenario to consider how procurement policies may need to be changed or updated to balance transparency, fairness and competitiveness with the agility and speed required to advance innovation opportunities.   

Instead, Technology Services staff went ahead with the proposal, all but ignoring existing policies, without considering how systemic change could impact  future opportunities. The end result was a costly exercise that still required undertaking a competitive process and ended in an investigation by the Auditor-General. The contract was not renewed after four years despite the investments made to create a system which, in many ways, was successful. 

From a community perspective, the many technology companies that the City supports through its economic development activities were rightly upset that they were not given a fair opportunity to compete, both in the initial stage and then during the Swiss Challenge when the criteria had already been set in favour of PayIt. Other companies could have produced more cost-effective or innovative solutions, and a local technology business could have been supported.  

Fast forward to 2025, when Canada is facing tariffs from the United States and a swell of support to “buy Canadian” has emerged, this complaint appears even more noteworthy.

Costly Decisions

In this case, public servants could have weighed the input from the community before moving ahead with the contract. The disadvantage of not taking into account that input and disregarding policy led to an investment in a software solution that was ultimately decommissioned after four years, and a loss of public trust.   

While Toronto’s Auditor General was able to investigate the actions of public servants and provide recommendations to City Council, this took place nearly four years after the initial decision to contract with PayIt. While oversight mechanisms can lead to systemic changes for future matters, policy breaches are not stopped early in the process by these mechanisms.  

Key Takeaways

While it may be desirable to approach government “like a business,” businesses do not operate with the same degree of transparency and are not accountable for balancing as many perspectives or objectives.  Fairness and the appearance of fairness is critical for trust in government, and applying a competitive process can erode trust in government. 

Governments must manage multiple competing objectives. While an innovative and effective technology solution for payments may be the objective for one part of the government, supporting local economic development is another. Procurement is a powerful tool for advancing economic and community development goals; considering a local economic focus provides an important strategic avenue for a local government to be more effective with its limited resources.

Conclusion

The case of the City of Toronto’s procurement of PayIt underscores the themes discussed in Unit 7 of the Teaching Public Service in a Digital Age curriculum, “Working in the Open”. It asks students to: 

• Examine how City staff and elected officials approached these dilemmas

• Consider whether the decisions they made advanced technology solutions in the best interest of the City

• Determine whether there are other pathways that staff and elected officials could have chosen 

• Analyze how well the City’s accountability framework worked in this situation to ensure transparency in government

 The Working in the Open unit’s themes include power and control on the part of government and lines of accountability that are the hallmark of democratic and open governments.   

The PayIt case illustrates the tensions public servants face in balancing agility with accountability and private-sector speed with public-sector scrutiny. While modernizing a payment system for the public is a worthy goal, bypassing established procurement protocols served to undermine the public trust and led to costly outcomes, both financially and reputationally.   

The decision to proceed with a sole source contract despite early warnings and existing policies demonstrates what happens when governments fail to be fully transparent and fair in their dealings. No matter how agile governments attempt to be, the democratic demands of transparency and accountability are often at odds with the speed at which non-governmental actors can assess and deploy technology.  

While City officials initially avoided complying with existing policies to contract with PayIt, the resulting engagement of citizen groups who came forward to speak directly to decision makers about their concerns  reflects the accountability of open government.  And while the decision to contract with PayIt moved forward, the oversight provided by the Auditor-General allowed for a change in direction, albeit after investments were already made in the PayIt solution.   

Public servants and elected officials in municipalities and across other levels of government, must recognize that innovation in the public sector must be pursued within the bounds of policy frameworks that uphold fairness and trust. They should work to evolve policy and practice to balance the need for agility while maintaining accountability if they are to advance digital transformation in a way that truly serves the public interest and strengthens democracy.