Waterfront Toronto admitted it provided information in advance to Sidewalk Labs before publicly issuing the Request for Proposals (RFP) that resulted in the latter winning the right to develop a smart-city district on Toronto’s lakeshore.

The admission, which Waterfront Toronto said was “part of its regular market sounding process,” was revealed in the auditor general (AG) of Ontario’s 2018 annual report, which was tabled in the Legislative Assembly on Wednesday.

Waterfront Toronto told Bonnie Lysyk, Ontario’s auditor general, that it also shared information with other potential bidders, though her report states that Sidewalk “received more information” from Waterfront than the other parties that would respond to the RFP.

According to the report, in June 2016, Waterfront Toronto’s chief planner emailed Sidewalk Labs’ CEO Dan Doctoroff to inform him, “My new CEO [Will Fleissig] and I are very interested in what you are doing at Google and would like to talk to you about a potential pilot in Toronto.”

Waterfront Toronto told Bonnie Lysyk, Ontario’s auditor general, that it also shared information with other potential bidders, though her report states that Sidewalk “received more information” from Waterfront than the other parties that would respond to the RFP.

“This raises the risk of an unfair and unequal advantage to all parties that would be responding to the RFP,” wrote Lysyk.

Subsequently, Sidewalk Labs submitted what the AG called “by far the most comprehensive” proposal to develop the 12-acre Quayside neighbourhood, and was announced as the winning bidder in October 2017. Respondents were given only six weeks to complete the complex RFP.

The report suggests that approval for the project, once Sidewalk Labs was chosen as the winning bid, was rushed through by Waterfront Toronto. The organization’s board of directors was given only a weekend to discuss its initial agreement with Sidewalk Labs before it was asked to approve it. It also suggests that the project would “likely be larger” than the Quayside’s 12 acres of land.

The short timeline raised internal ire, according to the report. Waterfront Toronto’s Intergovernmental Steering Committee expressed concerns about “the lack of sufficient time” given to the board and the three levels of government to review the initial agreement. The committee itself only learned that Sidewalk Labs was the winning bidder five days before it was publicly announced on Oct. 17, 2017.

“Waterfront Toronto commits to take all necessary and appropriate steps to use this report’s recommendations and observations to improve our operations,” said the organization in a statement. “Waterfront Toronto will not go forward with the Quayside Project without first consulting with all three levels of government and giving the governments the opportunity to review and comment on any key documents before they are approved by the Waterfront Toronto Board.”

In a press conference at Queen’s Park, Lysyk said, “Waterfront Toronto was created in 2002 to have one provincial agency oversee all aspects of the development of Toronto’s waterfront. Successful oversight requires that the overseer has the authority to ensure the job is done right, but Waterfront Toronto was never given this authority.”

The AG’s report, which contains a value-for-money audit of Waterfront Toronto, more broadly concludes that the organization has fallen short of its mandate to revitalize Toronto’s waterfront, noting that Waterfront Toronto has only directly developed 55 acres of land—or five per cent of the total publicly-owned developable land in the waterfront area—since it was founded in 2002 (an additional 151 acres, or 14 per cent, has been developed through the provision of funding to other organizations for revitalization projects).

The report states that eight months before the RFP was issued, Fleissig wrote in an internal email that “Google has purportedly told other candidate communities that they want to control ALL data in this demonstration project area. Could present privacy issues and control issues.”

The report also raises several concerns about its partnership with Sidewalk Labs.

Those concerns include:

Waterfront Toronto—a public body backed by the federal, provincial and municipal governments—didn’t “adequately consult” with any levels of government about the Sidewalk Labs project. Even though the scope of Sidewalk Labs’ proposal for a smart city potentially includes areas—like self-driving vehicles and data collection—that could fall under the jurisdiction of multiple levels of government, Waterfront Toronto did not “adequately consult” with any of them in advance of signing an agreement with the Alphabet subsidiary in October 2017, according to the AG.

Waterfront Toronto’s agreement with Sidewalk Labs provides no specifics on data governance, or whether personal information collected will be shared with Sidewalk Labs’ sister company, Google. The auditor general noted the two organizations signed a Plan Development Agreement (PDA) in July 2018 that aimed to establish a digital governance framework, including a public data trust, but she said it lacks those details.

The Digital Strategy Advisory Panel—consisting of academics and industry experts convened in April 2018 to advise Waterfront Toronto on privacy and data issues—has been limited in its effectiveness. Panel members told the AG that meetings were focused on administrative work, including being tied up in confidentiality issues. There have been two resignations from the panel since it was announced.

The smart-city project with Sidewalk Labs “will likely be larger” than the 12 acres of land in Quayside currently allotted to it, which would require “more attention… to the public concerns with this project.” The PDA says that the project can be expanded to any land owned by Waterfront Toronto or Sidewalk Labs in the wider waterfront area, although the AG notes this would require approvals from all levels of government. The PDA potentially opens up as much as 600 acres of land in Toronto’s Port Lands to the Sidewalk Labs project.

Waterfront Toronto will not comply with its provincial procurement obligations or the Memorandum of Understanding (MOU) it signed with the City of Toronto. The AG’s report says it is “unclear” how Waterfront Toronto and Sidewalk Labs, whose current agreement requires them to jointly issue requests for proposals to developers, will comply with Waterfront Toronto’s obligations to the provincial Broader Public Sector Procurement Directive and its MOU with the City, which gives the City a role in overseeing the approval of RFPs to developers on its lands. Waterfront management told the AG it will comply.

Ontario lacks a “policy framework” to guide the development of a mixed-use smart city, such as the one Sidewalk Labs wants to develop in Quayside. The auditor general urges a framework be developed to address intellectual property, data collection, security and privacy, legal issues, consumer protection issues, infrastructure and economic development.

Lysyk implored the provinciale and other governments to further study the Sidewalk Labs project, including to consider giving the provincial government more oversight powers over the agency.

Overall, the auditor general attributes Waterfront’s inability to develop more land to several structural factors, namely that it was only given ownership and control of just one per cent of the land it was charged with revitalizing when it was established in 2002. The report says that the three levels of government and other public bodies did not transfer to Waterfront Toronto 75 per cent of the developable land they owned, and that the organization had no authority over the 24 per cent of private land available for development.

The report also notes that the three levels of government redirected $700 million—or almost half of their original $1.5 billion funding pledge to Waterfront Toronto—to other agencies for other projects, including the expansion of GO Transit and the Union Pearson Express. The auditor general therefore concluded that public announcements by the levels of government suggested they were providing more funding for waterfront revitalization than they actually were.

As a result of the redirection of public funding and a failure by Waterfront Toronto to explore corporate sponsorships and other revenue, the auditor general found the organization had only $67 million of municipal funding commitments remaining by March 2015. The province allowed Waterfront Toronto to establish a $40-million line-of-credit secured against the land it owns in Quayside, which it acquired between 2007 and 2009 for $68 million. It also borrowed and repaid $5 million shortly thereafter, and sold a parking facility for $11.3 million in 2017.

The auditor general recommended that Waterfront Toronto—which became a charitable organization in October 2017 with approval from the Canada Revenue Agency—create and implement a plan for making revitalization self-sufficient. She pointed to Chicago’s use of strategic philanthropy to develop its waterfront Millennium Park development—half of the US$490 million for that project was raised through corporate donations, and the park is on 25 acres of land donated by the Illinois state rail company.

Not directly related to the Sidewalk Labs project, the auditor general expressed concern that Waterfront Toronto failed in its oversight of projects where it funded other organizations for development work. A review of eight such projects of $10 million or more found that five did not include any cost estimates in the agreements between Waterfront Toronto and the recipient organization, while one project cost more $49 million, or 55 per cent, more than its original estimated cost.

The auditor general also found that five of 13 projects of $10 million or more directly managed by Waterfront Toronto that it reviewed cost about $43 million, or 22 per cent, more than their estimated cost.

Waterfront’s board of directors is scheduled to meet on Thursday to discuss the auditor general’s report. Following that, their next publicly-scheduled meeting is on March 21, 2019.