Changes coming to how Toronto handles shelter hotel contracts after overspending, staff say

City of Toronto corporate real estate staff will handle contracts for emergency shelter hotels from now on after an audit found the city overspent $13.2 million over two years on temporary shelters, a council committee was told on Monday.

In a presentation to the audit committee, Auditor General Beverly Romeo-Beehler said the city needs to strengthen its management of contracts across its divisions, and in the case of the shelter system, that means giving corporate real estate staff the responsibility of negotiating the best rates, managing agreements with hotel providers and verifying invoices for shelter hotels.

Romeo-Beehler said Dr. Eileen de Villa, the city's medical officer of health, has indicated that Toronto will be hit by another pandemic at some point. The city will need to use hotels as emergency shelters to manage homelessness, she said.

"The reason we did this work is, as you set up for the winter and as you set up for the next pandemic, there's a bit of time here to identify if there are lessons learned so that every dollar and every bed is available for somebody in need," Romeo-Beehler said.

The overspending happened after the city opened several temporary shelters for unhoused people, including in hotels, when the COVID-19 pandemic hit. The city made the move due to physical distancing requirements in its shelters. As of March 9, 2022, the shelter system had more than 3,900 people staying in 2,900 rooms in 29 hotel locations.

Gordon Tanner, acting general manager of the city's shelter support and housing administration (SSHA), told the committee it makes sense to allow the city's corporate real estate management division to take over contracts for shelter hotels because of its expertise.

Tanner agreed with Romeo-Beehler the move would centralize all of the city's shelter hotel contracts. He said that transfer will happen as soon as possible.

"We need to stretch every dollar that we have from the public to provide important and tailored supports to people experiencing homelessness in this city," Tanner said.

"We acknowledge that there needs to be an enhancement to our contract management and oversight."

Tanner said SSHA will review all of its space in shelter hotels to see if it can make more rooms available for clients.

In a statement later on Monday, Tanner said SSHA is working with the city solicitor to review the terms of the hotel contracts and recover any costs where possible. Some of the costs identified in the audit have already been recovered, he added.

In a report released June 1, the auditor general found that money intended for housing support instead went to pay a host of hotel fees even though the contracts preclude such fees.

In two years, $5.4 million was spent on hotel room vacancy fees, $5.3 million was spent on facility surcharges on meal invoices, and $2.4 million was attributed to "DMF" charges, which could mean destination marketing fees or direct management fees. The audit noted that hotels stopped including this charge in January 2022.

One hotel has agreed to pay back $381,000 for "DMF" fees charged during April 15 and July 15, 2021.

Staff need to know contract terms, deputy AG says

Deputy Auditor General Ina Chan pointed out two examples of overspending. The city was charged $840,000 by one hotel to store belongings left behind by shelter clients in a banquet programming space, while it was charged $68,000 by another hotel for the use of two to four printers.

"What's important is that for strong contract management, staff reviewing the invoices and authorizing the payments need to be knowledgeable about contract terms," Chan said.

"Payments shouldn't be based on what they think should be paid, or what they believe the contract terms to be, or what they feel is reasonable and customary. Staff should be paying according to the express terms of the contract," she said.

If staff members want to change the terms of a contract, or if the city is charged a fee not in keeping with a contract, they need to get legal staff involved, Chan added.

"There needs to be a common understanding both of what the vendor's obligations are and what the city's obligations are," she said.

'This has a human cost,' street nurse says

Coun. Stephen Holyday, chair of the audit committee, said he agrees that the responsibility should be transferred to corporate real estate staff.

"Let the shelter people focus on what they do, run the shelters. And let the real estate people focus on what they do, which is manage real restate contracts," Holyday said in an interview on Monday.

Street Nurse Cathy Crowe blamed senior managers of city divisions for not establishing checks and balances around hotel expenditures earlier. 

"This has a human cost. This meant that people were not given a room that was sitting empty in a hotel. I'm surprised that there's not more shock and outrage," she said.

"We're going to be using shelter hotels for a long time. We'd better clean up the act there."