TORONTO -- Dr. Alan Hudson resigned Wednesday as chairman of eHealth Ontario, the provincial agency that became an embarrassment to Premier Dalton McGuinty when it was revealed workers had taken advantage of lax hiring rules to award bloated contracts to consultants, some of whom nickelled and dimed the public by expensing such items as cups of coffee and chocolate chip cookies.

“It became obvious to us that there was a real problem associated with sole-sourcing of consulting contracts,” Mr. McGuinty said Wednesday in announcing Dr. Hudson’s departure, adding that the government has to be able to demonstrate that consultants who win contracts do so in a fair, open process.

“The rules that we’ve had in place for government dealings with consulting firms are outdated and clearly inadequate,” he added. “They don’t go far enough to protect taxpayers. I take responsibility for this.”

But the Opposition said the premier’s mea culpea is too little, too late.

“It’s pretty obvious to any onlooker and I think to any Ontarian, that when you are dealing with taxpayers’ money -- which is not your money, it is taxpayers’ money -- you have to be careful,” said Peter Shurman, a Progressive Conservative member of the legislature.

EHealth, which was created to place the province’s health-care record system online, has been under siege in recent weeks after it came to light that several consultants were offered lucrative contracts that weren’t tendered while others charged and expensed such minor items as cookies, tea and coffee while being paid, in some cases, up to $2,700 per day.

Last week, the provincial government sacked Sarah Kramer as president of eHealth amid allegations of cronyism and questionable procurement practices in which large contracts -- totalling $5-million -- were awarded without tenders from September, 2008, to January, 2009.

The contracts revealed a tangle of relationships between many senior eHealth officials, including Dr. Hudson and his former colleagues and associates.

Ms. Kramer left with $317,000 in severance, an amount that prompted the opposition to call for the resignation of Health Minister David Caplan.

Dr. Hudson, a neurosurgeon, was Mr. McGuinty’s choice to lead the team that was to modernize the province’s medical records system. He was appointed eHealth Ontario’s chairman in September, 2008, after impressing the premier by spearheading a strategy that reduced the province’s wait times for several medical procedures, including knee and hip replacements.

His goal was to create a digital record-keeping system by 2015.

“As to Dr. Hudson, I believe he has done the honourable thing. He’s made it clear that at this point in time, he cannot bring the kind of leadership necessary to eHealth that we need ... So, I thanked him for the work he has done and commend him for the step he has taken,” said Mr. McGuinty, who added he did not ask for Dr. Hudson’s resignation.

Rita Burke, who most recently served as chairwoman of the provincial utility Hydro One, and was a top bureaucrat in the government of former Ontario premier Mike Harris, is to replace Dr. Hudson, 71, effective Thursday.