Dr. Alan Hudson, chair of beleaguered ehealth Ontario's board, has resigned from his position, leaving Ontario Premier Dalton McGuinty to issue new rules for hiring consultants.

Hudson move comes after former CEO Sarah Kramer resigned on June 8, accepting a $314,000 severance payment.

McGuinty told a news conference in Toronto that Hudson had done "the honourable thing."

Government has a responsibility to deliver services in a cost-effective way, the premier said.

"Most of the time, we get it right. Sometimes we don't. And when we don't, it's important that we acknowledge that and fix it so it doesn't happen again. And that's what we're doing here today," McGuinty said.

Both Hudson, Kramer and Health Minister David Caplan had come under fire for more than $5 million in untendered contracts issued by eHealth. Some have said the agency had been directly to make quick progress, and tendering could have slowed things down.

Some consultants billed $2,700 per day and also sought reimbursement for their snacks. One consultant, Donna Strating, reimbursed eHealth for $425 in such expenses that she thought the public might find questionable.

"The rules that we've had in place for government dealings with consultanting firms are outdated clearly inadequate. They don't go far enough to protect taxpayers. I take responsibility for this," McGuinty said.

"In our effort to improve health care services for Ontario families and to show progress for the money being invested in those services, we could have and should have done more to protect taxpayers' money," he said.

McGuinty said that the hiring of consultants will now have to go through tendered bidding. There will be no more sole-sourced contracts.

Consultants will no longer be able to bill for out-of-pocket hospitality, incidental and food expenses, he said.

The province's auditor-general will be reviewing spending at eHealth, as will be the consulting company PriceWaterhouseCoopers.

McGuinty said Caplan will be keeping his job. "I continue to have confidence in Mr. Caplan," he said, adding this controversy could have erupted at any agency. However, last week, he said Hudson's job was safe.

NDP Leader Andrea Horwath said after McGuinty spoke that she thinks Caplan still has to go.

In explaining Hudson's departure, McGuinty said, "It became obvious to us that there was a real problem associated with sole-sourcing consulting contracts."

Hudson made it clear that he can't bring the type of leadership needed by eHealth at this time, he said.

Under the old eHealth leadership, highly-paid consultants were hired to organize a holiday party for eHealth staff, according to a story reported by CTV Toronto.

"It makes absolutely no sense to me to hire consultants to plan a Christmas party," McGuinty said. "I have just one word for that -- unacceptable."

But a bigger question is "how do you legislate common sense," the premier said.