Opening Statement to the Standing Committee on Public Accounts

Health Canada and Public Works and Government Services Canada
(Chapter 8 - April 2002 Report of the Auditor General)

Mr. Chairman, thank you for this opportunity to discuss our audit observation on Health Canada and Public Works and Government Services Canada (PWGSC), included in Chapter 8 of our April Report. With me today is Ronnie Campbell, the Audit Principal responsible for this audit.

This audit observation focussed on both the action of Health Canada, the department acquiring the services, and PWGSC, the department that is accountable for the integrity of the procurement process.

Mr. Chairman, Health Canada and PWGSC did not follow government contracting rules and regulations when they spent $25 million on the Canadian Health Network. Although a Web site was developed, there was no assurance that best value was received from this expenditure.

Health Canada made commitments and entered into contracts to create a health information Web site without appropriately defining what it needed from the contractors or evaluating options for how best to achieve those things.

In awarding these contracts, PWGSC, the contracting authority, failed to follow a number of government contracting rules and regulations. The rules were broken in the use of ACANs. These are electronic notices to potential suppliers of goods and services advising them that the government intends to award a contract to a particular person or company. Mr. Chairman, none of the contracts awarded using ACANs met any of the four exceptions stated in the Government Contracts Regulations or the Treasury Board Secretariat's Contracting Policy.

In addition, the ACANs stated that the requirement was for "research and development – medical." This was not the case. Misclassifying the requirement could have served to discourage suppliers who otherwise might have challenged the ACANs.

One of the ACANs was posted on March 10^th 1998 and had a closing date of March 20^th 1998. This was for the development, installation, and testing of a pilot telecommunications system—a multimedia call centre with Web integration. Mr. Chairman, all work in relation to this $300,000 contract was to be completed by March 31^st, 1998—the same day that the contract was signed.

PWGSC officials questioned how it was possible to complete this requirement in one day. Yet PWGSC went ahead and issued the contract without having received a satisfactory response.

Furthermore, Health Canada transferred its responsibility for managing the initiative to the contractor without ensuring appropriate oversight. Program administration and contracting issues that arose could have been avoided if PWGSC had adhered to sound contracting practices.

Both Health Canada and PWGSC have written to my Office, agreeing with the facts contained in the audit observation. In addition, Health Canada provided us with an action plan through which it intends to strengthen contract management throughout the Department. We have shared our views on the action plan with Health Canada officials, and they have assured us that the final plan will address all of our concerns.

Mr. Chairman, your Committee may wish to monitor the implementation of that plan as well as the internal audit that Health Canada has promised to complete on the effectiveness of the plan's implementation.

Previous audits conducted by my Office have raised questions on the role of PWGSC in the contracting process. In my 2001 Report, we reported that in general, government managers believe that accountability for contracts issued by PWGSC is unclear and, accordingly, management oversight of those contracts is weak.

The 2001 Report also noted that both PWGSC and the originating department often work on the assumption that the other is exercising the appropriate oversight.

In addition, our 1999 Report noted that in only 25 percent of the cases that we had looked at, did we see evidence that the contracting authority had effectively challenged decisions made by managers in cases involving either sole-source justification or lack of compliance with the regulations.

Mr. Chairman, PWGSC's own Supply Manual is quite clear in relation to accountability for government procurement. It says that PWGSC is accountable for the integrity of the complete procurement process including all actions taken within the process; this also applies to actions originating from the client that are not in compliance with the Treasury Board or PWGSC policies, or applicable legislation.

This is one of PWGSC's guiding principles. This audit observation, and previous audits conducted by my Office suggest that full implementation of the principle has yet to be achieved. Your Committee may wish to explore with PWGSC how it views its role in the contracting process.

Mr. Chairman, that concludes my opening statement, and we would be pleased to answer your Committee's questions.

Canadian Health Network
Listing of Contractors
(a number of contractors received multiple contracts)

8.9 PWGSC, as the contracting authority, awarded the first contract we reviewed in January 1998. It continued to contract with suppliers through a series of 44 contracts and 25 amendments until November 2000.

Canadian Health Network
Listing of Affiliates

8.22 Most of the $17.8 million that Health Canada paid to the contractors was for subcontracts given to affiliates and regional operational centers.

GOVERNMENT CONTRACTING POLICY

It should be noted that PWGSC was the contracting authority for all the contracts discussed in the Chapter. For most contracts, (with a value of less than $2M), Health Canada could have acted as the contracting authority.

Source: PWGSC Supply Manual, Chapter 6 Annex 6.1.2