Opening Statement to the Committee on Public Accounts

Chapter 26 - Contracting for Professional Services: Selected Sole-Source Contracts (December 1998 Report)

9 March 1999

L. Denis Desautels, FCA
Auditor General of Canada

Mr. Chairman, thank you for this opportunity to discuss the results of our audit of Contracting for Professional Services: Selected Sole-Source Contracts.

The government contracts for goods and services at the rate of about $9 billion per year. In April 1997, the Standing Committee on Government Operations tabled a report detailing a two-year study of the way the government contracts for goods and services. That report expressed concerns about the amount of sole sourcing and recommended that my Office audit sole source contracts. Also, in April 1997, in Chapter 6 of my Report, I presented the criteria and performance indicators for various aspects of the contracting process and also indicated a particular concern about the amount of sole sourcing.

The audit we are here to discuss today, reported in Chapter 26, was done to examine a current sample of sole-source contracts to determine the extent to which they complied (or did not comply) with the government’s own rules and regulations for contracting, with a particular emphasis on whether the decision to sole source was justified.

A word about our sample: early in the audit we determined that taking a statistical sample was simply not practical given both the resources at our disposal and the nature of the available contracting data. At the same time, we wished to draw a sample that was unbiased. Accordingly, we developed a selection process that ultimately yielded 26 cases of contracts let in 1996 and 1997. In our view, the resultant sample was unbiased, in that the cases selected were chosen because they fit the selection criteria, not because they were either a “good” or “bad” example.

Government Contracting Policy

Government contracting policy is governed by two principles: achieving the best combination of price and value; and open access to ensure that all qualified vendors have a fair chance to do business with the Crown without political or bureaucratic favour. These principles are reflected in the international agreements that Canada is a part of and in the Government Contracting Regulations that form the basis of government contracting policy.

In considering our audit results, it is important to realize that the rules themselves are not at issue. The House of Commons Standing Committee on Government Operations studied the situation for two years and recommended only one change in the rules – a reduction of the threshold for sole-sourcing from $30,000 to $25,000. The government made that change. Additionally, in our 1997 chapter on contracting, we examined the rules governing the contracting process and concluded that they were reasonable, a view with which the Treasury Board Secretariat in their response to that chapter concurred.

These rules, the Government Contracting Regulations, make it very clear that competition is expected to be the norm in contracting. They state that departments must solicit bids for all contracts except in four very specific circumstances:

• if there is a pressing emergency;
• if the contract is for less than $25,000;
• if it would not be in the public interest to solicit bids; and
• if only one firm or person is capable of performing the work.

Treasury Board’s contracting policy also states that if a department does use any of these four exceptions as the basis for awarding a sole-source contract, it must fully justify this course of action.

The policy provides the exemptions to the norm of competitive bidding necessary to permit managers to respond to operational exigencies. At the same time, it encourages the competitive process that provides all with the best guarantee that the principles of fairness and best value will be achieved.

Trends

Treasury Board data on contracting for the 1996 and 1997 calendar years appeared on the Internet in December 1998. These unaudited data indicate that since 1995, the level of sole-sourcing is decreasing. Still, according to the 1997 data, in that year professional services contracts for $25,000 and above worth approximately $1.3 billion were sole-sourced. This number is made up of $0.5 billion in contracts sole-sourced without an Advanced Contract Award Notice and $0.8 billion sole-sourced with one. It is important, however, to stress that the contracts in our sample were let during 1996 and 1997, the period covered by these more recent statistics.

Results

We audited a sample from five departments of 26 sole-source contracts for professional services let during 1996 and 1997. These contracts had a total initial value of $16 million. We observed practices that do not reflect open access to contracting opportunities with the federal government. More specifically, we found:

• many instances in which needs analyses, definitions of requirements, and procurement planning were inadequate combined with little evidence of contract management;
• that over two thirds of the contracts that were awarded on a sole-source basis should have been open to competition as they met none of the four regulatory exemptions;
• that management had not, in most cases, taken the steps necessary to get assurance that the price paid was reasonable; and
• in 17 of the 26 cases there was not sufficient evidence on file to provide assurance that the specified deliverables had been delivered on time, and were of appropriate quality.

Conclusion

We are distressed by these findings. As I have stated earlier, all parties — Parliament, the government and ourselves — seem to agree that the rules are themselves sound. However, based on our sample, it would appear that departments often disregard the rules that apply to sole-sourcing. Moreover, doing so seems to involve no significant consequences for either the managers responsible or for their departments.

We have concluded that the answer may lie not in making more rules, but rather in demanding more accountability from managers for the full range of considerations involved in public sector procurement. We have recommended that deputy heads ensure that their subordinates involved in contracting understand the dual objectives of government contracting – open access and best value – and that they and their subordinates are held accountable for adherence to them. We have also recommended that deputy heads take additional steps to ensure that sole-sourced contracts are fully justified.

Mr. Chairman, as a closing thought, the issue here is not ultimately about rules – they are merely a means to an end. This is really about values as reflected in the two principles of government contracting policy – openness of access to doing business with the Crown and getting best value for the Crown. It seems to me, that any official who went about contracting with a thoughtful determination to achieve the optimal balance of both of these principles would be unlikely to run seriously afoul of any of the rules.

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