30.9 Contracting is an essential tool for federal departments and agencies in delivering programs. Central to government contracting are the principles of best value and open access to contracting opportunities. "Best value" is the best combination of value and price that the government can obtain in acquiring goods or services for the Crown. "Open access" is a fair chance for all qualified vendors to do business with the Crown without political or bureaucratic favour. An open, competitive bidding process provides the best guarantee that both of these principles will be respected.
30.10 The Government Contracts Regulations state that competition is the norm, and departments are to solicit bids before entering into a contract. However, it is not always possible, practical or cost-effective to seek bids for every proposed contract. The regulations therefore allow the contracting authority, in certain well-defined circumstances, to set aside the requirement to solicit bids and instead to sole-source a contract. Specifically, the regulations permit the competitive process to be bypassed when there is a pressing emergency, the contract is valued at less than $25,000, it is not in the public interest to solicit bids, or only one person or firm is capable of doing the work. (When CIDA is contracting in support of an international aid project, its dollar exception is raised to $100,000.) There is also a temporary exception related to contracts for printing services with the Canada Communications Group Inc. Provision for this expires in 2002 and none of the contracts in this chapter relate to it.
30.11 In 1999, following a public hearing on our 1998 audit report, the Public Accounts Committee issued A Report on Contracting for Professional Services: Selected Sole-Source Contracts. In its report, the Committee concurred with the former Standing Committee on Government Operations, our audit report, and the testimony of Treasury Board Secretariat officials that the existing rules governing sole-source contracting are sound but that stricter compliance by all government officials is needed.
30.12 The Public Accounts Committee made eight recommendations for improving the way sole-sourcing is managed. Among other things, it called on the Treasury Board Secretariat to monitor departmental contracting activities more closely. It also recommended that the Secretariat modify its rules to ensure that the use of Advance Contract Award Notices would enhance transparency and, where warranted, encourage challenge and thus increase competition.
30.13 In 1998, Public Works and Government Services Canada (PWGSC) completed an audit of its use of ACANs in awarding sole-source contracts that it issues on behalf of other departments. The audit's objectives were to determine compliance with the ACAN requirements of the Supply Policy Manual, and the extent to which, before posting an ACAN, PWGSC procurement officers validate the sole-source justifications provided by departments. The report concluded that:
30.16 The Department adopted this recommendation and in May 1992 posted the first ACAN on the electronic bulletin board known as the Open Bidding System. The Department (now Public Works and Government Services Canada - PWGSC) has been using ACANs since that date. They are currently published on the successor to the Open Bidding System, an Internet site called MERX.
30.17 The use of an ACAN to publicly advertise the intent to award a sole-source contract is meant to increase transparency by alerting potential suppliers to the upcoming sole-source procurement. This gives them an opportunity to challenge the award by demonstrating that they are capable of performing the work. If the department rejects the challenge, its decision cannot be appealed, unless the contract falls within the ambit of one of three trade agreements - the Agreement on Internal Trade, the North American Free Trade Agreement (NAFTA), or the World Trade Organization-Agreement on Government Procurement. In that case, the supplier can appeal the decision to the Canadian International Trade Tribunal.
30.18 The policy on using ACANs has been evolving for several years. To reinforce its policy, the Treasury Board Secretariat sent a Policy Notice on ACANs to departments and agencies in March 1999. Among other things, it reminded departments that every ACAN is to be posted for at least 15 days to allow potential suppliers to challenge it. Any valid challenge to the proposed contract award must not be ignored. Furthermore, the Secretariat directed that the ACAN not include any statement to the effect that it is not a competitive bid solicitation. Treasury Board officials explained that in their view, suppliers see such wording as prohibitive, and excluding it from ACANs will encourage challenges.
30.20 The Treasury Board Secretariat's Contracts Policy provides that if the ACAN is posted for 15 days and is not challenged, the contracting authority is allowed to award a larger contract on its own authority than if the ACAN had not been posted. This incentive may explain the significant growth in ACANs since 1995.
30.22 We examined a sample of 50 such contracts for amounts greater than $25,000. Each was advertised in an ACAN posted in the calendar year 1998. The sample was from four departments: National Defence (20 cases - 10 posted by the Department and 10 posted by PWGSC on its behalf), Human Resources Development Canada (10), Industry Canada (10) and the Canadian International Development Agency (10). Departments are permitted to let most service contracts directly, but may choose to request PWGSC to do so on their behalf. In those circumstances, PWGSC acts as the contract authority and is accountable for some aspects of the contracting process. This was the case for 17 of the contracts in our sample.
30.23 The sample was selected at random from a total of 522 professional service contracts over $25,000 for which an ACAN was posted by one of the five departments in 1998. The 522 ACANs represent about 25 percent of the total number of ACANs posted by all federal departments. The sample represents nearly 10 percent of the population from which it is drawn, and generalization from it is fully warranted. (See case study)
30.24 We focussed only on the actions of government officials as they entered into and administered these contracts. We did not audit the contractors, and we make no comment on their actions.
30.25 Further details on the audit and on where to find related information referred to in the text can be found at the end of the chapter in About the Audit.
30.28 We found that the need for about one quarter of the contracts was neither adequately justified nor linked to program objectives. Failure to include these steps increases the risk that "wants" will not be adequately distinguished from genuine program "needs" and that available financial resources will not be used with due regard to economy.
30.29 In 95 percent of the cases, the screening practices we noted did not include an analysis of alternatives that was adequate to support the decision to contract. We were informed during interviews with departmental managers that their senior management discourages the hiring of new staff; and even when they are permitted to hire, the process is seen as complex, slow and in need of streamlining. Consequently, to meet their program requirements they view contracting as the only feasible alternative "to get the job done". The absence of a "make or buy" analysis, indicating the relative advantages of both options, increases the risk that managers with the appropriate authority to approve and spend public funds will decide to do so without the benefit of an informed business rationale.
30.30 Our audit also found that in 46 percent of the cases the statement of work and statement of requirements were unclear about expected performance, level of effort, the services to be delivered and the costs. When expectations are unclear, the achievement of "best value" is at risk. Furthermore, when contracting is used to fill gaps in staffing, unclear service expectations can increase the risk that an employer/employee relationship will develop. When this happens, there is a risk to the Crown - allegations of an employer-employee relationship could leave a department open to penalties for unpaid Employment Insurance premiums, Canada Pension Plan contributions and income tax deductions. It could also be subject to claims for benefits, including pensions, and to payments of notice or pay in lieu of notice if the contract were to be cancelled. The Treasury Board Secretariat's policy clearly cautions departments about the need to avoid establishing such a relationship. Finally, a statement of work that is unclear increases the risk that the department may not receive the service it expected and may become involved in disputes with the contractor.
30.31 The Treasury Board Secretariat's Contracting Policy encourages departments to establish a mechanism for formal internal review of all proposed contracts. It recommends a review of all aspects of a proposed contract, including the definition of needs and the justification for sole-sourcing. It also recommends that the results of these reviews be provided regularly to deputy heads so they can determine whether their delegated signing powers are being administered properly. Only one of the four departments in our sample had a formal contract review function, and it had a relatively limited mandate that did not include examining sole-source contracts. Consequently, management has lost, along with the benefits of challenge review, the opportunity to confirm the need for the contract, compliance with the government's policy, and the legitimacy of the proposed procurement process.
30.33 The Contracting Policy requires that use of an exception be fully justified on the contract file. If the contract qualifies for an exception, the contracting authority is encouraged, whenever possible, to advertise the intent to sole-source through an Advance Contract Award Notice and to justify it in the ACAN.
30.34 The policy places the onus on a manager who believes that an exception applies to a contract to show clearly why it is warranted. The manager is expected to provide written evidence in the contract file to justify the exception. We expected that the contract files in our sample would clearly identify which exception had been invoked to justify sole-sourcing, and would contain written evidence of management's due diligence in verifying that the exception was warranted.
30.35 Only 11 percent of the 50 contracts we examined had a justification for sole-sourcing on file that complied with the conditions stipulated in the Government Contracts Regulations (see Exhibit 30.3). Specifically, none of the contracts in our sample were for under $25,000. None invoked the exceptions for pressing emergency or national interest. The critical decision used to justify sole-sourcing most of these contracts was the determination that the contractor was "unique" - that is, the only person or firm capable of performing the work. Managers are supposed to make this determination, justify it and document it before deciding to sole-source and before posting an ACAN. However, in 89 percent of the 50 cases we examined, the uniqueness of the contractor was either not determined at all (that is, management was fully aware that the firm selected was not unique) or was unsupported in fact.
30.36 Program managers often consider the knowledge and experience gained by a contractor in the course of previous work for them as sufficient to justify a determination that the contractor is unique (see Exhibit 30.4). This is not consistent with current Treasury Board Secretariat guidance and represents an abuse of the program manager's delegated contracting authority. Recent decisions on contracting by the Canadian International Trade Tribunal (CITT) recognize prior experience as one legitimate factor in assessing the qualifications of a potential supplier. However, the CITT decisions also emphasize that the advantage of incumbency ought not to be used as a reason to avoid competition and that the government must be careful not to overstate the value of incumbency in setting up competitions for contracts. We observed a number of instances in which an incumbency advantage, often gained as the result of earlier, unjustified sole-source contracts, had become the sole basis to justify uniqueness (and further contracts).
30.37 In departments there is usually a division of duties between the "contracting authority" - the specialist group in the department responsible for actually drafting the contract and looking after the legal aspects of the contracting process - and the "technical authority" - the line manager to whom the contractor will actually provide the services. A department that contracts through PWGSC is the technical authority and PWGSC is the contracting authority. Our audit found that, irrespective of location, the role of the contracting authority is too often primarily transactional. In only 25 percent of the cases did we see evidence that the contracting authority had effectively challenged either the substance of the sole-source justifications advanced by the managers or the fact that they did not comply with the regulations. In general, the contracting authorities had restricted this aspect of their role to ensuring that some statement of justification was on the file.
30.38 The result is that the departments far too often bypassed the competitive process improperly and used sole-sourcing, as Exhibit 30.3 also shows. Program managers frequently told us that they chose sole-sourcing over the competitive process because it was a less complex and quicker way to contract. This has an adverse effect on the integrity of the contracting process.
30.39 Accordingly, many more contracts than could be justified were awarded without competition - a situation that does not reflect the principle of open access to contracting opportunities with the federal government. The awarding of these contracts would not withstand public scrutiny. This situation also imposes significant opportunity costs on the contractor community at large, which is all too often unfairly denied access to potential business that it has a right to compete for.
30.41 One such step is management's preparation of a detailed statement of the work to be done or the results expected and how they will be assessed, along with its estimate of the nature, extent and cost of the work. These form the basis for requesting a proposal from the selected supplier and for assessing its reasonableness.
30.42 It is also important that management ascertain the "prevailing rate" for the services of similarly qualified individuals or firms and use this information in negotiating the rate for the contract. The Treasury Board Secretariat recommends that in sole-source situations, management examine the selected supplier's costs and consider requiring the supplier to certify that it is giving the Crown its best rate. In our view, cost certification should be a routine part of all sole-source contracts. Finally, before work begins, each contract is to clearly set out what is to be done, by when, and at what cost.
30.43 In general, we found in our sample of contracts that the justification for the requirement was often weak, the statement of work was generally vague and uncosted, and the proposal was not assessed against an independently drafted statement of requirements. Like other sole-source contracts for professional services that we reviewed last year, these contracts were not well managed.
30.44 In 46 percent of the cases, the department had not prepared a fully developed statement of work that included management's estimates of the time and costs involved to do the work. Often we found that the only detailed statement of work, assessment of time and costs, and definition of deliverables had been prepared by the selected contractor in response to the department's very summary statement of requirements. Moreover, in 31 percent of the cases we found that the statement of work in the actual contract differed significantly from the statement of requirements made available to other potential suppliers through the ACAN process.
30.45 We found evidence in only 23 percent of the cases that the amount of work proposed by the contractor had been examined critically. Price support or evidence that fees had been negotiated on the basis of known prevailing rates was provided for 35 percent of the contracts. In 39 percent of the 50 cases, management had obtained the supplier's certification that it was offering its best price. In those cases, at least, some assurance was provided on price - if not on value. Exhibit 30.5 shows our criteria for setting up the contract to provide for the best price and value.
30.46 The departments were not able to provide any other evidence that the government was receiving good value from these contracts. Managers generally asserted that they had undertaken price negotiations, but they were unable to provide us with documented evidence of this. A more disciplined and well-structured approach to negotiations is needed to demonstrate due diligence and to obtain best value.
30.48 We examined the contract files for evidence that the contractor had carried out the work in accordance with the contract specifications, on time, and at the agreed cost. Our audit criteria were based on the Government Contracts Regulations and the Treasury Board Secretariat's Contracting Policy.
30.49 We found that the deliverables - the services the contractor was to provide - were generally described in intangible terms (such as "advice" and "professional services"). Most contracts did not specify clearly what service was required and over what time period. In the absence of a clear basis for holding the supplier accountable, the program manager's ability to effectively manage and administer the contract was compromised from the outset. The potential for achieving best value through sound contract administration practices was placed at risk.
30.50 In just over 50 percent of the cases were departments able to provide us with copies of suppliers' invoices and sign-offs certifying that the services had been delivered in accordance with the contract conditions and in accordance with section 34 of the Financial Administration Act (see Exhibit 30.6). Other documentation in the files was limited.
30.51 The Treasury Board Secretariat's Contracting Policy requires departments to document evidence that the deliverables specified in the contract have been provided in full, on time and at the agreed cost. As Exhibit 30.6 also shows, departments could not provide us with that evidence for 56 percent of our sample. Consequently, management is unable to provide assurance that services in those cases were rendered according to all the terms of the contracts and that funds were disbursed for the purposes that had been authorized.
30.53 We found evidence that half the contracts in our sample either continued similar work begun under a previous contract or led to a subsequent contract for similar work.
30.54 Over a third of the contracts in our sample had amendments; only four of these were properly justified and approved. However, it was often difficult to distinguish between the amendment and the original contract's statement of work and definition of scope, which were ambiguous. The files contained very limited evidence that management had reviewed or challenged either the amount of work provided for in an amendment or the negotiation of the price. The absence of such evidence provides little assurance that appropriate efforts were made to obtain best value for the Crown.
30.55 In a quarter of the cases with amendments, we found no indication on file of an increase in the work to be done in return for the increased amount to be paid. Such contract amendments are not in the best interest of the Crown. Poor planning of procurement, inadequate needs analysis and poor definition of requirements contribute to the often complex and expensive process of changing the original contract. Furthermore, extending or substantially amending contracts instead of soliciting new bids compromises both public scrutiny of the spending of public funds and open and fair access to contracting opportunities for other suppliers.
30.57 Used properly, ACANs are a useful addition to the government's contracting processes. In particular, they add transparency to the practice of sole-sourcing and, as a consequence, provide the opportunity for challenge by other potential suppliers. Before the use of ACANs was introduced, a sole-source contract remained essentially a private transaction between the chosen supplier and the department until well after the contract was let. The only way an interested party could find out about, let alone object to, such a contact before it was let was "through the grapevine."
30.58 We examined our sample of contracts for their compliance with the Contracting Policy requirements on the use of ACANs. These are outlined in Exhibit 30.7.
30.60 In our interviews with managers it became clear that that they believed the use of an ACAN significantly lowered the threshold for defining "uniqueness". Their logic was, in essence, that an ACAN is posted publicly and allows for any other qualified potential supplier to challenge the proposed procurement. If there is no challenge, they reasoned, then there is nobody else who can do the work and the designated supplier is "unique" by default. This widely shared belief is, in our view, establishing ACANs as an informal "fifth exception" for sole-sourcing. The use of this rationale is contrary to both the spirit and the intent of the regulations.
30.65 This would lead us to expect that ACANs would be challenged relatively often. However, we found that challenges to ACANs are rare (see Exhibit 30.8). Of 522 ACANs for professional services posted by the four departments in 1998, only 35 were formally challenged in writing; 16 of those challenges were subsequently withdrawn by the challenger and the departments dismissed another 10 as invalid. Only 4 challenges were accepted - that is, the department considered whether the original ACAN should be cancelled - and they resulted in the initiation of a competitive procurement.
30.68 There is no consistency in the way challenges are managed, even within a department. Procedures and practices vary with the contract officer and the program manager - in particular, with respect to the burden of proof they require from the challenger. We found no generally accepted criteria that define what constitutes a valid challenge. We also found ambiguity in the respective roles, responsibilities and accountabilities of the contracting officer and the program manager for deciding whether a challenge is valid or not.
30.69 The audit found that the level of effort required of a challenger to demonstrate proof of his or her capability to meet the contract's requirements is much higher than is required of the supplier named in the ACAN. An examination of decisions by the Canadian International Trade Tribunal suggests that it considers the challenger's burden of proof to be lower: the existence of a challenge with at least prima facie validity should be sufficient reason to put the matter to the test of the marketplace. In the cases we examined, it appears that the departments required the challenger to meet a standard of proof "beyond a reasonable doubt" before they would accept the validity of the challenge and open the contract to competition.
30.70 We found also that the challenge process lacks independence. A challenge is submitted to, and reviewed by, the same managers who presumably have already determined that the selected supplier is unique. Further, there is no mechanism for recourse to an independent third party if a challenger remains unsatisfied with a department's response to the challenge. An exception is when the contract is subject to one of the national or international trade agreements. In that case, after the initial departmental review, any dispute can then be appealed to the CITT (see Exhibit 30.9).
30.71 As already noted, while most ACANs could be challenged it is relatively rare that they are. A challenge represents an investment by the challenger of not only resources but also, potentially, good will. Very short time frames to formulate a challenge (15 days at most and typically less); an already chosen supplier who may have had months and the assistance of departmental officials to develop its proposal; a statement of requirements that may be vague and incomplete; a decision on the challenge's validity made by the very people who originally elected to sole-source, judged against unknown criteria to meet an unspecified standard of proof - taken together, these constitute good reasons for a potential challenger to decide that the investment does not hold a reasonable prospect of return.
30.72 In the end, what do ACANs as they are currently used add to the procurement process? It can be fairly concluded that they add transparency to the sole-sourcing of contracts, an area that before was relatively opaque. This transparency has led to some challenges by potential suppliers. It is not by accident that all of the sole-sourcing cases heard by the CITT since 1994 had been advertised in an ACAN. At least some of the proposed contracts in our sample were challenged. However, based on our audit findings we conclude that ACANs have contributed very little to competitiveness. Indeed, the fact that many in departments view them as having lessened the stringency of the uniqueness exception suggests that, on balance, their impact may have been a negative one.
30.75 In ethical terms, if there were no contracting regulations, a decision to sole-source a contract would require the balancing of different values. On the one hand is the efficiency and often personal convenience that sole-sourcing affords the manager; a qualified supplier is at hand and can begin work quickly, whereas opening the requirement to competition will be time-consuming, add cost, and may well yield the same result. On the other hand is the right of all suppliers to compete fairly for the Crown's business, and the expectation of taxpayers that they will receive the economic benefits of the competitive market. Fortunately, in this instance, individual managers do not have to determine where that balance of values lies; it has been determined for them by the government and is reflected in the contracting regulations. In those regulations, the government has, with narrowly drawn exceptions, established the balance firmly in favour of the rights of suppliers to compete fairly for business. Expanding on the exceptions, or ignoring them, represents an unwarranted decision by individual officials to alter the value balance that the government has established to guide the conduct of its affairs.
30.76 Our 1995 Report included a chapter on a study of ethics and fraud awareness in government. In the study, we asked public servants and senior managers if they believed it would be appropriate to issue a sole-source contract for $50,000 when instructed to do so by a superior if they knew that more than one supplier could provide the goods or services. Seventy-one percent of senior managers and 78 percent of public servants believed that it would be inappropriate.
30.77 Part of ensuring that contracting remains an "ethical" process is ensuring that staff at all levels follow the government's contracting rules and regulations. It is important to document the rationale for any contracting decision; documentation is particularly important when a sole-source contract is contemplated. A written record of decisions leading to the awarding of a contract is key to demonstrating that there is a need to contract, that requirements have been thought out carefully, and that the "right" contractor has been chosen. Later, it is important to document whether the contractor has delivered a good product on time and at reasonable cost. All of this information is needed so that managers can be held accountable for the contracting decisions they make.
30.78 The evidence we obtained in this audit suggests that in many instances, contracts were sole-sourced with full knowledge that the chosen supplier was not unique and that no other exception applied. In some cases, incomplete, incorrect and misleading information was provided in the ACAN. We are concerned that such practices deprive other potential suppliers of the rightful opportunity to bid. Further, the continuing practice of trying to justify the uniqueness of that which is clearly not unique can only have a morally corrosive effect on the working ethics of all of those involved in it.
30.80 The decision to sole-source was, in our opinion, in accordance with the regulations in only 11 percent of the cases examined. In last year's audit we found that nearly a third of the sole-sourcing decisions were justified. Some of this difference may be explained by the fact that all of this year's contracts were advertised using ACANs, combined with the view generally held by the managers we interviewed that posting an ACAN reduces the onus on them to first fully establish the uniqueness of their chosen supplier. This leads to a conclusion that for most of the public servants associated with these contracts, the ACAN has become an unofficial "fifth exception" to the requirement that contracts be competitively tendered.
30.81 While there is no doubt that ACANs do increase the transparency of sole-source contracting, they do little to increase competitiveness. In addition to the problems associated with the uniqueness exception are the problems related to the completeness and accuracy of the ACANs, the absence of a clearly stated and widely shared standard of proof required for challenges, and the lack of guidance on standards of due process for challengers. These need to be addressed before ACANs begin to play a role beyond adding transparency.
30.83 Based on our work this year and last, it is clear that the problems we have observed are government-wide in nature. While we recognize the Treasury Board Secretariat's limitations in dealing with matters of departmental management, we believe that as the entity responsible for contracting policy its strategic leadership is needed in responding, with departments and agencies, to the problems associated with sole-sourcing and ACANs. Accordingly, we are directing our recommendations to the Treasury Board Secretariat and through it to the departments and agencies of the government as a whole, rather than to any specific entity or entities.
30.84 Last year we concluded that the rules governing contracting were fundamentally sound; the key was to ensure that they were understood and followed. This led to two recommendations; we repeat the essence of those recommendations here.
30.85 The Treasury Board Secretariat should encourage deputy heads to ensure that those to whom contracting responsibilities are delegated fully understand the dual objectives of government contracting policy (open access and best value) and are held accountable for adherence to them.
30.86 The Treasury Board Secretariat should encourage deputy heads to ensure that when contracts are sole-sourced, the circumstances are fully consistent with the provisions of the Government Contracts Regulations and, if applicable, the relevant trade agreements.
Treasury Board Secretariat's response: The Treasury Board's procurement policies, which apply to all departments and agencies, are based on the strong values and principles of competition, openness, equal access, transparency, fairness and best value for Canadians. Treasury Board's role is to establish these policies. Departments are accountable to their ministers and to parliamentarians for implementing these policies. To assure sound implementation, the Treasury Board has committed to developing a program of training and certification for procurement specialists in departments.
30.87 In order for senior management to be accountable for contracting practices, it must be aware of what is happening. We observed that the decisions on sole-sourcing are often made by relatively junior officers and are not subject to review. In particular, we believe that a decision to sole-source on the basis of the supplier's uniqueness needs to be subject to independent review and approval by a senior member of departmental management before an ACAN is posted. We have been informed that National Defence is in the process of forming a senior-level committee whose mandate will include advance reviews when it is deemed necessary. Further, to support departmental senior management in its collective accountability for good contracting practices, we believe that in departments with a high volume of sole-sourcing (annually more than 50 sole-source contracts for amounts over $25,000), an internal audit of a sample of sole-source contracts needs to be conducted each year to verify compliance with government regulations and departmental policy, and the results reported to the deputy head.
30.88 The Treasury Board Secretariat should amend its policy on contracting to require that when a decision to sole-source is based on a determination that the selected supplier is unique, the decision must be reviewed and approved by an independent senior departmental manager.
Treasury Board Secretariat's response: The Treasury Board Contracting Policy already encourages departments and agencies to establish contract review mechanisms to review all, including sole-source, contract proposals. We do not agree that a policy requirement is necessary.
30.89 The Treasury Board Secretariat should encourage deputy heads in departments that let more than 50 sole-source contracts each year for amounts over $25,000 to require that an annual internal audit of a sample of sole-source contracts be conducted to assess compliance with government regulations and departmental policy. The results of the audits should be reported to the deputy heads.
Treasury Board Secretariat's response: The Treasury Board Secretariat is committed to implementing a monitoring framework for evaluating contracting activities. Such a framework will rely primarily on the results of departmental internal audits. The Treasury Board Secretariat is committed to consulting with the Auditor General on the best methodology for conducting these internal audits, and will communicate the methodology to departmental internal audit groups. We submit, however, that large-scale auditing of a sample of sole-source contracts by departments that award more than 50 contracts each year for amounts over $25,000 is simply not a cost-effective use of scarce resources for oversight activities.
30.90 In looking at the instances in which an ACAN has been challenged, we have been struck by the lack of guidance to departments on how this process is to be conducted.
30.91 The Treasury Board Secretariat should develop and publish policy guidance on the management of the challenge process for Advance Contract Award Notices. This guidance should address the issue of the due process rights of challengers and the standard of proof required to sustain the validity of a challenge.
Treasury Board Secretariat's response: As a follow-up to the guidance on Advance Contract Award Notices issued in March 1999, the Treasury Board has committed to providing further guidance on the implementation of the Advance Contract Award Notice Policy.
30.92 When a contract for goods or services falls within the ambit of one or more of the trade agreements, an unsatisfied supplier can appeal to the Canadian International Trade Tribunal (CITT) for independent review and resolution of the matter. However, the trade agreements apply only to relatively large contracts for services (over $72,600 for NAFTA, over $100,000 for AIT and over $254,100 for WTO; different threshold values apply to contracts involving goods), and an appeal to the CITT sometimes involves retaining legal counsel and incurring the related expense. For all other contracts, the potential supplier's only recourse is to appeal back to the very department whose actions are the object of the appeal. The availability of an independent and efficient dispute resolution mechanism for appeals in the case of these other contracts could do much to enhance the fairness and transparency of the contracting process in general and sole-sourcing in particular.
30.93 The government should consider establishing an independent dispute resolution mechanism to deal with disputes related to contracts that fall outside the ambit of the trade agreements related to procurement.
Treasury Board Secretariat's response: The government has in place the Canadian International Trade Tribunal, which handles bid disputes in contracts subject to three trade agreements, covering the key areas of federal government procurement. In addition, contractors who may have reservations about a contract situation now have recourse to departmental officials to resolve disputes. The Treasury Board Contracting Policy also encourages mediation, negotiation, and arbitration for dispute settlement. Finally, all contractors have the option of using the courts for redress. It is for these reasons that we do not feel an additional dispute mechanism is required.
National Defence's comment: In the calendar year to date, 18 percent of sole source ACAN requests in the Department of National Defence have been denied by the departmental contracting authority. Moreover, the percentage of contracts over $25,000 involving ACANs has declined from 34 percent to 19 percent over the last three years.
The Department acknowledges the need for continuing improvements in the use of ACANs and has taken steps to increase vigilance over their use. For example, the Department is creating a Contracting Advisory Committee of senior managers to review selected sole-source justifications, analyze trends and advise concerned managers on the need for changes to procedures and delegation levels.
| The following case is one that came to our attention during the course of other audit work done by the Office. It was not one of the sample of cases audited for this chapter. However, many of our concerns about this case echo concerns raised in the chapter and, accordingly, we decided to publish it as part of this chapter rather than in the Other Audit Observations chapter of the Report. |
30.94 In March 1996, a foreign government requested training assistance for its police supervisors. The RCMP decided it would hire a contractor to develop a course curriculum and train RCMP instructors, who would then train the foreign country's local police instructors. The contractor also would monitor the RCMP's training of the local instructors.
30.95 In June 1996, the RCMP initiated discussions with a single supplier to provide these services. The next month, it requested that PWGSC award a sole-source contract to this supplier. The RCMP's justification for sole-sourcing was that the work was urgent and confidential and that the firm had unique knowledge or experience. Normally, if the "pressing emergency" exception is invoked, the contract is let immediately to reflect the urgency of the requirement. However, more than four months elapsed between the foreign government's request for the assistance and the RCMP's request that PWGSC initiate the contracting process.
30.96 The RCMP had provided its selected supplier, the prime contractor, with information about the contract requirements one month before initiating the contracting process with PWGSC. It had met with the supplier to discuss the training program before the contracting process began and had informed him that no other suppliers were being considered for the job. Based on that information, and with documentation that the RCMP provided on the new training model to be used, the supplier began working on the project two months before PWGSC awarded the contract. Further, the supplier travelled to the foreign country to prepare and begin the training program before the contract was awarded.
30.97 In late August 1996, PWGSC awarded the contract on a sole-source basis because "the nature of the work was such that it would not be in the public interest to solicit bids." PWGSC told us this reflected RCMP representations that a public tender of the contract could embarrass both the Canadian and the foreign governments. Furthermore, PWGSC did not post an ACAN because the RCMP indicated that the contract involved work that was confidential, and the requirement to post an ACAN can be waived in such circumstances.
30.98 The RCMP's justification that it would not be in the public interest to solicit bids is not supported. Our examination of public records, including media articles and Hansard transcripts of proceedings in the House of Commons, showed that the state of the foreign police force and the RCMP's involvement in the training were already matters of public knowledge six months before the RCMP initiated the contracting process. Our review of the contract files revealed that PWGSC concluded there was "no security requirement that applies to this procurement since it does not involve the release of sensitive Canadian information, nor any access to a restricted Canadian site." In July 1996, the RCMP had signed a security requirement checklist confirming this. It could not provide us with a satisfactory explanation of the contradiction between these statements and its representation to PWGSC that the work to be done was confidential.
30.99 The value of the 1996 contract award, approximately $362,000, was significantly over the limit of $25,000 for non-competitive contracts, as prescribed in the Government Contracts Regulations. The contractor was paid $186,000 for six months work, with the remainder paid to his employees and spent on other related expenses.
30.100 The Government Contracts Regulations state that an exception to competitive bidding should not be invoked "simply because a proposed contractor is the only one known to management." The RCMP informed PWGSC that the supplier was the only firm known to have the necessary knowledge and experience. The RCMP did not try to identify other potential firms. An RCMP administrative review indicated that the supplier had been told that no other companies were being considered. The supplier was a former RCMP member and a former co-worker of the RCMP officials involved in initiating this contract.
30.101 In February 1997, senior RCMP officials were requested to approve a second contract with the same supplier in the amount of $22,500, with contracts of similar size to follow. RCMP documents indicate that the contractor had been told he would be awarded these contracts. Following an external complaint, this request was turned down; RCMP officials concluded that the "awarding of the second contract could have violated Treasury Board guidelines regarding contract splitting." In May 1997, PWGSC solicited bids from firms for the new contract. The supplier who had been awarded the first contract on a sole-source basis was in an advantageous position and subsequently was awarded the second contract valued at $315,159.
30.102 The conclusions drawn by previous internal departmental reviews of this contract differ from ours. A PWGSC review that considered only its role in the process concluded, "It is evident that the contracting officer made reasonable efforts to validate the sole-source rationale, and that proper procurement procedures were followed in this regard." The RCMP's administrative review concluded that "proper administrative procedures were generally followed during the awarding of the first contract." We are concerned that neither review detected any significant weaknesses in the contracting practices involved in this contract.
The audit did not assess either the performance or the qualifications of the suppliers. No comments in the report should be construed as criticism of any supplier.
The Treasury Board Secretariat, Contracting Policy, http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/Contracting/contractingpol_e.html
Public Works and Government Services Canada, The Supply Manual, http://www.pwgsc.gc.ca/sos/text/sm/en/
Bryan DePape
Paul Morse
Sami Sourani
Shahid Maqsood
Rosemary Marenger
For information, please contact Hugh McRoberts.