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2000 October Report of the Auditor General of Canada

October 2000 Report—Chapter 14

Case Study 14.2—Lack of Due Diligence in Selecting a Contractor for a $6.3 Million Contract

This project involved the installation of hydro poles and equipment in Mali, with a component for training of local staff. At the time this contract was tendered, CIDA used the two-stage process for holding competitions. The first stage was an invitation to prequalify, and CIDA identified seven firms that met its criteria. For this project, the Minister prequalified three firms to receive a CIDA request for proposal. The second stage was the actual submission of contract proposals by the prequalified bidders.

We found two serious problems in the selection of the winning company, both at the prequalification phase:

  • The first problem relates to the issue of Canadian ownership and effective control. Bidders invited to prequalify were advised that only those entities having their head office in Canada and having not less than 51 percent of all classes of shares beneficially owned and controlled by Canadian citizens or landed immigrants were eligible. When submitting its bid in September 1995, the company attested to meeting that condition and provided a letter from its auditors certifying to that effect.

However, after CIDA's Evaluation Review Board recommended the company as the winner on 26 June 1996, but before the contract was signed on 7 November 1997, one of the losing bidders complained to CIDA's Minister that the winner should have been declared ineligible. The complaint contended that the company was not Canadian-controlled at the time it submitted its bid for prequalification. To support its claim, the losing bidders' lawyers made reference to annual reports submitted to the Superintendent of Financial Institutions of Quebec that showed the company was owned and controlled by a French company at the time. These reports are publicly available, but CIDA staff told us they had not obtained them.

We obtained these reports. The report dated October 1995 (less than one month after the company's representation to CIDA that it was Canadian-owned and controlled) showed that there had been no change of ownership since the previous report. The previous report dated December 1994 showed a French company as the majority shareholder controlling the majority of votes.

CIDA files also referred to a Dun and Bradstreet report that was no longer on file. We then obtained directly from Dun and Bradstreet two reports, one dated September 1995, the other April 2000. The one dated 1995 showed a French parent company as the majority shareholder. The one dated April 2000 showed that the company had changed to Canadian control in 1997.

CIDA also had on file audited financial statements from the company as at 31 December 1995. These statements made reference to a loan from a parent company. While CIDA staff told us that they had relied on the letter from the company's auditors to support the decision to uphold its selection, they could not explain this apparently conflicting information. We requested that CIDA obtain an explanation of how the company selected could have been considered eligible in September 1995. Based on our examination of the documentation that CIDA subsequently received, in our opinion the company did not meet CIDA's conditions for beneficial ownership and effective control.

We believe that CIDA failed to show due diligence in following up the complaint. It ignored documentation it had on file that supported the complaint; it did not obtain explanations regarding the auditors' letter it relied on; and it did not seek out publicly available information that would have provided further evidence on the question.

  • The second problem relates to the evaluation grid. All bidders at the prequalifying stage were provided with CIDA's evaluation criteria as part of the tender call. One requirement was that the bidders obtain a minimum score for relevant experience. The company in question did not obtain the minimum score, and thus should not have been selected for prequalification. CIDA did not disqualify the company. Normally, if criteria for selection must be changed, the bidding process is started over so that all potential bidders are on an equal footing.

0014se02_Exhibit1

View of an electrical pole installed as part of a CIDA project to renovate and restore the electrical distribution system in Bamako, Mali.

0014se02_Exhibit0

A Malian woman using a CIDA-financed mill. Before, this operation was performed manually and required much more time and effort.