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2003 November Report of the Auditor General of Canada

November 2003 Report—Chapter 4

Case Study 4.1—Contracts awarded without competitive bids

Contracts for Tourism Canada worth over $65 million awarded to BCP

In 1994, PWGSC conducted a selection process for Tourism Canada.

Vickers and Benson Co. Limited was informed that it had been selected to support Tourism Canada's advertising and communications requirements in the United States.
BCP and four other bidders were informed in writing that they had not been selected.
We found no documentation in the files to indicate that PWGSC subsequently held a competition and selected BCP.
Between 1 April 1995 and 31 March 2003, Tourism Canada and the Canadian Tourism Commission paid BCP $65.7 million for advertising projects.

In our opinion, advertising contracts were awarded to BCP on a sole-source basis. There is no assurance that the government obtained the best value for these expenditures. Other potential suppliers were never given the opportunity to compete for the $65.7 million in contracts.

Contracts for Justice Canada worth over $5.4 million awarded to Groupaction

As a member of a consortium that PWGSC had selected in 1993* for Justice Canada, Groupaction was the advertising agency for that Department.

In 1998, Justice officials informed CCSB that they were not satisfied with Groupaction's work and urged it to select a new agency through a competitive process. They asked again in March 1999.
CCSB began a competitive process in mid-1999 and advised Groupaction that until the process was completed, Justice would renew the long-term agreement with Groupaction on a month-to-month basis. However, the process was halted without explanation and Groupaction was retained until mid-2002. During that period (mid-1999 to mid-2002), contracts worth over $5.4 million were issued to Groupaction.

Contracts for Canada Custom and Revenue Agency worth over $1.3 million awarded to Groupaction

PWGSC initiated a competitive process in September 1994 to select a national advertising agency for the Canada Customs and Revenue Agency (CCRA). Seventeen agencies participated in the competition. In February 1995, PWGSC advised the 17 agencies that the competition had been cancelled, but gave no explanation.
Around the same time, PWGSC ran competitions for CCRA and selected advertising agencies for its Quebec, Ontario, Western, and Atlantic regions; it selected Groupaction in May 1995 as the agency in the Quebec region.
In 2001, PWGSC issued two contracts to Groupaction to develop two national advertising campaigns for the Canada Customs and Revenue Agency, although Groupaction had been selected as the agency only in the Quebec region.
No competitive process was conducted for the national advertising projects. Other potential suppliers were never given the opportunity to compete for contracts worth over $1.3 million.

Contract for the Canada Health Care campaign designed to direct work to a company not selected through a competition process

The Canada Health Care campaign was launched in September 2000 to inform Canadians about a recent federal-provincial agreement to increase funding for health care.

The Privy Council Office (PCO) was responsible for the content of the advertising campaign, but the Canada Information Office (CIO), at the time the Government of Canada's operational arm for corporate communications, was responsible for managing the campaign itself.

The PCO explained to us that it wanted a particular agency, The Gingko Group, to design and produce the campaign because the agency had produced a similar campaign for a provincial government and had been highly recommended.

However, Gingko had not been selected as an assigned agency for the CIO through a competitive process. Contracting rules allow for sole-sourcing in emergencies or when only one supplier is qualified. CCSB chose to create an arrangement that hid the true substance of the transaction. It issued a contract for $619,000 to Communication Coffin, which had been selected in 1997 for sponsorship and advertising activities. There was no evidence in the file to suggest that Coffin was to do any of the work. Coffin subcontracted all of the work to Gingko. The official who managed this file could not provide us with a rationale or documentation to explain why CCSB did not issue the contract to Gingko for the work.

The file shows that the Canada Information Office and the PCO dealt directly with Gingko as the main creative agency on the campaign and that Gingko did all the work (planning, strategy, creative, production, and so on). There is no sign that Coffin, the firm with the contract for this campaign, did any work on it.

Bids not obtained as required by the contract. In order for Coffin to subcontract work valued at more than $25,000, it was required to obtain three bids and to justify its choice of subcontractor to the CIO. There is no evidence in the file to indicate that this was done.

Unnecessary commission paid for subcontracted work. Gingko, the agency that was actually developing the campaign, subcontracted production work and submitted the bills to Coffin after adding the standard commission of 17.65 percent on the subcontracted work. Coffin billed the government for reimbursement of Gingko's invoice and added another 17.65 percent commission for itself.

In the end, Coffin received $78,400 in commissions for subcontracting work to Gingko, a cost that would have been avoided if CCSB had awarded the contract directly to Gingko, who did all the work.

Nothing in the file indicated that it had ever been the intention of the CIO or CCSB that Coffin do the work. In order to circumvent requirements for competitive bidding and ensure that Gingko would do the work, CCSB created a contract designed to hide the true substance of the transaction.