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1998 December Report of the Auditor General of Canada

Main Points

26.1 To ensure that the principles of best value and open access are followed in contracting for goods and services, the government's contracting regulations require that contracts valued at more than $25,000 be let, except in very limited circumstances, through a competitive, open tendering process. Recent work by our Office as well as a report by the Standing Committee on Government Operations show that departments use sole-source contracts extensively. This is a matter of considerable concern because sole-sourcing works against the principle of open access and puts the achievement of best value at risk. The total value of sole-source service contracts awarded in 1995 was about $1.4 billion.

26.2 We audited a sample from five departments of 26 sole-source contracts for professional services. We selected this type of contract because previous work had led us to believe that it was a high-risk area. Most of the contracts in our sample would not, in our view, stand the test of public scrutiny. Nor do they reflect open access to contracting opportunities with the federal government. The total initial value of these contracts was $16 million.

26.3 In our sample of contracts we found many instances in which needs analyses, definition of requirements and procurement planning had been inadequate. Departments often underestimate the nature and scope of the work required, and do not always clearly specify what contractors are to deliver. We could find little evidence of contract management: it often appears that the contractors determine what is required, how much effort it will take and at what point the job will be considered completed.

26.4 The justifications for over two thirds of the sole-source contracts we audited did not conform to the exceptions allowed by the Government Contracts Regulations and as defined in the Treasury Board Secretariat's Contracting Policy. This practice results in too many "one-horse races".

26.5 Departments issue many oral contracts that remain unsigned for long periods of time. Treasury Board states that the terms and conditions of any contract issued should be in writing and should be signed as soon as possible after the contract is awarded.

26.6 In several cases departments were not able to demonstrate that their managers had, as required by the Treasury Board Secretariat's Contracting Policy, documented and assessed the extent to which contractors had fulfilled the contract terms. In the absence of appropriate certification and documentation of what the contractors delivered, neither we nor management can be assured that due regard to economy was shown in the letting of those contracts.

26.7 In most of the contracts we examined, government regulations were not followed. Clearly, we are concerned about this. In 1997, we examined the contracting process and concluded that the current regime that governs contracting was itself sound. Similarly, the Standing Committee on Government Operations examined the contracting process and concluded that the rules were sound. The problem we found is that departments disregard the rules that apply to sole-sourcing. Moreover, disregarding them appears to involve no significant consequences for either the managers responsible or their departments. (This was the first in a series of contracting compliance audits planned by the Office.)

Introduction

26.8 Two complementary principles are central to government contracting: best value and open access to contracting opportunities. The principle of best value is to ensure that in acquiring goods or services for the Crown, the government receives the best combination of value and price. The principle of open access gives all qualified vendors a fair chance 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.

26.9 In certain limited circumstances, however, it may be impractical or undesirable to hold an open competition and a directed or sole-source contract must be let. The Government Contracts Regulations recognize and provide for this when the value of the contract is relatively small, there is an urgent need for the good or service, it is not in the national interest to have an open competition, or the good or service is unique and can be obtained from only one source.

26.10 In 1994 the House of Commons Standing Committee on Government Operations, concerned about the level of non-competitive or sole-source contracting, began an investigation that was to last for more than two years. During its hearings, the Committee heard extensive testimony on contracting with the government - and on the rules that governed the process - from the private sector, operating departments, Public Works and Government Services Canada (PWGSC) and Treasury Board Secretariat. In its report issued in April 1997, the Committee concluded that while there had been some improvement in government contracting, much remained to be done. (See Appendix A for the Committee's Report.)

26.11 The Committee also reaffirmed that the principles of best value and open access were central to the government contracting process. Its recommendations were focussed on ensuring that greater respect would be paid to these principles in the future.

26.12 Normally, the government responds formally to reports of standing committees within a specified period of time. However, we were informed that in this case the government will not be responding to this Committee's report because the dissolution of Parliament for the 1997 election meant that the report died on the order paper. The government has stated that the recommendations of the Committee were reviewed internally and influenced later policy revisions.

Extent of the government's contracting for services is significant
26.13 One of the concerns of the Government Operations Committee was the need for current and credible information on government contracting activity. We found that the most recent information available at the time of our audit was the Treasury Board Secretariat's Annual Contracting Activity Report for the calendar year 1995. Although this information is dated, it does offer a general sense of the extent to which the government contracts for services.

26.14 In 1995 the government's total spending on service contracts amounted to about $4.4 billion. Of this amount, $649 million (or about 15 percent) represented contracts for less than $25,000. As of October 1996, the regulations permit contracts for $25,000 or less to be let without competition (previously the limit was $30,000). This recognizes the fact that although competition for small contracts is encouraged, it is not always cost-effective for the government or industry. The rest of the service contracts - amounting to some $3.7 billion - were for initial amounts greater than $25,000 and hence, except for those that met the criteria for exemption, would have been expected to be let on a competitive basis. However, the data show that competitive bids were sought for only 51 percent of those contracts.

26.15 In the last few years there have been significant developments that have affected contracting activity. These include:

  • increased delegation of authority to individual departments for contracting of services;
  • the option to use service providers other than PWGSC (the government's common service provider);
  • higher dollar levels delegated to departments for use of MERX, the current electronic bidding system that is replacing the older Open Bidding Service;
  • increased use of the MERX/Open Bidding Service, including Advance Contract Award Notices; and
  • increasing numbers of contracts for services and at higher dollar values.
26.16 As a result of these developments, departments can be expected to engage more often in direct contracting for services without the assistance of PWGSC in its role as the independent common service provider. Because service contracts are generally let directly by departments, we did not include PWGSC in the scope of this audit.

Focus of the audit
26.17 Chapter 6 of our 1997 Report presented the results of our audit of contracting performance. The chapter set out the general roles, responsibilities and expectations in the government's use of contracting for goods and services. A major contribution of the audit was the development of performance criteria and indicators for contracting, as well as a broad framework for conducting future audits of contracting. (See About the Audit at the end of this chapter and Appendix B for a discussion of the audit criteria, which we also used in the present audit.) In addition, in our 1997 Report Chapter 19 on the commercialization of the air navigation system we raised concerns about the handling of some specific contracts.

26.18 In light of our earlier findings and the Government Operations Committee's report recommendation that we audit sole-source contracts, we decided to begin a series of audits of contracting that would focus on testing specific transactions for compliance both with the criteria we had established and with government policy and regulations. This audit was the first in that series. A review of a variety of sources indicated that sole-source contracts for professional services represented a particularly high risk and, accordingly, they became the focus of this audit.

26.19 We examined a sample of 26 sole-source contracts in five departments to determine, among other things, whether in letting these contracts the government had adhered to the governing principles and regulations.

26.20 We had hoped to be able to take a statistical sample of sole-source contracts for professional services. However, we found that the nature of the information maintained in central agencies and most departments made this impractical. We decided to select about five contracts let in 1996 from each of five major departments - Correctional Service Canada, Fisheries and Oceans, Health Canada, National Defence, and Transport Canada. Because ours was a selected sample, the results cannot be generalized statistically to the broader population of similar contracts. However, the cases were not chosen in any targeted or biased way that would have led to the sample being unrepresentative of the practices used in sole-sourcing contracts of the type we audited. For a discussion of some of the case studies - Sole Source Contracts in Five Deparments .

26.21 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.

Observations

26.22 The results of our audit of the contracts in our sample are summarized against our criteria in exhibits throughout this section. The exhibits indicate the number of contracts in the sample that either met or failed to meet the particular criterion. Our audit results are presented by stage of the contracting process. First we look at contract screening, the stage that involves deciding whether and for what to contract. Next we look at the decision to use a sole source and the justification for that decision. Then we look at the process that management used in its discussions with contractors to provide price and value protection for the Crown. Next, we look at the controls exercised upon receipt of the deliverables under the contract and controls over the payment process to ensure that work was done according to the contract and that full value was received before the contractor was paid. Finally, we look at contracts that were amended and assess the controls on the use of amendments.

Weaknesses in Documentation and Monitoring

No file contained all of the required documentation
26.23 The Treasury Board Secretariat's Contracting Policy states:

...contract files should be established which will provide a complete audit trail containing details on matters such as options, decisions, approvals, amendments, if any, etc., and identifying the officials or authorities who made them. This is extremely important for answering questions and evaluating results.
26.24 We expected, when we began the audit, that most of the documentation we would need for our audit work would be readily available in the contract files. However, we did not find any files that in our view met all of the Treasury Board Secretariat's requirements. Further, in many instances, departments were unable to provide even key documentation and, because of staff turnover, the people who might have explained the gaps were no longer available. Accordingly, a "not met" indication in the exhibit tables means that either the file was complete but the quality of the documentation was below standard, or the file was incomplete and the department was unable to supply the missing documentation. In either instance, a "not met" indicates that we, as Parliament's auditors, are unable to provide assurance that managers have shown due regard to economy and respected the principles of open access and best value.

Monitoring of compliance with contracting policies is poor
26.25 The section on monitoring in the Treasury Board Secretariat's Contracting Policy discusses the reporting mechanisms and performance indicators that are used for contracting:

Two mechanisms will be used: departmental audits and an annual report on contracting. Departments will be evaluated on their compliance with contracting policies and the level of competitive contracting. All departments and agencies awarding contracts and/or amendments, are required to submit an annual report to the Treasury Board Secretariat on all contracting activities....The Treasury Board Secretariat also conducts periodic reviews of contracts for the services of individuals, including those for less than $5,000.
26.26 We found, however, that actual practice is very different. The five departments we looked at have done some internal audit work on contracting practices, but generally not at a significant level. Further, as we have noted, the most recent government-wide report on contracting activity was for 1995. We asked the Treasury Board Secretariat for its own assessments of departmental compliance, and particularly its reviews of contracts for the services of individuals. We were informed that no such assessments and reviews exist.

Stages of the Contracting Process

Screening to establish and define the need
26.27 The screening process is the stage at which the decision is made that a service is required. It includes developing a clear statement of what the needed service entails. It is also important at this stage to determine whether the requirement could be met using internal resources instead of a contractor (whether to "make or buy"). We examined the contract files to assess the adequacy of needs analyses, requirement definitions and make-or-buy decisions.

26.28 We found that the files contained only limited information supporting the need for the service to be acquired, no details indicating the relative benefits of make-or-buy decisions and no specific definition of requirements (see Exhibit 26.1) . These inadequacies are reflected in some of the problems we observed in our sample of contracts.

26.29 Because there was from the outset no clear definition of requirements - that is, the nature and scope of the tasks to be accomplished - nearly half of these contracts (12 of 26) required frequent amendments that, in many cases, significantly increased their original values. Sometimes the resulting arrangements were not in compliance with the Government Contracts Regulations. Then senior officials had to become involved to correct the problems.

26.30 Managers advised us that one important reason for not conducting make-or-buy analyses was that the shortage of staff after downsizing has in many cases eliminated "make" as an option.

Deciding whether to sole-source
26.31 Section 5 of the Government Contracts Regulations requires that before any contract is entered into, the contracting authority shall solicit bids (emphasis added). Section 6 of the Regulations outlines four circumstances in which the contract authority may make an exception and enter into a contract without soliciting bids (that is, enter into a sole-source contract). The Treasury Board Secretariat's Contracting Policy (Section 10.2.2 to 10.2.5) elaborates on these circumstances and provides clear guidance to managers who may want to use an exception to avoid the necessity of soliciting bids (see Exhibit 26.2) .

26.32 In Section 10.2.6 of the Treasury Board Secretariat's Contracting Policy we find the following reference:

Any use of the four exceptions to the bidding requirement should be fully justified on the contract file or, where applicable, in submissions to the Treasury Board. Even if a proposed directed contract...for goods and services qualifies under one of these four exceptions, the contracting authority is encouraged, whenever possible, to use the electronic bidding methodology to advertise the proposed award through an Advance Contract Award Notice (ACAN). If there are no valid challenges to the ACAN after fifteen calendar days, the proposed contract is deemed to be competitive and may be awarded using the electronic bidding contracting authority.
Should the contracting authority have to seek the Treasury Board's approval to award such a contract, it should be noted that the Treasury Board cannot approve a directed contract which does not meet at least one of the four exceptions. In such cases, an exception to the Regulations by means of an order-in-council would be required.
When a manager believes that one of the exceptional circumstances exists, the onus is on the manager to show why the exception applies to the contract in question. The manager must formally provide written evidence in the contract file to show the justification for the exception.

26.33 When the uniqueness of the source, for example, is invoked as the reason for sole-sourcing, the guidance makes it clear that management's belief in that uniqueness does not in itself justify the exception. Managers are expected to take positive steps and make inquiries to verify that the source is, indeed, "unique" - that no one else can supply the service. Thus, we expected that the contract files in our sample would clearly identify which of the exceptions had been invoked to justify sole sourcing, and would contain written evidence of the steps management had taken to verify that an exception was warranted. Exhibit 26.3 sets out in schematic form the logic process that the Government Contracts Regulations require a manager to follow in considering whether a sole-source contract is permissible.

26.34 Advance Contract Award Notices (ACANs) are electronic notices posted on what used to be the Open Bidding Service, now called MERX. This system permits a department to post a notice indicating its intent to award a sole-source contract to a particular supplier. If no one comes forward during the 15-day notice period, the contract goes to the named supplier and the contract is considered to be "competitive", even though no competing bids have been submitted . However, using an ACAN does not exempt the department from the requirement to confirm that the sole-source contract qualifies under at least one of the four stipulated exceptions ( Exhibits 26.2 and 26.3 ).

26.35 Although all of the contracts in our sample were awarded on a non-competitive basis, we found that only 8 of the 26 had satisfied one of the necessary conditions that make such awarding permissible (see Exhibit 26.4) . Indeed, in most instances it was not even clear from the contract file which exception the manager had invoked to justify sole-sourcing the contract.

26.36 We also found that few of the contracts had been advertised using an ACAN, as the policy encourages. Accordingly, too many were awarded without competition. This situation does not reflect the principle of open access to contracting opportunities with the federal government. In our opinion, the awarding of these contracts would not withstand public scrutiny.

26.37 Exhibit 26.5 summarizes the departments' justification for sole-sourcing in the contract files we reviewed. As it shows, the most common reason for directing the contract to a sole source is "prior experience". This would imply that departments view a contractor as unique - the only person or organization capable of doing a job - merely by virtue of having had "prior experience". Although the Regulations set a higher standard for uniqueness of source, not one file that we reviewed showed that the department had taken sufficient reasonable steps to confirm that the proposed contractor was unique in its ability to provide the needed service.

26.38 Not only does "prior experience" fail to meet the test of uniqueness but, moreover, its persistent use as a justification for sole-sourcing seriously undermines the spirit and intent of the government's contracting policy. It means that too often the first supplier through the door has an effective monopoly on future business. Used as the basis for sole sourcing, prior experience becomes exclusionary: it precludes others from offering new insights or solutions, or even from competing on price by choosing to absorb the cost of the necessary "learning". We note that in no instance where "prior experience" had been invoked did we find evidence of any effort to assess the "value" of this experience to the task at hand. Prior experience was considered justification in itself.

26.39 The apparent disregard for the rules surrounding sole-sourcing that we observed in the cases we audited raises the questions "Why is this so?" and "Are the rules unreasonable or too onerous?" The Standing Committee on Government Operations asked these questions in its hearings on sole-sourcing. Addressing this very concern, a senior Treasury Board Secretariat official testified before the Committee as follows:

... So we end up by saying that competition is best and we always strive for competition.
Having said that, why do departments have difficulty in establishing Treasury Board policy? There are a lot of reasons. If you can put yourselves in a departmental perspective or in their shoes for a moment, first of all there is a time constraint. When you go competitive, it is more time-consuming, as a general rule, than if you sole-source a contract.
Costs are involved. Obviously, time is money. If it takes more time, there are costs associated with that. In a lot of cases it's seen by departments as being an administrative burden. It's not as quick to get a contract out through the competitive process as it is when you sole-source. They have mutually exclusive sub-objectives. A lot of program managers would like to get the program delivery out but not necessarily be concerned with good contracting procedures.
Also, you need a knowledge base and expertise. So you normally have to have an identifiable contracting organization that has sole responsibility for contracting. That's sometimes a constraint on departments, especially ones in downsizing mode. There are limited human resources. We've had significant reductions in our government's workforce over the last several years; hence, limited resources are available for this particular activity. You also need trained and knowledgeable individuals. To train and give that kind of experience to human resources obviously creates some constraints. (Testimony, 26 March 1996)
26.40 While testimony before the Committee indicated that departments perceive these rules as constraints, it also pointed out why the rules are in place (for example, to comply with the terms of domestic and international trade agreements). The testimony certainly provided no comfort for a position that the rules imposed unreasonable constraints. After weighing all of the evidence, the Committee issued a report that came down fully in support of the rules. It also supported the use of much more stringent procedures - both in departments and in Treasury Board Secretariat - that would force organizations to comply with the rules.

Setting up the contract to provide for best price and value
26.41 Sole-sourcing for services (even when justified) leaves vulnerable the government's goal of receiving best value. In contrast, when bids are sought the preparation of a Request for Proposals requires a clear statement of the nature and scope of the work as well as what is to be delivered. Accordingly, the competitive bidding process provides some degree of assurance that the best value will emerge from among the bids submitted. In a non-competitive situation that lacks these elements, it is important that other processes be followed to ensure best value. For example, we looked in the files for management's detailed statement of the work to be done, along with its estimate of the nature, extent and cost of the work. These would permit management to assess whether the proposal submitted by the sole source was reasonable. We expected that management would have ascertained the "going rate" for the services of similarly qualified individuals or firms and used this information in negotiating the rate for the contract. We also expected to find that (as recommended by Treasury Board) there had been some examination of the selected supplier and its cost estimates and, ultimately, a requirement for the supplier to certify that it was giving the Crown its best rate. Finally, we expected to find that before work began, each contract had clearly set out what was to be done by when and at what cost.

26.42 By and large, we did not find what we had expected. In only 9 of the 26 cases (Exhibit 26.1) did we find a fully developed statement of work that included management's estimates of the time and costs 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 need.

26.43 Generally, departments did not maintain together in one contract file all the documentation required to substantiate the transactions. Departmental officials told us that there were several "contract files" that, taken together, might contain the required documentation. Separate files were maintained in the departments by procurement staff, the responsibility centre managers and corporate finance. In some cases, those files were neither cross-indexed nor available. Generally, the evidence in the files we did see was neither complete nor sufficient for audit purposes. In some cases, the designated responsibility centre manager could not locate any files.

26.44 Treasury Board Secretariat's Contracting Policy states that the terms and conditions of any contract issued should be in writing, and that the contract should be signed by the authorized departmental officials and the representatives of the contractor as soon as possible after notice of the award to the successful bidder. However, we found that departments had entered into many oral contracts, with formal written contracts signed only well after the work had begun and sometimes after it had been completed.

26.45 Without a written contract that specifies the terms and conditions of the work to be done and contains the appropriate signatures, the Crown is exposed to unknown liabilities. Furthermore, our sample indicated that oral contracts may give rise to problems that require extensive involvement by senior departmental and/or Treasury Board Secretariat officials, and sometimes Treasury Board ministers, depending on the size of the contract needing ratification.

26.46 We found only limited evidence in some of the files to support the contractor's price and/or the contractor's certification of best price. The departments were not able to provide any other evidence that the government was receiving good value.

26.47 As Exhibit 26.6 indicates, in only 5 of 26 cases were we provided with reasonable evidence that management had been able to look at the contractor's proposal and assess whether the estimated time and costs were reasonable, given the nature and scope of the work to be done. In only one case were we presented with evidence that management had known the "going rate" and used it in negotiations with the supplier. However, in a fifth of the cases (5 of 26), management had required certification of best price by the supplier. At least in those instances, some assurance was provided on price - if not on value.

Ensuring delivery in accordance with the terms of the contract
26.48 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.

26.49 We found that the deliverables - what the contractor did - were generally described in intangible terms (such as "advice", "professional services"). Most contracts did not specify clearly what service was required and over what time period. In 21 of 26 cases departments were able to provide us with copies of suppliers' invoices and sign-offs certifying that services had been rendered in accordance with the contract conditions. But other documentation in the files was limited. For nearly two thirds of our sample (17 cases), departments could not provide additional evidence, as stipulated in Section 16.11 of the Treasury Board Secretariat's Contracting Policy, that the deliverables specified in the contract had been provided in full and on time (see Exhibit 26.7) . Consequently, management is unable to provide assurance that services in those 17 cases were rendered according to all the terms of the contracts and that funds were disbursed for the purposes intended.

Amendments can compromise open access
26.50 Amendments were another element of contract management that was of considerable concern to the Standing Committee on Government Operations in its inquiry on contracting. The Committee said that tighter controls were required to ensure that amendments were issued only when truly warranted. It wrote:

Our Committee shares the Treasury Board concern over the large volume of contract amendments. In many cases, the amendments are necessary and justified; in others, cost overruns have occurred as a result of weak project management and poor financial controls. Our Committee believes that tighter monitoring of contract performance should be enforced by Treasury Board and the contracting authority within departments and agencies.
26.51 We examined our sample of contract files for evidence that a duly executed contract had been on file when amendments were made, and that the amendments had been properly justified and approved in accordance with Treasury Board policy. We also assessed whether the amendments were in the "best interest of the government" and were neither the result of poor contract planning nor a means of circumventing other contracting rules.

26.52 As Exhibit 26.7 shows, for about half of the cases involving an amendment, we were provided with insufficient evidence to determine whether or not the amendment had been justified and properly executed. In files that contained enough evidence to make a judgment, for the most part we found that amendments had been neither justified nor properly executed. This often resulted in retroactive changes to contracts. Senior departmental officials, the minister, and sometimes the Treasury Board then had to become involved to rectify, amend, certify and ratify.

26.53 In our opinion, poor planning of procurement, inadequate needs analysis and poor definition of requirements contribute greatly to the often complex and expensive process of changing the original contract. Furthermore, amending contracts instead of soliciting new bids compromises both public scrutiny of the spending of public funds and open access to contracting opportunities for other suppliers.

Conclusion and Recommendations

26.54 In its report, the Standing Committee on Government Operations began its discussion of sole-source contracts by stating firmly that "competition is best": it has proved to provide the best combination of value and price. The report observed that the proportion of sole-source contracts had been too high for too long, and that the situation had to be corrected. The Committee did not question the rules surrounding sole-sourcing; it called for strict adherence to them.

26.55 Our 1997 Report Chapter 6, Contracting Performance, noted that many of these rules were in place to respond to the government's legal and treaty obligations in the conduct of its business. It also noted the need to ensure that contracting practices avoid both the substance and the appearance of preference or patronage. As we observed, government contracting "must cope with these additional expectations without being able to use some of the more aggressive - or more co-operative - contracting tactics ascribed to some private sector organizations, and without incurring excessive administrative costs." We noted that while the rules for government contracting are different, they are consistent with the broader legal and policy obligations that government managers must meet.

26.56 The Treasury Board Secretariat's Contracting Policy requires that government contracting be conducted in a manner that will:

  • stand the test of public scrutiny in matters of prudence and probity, facilitate access, encourage competition, and reflect fairness in the spending of public funds;
  • ensure the pre-eminence of operational requirements; and
  • support long-term industrial and regional development and other appropriate national objectives.
26.57 The results of our present audit suggest that these requirements are not being met. The managers entering into these contracts may well have had the view that expedience - "getting on with the job" - was sufficient justification for deciding largely to ignore the rules. But in our view, they did not exhibit the prudence necessary to protect the Crown's interests when entering into a non-competitive relationship with a supplier. Prudence involves such things as clearly defining what is to be done and the resources that the task ought to consume, having a good knowledge of the "going rate" for the service to be purchased, and requiring certification of "best price" from the supplier. Finally, while the need to "get on with the job" may have been the basis for sole-sourcing many or most of these contracts, we found scant evidence of the "job that got done."

26.58 In the past, we have made many recommendations to the government for improving contracting practices. Essentially they can be reduced to one: follow the existing rules. That is also the essence of the Standing Committee's recommendations: their general focus in the areas covered by our audit was on the need for additional controls to try to ensure that government managers follow the contracting rules. Nonetheless, based on our sample, breaking the rules in letting sole-source contracts seems to be widespread. Perhaps this is because it seems to bring few consequences. Introducing new controls over contracting does not seem to be the solution; it would only add to the sense of constraint that many managers feel, and adding steps to the contracting process would increase the time it takes. In turn, some managers would see the added time as added justification for ignoring the rules and "just getting on with it." The answer may lie in demanding more accountability for the full range of considerations involved in public sector procurement.

26.59 Deputy ministers should ensure that those to whom they delegate contracting responsibilities fully understand the dual objectives of government contracting policy (open access and best value) and are held accountable for adherence to them.

26.60 Deputy ministers should ensure that when contracts are sole-sourced, the circumstances are fully consistent with the provisions of the Government Contracts Regulations.

Government's response: We wish to thank the Office of the Auditor General for this audit of contracting for professional services.

We are committed to providing departments with leadership to implement sound practices in contracting throughout the federal government. In this regard, we will consider the findings of the audit in our work to improve federal contracting for services.

National Defence's response: Policies currently in place within the Department of National Defence clearly reflect the government's dual policy objectives of providing open access to, and obtaining best value from, the contracting process. These policies have recently been reviewed and requirements will be reconfirmed in the very near future. The new policy statement will re-emphasize that sole-source contracts must fully conform to the requirements and circumstances detailed in the Government Contracts Regulations.

In addition to policy statements, departmental training programs already exist to ensure that individuals delegated contracting authority fully understand their duties and obligations. In National Defence, contracting authority is not delegated until such training has been successfully completed.

As a final point, this Department is concerned that the limited sampling technique employed in the conduct of this audit has led to conclusions that may not be representative of department-wide contracting practices. It is acknowledged that sole-source contracts represent a potentially contentious area of contracting, but it remains the intent of this Department to consistently and uniformly apply existing regulations throughout the process.

About the Audit

Objective

The objective of our audit was to examine compliance with the rules for contracting in a sample of sole-sourced contracts for professional services selected from five departments, and to report to Parliament on the results of that work.

Scope and Approach

We examined the policy and framework responsibilities of the Treasury Board Secretariat and Public Works and Government Services Canada - their performance in setting the framework for government contracting and in providing leadership and direction to the rest of government. These responsibilities derive from:

  • section 7 of the Financial Administration Act, which authorizes Treasury Board to act on behalf of Cabinet in matters of common administration, including the inherent right of ministers to buy goods and services; and
  • section 7 of the Public Works and Government Services Act, which directs the Minister to plan and organize the provision of goods and services.
We based our examination of the accountability framework on the criteria described in Appendix B of this chapter. We used the criteria to assess information derived from:

  • an analysis of the provisions of the policy itself, focussing on the Treasury Board Secretariat policy documents together with those of Public Works and Government Services Canada and five other departments;
  • testimony and proceedings of the standing committees on Government Operations and Public Accounts; and
  • interviews with officials in Treasury Board Secretariat, Public Works and Government Services Canada, and five line departments.
To examine the results achieved by those working within the policy framework provided by Treasury Board and Public Works and Government Services Canada, we considered the information from the above sources, in addition to:

  • review and analysis of the government's contracting and public accounts data;
  • analysis of documents provided by, and discussions held with, officials in Correctional Service Canada, Fisheries and Oceans, Health Canada, National Defence, and Transport Canada; and
  • analysis of more than 45 professional service contracts presented in 26 cases, for which five departments made payments totalling $16 million.
To choose the cases, we asked the departments to provide lists of sole-source contracts let in 1996 in amounts over $25,000 for professional services that were non-material in nature. From those lists we selected up to 10 cases in each department and vetted them to ensure that they met our selection criteria. In each department, the intent was to select the first five cases that met the criteria. Ultimately, we looked at four cases in one department, six cases in each of two departments and five cases in each of two other departments, for a total of 26 cases.

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 the suppliers.

Audit Team

Assistant Auditor General: Shahid Minto
Principal: Hugh McRoberts
Director: Jaak Vanker

Sami Sourani
Cyril Lee-Shanok
Rosemary Marenger

For information, please contact Hugh McRoberts.