PACC Committee Report

Mr. John Williams
Chair
Standing Committee on Public Accounts
Room 750, Confederation Building
House of Commons
Ottawa, Ontario
K1A 0A6

Pursuant to Standing Order 109 of the House of Commons, I am pleased to respond on behalf of the Government to the recommendations of the Twenty-eighth Report of the Standing Committee on Public Accounts, tabled in the House of Commons on May 5, 1999.

We share your Committee’s interest in ensuring that the government’s contracting practices support two complementary principles: best value and open access. We agree that a combination of adherence to the rules, improved scrutiny, assessment and cost-effective reporting by Treasury Board Secretariat should result in contracting practices that all recognize as desirable.

Enclosed is the Government’s comprehensive response to the recommendations contained in the Twenty-eighth Report of your Committee. I would like to personally thank you and the members of the committee for the efforts and interest shown in your review of contracting for professional services.

Yours sincerely,

Lucienne Robillard

RESPONSE

The Government accepts this portion of Recommendation 1 in part. The government agrees that accurate, timely and relevant information about government contracting activity should be published. The Treasury Board Secretariat already issues a report on contracting for each calendar year.

As was reported in testimony to the Standing Committee on Public Accounts in March 1999, departments conduct internal audits of their contracting activity in accordance with audit plans. However, the Government has determined that it is not cost effective to require all the input data to be audited prior to compiling the annual report on contracting activity. As the Auditor General himself pointed out in testimony before the Standing Committee on Public Accounts, it took his office between 100 to 150 hours per contract to actually audit properly. That is why his Office audited a sample of only 26 contracts. So each higher value contract represents a fair bit of work in terms of auditing it adequately. Accordingly, It would require an unacceptable amount of resources to properly audit the over 22,000 contracts awarded in 1997 and valued at $25,000 or more. In addition, auditing all input data would significantly increase the time to prepare the report, which could then lose its value for planning and information purposes.

Recognising the extensive reporting expertise that already exists within departments and within Public Works and Government Services Canada (PWGSC), the Treasury Board Secretariat requested PWGSC to collect the annual data on contracting activity from all departments and agencies that are required to report. PWGSC is the common service agency for goods contracts and generally awards all of the high dollar value construction and service contracts on behalf of these entities. PWGSC has developed a system known as "Datacap" to help all other departments and agencies to capture their data electronically. Using Datacap, each entity collects the contracting data for a particular year and then sends the data to PWGSC. In fact, Datacap has been incorporated into new financial management systems. That will facilitate data capture for the timely production of contract reports by departments in future. For each entity for each calendar year, PWGSC produces a report by adding the data provided by the entity to the data on contracts that PWGSC awarded on behalf of that entity.

As was noted at the Standing Committee, the Treasury Board Secretariat is considering, in consultation with departments, ways to accelerate the compilation and publication of the data, and to make the data available more frequently, as contracts are entered into. Based on analysis to date, the most effective method of speeding the publication would be to focus on the higher value contracts rather than attempting to capture even the smallest contracts as is now the case. As departments make greater use of acquisition cards, detailed reporting of low dollar value contracts will not be possible and is not considered to be the best use of limited resources in terms of reporting.

Reporting solely the higher value contracts would permit quicker compilation of the most relevant information, would accelerate the validation of the data, would permit faster publication of the data, and would focus attention on the key information. This aspect is currently under review by the Government.

RESPONSE

The Government accepts this section of Recommendation 1 only where it is cost effective to do so, that is, for contracts valued at $25,000 or more.

All departments and agencies that are subject to the Government Contracts Regulations or the trade agreements, or both, are already providing their contracting data annually to the Treasury Board Secretariat through PWGSC as described above in the response to Recommendation 1a.

RESPONSE

The Government accepts the principle implicit in this section of Recommendation 1, while maintaining that the appropriate accountability for performance rests foremost with deputy heads.

Departments are accountable for the specific details of their contracting activities. The Treasury Board Secretariat continuously reviews the state of contracting activities across government in the following ways:

• For many years there has been an inter-departmental committee of senior contracting officials who meet at least every two months to exchange information and seek advice on particular problems concerning procurement. This gives both departments and the Treasury Board Secretariat a very good source of information on government contracting activity.

• The Treasury Board Secretariat staff participates in departmental meetings both in the National Capital Region and in regional centres to discuss contracting issues. These meetings have identified areas where additional information is needed regarding a policy or operational procurement issue. When additional information or policy clarification is required, the Secretariat will issue a Contract Policy Notice to all departments and agencies.

• Contracting policy update seminars are conducted on a regular basis across the country so that all staff, from managers to administrative support, have access to timely information regarding new policy initiatives and concerns or difficulties that departments may be experiencing. Compliance issues are discussed at these forums. This is an important source of information to the Secretariat with regard to policy compliance.

• The Secretariat monitors annual contracting reports as well as financial expenditure data related to procurement. This ongoing monitoring by the Secretariat and publication of these reports on the Internet allow Canadians and government departments to situate a department’s relative performance with respect to contracts entered into using a competitive process. The Secretariat also receives a selection of internal audit reports from departments for information.

• Every year, a number of submissions for contract entry and amendment authority are received and analysed in the Secretariat for presentation to Treasury Board ministers for consideration. In turn, these provide an insight into specific high dollar value or exceptional procurement actions taken by several departments. This process provides another opportunity for the Secretariat to review and comment on the departments’ activities.

• Finally, there are daily ongoing contacts with departmental responsibility centre managers through electronic mail and the telephone on contracting issues and concerns. This provides the Secretariat with the opportunity to provide consistent advice and suggested solutions across the public service.

Some departments have contract review committees or other oversight mechanisms that review certain categories of contracts. Those mechanisms are a check and balance in the contracting process.

Based on our ongoing evaluation of procurement activities, the Government recognises that some policies need adjustment to improve effectiveness and compliance with the rules. That is why the Treasury Board has approved an initiative to reform and modernise procurement. The Secretariat, on direction from Treasury Board ministers, will develop a program of training and certification for procurement specialists in departments. Effective orientation sessions will be established on procurement policies, principles, values and best practices for program managers involved in procurement. In addition, the Secretariat is taking steps to improve Internet access to procurement information. Furthermore, departments will be asked to confirm that a regular cycle of internal audits on contracting is undertaken.

d. Conducting periodic reviews of contracts for the services of individuals, including those for less than $5,000. The results of these reviews must be included in Treasury Board Secretariat’s Contracting Activity Report.

RESPONSE

The Government can accept this portion of Recommendation 1 only in part.

Such reviews are to be carried out by the internal audit groups of departments and agencies. As is the case with regard to performance reporting, work is underway to focus review activity on higher value contracts, especially those above the trade agreement threshold levels, to give priority to ensuring compliance with the provisions of those agreements. Risk management principles should be applied to the establishment of review priorities. Contracts below $5000 should be included in reviews only to the extent warranted by sound risk management and accepted audit sampling methodologies.

That Treasury Board Secretariat proceed with timely implementation of its framework for evaluating contracting activities and that it make use of this framework to conduct a broader review of sole-source contracts along the lines followed by the Auditor General, the results of this review to be tabled in the House of Commons no later than 31 March 2000; and

RESPONSE

The Government accepts Recommendation 2 in part. The Treasury Board Secretariat is committed to implementing a monitoring framework for evaluating contracting activities, where it asks departments to conduct internal audits to ensure the rules are being followed. The Secretariat will monitor the results of these internal audits and will follow up with departments where major problems are identified. The Secretariat does not have the excess resources that would allow it to have monitoring frameworks for its policies that involve the conduct of large, expensive audits in a number of departments. The monitoring framework relies on the work done by departmental internal audit groups, and reviewing the results of those audits, not on the Secretariat conducting its own audits. In terms of a broader review of sole-source contracts, the Secretariat looks to the Auditor General to conduct such reviews.

RECOMMENDATION 3:

RESPONSE

The Government accepts the spirit of this Recommendation. However, as noted in the response to Recommendation 2, the Government is committed to implementing a monitoring framework for evaluating contracting activities that relies on the work done by departmental internal audit groups. The Treasury Board Secretariat is committed to consulting with the Auditor General on the best methodology for conducting these internal audits, and will communicate this to departmental internal audit groups.

RECOMMENDATION 4:

That following development and implementation of its framework for evaluating contracting activities, Treasury Board Secretariat use contracting performance as one of the components to be used in any potential effort to assess the remuneration of senior public servants.

RESPONSE

The Government has serious reservations about this Recommendation.

The Government recognizes that evaluation of multi-year departmental contracting performance is one of many legitimate factors to be considered in determining the appropriate performance-based pay of senior public servants.

A key measure now in use for contracting procedures is the percentage of contracts let using a competitive process. The government is committed to this aspect of contracting performance. At the same time, it is important to recognise that there are valid circumstances and cost-effective reasons for not soliciting bids in a specific circumstance, or class of circumstances, particularly for low dollar value procurement. Therefore, using this as a component for assessing the remuneration of senior public servants must be undertaken with great care and consideration of a range of factors in addition to the simple measure of the percentage of competitive contract awards in a particular year. Assessing this aspect of the performance of senior public servants solely on the basis of the percentage of competitive contract awards in a particular year should not be considered in isolation from other pertinent factors such as value for money, size of contract and unique high dollar value procurements. This is especially the case if the competitive percentage based on the value of contracts in that year is distorted by one or a few exceptional, high dollar value contracts that have been awarded without soliciting bids for valid reasons. Competitive percentages based on the number of contracts can also be distorted in the case of smaller departments that award relatively few contracts.

RESPONSE

The Government accepts the principle of Recommendation 5 for implementation in March 2000 rather than March 1999.

The government will guide departments, where appropriate, to include in their annual Departmental Performance Report (DPR) specific references to their competitive and sole-source contracting practices, including key observations arising from any significant audits or reviews of their contracting practices that would have been conducted as part of their annual review activities.

As guidelines for the preparation of DPR for 1998-99 were already finalised for issue before the release of the Standing Committee’s Twenty-Eighth Report, the first opportunity to incorporate additional reporting requirements will be for DPR for the reporting period ending March 31, 2000.

In addition to recommending the inclusion of audit findings of significant reviews conducted on departmental contracting practices, such guidelines would determine appropriate thresholds of contract values and size, for sole-source and competitive contracting practices, as well as their respective multiyear trends. An evaluation of the effectiveness of the use of this reporting practice would be conducted in 2003 to determine the continuing need for this specific reporting requirement in DPRs.

It must be noted that this new information will only be meaningful for departments that issue a significant dollar value of contracts. Reporting entities would also require the discretion not to report the limited number of contracts that involve considerations relating to national security or other similar matters that it would not be in the public interest to disclose. A further consideration is that if information is published elsewhere in a separate, issue-specific report, such as the annual report to Treasury Board on contracting activity, as in the case for departmental contracting information, then the guidelines for performance reporting will encourage a reference to the availability on the Internet of that specific source, rather than repeating the detail of already published and public information.

RESPONSE

The Government has reservations about this Recommendation.

The Government accepts that, in the large majority of cases, issuing Advance Contract Awards Notices is appropriate. It is already current practice to a large extent in most departments. The policy document referred to in the responses to Recommendations 7 and 8 below specifies the circumstances in which Advance Contract Award Notices may be used.

However, the issuance of an Advance Contract Award Notice should not be made mandatory in every case. There remain a small number of circumstances where it would not be appropriate or in the public interest to publish such a notice. One example is where impeding timely execution of the contract would not be in the public interest (e.g., salvage operation for air disasters). Another example is where it would not be in the public interest to disclose the procurement for national security reasons. Other examples can be found under the heading of "limited tendering procedures" in the various trade agreements, such as the purchase of goods on a commodity market, award to the winner of a design contest, prototype purchase, and where prices and/or sources are fixed by government regulations.

Furthermore, an appropriate framework is in place to deal with this issue. As pointed out in the response to Recommendation 1(c) above, some departments have contract review committees or other oversight mechanisms that review certain categories of contracts, such as sole-source contracts valued over $25,000.

RESPONSE

The Government accepts Recommendation 7.

A contracting policy document on the subject of Advance Contract Award Notices was issued on March 4, 1999. The document (Contracting Policy Notice 1999-3) explains in what circumstances and how those notices should be used. It further specifies, among other things, that the notices should not discourage possible challengers. The notice states clearly the following words: "For example, one should not say, ‘this is not a competitive solicitation...’, or words to that effect."

RESPONSE

The Government accepts Recommendation 8.

The message has been reinforced in a number of Determinations of the Canadian International Trade Tribunal in 1999. The policy document referred to in the Response to Recommendation 7 above specifies that Advance Contract Award Notices may be used when there is a justifiable reason not to solicit bids under the provisions of one of Canada’s trade agreements or under the Government Contracts Regulations. The policy document also stipulates that the notice should clearly explain the nature of the work, the name of the proposed contractor, the estimated cost and why bids are not being called. Sufficient time (15 days) must be allowed for potential challengers to come forward. The policy notice states clearly that procurement should be competed in the event a valid challenge is registered by one of the potential bidders.

The report is available on the Parliamentary Internet Site at WWW.PARL.GC.CA