PACC Committee Report

Pursuant to Standing Order 108(3)(e), the House of Commons Standing Committee on Public Accounts has the honour to present its

SIXTH REPORT

The Standing Committee on Public Accounts has considered Chapter 14 of the October 2000 Report of the Auditor General of Canada (Canadian International Development Agency — Managing Contracts and Contribution Agreements), has agreed to table the following report.

Introduction

The Canadian International Development Agency (CIDA) is a federal agency whose mandate is to enhance the efforts of the people of developing countries to achieve self-sustainable economic and social development in accordance with their needs and environment. It also has a mandate to provide humanitarian assistance, thereby contributing to Canada’s political and economic interests abroad in promoting social justice, international stability, and long-term relationships for the benefit of the global community.

One of the means by which it aims to achieve these goals is through the financing of development and aid projects. CIDA is responsible for managing about $1.7 billion of Canada’s international assistance. Approximately $670 million of that amount goes to CIDA’s geographic branches for programs aimed at countries in Asia, Africa and Latin America. Most of this amount is spent through contracts and contribution agreements with third parties, referred to as executing agencies, to deliver development assistance projects. Another $260 million goes to the Canadian Partnership Branch for grants and contributions to organizations to carry out their own aid programs.

The audit focused on how well CIDA managed the contracting processes and other types of agreements for goods and services, including the selection of Canadian executing agencies to deliver projects. It also verified how well CIDA’s contracting and contribution agreement processes respected Government Contract Regulations, Treasury Board Guidelines and CIDA’s own policies. The audit sought to determine whether these processes were fair and transparent, and whether they met operational requirements and development needs. The audit also examined the control framework for agreements in the Canadian Partnership Branch’s Voluntary Sector Program.

The Public Accounts Committee was concerned about how well CIDA managed its contracts and contribution agreements and, on March 15, 2001 met to examine the observations and consider the recommendations contained in Chapter 14 of the October 2000 Report of the Auditor General of Canada. Mr. David Rattray (Assistant Auditor General of Canada), Mr. John Hitchinson (Principal, Audit Operations), and Mr. Paul Morse (Director, Audit Operations) represented the Office of the Auditor General of Canada. Mr. Charles Bassett (Senior Vice‑President), Mrs. Nicole Mendenhall (Director, Internal Audit, Performance Review Branch), and Mr. Maurice Lepage (Director General, Contracting Management Division), represented the Canadian International Development Agency.

Findings and recommendations

Mr. Rattray discussed some of the observations that resulted from the audit at length. The audit concluded that the management of the competitive contracting processes was “properly conducted” but that there were instances where contracts did not comply with the Treasury Board’s Contracting Policy or the Government’s Contracts Regulations. Some cases involved inappropriate sole-sourcing, contract splitting, and non-compliance with the contracting policy for former public servants in receipt of a pension.

CIDA uses contribution agreements to finance development projects to a considerable extent (45% of the expenditures by geographic branches were financed through contribution agreements). Given the importance of this mode of financing, the Auditor General expected CIDA to have an authority framework in place to manage and regulate these contribution agreements. However, no such framework was in place.

Further, the terms and conditions related to the geographic programs are very general and provide no direction on how and when to use contribution agreements. While these terms and conditions do include a provision that contributions are to be approved in accordance to regular procedures and authorities, exceptions can be dealt with internally by CIDA. As a consequence, CIDA’s use of contribution agreements to select executing agencies often varied from its stated internal policies or practices. CIDA can choose the executing agencies by means of contribution agreements which are, in effect, the same as sole source contracts, which would not be permitted under Government Contract Regulations. The audit noted that this was the case in about half of the contribution agreements examined.

The audit observed that CIDA’s contracts and contribution agreements did not yet provide support for results-based management. Many contained unclear or unrealistic results expectations, did not provide for the monitoring of results, and did not provide any guidance on changes to assumptions that are critical to project success. CIDA did not incorporate any formal requirement or mechanism for “off‑ramps” in its project agreements ― mechanisms that provide opportunities to continue with or withdraw from a project.

CIDA project officers, however, attached considerable importance to monitoring of agreements under their responsibility. Project officers routinely hire monitors under contract to review and report on project progress, and they insist on receiving reports from Canadian executing agencies as required.

The audit found that CIDA obtained reasonable financial information on Canadian partners in the Voluntary Sector Program, but that CIDA received only limited information on projects that were funded, the amounts spent on them, and the results achieved. Funding is based on historical levels rather than project performance. Further, the audit concluded that better and more meaningful information was required in CIDA’s Performance Report.

CIDA’s Senior Vice-President provided a brief description of the Agency’s activities and of the challenges facing it in the delivery of development assistance. He talked briefly of his Agency’s initiatives designed to improve the quality of program delivery, notably:

·           Significant changes to CIDA’s contracting process making it fairer and more transparent.

·           Progress in applying results-based management to the contracting process.

·           Implementation of results-based management at the program level. The Agency is beginning to use its new integrated information format that is expected to improve both program results and CIDA’s own ability to report these results to Parliament and Canadians.

·           Strengthening of scientific and technical staff to better support policy development and program and project management.

Mr. Bassett closed by saying that “CIDA [welcomes] the Auditor General’s reports… their positive comments on our progress, and their recommendations for improvement. Like our own internal audits, they provide us with performance information to better deliver our programs”.

CIDA’s compliance to rules and regulations was a recurring theme throughout the audit report. The audit found many instances in which the Agency did not adhere to government requirements, rules and regulations. Throughout the life cycle of projects, lapses were found in the planning and design phases of projects, in the process of selecting executing agencies, in the attribution of contracts, and in the supervision of the execution phase of projects. This concerned the Committee greatly.

The Committee was interested in CIDA’s authority to use contribution agreements. CIDA has a well-established management framework for it’s contracting activities, however, it has no similar framework for contribution agreements. CIDA’s authority to use contribution agreements to implement its projects is governed by terms and conditions approved by Treasury Board in March 1996. These terms and conditions are very general and provide no direction on how or when to use contribution agreements. CIDA’s terms and conditions for grants and contributions are up for renewal in March 2001. This provides CIDA with an opportunity to establish a clearer authority framework for the use of contribution agreements. The Committee asked the witnesses whether CIDA would seek clarification on how and when to use contribution agreements when it seeks Treasury Board approval to renew its terms and conditions for grants and contribution.

Mr. Bassett expected the framework for contribution agreements to be ready by end of May 2001. As a result, the Committee recommends:

Recommendation No. 1

That once CIDA has obtained Treasury Board approval for its renewed framework for contribution agreements, it provide a copy to the Standing Committee on Public Accounts, no later than August 31, 2001.

The Committee then focused on CIDA’s assessment of a bidder’s previous performance on project delivery. The Agency, in its pre-qualification phase, verified a bidder’s capacity and experience to deliver development projects, and made enquiries about its financial viability. The Committee enquired if the Agency contacted other federal departments with which potential candidates had had previous dealings. CIDA officials responded that normally this would not be the case, that the Agency only assessed the material contained in the bidder’s proposal. Each proposal is awarded on the strength of the bid that is submitted by the executing entity. CIDA does not normally make enquiries with other branches of government about a bidder’s past performance.

The witnesses testified that recently issued government regulations enable CIDA to deduct any amounts owed to other government departments and agencies from payments being made to executing entities. CIDA is now considering various options with regard to the assessment of the past performance of potential bidders, but getting feedback on a bidder’s previous performance remains a delicate issue. There were concerns about the workload involved, together with the threat of possible litigation resulting from negative assessments.

Further, before the release of its final payment, CIDA requires that the contractor sign a declaration to the effect that they have paid all of their subcontractors and all of their personnel. There were instances in which CIDA had indeed withheld final payments to contractors because of outstanding monies owed to subcontractors. Having considered this matter, the Committee recommends:

Recommendation No. 2

That CIDA develop a policy on how to better evaluate past performance of potential bidders, including methods of identifying and assessing past liabilities with other departments and agencies, and that CIDA submit an interim report on the progress of this initiative to the Standing Committee on Public Accounts by March 31, 2002.

The Committee was clearly concerned by CIDA’s lack of compliance with its own guidelines concerning the planning and design phases of projects. The audit reported weaknesses in the compliance of provisions relating to the Canadian Environmental Assessment Act (CEEA) and to the preparation of contract plans, and in ensuring that contract performance was based on realistic expectations. Special measures have been applied to address the issues. More specifically, CIDA officials have issued instructions that all project files are to be properly documented, regardless of the size of the project. Not enough time had elapsed to ascertain the effectiveness of these measures, but CIDA officials promised that they would provide the Committee with an interim progress report. The Committee noted the efforts by CIDA to address the various outstanding issues and appreciated the offer of the interim progress report. In light of this, the Committee recommends:

Recommendation No. 3

That CIDA proceed with its various specific measures designed to correct the shortcomings identified in its project planning and design phase and that it prepare an interim report on progress of these corrective measures and that the Agency submit the interim report to the Standing Committee on Public Accounts by March 31, 2002.

The audit found that CIDA does not normally cancel project agreements for projects in serious difficulty. From inception to implementation, a large project can take anywhere from one to five years. These large projects involve considerable expense and effort for both CIDA and the host country. Considering the large investment in resources and the short-term costs associated with cancellation, CIDA seldom, if ever, cancels agreements when program results are not forthcoming. CIDA does not build any formal requirement or mechanism for “off ramps” into its project agreements ― that is opportunities to proceed with the project or withdraw. The witnesses for the Office of the Auditor General acknowledged that CIDA has started exploring this option but no one is certain how far CIDA has progressed on this issue.

Mr. Bassett agreed that the introduction of “off-ramps” in project agreements was an extremely helpful suggestion. He agreed that CIDA needed to be more realistic in terms of results expectations and the time frame within which the results are to be achieved. Usually, development projects take considerably more time than anticipated. CIDA claims that it has already started to apply this approach for some of its larger project agreements, and is planning to introduce this as part of its professional service agreements. With this in mind, the Committee recommends:

Recommendation No. 4

That CIDA include in its project agreements, provisions allowing formal review mechanisms based on a project’s actual performance that would allow CIDA to decide whether to continue or withdraw from a project.

The Committee was interested in cases of contracts that were non-compliant with the contracting policy regarding former public servants. The audit revealed that CIDA had identified 10 non-competitive contracts with former public servants who were receiving a pension. This contravened CIDA’s own delegated authority because the Agency did not obtain prior Treasury Board approval, as required for contracts with former public servants in receipt of a pension, if the contract is non-competitive and if its value exceeds $25,000. The Committee acknowledges CIDA’s own efforts at identifying such cases and the preventive measures it has taken in order to avoid such situations from recurring.

Nonetheless, the Committee is concerned that such a situation would arise in the first place. Particularly troubling was that CIDA own investigations were hampered by the absence of a central or departmental registry that identified former public servants who were receiving pensions or had received a retirement incentive package. CIDA had to rely on its own institutional memory in order to identify non-compliant cases. However, the Agency’s own records could not be extended to identify, on a consistent basis, former public servants from other departments who received CIDA contracts. It makes it very difficult to consistently apply the federal government’s contracting policy guidelines throughout all departments and agencies, without accurate information on former public servants in receipt of pensions and retirement incentive packages. This leads the Committee to recommend:

Recommendation No. 5

That in order to better support and enforce federal contracting policy guidelines, particularly those concerning service contracts involving former public servants, Treasury Board Secretariat evaluate the feasibility of establishing a centralized registry that clearly identifies former public servants in receipt of a pension paid pursuant to the Public Service Superannuation Act or lump sum payments pursuant to early departure incentives.

Conclusion

The Committee acknowledges CIDA’s efforts in addressing the issues identified in the audit, but remains concerned with the Agency’s tendency to apply due diligence on an more or less ad hoc manner in the planning, selection and execution phases of project agreements. This laxity regarding adherence to rules and regulations undermines Parliament’s and the public’s confidence in CIDA’s ability to properly and fairly manage the public funds at its disposal. In the interest of transparency and accountability, CIDA must ensure that it applies its policies and practices on a more consistent basis. The Committee fully expects CIDA to carry out all the required initiatives and report the results achieved in its accountability documents to Parliament.

Pursuant to Standing Order 109, your Committee requests that the Government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meetings Nos. 5 et 14) is tabled.

Respectfully submitted,