PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 9, 1999

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, everybody.

Today, pursuant to Standing Order 108(3)(e), we will consider chapter 26 of the December 1998 report of the Auditor General of Canada, entitled “Contracting for Professional Services: Selected Sole-Source Contracts”.

Today we have as witnesses, from the Office of the Auditor General, the Auditor General, Mr. Denis Desautels; Mr. Shahid Minto, the Assistant Auditor General; and Mr. Hugh McRoberts, Principal of the Audit Operations Branch.

From the Treasury Board, we have Mr. J. Colin Potts, Deputy Comptroller General, Comptrollership Branch; Mr. Alan Winberg, Assistant Secretary, Risk, Procurement and Asset Management Sector; and Mr. R. J. Kelly, Director of the Contract Policy Division.

Without further ado, Mr. Desautels, please give your opening statement.

Mr. L. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman.

My colleagues and I, of course, are pleased to have this opportunity to discuss the results of our audit of contracting for professional services.

The government contracts for goods and services at the rate of about $9 billion a year, and in April 1997 the Standing Committee on Government Operations tabled a report detailing a two-year study of the way the government contracts for goods and services. That report expressed concerns about the amount of sole-sourcing and recommended that our office audit sole-source contracts.

Also, in April 1997, in chapter 6 of our report, I presented the criteria and performance indicators for various aspects of the contracting process, and I also indicated a particular concern about the amount of sole-sourcing.

The audit we are here to discuss today, reported in chapter 26, was done to examine a sample of sole-source contracts to determine the extent to which they complied or did not comply with the government's own rules and regulations for contracting, with a particular emphasis on whether the decision to sole-source was justified.

On a quick word about our sample, early in the audit we determined that taking a statistical sample was simply not practical, given both the resources at our disposal and the nature of the available contracting data. At the same time, we wished to draw a sample that was unbiased. Accordingly, we developed a selection process that ultimately yielded 26 cases of contracts let in 1996 and in 1997.

In our view, the resultant sample was unbiased, in that the cases selected were chosen because they fit the selection criteria and not because they were either good or bad examples.

[Translation]

Mr. Chairman, government contracting policy is governed by two principles: first, achieving the best combination of price and value; and second, open access to ensure that all qualified vendors have a fair chance to do business with the Crown without political or bureaucratic favour. These principles are reflected in the international agreements that Canada is a part of and in the Government Contracting Regulations that form the basis of government contracting policy.

In considering our audit results, it is important to realize that the rules themselves are not at issue. The House of Commons Standing Committee on Government Operations studied the situation for two years and recommended only one change in the rules, namely a reduction of the threshold for sole-sourcing from $30,000 to $25,000. The government made that change. Additionally, in our 1997 chapter on contracting, we examined the rules governing the contracting process and concluded that they were reasonable, a view with which the Treasury Board Secretariat concurred in their response to that chapter.

These rules, the Government Contracting Regulations, make it very clear that competition is expected to be the norm in contracting. They state that departments must solicit bids for all contracts except in four very specific circumstances: first, if there is a pressing emergency; second, if the contract is for less than $25,000; third, if it would not be in the public interest to solicit bids; and finally, if only one firm or person is capable of performing the work.

Treasury Board's contracting policy also states that if a department does use any of these four exceptions as the basis for awarding a sole-source contract, it must fully justify this course of action.

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The policy provides the exemptions to the norm of competitive bidding necessary to permit managers to respond to operational exigencies. At the same time, it encourages the competitive process that provides all with the best guarantee that the principles of fairness and best value will be achieved.

[English]

Treasury Board data on contracting for the 1996 and 1997 calendar years appeared on the Internet in December 1998. These unaudited data indicate that since 1995, the level of sole-sourcing has been decreasing. Still, according to the 1997 data, in that year professional services contracts for $25,000 and above, worth approximately $1.3 billion, were sole-sourced. This number is made up of $0.5 billion dollars in contracts sole-sourced without an advance contract award notice and $0.8 billion sole-sourced with one. It's important however to stress that the contracts in our sample were let during 1996 and 1997, the period covered by these more recent statistics.

We audited a sample from five departments of 26 sole-source contracts for professional services let during 1996 and 1997. These contracts had a total initial value of $16 million. We observed practices that do not reflect open access to contracting opportunities with the federal government. More specifically, we found, first, many instances in which needs analyses, definitions of requirements, and procurement planning were inadequate, combined with little evidence of contract management; second, over two-thirds of the contracts that were awarded on a sole-source basis should have been open to competition, as they met none of the four regulatory exemptions; third, management had not in most cases taken the steps necessary to get assurance that the price paid was reasonable; and, finally, in 17 of the 26 cases there was not sufficient evidence on file to provide assurance that the specified deliverables had been delivered on time and were of appropriate quality.

We were naturally distressed by these findings, and as I have stated earlier, all parties—Parliament, the government, and ourselves—seem to agree that the rules are themselves sound. However, based on our sample, it would appear departments often disregard the rules that apply to sole-sourcing. Moreover, doing so seems to involve no significant consequences for either the managers responsible or their departments.

We have concluded that the answer may lie not in making more rules, but rather in demanding more accountability from managers for the full range of considerations involved in public sector procurement.

We have recommended that deputy heads ensure that their subordinates involved in contracting understand the dual objectives of government contracting—open access and best value—and that they and their subordinates are held accountable for adherence to them. We have also recommended that deputy heads take additional steps to ensure that sole-source contracts are fully justified.

Mr. Chairman, as a closing thought, the issue here is not ultimately about rules—they are merely a means to an end. This is really about values as reflected in the two principles of government contracting policy I have just mentioned: openness of access to doing business with the crown and getting best value for the crown. It seems to me that any official who went about contracting with a thoughtful determination to achieve the optimal balance of both of these principles would be unlikely to run seriously afoul of any of the rules.

That concludes my opening statement. My colleagues and I would be pleased to answer your questions.

The Chairman: Thank you, Mr. Desautels.

I will now turn to Mr. Potts for an opening statement by the Treasury Board.

Mr. J. Colin Potts (Deputy Comptroller General, Comptrollership Branch, Treasury Board of Canada Secretariat): Thank you and good afternoon, Mr. Chairman and hon. members.

It's a pleasure to appear before this committee once again, this time to discuss the Auditor General's audit of sole-source contracts for professional services. With me today from the Treasury Board Secretariat are Mr. Alan Winberg, assistant secretary of the Risk, Procurement and Asset Management Sector; and Mr. Robert Kelly, director of the Contract Policy Division.

First I want to assure the committee that the Treasury Board Secretariat is committed to providing sound leadership in the procurement policy area. We welcome this opportunity to discuss procurement issues and are open to ideas to improve our policies. We also note and are pleased that the audit conducted by the Auditor General concluded that the rules are sound, and introducing new controls does not seem to be the solution to the concerns raised in the audit report.

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The Treasury Board's procurement policies, which apply to all departments and agencies, are based on the strong values and principles of competition, openness, equal access, transparency, fairness, and best value for Canadians. The Treasury Board's role is to establish these policies. It is departments who have the role of implementing these policies.

The Auditor General in his report has focused on a select group of 26 contracts. It's a very small number compared with the volume of procurement an organization the size of the Government of Canada undertakes. As the Auditor General states in his chapter, because ours was a selected sample, the results cannot be generalized statistically to the broader population of similar contracts.

Mr. Chairman, this chapter has focused on non-competitive procurement. However, competition is the cornerstone of our procurement activity, and in the past years competition has increased. I'd like to draw your attention to attachment 1. The chart represents the percentage of procurement above $25,000 awarded competitively for the last five years. The bars on the left-hand side of each year represent the percentage competitive by value and the bars on the right-hand side represent the percentage competitive by number.

I'd like to draw your attention to the improvements made in 1996 and 1997. From 1993 to 1995, competition averaged at around 63% to 65% by value and number of contracts above $25,000. For 1996, 83% of the value and 76% of the number of contracts above $25,000 were competitive. For 1997, 89% of the value and 82% of the number of contracts above $25,000 were competitive.

If you turn now to attachment 2 in my statement, you'll see how Canada's fulfilment, in terms of competition, transparency, and access, compares favourably with our major trading partners. If you look at the pie chart on the left-hand side you'll see that the European Union's level of competition is 51% for 1997. If you look at the right-hand side you'll see that the level of competition in the United States is 62.8% for 1997. In 1997, for the contracts here, including all contracts, whether they were above $25,000 or below $25,000, the level of competition for Canada was 80.3%.

I've also tabled, as an attachment, the aggregate government-wide contracting activity reports for 1996 and 1997. That is attachment 3, which we placed on our Internet World Wide Web site.

Mr. Chairman, the Auditor General says the rules are sound. Our policies are among the best in the world. However, to ensure the rules remain sound, we do recognize that some policies need adjustment to improve efficiency and effectiveness. That is why we're working on reforming and modernizing procurement. To assure sound implementation, we are committed to developing a program of training and certification for procurement specialists in departments and establishing mandatory orientation on procurement policy, principles, values, and best practices for responsibility centre managers involved in procurement.

We are taking steps to improve access to procurement information and are strengthening and monitoring the policy. We will also ensure the harmonization of our policies with the provisions of the trade agreements. In summary, we're working to ensure that our policies and their implementation remain world-class.

Thank you, Mr. Chairman. We'd be pleased to respond to any questions.

The Chairman: Thank you, Mr. Potts. I'm sure there will be lots of questions.

We'll start with Mr. Mayfield, for eight minutes, please.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you very much, Mr. Chairman.

I'd like to first of all ask a question of the Auditor General. In your submission, sir, you mentioned your audit is for services. That included no goods. Is that correct?

Mr. Denis Desautels: That is correct, Mr. Chairman.

Mr. Philip Mayfield: Just to go on with that, sir, I would like to ask you your response to the Treasury Board response to your audit. Do you consider that to be an adequate response, that the bases are covered now? Do you feel the numbers he has offered in this chart are adequate to meet your concerns?

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Mr. Denis Desautels: Well, Mr. Chairman, I'd like to say three things in answer to that question. First of all, I'm pleased to see there have been improvements with the data we have now been given for 1996 and 1997 in the level of sole-sourcing. It has gone down.

We're also pleased to see in Mr. Potts' statement today that the Treasury Board Secretariat is going to be taking additional steps to improve that performance even further.

But, thirdly, I would have to say we do have a disagreement with the figures put forward today by Mr. Potts, and it has to do with how you treat what are called ACANs, advance contract award notices. The percentages increased, I think substantially, in 1996 and 1997 because to a large extent there was real improvement, as I mentioned initially. But, in addition to that, what are called ACANs have been included as contracts being let out competitively.

I guess we could have a good discussion about whether or not that is correct. We feel that ACANs are really a form of announcing that certain contracts were let out without tender. So its purpose is to provide transparency to contracts that are let out without tender, but it doesn't make a contract let out without tender a competitively bid contract, in my view. That's an area where we have a disagreement.

Mr. Philip Mayfield: I appreciate that, sir.

I'd like to ask a question of Mr. Potts and his colleagues from the Treasury Board. The list of rules for sole-sourcing is not long and it's not complicated. These rules have been looked at, and I think the only change that was made is that the amount for sole-sourcing was lowered from $30,000 to $25,000, which seems to go in the same direction the Auditor General is going with his comments.

It really makes me wonder. When I phone people in federal departments about constituency concerns, often the response I get is, well, we are administering the act; we're following the rules. As frustrating as that may be in certain instances, there's a good deal of comfort in that. When I look at the Auditor General's report and see that—well, blatant may be too strong, but I'm not sure if it's too strong a word—disregard for the rules and the way the contracts are let, I'm wondering how this can be.

The audit results show that the contracting files did not contain the documentation required by the Treasury Board Secretariat to justify these sole-source contracts. I'm wondering, considering that at least the ball starts from your end of the court, what are you doing, what steps are you taking, to ensure that the documentation, the files containing the necessary documentation, are complete and available?

Mr. Colin Potts: Mr. Chairman, as I said in my opening statement, the actual implementation of the policies does rest with the departments, and that is a very fundamental precept. But let me add to that. In terms of recent initiatives we have started—and I referred to these also in my opening statement—there is an area of training, where we have a role to play to ensure that procurement officers, contracting officers in the departments, are trained, are familiar with policies. We are implementing a process to—

Mr. Philip Mayfield: Mr. Potts, if I may interrupt you, the rules as I see them here for sole-sourcing are four in number. None of them is a line long. It's not very difficult for me to understand that, and I'm certainly not a professional in this area. It would seem to me that someone who is involved in this would at least have the ability to know what the basic rules are, and that simply more training is not the answer. There seems to be a lack of will to abide by the rules, and I would like to know why that is the case.

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Mr. Colin Potts: You say there's a lack of willingness to abide by the rules, sir. But I have to say also with regard to these non-competitive requirements—there are four of them, and they're very short statements as to what is required—I think, generally speaking, the officials are aware of them and would apply them.

The sample the Auditor General looked at was very small compared to the amount of contracting that was undertaken by the government. We're looking at 26 files out of a total for contracts—

Mr. Philip Mayfield: What was the number the Auditor General mentioned?

Mr. Colin Potts: He looked at 26 files. From those five departments, it was in the order of 9,000 contracts. This was a very small sample and a—

Mr. Philip Mayfield: It seems to me to be a strong indicator for the type of problem the Auditor General is pointing at. If he has taken a sample and gone out of his way to say that this is not a sample to point to the worst or the best, but it's a fair sample, then we might assume that there is a good deal of legitimacy in the numbers he brings forward. So, please, let's not talk about who's doing it worse than we are; let's not talk about how small the sample is, because it is a legitimate sample. Let's talk about what the problem is. Why is there not a will to abide by the rules?

Mr. Colin Potts: I believe there is a willingness to abide by the rules.

Mr. Philip Mayfield: But the evidence is that it's not happening.

Mr. Colin Potts: I'm sorry, I guess we do have a disagreement on the sample, and I think Mr. Winberg, who is—-

The Chairman: I think, Mr. Potts, the question is not about the sample but about the fact that a large number in the sample indicate that the rules are not being abided by. I think that's Mr. Mayfield's question.

Mr. Colin Potts: Mr. Chairman, I will come back to the point that we're looking at a very small sample and a very directed sample. This was not even representative of all professional service contracts. This was a sample that was selected for contracts for intangible services, such as advice. We're into a very narrow slice of the total contracts—

Mr. Philip Mayfield: I don't think we're making progress.

I would like to turn to the Auditor General and his colleagues and ask for his opinion on this sample, whether it is a matter of not understanding the rules or the sample is not a fair sample of the whole situation. Sir, could you advise us on this, please?

Mr. Denis Desautels: Mr. Chairman, I think we could provide the committee with more details on how we went about selecting the sample. While we say in our report that it does not represent a statistical sample that can be projected for the whole population, we have taken sufficient precautions to make sure it's an objective sample. We've also taken sufficient precautions to ensure by discussion with the people in the five departments concerned that what we found in this sample was generally representative of the way they saw their environment and how they manage contracts generally. So we feel quite confident that the situation we're describing here for the committee is quite representative of what was going on in the five departments we selected.

If you look at some of the tables we have in the chapter, you will see that in some cases it's well over 50% of the contracts that failed a certain test. So it's not as though it's just a marginal thing. In many cases, on some of the issues it's almost 75% of the contracts that failed a particular test we think they should have passed.

So on the whole, Mr. Chairman, I think we've been fair. I think what we have found is a pretty good representation for purposes of the committee and the House of what was taking place in those five departments.

The Chairman: Thank you, Mr. Mayfield. Sorry we're out of time.

Mr. Myers, eight minutes please.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you, Mr. Chairman.

Mr. Desautels, I want to pursue this sampling of 26, because I think it's a very important point. As I understand it, you drew those samples from a small subset of professional services that were non-material in nature. Is that correct? I want to understand you clearly when you say—and I think I heard you say this just a minute ago—that sufficient precautions were taken and it was objective, unbiased, and such. At first blush, when you see those kinds of numbers, 26 versus the number of contracts that are really out there, it doesn't seem to be representative and fair. On the contrary, it seems as if it was highly selective. You stated in point 4, for example, in relation to this sample, that you were trying to be unbiased and such, but it doesn't appear that way. I wondered if you could clarify that for us, because I think it's a very important point.

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Mr. Denis Desautels: I'd be quite pleased to do that, Mr. Chairman, and I'll ask Mr. Minto to do that.

I'd just like to add one little detail for Mr. Myers' information before turning it over to Mr. Minto. We did have to restrict the size of the sample. We would have preferred to have many times more than 26 items in the sample, but you should take into account the fact that it took us from 100 to 150 hours per contract to actually audit it properly. So each item we selected represents a fair bit of work in terms of auditing it from A to Z. This is why in a sense we stopped at 26.

But I'll ask Mr. Minto to explain.

Mr. Lynn Myers: If I might interrupt, I understand the time constraints here, and that's a very valid point, but when we start to extrapolate and make wide generalizations based on this very limited sample, I think we have to be very careful. I would like to hear precisely and definitively whether those extrapolations and generalizations can in fact be made.

Mr. Denis Desautels: I think Mr. Minto and Mr. McRoberts can do that for us right now, Mr. Chairman.

The Chairman: Mr. Minto.

Mr. Shahid Minto (Assistant Auditor General, Office of the Auditor General of Canada): Mr. Chairman, with your permission, sir, I will give you one specific example, just to clarify, and my colleague, Mr. McRoberts, will then provide the details.

Policy 10.2.6 of the Treasury Board says:

Any use of the...exceptions to the bidding requirement should be fully justified on the contract file or, where applicable, in submissions....

The Department of Public Works then takes this requirement and puts it in its policy manual and says under sections 5.038 and 8.009 that the supply manual requires procurement officers to determine the acceptability of the rationale for sole-sourcing before proceeding to contracting on a non-competitive basis. So that's pretty straightforward. Here is the requirement; this is what you want to do.

In addition to the work we have done, sir, the Department of Supply's own internal audit has just published in January 1999 their internal audit report on the study of ACATS. This looked at 288 samples, not 26, and they found that in 79% of the cases there was no evidence on file that this requirement had been met. So it's not a question of just 26.

But in relation to the 26, my colleague, Mr. McRoberts, will explain.

The Chairman: Mr. McRoberts.

Mr. Hugh McRoberts (Principal, Audit Operations Branch, Office of the Auditor General of Canada): Thank you, Mr. Chairman.

The sample used 26 cases distributed over five departments. Practicalities precluded anything much larger. The sample is certainly not a random sample. As we indicated in paragraph 26.18, the nature of the information maintained in central agencies in most departments precluded that.

So what we did was the next best thing. We asked the departments to give us a list of cases that were close to our criteria. First of all, they were to be for an amount in excess of $25,000. They were to be let on a sole-source basis, let in fiscal 1996-97, and for professional services of a non-material or intellectual nature; that is to say, things such as doing audits, providing financial analysis, providing advice, or doing work on IT systems, as opposed to paving driveways or putting roofs on buildings. So those were the areas we looked at.

We did that in response to the desire to begin looking at sole-source contracts, as we were requested to do by the standing committee on government operations, and on a risk analysis that identified this particular type of contracting as potentially higher risk than most.

From the lists that were provided to us by the departments, we selected 10 cases, and using the files we attempted to verify their eligibility. From there, within the 10 cases, we sampled the first five cases from the initial 10 that fit the criteria. Ultimately, this led to a sample of 26. While the sample is not random, neither is it biased. We took the cases as they came and did not try to select them because of their goodness or their badness. In essence, it was a form of quota sampling. They came. We took them.

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When reaching conclusions on an audit sample, we as auditors consider a number of factors in addition to the numbers themselves. In this instance we looked at the control environment in the departments that gave rise to the contract. We considered the responses to inquiries given by managers and by the departments. The results pointed overwhelmingly in one direction. The responses suggested that the departments did not view the practices we observed as being unusual. Considering all of the evidence then, nothing came to our attention that would have led us to believe that the way in which the department handled the contracts in our sample was different from the way in which they were treating other contracts of a similar nature.

The Chairman: Thank you.

Mr. Lynn Myers: Mr. Chairman, I'm sorry. I want to make a point. I saw the press release that came out December 1 from the Auditor General. The title was “Contracting for Professional Services: Government Managers not following the Rules”. It struck me at the time that it is a pretty wide brush you're painting there based on a very limited sample. Having said that, I want to ask the Treasury Board people, why didn't you bring this to the Auditor General's attention earlier on? Why didn't a red flag go up? Why didn't you say, wait a minute, this is much too limited and the kind of generalizations that are now going to be extrapolated as a result are a danger?

Mr. Colin Potts: Mr. Chairman, if I may, I would like Mr. Winberg to answer that question.

The Chairman: Mr. Winberg.

Mr. Alan Winberg (Assistant Secretary, Risk, Procurement and Asset Management Sector, Treasury Board of Canada Secretariat): Based on what the Auditor General people have said, it is very clear that this is a very small slice of the professional services contracting that goes on in the government. In fact, in the audit itself it says that this is a very particular high-risk section of the larger number of professional services contracts. I too was concerned to read a headline that said “Professional Services Contracting: Managers not following the Rules”. I do not believe the work done using this unbiased sample of 26 contracts of this tiny part of the professional services contracting in any way justifies the headline of that press release.

In terms of why we wouldn't have raised our concerns with this methodology to the Auditor General at the beginning of the audit, as we usually do, we had no such occasion presented to us at the beginning of this audit to review the methodology that was planned or the very limited and non-random sampling methods used, which restricts enormously, in my opinion, the ability of a user to make any kind of generalization outside of these specific 26 high-risk special contracts, which they're terming as “non-material”.

The Chairman: Thank you.

I'm sorry, but you're time is up, Mr. Myers.

Mr. Cardin.

[Translation]

Mr. Serge Cardin (Sherbrooke, BQ): When the Treasury Board Secretariat agreed to lower the ceiling from $30,000 to $25,000, it had clear goals in mind. The tendering process aims to make contracts accessible for more people and to help ensure an optimal value for services.

However, we're talking here about professional services contracts. I would like to know if the sole-sourcing rules are the same for the procurement of goods and if they're similar for all departments.

Mr. Denis Desautels: It's essentially the same rules, Mr. Chairman.

Mr. Serge Cardin: About the contracting rules, do you have any reason to believe, following your internal audit on professional fees, that the situation is about the same for the goods contracts awarded by the different departments? We know that those rules are meant to ensure accessibility for a lot of suppliers, a lot of people offering services or selling goods to the government.

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We know that the decision not to solicit bids can imply costs for the government departments. These costs are high because the goods contracts are worth about 30 billion dollars for the whole government, and the services contracts about 4.4 billion. The decision not to tender can therefore be pretty costly but, according to your audits, there's a high percentage of contracts awarded on a non-competitive basis. How much money can that represent for the whole government?

Mr. Denis Desautels: Mr. Chairman, we have audited in the past some of the contracts awarded by the government. We had a close look at that matter in 1991. We concluded at the time that the government could save a lot of money through tendering; the savings could be as high as 25% of the contracts worth.

The work we've done on services contracts in 1998 doesn't allow us to come to any conclusions regarding the goods contracts. We intend to continue auditing the government's contracting function every year and we'll eventually study the procurement of goods. It's a matter of time.

Mr. Serge Cardin: We know that the potential amount is enormous since we're talking about some 30 billion dollars in contracts for professional services, or for goods. If about 40% of those contracts are not awarded competitively, even if they should be, and supposing that the loss is only 10%—although you've mentioned it could be as high as 25%—, it would mean hundreds of thousands of dollars.

Mr. Potts is telling us that auditing only 26 files was probably not enough. Do you think the parties could agree to go further, to proceed to a more thorough investigation, to choose a larger sample and a larger number of files, for services as well as goods contracts?

Mr. Denis Desautels: Mr. Chairman, the procurement of goods and services is a very important government activity. As Mr. Cardin has just said, the amounts are very significant, and it has to be audited and controlled regularly. The existing rules seem reasonable. But people have to be conscious of the importance of following those rules.

On the one hand, as Parliament auditors, we must include that kind of work in our auditing programs, but on the other hand, the internal government services must also audit that activity regularly. As Mr. Minto has said earlier, there have been internal audits, on a sample even larger than ours, with the same conclusions.

So it's an area that has to be audited constantly because the amounts involved are so important.

[English]

Mr. Colin Potts: In terms of the monitoring issue, I think that's important, and there are large dollars involved in contracting, sir.

I would correct one number. The total value of contracts awarded in 1997 was $9 billion, not $35 billion, and that includes goods, services, and construction. But that's still very significant dollars. In fact, and I mentioned this previously, in the area of monitoring, we have committed to Treasury Board ministers to put in place a monitoring framework whereby we would be asking departments to undertake some monitoring activities to ensure that the rules are being followed. This is part of a plan that has already been agreed to. I see a role here for an internal audit in various departments as part of their responsibilities. The Auditor General from time to time, as the “external auditor”, also looks at these and draws these issues to our attention. It's all part of that monitoring process.

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[Translation]

Mr. Serge Cardin: So, am I wrong when I say that the government buys for 30 billion dollars worth of goods and services?

Mr. Alan Winberg: Our last figures indicate that the goods and services contracts awarded every year represent about 9 billion dollars.

Mr. Serge Cardin: Not more than that? There is a big discrepancy. I'll have to check my figures. Thank you.

Mr. Denis Desautels: I agree with the figures Mr. Winberg has just mentioned.

Mr. Serge Cardin: Fine.

[English]

The Chairman: Mr. Harb.

I think we're finished the first round now, so we're down to four minutes.

Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much.

My question is, does the $8.7 billion include the crown corporations and agencies or just simply the departments?

Mr. Alan Winberg: No, it doesn't include the crown corporations. It includes all departments and agencies.

Mr. Mac Harb: If you were to take into consideration the agencies and crown corporations, what would the figure be?

Mr. Colin Potts: I don't believe we have that figure, Mr. Harb. This information is taken from the government files, which includes, as we said earlier, departments and agencies. There are approximately 83 departments and agencies. Crown corporations basically, under their legislation, have a little more freedom and operate independently; therefore the numbers on a consolidated basis are not available.

Mr. Mac Harb: In the service sector, when you talk about contracts below or over $25,000, when you talk about professional services, does that include, say, when a department hires somebody to come in for a month and work on a filing system or just run papers around and things like that? Or is it something else? The contractor will take the work home and work on it.

Mr. Alan Winberg: No, it includes all professional service contracting, and we have a specific list with all the definitions in the Public Accounts of Canada. It includes temporary help services, security services, a whole range of professional services.

Mr. Mac Harb: So as a result of this, it must put you in a little bit of an awkward situation when you have a person who comes in and does a great job and the employer, in this particular case a department, is quite familiar with the quality of work that person is doing...you find it really difficult to say, I want to scrap you and I want to go for open bidding now; I'm going to see if I can bring in somebody else. To bring in somebody else and train him, you would probably end up losing money rather than improving efficiency. Is that something that plays?

Mr. Colin Potts: That's absolutely right, sir, and that does play, I'm sure, in the manager's decision as to who to hire in particular situations. That is certainly an issue. As there has been significant downsizing within the government and managers are under more pressure to produce, they want to get their work done as expeditiously as possible, and they will therefore perhaps want to hire someone whom they know is familiar with the area.

Mr. Mac Harb: Finally, presuming we would have turned the corner economically, and we seem to be doing a little better than before, would it be in the vision of Treasury Board to have a look sometime in the future at the contracting out in the area of services to see whether or not perhaps some of those who are now on contract might be turned into full-time public servants? Is that something you might be looking at over the next couple of years?

Mr. Colin Potts: It's not something we have presently on the books to look at, Mr. Harb.

Mr. Mac Harb: Thank you very much.

The Chairman: Thank you, Mr. Harb.

Mr. Mayfield.

Mr. Philip Mayfield: Thank you very much.

Mr. Winberg, I believe you said that you, or the department, had no opportunity to object to the methodology of this audit. Is that what you said? Is that correct?

Mr. Alan Winberg: The Auditor General decides how to do his audits. But in general, there would be a meeting at the beginning of an audit in most cases in which the methodology is presented and there's a chance to make a comment about it. There was no chance in this audit for me.

Mr. Philip Mayfield: It seems to me that there wasn't a lot of response after the audit either.

I would like to ask you, Mr. Minto, is that your assessment of what's happening here in this relationship between the Auditor General's department and Treasury Board at the beginning, during, and after this audit?

• 1620

Mr. Shahid Minto: Mr. Chairman, with your permission, sir, I would say two things.

We did a previous chapter on contracting. Very clearly, the response we got back from Treasury Board was that if we were going to look at the implementation of policies, that is the responsibility of the departments; we should talk to them, order them, and hold the deputy ministers accountable. That was Treasury Board's official response, as per the testimony. In this case, sir, the House standing committee and everybody else had agreed up front that there was no problem with the rules in our previous audit work and what we were definitely looking at was implementation.

In addition to that, sir, may I just draw your attention to paragraph 26.25? Under this paragraph, it is Treasury Board's own contracting policy that says Treasury Board has the responsibility to monitor 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 [these] services.

And if you go to the next paragraph, 26.26, sir, you will find that we said:

The five departments we looked at have done some internal audit work on contracting practices, but generally not a significant level.

And towards the end of that paragraph:

We asked the Treasury Board Secretariat for its own assessments of departmental compliance, and particularly its reviews of the contracts for the services of individuals. We were informed that no such assessments and reviews exist.

So, yes, we were in touch with them and we asked them for these things, but we were not auditing Treasury Board. We were auditing the departments, and that's where we were, sir. Our discussions on the samples, on the clearances, all took place with the departments.

Mr. Winberg is not incorrect when he says we did not have upfront discussions with them, because up front we were not auditing them. The only thing we went to them for was to say that, in looking at this paragraph, they have a role for monitoring, sir, and could they provide us with these, but they said these things just don't exist.

Mr. Philip Mayfield: Some other things are coming to mind from other meetings that we've had with the public accounts committee and departments. I think of some of the problems we talked about with contracting for the new lab in Winnipeg. More recently, not specifically dealing with contracts, what I'm really looking for is why there is not more sensitivity to the rules, both by the department and by Treasury Board. To say that somebody else did it best, or that this is a small sample or not a big enough sample...these samples are pointing to instances, whether there are more or not.

I'm thinking of when we had the Y2K people in here. With all the problems there have been with all of the departments—some are at 62%, some are at 100%—I was asking them why Treasury Board does not exercise the executive authority that it has to deal with the situation. The response I got was that we have a collegial style of government, that we do this together, that we don't have somebody acting as the policeman and enforcing the rules, as they may be.

I'm really looking for why it is that these rules are not in everybody's mind, why they're not being enforced, and why there are not consequences for them not being enforced. Is there some kind of a dynamic in the way the departments work with one another, with Treasury Board, that makes this a difficult thing to do? I'd really like some insight on this if you can help me with it, please.

The Chairman: Is that for Mr. Potts to handle?

Mr. Philip Mayfield: I'd really like Mr. Potts to take a shot at that if he would, because I find this difficult.

Mr. Colin Potts: I'll certainly try to answer it, but I've been asked to comment on what's on the minds of public servants who are in the procurement activity out in the field in various departments. I can't speak for them, though. This is clearly their responsibility, so it's difficult for me.

The rules and the Treasury Board role are as was said: the setting of the policies and general frameworks in which departments operate. However, we certainly leave it to the departments, and it's the deputy minister of the particular department who is ultimately accountable for the operation of his department. He or she is the individual who then is accountable for ensuring that the policies being promulgated by Treasury Board are being followed. I can't speak on behalf of the departments.

Mr. Philip Mayfield: Mr. Chairman, just on the same question, it seems to me that when it's not being done, there should be someone who has the authority and the willingness to say it wasn't done and to ask why it wasn't done. Is there no means for doing this? Do we just meander along and let it happen as it will? There must be more organization than that.

• 1625

Mr. Colin Potts: Mr. Winberg would like to comment, Mr. Chairman.

Mr. Alan Winberg: Mr. Chairman, we are absolutely committed to providing strong policy leadership for the implementation of these policies. As a result of several months of looking at that issue, that's why we made a recommendation—and it was accepted—to put in place a systematic program of training and certification for the professional contracting and procurement officers in departments. That means we would be using existing courses and would be developing new ones that would meet the government's needs, in addition to recognizing the professional certifications that are in place, while requiring this of our procurement professionals.

The Chairman: If I can interject in regard to Mr. Mayfield's question, your statement was that departments are accountable.

Mr. Alan Winberg: Yes.

The Chairman: Well, I believe Mr. Mayfield's question was about the way in which they are held accountable.

Mr. Alan Winberg: Departments are accountable for doing the procurement activity. Treasury Board is accountable for providing this policy leadership. I would therefore like to explain the two points that we are putting in place to exercise that leadership to ensure good implementation and to advise departments of their accountabilities.

The second part of what we are putting in place is a program of mandatory orientation sessions for responsibility centre managers who have signing authority for procurement activity. In that way, we believe we are putting the tools in place so that departments can implement their accountability.

The Chairman: Let's hear what Ms. Phinney's questions are, because she says she's following up on that line.

Ms. Beth Phinney (Hamilton Mountain, Lib.): I would like to know what the word “must” means in a government context. The government contracting regulations are that the departments must solicit. Maybe the Auditor General could answer first, and then maybe Mr. Potts could answer. First, what does “must” mean? And then I'm going to ask about the consequences if you don't follow.

Mr. Shahid Minto: Mr. Chairman, if I could try that, “must” means that unless they fall under those four exceptions—and they're rare cases—they have to; there is no choice.

Ms. Beth Phinney: But they haven't, so—

Mr. Shahid Minto: Absolutely.

Ms. Beth Phinney: In your interpretation, that's what it means, but what about you, Mr. Potts?

Mr. Shahid Minto: Our interpretation is that unless it falls under the four exceptions, there is no other choice.

Ms. Beth Phinney: There's no choice.

All right, Mr. Potts, what does “must” mean?

Mr. Colin Potts: “Must” means that they must. I would agree with that.

Ms. Beth Phinney: Well, suppose I hire somebody to come into my office and I tell that person that to work in my office he or she must do this. One of the things the person must do is put down every phone call on this pink piece of paper. If that's not done, I'll give a couple of warnings, and then he or she is fired, is out, I'm sorry, but I have to have it done.

There doesn't seem to be any consequence to this word “must”. What the Auditor General has said is that he feels the deputy ministers should be held accountable, so obviously they haven't been held accountable up to now. If you didn't follow this simple rule, if the only way you could go about doing this was to follow these four steps, wouldn't the deputy minister come along and say that if you didn't follow the four steps, goodbye, here's your pink slip. Isn't that the logical consequence of not following the word “must”?

Mr. Colin Potts: That may be the logical consequence with some managers, but it may not be with others. That's a manager's discretion, I believe. If an employee did not follow the rules, the manager would decide the materiality of that discretion and could say, sorry, the employee is terminated, or maybe issue a warning. That's a managerial discretion.

Ms. Beth Phinney: Then how else can we have any kind of accountability? Maybe the Auditor General would like to answer that. What is the consequence of this? You may as well make up stories, then, if you're not going to make somebody accountable.

Mr. Denis Desautels: Mr. Chairman, I think it's an extremely important question, and I think the government as a whole has to give itself some tools to do that better. I see two possibilities. First of all, I think we need to have much better data on contracting performance on a regular basis, not two or three years after the fact, but on a timely basis. I think we need to develop and have each department publish better information on contracting performance. I don't think that's too hard to do.

The second thing is that I think the government is heading in the direction of introducing more performance factors into the remuneration of public servants in the executive category. We're talking here about having pay at risk, so an important fraction of the senior management is going to be determined based on performance. Now, if there's better information on contracting performance, I think you can in fact eventually link that performance as being one of the components to assess the remuneration of senior public servants. I think we have to find a way to link the word “must” with actual performance, and then to tie performance into remuneration. I think it's something that remains a challenge, but I think it's doable.

• 1630

Ms. Beth Phinney: Whose responsibility would it be to work towards that? Is it Treasury Board's?

Mr. Colin Potts: Treasury Board is working towards that, along with the Privy Council Office. That has been accepted. I don't disagree with the Auditor General in his assessment of the performance and the way it operates. That's the direction in which we're headed.

Ms. Beth Phinney: That's it.

The Chairman: Mr. Mahoney.

Mr. Steve Mahoney (Mississauga West, Lib.): Mr. Chairman, I couldn't possibly get all my concerns out in four minutes, but let me try to put some questions out. Whoever feels it's appropriate can then answer them—and witnesses, you might help me out and make a note or two as I go.

I'm very concerned, frankly, that I hear Mr. Minto saying we didn't audit Treasury Board, we audited the departments. I then hear Mr. Potts saying he is unable to speak for the departments that have been identified as breaking the rules, ignoring the rules. I think the statement by the Auditor General is that they often “disregard the rules”. That's pretty darn clear to me.

Mr. Potts and Mr. Winberg, with due respect, I guess one of my first questions is why you're here instead of the department heads who were actually audited, since you're unable to speak for them by your own admission. When I look at the statement that you have pulled out of the Auditor General's report, Mr. Potts, the statement in which he talks about the selected sample and the inability to generalize statistically, etc., it seems to me, again with due respect, that you're taking the good news out but are ignoring the bad news.

Having been on this committee for two years, and having seen countless reports by the Auditor General, I find that this is very scathing, and I find it very alarming. Where there's smoke, there's fire. I would go the opposite way on this. You say you can't worry about this because it's only a small sample. It seems to me that my immediate reaction as a manager would be that we'd better broaden the sample, because if there are problems going on in the small sample, just what the heck's going on in the bigger picture? I'm very concerned about that.

Frankly, I also find the rules that are here to be somewhat subjective and not in the public interest. Who determines them? Is there another set of rules that you follow to determine whether or not the public interest is being followed? Who determines the pressing emergency? Perhaps that's the government. In that situation, at least I can understand how there may need to be a political decision to do something to solve a crisis. If you have an ice storm and you have to get some bids to take care of things, I guess that would be more clear. But I think there is some subjectivity in this.

Quite frankly, I had a list of questions, but having heard the answers and the inability of the gentlemen who are here to speak for those who were audited, I am very concerned about this.

There's a question or two in there somewhere.

The Chairman: I think there is one in there, Mr. Mahoney. We had departments here before committees some weeks ago, though, and now we're talking to the central agency, to Treasury Board, so why don't you get—

Mr. Steve Mahoney: That's fine, but the point is that if we're talking to representatives from a central agency and their response is that they can't answer for the departments, I have better things to do than sit here and be told that they can't answer.

The Chairman: Why don't we take your questions one at a time, quickly, and we'll get quick responses in order to try to get through as many questions as we can. What would your first question be?

An hon. member: He forgot.

Mr. Steve Mahoney: No, I haven't forgotten at all.

I guess the first one would be to Mr. Potts. Do you agree with paragraph 12 in the Auditor General's report in which he says that it would appear “that departments [often] disregard the rules”? If you agree with that, what are you doing to change that around?

The Chairman: If you keep it to a quick statement, Mr. Potts, we'll try to get through as many questions as we can.

Mr. Colin Potts: Sorry, that was paragraph 12 of the Auditor General's statement?

Mr. Steve Mahoney: I'm sorry, it's on page 5, in the opening statements, in which he says it would appear “that departments [often] disregard the rules that apply to sole-sourcing”.

Mr. Colin Potts: Well, I would come back again to the size of the sample. I don't believe you can make such a general statement on a very small sample of 26 contracts that were very narrowly defined in the selection process. I don't think it's representative.

• 1635

The Chairman: Mr. Mahoney did say that when you find a problem in the small sample, the first thing you think about is perhaps we should do a big sample.

Mr. Steve Mahoney: I appreciate your help in interpreting my questions, but I'd really like to know if what you're saying here is that you don't agree with the Auditor General. Is that what I'm hearing you say?

Mr. Colin Potts: On that statement, based on the evidence, which is a very small sample.

Mr. Steve Mahoney: Do you have concerns that if they have found this out in a small sampling there should be an investigation, an audit, something done to see if this is a widespread problem? If you're right, then that's good news, but I don't know if you are.

Mr. Colin Potts: I think the other thing that has to be borne in mind, Mr. Chairman, is that in the number of contracts that are let, I don't believe we can expect 100% compliance. I think that would be expecting too much. The 26 issues that were selected were issues in a very narrow selection process in the high-risk contracts where it is difficult to come up with definitions, etc. I think that lends itself to this sort of conclusion, and perhaps some more work could be done in that particular area. I'd like it to be broadened to find out whether or not this is a more widespread issue.

Mr. Steve Mahoney: You will appreciate that being on the government side, I'm hardly looking to create problems and go on some kind of witch hunt. But I think I heard a figure of 79% of the departments that were examined turned up problems. That's not a small sample in terms of percentage.

Mr. Alan Winberg: If you look at the chart we distributed with the opening statement, and it gives the full picture looking at more than a million contracts over the five-year period, you will see that the first three years of the period we were at about 60% competitive as opposed to the case in the last two years. There was a lot of activity that took place in 1995 to improve the contracting process. Meetings were held with deputies. Meetings were held with people throughout the system, and a lot of attention was given to the fact that they were sole-source contracts that could have been let in a competitive manner.

Also, at this point, the electronic bidding option and tool was put in place and people were trained on the use of that. That led to an improvement that is remarkable over the last two years, in which in the 1997 figure we went from 65% of the value of contracts being let competitively to 89% of the value of our contracts being let competitively. We recognize the type of problem the Auditor General is pointing out, in 1995 and 1994, at the beginning of this series. We have taken dramatic actions and make much more use of the electronic bidding, and this has led to the remarkable improvement that has occurred in the amount of sole-source contracting. When compared with our trading partners in Europe and the United States, we are making progress much faster than one would have expected.

Mr. Steve Mahoney: That's a lot better than “sorry, I can't answer because it's the departments”. I appreciate that.

The Chairman: I think Mr. Minto has something he wishes to add.

Mr. Shahid Minto: Mr. Chairman, let me just verify two quick things. We seem to be repeating a word again and again and people seem to be getting convinced that we looked at a high-risk area. Mr. Chairman, what we looked at is saying that the policy of the Government of Canada and of the regulations is that you must solicit bids, and if you don't solicit bids it's only if those four exceptions applied. We went to the areas where bids had not been solicited. The presumption is they were not solicited because those four exceptions applied. That is not a high-risk area.

If a Swissair flight goes down and Transport Canada has to get barges, it applies those exceptions and gets them. That's fine. That's what they're meant for. This is not a high-risk area just by definition if you are not tendering. The idea here was that if you are tendering, you have to be doubly careful that those four exceptions apply. Therefore, there is no such thing as a high-risk area that we looked at, sir. We looked at these areas and asked what happens.

• 1640

The second issue I want to raise is on the numbers. In fairness, sir, let me just say quite sincerely that the numbers we have in front of us are just high-level summary numbers. For us to say whether this has happened, whether the numbers are valid, about the integrity of the numbers, we would have to see the backup. Unfortunately that has not been made available. All we see is the summary-level numbers. If the numbers are right, I think there's progress, but as an audit office, we cannot at the moment give you assurance that those are the numbers. As we do audits in the future, we will look at the validity of these numbers.

The Chairman: Okay, thank you, Mr. Mahoney, and thank you, Mr. Minto.

Could we get back to paragraph 26.26 and the Treasury Board's policy that requires that the Treasury Board Secretariat conduct periodic reviews of contracts for services of individuals, including those for less than $5,000, which is what I think the policy is. You've been trying to put a lot of emphasis on the fact that only 26 contracts being audited is so small that you can't form an opinion based on that. But as Mr. Minto pointed out, you're not even following your own policy of doing audits and reviews to see that the policy has been followed. Why aren't you as a Treasury Board fulfilling your own policy?

Mr. Alan Winberg: Can I take that? Before I answer the immediate question, I can't let go the comment that was just made, because it was in regard to my comment that they audited high-risk contracts.

At paragraph 26.18 of the Auditor General report, last sentence, I'd just like to quote:

...indicated that sole-source contracts for professional services represented a particularly high risk and, accordingly, they became the focus of this audit.

So the professional services contracts they looked at they said were high risk.

The Chairman: Okay.

Mr. Alan Winberg: Now back to the issue of the Treasury Board monitoring of our policies. We were very concerned when we saw the numbers coming out of our own monitoring, which is on an annual basis, to ensure that, although it was only 11% of the value of the contracts, we were taking every step possible to provide leadership and ensure that departments had the tools they needed.

The Chairman: So you're telling me that you do monitor?

Mr. Alan Winberg: Every year we look at the contracting figures that come in from departments on their contracting activity and we publish them on the Internet. The Auditor General used the 1995 figures. The 1996 and 1997 figures, which are available for the overview, were published on the Internet in December, and we will soon be releasing—

The Chairman: But I don't think that publication is meant to be that you're reviewing the contracts. Your policy states that the Treasury Board will conduct periodic reviews of the contracts, not that you make them public—that you conduct a periodic review, presumably to see that the four criteria are being met. Now the Auditor General in paragraph 26.26 states “We were informed”—presumably by the Treasury Board—“that no such assessments and reviews exist”. My question is, is that correct?

Mr. Alan Winberg: Yes, we use the departmental internal audit reports that do get done—overtime—and we do analyses of these reports.

The Chairman: Okay, let me turn to the Auditor General. So they're doing a review of the internal audit of the review of the contracts. Would you feel that's meeting their policy?

Mr. Shahid Minto: Mr. Chairman, let's just look at the first part of paragraph 26.26. It says:

We found...that...the five departments we looked at have done some internal audit work on contracting practices, but generally not at a significant level

Really, there hasn't been that much done. So if they're drawing assurance from an insignificant amount of audit activity there, I don't know why we are getting concerned about a sample of 26.

The Chairman: Okay. So it would seem that the Treasury Board is just taking the departmental numbers and saying things are fine; therefore you're quite happy that things are fine.

I'm sorry, but that's the impression I'm getting, because when I take a look at paragraph 26.4 and, hey, it may be a small sample, but two-thirds out of the sole-source contracts audited did not conform to the exceptions allowed—two-thirds of 26. As Mr. Mahoney says, when you have a problem with a small sample, that should first of all suggest that you may think about a big sample.

Mr. Alan Winberg: Yes, but it wasn't a random sample. A random sample of 26 contracts would yield 80% of them having been let competitively.

• 1645

The Chairman: But I come back to your point that Treasury Board rules say you should review the contracts. You find in a small sample that two-thirds do not appear to meet the criteria. Are you going to conduct a full-scale review to find out how detailed this problem is if you don't believe 26 contracts is a sample?

Mr. Colin Potts: Mr. Chairman, at this stage, we have no plans to conduct any further review on a larger sample basis.

The Chairman: But you're disputing the fact based on a small sample. The inference is certainly that there are serious problems, and yet you're not interested in doing a large review.

Mr. Colin Potts: That's correct.

Mr. Alan Winberg: We will be monitoring the internal audit work that goes on in departments and assessing whether any further action is required.

If a random sample had been pulled of professional contracting activity, which was large enough to be representative, it would find that 89% of the value of those contracts were let competitively.

The Chairman: You're including ACANs in that. The Auditor General says that by virtue of the fact that you've posted on ACANs, which says you're letting a sole-source contract out, you're considering that to be a competitive contract when you're just giving notice of the fact that you're giving a sole-source contract. How can you consider that competitive?

Mr. Colin Potts: Let me correct that, Mr. Chairman.

At the time of posting the ACAN, the contract has not been let. The contract is not let until after the notice is posted as an ACAN and the required period of time has lapsed. If other suppliers respond to the announcement, then it's a requirement under the policy that the department turn the contract into a full competitive process.

The Chairman: I have in front of me a copy of a MERX opportunity abstract, and right on here it says this is not a competitive bid solicitation. That's why I used the terminology. ACANs are about posting non-competitive bids rather than making the bid competitive, and it's right on there that this is not a competitive bid solicitation.

Mr. Alan Winberg: Mr. Chairman, the use of an advance contract award option makes the proposed procurement completely transparent, as noted by the Auditor General. In addition, the posting of the advance contract award notice makes potential bidders aware of the procurement and allows industry an opportunity to participate in the procurement. If the procurement is transparent, if industry is aware of the opportunity and if they have the opportunity to participate, we believe the contract should be deemed to be competitive.

The Chairman: Therefore, would you remove this statement that this is not a competitive bid solicitation?

Mr. Alan Winberg: Yes, in fact we will be ensuring that such statements are not made in ACANs in future.

The Chairman: As to the other questions I have, again, included in the same thing, you have “The Crown reserves the right not to open this procurement to competition”.

Mr. Alan Winberg: Yes, Mr. Chairman, that is an example of a case where Treasury Board policy was not being followed, and we will take action and have taken action to ensure that if a valid challenge is made under an ACAN it will be opened to a proper and full competition.

The Chairman: Moving on to the concept of $25,000, that anything over $25,000 should go out for competitive bid, why are we seeing non-competitive bids in the hundreds of thousands of dollars?

Mr. Alan Winberg: Security—only one firm.

There are four reasons why it may make sense in certain circumstances to issue a contract without soliciting bids. In general, competition is the way we would meet our requirements, but in the example that was raised by the member of the committee, during the ice storm, generators were required as a pressing emergency. That equipment was purchased without soliciting bids.

The Chairman: But I'm taking a look at the National Defence one, on page 26-11 of the Auditor General's report, and I'm quoting:

Initially, two separate contracts were let on a sole-source basis to an outside organization that then retained the services of two retired departmental employees. Obtaining the services of these particular former employees under the contract was explicitly intended, based on their familiarity with the function.

Then it goes on. It's a two-year contract, $265,000, based on the fact that these people are supposed to have the knowledge. The contract was very tightly written. Then we find out that it was so tightly written that even these two people didn't qualify.

• 1650

After the contract had expired, another $0.5 million of work was done. The contract was extended on a verbal basis and it was paid for because they were on the hook. So the rules were broken all over the map on this particular contract.

Mr. Alan Winberg: A main theme of the program of training we are putting in place and the certification of procurement experts will be to ensure that they give proper advice to responsibility-centred managers, so that the four good reasons for sole-source contracts are followed.

Mr. Steve Mahoney: The Auditor General is trying to get a word in on a number of your questions.

The Chairman: My apologies, Mr. Desautels. Did you have something to say?

Mr. Denis Desautels: No, I guess my body language was reacting—

Mr. Steve Mahoney: When you put your hand up, I assume you don't want to go to the washroom.

Mr. Denis Desautels: I was reacting to what was happening under ACANs. Some of the changes that have been explained that will be made in the rules certainly did not exist in 1996, 1997 and 1998, so people were not invited to bid on ACANs. As you read, Mr. Chairman, I think that was quite clear.

If we had taken even a sample of 10,000 contracts in 1996 and 1997, we would not have changed the figures a whole lot, as far as I'm concerned. I still would not have considered ACANs, as they were done then—I'm not even sure about the future—as competitive bids.

The Chairman: Mr. Mayfield.

Mr. Philip Mayfield: Thank you, Mr. Chairman.

I'm still thinking about this small sample that seems to be troubling you so much. I heard you say, Mr. Potts, that you can't fully comply; you can't be 100% right. But it seems to me when compliance to these rules is not there, there is a procedure for justifying why it has not taken place.

I'm concerned when I hear the Auditor General's people say “Well, you know the backup really isn't there, so we just can't see what's going on here.” That's one thing that concerns me.

It also concerns me when I hear the Auditor General's people talk about how this sample was taken. It wasn't as though they said “We want this one and that one.” They laid out the criteria, went to the departments, and said, “Give us the stuff that comes in following this criteria.” That's the material that was handed to them to be looked at.

If that's the case and they simply set out objective criteria, it seems to me that rather than being concerned that this is such a small sample, you might look at it from the other end and say “If it were done as fairly as this and we really went looking for it, what would we find?” The small sample might really be a blessing for you in disguise because it doesn't reveal the significance of the problem. Does that not seem to be something of concern for you?

Mr. Colin Potts: That's a possibility and a concern.

Mr. Philip Mayfield: The Auditor General has said you need some tools to deal with these problems, and you have said you're taking steps to ensure the departments adhere to the rules. Would you be able to lay out for this committee, in a submission, what steps you are taking and submit it to the committee for us to refer to, please? Would you do that, please?

Mr. Colin Potts: Yes, sir, we could do that.

Mr. Philip Mayfield: It seems to me if we're looking at only this area of the service, without goods being provided, and considering the problems we looked at in other instances with departments in contracting, where the contracts were over by many millions of dollars, we are really looking at something that could be much larger.

I would very much like to see how you people at Treasury Board are seriously going to try to get hold of this. I agree with Mr. Mahoney. When I look at this I'm alarmed that the rules are simply not taken into account as this procedure is followed. Somebody must be called to account on this. I think Ms. Phinney is right on—must means must, and we need to have a look at that.

Mr. Steve Mahoney: We'll have to rethink our position now that you've said you agree with us.

The Chairman: Okay, Mr. Mahoney.

Mr. Philip Mayfield: I thought she was agreeing with me, Steve.

• 1655

The Chairman: Mr. Potts, must means must. What is the Treasury Board going to do about it?

Mr. Colin Potts: Mr. Mayfield asked us to submit a document to you that would outline the steps we're taking. We have already outlined some of those steps in the area of training and certification, so the procurement officers and departments will be better trained, more aware of the policies, etc.

We have undertaken to put in place a monitoring policy. To date, we have not followed the monitoring requirement in the policy. We have to reactivate that and put in place a basis for doing it.

We're limited in our resources, so I don't have excess resources to suddenly engage a huge team and send them out to all departments to conduct audits of contracts. But we'll put together a program to conduct reviews of departments. We'll work with departmental internal auditors and perhaps do some auditing ourselves, so we will have a better knowledge of the state of contracting. That's a commitment we recently made to Treasury Board ministers, and we're in the process of putting that in place.

Mr. Philip Mayfield: Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Mayfield.

Mr. Myers.

Mr. Lynn Myers: I just want to follow up on that with Mr. Potts, in terms of the amount of sole-sourcing we see presently happening. It is obvious the amount is significant. The Auditor General has certainly pointed that out.

You've touched on a number of the points, but maybe you could, for the benefit of the committee, work us through exactly how you are making sure it's a fair and competitive kind of system, and what kind of evaluation is in place to ensure that's happening.

Ms. Phinney talked about outcomes and evaluations, and I am also interested in that. I think it's very important. It's important for the committee to hear that these contracts are evaluated in a thorough way. Perhaps you could take a minute or two to go through that process.

Mr. Colin Potts: I would like to ask Mr. Winberg, who has direct responsibility and is drafting the process, to take you through that. I think he has the detail you're looking for.

Mr. Alan Winberg: We are putting in place a framework for evaluating the contracting activities. This framework would be implemented by the internal audit groups in departments. With the existing reporting we have in place, we are assessing those departments that seem to be outside the norm, in terms of the percentage of contracts let on a sole-source basis as opposed to a competitive basis. Then we would be in communication with the best ones and the ones that didn't seem to be putting in place an amount that seemed reasonable in a competitive manner and following up in that way.

In addition, we are taking steps to improve the accessibility of the contracting information for both individual contracts that are put in place and the aggregate amounts that are let from time to time. We agree completely with the Auditor General's comments that taking the time to put in place a full report on the over one million contracts that are put in place each year results in it taking too long to get this reporting information into the hands of people who are interested in it. So we are examining ways to speed up and put out information as and when it becomes available.

Rather than having annual reporting of the contracting activity within each department, you would have reports on a much more frequent basis. We also find it to be a very long lag between the 1995 numbers and 1999 numbers. We still don't have the 1996 and 1997 numbers out. So we will be taking steps to increase the accessibility of that information.

In addition, we believe there is information on the amounts of money paid to individual contractors who win contracting, both competitively and non-competitively, and we want to make that information more publicly accessible. We believe that through better accessibility of information, people will be more accountable for the actions they take. Also, through greater use of electronic posting and the advance contract award notices, we believe the people who are proposing to put in place a given contract through that process will become more accountable for their action as others who feel they would like a chance at that opportunity bring forward their challenge and are considered in the competitive process.

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The Chairman: Mr. Desautels has a point to make there too.

Mr. Myers.

Mr. Lynn Myers: Mr. Chairman, very quickly by way of clarification, I take the point about the time lag and I think it's important that you expedite. I really think that's a strong measure that you're looking to implement.

Have you made any determination yet of the frequency of that? In other words, on a monthly, bimonthly....

Mr. Alan Winberg: Well, we're looking to make it as frequent as possible. To the extent that we have electronic data on a contract and an award of a contract, we believe we can speed it up a great deal—almost instantaneously. When we're not using electronic means, it is very difficult and results in a lag.

The thing that slows down the reporting the most is accounting for the very small transactions, such as credit card purchases, and we're looking at finding ways to streamline and accelerate that reporting. We think reporting on the more significant contracts more quickly is where we should be focusing our resource.

The Chairman: Mr. Desautels, you had a point to submit on that?

Mr. Denis Desautels: Mr. Chairman, I'd just like to remind the committee that we did produce another chapter earlier on contracting performance that I think provided some useful direction in terms of how we might capture contracting performance. I certainly agree with Mr. Winberg that we could do that on a timely basis and not have to wait until the end of the year for a couple of years. I think it would be a very important addition to the performance information we now put out on individual departments.

The Chairman: Ms. Phinney.

Ms. Beth Phinney: I'd just like some numbers to go with your chart. It says in 1997, 82% were awarded competitively, which means 18% were sole-source contracts. Could you give me the numbers there, not just the percentage?

Mr. Colin Potts: In 1997—you want the number of contracts?

Ms. Beth Phinney: You can give me the total and I can do the subtracting if you want, or you can just tell me how many contracts were awarded in 1997. It's 82%, but what does that mean?

Mr. Alan Winberg: It's 82% of 1,472,000.

Ms. Beth Phinney: It's 1,472,000.

Mr. Colin Potts: That's 82% of 22,000.

Mr. Alan Winberg: The total number of contracts let were 1,400,000, but there were 22,000 contracts above $25,000.

Mr. Colin Potts: No. If I can try to clarify Ms. Phinney, the contracts above $25,000 total 22,300, of which—

Ms. Beth Phinney: If the percentage of procurement awarded competitively is 82%, what is the number?

Mr. Colin Potts: It's 18,400.

Ms. Beth Phinney: So can you give me, so I don't have to do the math, what the 18% is that were not awarded competitively?

Mr. Colin Potts: It was 4,000.

Ms. Beth Phinney: So the 26 that the Auditor General looked at were out of 4,000. Is that right? I just wanted to get that—

Mr. Colin Potts: No, I'm sorry, I'd have to clarify that. The Auditor General looked at purely service contracts.

Ms. Beth Phinney: But they were out of the 4,000. They wouldn't be touching the 18,000, because they were awarded. He wasn't looking at the ones that were awarded.

Mr. Colin Potts: That's right, they were out of the 4,000.

Ms. Beth Phinney: So it's 26 out of 4,000.

Mr. Colin Potts: It was a subset of the 4,000.

Ms. Beth Phinney: Okay, because that sounds a little better than saying he was looking at 26 out of—what's the total here—22,000. I mean, it's a little—

Mr. Shahid Minto: I'd like to clarify this. If we were looking just at these numbers, we would have looked at...our sample would have come out of 2,700.

Ms. Beth Phinney: It's 2,700. Okay.

Mr. Shahid Minto: That was under services. So our sample of 26 would have come out of 2,700.

Ms. Beth Phinney: Okay, I just wanted to know what the 26 came out of. Thank you.

The Chairman: Is that it, Ms. Phinney?

Ms. Beth Phinney: That's it.

The Chairman: I have a couple of questions. Mr. Mayfield asked a question about you getting back to him with a report, and I was wondering how long you figure it would require before you could provide that report to us.

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Mr. Colin Potts: Perhaps you could give us a month, Mr. Chairman. Would that be acceptable?

The Chairman: So that would be mid-April. Okay.

The other question I had is I was quite perturbed when you said you really don't have any plans to look into this yourself as a central agency, even though the small sample by the Auditor General shows serious problems. Mr. Minto referred to a report by the Department of Public Works, which was a large sample, I believe, that showed, if I recall, about 80% problems. What was that, Mr. Minto, that you talked about?

Mr. Shahid Minto: Mr. Chairman, it was 79% for one particular thing. There has to be documentation on file to justify sole-sourcing and the procurement officer has to verify that, and in 80% of the cases that did not exist.

The Chairman: In 80% of the cases by the Department of Public Works, which was a large sample—

Mr. Shahid Minto: It was a sample of 288 for last year, I believe.

The Chairman: Were these sole-source contracts?

Mr. Shahid Minto: They were ACANs.

The Chairman: I'm quite concerned that as a central agency you don't feel this warrants real involvement by yourselves to ensure that your own rules are being followed, and you're not following your own rules by ignoring the problem. Mr. Potts.

Mr. Colin Potts: Mr. Chairman, I'm just learning for the first time the results of the internal audit of Public Works. That certainly does raise a concern with me, and I'll undertake to follow up on the results of that audit.

The Chairman: When you're responding to Mr. Mayfield's question, by that time you'll have had a chance to take a look at that report, so can you also advise us as to what you intend to do as a central agency in response to your own policy of auditing the contracts by departments and whether you intend to do a complete internal selective audit of a sample of your own choosing? Can we expect a response on that basis?

Mr. Colin Potts: We'll give you a response at the same time as to what action we're taking, yes.

The Chairman: Okay. Thank you.

Mr. Mac Harb: Mr. Chairman, I think it would be unfair to ask them to do all of that and come back in four weeks.

The Chairman: No, I'm just asking them to come back and tell us what direction they intend to go in.

Mr. Mac Harb: Okay, that's different.

The Chairman: I'm not asking for the results of the audit. I'm asking to find out whether you will do an audit based on the information you've received.

One other point, going back to the fourth report of this committee that was tabled on December 11, 1997. We recommended that the Treasury Board Secretariat conduct a thorough review of the government's contracting regulations with specific reference to the concerns raised by the Auditor General's report, chapter 19, April and October, which is NAV CAN, and that it report its conclusions to this committee no later than May 31, 1998.

Carrying on, the government in its response said it would conduct this review focused on the exceptions to bidding listed in section 6 of the government contract regulations, but it did not commit to report back to this committee by any set date. My question is, has that review been done?

Mr. Colin Potts: Mr. Winberg will respond.

Mr. Alan Winberg: Yes, this review was undertaken by an advisory committee made up of representatives from a number of departments, and the reasons listed in the government contract regulation were confirmed as valid.

The Chairman: So that review has now been completed.

Mr. Alan Winberg: Yes, it was completed and discussed, and it confirmed the government contract regulation reasons for exception. These same exceptions have now been confirmed by the Auditor General, I believe, and by other parliamentary committees that have looked at them. I don't believe there's any question as to the validity of the government contract regulation.

The Chairman: So you could table that review with the committee by, say, the middle of April.

Mr. Alan Winberg: Yes.

The Chairman: Okay. Thank you.

Ms. Phinney.

Ms. Beth Phinney: I would like to comment again on this chart. I feel it's going up very well. I think there should be some compliments paid to the fact that there are a higher percentage of awards being—

Mr. Mac Harb: Since 1993.

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Ms. Beth Phinney: Do you have any feeling about 1998? Is the number of contracts awarded a higher percentage, or do you know for 1998 at all?

Mr. Colin Potts: We don't know for 1998 yet. I personally have no feel as to what the numbers might be. I wouldn't want to hazard a guess.

Mr. Alan Winberg: Our information systems are such that we have been working extremely hard to get the 1996 and 1997 detailed figures done. This is the idea behind the improvement to our information systems so that at least for the larger contracts we can have a bigger picture that would be done in a more timely manner.

Ms. Beth Phinney: You wouldn't have any reason to presume it's going down.

Mr. Alan Winberg: No.

Ms. Beth Phinney: The presumption is it would be a higher number of contracts.

Mr. Colin Potts: I would be very surprised if it goes down. Hopefully, it will go up, because we have, I think, continued to try to bring improvements to the process.

Ms. Beth Phinney: I think you should be congratulated for the improvement that has been made.

The Chairman: Thank you all. There seem to be no further questions, so we'll ask Mr. Desautels for some closing remarks.

Mr. Denis Desautels: Thank you, Mr. Chairman.

First of all, we spent a fair bit of time today arguing about sole-sourcing as an issue, but I'd like to draw the committee's attention to the fact that in our chapter we also raised a number of other issues besides the pure sole-sourcing problem. For instance, I think contract administrators have to make sure that deliverables have been properly delivered and value for money was received and so on. We did note throughout the chapter that there were other problems of that nature throughout the contract management process. So I'd like to make sure the committee doesn't forget that these are also equally important issues besides the decision to sole-source or not to sole-source.

But back to what we discussed today. We did take a lot of time to discuss whether or not the sample we took was sufficient. I'd just like to say that even though we may not be totally comfortable with the size of the sample, I don't think we should use that as a reason to say there's no problem. I believe with the care we've taken with this small sample, there is evidence of some serious problems. I think our conclusions are consistent with the internal audit work done at Government Services Canada. It also reflects, I think, some of the concerns raised not too long ago by the standing committee on government operations. So I believe the problem is genuine, and I think it needs to be addressed seriously.

Finally, I also have some concerns about how we treat ACANs. When we look at the statistics for 1996 and 1997, I think we have to be careful not to overstate what is being bid competitively by the use of ACANs. We heard today that ACANs are going to be tightened and modified for the future. Even at that, I would have some concerns about how that is done, to make sure that in the end what we do with ACANs is entirely consistent with the concerns members of the standing committee on government operations have expressed. I think they have genuine concerns about making sure the process is as competitive as possible, and I think we have to make sure that ACANs respect those particular objectives of that committee.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Desautels.

We'll now consider the meeting adjourned.