PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 4, 2000

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[English]

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

I call the meeting to order pursuant to Standing Order 108(3)(e), consideration of chapter 30, “Sole-Source Contracting for Professional Services: Using Advance Contract Award Notices”, and chapter 27, “National Defence - Alternative Service Delivery - NATO Flight Training in Canada”, of the November 1999 Report of the Auditor General of Canada.

Our witnesses today are from the Office of the Auditor General, Mr. Denis Desautels, the Auditor General of Canada; Mr. Peter Kasurak, the principal of the audit operations branch; and Mr. Hugh McRoberts, also principal of the audit operations branch.

From the Department of National Defence, we have Mr. Rick Burton, director general, materiel comptrollership and business management. And from the Treasury Board of Canada, Secretariat, we have Mr. Richard Neville, the deputy comptroller general; Roberta Santi, assistant secretary, risk procurement and asset management; and Jane Cochran, senior director of procurement policy.

So welcome, all. As usual, we'll start with the opening statement from Mr. Desautels.

Mr. L. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman, for the opportunity to discuss first our audit of the sole-source contracting for professional services, which was chapter 30 of our November, 1999 report, and the contracting for the NATO flight training program, discussed in chapter 27 of that same report.

Mr. McRoberts is responsible for the audit of contracting across the office, and Mr. Kasurak is responsible for our audits of national defence.

Back in 1998, we examined a sample of sole-source contracts for professional services. A high percentage of them did not comply with government contracting rules and good contracting practices. We concluded then that the rules governing these types of contracts were sound, but not followed well enough. Your committee's 28th report shared that conclusion. This year again we concluded that the policy and rules are essentially sound, but officials either do not understand them or simply ignore them too frequently.

We examined sole-source contracts that were let using an advance contract award notice, or ACAN for short. We found significant problems that endanger the principles the government has established for procurement activities: competition, fairness, and best value.

ACANs are notices posted electronically to inform suppliers that a sole-source contract is about to be awarded and to allow time for suppliers to challenge that award. Generally the rules say that contracts worth over $25,000 must be open to competition, except in a case of emergency, national security, or genuine unavailability of competition.

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Before posting an ACAN, management must establish that the contract reflects one of the exceptions that permit a sole-source award. The posting of the ACAN is supposed to allow at least 15 days for suppliers who think they can make a competitive bid to challenge the award and ask to have a contract let competitively. Only 11% of the contracts we examined complied with government policy on sole-source contracts. Almost half the contracts we audited had inadequate statements of work, and about a third had a statement of work that differed substantially from the work described in the ACAN.

Further, while in some cases departmental managers claimed they had undertaken price negotiations, they had little documentation, thus little evidence that they had received the best possible price or highest value to the government from these contracts.

Added to general non-compliance and poor business practices is a concern that ACANs are becoming a fifth exception to the regulations that require competitive tendering. If they post an ACAN and no supplier challenges it, officials conclude that the decision to sole-source must have been justified. In nearly 90% of the cases we audited, the contract did not meet the criteria for any of the required exceptions and in our view should have been put out to tender.

Of the 522 ACANs we reviewed, only 35 were challenged, and only four of those challenges succeeded. We also found that challengers were not treated fairly. There was no defined process for dealing with a challenge. A higher burden of proof was required of the challengers than of the supplier whose selection they were challenging. Moreover, the same managers who had awarded the sole-source contract were judging the appeal of their own decision.

Overall, we concluded that while ACANs do add transparency to the sole-sourcing process, they have contributed very little to competitiveness. We are concerned that the Treasury Board Secretariat considers sole-source contracts featuring an ACAN to be competitive for statistical reporting purposes.

Posting a notice of the intent to sole-source a contract is not a substitute for competition. Classifying it as such for reporting purposes is a misstatement. This is a matter about which the Treasury Board Secretariat and I have differed publicly in the past, and it is an error in reporting about which I feel very strongly.

[Translation]

Mr. Chairman, the $2.8 billion, 20-year NATO Flying Training in Canada project was included in our audit of Alternative Service Delivery at the Department of National Defence. It is by far the largest service contract let by National Defence. Projects like this differ from normal service contracts in two important ways. They are very large, which limits the number of Canadian firms likely able to bid on them. And they create a “partnering” relationship with a contractor over a very long period of time. As a result, other firms may be shut out of a major government market, and the government may become highly dependent for a vital service on a single outside source.

Nevertheless, these projects offer attractive possibilities for reducing costs and importing technology. National Defence will acquire access to new training aircraft through NATO Flying Training. Depending on the level of foreign participation, costs may be further reduced. In addition, there are benefits to Canada's aerospace industry.

We concluded that the NATO Flying Training in Canada project did not follow government policies for sole-sourced contracts. Although we carefully considered the arguments of National Defence and Public Works and Government Services Canada that their actions were permitted by the Government Contracting Regulations, in the end we disagreed.

Officials said the need to make a deal with the vendor was an “unforeseeable urgency”. The contracting regulations allow sole- source contracting in the case of a “pressing emergency”, but they define this as an “actual or imminent life-threatening situation” or “a disaster” that threatens loss of life or may result in significant loss or damage to the Crown.

Nor do we agree that the opportunity to outsource was completely unforeseeable. National Defence had already out sourced some flight training and was considering other options in the spring of 1994. Bombardier made its first formal approach on the 4th of October, 1994. The original NATO deadline for a decision was February 1st, 1995, and this was later extended to May 1995. We believe there was time for National Defence to have sought expressions of interest from industry. Moreover, we believe that government departments should actively try to encourage competition when contemplating major, long-term outsourcing projects.

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Both departments also contend that the exception permitting sole-sourcing when competition is “not in the public interest” applied in this case, having generally linked “public interest” with possible savings. But the regulations explain that the public interest exception should be restricted to considerations of national security or significant socioeconomic disparity. Neither was a consideration in this case.

Further, the profit markup awarded the supplier was not consistent with Public Works and Government Services Canada's guidelines. These guidelines help determine a “fair” profit in the absence of competition. PWGSC officials told us, however, that the profit policy was not designed for projects of this magnitude.

They further indicated that the award of profit was based on the “material” and “substantial” risks assumed by the contractor. The Bombardier-led consortium has taken on significant risks. However, departmental officials could not provide us with an analysis of the value to the Crown of those risks. The magnitude of the contract called for much more thorough analysis.

[English]

Overall, the NFTC contract is an example of the compliance problems we've identified elsewhere. It also shows the inadequacy of the existing contracting framework for outsourcing major services, which does not give officials enough guidance on competition issues in a limited market.

I believe it is vital that in future, very large ASD projects include such guidance to ensure the government receives best value. Industry needs to be assured that all firms have an equal chance to compete for the government market. The existing framework does not give enough guidance to officials on how to evaluate risk and how to analyse and document the transfer of risk to the private sector.

In the NFTC contract, there was a substantial transfer of risk and a significant profit markup awarded. Studies underlying these important decisions were inadequate.

Your committee, Mr. Chairman, may wish to encourage the Treasury Board Secretariat to consider the following questions about large service contracts in its interdepartmental initiative to reform procurement.

First, how well should competition be preserved over the long run when the government enters into partnering arrangements? When and how should competition enter into the process? What should departments be obligated to do to create a competitive environment? Finally, when a sole-source contract is justified, how should departments assess risk and account for awards of profit made in non-competitive circumstances in which the profit policy does not apply?

Mr. Chairman, our report makes several recommendations to the Treasury Board Secretariat. The key points are the need to follow the rules that are there and to strengthen accountability for doing so. Sole-sourcing is a serious decision that deprives others of economic opportunities. There is a need for some form of independent due process for those who wish to challenge those decisions. We recommended that sole-source decisions based on claims that there is a unique supply be reviewed and approved by an independent senior manager.

We are disappointed that the Treasury Board Secretariat, although committed to more training for contracting officers, has flatly rejected this recommendation. We're also discouraged by the secretariat's refusal to support mandatory audits of a sample of contracts in departments that use sole-sourcing frequently.

With all due respect to its concerns about the use of audit resources, the tide of non-compliance is so high that we believe it can no longer be ignored. Measures must be taken now, and we do not believe the cost would outweigh the benefits.

Your own committee's 28th report, Mr. Chairman, made a number of similar recommendations emphasizing the need for ongoing audit of contracting. The government's response to your report was not encouraging either.

Parliament can help by reaffirming its support for the rules and the principles of competition, fairness, and best value that underlie them. Specifically, it can indicate that there is a need for ongoing assessment of contracting performance and for a review function in departments that requires a senior official to make or concur in the decision to sole-source and to be accountable for it. There's also a need for the creation of an independent dispute resolution mechanism to deal with contracts that lie outside the purview of the Canadian International Trade Tribunal.

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Mr. Chairman, that concludes my opening statement. My colleagues and I would be happy to answer the committee's questions.

The Chair: Thank you, Mr. Desautels.

We'll now turn to Mr. Burton. Before he starts, I understand that he may have an explanation for these chocolate cigars that are on the table.

We'll turn it over to you, Mr. Burton.

Mr. Rick Burton (Director General, Materiel Comptrollership and Business Management, Department of National Defence): Thank you, Mr. Chairman. I am not Alan Williams. Alan had planned to be here, but happily, his daughter gave him a first grandson, so he's in New York with her and he asked me to pass out these fake cigars, these chocolate cigars.

The Chair: Very good. So there's the story behind it.

Mr. Rick Burton: They come with his best wishes.

The Chair: Please convey the sentiments of the committee on the birth of his granddaughter. We appreciate the cigars. I see they're chocolate. Of course, we don't smoke in—

Mr. Steve Mahoney (Mississauga West, Lib.): Do you have a match?

The Chair: No, I don't have a match. No smoke allowed in this place, Mr. Mahoney, except from the government, when it's smoke and mirrors every time.

Voices: Oh, oh!

Mr. Steve Mahoney: There's that non-partisan chairman I'd forgotten about.

The Chair: Mr. Burton, we'll have your opening statement, please.

Mr. Rick Burton: Thank you, Mr. Chairman.

I had thought I'd go after Mr. Neville from Treasury Board, but I will try to give you the perspective of one of the departments that seems in the firing line quite often on these kinds of issues.

I'm very pleased to be here this afternoon, and as I said earlier, I am replacing Alan Williams. Given that Alan commented at length on the NATO flying training in Canada, or NFTC, contract during his last appearance before this committee, today I intend to focus on chapter 30. However, inasmuch as the Auditor General has raised the issue, I would like to repeat our position with respect to the sole-sourcing of the NFTC contract.

From our perspective, not only was the sole-sourcing consistent with and appropriate under the legislative and policy framework in particular, the Agreement on Internal Trade, but not to have sole-sourced would have been irresponsible, as it would have meant forgoing a unique opportunity, which in the event has turned out to be very beneficial.

I will turn now to chapter 30 of the audit report.

[Translation]

We appreciate the work done over the past couple of years or so by the Auditor General in his examinations of contracting for professional services. His reports have been useful in helping National Defence improve its processes and work to ensure the confidence of Canadians in the responsible management of the department. As you will see, the department is already taking action in regard to his latest report on the use of Advance Contract Award Notices (ACANs).

I would like to explain how the department is committed to achieving improvements not only with regard to ACANs, but also in overall control of the process for contracting for professional services.

[English]

Following an internal audit in 1995, the department has been working with Public Works and Government Services Canada and the Treasury Board Secretariat to continuously improve its contracting practices. I'll briefly summarize what the steps are that we have taken.

In 1996 the department strengthened the role of its internal contracting authority by migrating the primary responsibility to the materiel group, which Alan Williams heads and I work in and which specializes in procurement; creating a contracting centre of expertise within our group; and charging that centre of expertise with independent review of contract requests.

The department has also put in place a strengthened delegation framework, which clearly establishes the accountability of the individuals to whom the minister has delegated contracting authority and establishes the maximum amounts to which each can contract. These delegations, of course, are within the limits set by Treasury Board for departments.

To complement the delegation framework, we are ensuring that we have the necessary programs in place to train our people in the proper exercise of contracting authority. In addition to formal training programs at a government-wide level and in the department, we have invested in electronic tools so that personnel have ready access to policies, procedures, templates, and sample documents in their daily work. I might add here that in the last two years we have trained 200 people in the department in this area. We project that our throughput for the next two years will be about 80 per year, which will meet our needs for the delegations that are distributed across the department.

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[Translation]

However, as I have already acknowledged, there is a need for further improvement. I shall outline the steps we are taking to deal with the ACAN problems identified in the Auditor General's recent report.

The Department has further strengthened its contract management through the establishment of a Contracting Advisory Committee of senior officials. The committee is responsible for disseminating information on policies and procedures, reviewing contracts for lessons learned, and, at the discretion of members and the Chair, reviewing proposed contracts for compliance. Overseeing the use of ACANs is part of this mandate.

[English]

National Defence has also strengthened the independence of the contracting authority. I should say here that the contracting authority is myself primarily, with a directorate that is organized specifically for this purpose. We've strengthened the independence of the contracting authority from the requisitioning authority, that is those people who have a need in the department for a contract, in the process for reviewing sole-source contracts and challenges. This fact is reflected both in current practice and in our new departmental policy documents.

For example, while the originators of requirements within the defence department will still have the opportunity to comment on ACAN challenges from industry, my staff will develop its own independent assessment and act on that basis. My staff now apply greater independent rigour in screening requests for directed contracts, and, in light of the Auditor General's recent report, particularly requests based on a firm having certain capabilities, experience, or knowledge. Such qualifications do not in themselves equate to there being a unique source of supply.

In addition, the department is participating in the ACAN working group that has been formed by Treasury Board Secretariat to develop further guidance for departments on the use of ACANs and the handling of challenges. We are committed to implementing the resultant changes.

Finally, National Defence's training programs will obviously continue. However, courses and the applicable Internet websites, both within the department and I believe government-wide, will be modified to include information on lessons learned from recent audit and case studies to emphasize these lessons.

I should add here that we are founding members and staunch supporters of the procurement training and certification program, to which I believe Mr. Neville will refer in a few moments.

[Translation]

In closing, I trust that I have shown how National Defence is actively committed to improvements in his use of ACANs.

[English]

Like the Auditor General and Deputy Comptroller General, I consider ACAN to be an important and efficient tool for ensuring transparency and fairness in the procurement process. By improving the regime surrounding the use of ACANs, my department will ensure compliance with trade agreements, regulations, and policies; effective delivery of its mandated responsibilities; and finally, accountability to Canadians.

Thank you very much, Mr. Chairman.

The Chair: Thank you, Mr. Burton.

Now we'll turn to Mr. Neville. I see that we have good attendance at the meeting this afternoon. With three presentations, time is already wearing on and we're going to have a hard time getting all the questions through. Perhaps just a note to those making presentations: if they're brief and succinct and to the point, it's very much appreciated.

Mr. Neville.

Mr. Richard J. Neville (Deputy Comptroller General, Treasury Board of Canada, Secretariat): I'll try to speak very quickly, Mr. Chairman.

Thank you for this opportunity to discuss with the public accounts committee today the Auditor General's recent findings concerning the government's use of advanced contract award notices or, as they are commonly referred to, ACANs. I'm very pleased to have with me today from the Treasury Board Secretariat Ms. Roberta Santi, assistant secretary of the risk, procurement and asset management policy sector, and Ms. Jane Cochran, senior director of the procurement policy division.

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[Translation]

We welcome your invitation to appear before the Committee today, as it allows us to discuss how the government is working to strengthen its use of ACANs as a contracting tool. It provides us with an opportunity to show how the work of the Auditor General contributes to this goal by identifying areas where we can improve.

Moreover, we will be pleased to respond to questions you may have with respect to the government's contracting policy as it relates to the NATO Flight Training Program.

[English]

Our appearance today allows us to convey, to you and the members of this committee, the Treasury Board Secretariat's continued commitment to provide sound leadership in procurement policy, and assure you we're working with departments to strengthen the effectiveness of the government's procurement policy and its implementation.

Procurement is an important tool in supporting the government's program and service delivery commitments to Canadians.

[Translation]

Looking at the procurement system broadly, there is a government-wide commitment to an open, transparent and fair system of procurement for the over $13 billion in contracts awarded to suppliers in 1998. Competition is one of the ways to ensure these principles are respected. The majority of government contracts are awarded competitively, either through traditional and electronic bidding or through ACANs. At the same time, the federal government's procurement policies recognize, as do those of major trading partners in all the international trade agreements, that there are sound and valid reasons for any type of contract, sole- source contracts. Sole-source contracting is a necessary and legitimate part of any national government's contracting tool kit.

[English]

ACANs are another contracting tool. They were introduced in 1992 in conjunction with electronic bidding. The introduction of electronic bidding represents a huge shift in the contracting process. All potential suppliers can now find out about contract opportunities 24 hours a day, 7 days a week. Electronic bidding has created a more transparent and efficient procurement environment for both Canadian and international suppliers. ACANs are a key tool in this electronic environment, and were designed to increase efficiency and transparency consistent with fairness, openness, and competition in government procurement.

[Translation]

The objective served by posting an ACAN on the Internet is to determine if there are other suppliers in the marketplace, unknown to a department's purchasing officer, who are qualified to do the work. ACANs enhance competition by providing potential suppliers with an opportunity to signal their interest in bidding and to submit their qualifications. For a service contract, for example, an ACAN outlines for suppliers the nature of the work to be completed, a proposed supplier and rationale for proceeding, the kind of knowledge and experience considered essential, the time frame involved and the estimated value of the contract. If a contractor believes he could do the work, he must contact the contract official identified on the ACAN. The supplier must explain his qualifications relative to the work, knowledge and experience required, and officials must give him full consideration. Where appropriate, the contract then may be re-advertised through the traditional or electronic bidding mechanisms.

[English]

The Auditor General's report, which we are here to discuss today, examined in detail 50 of the 522 professional service ACANs for contracts valued at $25,000 or above, issued by or on behalf of the five audit departments in 1998.

[Translation]

In that same year, there were 20,284 contracts let above $25,000. ACANs were used for 3,606 cases, which represents 18% of this total number. This complements the 13,023 contracts awarded by electronic and traditional tendering which represents a further 64% of the total. Therefore, Mr. Chairman, in total, 82% of the contracts let over $25,000 were competitive. The last type of contract, sole-source contracts, account for 3,655 cases, which represents 18% of the total.

[English]

ACANs account for a significant number of the government's contracting transactions. We share the Auditor General's view that ACANs are an important and useful tool in the government's contracting processes. We agree, as the Auditor General's report shows, there is work to be done to improve the government's use of ACANs.

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That is why the Treasury Board Secretariat and departments are working to ensure our policy is clear and our people have the tools and training they need to use ACANs effectively. As a first step, in March 1999 we issued a notice to departments and agencies reminding them of the requirements of the policy on the use of advance contract award notices.

Significant progress has been made in laying the foundation for a procurement training and certification program, through the hard work and commitment of an interdepartmental project team, in partnership with the material management institute. This complements the ongoing training of officials in departments, and outreach work by Treasury Board Secretariat in Ottawa and across Canada over the past year.

As well, a committee of senior officials from the audited departments and others has been established to ensure the sound implementation of the policy, and that the necessary training, tools, best practices, and monitoring and review processes are in place. There is a great deal of commitment on the part of departments and the secretariat to see that this work is completed and we improve the use of ACANs.

The first product of this group will be a guide on best practices for contract and program managers that use ACANs. It will provide additional advice and guidance on how it should be used, what should be contained in a notice, how long it should be posted, and principles to guide departments in ensuring fairness in responding to supplier challenges.

[Translation]

Strengthening the ACAN process is only one part of a much wider effort to reform the government's procurement system so it will be an effective and more efficient instrument in support of the government's delivery of programs and services to Canadians.

At the centre of this reform effort are values and ethics, which are consistent with Canadian expectations of government and how public servants should manage. The guidance comes from our key values: integrity, honesty, prudence and probity, performance and excellence, amongst others. These values are the foundation for ensuring the government procurement system will continue to respond to the demands of the dynamic world in which we live, as we confront the challenges of globalization, implement changes as the result of procurement trade agreements and Canadian International Trade Tribunal decisions, realize the benefits of e-commerce, improve productivity and achieve better results in government, and effectively support the wide range of social and economic objectives pursued through procurement, to name a few.

[English]

Improving and modernizing the procurement system is an important building block in the government's commitment to modernize comptrollership. This is no small task. The challenges are great, but we must strive to ensure that our procurement system and its practices support excellence in delivery of programs and services to Canadians, provide best value for our citizens, and reflect fully our values and ethics.

We are pleased that the Auditor General has concluded once again that the government's procurement policies are sound. By building on and modernizing these policies, and working with departments and agencies in their implementation, we will ensure they remain world-class.

Thank you for your attention. We will be pleased to respond to any questions.

The Chair: Thank you, Mr. Neville.

Now I will go to the questions. In the interest of fairness, because we have such a large number, if everybody is agreeable we'll take seven minutes in the first round rather than eight, just to try to compress and give everybody an opportunity. Or we can go to five minutes. Are we all agreed to five minutes in the first round?

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): No, I do not agree.

The Chair: Fine.

Mr. Benoît Sauvageau: Four minutes is sufficient.

[English]

The Chair: Monsieur Sauvageau—seven minutes.

Mr. Konrad, please, for seven minutes.

Mr. Derrek Konrad (Prince Albert, Canadian Alliance): Thank you to the Auditor General here.

I note on point 8 you state that ACANs are becoming a fifth exception to the regulations that require competitive tendering. Just that one phrase kind of jumped out at me.

Is this an improvement, in your opinion, or is it becoming a more deeply embedded practice that ACANs are being used to circumvent the competitive bidding process?

Mr. Denis Desautels: Put simply, I think ACANs, if properly used, can improve the transparency of situations where the government has decided to give a contract out on a sole-sourcing basis. So in that respect, if properly used they have some clear benefits.

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However, I have a problem in that I don't consider an ACAN to be a competitive bid. That is where we differ from the Treasury Board Secretariat. Concerning those as competitive bids opens up a whole big door that, in the long run, could hurt the objective of achieving more competition in tendering public contracts.

Mr. Derrek Konrad: Thank you.

Possibly Mr. Neville would like to respond to that statement. Do you think ACANs are becoming the fifth exception? If they are, what are you doing to address it? Is it becoming a larger problem, as time goes on?

Mr. Richard Neville: I heard the Auditor General mention again, as was originally raised in his opening comments, that he's treating ACANs as sole-source contracts. I just want to make it quite clear that ACANs, by policy, are competitive. We do not put ACANs in the context of being sole-source contracts, but rather competitive contracts. Hence we don't see them as a fifth type of exception. They are clearly in the four exceptions that have already been decreed as Treasury Board policy.

On numerous occasions in the presentation, the statement has been made that ACANs are sole-source. We differ on that point. We treat them as competitive. I could, if you wish, go into why we treat them as competitive. Maybe that question would be appropriate at some time.

Mr. Derrek Konrad: Still going on about the ACANs, I note an ACAN creates a partnering relationship with a contractor. Of course, the more work you have the more you become technically competent, but you possibly become less fiscally aggressive.

Has this been your experience when working with people? It seems to me that “no risk, no profit” should be the rule that governs, but it looks like profit is built in, regardless of the amount of risk. When you keep going back to the same well all the time, the risk is reduced for the contractor and there's no need for him to upgrade his technical expertise or be fiscally aggressive.

Can you comment on that, Mr. Neville, please?

Mr. Richard Neville: Our experience has indicated that is the case. We have had a number of contracts let through the ACANs process, with results that were as anticipated. The work has been carried out to the client's satisfaction. I am not aware of scenarios where that has been problematic.

Mr. Derrek Konrad: In that event, how do you expand the field so there are more people out there aggressively bidding for these contracts? How do you see the spread of technology and that type of thing, given that these ACANs result from long-term relationships between the departments and the sole-source suppliers?

Mr. Richard Neville: I think it's a question of having to look at each contract on its own merit. We're saying that ACANs are one tool within a large tool kit available to managers. Obviously we expect that the manager concerned will look at all the options and will decide, being a specialist, what contract is best for that particular individual or organization at that particular time.

I really think it's a question of looking at the particular requirement or need, and how best to meet that need within the Treasury Board policies that have been approved.

Mr. Derrek Konrad: Do I have any time left?

The Chair: You have one minute and 45 seconds.

Mr. Derrek Konrad: I note the Auditor General's report said 11% of the contracts they examined complied, almost half of the contracts audited had inadequate statements of work, and a third had statements of work that differed substantially. Departmental managers claimed they had undertaken price negotiations, but they had little documentation and thus little evidence. I wonder how you respond to that in light of what you just answered.

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Mr. Richard Neville: In a situation like that, we're really looking at a scenario that leads us to believe there is more training required in order to ensure that they have the right knowledge and the right tools to work with.

Dealing with that specifically, last March we issued a notice to the departments and agencies. We reminded the departments and those within the departments about the requirements of the ACAN policy. This notice identified how and when an ACAN should be used.

As well, we've also put in place a committee of senior officials—I believe Mr. Burton referred to that earlier—part of that committee being from departments audited by the Auditor General, with others as well, to meet the audit and re-examine the policy to ensure that its expectations are clear and that the training tools and best practices are in place to promote effective implementation. As a result, we'll be issuing a best practices guide for contract and program managers on ACAN this spring. We expect that it will contain how it should be used, how long it should be posted, and what should be in a notice. As an example, it will state what an ACAN is, the rights of suppliers, a clear definition of requirements, reasons for non-competitive awards, the period of a proposed contract, and how and where suppliers should submit an expression of interest. As well, we'd be including the principles for guiding how departments should respond to challenges. As well, we'll have clarification that may be required on postings.

The Chair: Thank you, Mr. Neville.

Mr. Richard Neville: I'd like to just add one more point, because it's a very important point, Mr. Chairman.

Over this past year, we have trained over a thousand procurement officers across the country, from one end of Canada to the other, and we have basically given them additional training in the area of policies and practices. To answer your question, I think we've done a lot. We're going to do even more, but you need to have training in order to alleviate the concerns that the Office of the Auditor General has in fact identified.

The Chair: You may need more than that, Mr. Neville.

[Translation]

Mr. Sauvageau, you have seven minutes.

Mr. Benoît Sauvageau: My questions are first addressed to Mr. Burton, and I would be remiss if I did not thank him for his lovely gift.

Last time he was here, I asked a question of the National Defence representative and since no one is satisfied with the answer, I will ask it again. This way, we will get an answer.

In paragraph 27.6 of the Auditor General's report, it says:

When the Department launched the ASD program in 1995, it set a goal of saving $200 million a year by 1999...

As I understand it, savings were projected of $200 million in 1995, $200 million in 1996, another $200 million in 1997, $200 million in 1998 and as much in 1999. Two hundred million dollars multiplied by five is one billion dollars—I have my calculator—and you have saved some 300 million dollars. You therefore erred by $700 million in your projections. Am I right?

[English]

Mr. Rick Burton: Excuse me, but I missed the reference.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): It was paragraph 27.20.

Mr. Benoît Sauvageau: I have 27.6.

[Translation]

Ms. Marlene Jennings: It's in paragraph 27.

Mr. Benoît Sauvageau: I have 27.6.

Ms. Marlene Jennings: It is in both.

[English]

Mr. Rick Burton: Okay, paragraph 27.6.

Ms. Marlene Jennings: Yes.

Mr. Rick Burton: I'm sorry, but I missed your question.

[Translation]

Mr. Benoît Sauvageau: Through the ASD program, you were supposed to save one billion dollars over five years. You were off by 70% in your calculations, since only $300 million were saved during those five years. Am I right?

[English]

Mr. Rick Burton: I believe it is. I'd have to recall the question that was answered the last time, but our projections obviously dropped, given a number of factors with the ASD program. I have to say that I'm not as familiar with that program; however, in the experiences that I've had with some of these initiatives, there definitely have been substantial savings, although perhaps they're not as high as we would have projected. We're learning lessons all the time, and we have a number of new initiatives that are on the go—the supply chain project, rebidding the Meaford program and so on—that we trust will start to generate some significant savings.

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[Translation]

Mr. Benoît Sauvageau: Since we do not have much time, I will go immediately to the next question. In the private sector, anyone who errs by 70% could lose his job, but this is a personal opinion which I share with you. In paragraph 27.19 of the Auditor General's report, one can read:

... senior departmental officials stated that implanting cost- consciousness and a more businesslike approach in National Defence would require a cultural change and would take a considerable period of time.

How much money must we lose before this cultural change takes place?

[English]

Mr. Rick Burton: There are challenges to working in government as well as in the private sector. I don't look at it as losing money in that sense.

I think we have been trying to encourage people across the government, and certainly in the defence department, to act more on a businesslike footing. It's not exactly like business, though, because as you'll appreciate, there are different challenges, different accountabilities, different tolerances for risk and so on, that traditionally you don't find in the private sector. That said, we have made a lot of effort over the last four or five years to break down those kinds of cultures that were preventing us from becoming more businesslike.

I won't pretend it has been easy. I've been engaged in it personally, and it is not an easy challenge. I will say we've had some very notable successes. We've made some mistakes, but we've learned lessons from those mistakes and we're moving on. I think I would like to be judged, as our department would, by how well we can adapt to this and can get ourselves on this kind of businesslike footing that you refer to.

[Translation]

Mr. Benoît Sauvageau: Yes, but see what message you are sending to line employees when senior departmental staff and senior executives say that it is normal, that cultural change takes time. If I were a lower-level employee, even if I wasn't doing my job, I would tell myself that my boss will understand since he has said that such a change would normally take time. It may not be such a good idea for senior management to say that it is normal for things to turn slowly in government and that it is normal to have saved only $300 million instead of the $700 million originally anticipated because many projects are being delivered at the same time. At any rate, the message does not seem right and we should not be hearing that kind of statement. This brings me to NATO and the trial program.

It seems that Mr. Desautels, the Auditor General, clear stated that, in the case of the NATO program, a sole-source contract was not justified. You have referred to the pressing emergency and have given several reasons, but the Auditor General's statement clearly rejects those reasons. Do you maintain what you said?

[English]

Mr. Rick Burton: They're not my reasons. I didn't use the words that you've used. I wasn't suggesting that we should be resisting change. I think that's the implication you're making here. A lot of substantial change has occurred, and by your comments I think we're probably not getting credit for the change that has occurred.

You can set stretch targets, as industry and others do, in trying to reach certain goals. You're not always going to be on those targets. By definition, you accept that you may not reach them, but you do so because you want to move the organization forward and make the kind of cultural change that you're talking about. If at every turn you're held accountable by someone saying you didn't meet exactly that dollar amount but met some lesser amount, then you're really going to frustrate cultural change. That's what I've found over the last three or four years. It's trying to maintain a momentum and a climate for cultural change that is the most difficult thing for us to do.

• 1620

The Chair: Thank you.

Ms. Phinney, you have seven minutes, please.

Ms. Beth Phinney (Hamilton Mountain, Lib.): I would like a little bit of explanation before I ask my couple of questions.

Any contract over $25,000 is under ACAN and it can only have one bid on it until it's out there, or do you ever have open bidding where you say, okay, here's what we want and we'll accept as many bids as come in? Do you understand my question?

Mr. Denis Desautels: Yes. All contracts over $25,000 should be let out under a competitive bid, except if one of three conditions that we've discussed here can be met. When a particular situation is over $25,000 and meets one of those three tests, the government has chosen to put those out using a process called ACAN.

Ms. Beth Phinney: So could we take bids on all the others?

Mr. Denis Desautels: ACANs are used when you're not going through an open bidding process.

Ms. Beth Phinney: Okay.

I have a question, and maybe this is not logical, but these things started in 1992. I have a friend who writes up these bids and also competes to challenge these bids, and she has had absolutely no formal training at writing any of these things. She hasn't had to have—how many years would that make now, nine or ten years?

Ms. Marlene Jennings: Eight years.

Ms. Beth Phinney: —eight years of training to write up one of these. When she lost the first one, she figured out pretty fast how to do the second one. So I wonder if Mr. Neville could tell me why we need to have all this training and it has taken since 1992 across the country to get everybody to figure out how to do one of these things.

Mr. Richard Neville: The training we were referring to was internal to government. This was training for procurement officers so that they would have a better knowledge of what was required in terms of the policies and the practices. We're talking specifically about contracting, and even more precisely about ACANs.

The training you're referring to would be provided by Public Works and Government Services and other departments, but mainly PWGSC, to suppliers who are interested in doing business with government. They have a number of sessions each year across the country to assist the private sector.

Ms. Beth Phinney: When they do their bidding, they have to know the rules too.

Mr. Richard Neville: Yes.

Ms. Beth Phinney: If they don't know the rules, their bids won't be accepted, because they'll do them incorrectly.

Mr. Richard Neville: That is correct, and that is why PWGSC has, on an ongoing basis, a number of working sessions with the private sector.

Ms. Beth Phinney: Excuse me, Mr. Neville. This started in 1992. I sat here last year—I think it was last year—and was it 90% of the cases that should have been put out to tender that weren't? Or was it less than that, or more?

Mr. Hugh McRoberts (Principal, Audit Operations Branch, Office of the Auditor General of Canada): Last time, it was about two-thirds that should have gone out to tender.

Ms. Beth Phinney: So it's higher now. It's getting worse.

Mr. Hugh McRoberts: It's a slightly different population, but yes.

Ms. Beth Phinney: A higher percentage that should have gone out to tender didn't.

Mr. Hugh McRoberts: Yes.

Ms. Beth Phinney: But we're training them. So the more training we give them, the worse they get.

The Chair: Ms. Phinney, I think the question is that the Auditor General says ACANs are not competitive and Mr. Neville says it is competitive, and I think it's up to us to express an opinion on that and get the facts out on the table and make up our minds.

Ms. Beth Phinney: Still, my question is, why does it take eight years to train somebody to do something and it's getting worse?

The Chair: That's a good, valid question too.

Ms. Beth Phinney: My other question relates to paragraph 9 on page 2 of the Auditor General's statement. Of the 522 ACANs you reviewed, only 35 were challenged. That's pretty sad. Shouldn't it be much higher than that? You've put in here reasons why it's difficult for somebody to challenge it.

I wonder if Mr. Neville could comment on the fact that the challenging is difficult. Why is it made so difficult?

Mr. Richard Neville: It's an excellent question.

I had the opportunity a few weeks ago to actually go out to the regions. While I was there, I made it a point to visit a Public Works and Government Services office that had individuals dealing with ACANs, and I asked the same question: Why do you not challenge them to a larger extent?

• 1625

The answer is because the information that's provided when it's presented by the client is either pretty well defined and therefore no further challenge is required, or conversely, when the ACAN is coming out—

Ms. Beth Phinney: I don't understand what you just said.

Mr. Richard Neville: What's happening is, basically, when you have a department that says they want to go sole-source, there's a challenge that may take place between the procurement officer and the department or the line manager concerned.

Ms. Beth Phinney: What if two other companies come along and say they want to put a bid in there too?

Mr. Richard Neville: Well, before you get to that, the department is making a case that you don't go competitive, that you want to go sole-source. So there's a challenge that takes place.

That challenge—and I want to deal with that one first—is internal to government before it actually becomes either an ACAN or a sole-source contract. If it gets to be an ACAN and it goes out—

Ms. Beth Phinney: Yes, that was my question.

Mr. Richard Neville: Okay, but I want to make sure of this, because there are two different challenges that take place.

If it goes out, at that point there may very well be a supplier who identifies themselves as being able to meet the demand. In that case, the procurement officer will review the documentation that's provided by the supplier. What has happened is that the majority of the time, the proposal that is made by the supplier who is stating that they can meet the demand is not held to be valid vis-à-vis the requirements.

Ms. Beth Phinney: So do you accept what the Auditor General says in paragraph 9, that “challengers were not treated fairly”?

Mr. Richard Neville: No, I don't accept that at all. I'm just saying I'm not surprised to hear that the percentage is low in the sense of the results, because what I've been told is that of the suppliers who do put a bid in against the ACANs, there are very few who actually meet the requirements and therefore can proceed to the point where the procurement officer, who has that responsibility, will decide to open up the competition.

Ms. Beth Phinney: Is the procurement officer who looks at the second bid the same person who looked at the first bid?

Mr. Richard Neville: It could be, but it's certainly not consistent across—

Ms. Beth Phinney: So you don't have any guideline.

The Chair: Mr. McRoberts wants to make a quick intervention here, and unfortunately the time is up.

Mr. McRoberts.

Mr. Hugh McRoberts: I want to clarify that the reference we were making in paragraph 9 of the opening statement was to challenges raised by external suppliers to the ACAN itself. In terms of some of the reasons why these are not being challenged, I would very quickly refer to paragraph 30.71, where we discussed some of the reasons.

For examples of how challenges are treated, I would refer to the first three cases in the selected case studies in our chapter, beginning on page 30-11 and carrying over to page 30-12.

In the interest of time, I'll simply leave that for now, but I could answer questions should members wish.

The Chair: Mr. McRoberts, that chapter and that paragraph in the report is indicating that you have only 15 days to respond, and if they only find it after 7 days, they would have 7 days to respond.

Mr. Neville, very quickly, please.

Mr. Richard Neville: Mr. Chairman, if I could, as a point of clarification, since there was a comment made, our experience has been that in the last year we have heard from only four suppliers that had problems with the ACAN process, which doesn't leave us with the impression that there are serious problems out there in terms of the challenge function.

The Chair: Thank you.

Mr. Earle, you have seven minutes, please.

Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chair. I'm having a little trouble with this ACANs concept, so I'll continue along that line of questioning.

I hear, on the one hand, it being said that process is not really competitive, and then, on the other hand, it being said that it is competitive. Yet I heard Mr. Neville, who was saying it is competitive, talking about enhancing the system.

At one point, if I'm not mistaken, you mentioned giving reasons for a non-competitive award. Is that going to be a way of improving this? I think you talked about one of the facts as giving reasons for a non-competitive award. Can you clarify that?

• 1630

Mr. Richard Neville: What I said earlier was that we treat ACANs as being competitive, and there's a reason for that. I think it would be helpful to the committee, Mr. Chairman, if I took the time to explain why we have defined ACANs as being competitive.

The posting of advance contract award notices is a key tool to discern if other suppliers are capable of bidding and to provide them with the opportunity to bid. An ACAN provides potential suppliers with an opportunity to signal their interest in bidding; to demonstrate that they meet the requirements to perform the work of a contract; and, where appropriate, to enter into a competition for procurement. Where an ACAN confirms that there are no other suppliers, taxpayers' and company dollars and time have not been wasted unnecessarily on a full-blown competitive process.

So for us the posting of an ACAN provides either confirmation that there is indeed only one supplier or that there are other suppliers and thus a competition must take place. If another supplier makes a case, then we go back to a traditional competitive process.

The Auditor General has stated in his report:

ACANs...provide the opportunity for challenge by other potential suppliers. Before the use of ACANs was introduced, a sole-source contract remained essentially a private transaction between the chosen supplier and the department until well after the contract was let. The only way an interested party could find out about, let alone object to, such a contract before it was let was “through the grapevine.”

Moreover, it is government policy that ACANs are “deemed competitive”.

So that's a government policy at this point. The reason we say that it is based on the policy itself is because the policy says:

The ACAN allows departments to give notice to the contracting community that it is intended to award a contract for a good or service to a preselected contractor.

The Chair: I don't think we need that—

Mr. Gordon Earle: Can I just follow up on that?

The Chair: Yes.

Mr. Gordon Earle: If you're giving a notice to someone that someone has already been selected—

Mr. Richard Neville: If I could just conclude—

The Chair: Please summarize.

Mr. Richard Neville: I will summarize. It says:

After publication of this notice of intent, and if no other firm or person indicates an interest or challenges the proposed award within 15 days, the competitive requirements of the policy are deemed to have been observed and the contract may be awarded...

Mr. Gordon Earle: I have a little difficulty with it being competitive if you have already selected someone to have the contract.

Mr. Richard Neville: That's important—

The Chair: Just a second, Mr. Neville. Let him ask the question.

Mr. Gordon Earle: The question I have is directed toward National Defence. Thinking about the supply chain project, is that something that might end up being subject to these ACANs, or is that something that will be an open bidding process that will enable in-house bids?

Mr. Rick Burton: The supply chain project will not be an ACAN. In fact it's a competitive process.

We've had a draft RFP out on the street for a few weeks now. We've had a number of companies express an interest in that, and in fact we've conducted a number of site visits by those interested companies. I think it's in the range of 25 companies, if not more, that have expressed an interest in visiting our various bases, supply depots, and so on in order to get a better appreciation of what our needs are.

So our intent very much is that this is a competitive process. Once we get all the feedback from those industry visits and from their looks at the draft request for proposal, we'll put out a formal request for proposal in the next few months, and that will then lead to a competitive process.

Mr. Gordon Earle: Have there been any in-house bids among those 25 you mentioned?

Mr. Rick Burton: No. For the in-house bid there's a process, which I think was explained when the deputy minister was here, having to do with the most efficient organization. Because of the nature of the supply and distribution business, which stretches across the country and indeed reaches out to our deployed forces around the world, it's not something on which any one organization in the department could put together an in-house bid per se. So in this particular case we have not entertained a “most efficient organization” approach. There are other examples in the department where we're dealing with single organizations that are self-contained and therefore can get their arms around the problem.

• 1635

We've made some very good progress internally. Our folks have done a super job. When we talk about a changing culture, that's an area where we can be very proud of what our people have done at the supply depots in Montreal and Edmonton and across all of our bases. They're setting a very high benchmark for industry to beat. We've taken something like $200 million out of that business process over the last three years. For industry to exceed that, they're going to have to sharpen their pencils. So we'll wait and see what we get. It doesn't necessarily mean that we are a priori contracting out the supply chain business. We were getting industry reaction.

Mr. Gordon Earle: I have just one quick question, and I'll come back to the ACANs. Can you tell me a bit more about the process for challenging the ACANs?

The Chair: Please make it a brief response, Mr. Neville.

Mr. Richard Neville: Is this a challenge from the procurement officer to a company that is putting in a request to challenge the ACAN?

Mr. Gordon Earle: The notice goes out, and some company out there wants to challenge that award.

Mr. Richard Neville: That's fine. We're on the same wavelength.

Mr. Chairman, in a case like that the procurement officer is required to look at the proposal that has come in and to do an assessment to determine whether it meets the requirements that were originally stated. If it does, then you fall into a traditional bidding process. If it does not, then it is refused. The ACAN continues, and the contract is let to the original firm.

Mr. Chairman, if I could, there was a question raised earlier—

The Chair: Just a second, Mr. Neville. Ms. Phinney, do you have something to say?

Ms. Beth Phinney: I don't want to take any of her time. I just wanted to ask another question on that issue.

The Chair: We'll just continue, and we'll try to get to you on that issue at the end.

Ms. Beth Phinney: Okay.

The Chair: Your time is up, Mr. Earle. I had indicated that Mr. Shepherd was next, but it's actually Mr. Konrad who is next. So we'll go to Mr. Konrad, followed by Mr. Shepherd and Ms. Jennings. We're into the second round, so it's four minutes from here on in.

Mr. Derrek Konrad: Thank you, Mr. Chairman.

Mr. Neville, I note that you said that people aren't challenging the ACANs very frequently, which is fine and dandy.

But as I see it, the issue here today revolves around practice and compliance versus policies and guidelines. There's enough information here to state that there were quite likely a number of areas, including the NATO flying training program, that should raise questions in our minds as to how the practice and compliance was or was not achieved.

As a result of these hearings, this committee be issuing recommendations as to what should be the next step and where we should go. It's not so much a question what are you doing, although that's important as well, but we need to know what's the next step.

Do you think the bar is too high in most instances, or should they maintain the standards and take appropriate action to ensure that the standards that are set are maintained? Are you saying that in some cases the bar is too high and we have to have more flexibility?

Mr. Richard Neville: Mr. Chairman, what we have in place at this point is what we call our procurement reform initiative. A number of steps are being taken to try to always improve on what we have today.

Mr. Derrek Konrad: Pardon me for being difficult, but I would like an answer to my question.

Mr. Richard Neville: We think we can always improve. So the answer there is that we can always raise the bar and we can improve, and we're taking steps—

Mr. Derrek Konrad: I'm wondering if you think the standard that is set by the regulations is too high. That's the point of my question.

Mr. Richard Neville: From my perspective, I don't think the bar is too high as to what has been set, as a very short answer.

Mr. Derrek Konrad: So the responsibility, then, is on the departments to comply with what's in place.

Mr. Richard Neville: I am of the view that departments still have some work to do in terms of understanding fully the policies and implementing them consistently across the country. Hence, the requirement for additional training, which is ongoing.

But I think you can't divorce from that the fact that there is always room for improvement. We are looking at procurement reform as a vehicle that will allow us to make some changes where it's deemed to be appropriate in consultation with a number of stakeholders.

• 1640

The Chair: Thank you, Mr. Konrad.

Mr. Shepherd, four minutes, please.

Mr. Alex Shepherd (Durham, Lib.): Thank you very much.

As I understand this, in a nutshell, Mr. Neville, the Auditor General is saying that of the sole-source contracts that were let out, fewer than 11% have complied with your own guidelines. By definition, does that mean that 89% did not? That was the first—

Mr. Richard Neville: I was going to come back to that, so I'm glad you raised it.

Mr. Alex Shepherd: Wait a minute, I'm not quite through.

He reported on some of these problems back in 1998, and again now, and it wouldn't appear by any measure that things are getting any better. Your response has been that you're sending out a memo to your department.

In addition to that, it seems to me that the Auditor General is saying the ACAN system is skewed in the sense that it is not a competitive bidding process. And you're stating that the fact that you have such a low number of challengers is somehow a definition that the system works.

I suggest it's the other way around. The reason you have such a low number of challengers is that there's a short period in which people can bid on these programs, and the description of work is probably such that it is skewed toward the chosen supplier. Also, you have a political problem in that the person letting out the work, who made the bidding process and choice of the sole-sourced contract, is also the person who has to sit in judgment of whether in fact the challenger is successful. The whole thing seems like a mug's game to me. What am I missing?

Mr. Richard Neville: Let me go back to the first statement you made in terms of percentages, because I'd like to at least set that record straight.

Of the total contracts above $25,000, 82% are deemed to have been competitive, and ACANs, out of the total contracts above $25,000, represent but 18%. The balance are split between electronic bidding, which is 35%; traditional competitive bidding, 29%; and non-competitive bidding, which is 18%. So just to set the record straight, we are talking of a small percentage of the total contracts above $25,000 that are ACAN contracts. That's the number of ACANs per se.

As to whether you may deem the process to be skewed to the supplier that has already been designated because of the way the wording is made, I'm back to the principle that when the procurement officer puts out the ACAN, it is done in a fair manner. It follows the procedures that have been laid out, and it follows the time lines that have been agreed upon already. If all those things happen, with electronic capabilities today, there is no reason why a supplier who is interested cannot, within the time lines that are set, make the challenge and put in the bid so that the procurement officer will be in a position to make a decision.

Mr. Alex Shepherd: On that point, the Auditor General is saying in most cases that's 15 days, whereas a normal supplier might have two or three months to bid on the same contract. Is that 15 days a reasonable time period?

Ms. Jane Cochran (Senior Director, Procurement Policy, Treasury Board of Canada, Secretariat): If I could clarify, the 15 days are only to respond to the notice. There is a bidding period over and above that. The person does not have to complete their bid within 15 days, just go into the competitive process.

Mr. Richard Neville: Don't forget that the idea there is for the company who believed they could meet the requirement to notify the contracting officer that they have the capability, they have the skills, they have the wherewithal to meet that particular need, and therefore the—

The Chair: So you're saying that they only have to register their interest within 15 days, they don't have to complete a complete bid. Is that statement included on the ACAN screen, that all they have to do is register their interest in 15 days?

• 1645

Mr. Richard Neville: I'm not 100% sure on that.

Ms. Jane Cochran: They also have to state—

The Chair: My question was about the fact that they have to register their interest only. Is that on the screen?

Ms. Jane Cochran: In most cases, yes, but not in all. That's one of the pieces of advice we have to ensure they get in the best practices guide.

The Chair: Okay. Ms. Jennings.

Ms. Jane Cochran: But the other question in between is that it's not simply saying “I can do it”. They do have to tell the contracting officer what their qualifications are so that there are not erroneous things either.

The Chair: Okay. Ms. Jennings, four minutes, please.

[Translation]

Ms. Marlene Jennings: Eight years after adopting the advanced notice process, you insist on saying that it is competitive if you train personnel. You yourself, Mr. Neville, in answer to my colleague Ms. Phinney's question, gave an example in which you said

[English]

that when you want to make the case, you don't go competitive, you go sole-source, and here's what happens. I'm quoting you directly: when you want to make the case, you don't go competitive; you go sole-source.

Even if I didn't want to take issue on whether or not it is a competitive process, by virtue of the fact that it has been in place for eight years and the personnel appears to still have problems with applying the standards, applying the criteria, this means it's not a fair process. It means it's not a fair process if after eight years people on the outside still don't know.... The lady here, Ms. Cochran, just said that it's posted in most cases that the interest has to be notified within 15 days, but the actual bid doesn't have to be, not in all cases.

I think your testimony today shows that there's a real, fundamental problem with les préavis, ACANs. There's a real problem with it.

Mr. Richard Neville: We don't disagree that there are issues still to be resolved. The Office of the Auditor General—

Ms. Marlene Jennings: Eight years later.

Mr. Richard Neville: Well, that's reality.

Ms. Marlene Jennings: Mr. Neville, do you agree that if I have a company and my employees are electricians and they have to put together the electrical board so that this microwave works, and eight years later they still haven't been able to produce a microwave that works, either they're not competent or the plans I gave them are no good? It's one or the other.

Mr. Richard Neville: I wouldn't say it doesn't work. I think the terminology you used was that it doesn't work.

Ms. Marlene Jennings: Well, it's not fair. It's not a fair process.

Mr. Richard Neville: Okay. We believe it does work. It's a question of whether it's working as well as it should, and there are obviously some deficiencies. Our position at this point in time is that deficiencies should be addressed, they can be addressed, and they are being addressed.

We're also looking at the ACANs process overall, in the longer term, through our procurement reform initiative. There may be some changes, but that will be in consultation with the stakeholders.

Ms. Marlene Jennings: I really can't agree with you, Mr. Neville. I think you shouldn't try to make the argument that it's competitive, because you yourself in your example said that when you don't want to go competitive, when you want to go sole source, here's how you go about making your case.

Mr. Richard Neville: I think that may have been taken out of context. What I said was that if within a department a decision is made by the line manager that they would like to go sole source, they make their case to the procurement officer. I believe that's what I said. If you make a case to the procurement officer and you can make that procurement officer agree with you—

Ms. Marlene Jennings: Well, we can pull the transcript and that will sort out whether I heard you right or whether you misspoke or whatever. I think the issue is that there may be justification for not having an open, competitive process for a certain number of contracts. The problem is that so far you haven't been able to provide solid evidence to make that case, even in the ones you're issuing. That's the problem.

Mr. Richard Neville: Mr Chairman, again, that may be the interpretation. We're stating that—

Ms. Marlene Jennings: You're cutting me off.

Mr. Richard Neville: —the departments are making the case and are using it and are having success in using it. As we stated on numerous occasions today, there are still deficiencies in the process. Yes, eight years later there are still deficiencies. We are trying to rectify those, and through training, we expect that we will be able to alleviate a lot of them.

• 1650

The Chair: Thank you, Mr. Neville. I think Ms. Jennings is letting you know that the committee is not convinced.

Ms. Marlene Jennings: Well, I'm not convinced. I don't know about the rest of you.

The Chair: Just one moment. Mr. Burton has a quick comment.

Mr. Rick Burton: We were invited here, and I just wanted to give you the perspective of the department. I believe the system is working. I think it needs to be tweaked and have some improvements to it, as we've talked about today. I tried to outline the kinds of things we've done.

I just wanted to point out that in the last three years, we've had a 40% increase in our number of competitive contracts. We've had a 25% decrease in the number of ACANs. We've rejected 20% of requests for ACANs; people have come to us for sole-source requirements and we've rejected them. Notwithstanding the debate about ACANs being competitive or not, when you add ACANs to the competitive numbers, 93% of our contracts are awarded competitively. In dollar terms, out of the ones we have let in the defence department, $21 million out of $22 million was awarded competitively.

The Chair: Thank you, Mr. Burton.

Mr. Rick Burton: Also, if I could just say one more thing, we do take the timeframe seriously. We insist on 15 working days to allow an opportunity for someone to raise a challenge to an ACAN.

The Chair: Well, that's interesting.

[Translation]

Mr. Sauvageau, please, you have four minutes.

Mr. Benoît Sauvageau: However, it is $22 million out of $10.3 billions.

I have a question for Mr. Neville. I will start by the last one, because a point was made following Ms. Jennings' comments that I found interesting.

It is all very well for you to agree with us that there is a problem. At least, we agree on something. In point 24 of the Auditor General's statement, and he usually weighs his words, one can read:

We are also discouraged by the Secretariat's refusal to support mandatory audits of a sample of contracts in departments that use sole-sourcing frequently.

Since the process is eight years old and that there is still a problem, why do you refuse the opportunity to have continuous sampling within the departments, for example at National Defence, that frequently use sole-sourcing?

Mr. Richard Neville: Firstly, concerning point 24, we must not forget that the auditing was done in the fall of 1998 and in the beginning of spring 1999. In March 1999, we posted a notice to all departments in which we explained very clearly what practices were to followed from then on.

There is therefore still hope that practices have changed since this audit, since the work done in the fall of 1998.

Mr. Benoît Sauvageau: For the sake of argument, let us say that you are right, that the memo was clear and that the civil servants received it. Even the National Defence's civil servants changed culture when they put their watches to daylight saving time, last week-end. This was done automatically.

Why then refuse sample auditing that would allow the Auditor General to verify that all is well everywhere? If this was the case, I would be very proud to show it.

Mr. Richard Neville: The inaccuracy of the recommendation made by the Auditor General should be taken into account. It should have said that Treasury Board encourage deputy ministers to have audits made. We support the recommendation that deputy ministers continue to have internal auditing.

Mr. Benoît Sauvageau: Although this is what you would have liked to hear from him, it is not what he said. Since he is sitting next to you, why not ask him what he meant exactly?

Mr. Richard Neville: It is there in the auditing report.

• 1655

Mr. Benoît Sauvageau: Mr. Neville, thank you.

Mr. Desautels, would you like Treasury Board Secretariat to require departments who often let sole-source contracts provide a sample? The terms "encourage" and "require" have different meanings. Do you stick to what you have written in your report?

The Chair: Mr. Sauvageau, your question will be answered.

[English]

Mr. Finlay.

Mr. Richard Neville: There is a discrepancy between the statement of the Auditor General today and the actual audit observation in the text.

The Chair: Perhaps we can have Mr. Desautels respond.

[Translation]

Mr. Denis Desautels: Mr. Chairman, I think we're stumbling over nothing. We stated clearly, in paragraph 30.89 of our report, that the Secretariat should encourage departments to audit contracts let without bidding. The secretariat, however, rejected our recommendation. So, whatever the word used, whether it is “encourage” or “require”, it has no bearing.

Mr. Benoît Sauvageau: They do not agree.

Mr. Denis Desautels: They do not even agree to encourage them. That is the end of it.

Mr. Benoît Sauvageau: Do you agree that deputy ministers should be encouraged, Mr. Desautels?

Mr. Denis Desautels: Yes.

Mr. Benoît Sauvageau: He agrees. You realize this, do you not?

[English]

The Chair: Mr. Finlay, please.

Mr. John Finlay (Oxford, Lib.): I have to ask about one little correction, a point of information on item 4. And I'm sorry, Mr. Desautels, I wasn't able to get here until I think you were past that point. But the second line in 4, I take it, means “allow time for suppliers to challenge the award”.

The Chair: Item 4 of the Auditor General's—

Mr. John Finlay: The first page of his presentation.

The Chair: Yes, the opening statement of the Auditor General's report today.

Mr. John Finlay: Right.

Mr. Denis Desautels: Paragraph 4.

The Chair: Paragraph 4.

And, Mr. Finlay, you question not enough time?

Mr. John Finlay: No, I just wanted to make sure that in the second line it doesn't mean, “and to allow time for supplies to challenge the award” but for “suppliers”.

The Chair: Oh, suppliers.

Mr. Denis Desautels: That's correct.

Mr. John Finlay: That's all.

Mr. Richard Neville: And that is the way it was read. I actually noticed it myself.

Mr. John Finlay: All right, I wasn't here and I....

Mr. Chairman, it seems to me that perhaps what we're embarking on here—and I'm going to be very broad and not very specific in my comments—is that we are perhaps requiring government departments to do something, albeit maybe in the public interest and albeit to get the best bang for the buck, that in private enterprise doesn't occur to quite the same extent as we are here suggesting.

I'm suggesting that if I have a manufacturing company and I need a new jump seat for my all-terrain vehicle, my Chrysler whatever, or my Jeep, I might go to the person who is making my seats now and say “can you make this seat for me and fit these specifications?” Because their truck comes to my plant on time at nine o'clock every morning or whatever, and you have to have your inventory on time. They've been good suppliers, we're very satisfied with their quality and their seats, and we say “Will you do this?” I don't think there's any requirement for GM to put out a competitive bid if they don't wish to.

The Chair: And the rules do say “over $25,000 only”, Mr. Finlay, so it's under $25,000 that do have that capacity to get the seat fixed.

Mr. John Finlay: No, some of these contracts are worth a lot more than $25,000.

The Chair: Yes, but.... Mr. Neville.

Mr. Richard Neville: In the private sector one would not go through an ACAN process, one would just go to the supplier and not be concerned whether another supplier could meet it or not. It would just happen as was stated by the member.

What we are doing in the public sector is adding one additional step, which obviously creates some complications because it's another additional step, but it's being fair and open, where we are now allowing other suppliers the opportunity to have a say, to voice an objection if they wish, and to be heard prior to our finalizing that particular transaction. And if it's a valid objection, and if they do meet the requirements, then we open up the traditional bidding. That's the step that's in the public sector that is not in the private sector.

The Chair: Mr. Desautels, you have something to say.

Mr. Denis Desautels: Very quickly, Mr. Chairman, what we're talking about here is that the federal government has given itself some policies for contracting, and on the whole I think most people would agree with the federal government's policies. We do, and I believe members of Parliament generally do. They achieve the dual purpose of fairness and best value for money. Obviously those are quite different from the principles, to a certain extent, that the private sector firms would follow.

• 1700

So those federal government policies on contracting I think are based on the desire of everyone—the government, the members of Parliament—to afford everybody the opportunity to bid on government contracts, allowing certain exceptions to deal with urgency and other matters like that, and also allowing for exceptions when the contracts are small.

Basically the policy is sound. What we're talking about here is compliance, in a genuine sense, with that policy.

Mr. John Finlay: Is that it?

The Chair: Yes, Mr. Finlay, your time is up.

Mr. John Finlay: Thank you, Mr. Chairman.

The Chair: Ms. Phinney, you have a question.

Ms. Beth Phinney: My question is on compliance. It's number 9 in the Auditor General's speech again. This is where it says “only 35 were challenged and only 4 of those challenges succeeded.”

That whole paragraph describes how difficult it is to challenge, how unfair it is. They have the same judge deciding for both of them. The person who got the original bid may have already had a contract for 20 years and so knows the people in the company, has little secret ins and outs, etc.

Will you do what you did over here for paragraph 24? Since you're still training a lot of people across the country, could you suggest that they learn some new methods in this area and they fix up section 9? Would you be willing to say that you would encourage that your people who are being trained would tighten up their regulations and make this a fairer process?

The Chair: Mr. Neville.

Mr. Richard Neville: I'm going to let Ms. Santi answer this.

Ms. Roberta Santi (Assistant Secretary, Risk, Procurement and Asset Management, Treasury Board of Canada, Secretariat): I think we're very committed to the observations that the Auditor General made in his report in this respect. I think this is an area that does require some strengthening. This is why we're working with both an ADM-level committee and a committee of middle managers to look at the process and to ensure that there are some sound principles in how the challenge function works. I think it's central to the policy of ACANs being a competitive process. The challenge function has to work. We're working on best practices and key principles that should be applied. I think they can be applied in different ways in different departments, but I think there are certain elements of impartiality, etc., that would need to be respected. We hope to have that completed by this summer.

Ms. Beth Phinney: I want to suggest that you don't have very far to look, that those suggestions are right here.

Ms. Roberta Santi: There are many best practices out in the field, and we intend to collect those and put them together for guidance for departments.

The Chair: Thank you, Ms. Phinney, and thank you, Ms. Santi. After eight years we're glad you are going to collect best practices.

Mr. Earle, four minutes, please.

Mr. Gordon Earle: Thank you. I may have missed this in the presentation, and if I did, forgive me for asking something that may have been explained.

When an ACAN notice is posted electronically to inform suppliers of the sole-source contract that's about to be given, does it name the sole-source party that's going to receive the contract and does it spell out the terms and conditions that this person has put forward?

Mr. Richard Neville: Yes, it does do that.

Mr. Gordon Earle: I take it any department of the government can use this process of ACAN?

Mr. Richard Neville: Yes. The majority of them are with Public Works and Government Services Canada, though.

Mr. Gordon Earle: I see. So when there's a challenge, the challenge is consistent across departments as to how it's handled?

Mr. Richard Neville: That's the part where I'd like to think it is, but obviously based on observations from the Office of the Auditor General, it may not be and that's where additional work is required.

Mr. Gordon Earle: My question is to National Defence. You mentioned that your department is strengthening and looking at this whole process of ACANs and that you've set up a contracting advisory committee of senior officials, and that committee oversees the use of ACANs. How does it tie in with Treasury Board? Who has the final say in terms of the process as it relates to National Defence? Would it be Treasury Board or would it be DND?

Mr. Rick Burton: We are not an independent procurement process, so we follow the directions, policies, and guidelines of the Treasury Board. Where we think that perhaps we need to strengthen things at some point to meet a specific need, then of course we'll look at that and do so.

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We have made a change here, and this is one where I would acknowledge from previous audits, our own internal auditing, that we were a little fuzzy on the separation between the person putting forth the case for a sole-source contract and the same people adjudicating whether indeed that was legitimate justification. We have changed that now. We have created an organization central in the department, which comes under my responsibility, for looking at the requirements all across the department and judging whether the sole-source justifications that folks are representing to us fit the bill or not. As I tried to indicate earlier, we've had a dramatic increase in the number of rejections that we've sent back to people saying we don't buy that logic. Often it's better if you just follow it and compete it and we'll get there.

Now we've added another wrinkle, in response to the Auditor General's observation on the recent audit, where we're actually as well taking the adjudication of a challenge from other suppliers, who may feel they legitimately had a right, or a competency or capability, to meet a certain requirement, out of the hands of the person who has actually put forward the original need and are dealing with that ourselves. So when the challenge comes in—and it isn't all that often, but when it does—we'll certainly consult with the individuals who initially had the requirement and who would have a better idea of the marketplace in their own particular area, and we'll take that advice, but we'll adjudicate and decide in fact independently whether or not to accept or deny the challenge. It's an evolution where we've tried to learn the lessons as we go along.

Mr. Gordon Earle: I want to come back very quickly to the supply chain project that I spoke about. I know you spoke about it as being a broad project right across the country and therefore that's why it's an advantage to contract out, but certain constituents within my area have said that this puts them at a disadvantage, and they feel very strongly that there are certain aspects of the project that could be broken up to enable in-house bids. Is that a correct assessment, that this could be broken down into components that would then enable some in-house bids to compete for this?

Mr. Rick Burton: I don't know what's going to happen there. We haven't willy-nilly accepted that this is going to be contracted out. We're now testing to see what industry will propose to us by way of what can they offer, and can they meet the very stringent benchmarks that our own people have already met. There's great work going on in Montreal and Edmonton at the depots and so on, and industry is going to have to push to be able to beat that, quite frankly. That's what they're in the process now of doing—drawing their own conclusions, based on our stated performance requirements, as to what they think they can do. And then we'll judge it on that basis.

Ideally, though, when you're dealing with a system that's end-to-end, so to speak, and reaches out to deployed forces to get the best effectiveness and synergy, you would first think to do it end-to-end. If it comes through that perhaps breaking it up piecemeal would make sense, then we'll obviously look at it.

The Chair: Thank you, Mr. Burton.

Mr. Richardson, please.

Mr. John Richardson (Perth—Middlesex, Lib.): I just have the one question, Mr. Chairman, and thanks for giving me the opportunity.

I was late coming in but I was impressed with the write-up of the air training program that we have in Moose Jaw. I remember I was asked to quickly step in for the minister, when I was his parliamentary secretary, to go with Mr. Romanow and host the countries from NATO that we're going to be there. When I left I thought, I wonder how many NATO countries are going to come out to western Canada and take on pilot training. What we did do was sell them on probably the best possible program we'll ever get, and that was the three bases, Portage la Prairie and Moose Jaw.... And the one that really sucked them up and they really wanted was the ability to get in on the ground, but they wanted the advanced-level training at Cold Lake, which we'd established as one of the premier airbases in the world for advanced pilot training, meaning jet fighter pilots.

I just want to say that if it's successful and you've kept the people there.... I remember the Germans came swarming over to me; they wanted to get the hell out of Texas and they wanted to get in. They'd just paid $90 million to put a new runway in for the Americans and they were stuck there. They wanted to get out, but they were stuck there until after they got their money back. They wanted to come and train in Canada.

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So I want to say you're selling a good product, and I think you should stand up and blow your trumpet once in a while. I think the Auditor General would agree with this too, that it's been a success.

The Chair: Thank you, Mr. Richardson.

Mr. Rick Burton: May I make a comment on that, Mr. Chair?

The Chair: Very briefly, Mr. Burton. We're not really into accolades in this committee.

Mr. Rick Burton: I won't stand up and blow our trumpet, but I think it is turning out to be a very successful—

The Chair: It's fine to be successful, Mr. Burton, but the Auditor General says you awarded the contract outside of the Treasury Board rules, and that's the key.

Ms. Jennings, you had a question.

Ms. Marlene Jennings: It's just a suggestion. When you're dealing with this kind of process in administrative law, the principles are quite clear that, for instance, if you have a process that may not be an open process, if there's a process in place to challenge it, it's not the same individual who revises the decision. That's the first thing. The criteria, or the burden of proof or standard of proof, by which it will be adjudicated should in fact be open so it's accessible to the individual who wants to challenge the process.

It's quite simple. In administrative law, we have administrative organizations at the federal level and at the provincial level. The rules of adjudication are quite clear. They're quite well established. You may have some interest in possibly consulting some law professors who are specialists in administrative law, some heads of some of the federal administrative organizations who have that kind of expertise, and they can actually provide you.... It's quite open knowledge.

So you don't have to reinvent the wheel. There are some basic principles that when you put into place a process this is what you have, this is what you do, and there's no choice about it. If you want to ensure that the process is in fact transparent, that it's equitable, you have these mechanisms in place and they're written so that anyone can access that information.

The Chair: So there's some good advice. Thank you, Ms. Jennings.

Mr. Richard Neville: Thank you, Mr. Chairman.

The Chair: Mr. Neville, the Auditor General pointed out in 30.61 that in:

58 percent of our sample of 50 cases the ACAN failed to provide a sufficiently detailed statement of work and/or requirements, expected results of the procurement, the estimated value of the contract, or the name of the selected supplier.

He's indicated that ACANs are not working well at all, and I look at his opening statement where he says a third had a statement of work that differed substantially from the work described in ACANs. How is that happening eight years after it started?

Mr. Richard Neville: Mr. Chairman, we certainly appreciate the comments of the Office of the Auditor General. Obviously there are some anomalies in the system that are still existing. We've agreed to address those and we are addressing them.

The Chair: He also pointed out in his report, and I don't have the exact reference, that an ex-RCMP officer was awarded a sole-source contract because the criteria were such that nobody else qualified.

My question is, if we have so many of these contracts going out through ACANs and the Auditor General has serious concerns about ACANs, (a) are you prepared to do a study to find out if the terminology that is posted on ACANs is as the contract is subsequently written; and (b) have the criteria on ACANs been written so narrowly, and should not have been written narrowly, as to deny other people a competitive bid? Are you prepared to do a study on that?

Mr. Richard Neville: Mr. Chairman, first of all with respect to the Auditor General, it's my understanding that they still support the concept of ACANs, considering what—

The Chair: I'm asking you if you're prepared.... He has serious concerns, and he pointed out the statement of work differs from the work described in ACANs. In point 7, he says that departmental managers claimed they had undertaken price negotiations, that they had little or no documentation on file. Are you prepared to do a study?

Mr. Richard Neville: At this point in time, Mr. Chairman, we feel that we have already announced what we plan to do, which is to look at it but to put it in the context that if there are some anomalies, we'll look at what the problems are, we'll work with the departmental committee, and we'll make some recommendations accordingly.

• 1715

The Chair: I'm looking at paragraph 9 of the Auditor General's opening statement, Mr. Desautels, where you've said “We also found that challengers were not treated fairly.” Further on, you've said “A higher burden of proof was was required of the challengers than the supplier whose selection they were challenging.” Could you write us a letter explaining those two statements, in terms of how you feel it's unfair?

Mr. Denis Desautels: Yes, Mr. Chairman, I could definitely do that.

The Chair: Mr. Neville, the Auditor General is saying there was no defined process for dealing with the challenge. Can you write us a letter telling us what the process is for a challenge?

Mr. Richard Neville: Sure.

Ms. Roberta Santi: I think we replied to that earlier, when we indicated that we are working on clarifying—

The Chair: No, the Auditor General said “There was no defined process for dealing with a challenge.” This is past tense, and a program has been in place for eight years. I want to know what the process has been. What has been your official policy for dealing with a challenge? Just send us a letter on it.

Mr. Richard Neville: Mr. Chairman, we'd be pleased to provide you with the process that is currently in place in the departments. There may be different processes, but in all fairness, I'll try to give you what is representative across government.

The Chair: And you're also going to introduce the best practices guide, as Ms. Jennings pointed out.

Mr. Richard Neville: The best practices guide is a key to this.

The Chair: Mr. Burton has pointed out that DND recognizes that you don't have someone adjudicating your own work. Therefore, if there is a challenge, it is handled by someone else, not by the person who posted on ACANs. That seems to be fairly simple logic—

Mr. Richard Neville: That's true.

The Chair: —and it should have been introduced a long time ago. But if you're going to do it now, I guess that's progress.

I'm still very concerned about your insistence that ACANs is competitive. Therefore, I would like to see you really work hard at ensuring that everybody has the opportunity. You may want to expand it to 30 days if it's not an emergency. You may want to post on there that they only have to indicate their willingness to compete and why they think they're eligible to compete. That way, they don't feel they have to wrap up an entire bid within the 15 days. There are all kinds of things you can do to make it much more accessible if you insist on thinking it is competitive. We would like you to address this.

Mr. Richard Neville: We are certainly addressing all of those concerns that you've just raised, Mr. Chairman. I thought we had discussed this in the context of there being an assistant deputy ministers committee that's also looking at best practices and is trying to come up with hard recommendations for us to consider and bring to the Treasury Board minister.

The Chair: You should also take a look at.... You have four criteria for exempting contracts from the public process, and I know that $2.8 billion was a unique contract. But I think that if you are going to allow contracts to fall outside the bidding process, no matter how unique they may be, you had better build into your procedures some way by which you can exempt them rather than just saying this doesn't apply so you'll just ignore the process for this particular venture.

Mr. Richard Neville: The NATO flight training contract was deemed to be a sole-source contract—

The Chair: Because it was in the public interest. But the public interest is not one of the criteria for exempting the process, am I correct?

Mr. Richard Neville: Yes, and it met the trade agreements.

The Chair: That's my point. If you feel public interest is a reason for exempting, then put it in the criteria.

Ms. Roberta Santi: It is in the criteria.

Mr. Richard Neville: It is in the criteria, Mr. Chairman. Section 10.2.1(c) says “the nature of the work is such that it would not be in the public interest to solicit bids”. So it is in the directives.

The Chair: Okay, then I stand corrected.

Mr. Kasurak.

Mr. Peter Kasurak (Principal, Audit Operations Branch, Office of the Auditor General of Canada): I think it would be useful to draw the committee's attention to the rest of the regulations, which say that exception (c), which we just read, “should normally be reserved for dealing with security considerations or to alleviate some significant socio-economic disparity”. So while it's there, it's fairly narrowly defined in the regulations.

The Chair: So you feel that—

Mr. Peter Kasurak: To us, it fell outside.

The Chair: Okay, so there's an opinion. I'm just saying nobody is denying that there may be a unique circumstance that comes along once every so often—not very often, but on the odd occasion—and you can't just put the rules in the garbage and say you'll treat this one differently. You should be able to accommodate the most unusual within the rules.

Mr. Derrek Konrad: Can I comment on that for a second, Mr. Chairman?

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The Chair: We'll turn it over to Mr. Sauvageau and Mr. Konrad for some brief points, and then we'll have some closing remarks because time is moving right along.

[Translation]

Mr. Benoît Sauvageau: Mr. Neville, we were prevented earlier from hearing your answer by the bell. In response to recommendation 30.89 of the Auditor General's report, you were saying:

We submit, however, that large-scale auditing of a sample of sole- source contracts by departments that award more than 50 contracts each year for amounts over $25,000 is simply not a cost-effective use of scarce resources for oversight activities.

You are now saying that this statement is no longer quite accurate and that you agree departments should be encouraged to do internal audits.

Mr. Richard Neville: We do encourage departments, through the deputy ministers, to do such audits. Such decisions are taken by the deputy minister of the concerned department.

Mr. Benoît Sauvageau: Good. You are no longer personally saying that it is not a cost-effective use of resources and that it is not a good solution.

[English]

Ms. Roberta Santi: I would like to add that we're working on a guide for departments on internal audit with regard to contracting policy, and we're in the process of consulting with the Office of the Auditor General on that.

[Translation]

Mr. Benoît Sauvageau: Fine. I would like to make another comment, if allowed, Mr. Chairman. Mr. Neville, in point 8 of his statement, the Auditor General says:

In nearly 90% of the cases we audited, the contract did not meet the criteria for any of the required exceptions—

In your conclusion, you say:

We are pleased that the Auditor General has concluded, once again, that the government's procurement policies are sound.

Do you believe that the Auditor General is recognizing the soundness of your policies when he says that 90% of the cases audited did not meet the criteria for any of the required exceptions?

Mr. Richard Neville: I cannot speak for the Auditor General. I must however admit that I was under the impression he generally accepted Treasure Board's policies concerning contracting out.

The Chair: Thank you.

Mr. Denis Desautels: Very briefly, Mr. Chairman, I will say that we also indicated our support for the government's policy. The problem is not the policy, but conformity to the policy in the various departments.

Mr. Richard Neville: We agree with this point of view.

The Chair: Thank you very much, Mr. Sauvageau.

[English]

Mr. Konrad.

Mr. Derrek Konrad: I just wanted to follow up on what you said. I asked you before if you felt that these rules were a bit of a straitjacket and that there should be some changes to allow for the kinds of things that were just mentioned. Do you stand by your previous statement, or having thought it through a little more, do you think there needs to be some change in that regard?

Mr. Richard Neville: I think one is always open to good suggestions. The comments that were made today fall under that category, and we certainly will consider those as we look at best practices and how we can improve on the current policy and practices.

Mr. Derrek Konrad: I see here that the Auditor General is not only disappointed, but also discouraged. I see that number 26 has a cure for that. I wonder what your view is on having “a senior official to make or concur in the decision to sole-source and to be accountable for it”. We could send him away a little less discouraged and a little less disappointed if you were to think that was worthy.

Ms. Roberta Santi: If I could just reply to that question, we certainly agree with the principle. We think there are a number of mechanisms that could be used to ensure that appropriate oversight. It doesn't necessarily need to be one person. It could be two people. It could be somebody from a department other than the one that's issuing the contract. We don't have a problem with the principle. We don't want to straitjacket ourselves into that being the only mechanism.

The Chair: I'm sure that if you work on it, the Auditor General will not be so discouraged. We wouldn't want him to be discouraged.

Mr. Desautels, some closing comments.

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

I think it's obvious that on the question of whether or not ACANs constitute competitive situations we do disagree with Treasury Board. I must say that I cannot follow the logic used by the Treasury Board in this case. Saying this is competitive because the policy says it's competitive does not convince me on that score.

It has been said that if there's no challenge to an ACAN, that means there are no qualified suppliers out there. The evidence we've accumulated in our work says that there are probably qualified suppliers out there, but for different reasons they chose not to object.

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In any case, Mr. Chairman, if the committee wishes, we could explain more fully in a letter back to the committee the logic of our argument, and the committee can then choose, if they wish, between our logic—

The Chair: You can feel free to write to the committee, Mr. Desautels, and so can Mr. Neville.

Mr. Denis Desautels: Mr. Chairman, by all means, I think government should fix the defects in the ACAN process. We would encourage their appropriate use to enhance the transparency of sole-sourcing. I think it's worth doing.

I also think, though, that across government we should work harder at adhering to the contracting policy overall and encourage more truly competitive bids whenever that's possible.

In that vein, I was encouraged by Mr. Burton's statistic that a higher percentage of contracts are given out with truly competitive bids, even without counting the use of ACANs. I found those points encouraging, and I think the rest of the departments should concentrate on the same area.

In terms of the NATO flying program in Canada, Mr. Chairman, I think what's important at this stage is how new major service contracts are managed. The Treasury Board Secretariat, in its response to our audit, has already said that they'll work on guidance to departments for large, multi-year service contracts, and I think that's extremely important. Preserving the principle of competition should be a key component of the secretariat's effort, and I hope this committee will support that particular objective.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Desautels.

I would also like to compliment Mr. Burton on the point he raised about how they had moved to implement the recommendations of the AG's report, and the results seem to be extremely positive. On behalf of the committee, I would like to convey that back to Mr. Williams.

Mr. Neville, one brief point.

Mr. Richard Neville: I'll just take 30 seconds. I recall, Mr. Chairman, being in this same room several years ago and discussing at length not the issue of ACANs but the issue of competitiveness, why our competitive track record was so low. It was between 50% and 60%. Today we have brought that up to 82%. I stand to be corrected, but I believe this is the highest percentage in the western world. Even if you exclude ACANs, we still have the highest competitive percentage in the western world in terms of our contracting procedures. So we can always do better.

I leave you on that note, Mr. Chairman.

The Chair: Thank you. Progress is always desirable, and we're glad to hear that progress is being made. Sometimes speed is also important.

Anyway, ladies and gentlemen, the meeting is adjourned.