Public Accounts Committee on March 24th, 2009

[The Chair, Liberal, Shawn Murphy]

I call to order the 11th meeting of the Standing Committee on Public Accounts.

On behalf of all committee members, I want to welcome everyone here. This meeting is called pursuant to the Standing Orders to deal with chapter 3, "Contracting for Professional Services—Public Works and Government Services Canada", of the December 2008 Report of the Auditor General of Canada.

The committee is very pleased to have with us this afternoon the Auditor General, Sheila Fraser. She's accompanied by assistant auditor Ronnie Campbell and Tedd Wood, principal. From the Department of Public Works and Government Services we have François Guimont, Deputy Minister and accounting officer, and he's accompanied by Daphne Meredith, associate deputy minister. On behalf of the committee, I want to welcome everyone.

We'll start right away, and we'll ask the auditor for her opening comments.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair. We are pleased to be here to discuss chapter 3 of our December 2008 report, entitled “Contracting for Professional Services—Public Works and Government Services Canada”. As you mentioned, I'm accompanied today by Ronnie Campbell, assistant auditor general, and Tedd Wood, principal, who were responsible for this audit.

To help deliver its programs, the department uses the professional services of consultants such as accountants, lawyers, architects, engineers, specialists in data processing, and other technical and professional experts. The department spends over $1 billion annually on contracts for the services of consultants. It is essential that officials in the department protect the interests of the crown by adhering to key principles of contracting that promote competition, fairness, and transparency. This requires sound processes with an appropriate segregation of duties monitored to ensure that they are followed consistently.

We had two objectives in conducting this audit: first, to examine if Public Works and Government Services Canada complied with appropriate rules and policies in awarding contracts for professional services; and, second, how well the department manages these kinds of contracts.

In our audit we found that 95 percent of the publicly tendered contracts and 96 percent of the sole source contracts that we looked at were awarded in compliance with the rules. Based on this finding, Mr. Chair, we concluded that these contracts were awarded in a fair, open, and transparent manner.

In the management of contracts after they were awarded, we found that there was an administrative deficiency or weakness of some kind in 30 of the 37 transactions examined—that is, the department's management controls were not properly applied. Although no single type of problem was pervasive, the significant number of problems indicates that the controls are not enforced consistently. For example, in some cases, contracts were amended after they were awarded, significantly changing their nature and value; in other cases, the department did not fully enforce the terms and conditions of contracts.

In several cases, the same departmental official who initiated the procurement for services also certified that the services were received. A fundamental internal control is the separation of duties. Combining these duties is also contrary to the Treasury Board's Policy on Delegation of Authorities, which requires that each of the tasks be carried out by separate individuals.

Public Works and Government Services Canada also had many, long-term contractual arrangements with some individuals and companies that could create an employer-employee relationship and a risk of liability to the government.

In three cases, there was evidence indicating that the contractor who was awarded the contract had been involved in developing the search criteria or had written the statement of work for the contract. In a fourth case, the department used the services of a consultant to assist in developing the request for proposals while at the same time the consultant was subcontracted to the firm that bid on and was awarded the contract. When we brought this issue to the department's attention, senior management issued a comprehensive directive outlining roles and responsibilities. Each case we present here represented a conflict of interest and a violation of the government's policy that contracting be fair, open, and transparent.

Mr. Chair, the department's performance in contract award is encouraging. I am also pleased to report that the department has accepted our recommendations aimed at improving quality and compliance in contract management. They have created a framework that is intended to address our concerns. We have looked at this framework and believe that it should, if implemented, make a difference in how PWGSC administers its contracts.

Your committee may want to ask the departmental representatives for details about the management action plan. You may also want to ask them to explain the progress the department has made in implementing that program.

Mr. Chair, that concludes my opening remarks. We would be pleased to answer any questions the committee members may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

We'll now hear from Monsieur Guimont, the Deputy Minister of Public Works and Government Services Canada.

[François Guimont, Deputy Minister and Deputy Receiver General for Canada, Department of Public Works and Government Services]

Mr. Chairman, members of the committee, thank you for this opportunity to appear before you today.

With me is Daphne Meredith, our associate deputy minister.

PWGSC spends more than $1 billion a year on contracts for professional services. In observing the legislation, regulations and policies governing contracting, our contracting officers make every effort to promote competition, fairness and transparency.

The Auditor General's work has given us important insight into how we conduct our work in this area.

We are pleased that the Auditor General found that PWGSC awarded publicly tendered contracts correctly in 95% of cases and sole-sourced contracts in 96% of cases.

Furthermore, we welcome the Auditor General's conclusions and recommendations as they relate to contract administration. More importantly, she noted that the issues were not of a systemic nature.

We are addressing her observations with respect to a lack of rigour in the administration of contracts. We want to ensure that our contract administration achieves the same high standards as our contract awards.

We have taken a department-wide approach, which is embodied in a comprehensive action plan that has been tabled with the committee. This departmental action plan addresses all the recommendations contained in the chapter and was developed in full consultation with the OAG. The implementation of this action plan is substantially complete, with the remaining elements to be fully implemented by the end of April 2009, in a month from now.

The action plan focuses on the development of a contract management control framework that identifies the elements that are key to sound contract management and lays out how they should be addressed. These actions apply across the department and include the integration of governance processes to provide oversight and ensure accountability; identification of key controls to prevent and detect identified risks related to managing consultants and administering contracts; identification of risk mitigation measures to manage identified risks; integration of best practices to ensure that our contract management control framework is best in class; development of guidance on procedures, as well as tools and templates, to help ensure consistency and quality in contract management; and finally, training on and communication of this guidance to help ensure that it is understood and applied.

As well, we are putting in place an ongoing program to monitor key contract requirements and ensure high-quality consistent contract administration department-wide. Through this program, the department will be able to identify potential areas of concern and follow up accordingly.

The basic elements for success have now been assembled: a solid framework; an ongoing monitoring program; and as the last ingredient, the training and development of our staff.

In 2006, as part of Treasury Board policy, managers and executives were required to validate their knowledge regarding the essentials of managing in the public service, which includes material management and contract management. At that time, we had identified 1,331 managers and executives that required this validation. By December 2008, 1,700, or 100% of managers and executives had validated their knowledge, which included new recruits.

In conclusion, Mr. Chair, I am satisfied that the work carried out by the OAG has helped us move to the next level of quality management and it supports us in getting the fundamentals of the department right by continuously improving our performance.

I welcome your questions.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Guimont.

For the first round, seven minutes, Ms. Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you very much.

And thank you all for being here.

As an accountant and auditor, a person who has worked both in the private and public sectors, I can appreciate that the government does need to balance the need for hiring full-time people versus contracting. In any terms, $1 billion is a lot of money. I am glad to see from the Auditor General, in the samples she has utilized for the publicly traded contracts, that a 95% range seems to be a good range.

My concern is on the sole source contracts and the administrative deficiencies indicated on page 10 of her report.

I would like to ask some questions of you, Monsieur Guimont. How many of your managers are trained in financial accounting? How many understand the requirements for conflict of interest, return on investment, etc.? How large is your staff? How do you manage these things? It is critical that we get the best return on investment, but you need to balance your department's needs with a lot of other issues.

If you could give me some idea, I would like to proceed to the next question.

[François Guimont]

Thank you for the question.

We have about 14,000 people in the department. They are a combination of full-time equivalents and term employees. So overall it's about 14,000; it varies, as you may imagine. Our cadre of professionals is roughly separated between about 60% in Ottawa and 40% in the region. We have a number of individuals performing different tasks in various areas.

I'm putting emphasis on this because the department, unlike other departments, is not as homogeneous. Our business lines are quite different. The translation bureau is a very separate, very unique, and very specialized line of business if I compare that, for instance, to acquisition branch, which carries on procurement, or our real property branch, which deals with leasing of buildings and things of that nature.

My response to your question with respect to how many are accountants is that it varies. I do have quite a number of accountants in certain areas. I have them in RPB, the real estate group of the department.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

No, I'm sorry, I asked how many are familiar with the Financial Administration Act. You do not have to be an accountant to be familiar with that, but it's critical that you know that.

[François Guimont]

Okay, I was going to get to that point.

Going back to my remarks, the bottom line is that since the Accountability Act was put in place there has been a requirement for people to go through self-evaluation, training, and testing with respect to three functions: materiel management, financial administration, and human resources. This is what we call la dotation, donc staffing.

In my case, the 1,700 people in the department who have those three responsibilities, or one of those responsibilities, have been essentially certified or tested as having the right skills and knowledge to operate vis-à-vis the legislation under which they operate. They don't need to be accountants or specialists, but in order to be delegated authorities they need be certified. In order to be able to sign under sections 34, 33, and 32, they have to have gone through that training.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Fair enough.

How many consultants does Public Works employ?

[François Guimont]

I don't have this information right now. I can give you a for instance. I prepared for that. The reason, frankly, is that we haven't been tracking the number of consultants we have across the department.

In the case of the IT branch, which is one of the largest users of professional services, I have data here that shows that as of September 8, we had about 1,800 employees, and of that number, I see that for 2008-09 about 892 were professional services employees.

On that point, there's always a challenge in having professional services people carrying work. And the challenge can be in the areas picked up by the Auditor General. But also, the knowledge aspect can be a challenge for me as a manager; that is, the contractor carries out the work, does the work correctly, but then the contractor leaves. This knowledge loss can be a challenge through time.

I have asked the manager responsible for the information technology services branch to have a better equilibrium between the full-time employees being staffed in that branch versus the number of people carrying out work through professional services. He has a plan. The ratio has already been reduced by 22% and there is another 20% to be reduced this fiscal year, so we are trying to rebalance the number of people we refer to as full-time equivalents versus the number of professional services carrying out work--which is good work, but I want to make sure we have the right balance.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

And you brought it to the right point, where I want to ask you a question from previous experience.

In the province of Ontario we had Andersen Consulting doing IT work. You brought it to the IT concept, and that's where I want to ask you the question about where the risks are in balancing the IT consultants who come in, do their work, and who are expected to transfer their knowledge, but that doesn't happen.

If I look at some of the remarks the Auditor General has made, there are consultants who stay there for the long term. When they become long-term, how do you gauge their value in terms of what you pay them as consultants or as part of your contracting agreements versus what they would have been paid had they been a full-time employee? There is always this offset balance, because the consultant's contract keeps on extending itself; it goes overboard. One went from $46 million to $81 million. So how do you balance that need for transparency, for oversight, to ensure that you do not get into this perpetual consulting?

And once you give me the answer, I want from the Auditor General the risks involved to government on those issues.

Thank you.

[François Guimont]

Thank you for your question.

The advantage of having professional services people coming in, in my line of business, is that it allows you, when the work is completed, to not have the person on board. So it's a quick response. Instead of gearing up your organization to the point where you have too many people for the work at hand, it allows you to get the job done, keep your core in place, and when the job is completed you can resume with the normal body of individuals you have.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

But is the knowledge transfer taking place?

[François Guimont]

I will totally agree with you that it is a challenge, unless you agreed in the process or you planned for a contract where the intellectual property of what is being produced is transferred to you, as we have done in the case of a contract related to spend management across the Government of Canada. The work was done by a consultant, the work was done and paid for. The actual tool, which we refer to as a spend cube, which allows us to understand and comprehend how spending is done in government, is the property of the Government of Canada. So the knowledge transfer took place there.

The issue often is that while that tool in that example was given to us--it is ours, we can utilize it--with some task contracts you may not get what is in the head of the person who did the work. That's the challenge. That's different from the actual product being either an IT program of some kind or a manual. You're going to get the manual, you're going to get the IT program functioning correctly, but you may not get all the knowledge contained in the person who developed the tool. That sometimes is the challenge, and I acknowledge that. There's no question.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Ms. Ratansi, thank you.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

The Auditor General was going to respond on this risk.

[The Chair, Liberal, Shawn Murphy]

Does she want to respond?

[Sheila Fraser]

I would just add, Mr. Chair, to what the deputy minister said. There are two risks I'd like to point out.

One we had mentioned in the chapter. It's the risk of the creation of an employer-employee relationship, which brings a number of consequences with it and which I think could be fairly serious if you have contractors who were there for a very long period of time, depending on how you had set up the contract and how they carry out the work. They shouldn't be, for example, in the government telephone directory. There are basic things like that.

The other one is that especially in IT contracts there is a risk of creating a dependence upon a contractor. With government having several very old and complex systems and contractors who have worked on them for many years, the only people who may actually really know how those systems work are the contractors. You can create, I think, an undue reliance and, in fact, at times be held hostage by professionals in that regard, so it's important to establish what is an appropriate level of contracting.

I think there will always be a need for contracting, be it specialized services to respond to peak demands or in fact even in the way government departments are funded, in that they don't have long-term funding and will opt to have contracts they can terminate if needed. But it's important to establish what is that appropriate level of contracting.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Madam Faille, sept minutes, s'il vous plaît.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you.

I would like to thank the Auditor General for her last remarks.

I've done some research on your reports and assessments of the Department of Public Works and Government Services. With regard to contracts for services, I even went back as far as 1995, and I found that you make certain recommendations on a periodic basis. In particular, you've made recommendations on major information technology projects, and you've written that they should be divided up for better management. Before proceeding with the implementation of major projects, the government should conduct cost-effectiveness studies entailing specific and measurable objectives, and do a full analysis of options, benefits, costs and risks, as well as an implementation plan.

I'm asking you this question because, a little earlier, the deputy minister referred to approximately $1 billion of contracts for services. However, in 2007-2008, an initiative was launched—he can probably tell us about it—providing for a strategy for service contracts, a convergence of IT service contracts. The presentation was made on March 5, 2008. I have a presentation by Mr. Buhr on that. Information to the effect that a request for proposals was issued in the spring for a contract estimated at $1 billion circulated within the industry.

Was your office consulted on that matter? Were you asked to comment on the awarding of contracts worth more than $1 billion?

[Sheila Fraser]

No, nor was that part of the contracts that we looked at in the context of this audit.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I'm asking you the question because, since you appeared before the committee, a business was the subject of one of your studies. Section 3 of your report states that there are often problems in the awarding of contracts and that amendments made to contracts often don't correspond to the initial contract provisions. When you do a search on your recommendations since 1995—so nearly for the past 10 years—it appears that a number of people fear that contracts will become impossible to manage and that access to government contracts will be increasingly restricted to large businesses. There will obviously be amendments to contracts of this kind, which are multi-year agreements.

How are they managed? Would you approve of the government's attempt to do business with a single supplier for systems administration? Perhaps you have some recommendations to make to us.

[Sheila Fraser]

When the member referred to information technology projects, he was referring instead to the development of highly complex information systems spread over a number of years. In those cases, we indicated that the best practices in the industry revealed that it was preferable to divide those at times enormous projects into smaller projects and to establish criteria enabling us to determine whether or not we should continue.

There is a difference between developing an information system and a long-term contract for services. I believe you are referring to service supply contracts. It's up to the government to make those choices, which are virtually policy choices, and to determine how it wishes to organize the supply of services. We expect it to conduct an analysis of advantages and disadvantages, but if it issues a request for proposals for services over a number of years, we wouldn't make any comments, provided the analysis was done and the contract award process was conducted in accordance with the rules.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

All right.

How much time do I have left?