ARCHIVED - Horizontal Internal Audit of Contracting for Professional, Technical and Temporary Help Services in Small Departments and Agencies

• Previous Page
• Table of Contents
• Next Page

This page has been archived.

Detailed Findings and Recommendations

Finding 1: Oversight Activities

Effective oversight of contracting activity in small departments and agencies (SDAs) should ensure that contracting requirements are met in an open, fair and transparent manner. Decisions for contracting and means of contracting for requirements should be challenged to ensure requirements such as the following: the needs are clearly defined, they could not be met by alternative methods, they are within the legislative mandate of the SDA, and the contracting procedures respect relevant policies and regulations.

In SDAs, we expected to see evidence of this challenge function taking place with respect to contracting decisions. This important function could be accomplished through a formal contracting review committee, a small group of functional leaders, including senior management, or typically within a small organization, a senior finance officer.

It is important that senior management, having a broad perspective of the needs and priorities of an SDA and knowledge of similar needs in like organizations, contribute to contracting decisions. Senior management can challenge whether alternatives to contracting have been considered, such as moving resources from another area of the department to fill temporary needs or sharing the services for similar needs with other organizations. It is also important that this challenge function ensure that the procurement strategy selected allows for an open, fair and transparent contracting process and that it respect contracting policies and regulations. Finally, it is important that what is discussed and the conclusions reached from this challenge function are documented in order to provide sufficient evidence of the existence of this oversight.

Oversight responsibilities are assigned. A contracting review committee or senior manager can ensure an appropriate level of governance over contracting activities, and we found that all SDAs recognized the importance of this challenge function. In fact, all SDAs included in our audit followed a process, whether formal or informal, for reviewing proposals before contracts were issued. However, these processes varied widely. In one of the SDAs, this function was done by a contract review committee that had formal terms of reference for its role, indicating the important elements that the challenge function was to consider. In ten of the SDAs, the challenge function was assigned to a senior corporate or financial officer who carried out his or her responsibilities appropriately. On the other hand, two SDAs had assigned the challenge function to more junior financial officers. Expecting junior level resources to challenge contracting decisions often made by senior management is not appropriate because the discrepancy in seniority levels often acts as a deterrent to the challenge role. The remaining six SDAs relied on the ongoing contract authority approvals to meet the requirements of their reviews. Although contracting authorities are expected to provide advice on whether contracting policies and regulations are being respected, they are not generally the same people who know the priorities of the organization and therefore cannot challenge other managers in their procurement decisions.

The challenge provided by oversight is often incomplete. Although oversight roles for contracting were assigned, in most SDAs there was limited guidance for those performing the challenge function, and expectations of the role were not clearly defined. We found that many of the officials responsible for fulfilling this role were not familiar with the intent of many of the contracting policies and regulations or the risks associated with contracting activities. For instance, despite having contract review in place, we found particular weaknesses in the unjustified use of sole-source contracts and a lack of analysis to determine whether alternatives to contracting or to the choice of contracting vehicles had been considered.

The result of not having an appropriate challenge function in place over contracting activities is that contracting decisions could be made that do not consider the priority of resources within an SDA or whether alternatives to contracting would result in viable solutions. Not having effective oversight can also indicate that the governance function over contracting does not provide sufficient internal controls in the contracting process. Additionally, we were told that a specific risk to SDAs is the considerable difficulty they have in retaining contracting personnel. In fact, in several of the SDAs, the contracting authorities were contracted professionals. In these cases, it is even more relevant that effective oversight for this function is in place to ensure that the goals of the SDAs are achieved.

Recommendation

1.  Those providing the oversight and challenge function for contracting activity should be at an appropriate management level to ensure that their challenge is respected and adhered to. Additionally, those responsible for this oversight should be aware of the importance of their challenge function and should document their agreement with the contracting decisions made. This may be best accomplished by creating a checklist of key oversight elements.

Finding 2: Procurement Strategy

The procurement strategy used to meet contracting requirements has to be fair, open and transparent. This means that the process to procure services should enhance competition and result in the best value to Canadians and the Crown. To respect these principles, all contracting vehicles within the government should be known and understood by those with contracting requirements so that the most appropriate and effective vehicle can be used.

In particular, all contracts should be subject to open competition. Sole sourcing is only permitted in four specific circumstances, the most commonly justified requirement being that it will cost less than $25,000. Additionally, the government has established standing offers and supply arrangements for the goods and services typically needed by departments. Many of these standing offers and supply arrangements are mandatory, as they have been designed to provide for both open and fair competition and best value to the Crown.

We expected that SDAs would use procurement strategies that respected the principles of contracting policies and would consider all the contracting vehicles that were available to them. 

Sole-source contracts are not sufficiently justified. Of the contracts included in our sample, approximately 60% were sole-sourced contracts, of which 72% were below $25,000 and the remaining 28% of greater value. For the sole-sourced contracts greater than $25,000, we expected to find sufficient justification on file to support the use of sole sourcing commensurate with the allowable exceptions to open competition. We found that more than half of these contracts did not have documentation on file to support this choice. 

The use of contract vehicles does not comply with the requirements. Approximately 20% of the contracts that we reviewed were entered into using standing offers or supply arrangements. Of particular value to SDAs is a mandatory standing offer to be used for temporary help services (THS). THS is designed to provide professional resources to help fill temporary staffing needs, which is a recurring need in the SDA environment. THS is not intended for solution-based contracted services but is rather meant to supplement (on a temporary basis) existing human resources capacity. In using THS, departments and agencies are required to define their requirements and retain services from the lowest cost pre-qualified resource.

Although THS and other standing offers were used at the right times and for appropriate services, in the majority of cases the standing offers, in particular THS, was not used properly by retaining services from the lowest cost resources. This problem was common to most of the SDAs in our sample. The result of only partially meeting the requirements is that best value for contracting needs may not always be achieved and that work could be denied to suppliers who have duly qualified. Since our audit, two of the SDAs have changed their internal processes and now comply with the requirements of these standing offers.

We noted good practices. One SDA has developed a creative solution for dealing with particular recurring needs: a standing offer has been developed to meet an ongoing requirement for short-term engineering requirements. Another SDA manages the purchase of some technical support by breaking requirements down into detailed tasks and effectively establishing an open roster of qualified individuals, which ensures the most competitive price for these services. 

Recommendations

2.  SDAs should ensure that there is appropriate documentation on file to justify sole source contracting.

3.  SDAs should ensure that individuals involved in the contracting process understand contracting policy requirements and have access to the tools they need to do their work.

4.  Training and guidance for contracting staff should be provided so that standing offers are used appropriately and effectively.

Finding 3: Contract Award

Contracts should be awarded in an open, fair and transparent manner. Requests for proposals from suppliers to perform professional, technical and temporary help services should include a Statement of Work that outlines a department or agency’s specific contracting requirements. The Statement of Work should detail, for example, background on the requirements, the services required, a timeline for the completion of services, and any client support to be provided. The Request for Proposal should include evaluation criteria that will enable objective selection of the best proposal received from suppliers. Criteria should be clear and logically relate to the requirements for professional services.

In evaluating proposals, SDAs should clearly document the quality of responses received in accordance with the evaluation criteria established in the Request for Proposal. These should be documented in sufficient detail to support the choice of the winning supplier. In awarding the contract, terms and conditions as well as the scope and budget of an engagement should be commensurate with the service requirements described in the Request for Proposal. Finally, having a contract in place before work begins is an important legal protection designed to help ensure agreement on the terms and conditions of the work.

We looked at whether the work as described in the Request for Proposal was clear and agreed with the terms and conditions of the resulting contract. We also looked at whether, when a competitive process was followed, the evaluation criteria had been followed and whether the evaluations of each bid had clear documentation to support the ranking of potential contractors in the bid award process. Finally, we looked at whether SDAs had established controls to ensure that a contract was issued before the delivery of professional services began.

Contracts are awarded in an open and fair manner. Generally, we found that the Statements of Work used to procure services were commensurate with the deliverables and outcomes required and the resulting contracts with suppliers. However, we found that in 1 out of every 10 contracts, work had begun prior to formal agreement of the contract, as evidenced by the dated signatures. This problem was similar to our findings for contract amendments. Of the 67 amendments to contracts in our sample, 20% were issued after the contracting period of the initial contract had lapsed. Carrying out contracting activity without a formal signed agreement exposes the Crown to work being done that is outside the agreed upon scope or price range required to meet SDA requirements. Furthermore, initiating work without signed agreements, or continuing work after such agreements have lapsed, indicates poor contract planning and management and leaves the government vulnerable to undue charges.

Insufficient documentation exists to support transparency in the evaluation of bids. We found that evaluation criteria were designed to be objective and clearly related to the professional service requirements. However, there was insufficient documentation to support how the evaluation criteria were used to rank the prospective suppliers. In over 35% of the files examined in which some form of competition was used, we found that the evaluation grids used to document the proposals of the potential suppliers were not completed in a sufficiently robust manner to support the actual selection of the winning supplier. In several cases, these were not signed or dated by officials involved in the evaluation process, which could indicate that the appropriate due diligence and objectivity in selecting the winning bidder were not observed.

Finding 4: Contract Administration

The Contracting Policy states that contracting authorities should manage and administer their contracts in a manner that ensures they are successfully executed in accordance with the agreed terms of time, cost and performance. Furthermore, contract documentation should be complete and support all relevant decisions and actions taken under the contract’s administration. Documentation should also support the management oversight function.

In addition, proactive disclosure of all contracts issued over $10,000 is an important element of contract administration, typically done after file close-out, to ensure that all material contracting done by departments and agencies is disclosed to Canadians in a transparent manner. Proactive disclosure also permits Canadians to understand what types of services departments and agencies are contracting to suppliers and which suppliers are conducting the work required.

We expected that all contract files would be complete and provide documentation to support decisions made on contracting strategy, that evidence would exist to support that payments were made in accordance with the agreed upon terms and conditions, that copies of signed contracts and contract amendments were maintained, and that evaluations of supplier performance had been done. This is important to ensure that transparency on contracting activity can be provided.

Contract files lack adequate documentation. Of the contract files we reviewed, 40% lacked adequate documentation to provide a complete audit trail and to support decisions taken during the contracting process. The lack of adequate documentation was concentrated in five of the SDAs included in our sample, representing 60% of this problem; however, there was missing documentation in at least one instance in all SDAs included in our sample. Typical examples of missing documentation included the following: justification for sole sourcing, support for the selection of a particular contracting strategy, documentation specifically required when using particular standing offers such as temporary help services, and rationale required for contract amendments. In a few of the files examined, a copy of the contract, including signatures of the SDA signing authorities and the contractor for the agreed upon work, could not be produced. Files that have insufficient documentation weaken the government’s position in a contract dispute or challenge. It should be noted that these contracts were effected to address legitimate business needs and that the contract requirements themselves are not in dispute. The discrepancies detailed above are only administrative in nature.

Proactive disclosure is provided in an open manner. We examined the SDAs’ proactive disclosures to ensure that contracts greater than $10,000 had been disclosed in an open manner. The SDAs have generally complied with the Treasury Board Contracting Policy by proactively disclosing all their contracts over $10,000, as required.

Recommendation

5.  SDAs should consider a formal process for ensuring contracting files contain all the appropriate documentation to support the contracting activities undertaken. This could be accomplished by the use of a checklist reminding contracting officers what key requirements must be considered for inclusion in each file.

Conclusion

Overall, small departments and agencies (SDAs) need to improve their management of contracting activity, which will ensure enhanced competition and fairness and transparency in the spending of public funds. Although there are some explicit weaknesses, SDAs recognize the need for governance and control in their contracting decisions and have put in place oversight functions to provide challenge to the acquisition of professional services. SDAs should address the need to ensure that appropriate documentation exists to support their contracting activity and that their files are complete. Greater rigour is also required to mitigate possible risks arising from improper use of sole sourcing and standing offers.

Management Action Plans

The findings and recommendations of this audit were presented to each department and agency included in the scope of the audit. They have reviewed the recommendations, provided responses and developed management action plans as required. A summary of the responses received from SDAs included in the scope of this audit is included in Appendix 3. The Small Department and Agency Audit Committee (SDAAC) has been briefed on the audit findings and the departmental responses. The SDAAC will periodically receive reports on the actions taken where Management Action Plans are in place.

Deputy heads of other SDAs will take into account the results of this horizontal internal audit and will ensure that Management Action Plans are developed as deemed necessary.

• Previous Page
• Table of Contents
• Next Page