How to Get a $24 Million Gov't Contract without Competing

British Columbia government policy requires ministries and other public bodies to seek competing bids for any contract worth more than $25,000. It's a way to ensure taxpayers are getting the best possible deal. But one ministry made an exception for a contract set to start in May that could pay a company 1,000 times that much.

The reasons the ministry gave for breaking the policy have to do with the contractor becoming too entwined with the system to be easily removed, a situation that raises doubts about the government's ability to always get a good deal when it contracts out for services.

New Westminster based TP Systems won the original contract in December 2003 to build and maintain computer systems for the Ministry of Children and Family Development through a request for proposals process.

When it came time in January to renew the contract for three more years starting in May, 2009, the ministry published a notice saying it intended to directly award the $23.9 million extension to TP Systems.

The extension also includes helping support an integrated case management system being developed for the ministry of labour and citizens' services. The new project will replace the one TP Systems has been maintaining.

Ministry notice listed reasons

The decision raises questions about how the government is spending taxpayer's money, said Bruce Ralston, the MLA for Surrey-Whalley and the New Democratic Party's finance critic.

"Without specialist knowledge it's hard to evaluate whether you're getting a good deal or not," he said. "At a time when there's a huge deficit which hasn't been disclosed to the public and you want to make sure public dollars are being used efficiently, why wouldn't you go to a competitive bidding process?"

The government's procedures manual does allow contracts to be directly awarded, he said, but it should be rare. "It has to be exceptional conditions and demonstrate there is a cost advantage."

Nobody was available to speak for the ministry of children and family development by press time. With former minister Tom Christensen deciding not to run again and the cabinet not yet named, there is no minister.

When the ministry gave notice in January that it intended to award the contract to TP Systems, however, it gave five reasons for not taking competitive bids:

• "MLCS is entering a procurement process to solicit services of a new System Integrator (SI) to assist the ICM Project in the development and implementation the new ICM solution";
• "The intent of the ICM Project is to decommission the legacy systems supported by TP Systems";
• “TP Systems, by way of existing contract, has acquired critical knowledge and experience required for continued service”;
• "TP Systems has extensive knowledge of MCFD business applications that is required to maintain application stability while decommissioning legacy applications and supporting the integration, data conversation and migration to the new ICM solution"; and
• "MCFD and MLCS feel there is considerable risk associated with moving to a different service provider at this time, as the new SI will require in-depth knowledge of the legacy environment that the Province does not have. A change in the current Contractor would necessitate additional time from existing ministry resources, and would create disruptions in the preparation and transition to the new ICM solution."

Translation: the company knows a lot more about the ministry's system than anyone in the government does and it would be very difficult for anyone else to pick up the work.

Competitors were welcome to voice objections, but the notice of intent made it clear they would have a tough time winning the contract: "The service provider's ability to offer the services resulting in no or limited risk to business disruption and the same or better solutions at the same or a lower cost in the same time frame will be the key criterion with regard to the consideration of objections."

'They made themselves dependent': NDP's Ralston

It is unclear from the public documents if any businesses objected to the TP Systems contract, and The Tyee's query to the official who oversaw the notice went unanswered by posting time. Nor did a company official call back by posting time.

The NDP's Ralston said the ministry's position draws attention to a larger problem with contracting out core government services. "They made themselves dependent on this contractor," he said.

If the government can no longer do the work and even lacks the people with the knowledge to manage it, he said, it makes it harder to negotiate a fair price. "That gives you an ability to drive a hard bargain if you're the contractor," he said.

"If it's indicative of a trend, it's very worrisome," Ralston said. The province has committed to some $50 billion in spending on public-private partnerships and on major contracts. "Those are long term obligations the government's bound to pay."

Many of those contracts, such as the one that turned administration of the medical services plan over to Maximus B.C. Health Inc., stretch for ten years. The longer they go on the harder it is for the government to hold onto the knowledge, he said, or to find others to bid on them when they do come up for renewal.

By locking in those contracts, or allowing situations to develop where there's only one company that can do the job, the government has made it likely for costs to escalate, he said. "You don't get the benefit of reduced prices when the market is more competitive and businesses are a bit hungrier."

Basic supply and demand: Parks

Chartered accountant Ron Parks said it sounds like the TP Systems contract was awarded within government guidelines, but it does raise some issues.

"The likelihood is there's nobody else who could even begin to go in and do it for a similar price," he said, given that the company is already doing the work. The notice of intent process is intended to discover whether there are companies out there who want to bid on the work. Assuming there were no objections, he said, the government was free to enter the contract.

It's different from if it was a new contract, he said. "If it was the first go round on something like this without legacy issues, continuation issues, I wouldn't see any reason for not going to tender."

It's harder for a company to justify the start-up costs needed to compete on a three-year contract than it would be on one with a longer term, he said.

The government is, however, more likely to get a better deal on contracts whenever they can be put out for bids, Parks said. It is better for the public if the government avoids getting into situations where there is only one contractor who can do any given job.

It's a matter of basic supply and demand, he said. "You're at risk of paying too much."

TPS Systems has donated $2,897 to the BC Liberals since March, 2007.

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