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Audit Finds Problems with How BC Libs Do Business

Most big contracts lack cost-benefit analysis.

Russ Francis 15 Mar

Russ Francis is a veteran political reporter based in Victoria, and a regular contributor to The Tyee.

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NDP's Kwan: 'Shocking'

During the 2005-2006 fiscal year, the B.C. government awarded no fewer than 24,000 contracts, worth a total of $4 billion.

Did taxpayers get their money's worth for every single one?

Quite sensibly, before taking steps to find a vendor for a service contract worth more than $100,000, the ministry in question must provide a cost-benefit justification, a requirement that is laid down in the government's rule book for letting contracts.

This justification must compare, where appropriate, "the cost of contracting out with the cost of providing the service in-house if the resources were available."

However, a new Finance Ministry report suggests that such an analysis is being done for less than half of the $100,000-plus contracts. (The government's phrase for the purchase of goods, services and construction is "procurement.")

As the "Report on 2006 Cross Government Procurement Review" states, such an analysis "should reveal whether the expected benefits of the contract outweigh the estimated costs, both financial and non-financial; and whether the service could be provided more economically in-house."

For the audit, the ministry studied a cross-government sample of 85 contracts that were in place from January to October 2005, involving 18 government ministries and agencies.

Missing analyses

On March 7, a leaked draft copy of the report on the audit, which was conducted by the office of the comptroller general's internal audit and advisory services branch, was provided to The Tyee by the NDP opposition. Since then, the government has posted it online.

The report shows that the government's procurement procedures have improved over the last two years, as indicated, among other factors, by the proportion of contracts that do include the required cost-benefit analysis.

But the fact that for more than half of the large contracts there was no such analysis raises questions about whether many of the contracts should have been awarded in the first place.

The missing analyses worry the NDP's Jenny Kwan.

"For a government that is supposed to be good managers, my question to them is: how could the minister explain that so many of the contracts lack a cost-benefit analysis?" Kwan says, speaking in an interview. "I find that incredibly shocking."

No-tender contracts

When they were in opposition, the Liberals attacked the NDP government's awarding --without competitive bidding -- of communications contracts to party favourite Now Communications Ltd.

On April 10, 2000, the Liberals' view of the issue was summed up in the legislature by now-economic development minister Colin Hansen: "The question has to be asked by every British Columbian: how much money could have been spent on health care and education in this province if it had not been wasted on contracts that were not open in terms of their tendering..."

Subsequently, in their New Era document, containing the Liberals' 2001 election platform, the party promised that within 90 days of taking office it would take steps to "[r]estore open tendering on government contracts to allow fair competition for businesses and provide better value to taxpayers."

After winning the May 2001 election, the Liberals quickly had second thoughts. In fact, just weeks later they handed out a contract, without calling for tenders, to a favourite Liberal party company, Western Pro Show Rentals Ltd.

In fact, the new government could justify it: There was an "emergency," since it was too late to call for competitive bidding to produce the swearing-in ceremony for the new cabinet.

The Liberals hadn't mentioned during the campaign that there would be the odd exception or two to the ban on such "direct awards," as they're called.

According to the government's rule book for tendering, it is also legitimate to award a contract directly if open tendering would interfere with security or health, when there is only one qualified contractor, or when open bidding would threaten government confidentiality, cause economic disruption or be "contrary to the public interest."

'Not consistent with policy'

But according to the latest audit report, two of the more common reasons that ministries cited for making direct awards are "not consistent with policy." These were that the contractor "has been used before with good results" and that there wasn't enough time, but it wasn't an emergency.

In connection with the improperly handled untendered contracts, Jenny Kwan, who chairs the opposition caucus, asks: "How much were they worth, and why was longstanding government policy violated?"

Adds Kwan: "Gordon Campbell, when he was in opposition, railed against this kind of violation of government policy, yet here they are in government, engaging in exactly that kind of practice."

Of the sample examined by the auditors, one in four untendered contracts broke the rules.

Taking a cue from Hansen, one might ask: how much money could have been spent on health care and education in B.C. if it had not been wasted on contracts not put out to tender?

Putting government at risk

The auditors found other kinds of problems among the contracts they examined, and some of the problems may be putting the government in legal jeopardy.

For the contracts that were put out for competitive bidding, 15 per cent did not contain sufficient documentation to justify the award, says the report. (This is an improvement from 37 per cent the previous year.)

For one $600,000 contract, the proposals may not have been "appropriately evaluated," it says.

"The ministry has subsequently reviewed its project and contract management processes, implemented stronger oversight and improved the segregation of duties over these processes," according to the report, which did not include other details of the contract or the ministry concerned.

Lax documentation could be a legal hazard for the government, the report suggests: "Documentation of the selection process is good business practice and could also be valuable for dispute resolution (including possible litigation)."

In all, though they found that things had improved over the previous year, the auditors report that in one-third of contracts awarded, "compliance improvements" were required.

In other words, those contracts break the government's own rules for handing out contracts.

As the report notes, this rule-breaking "puts at risk" the government's ability to provide good value for taxpayers, to provide fair and open access for government work to businesses, and to help deliver government programs to the public.

"In addition," warns the report, "non-compliance places government at risk from the subsequent potential consequences of litigation by unsuccessful proponents, and retaliatory action from other jurisdictions under provisions of trade agreements, including the Agreement on Internal Trade."

And, though the report doesn't mention it, just wait till the Trade, Investment and Labour Mobility Agreement with Alberta kicks in, this April Fool's Day.

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