This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In Report of the Auditor General – 2017 Volume I, the Auditor General of New Brunswick found that the New Brunswick Department of Social Development mismanaged a $13 million cost-saving contract by failing to establish or measure performance benchmarks, and by failing to follow the procurement rules in the award and extension of that contract.
The Auditor General found that the government paid the consultant irrespective of whether the anticipated results were delivered, since the consultant “was paid based on anticipated savings, not actual savings from implemented initiatives”, so that “the consultant was paid regardless of whether or not government implemented and achieved the savings solutions identified.” The Auditor General also found that the government failed to implement most of the cost saving ideas and failed to document those areas in which it claimed to have found savings:
While the consultant identified $47 million in government savings ideas, the Department indicated only $10 million in savings had been achieved by the end of the contract. Therefore the Department paid for $37 million in savings solutions that to date have not been achieved…[F]urther, the $10 million savings identified as achieved by the Department could not be substantiated in our audit. The actual benefit to the Department of the $13 million consultant payments remains unclear at best.
The Auditor General also found the following “serious weaknesses” in the contract:
We noted many other serious weaknesses in our audit including:
– The Department relied solely on the consultant to evaluate their own performance and the project quality;
– The Department inappropriately used an urgent/emergency exemption for part of the contract process (which permits exclusion from a competitive procurement process)
– The Department did not measure and monitor deliverables;
– The Department used an invited tender for part of the contract process, however, the tender was only open for 12 days while the consultant was on site, providing a clear advantage to the consultant; all other respondents were disqualified;
– The Department paid $1.3 million for out of scope services not covered in the [contract].
– The Department exceeded the total amount allowed on the purchase order by at least $700,000; and
– The Department did not verify invoices for discounts or time charges and paid over $600,000 in travel expenses
Furthermore, the Auditor General found that the Department failed to address this situation in that the consultant continued to work for the Department, that the “basis for this continued work is not evident, especially given the serious procurement issues experienced in the past with this consultant”, and that there “appears to be no repercussions to the Department from failures to follow proper procurement practices.” Given these ongoing procurement irregularities, the Auditor General was “very concerned about the culture of complacency within the Department’s bureaucracy regarding procurement violations and unfair procurement practices” and that intervention from senior-level staff and the government’s central procurement department was required to address these issues:
Although my Office has made a number of recommendations to address our findings, no real change will occur without a concerted effort from the DSD and SNB Deputy Ministers and senior management. 1.16 SNB’s role with respect to the Government of New Brunswick (GNB) procurement function is to spearhead a solid framework of legislation, regulation and policy resulting in fair and transparent practices throughout GNB. However, in this instance, SNB appeared to lack sufficient authority, rigorous processes and consequences for the numerous violations and inappropriate practices.
As this case study illustrates, the failure to follow proper procurement practices can give rise to significant adverse audit findings, which in turn can create calls for further intervention into departmental practices when those irregularities are not promptly addressed.