This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2010 annual report, the Ontario Auditor General found that the Municipal Property Assessment Corporation, the government body established to prepare the annual tax assessment roll for the collection of $20 billion in taxes for municipalities and school boards, was not following proper procurement protocols. In particular, the Auditor General found significant weaknesses in the Corporation’s contract administration practices.
The Auditor General found many instances where the Corporation failed to follow its mandatory purchasing policies and procedures when awarding contracts, and where the Corporation failed to follow appropriate protocols when managing those contracts:
We also found that the Corporation had established reasonable requirements for determining the need for goods and services, and for acquiring them competitively. However, when the Corporation acquired goods and services, it often did not comply with good business practices, including its own mandatory purchasing policies and procedures. For example:
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Almost half of the goods and services that should have been acquired competitively were not. In addition, we found many instances where contractual agreements for relatively small amounts were amended numerous times, thereby increasing the value of some original agreements by more than $1 million, or by as much as 1,500%, in some instances.
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In many cases, written agreements between the Corporation and its suppliers either were not in place or were prepared and signed after the goods and services had already been delivered and the underlying invoices had been received and paid.
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Paid invoices we examined from consultants and contractors often lacked sufficient detail to assess if the amounts billed were in compliance with the contractual agreement or to determine if the goods and services paid for had actually been received.
The report also found that the Corporation’s major computer system overhaul, which was originally budgeted for $18.3 million, eventually exceeded $50 million and failed to deliver the system components required for the valuation of business properties.
The Auditor General also observed that the Corporation failed to properly document its payment processes to show that suppliers were entitled to the payments made under awarded contracts:
[T]he Corporation was unable to demonstrate—and we were unable to determine—whether, for example, amounts were paid only for goods and services actually received and, ultimately, that they represented value for money spent. In addition, we noted many instances where reimbursements for travel, meal, hospitality, and other expenses appeared excessive or otherwise inappropriate in our view.
The report further noted that in some instances the corporation inadequately documented its contractual commitments and that it was often playing catch-up and papering transactions after payments had already been made:
Our review of a sample of documentation supporting contractual arrangements between the Corporation and its suppliers found that:
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For some purchases of up to $300,000, a purchase order was the only document covering the transaction. However, the purchase order is a poor substitute for a contractual agreement because it contains no evidence that its terms were agreed to by the supplier and it lacks many of the usual terms and conditions that would normally be included in a proper written agreement.
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Although written agreements were in place for many of the acquisitions we reviewed, their usefulness was extremely limited for a variety of reasons, including the following:
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40% of the agreements were prepared and signed after the goods or services had been delivered and the underlying invoices had been received and paid; and
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about half the agreements lacked normal prudent business terms and conditions, such as a ceiling price, project deliverables, and associated time frames. Without mutual agreements to cover such issues, it becomes more difficult to monitor the work of the supplier or consultant, and to resolve any subsequent disagreements.
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In addition, many of the agreements had been approved by individuals who did not have the authority to do so.
The Auditor General noted that as an arm’s-length body, the Corporation had historically operated outside of the government’s standard procurement practices and had been given the discretion to establish its own practices; however, as the report detailed, after the procurement practices at eHealth Ontario received significant public attention, the Ministry of Finance began to prescribe more specific controls on the manner in which the Corporation governed its procurement.
This case study serves as a useful reminder to those public institutions operating at an arm’s-length basis from senior levels of government of the need to establish and maintain proper contract management practices or face the prospect of greater direct government regulation and oversight.
