This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
Recent audits highlight the need for improved strategic portfolio management to better ensure the proper co-ordination of interrelated procurements that support a common program area.
For example, in its 2021 report entitled Securing Personal Protective Equipment and Medical Devices, the Auditor General of Canada found that Canada’s federal government was forced to play catch-up in securing personal protective equipment (PPE) due to the long-standing and well-known deficiencies in the emergency stockpiling program run by the Public Health Agency of Canada. As the report noted, the federal government could have been better prepared to respond to the pandemic and was forced to adopt reactive responses to deal with the COVID-19 crisis:
As a result of long-standing unaddressed problems with the systems and practices in place to manage the National Emergency Strategic Stockpile, the Public Health Agency of Canada was not as prepared as it could have been to respond to the surge in provincial and territorial needs for PPE and medical devices brought on by the COVID-19 pandemic. However, when faced with the pressures created by the pandemic, the agency took action. We found that the agency improved how it assessed needs and purchased, allocated, and distributed equipment. For example, the agency quickly moved to bulk purchasing to meet the unprecedented demand for PPE and medical devices, and it outsourced much of the warehousing and logistical support it needed to deal with the exceptional volume of purchased equipment.
The Auditor General noted that the government’s reactive pandemic response highlighted ongoing systemic weaknesses relating to portfolio management, stating that “separate from what it did to respond to the COVID-19 pandemic, the agency did not have a process to establish how much of an inventory of this equipment should be stockpiled to help meet provincial and territorial needs during a public health emergency.” In fact, the audit exposed the government’s long-term failure to address these systemic issues, which were known to the agency for at least ten years prior to the COVID-19 crisis:
We found that the unaddressed federal stockpile issues had been brought to the agency’s attention through a series of internal audits dating back to at least 2010. In our view, this calls into question the effectiveness of the agency’s governance and oversight of the federal stockpile before the World Health Organization declared COVID-19 to be a pandemic in March 2020. As a result, the Public Health Agency of Canada was not as prepared as it could have been to help meet provincial and territorial needs.
Further, the Auditor General identified “inadequate governance and oversight” as the cause behind the “lack of federal stockpile management”. As the report noted, “emergencies such as the COVID-19 pandemic can occur at any time with little warning” and that “these events may require timely access to essential provisions in the federal stockpile, such as an inventory of PPE and medical devices based on expert advice, to help protect the health and safety of Canadians.” The report highlighted how the government’s lack of proactive portfolio management left it flat-footed in the face of global crisis. In fact, rather than serving as an isolated incident impacting Canada’s federal government, the COVID-19 crisis revealed systemic weakness in the portfolio management practices of government institutions at all levels.
For example, the Ontario Auditor General’s November 2020 report entitled COVID-19 Preparedness and Management Special Report on Emergency Management in Ontario—Pandemic Response also documented long-standing deficiencies in Ontario’s emergency planning portfolio. As the Auditor General detailed, the emergency planning gaps were documented in its prior 2017 report, where it concluded that “the province was not ready for an emergency”. That report found that the government did not have agreements in place to secure critical goods and services that could be required in an emergency. That 2017 report made a series of emergency readiness recommendations to address these systemic weaknesses. However, many of those recommendations were not acted upon. In fact, in a 2019 follow-up report, the Auditor General found that the government had only implemented six of the 39 recommendations from the 2017 report and had made “little or no progress” on 17 of those recommendations.
Further, the 2020 report concluded that the missing emergency readiness agreements identified in 2017 were still not in place, which had “major repercussions, especially with respect to personal protective equipment”. The Auditor General found that this lack of portfolio management resulted in price gouging by suppliers during the COVID-19 crisis as public institutions competed against each other for limited supplies.
As the report concluded, had the province acted on the Auditor General’s prior recommendations, it would have been better prepared to deal with the COVID-19 crisis. In fact, the Auditor General found that even though Emergency Measures Ontario was officially responsible for the province’s emergency management plan, its effectiveness was so compromised by the weak portfolio management that Emergency Measures Ontario was shut out of the government’s pandemic response while the government implemented ad-hoc measures to respond to the crisis.
The Auditor General concluded that the systemic mismanagement of the emergency measures portfolio also included the failure to test emergency readiness plans with municipalities, the lack of a staffing strategy to deal with a long-term emergency, and a lack of field officers to assist municipalities during an emergency. Further, while all jurisdictions were forced to cope with the COVID-19 crisis, from a comparative perspective, Ontario’s Auditor General found that other Canadian provinces had followed better emergency management practices to respond to the pandemic.
The adverse operational impact caused by weak portfolio management in the health sector has also been recently documented in other jurisdictions. For example, in its 2020 report entitled Performance Audit of Select District Hospitals in Arunachal Pradesh, India’s Comptroller and Auditor General found that poor planning resulted in major delays in drug procurements relied on by District Hospitals (DHs). The report concluded that the “procurement process of drugs and medicine was inefficient as it failed to ensure timely supply of medicines to the DHs.”
The report also noted the long-standing nature of these shortages, finding that “there were stock out situations in the DHs due to delayed supply of medicine during 2014-19” and that the “shortage of drugs ranged from 81 per cent to 88 per cent” which “compelled the patients to purchase the prescribed medicines from the open market, out of their pocket.” The report also found “huge delays in testing of drugs supplied since the issue date, defeating the very purpose of testing of drugs for quality assurance.” The Auditor General recommended that the government improve its portfolio management practices to better ensure the “timely supply of quality medicines as per the need of hospitals and ensure all time availability of essential drugs in each hospital in order to avoid ‘stock out’.”
Similarly, in its September 2020 report entitled VA Acquisition Management: Actions Needed to Improve Management of Medical-Surgical Prime Vendor Program and Inform Future Decisions, the U.S. Government Accountability Office (GAO) found weak portfolio management practices in the Department of Veterans Affairs’ (VA) Medical-Surgical Prime Vendor-Next Generation program. As the GAO noted, while the program was “intended to provide an efficient, cost-effective way for its 170 medical centers to order supplies” only 11 percent of those centers met VA’s target of using the formulary for 90 percent of medical supply purchases. In fact, the GAO found that manual formulary management systems resulted in ordering errors and delivery delays. The GAO also found that “drop shipments” delivered directly from manufacturers, rather than through the warehouse inventory management system, caused further delays in the delivery of medical products, and constituted one-third of all shipments under the reviewed program. The GAO recommended that VA “examine opportunities to automate aspects of the formulary management process” to “reduce the number of drop-shipped items”.
As other recent reports illustrate, weak portfolio management practices are not limited to health sector procurements. For example, in its January 2021 report entitled Most Acquisition Programs Are Meeting Goals but Data Provided to Congress Lacks Context Needed For Effective Oversight, the GAO noted that the Department of Homeland Security (DHS) “plans to spend more than $7 billion on its portfolio of major acquisition programs—with life-cycle costs over $300 million— in fiscal year 2021 to help execute its many critical missions”. The report identified the need for better reporting and performance tracking in these portfolio spending areas. In fact, the GAO found that of the 24 reviewed programs, “ten had been in breach of their cost or schedule goals, or both, at some point during fiscal year 2020.” The GAO therefore recommended that Congress identify what information it requires from DHS to better track and align program spending.
Similarly, in its November 2020 report entitled Joint Cyber Warfighting Architecture Would Benefit from Defined Goals and Governance, the GAO identified the need to enhance the governance structures and better define uniform technology goals for the military’s cyber warfighting systems. As the GAO noted, while the Department of Defense had created the Joint Cyber Warfighting Architecture (JCWA) “as a concept to harmonize cyber capabilities”, as of August 2020 “Cyber Command had not yet progressed beyond diagramming the JCWA concept and beginning efforts to establish supporting offices.” More specifically, the report determined that Cyber Command “has not established the goals or objectives that would define interoperability requirements across JCWA systems or a governance structure to prioritize requirements among the programs.” As the GAO noted, “according to Cyber Command and acquisition program officials, without clearly defined interoperability requirements, JCWA programs may face challenges in providing needed capabilities to Cyberspace Operations Forces.”
The GAO came to a similar conclusion in its September 2020 report entitled Selected Federal Agencies Need to Take Additional Actions to Reduce Contract Duplication, finding that multiple federal government agencies faced significant category management challenges in avoiding duplication in information technology procurements. The report noted that since “the federal government spends over $90 billion annually on IT, it is important that agencies avoid spending on duplicative contracts.” As the GAO explained, under category management, “spending is managed by categories such as IT” and is subjected to spend analyses to identify duplicative contracts. The report made 20 recommendations to enhance the government’s category management practices, including the identification of unaligned IT contracts, the implementation of vendor management strategies, the sharing of information regarding pricing and terms and conditions for IT goods and services, the identification of duplication through annual spend analyses, the implementation of category management practices to reduce duplication, and the tracking of attendance at related workforce training programs.
Similarly, in its December 2020 report entitled Federal Agencies Need to Take Urgent Action to Manage Supply Chain Risks, the GAO identified the need to implement IT portfolio management practices to better manage supply chain risks. As the GAO warned, “agencies face numerous ICT supply chain risks, including threats posed by counterfeiters who may exploit vulnerabilities in the supply chain and, thus, compromise the confidentiality, integrity, or availability of an organization’s systems and the information they contain”. The report identified the need to fully implement a co-ordinated portfolio management approach to help inform downstream spending decisions across the government enterprise.
Finally, in its December 2020 report entitled Information Technology (IT) Systems and Cybersecurity at Metrolinx, the Ontario Auditor General also identified the need for better portfolio management and co-ordinated procurement to deal with IT security threats and business continuity issues. The report found that Metrolinx, a provincial agency responsible for mass transit, was overly dependent on external IT contractors and that it faced significant security threats to its IT infrastructure due to weak cybersecurity practices, which, among other things, put timely transit operations and sensitive customer information at risk. The report also found that the agency lacked a disaster recovery strategy for its data centre.
Furthermore, the Auditor General found that the organization lacked an overall IT strategy, which resulted in redundant systems and websites, and that its “poor IT project management practices contributed to cost overruns, as well as project delays and cancellations after millions had already been spent.” In response to the audit, Metrolinx committed to enhancing governance and accountability for its IT projects, which would include strengthened approval and oversight processes, better defined project scopes prior to project initiation, and improved vendor performance monitoring measures.
In summary, rather than focusing exclusively on the transactional details of specific procurement projects, purchasing institutions need to also take a bigger picture approach and implement co-ordinated portfolio management measures when dealing with multiple interrelated procurements that support a common operational area. As these cases studies illustrate, the failure to adopt proactive and strategic approaches to portfolio management can have severe adverse consequences on government operations.
