This is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
Rather than serving as cover for shady spending, the global pandemic has shone a light on weak procurement practices across multiple jurisdictions. Recent audits reveal how pre-existing defects in government procurement systems undermined early COVID-19 response efforts and how these systemic weaknesses compromised the transparent management of public resources during a period of unprecedented government spending.
In its July 2020 report entitled Observations on Federal Contracting in Response to the Pandemic, the U.S. Government Accountability Office (GAO) noted that the US federal government’s contract obligations in response to the COVID-19 pandemic “totaled $17.8 billion as of June 11, 2020.” The report concluded that over 60 percent of that spending was “for goods to treat COVID-19 patients and protect health care workers—including ventilators, gowns, and N95 respirators.” The report noted that most of those contracts were sole-sourced, concluding that “less than half of total contract obligations were identified as competed”. While these statistics could be dismissed as simply reflecting the valid use of emergency spending powers during the early days of an unforeseen pandemic, other recent studies show how the COVID-19 crisis exposed pre-existing weaknesses in government procurement systems.
In fact, in its September 2020 report entitled COVID-19 Response Strains Supply Chain While Modernization Delays Continue, the GAO found that the COVID-19 crisis exposed ongoing systemic weakness at the Department of Veterans Affairs (VA). The report found that the VA leadership “did not have insight into supplies in an ongoing or systematic way prior to the pandemic.” The report also found that the COVID-19 crisis exacerbated these systemic defects since “VA supply chain leaders did not have an automated way of tracking the stock of critical supplies at VA medical centers during the COVID-19 pandemic due to VA’s antiquated inventory management system” and, as a result, had to rely on manual tracking. In fact, the report found that in late February and early March 2020, “VA requested that medical centers provide daily updates via spreadsheets in an attempt to obtain near real-time information on the levels of [personal protective equipment (PPE)] on hand, usage, and supply gaps.” These spreadsheets had to be manually updated each day to provide VA leadership its “primary means” for obtaining detailed information “on the stock of critical supplies at its VA medical centers.”
While the GAO found that VA developed a PPE tracking tool in April 2020 to manage its reporting process, that information still had to be manually gathered and reported on a daily basis by each of the 170 VA medical centers because the connection between the central inventory system and the local inventory system was not automated. The report also noted that while the VA leadership had long recognized the shortcomings in its medical supply chain management, and it had made supply chain modernization a priority, several of its transformation initiatives remain delayed and, even when completed, would not fully address existing supply chain management issues. In conclusion, instead of having systems in place to better serve the public during the COVID-19 crisis, the COVID-19 crisis served as a test of government systems and exposed the latent defects in outdated systems.
Recent reports also reveal how governments used the COVID-19 crisis as cover to normalize emergency spending practices well beyond the initial crisis period and made massive non-transparent expenditures. For example, Canada’s Procurement Ombudsman’s 2019–2020 annual report acknowledged that the global pandemic exposed systemic weaknesses in government procurement systems and highlighted the “need to simplify an overly burdensome procurement process.” While the Procurement Ombudsman recognized that the exceptional circumstances required greater expediency, the report also stressed how it remained imperative “that transparency not be lost in the process.” The Procurement Ombudsman warned that “at times like these, Canadians must be assured their government is exercising responsible stewardship over public funds, and transparency is the means of providing this assurance.” The Procurement Ombudsman also cautioned that “procurement practitioners should still, as always, diligently document their files to ensure their decisions can withstand public scrutiny.”
However, notwithstanding this need for transparency, Canada’s federal government failed to lead by example and instead embarked on an unprecedented non-transparent COVID-19-induced spending spree. As evidenced by a 2020 Parliamentary Budget Officer’s (PBO’s) report entitled Supplementary Estimates (B) 2020-21, the federal government normalized non-transparent spending well beyond the initial COVID-19 crisis period. In fact, as the crisis continued, the spending became less transparent. As the report stated, “the Government introduced several Bills to authorize spending for COVID-19 related measures and therefore did not need to seek authorities from the usual Supplementary Estimates process.” The PBO warned that these COVID-19-induced changes to traditional spending approvals “have made it more challenging to determine where the source of authority has been provided, especially since some of these Bills only provided temporary authority.” While the PBO concluded that over 90% of the $72.4 billion in spending referred to in its report was related to COVID-19, “the amount of information that is publicly available to track this spending is lacking, thus making it more challenging for parliamentarians to perform their critical role in overseeing Government spending and holding it to account.”
As the PBO stated, “as of the publication of this report, there is currently no public document published by the Government which provides a complete list of all measures announced to date, or updated cost estimates.” The report warned that “this makes it challenging to keep track of all the different measures that the Government has announced.” The report also noted that there is “no consistency to which organizations publicly report on the implementation of these measures” since “some organizations have proactively published this data, while others have not.” Furthermore, the report concluded that “this lack of data is not a result of it not being available” since “the Department of Finance had been providing bi-weekly updates to the Standing Committee on Finance (FINA), but stopped when Parliament was prorogued in August 2020.” In other words, rather than returning to transparent spending after the initial crisis period, as the pandemic persisted, Canada’s federal government increasingly used COVID-19 as cover for its unprecedented covert spending spree. If the early stages of the COVID-19 crisis exposed weaknesses in parliament’s ability to fulfill its oversight role, the government’s pledge to launch new stimulus spending programs to deal with the economic impact of the pandemic raises even deeper questions about runaway government spending and the lack of transparent checks and balances.
Turning to the United Kingdom, in its November 2020 report entitled Investigation into government procurement during the COVID-19 pandemic, the UK’s National Audit Office (NAO) also raised concerns over the lack of transparency of the government’s COVID-19-related emergency spending practices. As the NAO noted, in responding to the pandemic, “public bodies have needed to procure enormous volumes of goods, services and works with extreme urgency” and that, given the circumstances, government regulations allowed “public bodies to negotiate with any supplier to provide their requirements without undergoing a formal competition.” This unprecedented level of non-competed expenditure raised significant concerns over the lack of transparency and due process, with the NAO stating that it “received over 20 pieces of correspondence from members of the public and members of Parliament raising concerns about the transparency of contracts being awarded during the pandemic, potential bias or conflicts of interest in the procurement process, and that some contracts may have been given to unsuitable suppliers.”
In fact, the report found that by July 2020, the government had awarded over 8,600 contracts valued at £18.0 billion in response to the pandemic, with the Department of Health and Social Care accounting for 86 percent of those contracts. The report also found that PPE accounted for 80 percent of the total contracts awarded and 68 percent of the total value of those contracts. Of that £18.0 billion in expenditures, the NAO found that £10.5 billion was directly awarded without competition, an additional £6.7 billion was directly awarded through pre-existing framework agreements, and that only £200 million was “awarded using a competitive tender process or using a competitive bidding process from a framework agreement.” Given this lack of competition, the NAO report noted that “it becomes even more important that public bodies document their procurement decisions and actions fully, publish their contract awards in a timely manner and manage conflicts of interest effectively” since this helps maintain public trust in these processes and helps “prevent procurement decisions being the subject of challenge.” However, the NAO found that “there was not always a clear audit trail to support key procurement decisions” and that “many of the contracts awarded over this period have not been published in a timely manner.” The report recommended that public institution publish basic information on contracts within 90 days of award and that they “provide clear documentation on how they have considered and managed potential conflicts of interest or bias in the procurement process.”
Similarly, in its 2020 report entitled First Special Report on the financial management of government’s Covid-19 initiatives, South Africa’s Auditor-General warned that while “emergency responses and quick actions are required to save lives and livelihoods”, the resulting “easing of controls and the streamlining of processes and procedures to respond to crises expose the government to the risks of the misuse or abuse of public resources.” The report revealed how government institutions used COVID-19 as cover to cut corners and engage in improper procurement practices. As the Auditor-General stated, “processes, criteria, needs and controls were not well considered and in the haste of implementation, mistakes were made and opportunities created for abuse.”
The South Africa Auditor-General’s report also noted how the COVID-19 crisis exposed prior defects in the government’s procurement system, stating that the “pre-existing deficiencies in the supply chain processes of government were amplified by the introduction of the emergency procurement processes allowed for personal protective equipment.” In fact, the Auditor-General found “clear signs of overpricing, unfair processes, potential fraud as well as supply chain management legislation being sidestepped” and that “delays in the delivery of personal protective equipment and quality concerns could have been avoided through better planning and management of suppliers.” The Auditor-General also asserted that the government’s failure to provide complete information for auditing “could be a deliberate tactic to frustrate our audit efforts.”
These reports offer a snapshot in time, exposing the latent defects that were lying below the surface of government procurement systems worldwide prior to the COVID-19 crisis. As governments struggle to manage the ongoing pandemic and its aftermath, they also need to start focusing on long-term transparency and accountability. If they want to maintain public confidence, they do not have the luxury of waiting for the current crisis to end before taking steps to better meet the challenges of the next one.
