This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2019 Annual Report section entitled Follow-Up on Audit Recommendations from 2012 to 2018, Ontario’s Auditor General confirmed that Infrastructure Ontario had implemented many of the procurement-related recommendations made in its prior 2017 audit. However, the Auditor General also identified areas in which the agency failed to implement those prior audit recommendations. Those outstanding recommendations included opening project management services to more firms, standardizing penalty structures for poorly performing contractors, creating contractual incentives for project managers to complete projects on time and on budget, and incorporating past performance records into subsequent bid evaluations.
As the Auditor General stated, the agency made “little or no progress” in implementing the prior recommendation to “formally prepare a new business case on whether to enable more project management companies in the future to bid on such services.” As the report noted, the prior 2017 audit found that:
…the structure of Infrastructure Ontario’s public Request for Proposal (RFP) in 2014 to select external project managers for the management services of 7,500 capital projects worth $900 million over five years did not attract a broad range of bidders. This RFP was most suited to bids from larger project-management companies that could manage a large amount of work across many areas of the province. Due to the structure of the RFP—which divided the province into two areas—only three bids were received, all from large companies.
However, the report found that the agency’s implementation of that recommendation remained a work-in-progress, since “Infrastructure Ontario was in the process of negotiating an extension of project-manager contracts while it develops a business case by March 2021, in time for the next planned procurement of project-management services in 2022.”
With respect to a 2017 recommendation to include standard penalties for all contract managers on future RFPs, the Auditor General also found “little or no progress” was made towards realizing that objective:
Our 2017 audit found that one of the two companies from which Infrastructure Ontario chose to procure services had performed poorly in its previous contract between 2011 and 2014. Furthermore, the penalties for poor performance, such as projects not on time, on budget or of poor quality, in the company’s new contract were lower than in the new contract awarded to the company that had performed better. The penalty rates were different because each company was allowed to choose its own rate.
In this area, the Auditor General noted that “Infrastructure Ontario plans to develop a business case by March 2021 that will consider standard penalties.”
The Auditor General also found “little or no progress” in implementing its recommendation to “re-evaluate and update future contracts to provide sufficient incentives to external project managers to complete capital projects on time and on budget”, noting again that the agency planned to address those 2017 recommendations in future years:
In our 2017 audit, we found that minimal incentives existed for external project managers to manage costs and to complete projects on time. Their performance pay for a project coming in on budget, that is, between the post-tender estimate and actual cost, was only about 0.5% of the total management fee for the project. Moreover, external project managers received less performance pay (in effect, they were financially penalized) if they underspent by more than 5% of total allocated project funding by the end of the fiscal year, because funding could not be carried forward to the next fiscal year. External project managers were not held accountable for meeting the original completion dates, and Infrastructure Ontario did not track these dates. Our review of a sample of capital projects completed between April 2013 and March 2017 indicated that these capital projects, which cost $76 million, were completed on average about 330 days later than originally scheduled.
In our follow-up, we found that Infrastructure Ontario issued a request for proposal in November 2018 to engage consulting services to review its service-provider contracts and service-delivery model, which includes a review of the 2017 Auditor General Report and to recommend improvements. The consultant’s report is expected to be completed by the 2020/21 fiscal year. Infrastructure Ontario will consider implementation of the consultant’s recommendations for future service agreements.
Similarly, the Auditor General found “little or no progress” on implementing its recommendation to incorporate past performance records into the evaluation of competing bidders:
Our 2017 audit found that Infrastructure Ontario did not consider past performance of bidders when it assessed the three bids on a 2014 RFP. This resulted in Infrastructure Ontario procuring services from a project-management company that had performed poorly in a previous contract between 2011 and 2014. For example, it received low scores on Infrastructure Ontario’s client-satisfaction survey over those years, and failed to meet key performance measures for staying on budget and completing projects on time.
As with the other outstanding recommendations, the Auditor General noted that “Infrastructure Ontario plans to develop a business case by March 2021 that will consider past performance when evaluating bidders.” As this report illustrates, public sector institutions that fail to implement public audit recommendations in a timely manner run the risk of being found non-compliant in follow-up audits. This reputational risk underscores the importance of implementing audit recommendations in an expeditious manner.
