This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2009 annual report, the Ontario Auditor General determined that OntarioBuys, a Ministry of Finance initiative launched to help the broader public sector (BPS) save money through the consolidation of procurement functions, was unable to substantiate its claimed savings. As the report noted, OntarioBuys failed to properly administer the $148 million in funding it provided to the BPS as part of the “cost saving” exercise. The Auditor General found “three operational areas at OntarioBuys where improvements are required—the review of business cases submitted for funding approval, the monitoring of funded projects for achievement of contract deliverables, and competitive procurement processes.”
The Auditor General found that OntarioBuys failed to establish proper business cases to realistically identify potential savings prior to approving funding for the creation of shared services organizations, referred to as SSOs, and that it could not substantiate the cost savings that its programs had allegedly generated. By way of example, the report noted that:
The underlying business case for the education-sector SSO—the largest SSO funded—projected that its collaborative purchasing and e-Marketplace initiatives would yield benefits/savings of $669 million over five years. This included total savings to group members of $294 million through their use of the e-Marketplace and $375 million from group purchasing. However, our review of the business case, file documentation, and external consultants’ reports found that the estimated savings were often based on unreasonable assumptions.…
Similarly, with respect to the $61 million spent on projects for improving supply-chain and back-office processes, evidence was lacking that projected costs and savings were appropriately assessed. For example, one project’s projected savings were based on a hospital’s extrapolating the results from its emergency unit to the entire hospital without any evidence to support the reasonableness of such a projection. For another project, the estimated costs submitted for funding were revised three times over a four-month period, from $455,000 to over $1 million. The amount of OntarioBuys funding was based on a percentage of estimated costs. However, we found no documentation on file to show that either the cost revisions or the projected savings had been properly assessed.
Of the $45 million in OntarioBuys savings announced in the Ontario Budget, the Auditor General noted that “other than for one project with savings of $20 million, the reported savings provided to us were questionable.”
With respect to the $20 million in health sector savings that could be substantiated, the Auditor General’s report noted how those funds, which were originally slated for redistribution into front-line health services, were actually redirected to finance a back-office information technology project for a health sector shared services operation:
The government announced in its March 2009 Budget that OntarioBuys had helped BPS entities redirect $45 million in savings toward front-line services. We found, however, that almost $20 million of this reported amount was not redistributed to hospitals to provide front-line services but rather was retained by the SSO that generated the savings to develop information technology for its back-office processes. The balance of the reported savings came from a number of projects; however, OntarioBuys did not verify these savings nor was it able to demonstrate that they had actually been invested in front-line services.
The Auditor General’s report also detailed deficiencies in the monitoring of funded projects, finding that OntarioBuys never established proper monitoring protocols prior to launching its “cost saving” initiatives:
Once projects were approved and funds provided, OntarioBuys did not have program-specific guidelines for consistent and effective monitoring of their progress. There were no program-specific guidelines for conducting site visits, documenting work performed, verifying deliverables prior to the release of final payments, and closing files for completed projects. We noted that some files contained detailed review notes with good supporting documentation to verify the reported project status. However, many others did not. OntarioBuys indicated that it had hired more staff in 2008/09 to strengthen the monitoring processes. As a result of the insufficient number of staff devoted to monitoring in the earlier years and the lack of program-specific guidelines, projects—especially those approved before 2008—were not consistently and effectively monitored.
Finally, the Auditor General’s report documented how OntarioBuys had spent $45 million on consulting contracts and how, when audited, 40 percent of those consulting contracts failed to comply with competitive procurement requirements. As this case study illustrates, allocating millions of dollars in senior-level government funding to the retention of external consultants and the creation of new government bureaucracies offers little assurance of downstream savings in procurement consolidation exercises. Realizing a return on such investments requires that proper project governance frameworks be put in place before the high-cost initiatives are launched. Those institutions that buy into the fallacy that such undertakings can be deployed in the absence of proper planning do so at their peril.
