This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its July 2019 report entitled BC Distribution Branch Directly Awarded Contracts, the Auditor General of British Columbia found that the government’s Liquor Distribution Branch failed to follow the provincial government’s Core Policy and Procedures Manual (CPPM) and repeatedly engaged in improper direct contract awards. Furthermore, the Auditor General found that the government failed to keep proper records of the reasons behind its direct contract award decisions and failed to document whether it has sought appropriate legal advice prior to making those direct award decisions awards:
Only in exceptional circumstances, which are defined in the CPPM, may a government entity directly award a contract to a supplier instead of pursuing a transparent and competitive approach. These circumstances focus on situations where it is impractical to openly compete an opportunity.
Overall, we found that many of the 74 contract files didn’t comply with the CPPM requirements. In 55% of contract files we looked at, the reasons for the direct award didn’t fit government’s definition of exceptional circumstances. In 73% of the contract files we looked at, there wasn’t enough documentation to show that the LDB was impartial and non-preferential when it awarded the contract.
And while we saw evidence of regular review of the directly awarded contracts by senior financial staff, we didn’t see notes in the files indicating whether the LDB had obtained legal advice when preparing contracts, especially for non-standard types of contracts. Such reviews are important to minimize the province’s exposure to financial and legal risk. The LDB informed us that legal counsel is consulted on procurements.
In fact, the Auditor General found that over half of the direct awards were not supported with proper documentation:
We did not find adequate documentation in 55% of the directly awarded contract files to demonstrate that the LDB complied with the CPPM’s requirements. In all of these instances, the LDB’s signed approvals in the contract files were not supported by documentation that clearly demonstrated how the exceptional conditions for a direct award existed. As a result, the files did not demonstrate that the practices met government’s objectives for procurement based on principles of fairness and competition, transparency, accountability and value for money.
The report noted that the practice of expanding an originally tendered contract beyond its original contract award scope constituted a breach of government’s open procurement rules, since this denied other contractors the opportunity to bid on that new work:
If a ministry goes through a competitive process to award a contract, but, a few years later, decides to significantly expand the scope of the contract with the incumbent contractor, it may find itself offside of procurement policies. If the contract opportunity changes significantly, it is possible that other suppliers may be interested, and a decision to extend or amend the contract with an incumbent will not meet the test of fair and open procurement.
The report attributed some of the blame for these non-compliant practices to multiple re-organizations within the institution, which resulted in confusion over roles and responsibilities:
Responsibility for procurement has been moved several times within the LDB over the last few years. With organizational changes, there is a risk that staff may not adequately understand the policy requirements for procurement and the chief financial officer’s responsibility for oversight of procurement systems.
In light of these findings, the Auditor General recommended that the government implement further staff training to better ensure future compliance with the government’s open tendering practices:
WE RECOMMEND THAT THE BC LIQUOR DISTRIBUTION BRANCH:
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require all staff involved in procurement or contract management to complete public sector procurement and contract management training
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document, in the contract file, the exceptional conditions permitting a contract to be directly awarded, including reasons that clearly demonstrate why competition was not possible
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require legal review of any non-standard terms or forms of contract, and include evidence of this review in the contract file
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prepare a cost-benefit analysis for any planned service contract valued at more than $100,000 and include this documentation in the contract file
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require staff who are involved in procurement to check for an existing corporate supply arrangement (CSA) before entering a new contract for goods or services, and document, in the contract file, any reasons for not participating in an established CSA
As this case study illustrates, government institutions face significant reputational risk when they fail to follow proper open tendering practices. The training recommendations made by the British Columbia Auditor General offer some useful guidance for all public institutions interested in better ensuring the compliance of their own contracting practices.
