“Untendered contracts increase the risk of impropriety in procurement,” Ricard said, describing single-source contracts as a type of “higher risk” transaction. – from March 1st, 2015 CBC New article $85M contract with Manitoba Hydro was not tendered
While Provincial auditor general Norm Ricard acknowledged that he had not evaluated the $85 million contract between Manitoba Hydro and Tetra Tech, and therefore “could not comment on it specifically,” he did make reference to a 2014 AG report suggesting that there was a link between single-source contracts and impropriety.
In short, AG Ricard is of the belief that “untendered contracts increase the risk of impropriety in procurement.”
My first reaction to this generalized assessment of single-source contracting, is to ask upon what actual numbers Ricard’s position is based?
For example, does the AG office have hard evidence that single-source contracts have resulted in a notable increase in costs to the taxpayer?
How about evidence showing that single-source contracts routinely result in a failed outcome i.e. the work done was lacking or, the desired objectives of the contracts were not achieved?
These would seem to be fair questions, given the seriousness of the suggestion that these types of contracts are vulnerable to various forms of buyer-supplier malfeasance.
Unless there is another report other than the one issued in 2014 under the heading “Waiving of Competitive Bids,” there does not appear to be any tangible evidence to support AG Ricard’s claims.
Like Ricard, who indicated that he had not yet evaluated the Hydro – Tetra Tech deal, I also have to do a more in-depth analysis of the 2014 report and the subsequent November 2015 Follow-Up.
However at this stage, and beyond cited procedural issues with single-source procurements, I have to stress that there is no hard data supporting Ricard’s referenced link between non-tendered contracts and impropriety.
Unfortunately, the mere suggestion of potential impropriety by the AG lends an element of credence to such claims.
This was demonstrated by a Twitter exchange I had earlier today, with one of the CBC reporters covering the story.
In my Twitter exchange with Katie Nicholson, I had suggested that optics as opposed to hard data, is potentially at the heart of impropriety concerns. I even cited my 2011 interview with then Canadian Trade Minister Stockwell Day regarding the Buy American controversy, as an example of how optics and politics can unintentionally obfuscate the real issues.
In this context, even the 2014 AG report stated that when it comes to assessing the waiving of competitive bids, there was no way to definitively “conclude on whether they ensured fair value was obtained” . . . or not. (Note: refer to pages 409 and 416.)
Again there are, without question, procedural issues that do need to be addressed so that such assessments can take place. You will get no argument from me regarding this last point. But in the absence of having tangible data as a back-up in the hear and now, I do believe that AG Ricard’s comments are based more on optics and political factors, than actual findings. For me, this is somewhat problematic.
Given the influence his office wields, I cannot help but think that there has to be a little bit more discretion in terms of making somewhat bold and definitive statements that “Untendered contracts increase the risk of impropriety in procurement,” and that “single-source contracts are a higher risk transaction.” This is especially true when it comes to evaluating complex contracting, and the nature of the relationships that must be established between all stakeholders for an initiative or project to have the best opportunity for success.
So what are your thoughts regarding single-source contracting? Is it a question of absolute (and unfettered) power corrupting absolutely or, is it an effective approach for ensuring successful outcomes?
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Procurement Insights 
colincramcolin cram
March 3, 2016
Fraud can occur in any contract, though it is most likely after the contract is let. It is easier for fraud, particularly fraud through corruption, to occur with untendered contracts. Opportunity for fraud equals enhanced risk. However, there can be good reasons for single sourced supply. The key is to show an audit trail and that one has taken all reasonable steps to ensure competition. This includes trying to ensure that specifications are generic and preparing the supply market for the tender. Also, one must avoid contract terms and conditions that may limit competition. The biggest risk of corruption in the letting of contracts without competition comes not so much from procurement people, but from those who hold the purse strings – this is what I want and this is the only supplier. By the way, the price is… Many procurement people have been faced with fait accomplis. These do not necessarily mean that fraud is taking place, but there can be huge and unnecessary value for money costs as the supplier has the negotiation whip hand. I cannot say whether letting the Manitoba Hydro and TetraTech contract should have gone out to competition. However, there does need to be a thorough an independent audit to establish if the decision to let the contract was properly taken. Also, the audit should consider if procedures for letting contracts without competition need tightening up. 350 years ago England lost a war because of the poor state of its navy – due to non-competitive contracts being let to the contractors who offered the biggest bribes, not to those who were most capable. A hard lesson was learnt.
piblogger
March 4, 2016
Thank you, Colin.
Given your 35 plus years in the UK public sector, your commentary provides a much needed, in depth perspective.
What I find particularly interesting is your reference to fait accomplis deals that do not originate with the procurement process itself. In other words, procurement people are merely following the orders of those controlling the purse strings.
Does this mean that the focus should not be on potential or assumed improprieties with procurement personnel or within the procurement process itself as suggested by the AG report? In what way do you deal with the potential of corruption at what you refer to as being the “purse string” level? For example, does (and should) procurement personnel have the authority to veto such deals if they believe that something is amiss?
tetruman
March 4, 2016
Great commentary. I think the other point to be raised here is that a lot of public money and resources can be squandered on unnecessary open tenders where competition in the marketplace just does not exist or is limited, and the best result can be achieved through a restricted RFP or direct negotiation with the supplier. Unquestionably though, the process must be subject to good governance and transparent processes where decision making is based on open specifications and clear evidence of the market conditions. Independent probity oversight throughout the process is another important component particularly in high value or potentially controversial procurements. If these do not exist – the ‘fait accompli’ scenario being an extreme example – then you are on shaky ground.
Good process may still not satisfy the commentariat (witness this conversation!) and the nature of procurement processes is that much of the detail must remain confidential. Not sure I have a solution to that, other than prompt and vigorous defence of process by those accountable for the outcome. A lack of a challenge from those suppliers that may have been left out of the process may also be an indicator that it was sound – although the reverse is not always true!
piblogger
March 4, 2016
Excellent insights T. Truman that clearly demonstrate that you can’t summarily assign an impropriety tag across the board when it comes to single-source, or for that matter any, procurement process.
Vigilance with a fair and open mind focused on getting to the truth of a particular acquisition, as opposed to adopting what appears to be an all-encompassing anecdotal conclusion going in, is critical to ensure the public interest is truly protected.
colincramcolin cram
March 6, 2016
Many global companies have powerful procurement organisations that have a seat at or almost at the top table. Operating in increasingly competitive markets, the procurement function has to be able to support the companies’ ambitions. To do so it needs capability, authority and independence. It needs to be able to question and, yes, if necessary veto – though that must be a last resort. It must also build good relationships with key stakeholders. There has been a big change over the past 20 years in the role of procurement in many major businesses from devolution to centralisation. The change is necessary for companies to stay in business. Re fraud, one must remember that it is not the value of the ‘take’ that matters, it is the value or importance of the contract affected and the impact on the business. So, if private sector organisations are having to move into this direction, why shouldn’t the public sector?Or, can they avoid doing so because they know that governments will always raise enough taxes to keep them in business or that government owned industries will always be able to put up prices to compensate for procurement inefficiency?