Performance Assurance

Audit of Advance Contract Award Notices
and
Contract Review Boards

378-1-159
October 2002

The Public Sector Company and Performance Assurance
Correctional Service Canada

SECTION II

[Introduction] [Background] [Audit Methodology] [Audit Findings] [Pacific Region Findings] [Prairie Region Findings] [National Headquarters Findings] [General Recommendations]

INTRODUCTION

The Public Sector Company, under contract with the Performance Assurance Sector of the Correctional Service of Canada (CSC), conducted an audit on contracting practices for Advance Contract Award Notices (ACANs) and Contract Review Boards (CRBs).

The objectives of the audit were twofold:

• To determine if ACANs issued by CSC Materiel Management Units are in full compliance with TBS and CSC policies, procedures and regulations issued on the subject and to assess if the process is being managed effectively and efficiently; and
• To determine if Regional Management and NHQ Management fully comply with TBS guidelines and CSC Commissioner's Directive 240 on Contract Review Boards.

BACKGROUND

A. Advance Contract Award Notices (ACANs)

Part 1, Section 5 of the "Government Contracts Regulations" (GCR) requires that bids be solicited before contracts are entered into, unless the proposed contracts meets approved exceptions. These exceptions for non-competitive procurement are provided in Section 6 of the GCR and "Treasury Board Contracts Directive TB 806000 Appendix C" dated June 26, 1987, as amended and published August 23, 2000. "Treasury Board Secretariat Contracting Policy" provides for a special procedure to be used to expedite procurement when the exceptions to competitive procurement apply. This procedure is called Advance Contract Award Notice (ACAN) and is explained in the above mentioned Contracting Policy and in the documents issued by the Treasury Board Secretariat in November 2000 - "Contracting Policy Notice 2000-4" and "Guide for managers - Best Practices for Using Advance Contract Award Notices (ACANs)"

In May 2001, the CSC Manager of Contracting and Materiel Services issued a communication to all Regional Administrators of Materiel Management emphasizing the importance of complying with the above policy on ACANs. In order to ensure that the procurement process is competitive and transparent, a prototype ACAN was provided, and was to be used as a standard.

On October 3, 2001, the CSC Manager of Contracting and Materiel Services sent an e-mail to all Regional Administrators of Materiel Management advising them that, due to the amount of time required for the system to actually post an ACAN and the normal closing time of 2:00 p.m., ACANs posted for a nominal 15 days are not actually posted for the full 15 days. The e-mail required that all ACANs be posted for at least 16 days and close at 2:00 p.m., to ensure the requirement for a full 15 days is meet.

B. Contract Review Boards (CRBs)

Section 11 of "Treasury Board Secretariat Contracting Policy" calls for a contract review mechanism to challenge contract proposals and to provide assurance, to the Commissioner of CSC, that the delegated signing authorities are being properly administered.

CSC has also issued more specific directives as to how the review mechanism should be constituted and how it should work. These directives are contained in Commissioner's Directive 240.

AUDIT METHODOLOGY

Two lists of criteria were developed to assess compliance: one for ACANs and one for CRBs. The criteria were obtained from requirements specified in governing policy and regulation documents. The lists of criteria were transformed into checklists of questions designed to determine the compliance of an individual ACAN or CRB aspects of a contract file. In addition, a series of questions were prepared to determine the CRB procedures in place including the frequency and means of meeting, composition of a board, contents of individual contract submissions to a board and contents of records of decisions. The lists of criteria, checklists and interview questions are attached to this report.

The audit was limited to a review of the ACANs and CRBs in the Pacific and Prairie Regions. In addition, the CRB at NHQ was also examined. The review of the CRBs included an examination of the contracts reviewed by the Boards. A sample of ACANs and contracts were audited for the time period of November 2000 to September 2001.

A list of ACANs was provided by the Pacific and Prairie Regions. A sample of at least 20% of the ACANs, selected by the auditors, was reviewed. A 27% (9/33) sample for the Pacific Region and a 25% (10/39) sample for the Prairies Region were examined.

A list of contracts was provided by the Regions and NHQ. A sample of at least 20% of the contracts that should have been reviewed by the respective CRBs was selected by the auditors and the contract files made available. In total 24% (22/90) of contracts were reviewed at NHQ, 21% (25/120) in the Pacific Region and 20% (36/184) in the Prairie Region. Using the CRB checklist, each contract file was reviewed to determine if CRB requirements had been met. In addition, CRB procedures were identified and reviewed in accordance with the CRB interview checklists.

AUDIT FINDINGS

The findings of the audit have been divided into General Findings and Specific Regional/NHQ Findings. They are as follows:

Advance Contract Award Notices - General Findings

1. The two Regions, Pacific and Prairies, have been slow to comply with the revised policy requirements regarding ACANs. In fact, the Pacific Region had not complied during the period reviewed (November, 2000 to September, 2001) and the auditor observed that it still was not complying at the time of the audit (February, 2002). The ACANs produced by the Pacific Region complied with the ACAN policy in place prior to the issuance of the revised policy in November 2,000. The Prairies Region, while not in compliance with the revised policy at the start of the review period, was producing ACANs in full compliance near the end of the period.
2. Both Regions have begun to comply with the need to post an ACAN for a full 15-day period.

Contract Review Boards - General Findings

1. The three CRBs reviewed, NHQ, Pacific and Prairies, are providing a contract challenge activity. NHQ and Prairies Region are meeting the requirement spelled out in Commissioner's Directive 240. The Pacific Region CRB is deficient relative to the directive in that its CRB is advisory only and does not approve contract proposals as required by the directive. The membership of the NHQ CRB is mainly comprised of Corporate Services Sector officials and should be diversified to encompass more functional responsibilities than the status quo. Each CRB meets frequently, reviews contract proposals that by policy require its review, discusses any issues associated with the contract proposal, and approves/agrees with the method of procurement.
2. There are differences in the way the CRBs function reflecting the different situations in the two Regions and NHQ. For example, one of the CRBs does not physically meet but uses the Intranet. The differences are also a reflection of the interest of each in improving efficiency as CRBs require substantial ongoing effort. All are looking for innovative ways to reduce the workload while maintaining or improving effectiveness.
3. Sole source justification, in the form of identification of the applicable Government Contracts Regulations (GCR) exception, explanation for why the exception applies and explanation for the selection of the contractor, is sometimes soft, not explicit and not directly responsive. In most cases, the elements of a strong case for sole source and for the selection of the contractor were provided but suffered from the presentation. The explanations were intermingled and some reading between the lines was necessary as there was no defining statement indicating what the explanations were attempting to explain. CSC Form 286 "Request for Contract/Contract Amendment/Extension" by asking for 'Justification for Sole Source" without specifying the points that should be addressed or the approved reasons for sole source contributes to this presentation problem.
4. "TBS Contracting Policy" Section 11.1 identifies a number of basics that the review methodology should address such as "Is the proposal within the contracting authority's legislative authority?", "Are funds available?", "Are the departmental signing authorities observed?", "Is the proposal in line with government policies on bilingualism, employment equity, conflict of interest, etc.?". (These basics are not repeated in Commissioner's Directive 240 nor does the Directive make reference to the TBS Contracting Policy.) Some of these basics are covered in CSC Form 286 and the composite expertise of the membership of each Region CRB is adequate to challenge any of these basics when appropriate. This observation is supported by the review of the records of decisions of each CRB that showed the issues raised and discussed.
5. There was evidence that NHQ actively supports regional CRB activity. There were indications in the files reviewed and from the interviews that NHQ support and guidance had been provided whenever requested.
6. The single concern expressed by both Regions was for more training in contracting.

PACIFIC REGION FINDINGS

Advance Contract Award Notices

Detailed results of the audit of the nine ACANs are displayed in Annex "A".

1. The nine ACANs reviewed did not comply with the revised policy for ACANs provided in "Treasury Board Secretariat (TBS) Contracting Policy Notice 2000-4". The ACANs were similar to ACANs prepared prior to the publication of the revised policy in the fall of 2000.
   1. None of the ACANs included the prescribed introduction that outlines the purpose of an ACAN.
   2. None of the ACANs mentioned the specific Government Contracts Regulations (GCR) exception from competitive requirements although the justification for the exception was provided.
   3. Most (7/9) of the associated files did not contain sole source justification in terms of the GCR exceptions.
   4. None of the ACANs included both the names and addresses of the selected contractor. Eight contained the name but no address, one had neither. Apparently, addresses were not included for security reasons.
   5. Three did not explain how to proceed with the submission of a Summary of Capabilities.
2. ACANs for the first part of the period under review were not always posted for a full 15 days (i.e. some were posted for 14 days plus less than a day). The ACANs for the latter part of the period were posted for a full 15 days (nominal 16 days).
   1. There was no evidence ACANs were being used to circumvent the competitive process or worded in such a way as to discourage submissions of capabilities.
   2. In every case in the sample, the contract was not awarded until after the 15 day posting period was complete.
   3. The descriptions of requirements and expected results were clear and complete with one exception.
   4. The ACANs specified the period of the contract, the estimated cost, closing date and time, and name and other details to which statements of capabilities were to be submitted.

Contract Review Board

Detailed results of the audit of the 25 CRB files are displayed in Annex "B".

1. While the Pacific Region CRB is generally providing a basic contract challenge mechanism, a number of weaknesses in its procedures were identified.
2. Contract proposals are circulated on the Intranet to CRB members and members have two days to assess and challenge them. The CRB does not "physically meet". The board operates by a "silent" process whereby acceptance is assumed if no input or comment is received. The board is advisory only and does not approve. The CRB reviews all requests for services over $25,000 and focuses on a number of areas including contracts with former public servants, scope of work and terms of payment.
3. The CRB is chaired by the Regional Chief - Finance and Accounting and includes representatives from the institutions as well as from RHQ creating a good balance of interests and expertise. There was documented evidence of a range of concerns being raised including employer-employee relationships.
4. Of 25 sample contract files reviewed, there was a CRB record for 22 or 88 percent. The three discrepancies were from a period in time in which a trial of a revised secretariat process apparently was being conducted that was unsuccessful and was discontinued.
5. The weaknesses in the CRB process follow:
   1. The advisory function of the CRB is not consistent with Commissioner's Directive 240, which specifies that CRBs approve contract requests. Also, the advisory responsibility of the board and the silent process do not provide for accountability that is clear and well-defined, resulting in situations in which proper conclusions may not be reached. For example, there may be no chairperson's summation of an issue that aids in reaching a proper conclusion.
   2. The format for submissions to be placed on the Intranet is not as rigid or complete as it should be. The information provided on many proposals does not paint as complete a picture as it should and doesn't cover some of the criteria suggested by the TBS.
   3. The submissions for sole source awards do not state the specific GCR exception to competitive tendering requirements that applies.
6. In order to build on the results already achieved, the CRB should continue to aggressively look for creative ways to improve the "Intranet CRB process" to find ways to improve efficiency, improve the completeness of information provided on contract proposals and enhance discussion. Consideration should be given to convening a conference call among members during which each case would be discussed.

PRAIRIE REGION FINDINGS

Advance Contract Award Notices

Detailed results of the audit of the ten ACANs are displayed in Annex "C".

1. A major improvement in the contents/format of ACANs was apparent during the period reviewed. The last two ACANs posted that were reviewed were fully consistent with the revised ACAN policy promulgated in Treasury Board Secretariat (TBS) Contracting Policy Notice 2000-4 December 1, 2000 and "Guide for Managers - Best Practices for Using Advance Award Notices (ACANs)". A third ACAN posted just prior to the aforementioned two also fully complied except that it was posted for 14 days plus less than a full day - not the required full 15 days.
2. The remaining seven ACANs reviewed were similar to most ACANs posted prior to the promulgation of the revised ACAN policy but were deficient relative to the revised policy. In addition to not being posted for a full 15 days, the ACANs did not include:
   1. the prescribed introduction describing the objective of an ACAN
   2. the specific Government Contracts Regulation (GCR) exception from competitive requirements
   3. a description of how a supplier can submit a statement of capability

Contract Review Board

Detailed results of the audit of the 36 CRB files are displayed in Annex "D". The Prairies Region CRB is fulfilling its mandate in accordance with the requirements of Commissioner's Directive 240.

1. CRB appointment, composition and mandate are well documented and are consistent with "Treasury Board Secretariat Contracting Policy" and Commissioners Directive #240. All contract proposals are reviewed irrespective of value or other criteria.
2. The Regional CRB meets regularly every two weeks and receives contract proposals in the form of CSC Form 286 "Request for Contract/Contract Amendment/Extension", a statement of work and proposed terms of payment. The CRB decision for each contract proposal is recorded and published in a "Record of Decision".
3. All of the factors that are required by policy to be reviewed by the CRB are addressed either in the formal proposal to the CRB or in discussion as evidenced from a review of the records of decision.
4. There was a CRB minute for each of the 36 sample contract files reviewed.
5. In most proposals to the CRB for sole source awards, the justification for a GCR sole source exception is mixed in with an explanation for the selection of the proposed supplier and is not as explicit as it could be. The justification for a specific GCR sole source exception and justification for the selection of the proposed contractor are separate issues and should be addressed separately. Contract proposals should explain why a specific GCR exception applies and should then justify the selection of the proposed contractor.

NATIONAL HEADQUARTERS FINDINGS

Contract Review Board

Detailed results of the audit of the 22 CRB files are displayed in Annex "E". The NHQ CRB is fulfilling its mandate in accordance with the requirements of Commissioner's Directive 240.

1. The National Headquarters CRB meets weekly with the agenda and contract submission documentation provided to CRB members the previous day. The CRB reviews all contract submissions that meet any of the criteria for the CRB specified in "National Headquarters - Procurement & Contracting Delegated Authorities" document dated 2001-04-20. The CRB is chaired by the Assistant Commissioner Corporate Services and has three members: Director Financial Operations, Legal Services Representative and Manager Contracting & Materiel Services.
2. Each contract submission consists of a Form CSC 286 " Request for Contract/Contract Amendment/Extension" or equivalent with supporting information such as the proposed Statement of Work. In most cases, the information is sufficient for decision-making requirements supplemented as necessary by verbal inputs.
3. The CRB issues a Record of Decision(s) from each meeting approved by the chairperson that clearly spells out its decision on each contract submission proposed. In addition, a memo signed by the chairperson specifying the decision on each submission is sent to the manager requesting the contract.
4. A 24% sample (22 contract files) of the population of 90 contracts that met the value criteria for review by the CRB were reviewed and each is recorded in a Record of Decision(s) as having been approved by the CRB.
5. It was not possible to identify the population of contracts for which the contractor was a former public servant in receipt of a pension. A review of a six-month period of CRB Records of Decision(s) identified six contracts, which were reviewed by the CRB because the proposed contractor was a former public servant in receipt of a pension. In addition, the Manager Contracting & Materiel Services identified one former public servant in receipt of a pension from a list of 27 names of individuals with contracts. The contact involving this former public servant was below the value threshold requiring CRB review but had been reviewed by the CRB as required.
6. The "Supply Method" column on the Records of Decision(s) clearly identifies the method of procurement as required by Commissioner's Directive 240.
7. Most justifications for sole source provided on Form CSC 286 were acceptable but could be strengthened in that the specific Government Contracts Regulations exception that applied was implicit and often mixed in with an explanation for the selection of the contractor.
8. The membership of the NHQ CRB is mainly comprised of Corporate Services Sector officials. While there is no evidence that the function of the CRB has been negatively affected broader membership would avoid potential criticism and strengthen the board.

GENERAL RECOMMENDATIONS

1. There is an increased need to become more specific regarding "justification for sole source", particularly on the GCR exception that applies. The Auditor General continues to express concern and the need is reflected in specific direction to include the specific exception in each ACAN. CSC should encourage CRBs to require contract submissions involving sole source to include the specific GCR exception that applies and to include the exception in the record of decision. This step should lead to tighter justifications and clearer compliance with GCR.

   Pacific Region:

2. A clear statement that identifies the specific GCR exception to competitive tendering requirements that applies should be provided on the contract file as well as in the ACAN. In most cases this requirement can be met by adding a statement along the lines of "there is only one source that is qualified and capable of meeting this requirement". The statement must be supported with information describing how the conclusion was reached.
3. The CRB should comply with Commissioner's Directive 240 by explicitly approving/rejecting contract proposals. The Chairperson of the CRB should sign the weekly CRB record of decisions.
4. Consideration should be given to requiring a "no comment" response from all board members as opposed to accepting a nil response as meaning acceptance.
5. A revised format for submissions should be developed that will paint a complete picture of the proposed contract so that CRB members will know what they are being asked to support. The format should include as a minimum: contract number, title, period, expected value, description, method of procurement (open tender, sole source, aboriginal), sole source justification and specific GCR exception (6a, 6b, 6c, or 6d) if applicable, confirmation that funds are available, confirmation that CSC's authorities are observed, confirmation that the services are required, and confirmation that government policies including employer-employee relationship are observed. An alternative would be to put the actual CSC Form 286 "Request for a Contract/Contract Amendment/Extension" and any attachments on the Intranet for review by CRB members.

   Prairie Region:

6. When the contract proposal involves a sole source award, CSC Form 286 should indicate the GCR exception that applies i.e. 6a, 6b, 6c, or 6d. There should also be an explanation justifying the application of the exception, and a justification for the selection of the proposed contractor. The CRB should explicitly specify the GCR exception for competitive requirements that applies (e.g. 6a) on the Record of Dcision.

   National Headquarters:

7. Consideration should be given to broadening the membership of the CRB to ensure both a broad perspective and interests.