In order to assess compliance to the above, the audit team reviewed the sample of contracts to determine if managers are submitting an application for a contract for services as well as all necessary information required by the Contract Review Board during the decision-making process for the approval of these requests for contract. The team also assessed the administrative process of the Contract Review Board in each of the five regions. Compliance to the competitive requirements (i.e. tendering and ACAN) of the contracting regulations as well as completion of cost-benefit analysis to ensure that a contract is the most cost effective method were also assessed as part of the review of the contract files

Requests for services

The "Request for Contract/Contract amendment/extension" (CSC286) is the form used by Activity Centre Managers to initiate the contracting for services request. This form is the most significant document used by Contract Review Board when it renders a decision on the approval of the request for contract. For this reason, it is important that all required information be included. An analysis of this form for all contracts reviewed showed that in general Activity Centre Managers properly complete all sections of this form. However, some exceptions were noted in areas such as, missing some signatures, information on the method of supply and history.

This review did note a problematic area relating to contract amendments/extensions. In these cases a CSC 286 or other document must be produced to activate the change. While in some regions, the audit trail was quite evident, it was more challenging in others as the audit team could not always locate the proper documentation to support this action. The audit team also identified a shortcoming in the provision of justification for the contract by Activity Centre managers. This will be addressed in more details in the Cost Benefit Analysis section of this report.

In conclusion, these findings were reflected in the various types and dollars values of the contracts reviewed. The above findings do indicate a need for a better Quality Control of the requests for contracts before these are submitted to the Contract Review Board. This is important when we consider that CSC 286 is one of the primary document that the Contract Review Board uses to make a decision on awarding a contract or not.

The Operation & methodology of the Contract Review Board.

Commissioner's Directive on Contracting (CD 240), states that: "Contract Review Boards shall be established, where appropriate, at each operational site, and shall be responsible for all contracting activity at their respective Responsibility Centre." These Contract Review Boards are established as a challenging mechanism and decision making body to oversee the contracting process.

In the Ontario Region, it was noted that for several cases there was no Contract Review Board decision on file. In those instances, support from the Regional Contract Administrator and/or the Regional Comptroller replaced the Contract Review Board decision. There were also some instances where the request for contract was not reviewed and approved by the Contract Review Board before the contract was awarded.

In a previous audit conducted by the Performance Assurance Sector in 2002 on the Advance Contract Award Notice and Contract Review Board process in the Pacific and Prairie regions, the audit team identified concerns with the electronic mail process used by the Contract Review Board of the Pacific region. In response to this concern, the region indicated:

1. " We will add a line to the RCRB electronic version that advises the requirement for a 'Nil" response as opposed to a "no comment", so that everyone is clear on the meanings.
2. We will implement a process to notify approvals/non-approvals of the decisions taken. Disagreements will be addressed on the RCRB with clear interpretation from Procurement and Contracting Specialists based on policies."

During the current review in the Pacific region, the audit team found that not all Contract Review Board members were responding to the e-mails therefore the audit team was unable to assess if some of the contracts were formally reviewed. As a result of the above findings, it is the opinion of the audit team that the effectiveness of action plans initially established by the region is questionable and that the entire process should be revisited to ensure compliance with the requirements of CD 240.

In conclusion, the above findings were reflected in contracts of $25,000 to $100,000 as well as contracts of $100,000 and over. It should be noted that for all the contracts of $100,000 and over reviewed in the Pacific region there was a lack of documentation to indicate compliance to this criteria.

Contract tendering

As previously indicated, the audit team examined a total of 50 contracts in the 5 regions. These contracts were either processed internally by CSC or issued through Public Works and Government Services Canada.

For those contracts issued by Correctional Service Canada, part of our review consisted of assessing compliance to the Treasury Board policy on contracting Section 10, Bidding and Selection. Sub-section 10.2 states:" Section 6 of the Government Contracts Regulations contains four exceptions that permit the contracting authority to set aside the requirement to solicit bids". These 4 exemptions are:

• emergency;
• less than $25K;
• the nature of the work is such that it would not be in the public interest to solicit bids;
• one person or firm is capable of performing the contract.

Also, Treasury Board section 10.2.6 of Contracting policy states that: "Any use of the four exceptions to the bidding requirement should be fully justified on the contract file or, where applicable, in submissions to the Treasury Board. Even if a proposed directed contract (see Appendix A) for goods and services qualifies under one of these four exceptions, the contracting authority is encouraged, whenever possible, to use the electronic bidding methodology to advertise the proposed award through an Advance Contract Award Notice (ACAN). If no statements of capabilities meeting the requirements set out in the ACAN are received within fifteen calendar days, the proposed contract is deemed to be competitive and may be awarded using the electronic bidding contracting authority."

As a result of the above, procedures issued by CSC recommend that the ACAN process be followed for all contracts over $25,000. In addition, correspondence from National Headquarters indicates that they are performing regular monitoring of the Regional Contracting process in relation to the posting of ACAN on MERX.

Our review of the contracts against these specific requirements indicates that the ACAN process for sole source contracts is understood and followed in regions where applicable. However, the audit team did identify a deficiency in the Pacific region as there was a lack of supporting documentation on file to document that the ACAN and MERX requirements were followed for the various contracts. Subsequent to our review, the Pacific region implemented some corrective measures to ensure that all the required documentation to support the ACAN process was now on the contracting files.

In conclusion, the audit team considers the problems identified in the Pacific Region as isolated problems which are the results of administrative deficiencies such as lack or control of supporting documentation.

Cost benefit analysis

The provision for justifications as to why the contract is required and that the contracting process is the best option for the Correctional Service Canada based on other alternatives is covered under part 2 of the Request for Contract/Contract amendment/extension (form CSC 286). Furthermore, Treasury Board Contracting Policy on "Best value" (paragraph 9.1.1) states: "As stated in the policy, the objective of government procurement contracting is to acquire goods and services and to carry out construction in a manner that enhances access, competition and fairness and results in best value or, if appropriate, the optimal balance of overall benefits to the Crown and the Canadian people. Inherent in procuring best value is the consideration of all relevant costs over the useful life of the acquisition, not solely the initial or basic contractual cost". This direction from Treasury Board is also reflected in Commissioner's Directive on Contracting (paragraph 18) which states: "The Activity Centre Manager/Project Authority shall provide a cost-benefit analysis, where appropriate, to ensure that a contract is the most cost effective method of obtaining the required results".

Although most managers and contract administrators indicated that the current contracting process was probably the most cost-effective option, this was not supported by the required cost-benefit analysis. In the examination of the 50 contract files selected during this review, the audit team found supporting documents of some analysis in only 5 cases. The contract files should contain some appropriate information, or cost-benefit analysis, to support that the managers have examined other alternatives to contracting (i.e. assigning duties to current staff, additional staffing, etc.) and that the contracting out process was determined as the most cost-effective method of obtaining this service. Overall the information found on the Request for Contract/Contract amendment/extension (CSC 286) demonstrates that Activity Centre Managers are writing a generic statement, and on occasion this statement seems to be copied from other requests for contracts, without giving clear information to identify the need for a contract. In this era of openness, transparency and governance, it is important for Activity Centre Managers to perform such an analysis before initiating the process of contracting so they can demonstrate that the principle of best value for money has been met.

The audit team is of the opinion that a cost-benefit analysis will not be required in all cases but it is up to the department to provide some guidelines as to the types of contracts and/or minimum dollar value where such an analysis should be prepared.

The audit team reviewed the content of each contract sample to ensure that they were in accordance with Treasury Board policies and the Financial Administration Act (FAA). More specifically, the areas the audit looked at are:

• Treasury Board policies on "Employer/Employee relationship" and "Contract splitting"
• The contract must be signed by an authorized senior manager
• The contract must define scope of work and terms of payment
• The billing submitted by the contractor is sufficient for managers to certify the Section 34 of the FAA

Employer/Employee relationship

While in general the content of all contracts are in accordance with Treasury Board-Contracting Policy Manual, the audit team examined whether a proper evaluation is being done to assess the risk of developing an Employer/Employee relationship.

Two main factors were examined by the audit team as part of their assessment of this requirement. First, proper signature under section 5 of Request for Contract/Contract amendment/extension (CSC 286) and secondly, Treasury Board Contracting policy article 16.3 "Factors to determine an employer-employee relationship". Out of the 9 factors listed under this article, the audit team concentrated on the following:

• How long the contractor has been providing this service to Correctional Service Canada
• Is Correctional Service Canada providing facilities and tools
• Is this type of service being delivered by staff members at other institutions/regions
• Actual risk of loss by the contractor (e.g. per diem/hourly rate)

In approximately 30% of the contracts reviewed, the audit team identified certain factors which increased the risk of creating an employer/employee relationship. The audit team found the length of time the work has been performed under a contract with Correctional Service Canada is generally a problematic area. For example, we noted one case where an individual has been in a contracting relationship with Correctional Service Canada for the last 19 years. Multi-year contracts could also lead to a possible employer/employee relationship as per Treasury Board policy (i.e. dentist, psychologist, and psychiatrist). Furthermore, in many of these cases, Correctional Service Canada is supplying the facility and/or equipment to perform the tasks listed in the scope of work. During our discussions on this issue, the audit team was informed that in a number of cases CSC is also faced with special circumstances such as geographical location or type of expertise required to deliver these services, which must be taken into account during the contracting out process.

Correctional Service Canada Contracting policy (Commissioner's Directive 240) establishes the following requirements relating to post-contract evaluation:

"To ensure the evaluation of the effectiveness of work provided under the terms of reference, service contracts shall be evaluated by the Project Authority. The evaluation shall consist of the completion of form CSC 996, entitled "Post-Contract Evaluation"."

During the audit we noted that this requirement has been the subject of discussion between both NHQ and regions for a few months prior to our audit. Based on these discussions, it was the understanding of some regions that the requirement for the completion of the Post-Contract Evaluation (CSC 996) would be removed from the Commissioner's Directive. However, since the requirement was still part of the Commissioner's Directive at the time of the audit, the completion of these post-contract evaluations was assessed during our file review in the various regions.

Out of 42 contracts examined (in the other 8 cases, the contracts were still in effect at the time of our review and the post contract evaluation was therefore not yet required), the audit team noted that 16 of them did not have a Post Contract Evaluation form (CSC 996) on file. Moreover, the compliance result varied from region to region. This variance could be explained by the uncertainty that, as previously reported, existed relating to the completion of Post Contract Evaluation form.

During a conference call held on June 14th, EXCOM members reaffirmed the need for post contract evaluations to be completed for all service contracts. Subsequently, the Assistant Commissioner Corporate Services sent out a memo to RDC's and NHQ sectors identifying the following requirements:

"This evaluation is to be performed by the appropriate manager (project authority) using the Correctional Service Canada post contract evaluation form (CSC 996). The completed evaluation form must be sent to Finance together with the last invoice (final payment) for each service contract. A copy of the completed evaluation form must also be sent to the Contracting and Materiel Services division for their contract file.

In the case of multi-year contracts or contracts with option years, the Correctional Service Canada evaluation form (CSC 996) should, additionally, be completed and sent to both Finance and Contracting & Materiel Services with the first submission of payment for each fiscal year."

The above national direction therefore clarifies this requirement for post-contract evaluations and should result in better compliance on this issue.

Appendix A

Contracting for services Review Action Plans