2008-724 Audit of Services Received by the Crown from IT Firms Charged by the Competition Bureau for Bid Solicitation Impropriety Phase I TA Contracts with CBSA (Final Report)

November 18, 2010

Table of Contents

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Main Points

What was examined

  • i. Public Works and Government Services Canada's (PWGSC) Acquisitions Branch provides federal government departments and agencies with a centre of supply expertise and procurement tools to meet their contracting needs. As the contracting authority, the Acquisitions Branch is responsible for ensuring that Government contracting is conducted in a manner that will stand the test of public scrutiny in matters of prudence and probity, facilitating access, encouraging competition, and reflecting fairness in the spending of public funds.

  • ii. In 2005, the Acquisitions Branch was engaged by the Canada Border Services Agency (CBSA) to solicit proposals for eight streams of informatics professional services and to award task authorization (TA) contracts. During the evaluation of the proposals, the Acquisitions Branch became concerned over the similarity of the bids submitted by some firms and contacted the Competition Bureau. Based on this information, the Bureau initiated an investigation into potential bid solicitation impropriety - 'bid-rigging'. In the absence of adequate substantiation of wrongdoing at that time, 24 Task authorization contracts were awarded (three firms for each of the eight streams).

  • iii. In December 2008, the Competition Bureau informed PWGSC that criminal charges related to bid-rigging would be laid against several informatics professional services firms and several individuals (firms under investigation). These charges related to a CBSA bid solicitation, as well as two other solicitations, one related to PWGSC and the other to Transport Canada. In response, the Deputy Minister of PWGSC directed that an independent internal audit be undertaken, related to the CBSA contracts, to determine if services requested were received and if any monies were owed to the Crown. While the bid solicitation on behalf of CBSA resulted in the award of contracts, the two additional bid solicitations did not result in the award of any contracts. The results of this internal audit are the subject of this report. While this audit was being conducted, CBSA internal auditors conducted their own internal audit of CBSA contract administration practices at the request of their President. CBSA internal auditors have reported the results of their audit to the President of CBSA. The Deputy Minister of PWGSC also directed that an independent internal audit be undertaken to examine a sample of contracts that had been awarded to the firms under investigation by PWGSC on behalf of PWGSC unrelated to the bid-rigging charges. This second internal audit, which is the subject of the report entitled: "Audit of Services Received by the Crown from Information Technology Firms Charged by the Competition Bureau for Solicitation Impropriety - Phase II and Phase III", has the same objectives as the audit contained in this report.

  • iv. In February 2009, the Competition Bureau laid criminal charges for bid-rigging against fourteen individuals and seven companies in three separate proposal processes in respect of CBSA, Transport Canada and PWGSC. Two additional firms were investigated but not charged.

  • v. In 2005, Acquisitions Branch took a number of actions to mitigate risks related to bid-rigging. Further, once informed of the criminal charges to be laid by the Competition Bureau, PWGSC took a number of additional actions to mitigate risks related to managing contracts with the firms under investigation. These actions were not examined as part of this audit.

Why it is important

  • vi. Bid-rigging (also known as collusive tendering) occurs when firms that would otherwise be expected to compete independently, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. Bid-rigging schemes often include an agreement between the firms to apportion and distribute the additional profits.

  • vii. Bid-rigging can be particularly harmful in public procurement as it can take resources from purchasers and taxpayers, diminishes public confidence in the competitive process, and undermines the benefits of a competitive marketplace. Bid-rigging is a criminal offence under Canada's Competition Act and penalties can arise from conviction under the Act.

  • viii. As of December 2008, there were approximately 100 active contracts for which PWGSC was the contracting authority involving the nine firms under investigation. The firms generally provided informatics professional services to the federal government through a variety of contracting arrangements that PWGSC had put in place such as fixed price and task authorization contracts, standing offers, supply arrangements, and other pre-competed procurement instruments. The total value of these contracts was in excess of $300 million and was awarded by PWGSC on behalf of 14 federal departments and agencies. Specific to the CBSA solicitation, 24 task authorization contracts were awarded by PWGSC to a number of firms, 18 of these were with the firms under investigation and were worth approximately $62 million with expiry by March 31, 2009.

What we found

  • ix. The audit was divided into three phases, with a report issued at the end of Phase I, and a second report for Phases II and III. The findings of Phase I are the subject of this report. As no contracts resulted from the Transport Canada and PWGSC solicitations, the audit did not examine these activities.

  • x. For the contracts examined in Phase I, CBSA was the technical/project authority and PWGSC was the contracting authority. Of the 24 CBSA task authorization contracts issued under this solicitation process, 18 task authorization contracts involved the firms under investigation. These 18 contracts resulted in 164 task authorizations. From this population, we examined a sample of 50 task authorizations, including any related amendments and invoices.

  • xi. For Phase I, the audit results provide assurance that for the task authorizations examined, the Crown received the services it requested. Based on our examination of the invoices related to the 50 task authorizations, the audit did not find any invoicing errors that resulted in funds owing to the Crown related to the invoices we examined. The audit results provide only limited assurance that the financial consideration paid was commensurate with services received due to the number of factors that can affect the variability of per diem rates. Further, the audit found the firms under investigation did not respect some of the terms and conditions of the contract and no evidence was found to indicate that action was taken by the Crown to address the non-compliance.

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Management Response

The Acquisitions Branch agrees with the recommendation and conclusions of the report and has acted on the recommendations by implementing their Management Action Plan detailed as follows.

Recommendations and management action plan

Recommendation 1: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of bid submissions and contract delivery of the firms under investigation, including (i) increased scrutiny of all bid submissions, (ii) encouraging other government departments to closely monitor contract delivery in accordance with the terms and conditions of the contract, (iii) initiation of cost audits, as and when appropriate, and (iv) timely action, as appropriate for all violations of the terms and conditions of the contract.

  • Acquisitions Branch is addressing the risk of bid-rigging by putting in place increased scrutiny of implicated firms.

  • A series of measures were undertaken by Services and Technology Acquisition Management Sector (STAMS) of Acquisitions Branch to ensure strict adherence to contract terms by firms, these include:

    1. Pre-contract award validation for winning bidders;

    2. Verification of Task Authorizations Issues by the Client;

    3. Verification of invoices;

    4. Validation prior to award of Standing offers and Supply Arrangements;

    5. Inspection and Acceptance of the work by client departments. (Note: as this is a client responsibility, the role of the ADM (AB) is very limited in this regard);

    6. Periodic review of contract status for all firms with contracts with PWGSC (e.g., active file reports, one pagers, etc.);

    7. Set-aside procurement instruments if requirements not met (e.g., vendor no longer financially capable, or does not meet security requirements);

    8. Have the evaluation of proposals reviewed by an officer trained in Bid-Rigging Awareness and Prevention; and

    9. Director/Senior Director is informed each time before one of the firms (individually or as part of a joint-venture) is awarded:

      • a contract;
      • a standing offer (SO) / supply arrangement (SA);
      • a contract or amendment to extend the period or to increase the value of the contract;
      • a SO / SA amendment to extend the period of the SO/ SA.

Recommendation 2: The Assistant Deputy Minister, Acquisitions Branch should communicate with other government departments on behalf of whom we have awarded contracts to the firms under investigation and encourage enhanced monitoring of contract delivery.

  • Acquisitions Branch has been and continues to be in contact with pertinent Departments. Further, if Oversight Branch provides any new information on this matter, information will be shared.

Recommendation 3: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of contractor compliance with those terms and conditions of contracts that are the responsibility of PWGSC to monitor and ensure that appropriate action is taken in cases where terms and conditions are not respected.

  • All contracts will be monitored with increased awareness. In addition to the measures directed at the implicated firms, other scrutiny measures related to policy and training have been implemented by Acquisitions Branch (Policy, Risk, Integrity and Strategic Management Sector (PRISM)). Actions will be taken to guide client departments to ensure specifications are clear.

    Enhanced Policy and Training

    1. Bid-rigging has been further addressed in procurement instruments and training manuals were updated accordingly;

    2. Code of Conduct for Procurement was introduced in 2008 with wording "prohibiting corruption and collusion in the bidding process";

    3. Increased awareness through training sessions for procurement officers by the Competition Bureau and integration of bid-rigging detection and prevention into standard procurement courses; and

    4. Standard acquisition clauses and conditions were revised to include additional provisions for bid-rigging and non-competitive activity.

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Introduction

  • 1. Public Works and Government Services Canada's (PWGSC) Acquisitions Branch provides federal government departments and agencies with a centre of supply expertise and procurement tools to meet their contracting needs. As contracting authority, the Acquisitions Branch is responsible for ensuring that federal government contracting is conducted in a manner that will stand the test of public scrutiny in matters of prudence and probity, facilitating access, encouraging competition, and reflecting fairness in the spending of public funds.

  • 2. In 2005, the Acquisitions Branch was engaged by the Canada Border Services Agency (CBSA) to contract for a series of task authorization contracts for information technology (IT) professional services on an "as and when requested basis". Requests for Proposals for eight different types of services (streams) were posted competitively. Compliant bidders were to be ranked and the best proposals from three firms for each stream were to be awarded task authorization contracts.

  • 3. In September 2005, during the evaluation process, a Procurement Manager within the Acquisitions Branch of PWGSC became suspicious of the similarity in the bids and contacted the Competition Bureau. Based on this information, the Competition Bureau initiated an investigation into potential bid-rigging.

  • 4. Bid-rigging (also known as collusive tendering) occurs when firms that would otherwise be expected to compete independently and honestly, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. Bid-rigging is a criminal offence under Canada's Competition Act and penalties can arise upon conviction under the Act.

  • 5. Types of bid-rigging schemes include:

    1. Cover bidding - occurs when firms agree to submit bids that are higher than the bid of the designated winner; too high to be accepted; or include terms that are known to be unacceptable. Cover bidding is designed to give the appearance of genuine competition.

    2. Bid suppression - involves agreements to refrain from bidding or to withdraw a previously submitted bid.

    3. Bid rotation - occurs when firms agree to take turns being the winning firm.

    4. Market allocation - involves agreements not to compete for certain customers or in certain geographical areas.

    5. Subcontracting - occurs when firms agree not to bid or to submit a loosing bid in exchange for subcontracts with the winning firm.

  • 6. Warning signs that bids may be rigged include: the bidders present identical irregularities in bids, such as spelling mistakes or miscalculations; the same supplier is frequently supplying the lowest bid; the winning bidder subcontracting work to unsuccessful bidders; a large difference between the price of the winning bid and other bids; and bidders demonstrating knowledge of a competitor's confidential bid.Footnote 1

  • 7. In the absence of adequate substantiation of wrongdoing at that time following the Competition Bureau's investigation, the Acquisitions Branch awarded 24 task authorization contracts (three firms for each of the eight streams). The Acquisition Branch regularly communicated with the Competition Bureau and was apprised regularly of the activities of the task authorization contracts. As of March 31, 2009, these task authorization contracts were all expired.

  • 8. We were informed that as a result, the Acquisitions Branch took proactive steps to minimize the likelihood of a recurrence of such activity by requiring firms to provide a certification they did not participate in bid-rigging activities as part of their proposals. As well, the Branch conducted training and information sessions for procurement staff to supplement the instructions on bid-rigging that were contained in the PWGSC Supply Manual.

  • 9. In October 2008, the Competition Bureau informed PWGSC that their investigation was nearing completion and criminal charges would be laid against several informatics professional services firms and individuals (firms under investigation). The Bureau's investigation included bid-rigging related to three separate Requests for Proposal processes for CBSA, Transport Canada and PWGSC.

  • 10. Once the charges were laid, we were informed that Acquisitions Branch took a number of additional actions related to the nine firms under investigation. This included providing the firms under investigation with an opportunity to provide additional information to that contained in the affidavits, as well as increasing the rigour applied to assessing bid solicitation submissions and managing contracts with the firms under investigation. These additional actions were not subject to audit. Further, the Deputy Minister requested that an internal audit be undertaken.

  • 11. As of December 2008, there were approximately 100 active contracts involving the firms under investigation for which PWGSC was the contracting authority. The firms generally provided informatics professional services to the federal government through a variety of contracting arrangements that PWGSC had put in place such as fixed price and task authorization contracts, standing offers, supply arrangements and other pre-competed procurement instruments. These active contracts were awarded by PWGSC on behalf of 14 federal departments and agencies and the total value was in excess of $300 million.

  • 12. On February 17, 2009, the Competition Bureau laid criminal charges for the bid-rigging of Government of Canada contracts against fourteen individuals and seven companies. Two additional firms were investigated in the bid-rigging but were not charged. Briefly, the three solicitation processes were:

    • CBSA: Eight bid solicitations under investigation relate to the above-mentioned task authorization contracts. The bidding processes for the CBSA contracts were managed by PWGSC. Of the 24 task authorization contracts, 18 were with the firms under investigation. These firms offered services through these task authorization contracts for seven of the eight streams. The contracts from these eight streams are worth approximately $62 million.

    • Transport Canada: The Bureau investigated one Request for Proposal with Transport Canada, for which PWGSC was not involved as it was managed within the delegated contracting authority of Transport Canada. This solicitation was cancelled and did not result in a contract.

    • PWGSC: The Bureau also investigated one Request for Proposal in which PWGSC was both the contracting and technical authority. This specific solicitation was cancelled and did not result in a contract.

Focus of the Audit

  • 13. The objectives of this audit were to determine if services requested by the Crown under the IT professional service contracts awarded by PWGSC to firms under investigation were received and to determine whether there are funds owing to the Crown. These objectives applied to all phases of the audit.

  • 14. The objective of this audit was not to assess the contract administrative practices of CBSA related to these contracts. While this audit was being conducted, CBSA internal auditors conducted their own internal audit of CBSA contract administration practices at the request of their President. CBSA internal auditors have reported the results of their audit to the President of CBSA.

  • 15. For Phase I, for a sample of task authorizations we compared the services received with the services requested, as defined by the specific work requirements identified in the task authorizations. We also verified whether the project authority was satisfied with the services received and demonstrated by certification of invoices under section 34 of the Financial Administration Act. These procedures support conclusions on whether or not the Crown received the services it requested. Funds owing to the Crown were examined by comparing actual billings to the terms and conditions of the contract and assessing whether or not financial consideration paid for the services received was commensurate with the services rendered. These procedures support conclusions on whether invoicing errors had resulted in any amounts owing.

  • 16. This audit did not assess value for money. Therefore no conclusion can be drawn from the audit that the services received represented best quality and best price.

  • 17. The audit was divided into three phases. Phase I of the audit focused on the 18 task authorization contracts issued on behalf of CBSA and awarded to the firms under investigation. We examined a sample of 50 task authorizations out of a total population of 164 for the nine firms under investigation. The data for the task authorization contracts was provided by CBSA and validated through PWGSC Acquisition Information Service database for the period of April 01, 2004 to September 30, 2008.

  • 18. Phase II of the audit focused on a sample of contracts for which PWGSC was both the technical and contracting authority with the nine firms under investigation. We selected a sample of 25 contracting arrangements out of a population of 114 IT services contracting arrangements during the period of April 1, 2004 to September 30, 2008. The objectives for Phase II were the same as Phase I, however, the procedures were different because Phase I only examined task authorizations contracts while Phase II examined several different types of contracting arrangements, including fixed price and task authorization contracts, standing offers, supply arrangements, and other types of pre-competed procurement instruments.

  • 19. Phase III of the audit considered other actions, such as: providing information to Internal Audit groups in 25 other federal departments and agencies regarding active and closed contracts with the firms, in the last five years; undertaking of contract cost auditsFootnote 2; and further sampling and examining contracts with the firms for the periods prior to April 2004.

  • 20. The results of this audit are divided into two distinct reports. Phase I results, related to CBSA, are discussed in this report. Phase II and III, pertaining to PWGSC, are described in the second report titled: "Audit of Services Received by the Crown from Information Technology Firms Charged by the Competition Bureau for Bid Solicitation Impropriety - Phase II and Phase III".

  • 21. More information on the audit objectives, scope, approach and criteria can be found in the section "About the Audit" at the end of the report.

Statement of Assurance

  • 22. This audit was conducted in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

  • 23. Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the findings and conclusions in this report and to provide an audit level of assurance. The findings and conclusions are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with management. The findings and conclusion are only applicable to the entity examined and for the scope and time period covered by the audit.

Observations - Phase I - Task Authorization Contracts with Canada Border Services Agency

  • 24. In Phase I, we examined task authorization contracts that were awarded by PWGSC, on behalf of CBSA, to the nine firms under investigation. The purpose of the contracts was to provide IT professional services and support to CBSA's IT systems and processes. Although the CBSA's solicitation processes had eight streams and three firms awarded for each stream, the audit focused on seven streams and the 18 task authorization contracts that were awarded to the firms under investigation.

  • 25. We were informed by CBSA that the use of task authorization contracts, as a method of supply, was to be temporary. However, due to delays in the launch of the Task Based Informatics Professional Services method of supply, CBSA had to rely on a task authorization contract for a longer period of time than initially anticipated.

  • 26. CBSA's task authorization contracts provided a method of supply that established a competitive contractual agreement and supported its informatics and technology requirements. Generally, a task authorization is a structured administrative process enabling the technical or project authority to authorize work by a contractor on an "as and when requested" basis in accordance with the terms and conditions of an existing task authorization contract. Task authorizations are used in IT service contracting situations in which a definite need for a category of service exists, but the precise nature and timing of the need cannot be set out in advance.

  • 27. When the technical or project authority named in the task authorization contract requires professional services, a task authorization is issued against a task authorization contract to instruct the contractor to carry out the specified work within a specified timeframe. The technical or project authority communicates with the supplier identified in the task authorization contract, who proposes a qualified resource. A task authorization is then prepared and signed by both the supplier and the individual with delegated authority; the project authority or representative named in the task authorization contract. However, if the task authorization is above the financial limits identified in the task authorization contract, the PWGSC contracting authority must sign the task authorization prior to the work commencing.

  • 28. Task authorizations may be amended and approved by the project or technical authority. If the amendment results in the value of the task authorization being greater than the threshold financial limits identified in the task authorization contract, the PWGSC contracting authority must sign such an amendment and any subsequent amendments prior to work commencing.

  • 29. Subsequent to the identification of a need for work, but prior to the initiation of work, the project authority must evaluate the proposed resource to assess whether the proposed resource is sufficiently qualified to complete the task within the required timeframes, based on evaluation criteria identified during the solicitation process. Upon completion of the work, the project authority must evaluate whether the services received were in accordance with the services requested, as defined by the specific work requirements identified in the task authorization. The project authority demonstrates their satisfaction that the services received were in accordance with the terms and conditions of the task authorization contract and the task authorization by certifying their acceptance and agreement under Section 34 of the Financial Administration Act. These procedures ensure the Crown has received the services it requested.

  • 30. Prior to payment for work, the project authority must determine whether the charges in the invoice are in accordance with the terms and conditions of the task authorization contract and the task authorization. This procedure ensures the Crown is charged appropriately.

It Appears the Crown Received the Services it Requested from Qualified Resources; some concerns noted

  • 31. To assess whether the Crown received the services it requested, we examined whether proposed resources were evaluated by CBSA to complete the task within the required timeframes. We also examined whether services received were in accordance with the services that were requested, as defined by the work requirements identified in the task authorization. Finally, we examined whether the project authority was satisfied that the services received were in accordance with the terms and conditions of the task authorization contract and specific requirements identified in the task authorization.

Evaluation of proposals appears compliant with task authorization contract in the cases examined

  • 32. Once the need for a particular task is identified, a statement of requirement is provided to suppliers. The statement of requirement identifies the task to be completed, the time frame for completion, the work location, travel requirements, and language requirements. Suppliers submit proposals in response to the statement of requirement that reflect the terms and conditions negotiated in the task authorization contract. These proposals are then evaluated against each other as a mini-competition.

  • 33. Competing each statement of requirement supports continued openness, transparency and fairness in the task authorization process. Sufficient monitoring of firms' resource submissions helps to ensure this competition is maximized to the benefit of the Crown.

  • 34. For the 18 task authorization contracts examined, the terms and conditions of the task authorization contract required that CBSA submit the statement of requirement to all three firms in the stream that were awarded the opportunity to provide services in this stream. It then held a mini-competition or solicitation process among the three proposals received for each task authorization or statement of requirement. Each firm was to propose an experienced and knowledgeable resource that was evaluated based on criteria that measured if the proposed resource was sufficiently qualified to complete the task in the time frames identified. The successful firm was awarded the task based on the best-proposed resource.

  • 35. We expected the selection and evaluation of proposed resources would be conducted to ensure the proposed resource was qualified to provide services in accordance with the requirements stated in the task authorization contract. In addition, we expected to find evidence of technical evaluations or grids prepared in reference to the mini-competition.

  • 36. We selected a judgmental sample of 50 task authorization files for examination. The task authorization contract section on task authorizations identified that the CBSA's technical authority and/or project authority had to initiate the task process by completing the "TA Request" portion of the task authorization form (i.e. statement of requirement). We found that in 45 of the 50 sampled task authorizations, the task authorization request was filled out by CBSA in accordance with the terms and conditions of the task authorization contract. The remaining five task authorizations could not be retrieved or had incomplete statements of work. PWGSC approved the task authorizations as required under the delegation of authorities, as in most cases, due to the value of the task authorization, it was the contracting authority that had to approve the task authorization.

  • 37. As part of our review of the 50 task authorization files, we found that in 31 task authorizations, there was sufficient evidence that CBSA invited the three firms to submit a proposal for a mini-competition. An evaluation was performed and evaluation grids were kept on file for the proposed resources. As such, for these task authorizations, we can conclude that the resource proposed and accepted had been assessed as sufficiently qualified to complete the task in the time frames required. Two task authorizations were determined to be non-compliant.

  • 38. Unfortunately, for the remaining 17 files, the evaluation grids could not be retrieved by CBSA. Therefore no assurance on the evaluation of proposed resources for those task authorizations could be provided.

Concerns with proposal process identified

  • 39. The terms and conditions included in task authorization contracts identify the contractual obligations of suppliers. Failure to respect them can result in a range of sanctions, from a verbal reminder to termination of the contract.

  • 40. The terms and conditions of the 18 task authorization contracts stipulate that, although not obligated to submit a proposal, should a firm not respond to three requests for the same category of personnel or respond but submit resources that continually do not meet the experience requirement, the Crown reserved the right to terminate the contract for default. To respect this condition, we expected that firms would propose their best resource available for all invitations to submit proposals such that the probability of winning work through the task authorization process would be increased.

  • 41. For those 33 task authorizations or statements of requirement for which complete evaluation files were available, we found in 15 cases, only one or two of the three firms actually submitted proposals. Responsibility for monitoring compliance with the terms and conditions related to resource proposals rests with CBSA. Therefore, it is CBSA's responsibility to inform PWGSC of this failure to respect the terms and conditions; however following up with the firms rests with PWGSC. Although we were told the Acquisitions Branch had spoken to the firms regarding the failure to bid, there was limited evidence the proposal process had been monitored regularly or actions to terminate the contract with firms not regularly submitting proposal had been considered.

  • 42. Also of concern is that we found two cases where the firm that won the task authorization had sub-contracted their proposed resource from one of the other firms that shared the opportunity to propose resources for that same stream. In a third case, the resource was subcontracted from a firm that was not eligible to propose resources under that stream.

  • 43. In the first case, the task requirement was for a senior web developer. Records indicated that the three firms in the stream proposed resources to CBSA for evaluation. The resources proposed by two of the firms were found to be non-compliant. As a result, the firm with the highest per diem rate ($700), as established in their contract, was awarded the work. However in examining the timesheets, we found that the winning firm appears to have sub-contracted the resource from one of the other firms in the same stream. If the other firm had proposed the resource and won the work it would have charged the Crown a lower per diem rate ($525) as established in their contract. Given that the resource worked on this task for 248 days the increased cost to the Crown was approximately $43,500.

  • 44. In the second case, the task requirement was also for a senior web developer. As previously mentioned, 17 evaluation grids and files could not be retrieved from CBSA's records, and in this case there is no evidence to determine if all firms submitted proposals and were evaluated. However, similar to the previous case, based on the timesheet, it appears the firm with the highest per diem rate ($600), as established in their contract, subcontracted the resource from one of the other firms in the stream. If the other firm had proposed the resource and won the work it would have charged the Crown a lower per diem rate ($460), as established in their contract. Given that the resource worked on this task for 655 days the increased cost to the Crown was approximately $91,700.

  • 45. As well, we found one case in which the firm that won a task for work in stream seven subcontracted the resource from a firm who had task authorization contracts in five other streams but not in stream seven. Although this firm had submitted a bid in the solicitation process for stream seven, it was not selected as one of the three "best-value" firms who were awarded a task authorization contract under stream seven.

  • 46. If the trial should demonstrate there may be money owed, PWGSC should take action.

Services requested, although not well defined, appear to have been received

  • 47. Prior to accepting the services received, the project authority must assess whether the services received were in accordance with the services requested, as defined by the specific requirement identified in the task authorization.

  • 48. Ensuring that the services received are in accordance with the task authorization statement of work provides assurance that the Crown received the services it was expecting and agreed to.

  • 49. We expected that the project authority would compare the services received to the services requested as per the task authorization statement of work.

  • 50. We found that 45 of the sampled 50 task authorizations had generic statements of work as opposed to ones that identified a specific task or requirement. As such, we were unable to determine if the services received were in accordance with what was requested based on the statement of work.

  • 51. Given this limitation, we looked at the available timesheets to determine if the resources worked on the task as defined by the task authorization. Accepting and approving the time spent on a task, on a continuous basis, indicates that the project authority assessed the services received and acknowledges they are in accordance with the task authorization. For the sample of 50 task authorizations examined, we found 49 task authorization files had all timesheets, approved and signed by the project authority, and the accompanying invoices on file. The only non-compliant case involved several missing invoices, which prevented the audit team from determining if the services were properly delivered.

Project authority was satisfied that services received were in accordance with services requested

  • 52. The project authority's satisfaction with the services received is evidenced by their signature under section 34 of the Financial Administration Act. In signing under section 34, the project authority is signalling that payment can be made for services received. More specifically, it indicates satisfaction with the work performed, as well as compliance to the terms and conditions of the contract. This helps ensure that the Crown only pays for services it is satisfied it has received.

  • 53. We expected to see proper certification by the project authority of section 34 of the Financial Administration Act.

  • 54. We found that section 34 was signed in 42 of the 50 task authorizations examined. This demonstrates that in cases examined, the project authority was satisfied it received the services it requested. For the eight remaining task authorizations, a limited number of individual invoices were missing on the section 34 certification reports.

  • 55. Based on the forgoing analysis we can conclude that in most of the task authorizations examined the Crown received the services it requested, in that the work was performed as requested by a qualified resource and that the project authority was satisfied with the services received. In those cases where we could not conclude, the limitation was caused by lack of documentation, not by evidence that services were not received as requested.

No Funds Owing to the Crown Related to Invocing Errors

  • 56. To assess whether there were funds owing to the Crown related to invoicing errors, we examined whether the invoice amounts were in accordance with the terms and conditions of the task authorization contract (i.e. rate for resource category). We also examined whether the charges were in accordance with the specific work requirement identified in the task authorization (i.e. accepted resource category and level of effort). Finally, we recalculated the charges on invoices to ensure they were accurate.

The Crown was charged the contractual rate for specified resources

  • 57. Rates for resource categories invoiced by the firms should be the same as established in the terms and conditions of the task authorization contract since the contract was awarded based on these rates for these resource categories. The resource category identified on the invoice and the number of hours to complete the task should be consistent with those accepted in the task authorization.

  • 58. This helps ensure that the Crown is charged for services at the established rates for specified categories for the time spent completing the task. Charges that are not consistent with established contractual rates for specified categories or for more/less time than actually spent on the task would result in overpayments or underpayments.

  • 59. We expected the rates and categories identified in the task authorization would be compliant with the task authorization contract. We also expected that the rates, categories, and level of effort charged in invoices would be consistent with those identified in the task authorization.

  • 60. We reviewed all invoices included in each of the 50 task authorization files. We found that the resource categories and per diem rates specified in the invoices and task authorizations were compliant with the task authorization contracts. There were no invoice miscalculations and all hours charged on the timesheets corresponded to the hours paid on the invoices. In addition, the project authority signature under section 34 of the Financial Administration Act, demonstrates that the project authority was satisfied that the price charged was in accordance with the task authorization contract. As noted previously, section 34 was signed in 42 of the 50 task authorizations. For the eight remaining task authorizations, a limited number of invoices were missing section 34 certification.

  • 61. Based on the findings that charges on invoices were accurate, in accordance with the terms and conditions of the task authorization contract, in accordance with the specific work requirement identified in the task authorization, and accepted by the project authority, we can conclude there were no invoicing errors on the invoices examined that result in funds were owed to the Crown related to these invoices.

Ability to assess whether financial consideration paid was commensurate with services received was limited

  • 62. To assess whether financial consideration paid for services received was commensurate with the services rendered, we analyzed the ranges of rates for specific resource categories among the contracts examined in Phase I and Phase II. This is important since proper funds management includes ensuring the Crown receives services at the best possible rate.

  • 63. We expected some limited variability in the rates between firms for specific resource categories since many factors can affect the per diem rates offered to the market. Rates for resources can vary depending on the supply and demand of the market for IT professional services at a given time. Also, a firm looking to increase its market share may offer specific resources at lower rates than its competition. Some firms offer additional services to the Crown that ultimately increase the per diem price, such as internal project management services, training, pension benefits, and liability insurance.

  • 64. We examined rates for IT professional services proposed in solicitation documents by a variety of firms and for a variety of resource categories. This included the three firms per stream who were awarded a contract, as well as those firms who provided a proposal but were not awarded a contract.

  • 65. For the rates and categories analyzed, we found rates were not significantly disproportionate compared to rates for the same category of resources. However, comparison can be difficult because each contract, stream, and task authorization can include a category of resources that is not defined the same way for each requirement.

  • 66. For example, we found that the proposed per diem rate for the senior web developer was $700 for six of the eight firms that submitted proposals in response to the initial request for proposal. Two of the winning firms offered a rate of $700 per day, which appears reasonable when compared to other proposed rates. However, the third firm provided a significantly lower rate at $525 per day.

  • 67. In the second example, the proposed per diem rate for testers in the eight firms ranged from $247 up to $625 (average per diem rate of $408). The rates offered by the three winning firms were lower than the rates offered by firms not under investigation for bid-rigging.

  • 68. The variance between the lowest and highest rates was dependant on the particular resource category. Supply and demand pressures, economies of scale or additional value-added services provided by certain firms, may cause this. But, it may also stem from the fact that certain categories, if compared based on name only, cannot be compared due to disparate qualifications or inherent differences. However, the variance could also be explained by bid-rigging of requests for proposals for example, bid suppression or bid rotationFootnote 3. Due to the facts above, we can only provide limited assurance that the financial consideration paid was commensurate with services received.

Conclusions

  • 69. In respect of our first audit objective to determine if services requested by the Crown under contracts awarded by PWGSC on behalf of CBSA to firms under investigation were received, we concluded that for the files examined:

    • In Phase I for the task authorizations examined, given that the resources appear to have been properly selected and evaluated to ensure they were qualified to perform the work, that services received, although loosely defined, appear to have been as requested, and that the project authority indicated their satisfaction with the services received, we can provide assurance that the Crown received the services it requested.

  • 70. In respect of our second audit objective to determine whether there were invoicing errors that could have resulted in funds owing to the Crown related to the contracts awarded by PWGSC to firms under investigation, we concluded that for the invoices examined:

    • In Phase I, the per diem rates stated in the CBSA task authorization contracts were consistent with the rates established in the awarded task authorizations and the invoices. As a result, for the sample of invoices related to task authorization contracts we reviewed there were no invoicing errors that result in funds owing to the Crown related to those invoices.

    • Because per diem rates for a particular resource category can vary for a number of reasons, we can provide only limited assurance that financial consideration paid for services received was commensurate with services rendered. However, the per diem rates were not significantly disproportionate compared to rates for the same category of resources.

  • 71. However, there are concerns with the proposal process related to task authorizations. We found cases where firms did not respect the terms and conditions of the contract as they did not consistently submit proposals to task authorizations. We also found a few cases where firms who did propose resources appear to have sub-contracted these resources from other qualified firms who were eligible to propose the resource but did not. This is important because the other firm would have had to propose the resource at lower per diem rates as per their established price. These actions raise potential concerns with the contractors' behavior. Further, we found monitoring by the Crown of the firms' compliance with the terms and conditions was limited. Finally, we found no evidence to indicate that action was taken by the Crown to address the non-compliance.

  • 72. When concerns related to potential bid-rigging were identified, PWGSC informed the Competition Bureau. Actions were also taken to mitigate risks related to bid-rigging. Once the Competition Bureau confirmed the charges against the firms under investigation, PWGSC took additional action to mitigate risk related to managing contracts with the firms under investigation. These actions were not examined as part of this audit.

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Management Response

The Acquisitions Branch agrees with the recommendation and conclusions of the report and has acted on the recommendations by implementing their Management Action Plan detailed as follows.

Recommendations and Management Action Plan

Recommendation 1: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of bid submissions and contract delivery of the firms under investigation, including (i) increased scrutiny of all bid submissions, (ii) encourage other government department to closely monitor contract delivery in accordance with the terms and conditions of the contract, (iii) initiation of cost audits, as and when appropriate, and (iv) timely action, as appropriate for all violations of the terms and conditions of the contract.

  • Acquisitions Branch is addressing the risk of bid-rigging by putting in place increased scrutiny of implicated firms.

  • A series of measures were undertaken by Services and Technology Acquisition Management Sector (STAMS) of Acquisitions Branch to ensure strict adherence to contract terms by firms, these include:

    1. Pre-contract award validation for winning bidders;

    2. Verification of Task Authorizations Issues by the Client;

    3. Verification of invoices;

    4. Validation prior to award of Standing offers and Supply Arrangements;

    5. Inspection and Acceptance of the work by client departments. (Note: as this is a client responsibility, the role of the ADM (AB) is very limited in this regard);

    6. Periodic review of contract status for all firms with contracts with PWGSC (e.g., active file reports, one pagers, etc.);

    7. Set-aside procurement instruments if requirements not met (e.g., vendor no longer financially capable, or does not meet security requirements);

    8. Have the evaluation of proposals reviewed by an officer trained in Bid-Rigging Awareness and Prevention; and

    9. Director/Senior Director is informed each time before one of the firms (individually or as part of a joint-venture) is awarded:

      • a contract;
      • a standing offer (SO) / supply arrangement (SA);
      • a contract or amendment to extend the period or to increase the value of the contract;
      • a SO / SA amendment to extend the period of the SO/ SA.

Recommendation 2: The Assistant Deputy Minister, Acquisitions Branch should communicate with other government departments on behalf of whom we have awarded contracts to the firms under investigation and encourage enhanced monitoring of contract delivery.

  • Acquisitions Branch has been and continues to be in contact with pertinent Departments. Further, if Oversight Branch provides any new information on this matter, information will be shared.

Recommendation 3: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of contractor compliance with those terms and conditions of contracts that are the responsibility of PWGSC to monitor and ensure that appropriate action is taken in cases where terms and conditions are not respected.

  • All contracts will be monitored with increased awareness. In addition to the measures directed at the implicated firms, other scrutiny measures related to policy and training have been implemented by Acquisitions Branch (Policy, Risk, Integrity and Strategic Management Sector (PRISM)).

  • Actions will be taken to guide client departments to ensure specifications are clear.

    Enhanced Policy and Training

    1. Bid-rigging has been further addressed in procurement instruments and training manuals were updated accordingly;

    2. Code of Conduct for Procurement was introduced in 2008 with wording "prohibiting corruption and collusion in the bidding process";

    3. Increased awareness through training sessions for procurement officers by the Competition Bureau and integration of bid-rigging detection and prevention into standard procurement courses; and

    4. Standard acquisition clauses and conditions were revised to include additional provisions for bid-rigging and non-competitive activity.

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About the Audit

Authority

This audit was requested by the Deputy Minister, in addition to the PWGSC 2008-2011 Risk-Based Multi-Year Audit and Evaluation Plan approved by the departmental Audit and Evaluation Committee.

This audit report provides reasonable assurance regarding only the areas of highest risk associated with the contracts in question which are whether the Crown received the services it requested and whether funds may be owing as a result of invoicing errors. Additional information may surface subsequent to the tabling of this report which could impact on the findings and conclusions reported herein.

Objectives

The objectives of this audit were:

  • To determine if services requested by the Crown under contracts awarded by PWGSC on behalf of CBSA to firms under investigation were received; and

  • To determine whether there were invoicing errors that could have resulted in funds owing to the Crown related to the contracts awarded by PWGSC to firms under investigation.

The objective of this audit was not to assess the contract administrative practices of CBSA related to these contracts. While this audit was being conducted, CBSA internal auditors conducted their own internal audit of CBSA contract administration practices at the request of their President. CBSA internal auditors have reported the results of their audit to the President of CBSA.

For Phase I, for a sample of task authorizations we compared the services received with the services requested, as defined by the specific work requirements identified in the task authorizations. We also verified whether the project authority was satisfied with the services received as demonstrated by certification of invoices under section 34 of the Financial Administration Act. These procedures support conclusions on whether or not the Crown received the services it requested. Funds owing to the Crown was examined by comparing actual billings to the terms and conditions of the contract and assessing whether or not financial consideration paid for the services received was commensurate with the services rendered. These procedures support conclusions on whether invoicing errors had resulted in any amounts owing.

This audit did not assess value for money. Therefore, no conclusion can be drawn from the audit that the services received represented best quality and best price.

Scope and Approach

The audit was conducted in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

The fieldwork was conducted from January 2009 to January 2010. The audit was divided into three phases. As no contracts resulted from the Transport Canada and PWGSC solicitations the audit did not further examine these activities. In Phase I, we examined the CBSA task authorization contracts and related task authorizations. In Phase II, we examined those contractual arrangements for which PWGSC was both the technical authority and contracting authority and awarded to the firms under PWGSC administrative review. In Phase III, we considered further actions depending on the results of the first two phases.

In Phase I, although the CBSA solicitation had eight streams and 3 firms awarded under each stream, we focused on the 18 task authorization contracts that were awarded to the firms under investigation. These contracts were managed by CBSA, as the project authority, and procured through the Acquisitions Branch, as the contracting authority. The population and information on the 164 task authorizations for the seven implicated streams was provided by CBSA and confirmed with the contract data in the Acquisitions Branch's procurement files. The approach for selecting the sample of 50 task authorizations was based on the cumulative contract knowledge and experience of the audit team and a variety of criteria. Criteria included task authorizations that were valued slightly under the CBSA's authority threshold and a percentage of all the task authorizations for each contract. A joint audit team comprised of PWGSC and CBSA auditors undertook the examination. The joint team examined the contract and project files for the sample of 50 task authorizations. PWGSC auditors conducted document reviews and an analysis of potential administrative concerns. Interviews and meetings were conducted with the managers of the Acquisitions Branch, PWGSC. Interviews were to be conducted by CBSA auditors with the Contract's project authority.

In Phase II, we examined services contracting arrangements with the firms under investigation for which PWGSC was both the contracting and technical authority. A population of 114 active and closed contracting arrangements with these firms were extracted from the Acquisition Information Service database from the period of April 1, 2004 to September 30, 2008. The audit examined all types of contracting arrangements with the firms under investigation including, fixed price and task authorization contracts, supply arrangements and standing offers, and their related call-ups, and task authorization contracts and their related task authorizations. We selected a sample of 25 contractual arrangements with the firms under investigation and examined the 14 arrangements under which services had been obtained.

The objectives for Phase II were the same as Phase I, however, the procedures were different in that Phase I only examined task authorizations contracts while Phase II examined several different types of contracting arrangements, including fixed price and task authorization contracts, standing offers, supply arrangements and other pre-competed procurement instruments.

In Phase III, the audit considered other actions, such as: providing information to Internal Audit groups in 25 other federal departments and agencies regarding active and closed contracts with the firms, in the last five years; undertaking of contract cost audits; and further sampling and examining contracts with the firms for the periods prior to April 2004.

This audit was coordinated with the "Audit of Information Technology Services Branch Task Authorization Contracts". Information was shared on four task authorization contracts managed by Information Technology Services Branch and awarded to three firms under investigation.

Relevant processes and documentation were reviewed. Based on an analysis of the information and evidence collected, the audit team prepared findings and conclusions, which were validated with the responsible managers. The two draft Final Reports (covering Phase I, and Phases II and III) will be tabled with the PWGSC Audit and Evaluation Committee and recommended for the approval of the Deputy Minister.

Criteria

The criteria used to assess the contracting arrangements with firms under investigation by PWGSC were based primarily on the Treasury Board Contracting Policy and the Acquisition Branch's Policy Notification 75 for task authorizations.

The criteria were as follows:

  • The Crown received the services that it requested.

  • Charges for services rendered were in accordance with the terms and conditions of the task authorization contract and the specific work requirements identified in the task authorization.

  • Financial consideration paid for services received was commensurate with the services rendered.

It was anticipated that the following criteria would be applied to the cost audit, if required. We expected that:

  • The firms' time recording systems and billing records support the invoices submitted to the Crown for services rendered.

Audit Work Completed

Audit fieldwork for this audit was substantially completed on January 31, 2010.

Audit Team

The audit was conducted by members of the Office of Audit and Evaluation, under the overall direction of the Deputy Chief Oversight Officer. The audit was reviewed by the quality assessment function of the Office of Audit and Evaluation.

Footnotes

Footnote 1

Competition Bureau Presentation on Bid-rigging.

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Footnote 2

The objective of a cost audit is to assess if a firms' cost records and accounts are in compliance with the terms and conditions of the underlying contract.

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Footnote 3

Refer to paragraph 5 for complete definition of bid suppression and bid rotation.

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