One of the most lucrative contracts a private company can sign is any sort of deal they can make with a government. Not only do they know they will be guaranteed payment, supply contracts are usually long term. Whether it’s supplying a ministry with office supplies or the janitorial staff with cleaning fluid you can usually be sure of your contract being renewed if you approach competence and the government doesn’t change.
It’s an accepted fact of life that somebody is going to hire their brother in law’s firm to clean the toilets on Parliament Hill over a complete stranger. It’s one of the ways that party loyalty is repaid the world over, and not even an ethics commissioner would raise a fuss about it. But it’s supposed to be a different story when it comes to matters like multi-year, multibillion-dollar defense contracts.
In Canada, government military contracts involve four separate ministries. The Department of National Defence (DND) sets out the specifications that the military requires from a particular piece of equipment; the Department of Public Works and Supply issues a request for proposals to determine a supplier; Industry Canada are asked to identify Canadian companies that could potentially act as sub-contractors for the production of required equipment and assess the regional economic benefits of each bid; and finally the Treasury Board finalizes the contract – they sign the cheques – and ensures everything is on the up and up according to their policies.
This may a sound a little complex, but what it is supposed to do is make sure that the bidding process is transparent and fair and that Canada is getting the best deal it can for the taxpayers money. But according to a recent report prepared for Canadian Center For Policy Alternatives called No Bang For The Buck, the government of Canada has managed to arrange that more then 40% of the contracts signed in the fiscal year 2006-2007 were non-competitive.
This information was obtained freely from Business Access Canada data available on Public Works contracts. They do add the caveat that the government can and will withhold information about procurements that they consider matters of “National Security” – they can even reclassify items after they have been released if they so desire, as they have done with documents pertaining to the purchase of the Mercedes Benz “G-Wagon” troop carrier.
Instead of using the standard of bid on a tender and the company that can do the job best for the least amount of money wins the contract, the government has been using two systems which allow them to pre-select a company of their choosing. Advance Contract Award Notices and Solicitations Of Interest And Qualifications are the two ways that the government has been able to circumvent its own policies concerning accountability during the procurement process.
An Advance Contract Award Notice notifies the public that a company has been chosen by the government to fill a contract. The notice is posted for fifteen days on the Public Works web site. At any time during those fifteen days, another company may submit a proposal showing how they could fulfill the requirements of the contract with their equipment better than the one the government has selected. Somehow or other, they never seem to measure up to the one the government has already selected.
Or in the case of the Solicitations Of Interest And Qualifications procedure, it’s amazing how only one company seems to be able to make something just the way the government wants it. It’s especially surprising when you consider they are all pretty much making the same thing.
Now although government claims that these practices both qualify as competitive bidding practices, the Auditor General of Canada, Shelia Fraser, disputes that. In fact she states that her office made it’s position on the subject clear in 1999-2000, “that Advance Contract Award Notices contribute very little to competitiveness”. It appears to me that there are just too many ways for the government to manipulate the process to favor one company over another.
Of course that impression isn’t helped any by some other information the No Bang For The Buck report reveals. Prior to his election as a Member of Parliament in 2004, Defense Minister Gordon O’Connor had been a lobbyist for twenty-six companies that sought government contracts. As a retired Brigadier-General in the Canadian army it should come as no surprise that a good many of them were companies who sought contracts with the Ministry of Defense.
This meant that in 2006 when he became Defense Minister, he was only two years removed from lobbying that department on behalf of industry for lucrative contracts. Now there has been no evidence to implicate the minister in anything duplicitous. But the fact remains that he is in a position to influence decisions as to who gets awarded defense contracts, and the process for awarding the contracts has become far less competitive since he became minister.
The government has argued that it uses these methods as an attempt to speed up the process of acquiring equipment. They say that the equipment is badly needed for the soldiers in the field. If that were the case why have only 3% of the contracts been designated with the “Extreme Urgency” label that can be used to justify limited competition? Or if the materials are so important to our soldiers in the field why will the majority of it not even be available to them until after they have been withdrawn from Afghanistan?
According to former Deputy Minister of Procurements at DND, Alan Williams, this process is actually often as slow if not slower, than normal tender processes. According to him, the time spent by politicians and bureaucrats arguing over the requirements to fill the contract and which supplier should be used can sometimes take longer then a bidding process. They also increase the potential for a lawsuit against the government by disgruntled losing companies because decisions are made in secret. Currently, Airbus Military is considering legal action after losing out on two bids through this system.
Of course, the other problem with non-competitive bidding is that the government ends up paying more money and losing potential industrial benefits. A United States Air Force study on procurement showed that in a non-competitive bidding situation the average cost of purchase was 20% higher. The Canadian government has awarded contracts worth 16 billion dollars in non-competitive contracts, which means that we are paying out around $3 billion we didn’t have to.
But the real kicker is the money we lose on industrial spin offs. If these were competitive, a bidder would know they would have to give something to sweeten the pot — thus ensuring contracts to Canadian companies. But with no leverage over them, companies are playing fast and loose with the rules of the game. The rules state that for every dollar awarded to a foreign company, to do sub-contract work a dollar has to be awarded to a Canadian company.
But what happens if a contract is awarded to a foreign government? Well, that doesn’t count and that dollar amount doesn’t have to be matched. When Boeing was awarded the contract for four C-17 planes and a 20-year service contract, they subcontracted the service to the US Air Force at a cost of 1.8 billion dollars. Because the US Air Force is not a private company that’s 1.8 billion dollars in spin off industry Canada misses out on.
If Boeing had been in a competitive bidding situation with another company, and that other company was willing to sub-contract the service contract to a Canadian company, who do you think would have been awarded the contract? At the least Boeing might have felt compelled to match those terms.
The Conservative Party of Canada rode to power on the backs of promising open and accountable government. The previous government had been caught in a horrible cover up over the misappropriation of taxpayers money and the Conservatives were going to be the new broom that swept out corruption from Parliament Hill.
Judging by their behavior in awarding defense contracts, I’d say their broom isn’t much different from the previous government’s, if not actually worse. Perhaps we should be holding a public inquiry into how the government actually does figure out which company gets which contract? It’s taxpayers money they’re spending after all, and aren’t they the ones who said they’re needed to be more government accountability for how taxpayer money was spent?
Sixteen billion dollars is a fair chunk of change and I think I’d like to know how they made their decisions, wouldn’t you?