Government Operations Committee on June 10th, 2024

[The Chair, Conservative, Kelly McCauley]

Good morning, everyone. I call this meeting to order.

Welcome to meeting number 128 of the House of Commons Standing Committee on Government Operations and Estimates.

As always, we have reminders on avoiding feedback that hurts our interpreters: Keep your earpieces away from your microphones at all times.

We welcome our Auditor General.

AG Hogan, welcome back to OGGO, the only committee that matters—not Public Accounts.

We have you for a five-minute opening statement. Go ahead, please.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Mr. Chair, thank you for this opportunity to discuss our report on professional services contracts, which was tabled in Parliament last week.

I want to begin by acknowledging that we are gathered on the traditional unceded territory of the Algonquin Anishinabe people.

Joining me today are Nicholas Swales, the principal who was responsible for the audit; Steven Mariani, the director who led the audit team; and Andrew Hayes, deputy auditor general.

This audit looked at whether federal contracts awarded to McKinsey & Company between 2011 and 2023 complied with applicable policies and provided Canadians with value for money spent.

These contracts spanned 20 federal organizations, including 10 Crown corporations. The total value of contracts awarded to McKinsey & Company during the period totalled $209 million, of which about $200 million was spent.

We found that the organizations awarding the contracts showed a frequent disregard for federal contracting and procurement policies and guidance. We also found that each organization's own practices often did not demonstrate value for money.

The extent of non-compliance and risks to value for money varied across organizations. For example, in 10 of the 28 contracts that were awarded through a competitive process, the bid evaluations did not include enough information to support the selection of McKinsey & Company as the winning bidder.

When it came to non-competitive contracts, organizations often issued these without documenting the required justification for doing so. About 70% of the 97 contracts we looked at were awarded to McKinsey & Company as non-competitive contracts, and their value was approximately $118 million.

We also sampled and reviewed 33 contracts to assess value for money and found that almost half of the contracts lacked an explanation of what need or gap the contract was intended to address. In 15% of contracts, there was no clear statement of what the contract would deliver, and in 18% of contracts there was no confirmation that the government had received all expected deliverables.

As the central purchasing and contracting agent and subject matter expert for the Government of Canada, Public Services and Procurement Canada did not challenge federal organizations when awarding some contracts on their behalf. The department did not challenge the organization requesting the contracts about whether the procurement strategy used was appropriate when multiple contracts were awarded to McKinsey & Company for a similar purpose and within a short period of time.

Our single recommendation focused on the need for federal organizations to proactively address conflicts of interest in the procurement process. All other aspects of our findings were covered in recommendations recently made by other organizations, such as the Office of the Procurement Ombud and internal audit functions.

While this audit focused on contracts awarded to McKinsey & Company, it highlights basic requirements and good practices that all federal organizations should follow when procuring professional services on behalf of the Government of Canada.

Federal contracting and procurement policies exist to ensure fairness, transparency and value for Canadians, but they only work if they are followed. The remedy isn't necessarily about creating new processes or rules, but rather about understanding how these processes and rules are applied and why, often, they are not.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you, Ms. Hogan.

We'll start with Mrs. Kusie for six minutes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Mr. Chair.

Thank you, Madam Auditor General, for being here today along with your team. Thank you, again, for this report, which sheds even more light on, and, I believe, confirms even further, the thoughts and ideas we had around contracting in the public service, both in terms of adherence to the rules, as well as favouritism towards McKinsey.

Madam Auditor General, last week, I asked you to inform the public accounts committee of the dates the three Canada Infrastructure Bank contracts were signed with McKinsey.

Do you have those dates with you today?

[Karen Hogan]

I'm going to turn to Nicholas, and he can provide that to you.

[Nicholas Swales, Principal, Office of the Auditor General]

We do. The dates are January 25, 2018; March 30, 2018; and May 19, 2020.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

That's very interesting. Thank you.

Madam Auditor General, Mr. Dominic Barton chaired the Canadian Minister of Finance’s economic advisory council, which started in 2016. Shortly afterwards, interestingly coinciding with these dates, we see a 2,500% increase from 2016 to 2023 in contracts awarded to McKinsey.

In your opinion, is it a conflict of interest to have the global head of a company also chairing an economic advisory committee that helps determine the direction of a government?

[Karen Hogan]

That's a difficult question for me to answer. I'm not sure in what capacity he was providing advice as the chair of that committee or what his requirements were. I, unfortunately, can't offer up an opinion on that.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you.

I'll return to a theme I mentioned in my opening comment: favouritism in contracting.

McKinsey received two contracts with IRCC for close to $25 million. It's these contracts and the economic advisory council, chaired by Mr. Dominic Barton, that led to the infamous immigration target of half a million that this government is now walking back from.

How dangerous is it for a company to chair an advisory council that sets policy in an effort to help its own interests?

[Karen Hogan]

Again, I'm sorry. I don't know much about what that committee was doing, so it would be inappropriate for me to provide thoughts or opinions on it.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you.

There were four instances in the competitive procurement process where your office found that the procurement strategy was changed after departments learned McKinsey could not bid under the original circumstances. Unfortunately, to no one's surprise, McKinsey won the bid under new criteria.

Can a department call it a competitive process when they are changing their requirements to cater to one specific company—in this case, McKinsey & Company?

[Karen Hogan]

In the case of the four contracts that you're referring to, there were two where there was a change in strategy. While the federal government is able to change its procurement approaches as it goes about, I would have expected to see a justification on file as to why they made such a switch, and then, because two contracts were awarded in a non-competitive way, clear documentation as to why McKinsey would have been the only bidder or what exception was being used from the procurement rules to award a contract non-competitively. As we mentioned, more than half of the contracts that we looked at that were awarded non-competitively did not have a good justification on file.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you for that.

I'll refer to your previous work on the "arrive scam", as well, since GC Strategies was allowed to sit at the table and negotiate the terms of its own contract. Can you confirm—although I am hearing it in the response you gave to my last question—that this is happening frequently across departments?

[Karen Hogan]

I want to draw a distinction between what we saw with ArriveCAN and what we're seeing here. With regard to ArriveCAN, we clearly saw that GC Strategies was involved in setting the selection criteria. We did not see that in the McKinsey contracts. At times, we saw, when there were competitive bids run, that the selection criteria weren't always used, but not that McKinsey had been involved in setting the selection criteria. They're very different situations.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Given that, in your opinion, what specifically needs to be changed? What changes need to be made to ensure Canada's procurement processes are truly competitive?

[Karen Hogan]

When it comes to competitive contracts, what we found is that often, about more than one-third of the time, the bid evaluation didn't have selection criteria that were clearly outlined, or when there were selection criteria they weren't used. It's clear in the rules that you need to set out these criteria, and then you need to have a good evaluation grid and a committee put together. Again, to make this competitive process fair and transparent, the existing rules should have been applied.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

I end my time there, Mr. Chair. Thank you very much.

Thank you very much, Madam Auditor General, again, for the report and for being here with us today.

[The Chair, Conservative, Kelly McCauley]

Thanks, Mrs. Kusie.

It's to Mr. Jowhari, please, for six minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Chair.

Madam Hogan, welcome back to you and your team. Thank you for the great work that you continue to do.

I want to go back. My understanding is that you looked at a period from January 1, 2011, to February 7, 2023. From a procedural point of view, it looks like a lot of procedures were not being followed. Was this consistent during this period? Were there any periods that stood out more, not just because of the number but from the procedural changes?

[Karen Hogan]

No, our conclusion was that there was frequent disregard for the rules across nine departments and agencies and 10 Crown corporations spread out over the 12-year period. There isn't one year that sticks out more than others except near the end, when the national master standing offer was used for almost 19 contracts. In our view, the justification for using that was not well-documented. There was a slight spike there, but there was still a lack of following the rules across the whole 12-year period.

[Majid Jowhari, Liberal, Richmond Hill, ON]

There was a lack of following the rules throughout the whole 12 years. Now also, when you looked at the differences among departments, agencies and Crown corporations, did you see any differences among departments, agencies and Crown corporations, as far as following the procedures and making sure everything is well-documented is concerned?

[Karen Hogan]

I mean, it's a tough one. There are 97 contracts, and I can tell you that almost each contract has a unique story with it. When we looked at how frequently rules were not being followed, it didn't matter whether it was a Crown, a department or agency. It's important to note that the Crown corporations have their own rules and they don't usually follow the Treasury Board rules, but there was still a frequent disregard for not following them. Again, the most frequent being, really, not documenting why a non-competitive process was used.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you. That is a very important point: Crown corporations have their own policies, procedures and systems. They're not following TBS, as the department and agencies do, and there was still this common disregard, not only across the years but even among the Crown corporations as well as the departments and agencies.

I want to go back to where you nearly closed.... You made recommendations—and thank you for the recommendations you made. You pointed us back to a number of previous recommendations. You basically said, “Just go and do it.”

These are the newer recommendations. You made two, which keep a very clear focus on what we and the government should do. Now, in looking at your nearly closing statement, you said, “The remedy isn't necessarily about creating new processes or rules but rather about understanding how these processes and rules are applied and why, often, they are not.” Can you expand on that one?

[Karen Hogan]

I think that, over time, whenever there's an audit done, whether it be by an internal audit department, the comptroller general's, the procurement ombudsman's or my office, the tendency is to add more rules. I think here the case is not that there were rules missing—except for conflict of interest, which is why we issued one there—but that the rules just need to be followed. I think it's important for the federal government to sit back and try to assess why this is happening. What is it about the procurement rules that are driving the behaviour that we're seeing?

There could be many reasons for that. Is it that the rules are so complex that, in order to speed up the procurement process, people are working around the rules? Is it that there are so many rules that they don't know them all and are accidentally not applying them? Is there some other behaviour that is driving what we're seeing? It's clear that the rules are there to ensure fairness, transparency, accountability and delivering value for money. It's just that they're not being followed.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you. That was a great coverage.

In your opinion, do you think those rules—because I'm sure you've looked at them—are complicated? You're clearly saying, let's not add more rules to them, which we really support because we are doing a study, and my colleagues are going to follow up on that. Do you think our rules are complicated?