Government Operations Committee on June 10th, 2024

[Karen Hogan]

The comment I made is one that was actually just implemented, I believe, by Treasury Board. It was an announcement that those were some of the strengths brought to the procurement process.

I think that reflects on the complexity of all the rules that exist. It's not just Treasury Board policies. There are trade agreements. There are so many things that need to be factored into a procurement process that it does require, at times, a bit of an aide-mémoire, especially if it's not something that you do every day.

That's why I would encourage every organization to make sure they involve their own procurement branch in addition to Public Services and Procurement Canada, if needed.

[The Vice-Chair, Bloc, Julie Vignola]

Thank you very much, Ms. Hogan.

Ms. Kusie, you now have the floor for five minutes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you very much, Madam Chair.

I'm going to go back to the national master standing offers.

A national master standing offer was granted to McKinsey in 2021 in a non-competitive process. This was not properly justified and ended up costing a total of $42.4 million. The call-ups issued under the unjustified offer were also unjustified.

How does the justification process need to be reformed to ensure competitive processes are honoured?

[Karen Hogan]

I think one point to clarify here is that the national master standing offer was done in a non-competitive way. While Public Services and Procurement Canada provided a justification, we felt it was rather weak. Then the next step is where I think confusion existed: when there were 19 call-ups against the national master standing offer.

I think the organizations felt that they were using a procurement vehicle that was at their disposal and that they didn't need to justify why they were using that vehicle. However, when you realize that it is the first time a contract is being issued between the government and McKinsey, the non-competitive contracting rules kick in, and there should have been a well-documented rationale for that national master standing offer versus another.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Why do you think some departments are capable of contracting according to government standards but Public Services and Procurement Canada, the body in charge of procurement, seems to struggle in this area?

[Karen Hogan]

Public Services and Procurement Canada issues many contracts. They were not involved in all 97 here, but we found that they could have done a better job of challenging. I think that's one of the big questions that the public service needs to ask itself: What is it about the rules that's causing this behaviour?

The rules, in my view, are rather clear. While there are many, they are rather clear.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Clearly, it's the government.

Why was a minister's signature required for a $5-million contract but not for any of the other massive contracts that were granted to McKinsey?

[Karen Hogan]

In the case where the minister was involved, the contract was being issued on a non-competitive basis. There's a certain threshold at which the public service can no longer authorize a non-competitive contract—I think it's $4.5 million—which is why a minister needed to be involved. It was because it was non-competitive versus competitive.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

The justification provided was challenged by procurement officials before the minister signed off and agreed to the call-up.

Is it concerning that a minister personally signed a contract that her own officials challenged? Have you seen this elsewhere?

[Karen Hogan]

I'm going to see if Nicholas wants to add something here, but it's my understanding that the minister did not actually sign the contract. The minister just provided the authority to exceed the limit allowed by the public service.

He's nodding in agreement.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

I'll turn to contract chains now.

A practice you discovered is that a small, non-competitive contract would be granted to a department, as it fell below the threshold that requires a competitive process. Once this contract was awarded, departments would argue that future contracts had to be done through McKinsey as it had already begun the work.

How common is this practice across government departments?

[Karen Hogan]

I don't think I can answer how common it is across all the government departments. We saw, in this case, out of the 97 contracts, four chains. Those four chains involved 30 of the 97 contracts, but I'm not sure that this can be extrapolated across all government contracts.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Should small contracts have rules about future contracting?

[Karen Hogan]

I think it then comes back down to what was supposed to be the bigger, broader procurement process. It comes back to that initial question of what the need was that they were trying to meet or the service that they were trying to get, and then figuring out the right procurement process. I believe that the way these chains were structured did not favour value for money and likely limited competition.

If you give Andrew a couple of seconds, he might like to add something.

[Andrew Hayes]

It doesn't make sense to us that a small-dollar-value contract would be the basis upon which you could exercise a future justification for a non-competitive contract—for example, that it's not in the public interest to compete for it when it's only been a minor, small amount of investment at that point in time.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

So, there's nothing in place currently that prevents these types of contracting chains.

[Andrew Hayes]

We would consider those kinds of justifications to be weak. They shouldn't be the reason for proceeding with a non-competitive contract in those cases. The rules are clear, but the application is where it falls down.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thanks.

Mr. Sousa, please.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you, Mr. Chair.

Thank you for being here and providing your comments on the report, as well as on other reports.

I think it's important to state that this is not something new. This is not something that's unique. You've had a number of opportunities to review procurement, to review the status of some of the work that's being done across the board, not just with McKinsey. You've made some great recommendations thus far.

Has the government adopted the recommendations that you've made up to this point?

[Karen Hogan]

If you mean over the years that my office has done procurement audits, absolutely they have adopted them. In this case, I only issued one recommendation because I felt that the procurement ombud and the comptroller general, and the internal audit shops, who had done work from March 2023 until very recently, had addressed all of the other concerns. However, I just want to reiterate that I don't think it's about creating more rules; I think it's about understanding the existing rules and why they're not being applied.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

What I'm getting at is that there is a great desire and concern by government and I believe, too, those civil servants—who have done an extraordinary job on many contracts beyond just the ones you've seen—to ensure that transparency and integrity and fairness is built into the system. Do you have any doubt that they're not co-operating or they would not like to see things improve?

[Karen Hogan]

I think throughout any audit that we have, and especially recently where we've looked at procurements, the public servants who are in the actual procurement groups across the federal public service take such pride in the work they do and the advice they try to give. I don't believe here that this was done in an intentional way, and that's why I say it's important for the public service to sit back and understand what's driving the behaviour we're seeing.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

I think that is what I'm trying to reinforce. Obviously, there's a narrative here of some nefarious activity—people are taking favours, whatever that is. I want to make it certain that there was no criminality here. Did any three of you see any criminal activity? Were there issues of nefarious activity? Explain to me if you see any interference in the system.

[Karen Hogan]

We did not see anything that rose to the level that we felt we should raise concerns to the RCMP. However, I am not law enforcement. They are welcome to read my report and come to talk to us about any of the examples that we provided.