PACP Committee Report

On 17 November 2005, toward the end of the 1st Session of the 38th Parliament, the Standing Committee on Public Accounts adopted a motion calling on the Auditor General to conduct an audit of the Integrated Relocation Program (IRP, the Program) contracts across the Government of Canada, and to report her findings to Parliament in a subsequent Report. The Program handles approximately 15,000 relocations of members of the Canadian Forces (CF) and the Royal Canadian Mounted Police (RCMP), and federal public servants annually. In 2005, the cost of the Program was about $272 million.

The Auditor General accepted the Committee’s request and presented the results of her audit in her Report of November 2006. Because of the importance of the Program to its users – and in particular to members of the Canadian Forces, who are by far its largest clients --, its substantial cost, and because the audit was initiated at its request, the Committee decided to closely review the audit results.

The Committee met initially on 7 December 2006 with Auditor General Sheila Fraser to discuss her audit. Ms. Fraser was accompanied by Mr. Ronnie Campbell, Assistant Auditor General and Mr. Bruce Sloan, Principal, Office of the Auditor General. Mr. Ian Bennett, Acting Assistant Deputy Minister, Acquisitions, with Public Works and Government Services Canada (PWGSC). Mr. Bennett was accompanied by Mr. Richard Goodfellow, Manager, Project Delivery Services Division of PWGSC. Treasury Board Secretariat was represented by Mr. Dan Danagher, Executive Director, Labour Relations and Compensation Operations. Rear-Admiral Tyrone W. H. Pile, Chief, Military Personnel, appeared on behalf of the Department of National Defence. The Royal Canadian Mounted Police were represented by Mr. Alain Séguin, Assistant Commissioner, Finance.

Subsequent meetings were held on 12 December 2006, and 29 January 2007. On 12 December, the Committee met with Mr. Ronnie Campbell, Assistant Auditor General, and Bruce Sloan, Principal with the Office of the Auditor General. Mr. Ian Bennett, Acting Assistant Deputy Minister, Acquisitions, represented Public Works and Government Services Canada. Ms. Ellen Stensholt, Senior General Counsel, Legal Services, and Mr. Richard Goodfellow, Manager, Project Delivery Services Division, accompanied Mr. Bennett. Mr. Bruce Atyeo, President, Envoy Relocations Services Inc., appeared as an individual, as did Mr. Raymond Bélair, President, Royal Lepage Relocations Services.

On 29 January 2007, the Committee met with Auditor General Sheila Fraser, who was accompanied by Mr. Ronnie Campbell, Assistant Auditor General and Mr. Bruce Sloan, Principal with the Office of the Auditor General. Mr. I. David Marshall, Deputy Minister and Accounting Officer represented Public Works and Government Services Canada. Mr. Marshall was accompanied by Mr. Ian Bennett, Acting Assistant Deputy Minister, Acquisitions, Ms. Lilianne Saint-Pierre, Executive Director, Acquisitions Operations, Ms. Ellen Stensholt, Senior General Counsel, Legal Services, and Mr. Richard Goodfellow, Manager, Project Delivery Services Division. Mr. Alain Séguin, Assistant Commissioner, Finances, represented the Royal Canadian Mounted Police. Rear Admiral Tyrone W. H. Pile, Chief, Military Personnel, appeared on behalf of the Department of National Defence. Mr. Dan Danagher, Executive Director, Labour Relations and Compensation Operations represented Treasury Board Secretariat. He was accompanied by Mr. D. Ram Singh, Senior Financial and Business Systems Analyst, Treasury Board Secretariat. Mr. Bruce Atyeo, President, Envoy Relocations Services Inc. and Mr. Raymond Bélair, President, Royal Lepage Relocations Services both appeared as individuals.

A.  Preface

In its 10th Report of the 38th Parliament, 1st Session, the Standing Committee on Public Accounts recommended that deputy ministers be designated as accounting officers, modelled on an arrangement in place in the United Kingdom for more than a century. In 2006, the Commission of Inquiry into the Sponsorship Program and Advertising Activities (Gomery Commission) made a similar recommendation. This important change to the status of deputy ministers was made by way of an amendment to the Financial Administration Act affected by the Federal Accountability Act which came into force in January 2007. Thus, under section 16.4 (1) of the amended Financial Administration Act, deputy ministers in their capacity of accounting officers for their departments are “accountable before the appropriate committee of Parliament for:

1. the measures taken to organize the resources of the department to deliver departmental programs in compliance with government policies and procedures;
2. the measures taken to maintain effective systems of internal control in the department;
3. the signing of the accounts that are required to be kept for the preparation of the Public Accounts pursuant to section 64 [of the Financial Administration Act]; and
4. the performance of other specific duties assigned to him or her under this or any other Act in relation to the administration of the department.”

When Mr. Marshall, Deputy Minister of PWGSC, appeared before the Committee on 29 January 2007, he became the first deputy minister to appear in the new capacity of accounting officer. This marked an historic step in clarifying the respective responsibilities of ministers and deputy ministers and improved accountability for the use of resources provided by the taxpayers of Canada for the administration of government and its programs.

B.  Introduction

In any given year, thousands of federal government employees, members of the Royal Canadian Mounted Police (RCMP), members of the Canadian Forces (CF) and their families are obliged to move permanently from one locale to another as a result of work-related duties. Prior to 1999, each individual department and agency of the Government of Canada, arranged for their employees to receive assistance with various aspects of their relocation.

In April 1999, the government initiated a pilot project (Integrated Relocations Pilot Program) which integrated the services and activities involved in relocations. Integration was intended to reduce overall relocations costs to the Government, simplify administration, and to provide more flexible benefits better suited to the needs of individual employees. The government held a competitive tender to award a contract for the administration of the program to a third party contractor.

The design and delivery of the program and the tender involved the participation of several government departments and agencies. Treasury Board Secretariat was (and is) the project authority for the program, while Public Works and Government Services Canada, as contract authority, managed the overall tendering process. According to the PWGSC’s Supply Manual, the Department “is accountable for the integrity of the complete procurement process including all actions taken within the process.”^[1] The Department of National Defence (DND) and the RCMP were (and are) responsible for the technical content and monitoring the work conducted under the Program’s contracts. Treasury Board Secretariat, PWGSC, DND, and the RCMP formed an interdepartmental committee that drew up a statement of work for the program. This statement of work was used by PWGSC to produce a Request for Proposal (RFP) inviting potential suppliers to bid for a four-year contract for the administration of the Program. Together, TBS, the RCMP, PWGSC, and DND evaluated the proposals that were received and selected a winning bidder – Royal LePage Relocation Services Inc. – in April 1999.

In 2002, the government decided to make the Program permanent and to obtain administrative services through two contracts – one for CF employees and the other for RCMP members and Government of Canada employees. A second competitive tender was initiated by the government, -- following the same process that it had earlier -- and leading to the award of two five-year contracts, both to the incumbent provider.

The awarding of the contracts, however, was challenged in March 2003 before the Canadian International Trade Tribunal (CITT) by a losing bidder. In addition, the department responsible for managing the tendering process, Public Works and Government Services Canada (PWGSC, the Department) was subject to allegations of conflict of interest in the contract award.

PWGSC appealed the CITT ruling before the Federal Court of Canada and initiated an internal investigation of the conflict of interest allegations. The Department subsequently concluded that the allegations were without substance. However, the PWGSC considered that the perception of a conflict of interest was of sufficient concern that the contract should be cancelled and re-tendered, a step that was taken in August 2003.

The Department claims that it took measures to make sure that the tendering process would be beyond reproach. It assigned a new team to manage the tendering process and – in light of the likely participation of the incumbent supplier -- took steps it argues were intended to ensure that the process was fair. These steps included establishing a system for evaluating proposals that assigned greater weight to the technical, as opposed to the financial, components (75 vs. 25) – also intended to emphasize the Program’s goal of providing a high quality service to its clients – and hiring an independent Fairness Monitor to oversee the process of evaluating the proposals submitted by bidders^[2].

In 2004, as a result of this new tendering process – the third one for this Program – the incumbent provider was once more awarded both contracts, one for the Department of National Defence, the other for the RCMP and the Public Service.

In May 2005, the CITT ruled that PWGSC had compared two components of a losing bidder’s proposal in an inappropriate manner. The Tribunal recommended that certain sections of each bidder’s proposal be re-evaluated. PWGSC appealed this decision to the Federal Court of Appeal which in 2006 upheld the CITT’s finding that bids had been inappropriately compared, but struck down the recommendation that bids be re-evaluated. According to the Auditor General, “it was the Court’s view that the re-evaluation of all bid proposals would have no effect on the 2004 award decision.”^[3] The losing bidder also communicated its concerns to the Standing Committee on Public Accounts which, in turn, referred the matter to the Auditor General of Canada.

The Auditor General accepted the Committee’s request. Substantive audit work was completed at the end of August 2006 and, in her Report tabled in November, the Auditor General concluded that the “contracts were not tendered in fair and equitable manner.” (5.101) The Auditor General arrived at this conclusion on the basis of two sets of audit findings.

According to the Auditor General, an examination of the Request for Proposal , the notice sent by government outlining the contract requirements and soliciting bids, “contained materially incorrect information” with regard to business volumes. (5.101) As part of their proposals, bidders were asked to specify cost limits (also referred to as caps or ceilings) on a series of six services to be provided by third-party suppliers. With respect to one of the services – property management services for homeowners keeping and renting out their property (rather than selling it) following a move – the RFP provided estimated business volumes to be used by bidders to make the calculations involved.

These estimates, however, were so significantly detached from actual volumes as to be completely unrealistic. The estimates forecast that 60 percent of CF relocations, or approximately 7,200 moves each year, would be using property management services. In actual fact, only 183 of approximately 81,000 moves between 1999 and 2005 (or about 0.22 percent) had actually used these services. The estimated business volumes for RCMP and Government of Canada relocations requiring property management services were also wildly out of proportion with actual volumes. These estimates indicated that 450 RCMP moves and 280 Government of Canada moves would require these services on an annual basis. In reality, between 1999 and 2005, only 2 of almost 11,000 RCMP relocations and 4 of over 5,300 Government of Canada relocations actually used property management services. (5.24, 5.25) Furthermore, the RFP indicated that 60 percent of CF members were renters and 40 percent owners – but the evaluation criteria in the RFP applied the percentage of renters (60 percent) to property management services.

Potential bidders questioned the business volumes in the RFP. They asked PWGSC to provide volumes based on historical data and pointed out that the percentages of CF homeowners and renters had been reversed. After checking with Treasury Board Secretariat, DND, and the RCMP, the Department responded that historical data were unavailable and that the percentages of homeowners and renters indicated in the RFP would not be changed. Bidders were told that for evaluation purposes, they should use the data supplied by the RFP.

One of the bidders acted accordingly, pricing property management services for approximately 7,200 CF moves annually for the five-year contract period and an optional two-year extension at $48.7 million. In contrast, the incumbent bidder listed a ceiling rate of zero percent of the annual rent for property management services and subsequently won both contracts. The Auditor General argues that because the RFP contained “materially incorrect information” regarding business volumes for property management services and because the incumbent bidder would have known what the actual volumes were as a result of its previous work on the contract, it had an unfair advantage.^[4] Although PWGSC had followed its established procedures and taken steps to eliminate the incumbent’s advantage, these steps were insufficient according to the Auditor General. Although the departments and agencies are, for the most part, in accord with the Auditor General regarding the basic facts cited in the audit, PWGSC maintains that its approach compensated for the incorrect data supplied in the RFP and, therefore, that the contracts were issued in a fair and equitable manner.

The Committee has considered the evidence presented in the audit and given by its witnesses very carefully, and accepts the Auditor General’s overall conclusions. It is astonishing that a contract under such close scrutiny following charges of conflict of interest should have been awarded on the basis of flawed information it its RFP. While the Department asserts that actual business volumes were not available at the time of the tender, the Committee notes that PWGSC did not attempt to obtain this data from the incumbent supplier, nor did it analyze the reasonableness of its estimated business volumes by reviewing the quarterly financial reports submitted by the incumbent. Furthermore, the Committee notes that the estimated business volumes were first included in the RFP that was developed for the 2002 contract and were carried forward to the 2004 RFP without examining their underlying rationale. When bidders queried the business volumes, the Department only conducted a perfunctory verification when a more rigorous approach was clearly called for.

In 2002, the Department responded appropriately to perceptions of conflict on interest by cancelling the contracts and re-tendering. In 2007, should the Department be called upon to adopt a similar response in light of flaws in the tendering that are not just perceived, but real? When asked whether or not she would advise the Government to re-tender the contracts, Mrs. Fraser demurred, answering that “it is up to the government to decide, on the basis of our findings, what measures it wants to take.” (32:1600) When pressed, she added that she “would advise them to do a careful assessment of the possible consequences of this mistake, to determine, if necessary, whether the end result could be changed and, keeping in mind the need for justice and fairness, to take the steps they deem necessary.” (32:1600) At a subsequent meeting, Assistant Auditor General Ronnie Campbell testified that “if the contract was awarded in another process through a fair and transparent manner that would help preserve the integrity of the process.” (33:1630) It would seem that the right thing to do would be to call upon the Government to at least consider cancelling the contracts and re-tendering them as quickly as possible.

There are other factors, however, that must to be taken into consideration. Although they can be extended for an additional two years, the contracts are due to expire in November 2009. Given that re-tendering the contracts could take up to a year, a decision to cancel the existing contracts would seem precipitous. There is no evidence that the current contractor has failed to honour the terms of the contracts or that it used its prior experience to unfair advantage in its bids. Cancellation would therefore have to be for convenience, exposing the Crown to potential litigation and a potential loss to the taxpayer of millions of dollars. In the meantime, program recipients (and their employers) might be faced with service disruptions in the event that interim arrangements could not be negotiated with the current supplier. Given that the vast majority of program users are Canadian Forces personnel and their families, men and women who currently shoulder significant levels of stress in service of their country, such disruptions would be unacceptable. Consequently, due to the relatively short time left before the current contracts expire, the potential loss of considerable amounts of money to taxpayers, and the possibility of disruptions to program users, the Committee cannot recommend cancellation. However, the Committee feels very strongly that a new tender, with major improvements, must be held with minimal delay. Consequently, the Committee recommends:

Recommendation 1

That the contracts for Canadian Forces and for RCMP/Federal public service relocations services be re-tendered for commencement in November 2009 and the current contract not be extended.

Following her audit, the Auditor General made ten recommendations to improve contracting, measuring the performance of the Program, and controlling the spending related to it. The Committee endorses each of these recommendations and notes that PWGSC, the RCMP, DND, and Treasury Board Secretariat have agreed – with varying levels of enthusiasm – to implement all of them. The Committee believes that each recommendation must be implemented in full prior to the next tender. The Committee therefore recommends:

Recommendation 2

That Public Works and Government Services Canada, Treasury Board Secretariat, the Department of National Defence, and the Royal Canadian Mounted Police develop detailed action plans for the implementation of each of the recommendations in Chapter 5 of the Auditor General’s Report of November 2006 that apply to them. Copies of these plans must be submitted to the Committee no later than 30 September 2007.

In some instances, the departments and agencies have indicated that they have already begun, and in some cases completed, the actions called for by the Auditor General. In those instances, the departments and agencies should be recording their progress in fulfilling their commitments. In order that Parliament may assess performance in achieving these goals, the Committee recommends:

Recommendation 3

That Public Works and Government Services Canada, Treasury Board Secretariat, the Department of National Defence, and the Royal Canadian Mounted Police report their progress in achieving commitments made in response to recommendations made by the Auditor General that apply to them to the Public Accounts Committee no later than 30 September 2007.

The contracts for the Program are due to expire in November 2009 at which point the Committee recommends that a new tender be issued. After so many flawed attempts, it is of vital importance that the tendering process be conducted properly and on the basis of accurate information. To this end, the Committee recommends:

Recommendation 4

That the recommendations made by the Auditor General and accepted by the departments be fully implemented prior to the initiation of a new tendering process for the Integrated Relocations Program.

The Auditor General has made – and the departments have accepted – several recommendations focused on the need to measure program performance. Never the less, the Committee wishes to stress the importance of monitoring programs closely, not only to verify that they are meeting their objectives, but to afford timely opportunities to detect problems and take corrective action. If there ever were an example needed to illustrate this point (and there unfortunately have been too many to chose from), the evolution of the Integrated Relocations Program provides one. The Program was conceived as a pilot project which, by definition, ought to have been closely monitored within an evaluation framework. The results of this evaluation should have formed the basis for determining whether or not to make the Program a permanent one. They also ought to have been used to eliminate problems revealed by the pilot and to clear up any misunderstandings by program recipients and suppliers. Yet the Committee saw no evidence that his had occurred. Instead, private-sector and government witnesses before the Committee held contradictory interpretations of the terms of the contract – which had been tendered three times over a five-year span – and the government was unable to satisfactorily demonstrate that the Program was achieving its goals.

The Program is costly and affects thousands of government personnel and their families each year. In light of this, and the controversy that has surrounded it, the cost and performance of the Integrated Relocations Program should be reported to Parliament on an annual basis. Commitments made by the departments to monitor the Program’s performance in accordance with both government policies and the Auditor General’s recommendations should facilitate this. The Committee accordingly recommends that:

Recommendation 5

That the Department of National Defence, the Royal Canadian Mounted Police, and Treasury Board Secretariat include, in their annual Departmental Performance Reports, references to the Integrated Relocations Program as it relates to their employees. Information on the numbers of employees using the Program, the costs, and the extent to which the purposes of the Program are being achieved must be included. This performance information must be included in DPRs beginning with the Reports for the period ending 31 March 2008.

It is essential that information generated by monitoring the performance of the Program be used to develop the Request for Proposals that will be issued when the next tender is issued. The Committee recommends accordingly:

Recommendation 6

That Public Works and Government Services use information generated by monitoring the performance of the Integrated Relocations Program in the development of the next Request for Proposals issued for the Program’s contracts

The Committee is mystified that such badly flawed estimates of business volumes managed to survive three tendering processes. During the third tender, a bidder questioned the reliability of the estimates, but Public Works and Government Services Canada did little to ensure that they were realistic. The Department merely sought confirmation from the client departments and told bidders to use the volumes supplied in the RFP. While PWGSC must rely on Departments to supply accurate data, these data should be accompanied by formal assurance from departments that they are correct. The Committee therefore recommends:

Recommendation 7

That Public Works and Government Services Canada work closely with Treasury Board Secretariat and its client departments to develop a certification process designed to ensure the accuracy of data provided for inclusion in Requests for Proposals and ensure that such a process is in place prior to the tendering of the next contracts for the Integrated Relocations Program.

The Auditor General has informed Parliament that although the contract for Canadian Forces members stipulates that the ceiling rate for property management services is zero percent, all ten of the relocation files of CF members she examined showed that they had been charged between $800 and just over $8,000.^[5] The Committee recognizes that the Department of National Defence is reviewing all of its relocation files and is discussing the terms of the contract with the supplier. The Department, however, declined to specify when this review would be completed and when CF members would be compensated. The Committee finds any delay in this matter absolutely unacceptable, particularly in light of sacrifices being currently made by CF members in service of their country. The Committee therefore recommends:

Recommendation 8

That the Department of National Defence and the Canadian Forces establish a target date of no later than 30 September 2007 for the completion of the review of relocation files and for full compensation for all CF members who have been inappropriately charged for property management services. That the Government of Canada take steps to fully recover funds from Royal LePage Relocation Services and that Public Works and Government Services report progress in this effort in its departmental performance report.

In an effort to fully comprehend the Integrated Relocations Program and the problems associated with it, the Committee held three hearings. It was only during the third meeting that the Committee was told that the estimated business volumes for property management services supplied to bidders were based, not on historical data, but on a logic model developed by the interdepartmental working group that created the RFP for the pilot program in 1999. This model was subsequently used for 2002 and 2004 tenders, apparently without question. The existence of this model – which produced highly unrealistic estimates – came as a surprise to the Committee and the Auditor General, who commented that her Office “worked for months with several departments to try to understand where these figures came from and [was] never given an explanation.” (34:1635) Section 13 (1) of the Auditor General of Canada Act reads as follows:

Except as provided by any other Act of Parliament that expressly refers to this subsection, the Auditor General is entitled to free access at all convenient times to information that relates to the fulfilment of his or her responsibilities and he or she is also entitled to require and receive from members of the federal public administration any information, reports and explanations that he or she considers necessary for that purpose.

By failing to provide the Auditor General with information regarding the existence and use of a “logic model” to generate estimated business volumes for property management services, the departments involved have contravened an important section of the Auditor General of Canada Act. This is both deeply troubling and deeply serious. Parliament in general and this Committee in particular rely on the ability of the Auditor General to examine a full range of relevant information in the preparation of her Reports. When this does not happen the Committee deserves to know why. The Committee therefore recommends:

Recommendation 9

That Treasury Board Secretariat provide the Standing Committee on Public Accounts with a full explanation for the failure to provide the Auditor General and her Office with information on the logic model used to generate estimated business volumes for property management services during the audit of the Integrated Relocations Program. This explanation must be given to the Committee no later than 30 September 2007.

The Integrated Relocation Program is intended to assist federal employees when they are required to move for work-related reasons. It is also intended to achieve good value for money on behalf of Canadian taxpayers. In order to achieve these goals, the government issued contracts to an outside supplier to administer the Program. Yet because the Program’s performance has been inadequately monitored, there is no assurance to be had that either goal has been met.

Bidders for federal government contractors require reliable information and a clear definition of the work to be performed so that they can submit proposals that accurately reflect their capacity to satisfy contract terms. Yet three successive tenders issued for the Integrated Relocations Program included badly flawed estimates and confusion still exists regarding some key elements of the contracts that were issued. As a consequence, members of the Canadian Forces may have been charged improperly for services they should not have had to pay for.

The Committee is profoundly dissatisfied with the manner in which the contracts for this Program have been issued and the way in which the departments involved have responded to the problems which have arisen. The Committee expects that the departments will implement all of the recommendations made by the Auditor General fully and in a timely manner. It also expects that any member of the Canadian Forces who has been incorrectly charged for services provided under the Program will be promptly and fully compensated. For its part, the Committee will monitor progress in resolving the many problems brought to light by the Auditor General and will react quickly in the event that the departments involved fail to live up to the commitments they have made.