Ottawa - Too many federal contracts are being snapped up by favoured suppliers without real competition, says Canada's procurement watchdog.
Departments hand out plum contracts to lone suppliers at prices that might be lower if other companies were given a proper chance to bid, Shahid Minto suggests in his first-ever report to Parliament.
The report draws on a review of some of the $1.7 billion worth of sole-source contracts the federal government signed between 2005 and 2007.
Untendered contracts, which were at the heart of the recent eHealth scandal in Ontario, are allowed at the federal level under certain conditions: if there are no other suppliers who can do the work, or if there is an emergency, along with other limited exceptions.
But Minto's report, which focused on Health Canada, the Canada Revenue Agency, National Defence and Fisheries and Oceans, found it was too easy to skew the procurement process in favour of suppliers that officials preferred.
For example, there was scant evidence in the files that bureaucrats did any homework about other potential suppliers.
"We expected, as a good business practice, that most of the procurement files would include documentation to indicate that some form of market research had been conducted to ascertain if more than one supplier could fulfill the requirement," says the report.
"However, we found that this was not the case."
Federal rules also say a department that intends to issue a sole-source contract must advertise the fact publicly for a minimum of 15 days to allow potential competitors to consider whether to make a bid.
But Minto said the minimum period has become a de facto maximum period, even for complex, high-value contracts that require time for potential bidders to assess properly.
As a result, other bidders step forward in only about seven per cent of these so-called ACANs, or Advance Contract Award Notices. And of those, only half are successful in usurping the favoured supplier.
Minto's office also found that even before expiry of the 15-day notice period, federal officials sometimes begin detailed talks with the favoured supplier before any contract is signed.
The practice "raises questions about the fairness and openness of the process," says the report. "There is a risk that all potential suppliers may not be privy to the same level of information at the same time."
The report also notes that because of a bizarre technicality, a certified sole-source contract can empower bureaucrats to spend far above their usual dollar limits without the need for senior departmental review.
ACANs have been a "problem child for quite a while," Minto said in an interview. "It's become an easy way to do a sole-source contract."
One business magazine compared them to a "race where one contestant gets a head start, before the others even know there is a race."
Minto's report calls on the federal government to amend rules and policies to make the process fairer, such as allowing longer periods for competing suppliers to challenge a sole-source contract.
A spokesperson for Public Works, which handles most federal contract tendering, did not respond to a request for comment about the report.
Some recent sole-source contracts posted by the federal government include:
-$1.9 million to IBM Canada Ltd. for software upgrades for Human Resources' employment insurance systems.
-$900,000 to Xerox Canada Ltd. for lease of a photocopier-printer for Public Safety.
-$78,000 to Diebold Co. of Canada Ltd. for a security system at Elections Canada.
-$260,000 to the Canadian Paediatric Society for an online immunization course for the Public Health Agency of Canada.
In each case, the contractors were considered the only ones capable of doing the work.
