Policies, procedures often broken in awarding contracts to under-fire consulting firm: auditor general

CTV National News: No competition for contracts Auditor General Karen Hogan raises concerns over $200 million in contracts awarded by the federal government to consulting firm McKinsey.

Canada’s auditor general is blasting federal government departments and agencies for disregarding their own procurement policies and failing to manage risks relating to contracts awarded to McKinsey & Company.

In a new report tabled Tuesday, Auditor General Karen Hogan found that the organizations showed a “frequent disregard” for contracting and procurement processes when awarding contracts to the global management consulting company.

The vast majority of them, the audit reveals, failed to properly follow all aspects of their policies on at least one contract and many organizations did not always have a way of demonstrating contracts offered value for money.

“We concluded that professional services contracts were often not awarded to McKinsey & Company in accordance with applicable policies,” the report says. “The federal organizations’ frequent disregard of policies and guidance was evident by missing bid evaluations and poorly justified use of non-competitive approaches.”

Between January 2011 and September 2023, 10 federal government agencies and 10 Crown corporations awarded a total of 97 professional services contracts to McKinsey & Company, worth a total of $209 million. $200 million of that money has been spent.

Of the 97 contracts awarded to McKinsey, Hogan found about 70 per cent were issued as non-competitive contracts and at least four appeared to have been designed and implemented to suit McKinsey & Company specifically.

“Federal contracting and procurement policies exist to ensure fairness, transparency, and value for Canadians—but they only work if they are followed,” the report states.

Hogan also concludes that in many cases, organizations could not clearly show whether a contract was needed, what the expected deliverables were, whether all the deliverables were provided or that the ultimate intent of the contract issued to McKinsey & Company was achieved.

The AG’s latest audit was launched after the House of Commons unanimously passed a motion in February 2023 requesting a value-for-money audit relating to McKinsey & Company contracts. The request from members of Parliament came after a lengthy study on the rise in government contracts by the House of Commons Standing Committee on Government Operations and Estimates.

McKinsey came under fire in 2022 after it was revealed a surge of contracts had been awarded to the consulting firm under the Liberal government. At the time, Ottawa said that since 2015, Public Services and Procurement Canada had awarded McKinsey 23 contracts valued at $101.4 million, up from the $2.2 million spent under the previous Harper government. The sharp increase raised questions about the use of federal funds and the company’s influence over the Liberal government.

In her report, Hogan highlights that spending by departments and agencies on contracts awarded for professional services in categories such as informatics services, management consulting, welfare services and other services increased after 2015, with contracts specifically to McKinsey & Company jumping after 2017.

During a press conference on Parliament Hill, Hogan was asked whether the procurement problems flagged in the audit existed during the Harper years too. Hogan told reporters that instances of non-compliance were found in departments and agencies throughout the entire 12-year period she looked at, which included time under the Harper government.

"We saw non-compliance either with procurement rules or difficulty determining value for money throughout the whole 12 year period of time,” she said. “I have the belief that it isn’t limited to McKinsey, it is likely a bigger issue of making sure the rules are not forgotten and people are paying attention to them."

What did the AG find?

The auditor general found 19 of 33 contracts awarded to the consulting firm during the audit period included at least one issue that prevented departments and agencies from demonstrating contracts had delivered value for money.

“The risks to value for money varied across federal organizations, and issues included a failure to show why a contract was necessary, no clear statement of what the contract would deliver, or no confirmation that the government received all expected deliverables,” Hogan wrote in her report.

The report also revealed 10 instances where bid evaluations show contracts awarded through a competitive process “did not include enough information” to support selecting McKinsey & Company as the winning bidder.

“Without documentation supporting the selection of the winning bidder, how the evaluation criteria were used, or why the results of a procurement process were not consistent with the evaluation criteria, it is not possible to conclude that the organizations’ decisions in awarding the contracts to McKinsey & Company were sound business decisions or ones that provided value for money,” the report concludes.

Eighteen additional contracts issued under the national master standing offer “did not provide required justification” for selecting the consulting firm through a non-competitive process.

For 13 contracts with security requirements, the AG found organizations were “not able to demonstrate” whether all consultants working on the contracts had the required security clearance to do their work.

In eight other instances, the auditor general found initial contracts - awarded either through a non-competitive or competitive process - morphed into 30 more contracts valued at approximately $58 million. All of those subsequent contracts were awarded without a competitive process.

“We found that the use of non-competitive approaches for subsequent contracts in these chains was poorly justified in several cases,” Hogan states.

In 91 per cent of, or 30 of 33, contracts in the audit’s sample, federal departments and agencies did not sufficiently estimate costs before receiving proposals.

The report also reveals that Public Services and Procurement Canada, the agency in charge of purchasing and contracting, did not challenge other departments or agencies when awarding some contracts on their behalf.

“In instances where multiple contracts were awarded on behalf of the same organization to the same vendor for a similar purpose and within a short period of time, Public Services and Procurement Canada did not challenge the organization requesting the contract about whether the procurement strategy used was appropriate,” the report highlights.

Who issued the biggest contracts?

During the 12-year audit period, the Department of National Defence, Public Services and Procurement Canada and Immigration, Refugees and Citizenship Canada awarded the most contracts to McKinsey.

DND awarded 15 contracts valued at nearly $26 million, only two of which were issued through a competitive process.

Employment and Social Development Canada issued four contracts valued at $5.7 million; all were awarded through a non-competitive process.

The auditor general specifically calls out those departments revealing both waited more than a year for a non-competitive national master standing offer to be created for McKinsey & Company.

“Each was seeking benchmarking services that may have been available under other national master standing offers. It is unclear why the organizations chose to wait rather than using another procurement option,” Hogan writes in her report.

Immigration awarded two contracts worth nearly $25 million, both of which were awarded through a competitive process.

Public Services and Procurement Canada gave McKinsey three contracts valued at a total of more than $26 million, one of which was awarded through a competitive process.

When it comes to Crown corporations, Business Development Bank of Canada, Canada Post and Trans Mountain Corporation offered McKinsey the most money.

Business Development Bank of Canada issued 11 contracts valued at nearly $22 million, only five of which were awarded through a competitive process. Hogan found that for one of those contracts, McKinsey & Company was not the highest scoring bid, and while that is allowed, there was “no explanation” document to support why McKinsey’s higher cost bid was still selected.

Of Canada Post’s 14 contracts valued at $26.6 million, nine were issued through a non-competitive process.

Trans Mountain Corporation awarded one non-competitive contract to McKinsey for nearly $34 million.

Reactions to the report

Speaking in Question Period, Conservative Leader Pierre Poilievre called on the government to cut ties with the McKinsey.

"We already knew the prime minister liked to give tax dollars to his favour consulting company McKinsey… but today we learned from the Auditor General that it was far more money than thought," he said in the house. "Will the Prime Minster commit here and now to no more money for McKinsey?"

A request the Prime Minister did not directly answer.

"Obviously the taxpayers deserve to get value for money which is why we have continued to strengthen our oversight and the measures whereby public servants grant contracts, including to outside consultants," Justin Trudeau said. "We will of course continue to work with the Auditor General and her recommendations as we move forward."