The Yukon government wastes tax dollars in its sloppy awarding of contracts, says a damning report released Wednesday.
The report, produced in May of 2008 by Yukon’s audit services branch, finds that officials responsible for awarding and monitoring contracts tend to be poorly trained and lack clear guidelines.
As a consequence, they routinely break the government’s own contracting rules.
More disturbingly, officials knowingly skirt rules in order to dole out money to Yukon businesses.
These officials face pressure to give local businesses advantageous treatment and fear reprisal for excluding poor performers from future bids, the report states.
All this results in poor spending decisions. More than one-quarter of the scrutinized contracts could not show the government received value for its money.
“It is our conclusion that the fundamentals of the current contracting process are not designed to encourage competition, fairness or transparency,” states the report.
Auditors interviewed more than 20 senior managers and studied 136 contracts. They found many problems.
Contracts complied with the rules in “very few” cases, auditors found.
The government is acting on the report’s many recommendations, said Dennis Fentie, the premier and finance minister.
He blamed most of the problems on previous governments.
But, in an interview, he would not answer questions about one serious matter raised in the report — the government’s practice of contract-splitting to ensure local companies get work.
Contract-splitting is when a big contract is broken into small pieces to avoid hitting the threshold that triggers a public competition.
Officials knew contract-splitting circumvented the rules and looked bad. They did it anyway.
“We were told that it was the official mandate of the Yukon government to give Yukon businesses a better chance at competing, and one way of achieving this was to deliberately break a big project into smaller parts,” the report states.
If this practice is a government policy, it is an unwritten one.
“We could not find any official proclamation of this mandate to split contracts in order to benefit local business.”
It is a government priority “to maximize the benefits for Yukoners” and “prevent leakage,” said Fentie in an interview.
But he would not say if he encouraged officials to engage in contract-splitting to accomplish this goal. He was asked several times.
At first, Fentie said he didn’t know what contract-splitting was.
It was explained to him.
“You’re asking me a speculative question, and it’s very hypothetical,” he said.
When told the question was not speculative, but based on a government report, Fentie said, “Well, it is (speculative) for me.”
Shouldn’t the Finance minister be aware of such matters? Fentie evaded the question.
“Contract-splitting may happen, depending on the circumstances of the project itself,” Fentie said later.
Auditors warn that “to break away from the principle of competitive bidding is not something that should be done without careful thought.”
“The principle of fair competition is designed to give businesses the opportunities to bid openly for government contracting services and to ensure that government receives the best value for money from its public spending.”
This principle is being undermined in many ways. Contract-splitting is just one example.
Work is sole-sourced without justification. Cost overruns are approved and deadlines are pushed back for inappropriate reasons. Work inspections are haphazard.
And officials fear “negative repercussions” for excluding poor performers from future bids.
Records are not kept to evaluate contractor performance, auditors found.
“This gave us no assurance that there is a consequence for contractors who perform poorly,” the report states.
“There appears to be a perception that there would be negative repercussions if a poor performer was excluded from future bidding.”
“Ultimately there should be consequences for poor performers.”
Contracts worth more than $25,000 are supposed to be put out for competitive bidding, with several exemptions, such as in cases of emergency. Another exemption allows ministers to sole-source work.
But, even with a minister’s signature, a sole-sourced contract must include “a documented, convincing argument as to why the claimed exemption was warranted.”
This justification is often lacking, despite a warning issued by the audit committee to deputy ministers concerning this in April of 2005.
Contracting of computer services, in particular, is routinely sole-sourced without justification.
Many changes made to contracts are of a “questionable nature.” Changes are only supposed to address unexpected problems.
Despite this, auditors found cost overruns and contract extensions authorized without justification. Some deadlines were pushed back only after the new deadline had passed.
Other changes related to totally different jobs. This work should have been issued as new contracts.
Big problems also exist with how contracts are monitored and reviewed.
Some work orders are so vague it is unclear what services are expected. Other contracts lack safeguards to prevent contractors from billing for suspicious expenses.
Contract officers do not insist on seeing the insurance policies of contractors. In one case, an insurance certificate was obviously altered, “but this was accepted without query.”
Final inspections sometimes never occur at all. When they do happen, the work is often assigned to junior staff who have not been briefed on the project they evaluate. Some inspections amount to “a drive-by observation.”
All this provides little assurance government gets value for its money.
Auditors scolded finance officers for not performing due diligence before signing off on nearly one-quarter of reviewed cases. These contracts should not have been approved, because the contract terms had not been met or the invoice had insufficient detail.
“If we, as auditors, found good reason to raise some serious questions about the invoice, then we would expect finance officers to have raised the same query.”
The report recommends many changes. They include updating the government’s contracting rules, which have not been changed since 1997; better training of employees; increasing oversight and monitoring of high-risk contracts; and replacing an antiquated paper filing system with a computer database.
The audit was commissioned because, since 2002, internal reviews have shown “many deficiencies in the way contracts are issued.”
The Yukon government awarded 4,245 contracts worth $374 million in 2006-7.
Contact John Thompson at johnt@yukon-news.com.