Canada has some procurement problems, unless we are following the U.S. mode

Auditors' report slams Defence over vehicle maintenance
Sole-source contracts are not 'good value' as review estimates $8-million a year in possible savings
DANIEL LEBLANC / Feb 12, 2007 TheGlobe&Mail

OTTAWA -- Auditors at the Department of National Defence are blasting a sole-sourced contract to maintain the military's fleet of light-armoured vehicles, saying the government is overspending at least $8-million a year for the work.

In particular, the auditors said management fees have expanded while subcontracting costs have gone unchecked.

"There are significant opportunities to achieve savings and better value for money," said the audit, which was posted recently on DND's website.

It said there was room for savings of "at least $80-million over the next 10 years of the contract," and that could reach $13.5-million a year.

The contract to maintain the Canadian Forces' light-armoured vehicles, such as the eight-wheeled Coyotes and LAV IIIs, was issued in 1998 and is still in place.

Even though the names of government suppliers are frequently released, DND said it had to shield the identity of this contractor to abide by the Access to Information Act.

"I cannot release that, and the reason why is that it might put the vendor in a negative light," DND spokeswoman Liana Cyr said.

But The Globe and Mail has learned the contract went to General Dynamics Land Systems Canada, which owns the company that manufactured the vehicles.

Ken Yamashita, a spokesman for General Dynamics, refused to comment on the document, saying it is an internal DND audit of the government's contracting practices.

When it was first issued nine years ago, the contract called for "life-cycle support" for 203 Coyotes. The deal grew over the years as the government purchased 651 LAV IIIs and other light-armoured vehicles.

The audit expressed concern that the initial "two-year, $4.3-million contract evolved into a six-year $67.9-million contract" by 2004. The contract was then renewed for three years, for a total of $200-million, and entails work on more than 1,000 light-armoured vehicles.

The two contracts, however, "have not provided good value for money," the audit found.

The audit criticized the level of details provided by the contractor in its invoices to the government.

"Of particular concern is that the breakdowns of subcontractor material costs and labour hours were not provided, even though such costs amounted to nearly one-third of the total sampled value [of invoices]," the audit said. "The contracting officer did not hold copies of the subcontracts and was unaware of the rates."

Other invoices lacked details on "the mark-ups and profits stipulated in the contract."

The auditors concluded that "if such practices continue, public funds are at significant risk," adding that "management does not know if [repair and overhaul] invoices included double billing for labour."

Auditors said that expenditures are frequently charged to the wrong financial code, explaining that "inaccurate financial coding has contributed to forecasting inaccuracy."

The full version of the audit provides more details of the problems with the contract, but key parts of it were blacked out to protect the security and economic interests.

The DND's spokeswoman said the audit is taken "very seriously" and that a management plan is in place to solve the identified problems.

"We're trying to streamline our management practices within contracts so that they're in line with Treasury Board policies and procedures for fair and cost-effective procurement initiatives," Ms. Cyr said. "We are making improvements in the verification and certification processes."