Friday, March 9, 2007

Govt Accountability: DND mishandled $100M in contracts

DND mishandled $100M in contracts
Transport audit reveals sole-sourced deals, improper screening, insufficient paperwork

The Ottawa Citizen March 09, 2007

The "vast majority" of 109 transportation contracts worth almost $100 million were awarded by National Defence without proper authority and documentation over the past two fiscal years, according to an internal audit.

Specific problems include improper sole-sourcing of contracts, the absence of a clear method to determine winning bids and the use of methods that may have excluded many potential suppliers.

The audit covered contracts with air, rail, sea and road freight companies for the transport of military goods.

In addition to those issues, the audit revealed an inadequate screening process for freight companies that could have led the department to ship dangerous goods such as explosives and ammunition with unlicensed carriers.

Auditors found that a department-run website listing properly licensed carriers was not up-to-date, and only three of the 16 listed submitted proof of licensing for 2006.

Nine additional carriers that shipped ammunition and explosives for the department last year didn't even appear on the website and had not submitted proof of permits.

"Without a clear process to confirm certification, there is a risk that unlicensed carriers could transport dangerous goods," concludes the audit, completed by Defence in August, but released only recently.

It all adds up to more trouble for a department already under fire for the way it doles out work to defence contractors.

Last week, Auditor General Sheila Fraser told a House of Commons committee she would begin auditing the government's recent string of military purchases before the end of the year. The government has recently committed more than $17 billion to purchase ships, trucks, airplanes and helicopters for the military.

On a smaller scale, the transportation audit is similarly critical of the way bidders were selected for defence work.

"While 89 of these contracts were technically awarded via competition, the methods used -- i.e. e-mailing or faxing requirements to at least two selected companies -- may have omitted many potential suppliers and may not have resulted in the best price," auditors found.

"For air transport contracts, there was no clear method of determining how the winning bid was selected, and 18 of the 87 sampled air contracts were sole-sourced with no documented rationale."

The sole-sourced contracts ranged in value from $22,000 to $5.7 million, with one air broker landing 56 per cent of the work.

Auditors also raised concerns over the way the contracts were written and how money was paid. Contractual terms were not well defined, making it difficult to confirm that payments were made in accordance with the Financial Administration Act.

Section 34 of the act essentially requires a designated person in the department to certify that the work was done properly, for a fair price and under the terms of the contract.

Auditors found Section 34 certification was non-existent on paid invoices related to 13 of the 109 sampled contracts and "questionable on a high percentage of the remaining invoices.

"More than half the sampled air, rail and sea contracts either did not include a contract ceiling, or the ceiling had been exceeded without benefit of a contract amendment," the audit said.

"Invoices related to 39 per cent of the sampled contracts included charges for items not mentioned in the contract and 24 per cent did not include supporting documentation for third-party charges."

Every rail carrier hired by the government billed for items not contained in the original contract.

The auditors recommended the government tighten the Section 34 process to ensure all invoices have been properly certified before payment and that ceilings are clearly stipulated in contracts.

In response, National Defence management said the government had undertaken an internal review of the process, adding all sole-source requirements would be documented on file, effective immediately. It also said all contracts now have set ceiling amounts that can only be changed by amendment and clearly defined deliverables.

Meanwhile, officials responsible for transportation contracts weren't the only ones criticized by internal auditors.

Another review, this one completed in October, looked at what was originally a $44- million contract in July 2000 to provide combat system engineering and integration services for the navy's 12 Halifax-class ships, three Iroquois-class ships, simulation trainers and system support facilities at Halifax and Esquimalt.

The government has since exercised options pushing the value to $119 million, with $77 million already spent.

Of the $74 million in expenditures that auditors reviewed, nearly $15 million in payments were made with insufficient supporting documentation on file.