U of R awards about $20M in untendered contracts
Auditor questions university's approach, experts say practice raises 'red flag'
CBC's iTeam has learned the University of Regina awarded about $20 million in untendered contracts on a major construction project.
In 2006, the university tendered the first phase of the Research Innovation Centre, a $60 million taxpayer funded facility. More than one-third of that project was awarded to contractors without going to public tender.
According to university documents provided to CBC, a $1.7 million electrical contract with "Alliance Energy was sole sourced," as was a $5.3 million contract awarded to Christie Mechanical.
The U of R's construction tendering policy says "for projects in excess of $250,000 the electronic tendering method will be used." The Agreement on Internal Trade (AIT), a Canadian interprovincial agreement, also requires tendering for all procurement involving construction in excess of that amount, with rare exceptions.
In the case of the Research Innovation Centre, contracts well beyond that threshold were awarded without competitive bidding. Tendering experts call this a troubling approach that raises a red flag.
Policies were checked and policies were followed- Dave Button, university vice president of administration
But the university's vice president of administration Dave Button countered that the institution followed all the rules and listened to professional advice.
"Best practices were used. Lots of external advice was sought. Policies were checked and policies were followed," said Button.
University defends tendering approach
The Research Innovation Centre was constructed in four phases over a six year period, starting in 2006.
The university tendered phase one of the project and selected the lowest bidders. However, in most cases, the institution did not tender the subsequent phases, instead choosing sole-sourced agreements with their existing contractors.
Button said the university's general contractor, architect and engineers unanimously recommended this approach because it was a complex project and it is difficult and costly to bring on a new contractor midstream. He said it resulted in better, more efficient and more continuous work.
He added the university got better prices by negotiating with the contractor on site. Button said this approach is allowable under the university's policy and Canada's trade agreements.
"We did get advice and followed the procedure, best industry practices in terms of taking and working with the contractors on site as is permitted in the agreement on internal trade," he said.
Button explained that this was a complicated non-traditional project with several major changes in scope along the way, partly due to the timing and availability of government money.
Procurement experts raise concerns
Paul Emanuelli, who's a leading Canadian procurement lawyer and author of a well-known textbook on the subject, said the university's approach leaves him thinking someone has some explaining to do.
We're talking about tens of millions of dollars being awarded without competition- Paul Emanuelli, procurement expert
"We're talking about tens of millions of dollars being awarded without competition. That is something that certainly raises the attention within public procurement circles," he said.
Emanuelli said there are only rare and narrow exceptions in the AIT which allow publicly funded entities to avoid competitive bidding.
In a written response, the university told CBC the AIT "does not require a new tendering process every time there is a change in scope within a project."
Emanuelli said that claim is inconsistent with the way the AIT has been interpreted by the Canadian International Trade Tribunal, the recognized body which interprets the treaty in Canada.
"The default proposition is that any expansion in the scope, any significant expansion that triggers the trade treaty spending limits should be put back to tender," said Emanuellli.
Emanuelli said this approach ensures that competition is the rule and that taxpayers are getting the best value.
'Unusual' and 'troublesome' approach
Professor of Business Environment at the University of Calgary's Haskayne School of Business, Peter Bowal said the U of R's approach to procurement in this case defeats the purpose of open, competitive bidding.
"That's unusual. That's a red flag for me," he said.
Bowal noted that Christie Mechanical won the phase one tender for $7.6 million yet ended up being awarded $16.2 million in work. That figure includes a single $5.3 million contract on phase 3. Alliance Energy won an initial bid of less than $1 million yet in the end was awarded $5.9 million in contracts.
"What we had here that was so unusual and is troublesome was that the first bids for phase one were relatively small," Bowal explained. "And that locked up that contractor for all four phases most of the time. And again that original bid led to in many cases a very good multiple of what that original bid was about."
And he said he's not convinced by the university's contention that this was justified because it received the recommendation of professionals. Bowal noted that the contractors and engineers don't hold primary responsibility to follow trade agreements or the university's policy.
"It isn't a good answer to say 'well our professionals on site recommended it and it's in their opinion best practices' and so on," Bowal said. "It just is an end run around that open process that especially publicly funded projects require."
He pointed out that when competitive bidding does not happen there is a suspicion that "we're paying a lot more for the building than otherwise we would have needed to."
Provincial Auditor critiques U of R procurement practice
Saskatchewan's acting provincial auditor Judy Ferguson said the university is commonly sole-sourcing contracts without documented justification.
"We estimate that the university used single or sole-sourcing for about 20 per cent of its purchases," her December 2013 report said. And it says in 28 per cent of the cases it examined there was insufficient justification for not tendering the work.
Ferguson said this is a concern because tendering is an approach that assures taxpayers are not spending too much.
Her report also highlighted a situation similar to the Research Innovation Centre. It described a case in which an initial, relatively small bid on phase one of a project led to six single sourced contracts without the necessary justification.
The auditor said the university needs to review this practice.
She said the university needs to do a better job of following the rules when it comes to tendering. And she said it needs to update and tighten those rules to ensure taxpayers money is spent in the most appropriate way.
The onus is on the organization to make sure that you know what your rules are and that you're following your rules- Judy Ferguson, acting provincial auditor
She also pointed out the companies that receive the contracts are not in the wrong.
"I don't think they're at fault for accepting an engagement." Ferguson explained. "The onus is on the organization to make sure that you know what your rules are and that you're following your rules."
Tendering rules commonly violated
Emanuelli said Canada has seen cases similar to this one from coast to coast.
"These situations are unfortunately all too common, where you have projects that end up significantly exceeding the scope of what was competed," said Emanuelli.
He said while procurement rules can seem complex and dull, there are very real and costly consequences when they are violated.
"The public has every right to be wary about the failure to properly spend tax dollars and to protect the public purse," said Emanuelli.
The only consequences are shame and public disclosure- Peter Bowal, University of Calgary business professor
Bowal said the trade agreement rules are good but AIT has few teeth when it comes to accountability. He said media can expose problems and auditors can raise issues, and that's about it.
"The only consequences are shame and public disclosure," he said.
The provincial government paid for some of the Research and Innovation Centre construction.
"Every institution is responsible for their own processes under these trade agreements." explained Ron Dedman, deputy minister of Central Services. "There is no oversight on behalf of government on those trade agreements."
Dedman said the main enforcement tool is the competitive instincts of other businesses. "If you're a contractor and you see a project being built and you haven't had access to that you might say 'how come I didn't get a chance to bid on that work?'"
Emanuelli said governments and public institutions are going to have to start taking competitive bidding much more seriously. The recently announced European trade agreement contains tough new provisions.
Emanuelli said those provisions will provide a wake-up call for public institutions.
"Once that trade treaty is implemented it's going to make today look like the good old days when it comes to what you could get away with," he said.