Federal government flouted rules when awarding McKinsey contracts: AG report | CBC News (2024)

Peter Zimonjic · CBC News

· Posted: Jun 04, 2024 10:28 AM EDT | Last Updated: June 5

The auditor general of Canada says the federal government flouted proper contracting policies and was unable to show it got value for money when it awarded $209 million in contracts to consulting firm McKinsey & Company.

"We found that organizations awarding the contracts showed a frequent disregard for federal contracting and procurement policies and guidance," Auditor General Karen Hogan said Tuesday as she deliveredher report oncurrent and former federal governments' use of the U.S. based consulting firm.

"We also found that each organization's own practices often did not demonstrate value for money."

Last year,a Radio-Canada investigation found that the amount of money McKinsey & Company earns from federal contracts exploded after Prime Minister Justin Trudeau came to power.

Hogan's office looked at all of the contracts awarded to the company by federal departments, agencies and Crown corporations between Jan. 1, 2011and Feb. 7, 2023.

WATCH | Canada's AG blasts federal contracts awarded to McKinsey:

Of the $209million in contracts that were awarded, the auditor general says that $200 million was spent. Hogan later told a parliamentary committee that only about $8.6 million of the $200 million went to McKinsey & Companyunder the former Conservative government.

Hogan told reporters that her audit found both the current government and the previous Conservative governmentdidn't always complywith procurement rules and failedto demonstrate value for money.

"We saw non compliance, either with procurement rules or difficulty demonstrating value for money, throughout the whole 12-year period of time and it was in almost all organizations," Hogan said.

Hogan's office found that from 2011-12 to 2014-15, the company was awarded less than $3million a year for professional services. That started rising in 2015-16, when it hit $10 million, before steadily increasing to more than $55 million a year by 2021-22.

When the audit strips out the contracts awarded by Crown corporations to focus solely on government departments and federal agencies, the value of contracts given to the U.S. consulting firm in 2021-22 is just more than $32million a year.

McKinseyaccounted for fraction of government spending

While that number is still dramatically larger than what the company received before the Liberal government came to power, it represents a tiny fraction of total government spending on the types of services McKinsey provides.

In 2015-16, whenthe Liberals came to office, federal agencies and departments awarded about $4.5 billion in professional service contracts, but by 2021-22 that sum had risen to more than $8.4 billion.This spending only includes services in the areas of government contracting where McKinsey provides comparative services.

The audit said that nine out of 10 departments and agencies and eight out of 10 Crown corporations failed to follow proper procurement policies for at least one of the contracts they awarded.

The audit also found that only 28 of the 97 contracts — worth about $91 million— were awarded through a competitive process.

Hogan's report saidthat in six of the 28 competitive contracts, the bid was"structured to make it easier for McKinsey & Company."

Her auditalso found that in10 of 28 competitive contracts—which were worth $13.7 million—there was insufficient documentation to properly supportawarding them to McKinsey& Company.

Hogan calls out 'overreliance' on McKinsey

The 69 contracts awarded to McKinsey & Company on a non-competitive basis were worth $117.7 million.

The audit says Public Serviceand Procurement Canada set up a standing offer in 2021 that allowed departments and agencies to award contracts through a non-competitive basis— 20 of the non-competative contracts were awarded using this vehicle.

Hogan's report evaluated that standing offer and determined it was "weak and did not demonstrate that McKinsey & Company would provide a unique service.

The audit found that in some cases,McKinsey & Company won contracts through a competitive bidding process but then were granted additional non-competitive contracts for "continuous or related work." The total value of these add-on contracts were wroth $58 million the audit said.

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"Continuing to award non‑competitive contracts to the initial supplier may be perceived as an overreliance on that supplier, and opportunities to maximize value for money through competitive bids may be lost," the audit found.

In her press conference Tuesday,CBC asked Hogan if she thought there was a perceived conflict interest between the Liberal government and McKinsey related to the firm's former managing director, Dominic Barton.

Barton also served as Canada's ambassador to China and the chair of the Liberal government's economic advisory committee.

"I think there's a theme through some of these reports around managing well conflict of interest," Hogan said. "Sometimes it's real and sometimes it's apparent or perceived and all should be treated with equal importance."

Hogan said she "didn't see any ministerial involvement" that directed contracts to McKinsey.

Hogan's office also looked at a sample of 33 contracts in an effort to determine whether the government got value for money. The audit found that in 19 of those contracts, there were issues preventing Hogan's office from working out whether the federal government got what it paid for.

"Federal contracting and procurement policies exist to ensure fairness, transparencyand value for Canadians — but they only work if they are followed,"Hogan said in a statement.

The audit said issues preventing Hogan's office from determining whether the federal government got value for money include: a failure to show why a contract was necessary;no clear statement of what the contract would deliver; anda lack of confirmation the government received all expected deliverables.

Minister of Public Services and Procurement Minister Jean-Yves Duclos acknowledged the problems cited by the audit and told reporters Tuesday his department is working to improve how federal contracts are managed.

He said his department has made it a requirement that all documents and information related to contractsare kept on file, and has improved the criteria for standing offers.

"We are committed to protecting the integrity of procurement and expect public servants in all departments to operate at the highest standard and prioritize value for money for all Canadians," he said.

A spokesperson for McKinseysaid that Hogan's report does not say the company acted inappropriately in pursuing government contracts.

"We stand by our work and are confident that we both satisfied the needs of our government clients and delivered value for money," the spokesperson said in an emailed statement.

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