RCMP Watch

The Ottawa Citizen

Auditor General Sheila Fraser rarely gets accused of getting it wrong, but a major federal contractor strongly disagrees with her latest report, which looked into the bungling of a $1-billion deal to move Canada’s military, RCMP and public servants to new postings.

So does Public Works, the government’s main procurement arm, which takes issue with Ms. Fraser’s drubbing of the department’s handling of the bidding process.

“I’m told it has happened before, but it’s the first time I’ve seen anyone roll in, look the auditor general right in the eye and say, ‘No, you’re wrong, we’re right.’ Yet that’s where we are,” said NDP MP David Christopherson.

“At some point, we’re going to have to come to grips with this issue of the current contract.” Sharon Sutherland, visiting professor at the University of Ottawa who specializes in accountability, said this unchallenged power of the auditor general has been growing since the 1970s to the point that parliamentarians have effectively surrendered their jobs as watchdogs of government spending to the unelected auditor general.

“We have two spending watchdogs, but the public accounts committee should be the top dog, the dog trainer and alpha dog to the auditor general,” Ms. Sutherland said. “But, that’s not case in Canada. It’s the other way around.” Graham Badun, president of Royal LePage Relocation Services, said Ms. Fraser and her audit team misinterpreted the bid documents, which they concluded unfairly favoured Royal LePage. He also challenged the auditor general’s claims that Royal LePage, which won the contract, overcharged for a service it promised to provide for free.

“It boils down to a difference in interpretation,” Mr. Badun said.

“And all we’re asking for is a process to go through this. And, with respect, the auditor general’s process focuses on the government side and doesn’t look at the contract and the nature of commercial disputes.” It’s the latest complication in the handling of a contract doomed to controversy from the start. It sparked an internal Public Works investigation over allegations of conflict of interest when a key bureaucrat involved in the contract went on a Caribbean cruise with a Royal LePage executive. The contract has since been cancelled, re-tendered and then dragged through the Canadian International Trade Tribunal before a parliamentary committee turned it over to the auditor general to investigate.

Now, it’s landed back in the lap of the committee to sort out.

Royal LePage’s attack on the auditor general puts MPs on the public accounts committee in a highly unusual situation. The committee historically places absolute faith in the auditor general, who enjoys unparallelled credibility among MPs of all parties. Her reports are rarely challenged and the committee typically accepts the office’s version of events when probing issues and recommending changes to government.

Some MPs tried to stop Royal LePage and its main contender, Envoy Relocation Services, from testifying during its hearings because the auditor general only investigates government agencies and never extends its probe to the private sector. They argue the bidders’ differences should be settled in court. Envoy has already threatened to sue Public Works for an unfair bidding process.

“It’s a contractual interpretation and we’re not going to rule on that,” said committee chairman, Liberal MP Shawn Murphy.

Ms. Sutherland said the dispute also drives home the perils of contracting out government services or operations once done by bureaucrats. The government slowly lost its in-house expertise in relocating its workers after turning the job over to Royal LePage in 1999. That means no one in government knows the business well enough to write an airtight contract or catch big errors or inconsistencies, which can also give the advantage to the incumbent supplier that knows the work inside out.

“My guess, this isn’t dishonesty or stupidity, but just that the business isn’t familiar to people in the public service anymore, so mistakes were made,” she said.

When MPs return in January, they face two big issues: Was the relocation contract awarded fairly to Royal LePage or did wrong information in the bid documents give the company an unfair advantage? The committee has held several hearings trying to get to the bottom of how erroneous information got into the documents and why Public Works didn’t catch it.

At first, Ms. Fraser steered clear of offering any opinion on whether the contract should be re-tendered, but that position shifted when assistant auditor general Ronald Campbell recently told MPs that re-tendering may be the only way to protect the “integrity” of the government’s contracting process.

If the committee decides the process was unfair, the question is whether Conservative MPs would dare recommend re-tendering the contract when Public Works Minister Michael Fortier has already decided to continue the contract until it expires in 2009. If it does not recommend re-tendering, the committee could recommend the government compensate Envoy or — as many expect — do nothing and let the courts decide. Many expect the committee will quickly drop the issue later this month.

The second dispute revolves around whether Royal LePage owes money to military, RCMP and federal personnel who kept their houses and hired property managers to take care of them during their postings. The section of the contract dealing with property management is at the heart of both disputes.

The auditor general argues Royal LePage’s bid promised transferees wouldn’t have to pay for property management services, so it should repay those who were charged for it. Royal LePage, however, says the bid documents clearly say this cost will be picked up by the workers transferred.

Bidders were asked to submit a fee for managing the relocation of an employee, as well as the maximum rates they would charge for six other services — property management, appraisals, building inspections, realty services, rental and legal services. These were added to get the overall bid price. About 25 per cent of the bid’s overall score was price and the rest for technical merit. For property management, bidders were asked for the ceiling price they would charge to manage the properties of employees who didn’t want to sell.

But the auditor general found information in the bid on the volume of anticipated business for property management was wrong and grossly inflated. The military, for example, moves about 85 per cent of the 15,000 federal workers relocated every year and hardly anyone — less than one per cent — kept their homes and needed property management services. The bid documents, however, assumed 50,400 military personnel would need this service over the life of the seven-year contract.

Envoy based its bid on these numbers and estimated it would cost $48 million. Royal LePage, which as the former contractor had access to records on property management, bid zero for this service.

The auditor general argued a “zero” price meant homeowners should have received property management services for free, but her audit found they paid for it. Ms. Fraser argued Royal LePage should pay them back.

But Royal LePage says the auditor general’s conclusions are based on a misunderstanding of how the relocation program worked.

The program ran with two pots of money. It had a core fund, which covered Royal LePage’s fee for managing the service and all the “flow-through costs” charged back to the government, such as real estate commissions, appraisals, home inspection or legal services.

The only service that didn’t get paid out of the core account was property management services, which came out of “personalized accounts.” Employees being moved had personalized accounts, based on salary, to cover other costs associated with the move. They could keep all the money in that account if they didn’t spend it.

As a result, Royal LePage argues it bid zero to cover property management costs because they came out of the personalized accounts. They argued a bid other than zero would, in effect, double charge the government.

The company didn’t know how such wrong information got into the documents, but argued it had no bearing on its bid. Since fees were billed to the personalized account and not the government, it didn’t matter whether 20 or 2,000 people a year decided to keep their homes and hire property managers.

“We bid zero dollars for this service, since it had zero impact on the Crown’s total expenditure. Any bidder could have — in fact, every bidder should have bid zero for this service,” said Royal LePage vice-president Raymond Belair in a written submission to the committee.

It’s an argument that doesn’t wash with Envoy president Bruce Atyeo, who suggested Royal LePage bid zero because it knew the true volumes would be so low it could eat those costs or pass them onto real estate agents in its realty arm in exchange for letting them know about possible listings. Mr. Atyeo argues Royal LePage should be disqualified for bidding zero because the contract demanded bidders submit a price.

Royal LePage said it has reviewed all moves since it won the contract in 2004 and found 33 families hired property managers for a total of $51,000 in fees. Mr. Badun said the company is holding that amount in escrow and will pay the homeowners if it’s determined that Royal LePage misunderstood the documents.

And it looks like Royal LePage won’t have Public Works on its side. Richard Goodfellow, the bureaucrat who oversaw the bidding process, told MPs the contract was clear. With zero pricing, homeowners shouldn’t have paid for property management and the department will help recover those costs from Royal LePage.

By time the committee suspended its hearings for Christmas, Public Works was even changing its tune about the fairness of the bid.

“Do you believe it gave an unfair advantage to Royal LePage?” asked Mr. Christoperson.

“I think that in retrospect, yes, it probably would have,” said Ian Bennett, Public Works’ acting assistant deputy minister for acquisitions.