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ACANs: A SOLUTION THAT BECAME A PROBLEM

by Gord McIntosh

About a year ago, the federal department of Public Works and Government Services Canada (PWGSC) decided that its bureaucrats needed a refresher course in ethics. So it went looking for an outside consultant to set up the course. And it did something criticized as unethical in finding that consultant. It awarded a contract to the Conference Board of Canada without public tender.

It then published something known in federal circles as an ACAN, or advance contract award notice..

Developed between 1989 and 1992 as a result of a complaint to the former procurement review board, ACANs are formal advisories to suppliers that the federal government intends to award a contract to a particular company or individual without a normal tendering competition. They were intended to add transparency so more suppliers would have a shot at selling to the government.

ACANs are usually posted for 15 days on MERX, the government's online tendering website. If suppliers, reading an ACAN, think they can do a better job of supplying the service or goods listed, they are invited to contact the department publishing the notice by the published closing date. If no one contests the notice, the contract automatically goes to the company specified in the ACAN.

To many, ACANs are a classic case of a solution becoming a problem. Critics include the House of Commons public accounts committee, the auditor general (AG) and the Canadian Federation of Independent Business (CFIB). Before ACANs, the Department of Supply and Services (DSS), renamed PWGSC, was simply required to publish a notice within 60 days of awarding a sole-source contract. But apparently it had trouble doing even that. In the complaint that sparked the procurement review board's recommendation to create ACANs, DSS did not get around to publishing such a notice until 139 days after the fact.

The AG says use of ACANs has been growing steadily since 1996. Today, sole-source contracting accompanied by an ACAN accounts for a fifth of all federal contracts worth more than $25,000. In 1997, federal contracts of $25,000 and more came to $3.9 billion, of which $1.34 billion were for sole-source or directed procurement. Of that, ACANs were used in more than half at $830 million.

To understand how ACANs work, think of a race where one contestant gets a head start, before others even know there is a race. Yet the federal Treasury Board Secretariat (TBS) believes using an ACAN is the same as holding a competition.

"If the procurement is transparent, if industry is aware of the opportunity and if they have the opportunity to participate, we believe that the contract should be deemed to be competitive," TBS official Alan Winberg told the House of Commons public accounts committee in 1999.

But TBS' policy prompts ridicule from the chairman of that committee, Alberta MP John Williams. "The government calls it competitive bidding, but it is a flawed process. If a person sees a contract on an ACAN that they feel is appropriate for their business, they have to dislodge the person who is already chosen. That is not a competitive policy."

The CFIB says ACANs are the number one complaint of their members who do business, or try to, with Ottawa. Garth Whyte, the CFIB's senior vice president of national affairs, says ACANs do little to clear up the mystery that clouds the federal procurement system. And because of that, a lot of CFIB members don't bother trying to sell to government.

"The big issues are 'I don't know where to go. I didn't hear about the contract. By the time I heard about the contract it was already given to somebody. I didn't have a contact person.' And there is no appeal process," Whyte says.

Williams goes further. "This is how corruption creeps in. Things that are a nod and a wink to the rules are becoming systemic in the government."

Under federal tendering rules, there are four reasons the government can bypass the public tendering process - contract value under $25,000, pressing emergency, only one party is capable of filling the contract or it is not in the public interest to solicit bids. In a November 1999 report, auditor general Denis Desautels declared ACANs have become a "fifth exemption."

"Formally, the rules say before you can use an ACAN, you should have done due diligence to satisfy yourself that sole sourcing is justified," says Hugh McRoberts, principal of the audit operations branch in the AG's office. "What is happening is that people are increasingly of the view, 'we'll just throw the ACAN out there and if there is no challenge it must have been right'."

The AG has been hammering away at ACANs and directed or non-competitive procurement in general for several years, as have others. "This is something the [AG] feels very strongly about," says McRoberts. "Let's not pretend in any way, shape or form that this a substitute for open tendering."

The Commons government operations committee first raised an alarm about misuse of ACANs in 1995 to no avail. In December 1998 the AG reported that, in an audit of 26 sole-source contracts valued over $25,000 issued by five departments, the rules weren't being followed and then, in November 1999, that 90 percent of 50 ACANs examined did not comply.

According to the AG, this is not a story of government departments being able to exploit loopholes in the rules. There isn't much wrong with the rules; government departments simply aren't following them.

The AG estimates that 90 percent of all ACANs can be challenged. Yet few suppliers do, often because a written challenge must be launched by the closing date of the ACAN, usually 15 days from the posting. Of 522 ACANs posted by four departments in 1998, the AG found only 35 written challenges. Of those, 16 challenges were withdrawn and the departments dismissed 10 as invalid, cancelled five and accepted only four.

Government suppliers have the right to go to the Canadian International Trade Tribunal (CITT) for redress, but few are willing to take on the legal expense and potential bad will resulting from litigation. CITT officials say just three sole-source contracts were challenged in the last fiscal year.

Both the AG and the public accounts committee urge the government to set up a system of independent arbitration for ACAN challenges - something at which TBS balks. As well, MPs on the committee want the minimum posting period raised to 30 days from 15.

As for how TBS would respond to the criticism, we will have to wait. Requests for interviews with TBS officials were refused. However, PWGSC, through Janet Thorsteinson, director general of supply program management, defends ACANs, saying, "Suppliers are provided an opportunity, via the ACAN process, to advise the department that they could also meet the requirement. Should a valid challenge be levied, the decision to sole source would be rescinded and the requirement contracted on a competitive basis."

Of 6,024 ACANs posted by PWGSC in the past year, 721 were challenged. Of that, 648 challenges resulted in an opening of tendering.

Under rules of parliamentary procedure, TBS had 150 days to respond to the public accounts committee report issued in June. TBS is under no obligation to follow either the committee's or the AG's recommendations, and if TBS' response to the AG's November 1999 report is any indication - it rejected all of the AG's major recommendations and said suppliers were free to use the courts - not much will be forthcoming.

The public accounts committee is puzzled over the intransigence of the department. "[TBS] must move beyond denial, admit there is a problem and take serious corrective action," MPs say.

Whyte says TBS should encourage government managers to lengthen their lists of potential suppliers instead of sticking with standbys. "How could it not become corrupted," he says. "You've got an official under stress who wants to get a contract done and has to get a certain quality. And so you get two or three contacts that you can depend on."

What is clear is there will be more strong words until the controversy on ACANs is over.


Gord McIntosh is a freelance journalist based in Ottawa, Ontario. He worked for over 20 years with The Canadian Press specializing in trade and finance and has been published in The Economist and Canadian Business among others.

Read more Common Cents columns.



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