Chronic overcharging has cost Feds $100M, says report
by Jordan Press, The Canadian Press
An ongoing government crackdown has revealed habitual over-charging of the federal treasury in the delivery of government contracts awarded to some of Canada's biggest companies
OTTAWA—Federal auditors have found about $100 million that shouldn’t have been paid to companies because contractors overcharged the government, or because the payments were deemed to be part of “excessive profits,” newly released documents show.
The $100 million figure, calculated as of March 31, 2015, was the cumulative total from three years of reviews of contracts that turned up evidence the government has been routinely overcharged.
The documents, obtained by The Canadian Press under the Access to Information Act, show that more than 50 contracts reviewed by officials at Public Services and Procurement Canada revealed issues with, among others, Irving Shipbuilding and aerospace giant Bombardier.
A team of 34 auditors reviewed $7.3 billion worth of contracts during the 2014-15 fiscal year and found $6 million in over-payments for work and $66.3 million related to excess profits, adding to amounts identified in the previous two years.
Officials censored portions of the documents detailing how much each company owes or has paid back, saying it is confidential commercial information.
Public Services and Procurement Canada has yet to respond to questions about the report.
The work detailed in the report is the focus of an ongoing government crackdown on habitual over-charging of the deep-pocketed federal treasury, much of it largely a result of years of questionable defence procurement practices that saw the prices of contracts go up without much push-back from military officials.
The key, auditors say, is to catch over-payments before work is concluded because after that “there is little incentive for a contractor to return funds.”
Officials have recouped about $6 million from companies during three years of work for the special unit set up to police procurement agreements.
Between April 2014 and March 2015, the government recouped $3.1 million from four contracts. Three of the four contracts were military procurements, including a $531-million contract to upgrade Canada’s four diesel-electric submarines and a $566-million contract for fixed-wing aircraft repair.
Again, the officials censored how much each company paid back.
Recovering money remains a challenge, the report says. An accompanying briefing note prepared for the top civil servant at Public Services and Procurement Canada lists the problems: “Some of the factors at play are entrenched business practices, disagreements in interpretation on the application of Canada’s contract pricing framework, agreeing to fair profit recognition of contractual risk, and difficulties measuring incentives for innovation and profit sharing.”
The most recent review of selected contracts turned up only one over-payment, attributed to a multi-year contract with SNC-Lavalin that the forerunner of Public Services and Procurement Canada signed to have the company manage federally-owned buildings.
The documents suggest other issues were identified during the review, but that information too has been removed, leaving questions about what auditors found.
The company itself had questions about its inclusion in the documents. SNC says it provided the government with annual audits to verify the accuracy of charges, and none raised concerns about over-charges to the government.