Question Period Note: Auditor General Review of Contracts Awarded to Mckinsey & Company

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About

Reference number:
DND-2024-QP-00012
Date received:
Jun 4, 2024
Organization:
National Defence
Name of Minister:
Blair, Bill (Hon.)
Title of Minister:
Minister of National Defence

Issue/Question:

How is National Defence addressing the Auditor General’s recent report on contracting with McKinsey & Company?

Suggested Response:

  • National Defence welcomes the Auditor General’s review.
  • We worked in close concert with our key partners at Treasury Board and Public Services and Procurement Canada to respond to the AG’s recommendations – and will continue to do so.
  • We have also taken our own steps to improve Conflict of Interest processes at National Defence.
  • We will be introducing a new mandatory two-step screening process for all new hires and internal promotions to ensure that conflicts are better identified.
  • We remain committed to enhancing transparency in our procurement practices.

If pressed on contracted services from McKinsey:

  • I recognize the importance of ensuring that contracts achieve expected results and value for money.
  • Over the years, McKinsey has provided digital transformation and benchmarking services to National Defence.
  • In many cases, McKinsey held the exclusive rights to these services.

Background:

Review of Contracts Awarded to McKinsey & Company

  • On June 4, 2024, the Auditor General released their review, which included the following recommendation:
    • Paragraph 51: To better ensure that those involved in the procurement process do not have conflicts-of-interest, organizations should implement a pro-active process to identify actual or perceived conflicts-of-interest in the procurement process and should retain the result of such a process as well as completed conflict-of-interest declarations.
  • Treasury Board Secretariat provided a Management Response to this recommendation on behalf of all departments.
  • DND continues to make progress on the Management Action Plan (MAP) items included in the two previous reports, and will continue adhering to Government of Canada procurement process and policies, and will implement any changes resulting from this report.
  • Specific references to National Defence in the report, are as follows:
    • 5.32 In addition, we found that National Defence and Employment and Social Development Canada waited more than a year for a non-competitive national master standing offer to be created with McKinsey & Company. Each was seeking benchmarking services that may have been available under other national master standing offers. It is unclear why the organizations chose to wait rather than using another procurement option
    • 5.45 National Defence and Employment and Social Development Canada each awarded 1 initial non-competitive contract using the exception under the Government Contracts Regulations that the value of the contract was below the set dollar threshold. This resulted in the use of another exception for the subsequent contracts of considerably greater value
    • 5.59 We also found that, in 2021, National Defence asked McKinsey & Company to send invoices before work was completed for 2 concurrent contracts: 1 in our sample of 33 contracts and 1 identified by the department’s own internal audit. Services were ultimately provided in both cases; however, department officials certified that the services were received and released payment before the services were delivered. This contravened the Financial Administration Act
    • 5.62 We found that, in November 2021, 2 contracts for National Defence under the national master standing offer included services beyond the scope of work that the standing offer was intended to cover. In our view, National Defence should not have used this procurement tool for this work, and Public Services and Procurement Canada should have challenged it when National Defence’s requirements exceeded the scope of the standing offer.

McKinsey & Company Services

  • McKinsey & Company provided benchmarking services, which consist of an independent review that measure performance against similar Canadian and international organizations. Functional tools, databases and expert support are used in order to identify gaps and opportunities for improvement.
  • These services include support and advice for the establishment of complex federal programs, such as digital modernization initiatives and other large organizational transformation projects.

Additional Information:

  • In total, National Defence had 15 contracts with McKinsey & Company between April 1, 2011, and March 31, 2023, valued at $29.6 million.
  • Of these contracts, 12 were awarded through Public Services and Procurement Canada’s National Master Standing Offer and one (1) by National Defence through a non-competitive process.
  • On January 18, 2023, the Standing Committee on Government Operations and Estimates adopted a motion requesting the Auditor General conduct a review looking into contracts awarded to McKinsey & Company.
  • The review provided a single recommendation related to ensuring that those involved in the procurement process do not have conflicts-of-interest.