Losing Vendor Litigation (Part 3): “Champagne wishes and caviar dreams.”

Posted on August 9, 2011

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Initially Champagne was dismissed, not for stealing money, but for approving transactions for which he had no authority. But he knew that as soon as he was out of the building, the audits would turn up trouble. Champagne flew to the Turks to be with his family, and to wait for the mess to hit the fan. It didn’t take long. The RCMP launched a criminal investigation and searched his Ottawa-area home. The government demanded full repayment from Hewlett-Packard of all the fraudulent contracts that had flowed through the company and its predecessors over the past decade. H-P initially balked, saying that it too had been victimized. But soon it gave the government a cheque for $146 million, and launched a series of lawsuits against Champagne and others implicated in the scheme, to recover its losses.

from July 2nd, 2009 MacLean’s article Champagne Wishes by Steve Maich

The face of bureaucratic avarice

In yesterday’s post Losing Vendor Litigation (Part 2): Vendor Side Origins?, I discussed what Judy Bradt had referred to as legitimately and transparently winning buyer preference.

The concept is quite simple in that it is based upon the fact that people do business with someone they know, like and trust.  As pointed out in my Deloitte example, there is nothing wrong with a vendor investing the time to understand the challenges faced by a prospective government buyer and building a relationship around a sincere desire to solve the problem.

The trouble with the government tendering process is that it attempts to deny this immutable part of our human nature.  I mean would you want to do business with someone you didn’t like or believe could not do the job merely because of an artificial level playing field edict?  Talk about cutting off your nose to spite your face.  No wonder there is no shortage of anecdotal references to governments paying $400 for a $5 hammer.

However, and this is key, there is a point where a line can and is occasionally crossed in public sector procurement that ironically has little to do with the focus and intent of the level playing field concept and more to do with greed and feelings of entitlement.

It is important to make this distinction because by and large the vast majority of government procurement professionals are honest people who, although as suggested by Colin Cram during our 90-minute Roundtable broadcast on Transparency in Government Procurement, may be poorly trained and lacking motivation, are not malicious in terms of doing a poor job or willfully breaking the rules.

In fact, in many instances and based largely on the shifting moral sensibilities of the public and those elected to office, what is acceptable and arms-length one day becomes taboo and a dismissible action the next.  I am talking about tickets to a hockey game or being treated to a lunch.

Alternatively, and when compared to what has become one of the most notorious cases of avarice on the part of a public sector employee, such edicts relating to those referenced in the previous paragraph seem to be somewhat petty in a penny wise, pound foolish kind of way.  It’s like making sure that the air pressure in your car’s tires are at the right level while your engine is falling apart.

What is interesting about the case of Paul Champagne is that it is a story about which I have perhaps more insight than most, in that my company was contracted by a third-party service organization to manage the delivery of service parts to support the Department of National Defence IT infrastructure that Champagne was brought in to manage in 1992.

I think that it is important to emphasize the fact that my company did not have any direct dealings with Champagne, as our interaction was confined to those who did deal with him on a semi-regular basis.

It should also be noted that the fraudulent scheme through which Champagne used the system to siphon off $10 million a year into his personal account, did not involve the acquisition and delivery of the MRO service parts we had been contracted to oversee.  An important distinction in that malfeasance in the public sector rarely involves a deliberate intent to overpay for products or services.

However, the fallout from the Champagne fiasco did have a ripple effect that ultimately affected everyone involved with the DND IT contracts, including Hewlett-Packard who while admitting no wrong-doing, did pay a reported $146 million back to the government for their role in the invoicing scam.

I am also certain that at least in some form, the incident did contribute to the bankruptcy of what was at the time Canada’s largest IT integrator by cutting off an important revenue stream that could not be replaced.

Now to this point I have assumed that almost everyone reading this post will have a certain degree of knowledge regarding the Paul Champagne case and how the Department of National Defence funded a lavish lifestyle that included mansions in Canada and the Turks and Caicos for the intrepid public servant.  However, if you are not familiar with the scandal, I would encourage you to read the Maclean’s article, the link to which has been provided in the opening italicized paragraph.

Champagne's humble Canadian digs

The key reason that I am making reference to the Champagne fiasco is that it clearly demonstrates that while the government wastes needless cycles on maintaining the facade of a belt with suspenders transparency that does not reflect how business is done in the real world, the mint is being looted by way of avenues that for the most part are left unprotected.

Tying back into the theme of this series, the best way to combat the rising problem of vendor challenges and litigation is to do two things:

  1. Focus on training purchasing professionals within the government so that they are better equipped to conduct business in a manner that leverages the know, like and trust reality to deliver maximum value to the taxpayer and,
  2. Stop looking for the sliver of possible wrongdoing on the front lines, while overlooking the log that is at the heart of real and significant abuses of trust.

Until the public sector abandons the it is better to look good than to feel good approach to purchasing, vendors will continue to maintain a cynical eye through which to view the entire tendering process, resulting in a continuing decline in supplier responses and taxpayer value.

In Part-4 of this series, I will examine the every day fear factor associated with the misunderstood relationship versus best value equation that has led to the creation of many of the draconian rules surrounding the government purchasing process.  This includes providing you with tangible versus anecdotal data that is certain to surprise many.

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