Manitoba Hydro Single Source “Controversy”: A Time For Answers Over Headlines

Posted on March 10, 2016

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get-facts

There is an old saying that “a little knowledge can be a dangerous thing.”

However, I believe that the real danger is in the inability or unwillingness to ask the right questions.

Take for example the recent CBC News headline regarding the Manitoba Hydro deal with Tetra Tech.

Under a suggestively accusatory $85M contract with Manitoba Hydro was not tendered banner, it was reported that the Crown Corporation had awarded a contract to a supplier without holding a competitive bid.

So starts the fire . . .

When Hydro then refused to disclose why the single source deal was justified due to “competitive reasons,” the media sounded the alarm. This brought in Todd MacKay from the Canadian Taxpayers Federation, and Auditor General Norm Ricard, both of whom felt compelled to raise the proverbial red flags.

“I’m literally trying to think through and just imagine what the possible justification for this could be. First of all, to do tens of millions of dollars in contracts without shopping around to get the best deal, and then secondly to keep that a secret. What possible justification can there be for that?” – Todd MacKay, Canadian Taxpayers Federation 

Here comes the gasoline cans . . .

Not quite satisfied with their “reporting” efforts to that point in time, CBC News then runs a story on the same day, with the headline Brian Pallister calls NDP use of single-source contracts an ‘epidemic’. For those who don’t know, Brian Pallister is the Opposition Leader from the Province’s PC party. That’s right, the party that is looking to get elected later this year.

Now we have a fire!

But perhaps we should pause for just a moment, and think about what we know and don’t know, before making that 9-1-1 call to the public. Although, and based on the PC Party’s Facebook Page in which all citizens are called upon to sign a petition  to give the ruling NDP party a “time-out,” that ship has probably already sailed.

There are however, still compelling reasons to think this thing through.

Besides the issues surrounding the absence of any meaningful data to support the universal condemnation of single source contracts – which were discussed at length in my previous two posts, it appears that no one bothered to ask the right questions.

If they had, they might have discovered the following facts – and yes, facts can get in the way of a good news story:

  • The $85M million contract – which spans an anticipated period of 6 to 7 years through to 2021, is not a locked-in amount. In other words, there is an approval to spend up to $85M million during that period, not a commitment to do so. In fact Manitoba Hydro is not bound to any minimum spend guarantees.
  • Since the contract was first awarded to Tetra Tech in 2014 – approximately 2 years ago – the Crown Corporation has spent, in actual dollars – between $3M and $5M, or less than 10% of the total budgeted amount. Perhaps I digress here, but something tells me that the headline $3M to 5M contract with Manitoba Hydro was not tendered, isn’t as catchy as the $85M headline.
  • Besides the fact that the contract can be cancelled at any time – I will have to confirm if there are any penalties associated with early cancellation, but none were mentioned to me at this point – Hydro is actively looking for ways to lower the $85M amount through the increased utilization of their in-house resources. From what Hydro spokesperson Scott Powell told me during our phone conversation earlier today, the original budgeted amount has already been adjusted downward. While he could not provide me with an exact number in terms of how much has already been shaved from the original $85M budget, Powell indicated that Hydro’s priority is to utilize their current staff as much as possible. This means that downward adjustments will likely continue until the contract’s end.
  • Even though the CBC News article did report that “Over the past five years, Hydro has awarded 2,127 single-sourced contracts” totaling $463M or, approximately “five per cent of Hydro’s total procurement,” they failed to provide any meaningful context regarding these numbers. Is 5 percent a reasonable figure, or is it as described by Opposition Leader Pallister, a sign of a growing and problematic epidemic? Even though I still have some more research to do, according to the 2015 Annual Review of Government Contracting from the National Contract Management Association (NCMA) and Bloomberg Government*, Pallister’s use of the word “epidemic,” is somewhat overly dramatic. While you can access the report through the provided link, ponder these numbers; While “multiple-award, fair-opportunity solicitation procedures are being used for an increasing share of federal contract dollars,” single source solicitations – which dropped slightly between 2013 and 2014 – still accounted for 29% of the total. Here is an irony that immediately caught my eye . . . even though single source solicitations dropped, the number of protests rose in 2014 for the first time in 5 years. According to the report, the reason for contract challenges is linked to a decline in contract spending. This leads into my final point.
  • Scott Powell indicated that he would get back to me regarding the debriefing process for the unsuccessful bidders. This is important because a proper debriefing not only provides the suppliers who were not selected with the reasons for Hydro’s decision, but also provides them with valuable intelligence that can better position them to be successful with future bids. This being said, the fact that not a single supplier has filed a protest of any kind speaks volumes. It is an example of how silence can indeed be deafening.

Bloomberg Gov Report

There is of course still more research to do, including gaining a better understanding of the elasticity of the pricing model within the contract itself. Powell promised to get back to me with an answer to this question. Once I have that information, I will explain why I asked for it in a follow-up post.

In the meantime, the only other question that remains is why did Hydro choose to enter into an $85M budget arrangement spanning 6 or 7 years – I use the term arrangement because the Crown Corporation is not contractually locked into spending a minimum amount, let alone $85M.  Would it not have made more sense to do a series of smaller annual bids?

The option to do small bids as opposed to a large single bid certainly makes sense since “Hydro’s corporate policies” per the CBC News article “dictate that single source contracts of up to $5 million can be awarded by the president alone, but above that amount they must be approved by the board of directors.” Given that Hydro has, over the past 2 years, spent a grand total of $3M to $5M – which is well under the spend radar screen – they would have likely avoided this heightened public scrutiny had they gone the series of small bid route.

The reason is simple . . . because it was deemed that this was the best and most efficient way to serve the needs of the Province and its citizens. In short, this was not a decision of convenience or political expediency. It was a sound decision based upon getting the job done.

hydro

* Important Note: the National Contract Management Association (NCMA) and Bloomberg Government report is a U.S.-based Report pertaining to U.S. government spending. While I am continuing my research relative to a similar-type Canadian report, it does provide a point of reference that was previously lacking.

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