Federal government flouted rules when awarding McKinsey contracts: AG report

The Auditor General of Canada says the federal government flouted proper contracting policies and was unable to show it got value for money when awarding $209 million in contracts to consulting firm McKinsey & Company.

“Across the 97 contracts awarded to McKinsey & Company, we found frequent disregard for procurement policies and guidance and that contracting practices often did not demonstrate value for money,” Auditor General Karen Hogan said in her spring report. 

Hogan’s office looked at all of the contracts awarded to the American consulting company by federal departments, agencies and Crown corporations between Jan. 1, 2011, and Feb. 7, 2023.  

Of the $209 million in contracts that were awarded, the auditor general says that $200 million was spent. Hogan said only about $8.6 million of the $200 million went to McKinsey & Company under the former Conservative government.

Last year, a Radio-Canada investigation found that the amount of money McKinsey & Company earns from federal contracts exploded since Prime Minister Justin Trudeau came to power. 

The audit of those contracts by Hogan’s office found that from 2011-12 until 2014-15, the company was awarded less than $5 million a year for professional services. That started rising in 2015-16, when it hit $10 million, before steadily increasing to more than $55 million a year by 2021-22. 

When the audit strips out the contracts awarded by Crown corporations to focus solely on government departments and federal agencies, the value of contracts given to the U.S. consulting firm in 2021-22 is just above $32 million a year.

Fraction of government spending on contracting

While that number is still dramatically larger than what the company received before the Liberal government came to power, it represents a tiny fraction of the total spending on government contracting. 

In 2015-16, when the Liberals came to office, federal agencies and departments awarded about $4.5 billion in professional service contracts, but by 2021-22 that had risen to more than $8.4 billion. This spending, however, only totals the areas of government contracting where McKinsey has also been given contracts. 

The audit says that nine out of 10 departments and agencies and eight out of 10 Crown corporations failed to properly follow proper procurement policies on at least one of the contracts they awarded. 

The audit also found that only 28 of the 97 contracts — worth about $91 million — were awarded through a competitive process.

Hogan’s report said that in six of the 28 competitive contracts, the bid was “structured to make it easier for McKinsey & Company.” 

Her audit also found that in 10 of 28 competitive contracts  — which were worth $13.7 million — there was insufficient documentation to properly support awarding them to McKinsey & Company. 

The audit went on to say that without adequate documentation, it “is not possible to conclude that the organizations’ decisions in awarding the contracts to McKinsey & Company were sound business decisions or ones that provided value for money.”

Hogan calls out ‘overreliance’ on McKinsey

 The 69 contracts awarded to McKinsey & Company on a non-competitive basis were worth $117.7 million.

The audit says Public Service and Procurement Canada set up a standing offer in 2021 that allowed departments and agencies to award contracts through a non-competitive basis — 20 of the non-competative contracts were awarded using this vehicle. 

Hogan’s report evaluated that standing offer and determined it was “weak and did not demonstrate that McKinsey & Company would provide a unique service. 

“Under the national master standing offer, the organizations did not document justifications for the non‑competitive procurements, and Public Services and Procurement Canada did not require justifications prior to issuing the contracts,” the audit said. 

The audit found that in some cases, McKinsey & Company won contracts through a competitive bidding process but then were granted additional non-competitive contracts for “continuous or related work.” The total value of these add-on contracts were wroth $58 million the audit said. 

“Continuing to award non‑competitive contracts to the initial supplier may be perceived as an overreliance on that supplier, and opportunities to maximize value for money through competitive bids may be lost,” the audit found. 

Hogan’s office also looked at a sample of 33 contracts in an effort to determine whether the government got value for money. The audit found that in 19 of those contracts, there were issues preventing Hogan’s office from working out whether the federal government got what it paid for. 

The audit said issues preventing Hogan’s office from determining whether the federal government got value for money include: a failure to show why a contract was necessary; no clear statement of what the contract would deliver; and a lack of confirmation the government received all expected deliverables.

“Federal contracting and procurement policies exist to ensure fairness, transparency and value for Canadians — but they only work if they are followed,” Hogan said in a statement.