Ottawa often disregarded contracting rules in deals with McKinsey, Auditor-General finds

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Federal departments and Crown corporations showed a frequent disregard for contracting rules as they awarded global consulting firm McKinsey & Company more than $200-million in contracts since 2011, often without an open competition, Auditor-General Karen Hogan reported Tuesday.

The audit found that federal contracting practices involving the New York-based multinational often did not demonstrate value for money and officials did a poor job of tracking whether the government actually received everything that had been promised.

Speaking with MPs on the public accounts committee shortly after tabling her report, Ms. Hogan said that while the audit focused on contracts awarded to McKinsey, it highlighted the need for procurement officials to follow basic requirements and good practices.

“Federal contracting and procurement policies exist to ensure fairness, transparency and value for Canadians – but they only work if they are followed,” she said.

Opposition parties called for the audit after The Globe and Mail reported that the annual value of outsourcing contracts awarded to McKinsey by the federal government has climbed steadily under the Liberals.

The House of Commons unanimously approved a motion in February, 2023, endorsing a request by the Commons committee on government operations calling for an audit of federal contracts with McKinsey. The committee has held extensive hearings into federal contracting practices.

Throughout their study, MPs have heard from policy experts who question why Ottawa is spending billions more per year on outsourcing while also growing the size of the public service in recent years. Several other independent watchdogs, such as the Privacy Commissioner and the Public Sector Integrity Commissioner, are also investigating concerns related to how Ottawa manages private contractors.

Over the years, federal departments have turned to McKinsey for a wide range of issues, including health and welfare services, IT support, management consulting, scientific and research services, and temporary help.

Tuesday’s report said nine out of 10 departments and agencies and eight out of 10 Crown corporations failed to properly follow all aspects of their procurement policies and guidance on at least one contract. It also found that out of a sample of 33 contracts, 19 had one or more issues that prevented the organizations from demonstrating the contracts delivered value for money.

The report stated that auditors “found frequent disregard for procurement policies and guidance and risk to value for money across the contracts awarded to McKinsey & Company both by departments and agencies and by Crown corporations.”

It also found that 71 per cent of the 97 contracts were awarded without an open competition. The report expressed concern that some departments and agencies were not able to demonstrate that individual consultants had the necessary security clearances.

Ms. Hogan said at a news conference that one of the audit’s key findings was the frequent lack of justification by officials for awarding contracts without competition. “Competitive procurement processes should be the default and are there to ensure better value for Canadians,” she said.

In addition to the report on McKinsey contracts, Ms. Hogan also released a report focused on spending by Sustainable Development Technology Canada and a third report on whether laws against cybercrime activities are effectively enforced.

The Auditor-General reviewed 97 professional services contracts to McKinsey between 2011 and 2023. The value of the contracts totalled $209-million and $200-million was spent.

The contract spending has attracted considerable attention from opposition MPs in light of the company’s connections to the Liberal government under Prime Minister Justin Trudeau.

In its early days, the Trudeau government relied heavily on policy advice from Dominic Barton while he was the global head of McKinsey, and then later named Mr. Barton as Canada’s ambassador to China from 2019 to 2021.

Throughout 2016 and 2017, Mr. Barton served as both the head of McKinsey and the chair of a federal economic advisory council to then-Liberal finance minister Bill Morneau. Mr. Barton has denied any connection between his volunteer advisory work and the growth in federal contracting with McKinsey.

The advisory council was an influential voice in Ottawa, making recommendations such as the creation of an infrastructure bank and calling for significant increases in immigration that were ultimately adopted in whole or in part.

The government released a review last June that said there was no evidence of political interference in the awarding of contracts to McKinsey.

The Auditor-General’s report on McKinsey contracts did not specifically examine the issue of political interference and the report made no comment on that area. Ms. Hogan told reporters that “we didn’t see any ministerial involvement that would have directed contracts to McKinsey & Company.”

The report did call on departments and Crown corporations to strengthen policies related to identifying actual or perceived conflicts of interest in the procurement process.

Ms. Hogan’s report follows a recent review by Procurement Ombud Alexander Jeglic, who flagged concerns about “a strong perception of favouritism” in contracts awarded to McKinsey.

The Auditor-General’s report provided a breakdown of annual federal spending with all professional services providers. It said spending was steady at about $4.6-billion from the 2011-12 fiscal year until the 2015-16 fiscal year, when spending started to increase. Annual spending on all professional services providers reached $8.4-billion in the 2021-22 fiscal year and then decreased to $8.3-billion in 2022-23. Those amounts do not include Crown corporations and only cover categories that included contracts awarded to McKinsey.

Specifically with respect to McKinsey contracts, the report said spending by departments, agencies and Crown corporations increased from $817,000 in the 2011-12 fiscal year to a high of $55.1-million in the 2021-22 fiscal year, and then decreased to about $46.8-million in the 2022-23 fiscal year.

The federal Treasury Board and several Crown corporations said they accepted the report’s findings and recommendations.

McKinsey said in a statement that the company stands by its work.

“Consistent with prior reviews, the Auditor-General does not suggest that McKinsey & Company Canada pursued its contracts in an inappropriate manner or did anything other than follow the government’s procurement rules and respond to the government’s requests,” the company said in a statement provided by spokesperson Alley Adams.

Conservative MP Stephanie Kusie said in committee that the report illustrates the close ties between the Liberals and McKinsey.

“The infiltration of McKinsey in this Liberal government runs deep,” she said.

NDP MP Blake Desjarlais pointed out that the Auditor-General’s report shows rules were not followed under Conservative and Liberal governments.

Federal Procurement Minister Jean-Yves Duclos said the government accepts Ms. Hogan’s findings. He said the recommendations “will continue to guide the work already under way to ensure procurement activities are effective and well-managed.”

He also said in a statement that the standing offer with McKinsey, which allowed several departments to access McKinsey services, expired in February, 2023, and no standing offer is being renewed. He said his department has updated the training for contracting officials and the government is also strengthening the conflict-of-interest code for public servants.