Province paid $13M to consultants to find $10M in savings — maybe

A government-hired consulting firm was paid millions of dollars by New Brunswick taxpayers, despite not saving nearly as much money as promised, according to the province's auditor general.  

Ernst & Young played a role in setting the terms of part of the contract the firm later bid on, which Kim MacPherson calls a conflict of interest.

The actual benefit to the Department of the $13 million consultant payments remains unclear at best.- Kim MacPherson, auditor general

The consultants began their work at the Department of Social Development under the previous Progressive Conservative government, but they continued to bill taxpayers after the Liberals took office in 2014 and after staff turnover in the department — indications of a "culture of complacency," MacPherson says in her report.

The original PC contract was for two years and Liberals could have used the 2015 extension to tighten its terms, she says, but they didn't.

MacPherson said the consultants were still working with the Department of Social Development as of February of this year.

Questions how work monitored

"The consultant was paid regardless of whether or not government implemented and achieved the savings solutions identified."

The facts show "a very troubling disregard" for how government contracts should be signed and monitored, the report says.

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Liberal cabinet minister Serge Rousselle said in the wake of the report that the government would implement MacPherson's recommendations.

He said the Liberals allowed the contract to continue in 2015 because "all that work had been done, so the department decided at this stage, it was better to finish the work with this consulting firm."

Included in Ernst & Young's billings was $1.9 million for two initiatives that were never implemented.

The consultants also earned a $97,000 "performance fee" for awarding a wheelchair-maintenance contract to the Canadian Red Cross — a decision that created headaches for many disabled people on low incomes.

Much less saved than expected

That contract was supposed to save taxpayers $647,000 but the savings were only $116,500.

MacPherson presented the first volume of her annual report to a committee of MLAs at the legislature Tuesday morning.

The goal of the Ernst & Young work was to save $47 million, but by June 2016, the government said only $10 million had been saved. MacPherson said she couldn't be sure even that amount was accurate.

The government relied on the consultants to evaluate their own performance. They were paid for "anticipated" savings, not real savings, the auditor general says.

Benefits not clear to auditor

"The actual benefit to the Department of the $13 million consultant payments remains unclear at best," MacPherson says in her report.

According to the audit, the Department of Social Development used an "urgent/emergency" exemption to award Ernst & Young the first two phases of the contract in the first half of 2013, when the PC government of David Alward was still in office.

The "emergency" exemption allowed the firm to be hired without a tender.

But that exemption was created to allow fast action in situations such as floods or the failure of a heating system in a school during the winter, MacPherson says, not "to achieve aggressive budget reduction targets" — the reason cited in 2013. 

Conflict-of-interest concerns

Service New Brunswick staff warned Social Development the "emergency" exemption couldn't be used indefinitely.

"We feel that the longer one company is engaged under exemption, the more biased our evaluation becomes and could be challenged as an unfair process by the other qualified companies," the audit quotes Service New Brunswick staff telling the department at the time.

But the agency approved the contract anyway.

Service New Brunswick also warned that Ernst & Young would be in a conflict of interest because the consultants were already working with the department and were involved in drafting a tender for the next phase of the contract that they would bid on.

This "highly and inappropriately" created an advantage for the consultants, MacPherson writes, but the department went ahead.

Not the first time

Ernst & Young was awarded the $12.25 million phase three contract after three other bidders were disqualified, and it appeared to know it had landed the bid before Service New Brunswick signed off.

Similar issues came to light in MacPherson's 2012 report that showed consultants on an e-health contract had influence over whether they or their competitors were chosen for additional work.

She said Tuesday that five years later, it was "a good question" why the rules had not been changed to prevent that from happening again.

Rousselle said "there are certainly a lot of questions" about how the contract was awarded, "and I strongly invite you to go and ask those questions to Mr. Higgs."

Higgs was minister 

PC Leader Blaine Higgs was the finance minister at the time and was overseeing the government's process-improvement initiative.

Higgs wasn't available Tuesday but first-term PC MLA Ernie Steeves said he would ask former PC ministers who were around in 2013 what happened.

"I would say from the AG's report that there were things that obviously could have been done better," he said. "Those people made decisions that they thought were the best for New Brunswick at the time. Every government does."

The province also paid $700,000 more than what the Ernst & Young contract's purchase order allowed, MacPherson's report says. The consultants also billed $600,000 in travel expenses.

Complaints about Red Cross deal

The Red Cross contract, signed in August 2014, was the subject of complaints by several disabled New Brunswickers last year who told CBC News they had to turn to charities for help because the Red Cross was taking too long to provide services.

Those services included the provision and maintenance of wheelchairs and other equipment to help them be more mobile.

The New Brunswick Association of Occupational Therapists warned in December 2014 that the Red Cross lacked the ability to take over those services.

Service New Brunswick said last year that the contract was awarded "in a fair and consistent manner, not only based on pricing, but on all technical and service related requirements."

No automatic renewal

But last December the Liberal government said it would not automatically renew the Red Cross contract and would invite new bidders.

MacPherson's audit says the Red Cross contract was one cost-saving initiative developed by Ernst & Young. She said it created an "increased risk of inadequate service delivery" and fell short of its anticipated savings.

"Given that Social Development delivers social programs to those who are the most vulnerable in New Brunswick, you would have expected that they would assess, in implementing these changes, the impact on the client," MacPherson said, "and we found that they did not do that."