Implementing Through

Others: Agencies,

Third Parties and Contracting

Andrew GrahamSchool of Policy Studies

Queens University

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Agencies, Boards, commissions etc. within the Governmental entity

Why all this complexity in how governments organize themselves?• Agencies - LCBO• Boards – Ontario Geographic Names Board• Commissions • Councils • Authorities

All of these and many others are known as having an arms-length relationship to government? Why create these entities?

History• Some agencies have existed for a long time• Recent growth has been in response to be innovative in

delivery• Non-strategic and sporadic• Often in response to bureaucratic entrepreneurialism• Often in response to governmental drive – NZ and UK

good examples• A bit of the steering and rowing thing for ministries• Growth of shared service platforms within and across

government• Innovative funding arrangements

Major sector of government• Think health and education• Power utilities• Agencies, boards and commissions• Bridge authorities• Proliferation: e.g. 250 in Alberta, 560 in Ontario• Often linked to funding and whether the agency’s activity

is on the books

Alternative Means of Delivery• Instruments concepts: built upon the notion that the desired outcome is known, that there in fact instruments and that they can sustain inherent accountability

• Traditional departmental model just one form of organization/authority/treasury axes of delivery

• Making the choice and managing it takes a systems approach, i.e., the instrument cannot stand alone from the context in which is works.

Just what is an arms-length agency…..

• Established by government but not part of a government department,

• given responsibility to perform a public function,• accountable to government,• some degree of autonomy from government,• government holds the primary power of appointment.

Types of Agencies• Regulatory: these license, make rule, oversee a sector,

adjudicate, make quasi-judicial decisions: safety councils, securities commissions – Ontario Film Review Board

• Public Trusts: these administer provincial financial and other assets in public interest: Public Trustee, Arts Councils, conservation authorities

• Corporate Enterprises: provide and sell goods or service to the public in a commercial manner: post office, public banks

Types of Agencies• Service Delivery Agencies: provide and direct

government services: regional health authorities, school boards, child welfare agencies

• Advisory Agencies: provide advice to government: senior council

• Non-classified entities (I love this one even though it is actually pretty significant): not just an other category, these are agencies that are not subject to central government financial and administrative requirements: university and hospital boards as an example

• Public-Private Partnerships: funding comes from both government and raised in the private sector: Own the Podium

Agencies and Accountability• Unique purposes• Need degrees of autonomy: legitimate source of tension• Add complexity• Remain accountable• Do nothing to diminish ministerial responsibility

Care and Attention to Keeping Agencies in Line and Accountable• Unique governance

• Creating a board• Electing the board• Government representation on boards – pros and cons• Who hires whom?

• Continued tension part of the system• Clarity of mandate is key, but no final solution• Performance contracts and reporting

What this means to managing within an agency• Independence is important but can lead to isolation• Resources can be scarce• Administrative support can be multi-taskers• Focused on single line of business• Often a mix of bureaucrats and political appointments:

tensions

What this means to managing an agency relationship within a Ministry• Heavy or light oversight?• How to keep agency on line with government’s objectives• Ensuring that oversight is working – boards• Do they report to the Minister or the ministry? Concept of

portfolio management

What Could Possibly Go Wrong?

Let’s discuss the ORNGE case.

Case Study and Discussion: Shame Faced and ORNGE All OverHow Government Can Flub their Accountabilities for the Agencies They Create

The Creation of a New Agency• Intended to end confusion, overlap and lack of clarity in air ambulance services in Ontario

• To improve speed and safety in distance ambulance

• Consolidation dispatch• Upgrade fleet – move out of patchwork contracts

How it was structured• Legislative agency• Board of directors• CEO appointed – Dr. Mazza• Loosely written performance contract with Ministry of Health

• Given $150M from appropriations• Created as a corporation under Corporations Act

CEO Dr. Chris Mazza

What went wrong• Basic shift in orientation away from consolidation of services to selling them internationally

• Created a number of not-for-profit and for-profit companies to sell expertise internationally

• Moved executives into for-profit companies, outside government sunshine law

• Growth of cult of personality of CEO• Salary pumped up to $1.4

What went wrong• Given $450,000 loan to buy a house – to help with work

stress• Contracts for advisory services that he never provided• $10 M insurance policy paid for

• Hiring of questionable people as executives, including his former water ski instructor

• Major fleet purchase made – badly designed with too much equipment – no operational input

Bought two vanity motor bikes for public relations - $500,000

The Curious Case of the Dog in the Night – Who was watching at the Ministry?• Ministry of Finance audit sounded alarms• Minister asked Auditor General to go in• Could not access some accounts as they were in for-profits and AG did not have jurisdiction

The Curious Case of the Dog in the Night – Who was watching at the Ministry?• Reports of problems feeding into Ministry for more than a year - nothing done

• Where was the bureaucracy? Testimony is clear that some were very concerned and they were ignored.

• Who would take on Dr. Mazza?

Inevitable Fallout• CEO fired• Board fired• Interim rescue team• Collapsed all the for-profits• Call in the forensics and police – nothing yet

Swirl of accusations• “Fundamental absence within parts of the public sector of the

required skill set and competence in commercial and legal matters to properly understand and manage public-private partnerships.” – Alfred Apps, lawyer for Ornge, Legislative hearings.

• “It came as a surprise given that it was very clear from the get-go this was to be a public sector, not-for-profit organization and to provide a much better integrated delivery system that was recommended in a series of reports. That had always been the intent going in… Where this got to was quite a departure from where this started.” – Hugh MacLeod, former ADM, Health

• “I believe Ornge can best be described as a rogue agency. The Ornge management quietly attempted to restructure the not-for-profit Ornge into a for-profit corporate entity that would serve their interests and obscure the lines of accountability and the flow of money.” – David Kaplin, former Minister of Health and Long Term Care

From the luxurious perspective of hindsight, what went wrong here in terms of: •Design of the arms length arrangement?•Monitoring and control?•Governance and oversight by the Board•Governance and oversight by the Ministry?•The mix of other factors that can lead to such disasters?

 What are the take-aways from this situation, with respect to:•Providing clarity in the establishment of special purpose agencies. •Role of oversight by supervising departments that created them. •Role of boards of directors when they are created. •How to sustain accountability and transparency. •Role of regular reporting, audits and systems that ensure a focus on the mission for which they were created.

The contracting world

Some Basic Realities• Reality: Government is reliant on support contractors – and for

more than just administrative or technical support.

• Reality: For mission success, government employees must understand the government/contractor relationship.

• Reality: Government employees must understand the rules and recognize that risks.

• Reality: There is no such thing as a contracted employee.

• Reality: Administering contracts is anything but a costless piece of work.

That Doesn’t Mean Contractees are Pariahs

Different Delivery OptionsDifferent Delivery Options

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A Spectrum of Delivery Options

• Internal production• Administrative decentralization• Using broader public sector approach• Other public sector provider• Creating a special agency• Shared services – common backroom platforms

• Purchasing good or service• Contracting in various forms

Divestment/privatisationPublic functions transferred from government to voluntary, private or non-governmental institutions.

Governments contract out or fully privatise public services or administrative functions . Often accompanied by:

• Deregulation reducing legal constraints in service provision

• Competition among private suppliers for services previously provided by the government or regulated monopolies.

Some things your

organization just can’t do.

Like have a government committee build and airplane…

The Value Chain

Supportactivities

Primary activitiesInbound logistics Materials receiving, storing, and distribution to manufacturing premisesOperations Transforming inputs into finished products.Outbound logistics Storing and distributing productsMarketing and Sales Promotions and sales forceService Service to maintain or enhance product valueCorporate infrastructure Support of entire value chain, e.g. general management planning,

financing, accounting, legal services, government affairs, and QMHuman resources management Recruiting, hiring, training, and developmentTechnology Development Improving product and manufacturing processProcurement Purchasing input

Acquisition Planning

• Key to successful procurement• Looking at:

• What do we need? (user)• How are we going to get it? (contracting)• Who bears the risk and at what cost?• How are we going to pay for it? (finance)• Are we following the rules? (legal)

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Acquisition Planning:Basic Contract Types

• Two Basic Types:• Fixed Price• Cost Reimbursement

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Acquisition Planning:Basic Contract Types

• Fixed Price Contract• Set, predetermined price• Who bears the risk?

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Acquisition Planning:Basic Contract Types

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•Cost Reimbursement or Cost plus

•Government pays contractor’s costs of performance (plus a “fee”)

•Who bears the risk?

Acquisition Planning: Contract Types — What else?

• Incentive Contracts: special bonus for performance or timeliness, conversely penalties for failure to meet target or timeliness

• Level-of-Effort Contracts: contractor provides a specified level of effort over a stated period of time, is paid a fixed amount, regardless of result

• Variable Quantity Contracts

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Romancing the deal• Don’t fall in love.• It all costs money.• Vagueness on

outcomes kills.• Diplomacy and

negotiations for an end.

Three Main Factors that Affect Public Sector Contracting Decisions

Table Talk

What are some of the key questions that you as a manager would want to ask to ensure that

you had the capacity to effectively manage arms length, third party

or contracted delivery?

What do you need to make a partnership, contract, employment relationship work?• Agreement on goals• Agreement and clarity on roles• Governance of the relationship• Metrics of success, performance• Course correction methodology• Wiggle room/ problem solving space

From the Australian Government• Has the importance of procurement and management of

contracts been identified, acknowledged and built into implementation strategies?

• Has adequate consideration been given to what procurement strategy best supports long-term service delivery objectives?

• Have checks been made that the supply industry understands the agency’s approach and requirements? Are they achievable?

• Does the senior responsible officer have access to the right skills and capability to handle complex procurement and contract management.

From the Australian Government• Will evaluation of proposals have sufficient regard to

long-term value for money (especially intended policy outcomes) as opposed to initial price?

• Has sufficient attention been given to any ethical or probity issues that may flow from procurement activities, as well as any risks for the contractor in service delivery?

• Has enough attention been given to getting the contract right?

• Are risks and risk mitigation responsibilities appropriately allocated through contractual arrangements?

• Will there be effective longer-term contract management?

Risks in Contractual Relationships • By-passing rules/competitive process (verbal contracts)• Sole source contracts (preferential treatment)• Inappropriate relationships with contractors/suppliers• Kickbacks/secret commissions• Conflicts of interest (accepting gifts/hospitality, supplier relative or

friend)• Biased bid evaluation – lack of/weak due diligence

Risks in Contractual Relationships • Excessive or ‘customized’ contract requirements to fit a particular supplier

Information not equitably distributed to all potential bidders

• Accepting sub-standard work/performance from contractors

• Acquisition card fraud, abuse, misuse• Lack of adequate controls, Inappropriate hiring of former public servants

• •Generic risks – corporate cynicism, poor ethical standards

A more complex world…

Issues in Contract Management• The smart buyer – getting the ask rightThe smart buyer – getting the ask right• Increasing scrutiny and pre-granting controlsIncreasing scrutiny and pre-granting controls• Increasing demand for a share of the business or Increasing demand for a share of the business or

at least equal accessat least equal access• Responsibly for deliverables stay vested in the Responsibly for deliverables stay vested in the

public sector organizationpublic sector organization• Transfer of administrative costs to the sellerTransfer of administrative costs to the seller• Fragility of not-for-profit sector in new regimesFragility of not-for-profit sector in new regimes

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Do not treat contractor employees as if they were government employees:

• Do not direct them step-by-step: and ask for a deliverable• Do not supervise their performance: give feedback• Do not “hire” them• Do not “fire” them• Do not “approve” their leave• Do not discipline• Do not include them in your training classes (unless contract

specifically allows)

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Contractors in the Workplace

Experiences?

Some things industry says about government contracting

• It won’t happen overnight but then there will be rush to get things done.

• It is recognized and accepted that government is not always easy to deal with.

• It is recognized that procurement standards are inconsistent.

• Rules can change dramatically overnight.• What’s an exogenous business factor can be vital

to a government, e.g. foreign corruption charges.• Pop-ups (surprise RFPs and RFIs) and Flip-overs

(sudden withdrawals or changes) are common and can be really expensive for bidders.

• There is no long term.

Above all make sure you see eye to eye