Contracts related to McKinsey & Company: Standing Committee on Government Operations and Estimates—February 6, 2023
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Phoenix IBM and pay stabilization contract history
Context
This note focuses on vendor support on the Phoenix file (IBM/Innovation Challenge) as well as other pay stabilization procurement initiatives.
Note: All questions related to next generation human resources and pay solution are in a separate question period card developed by Shared Services Canada.
Suggested response
- The Government of Canada is committed to supporting employees and resolving public service pay issues as quickly as possible
- Public Services and Procurement Canada (PSPC) has put in place over 3,000 systems enhancements and fixes, which have helped move the pay system to a much steadier environment
- As a result, we have increased the overall system stability and improved performance in payroll processing
- We have and will continue to engage broadly with experts, federal public sector unions and the private sector to help further stabilize the pay system, and have strategic contracts in place to help us reach this goal
If pressed on the IBM contract history:
- in 2011 IBM was awarded the contract for the Phoenix pay system through an open and transparent competitive bidding process
- between 2011 and 2022, there were 50 amendments to this contract, for a total contract value of $545 million (taxes included). Amendments are a regular part of the contract management process and provides the flexibility to adapt the contract deliverables to meet program requirements
- in May 2019 PSPC launched a competitive procurement process seeking qualified suppliers interested in providing ongoing operational support for the Phoenix pay system, once the original 2011 contract with IBM Canada Limited ended in March 2022
- following a thorough evaluation of the 3 bids, it was determined that only IBM met the mandatory requirements. An independent fairness monitor observed that the procurement process was carried out in a fair, open, and transparent manner. The third party report is available on PSPC’s website
- PSPC negotiated technical, professional, software and support services to provide continuity to stabilize pay operations, and provide support services
If pressed on the McKinsey & Company contract for Accelerator Services:
- the McKinsey & Company contract for Accelerator services has helped increase the quality and productivity of pay processors at the Pay Centre by streamlining processes and standardizing work leading to increased efficiency, reduced processing times, and building greater capacity through new ways of working
- in addition, innovations in onboarding and training new recruits are expected to result in employees contributing to case closures sooner
- the work to date has resulted in substantial increases in the productivity and accuracy of work across the teams at the Pay Centre. For instance, as of December 7, 2022, the overall annual average number of cases processed by a compensation professional in a day has increased 14% compared to the same period in 2021
If pressed on the McKinsey & Company contract amendment award for Accelerator Services:
- in February 2020, McKinsey & Company was awarded a contract through an open, fair, transparent and competitive procurement process
- in total, 2 bids were submitted and evaluated prior to issuing this contract
- McKinsey & Company has provided expertise required to streamline processes and standardize work at the Pay Centre increasing efficiency and reducing processing times for pay transactions, and building greater capacity through new ways of working
- on November 1, 2022, PSPC exercised its final amendment of the Accelerator Services contract, to support the Pay Centre in updating their training and onboarding program for new employees
- the work will include a review of onboarding practices and a redesign of training based on adult learning best practices
Background
IBM contract and amendments
In June 2011, IBM was awarded the contract for the new pay system through an open and transparent bidding process with a fairness monitor. The initial investment to develop Phoenix was $309 million. This included the IBM contract, other professional services contracts and program costs (example: delivery costs for the Transformation of Pay Administration Initiative).
In May 2019, PSPC launched a competitive procurement process (ITQ) seeking qualified suppliers interested in providing ongoing operational support for the Phoenix pay system, once the contract with IBM Canada Limited ended in March 2022.
The ITQ was designed as an outcomes-based agreement where the contractor is responsible for delivering services based on our requirements and ensuring the Government of Canada receives what it needs for a fixed price.
In 2019 3 firms submitted responses to the ITQ Application Managed Services model for the Phoenix Pay System. Following a thorough evaluation of the 3 responses, it was determined that only IBM met the mandatory requirements published in the ITQ.
PSPC negotiated a new contract with IBM for the period from March 2022 until March 31, 2023, with a value of $108.9 million; and exercised the first option year from April 1, 2023 to March 31, 2024, with a value of $119.37 million; including taxes and contingency. The contract contains 10 additional 1-year options, that can be exercised on an as-needed basis.
An independent fairness monitor observed the procurement process was carried out in a fair, open, and transparent manner. The final report has been published on PSPC’s website.
We rely on current pay operations and system to ensure public servants continue to receive accurate and timely pay. Therefore, ensuring that ongoing pay stabilization activities are supported is a top priority for the Government of Canada.
Innovation Challenge–Pay stabilization procurement initiatives
As part of its efforts to accelerate pay stabilization, PSPC has engaged the private sector in innovative solutions to help stabilize the pay system. This iterative approach includes Robotic Process Automation (RPA) and Accelerator Services.
Robotic Process Automation–Request for proposal
RPA is one of several ongoing initiatives to help reduce the backlog and stabilize the pay system. PSPC is using RPA services to automate highly repetitive manual transactions to increase efficiency and accuracy in pay processing. This means that compensation employees at the Pay Centre can focus their expertise on more complex cases and address even more transactions in the backlog.
Following a competitive process, a contract was awarded to IBM on January 19, 2021, which allowed PSPC to build on the RPA work and accelerate the automation of pay processing. In total, 2 bids were submitted and evaluated prior to issuing this contract, and IBM was found to be the only qualified bidder. PSPC is now leveraging additional Crown resources with expertise in innovative technologies to support all ongoing RPA activities. This includes knowledge transfer from vendor to public servants thus reducing sole reliance on professional services and increasing internal capacity.
Accelerator Services contract
The objective of the Accelerator Services project is to streamline processes and standardize work at the Pay Centre to increase efficiency and reduce processing times for pay transactions. McKinsey & Company was awarded a contract for Accelerator Services in February 2020 as a result of a competitive procurement process. In total, 2 bids were submitted and evaluated prior to issuing this contract, and McKinsey & Company was found to be the only qualified bidder.
Under this contract, McKinsey & Company is providing consulting services to transform ways of working, including management practices and tools, to improve both productivity and the experience of our clients and client organizations. They are also implementing strategies to increase efficiency and reduce errors, which will lead to decreased wait time for employees’ pay issues to be processed.
On November 1, 2022, PSPC exercised its final extension the Accelerator Services contract until the end of March 2023. This extension will support the Pay Centre in updating their training and onboarding program for new employees. The work will include a review of onboarding practices and a redesign of training based on adult learning best practices.
The initial contract and amendments bring the total contract value to $29.6 (taxes included):
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|
| $5,572,926.94 | $15,458,209.31 | $8,589,130.00 |
Contracts awarded to McKinsey & Company
Note: All questions related to McKinsey & Company’s work on robotic process automation and accelerator services are in a separate question period note (Phoenix IBM and pay stabilization).
Context
There has been recent media and Parliamentary attention related to contracts awarded to McKinsey & Company, and outsourcing more broadly.
Suggested response
- Public Services and Procurement Canada (PSPC) is committed to open, fair and transparent procurement processes, while obtaining the best possible value for Canadian taxpayers
- As central purchaser for Canada, PSPC has awarded 24 contracts to McKinsey & Company since 2011, with a total value of $104.6 million. Half of the total value of the contracts awarded to McKinsey & Company were awarded through competitive processes. More than 40% of the total value was under a standing offer for specialized services
- The decision to procure professional services to meet operational requirements rests with client departments, which can then request PSPC’s procurement services or departments can also award contracts within their own authorities
- Work is ongoing to gather information on contracts awarded to McKinsey & Company by other departments and agencies under their own procurement authorities
If pressed on PSPC issued contracts:
- of the 24 services contracts awarded by PSPC:
- 3 contracts were awarded through competition
- 19 were undertaken as call-ups against a non-competitive standing offer that was established for McKinsey & Company’s benchmarking services
- 2 other sole source contracts were awarded outside the standing offer
- all 24 contracts were awarded in 2018 or later. The 3 competitive contracts represent more than half (53%) of the total value of contracts awarded to McKinsey & Company
If pressed on open-ended supply arrangements:
- Public Services and Procurement Canada establishes supply arrangements and standing offers instruments to facilitate access to, and accelerate the procurement of, various goods and services by establishing qualified suppliers. These instruments are not legally binding contracts and do not involve any guarantee of work to suppliers
- the supply arrangement is not a contract but a notice that McKinsey & Company qualified as a supplier under a Supply Arrangement. This qualification does not guarantee any specific work
- the year 2100 is commonly used for these types of arrangements so that our information technology (IT) system does not inadvertently end the supply arrangement
- the supply arrangement in question is for Solutions Based Informatics Professional Services. The list of qualified suppliers is refreshed by PSPC through an open, fair and transparent qualification process available to all suppliers on a regular basis
If pressed on the allegations around tax fraud and actions abroad that McKinsey & Company is facing:
- Public Services and Procurement Canada is aware of the adverse information related to McKinsey & Company and its affiliates. The company’s status under the Integrity Regime remains unchanged at this time
- the Government of Canada is committed to taking action against improper, unethical and illegal business practices and holding companies accountable for such misconduct
- under the Government of Canada’s Integrity Regime, if a supplier is charged or convicted of 1 of the offences listed in the Ineligibility and Suspension Policy, the supplier may be suspended or determined to be ineligible to be awarded a contract. A suspension or determination of ineligibility would also be triggered by a foreign offence that is similar to one of the listed offences
Background
Contracts awarded by Public Services and Procurement Canada
Of the 24 contracts awarded to McKinsey & Company, for a total value of $104.6 million:
- 3 contracts were awarded through open, competitive procurement processes, with a total value of $55.8 million, which amount to 53% of the total value of the contracts
- 19 contracts with a total value of $48.8 million which amount to 47% of the total value of the contracts were undertaken as call-ups against a National Master Standing Offer (NMSO) designed to provide access to proprietary benchmarking methodologies offered by the private sector. This procurement tool was established in accordance with all Government contracting policies and regulations related to sole-source contracting
- 2 sole-source contracts were awarded outside the NMSO: this includes a low-dollar value contract ($24,860), and a zero dollar value contract that would only have been activated when a task authorization was issued against the contract. None were issued before the contract’s end date in December 2022
Procurement Instruments established by Public Services and Procurement Canada
McKinsey & Company is a supplier on 3 procurement instruments established by PSPC:
- Benchmarking Services National Master Standing Offer
- This non-competitive standing offer was established in 2021 to provide access to proprietary benchmarking methodologies offered by the private sector. Benchmarking services are a form of independent review to best understand how programs and projects compare to industry or other jurisdictions that have undertaken similar work. PSPC has established separate standing offers for similar services with 4 other vendors.
- Solutions-Based Informatics Professional Services (SBIPS)
- This competitive supply arrangement is focused on IT solutions whereby a supplier defines and provides a solution to an IT requirement and accepts responsibility for the outcome. McKinsey & Company qualified as a supplier under this arrangement in 2018.
- Task and Solutions Professional Services (TSPS)
- This competitive supply arrangement is similar to Solutions-Based Informatics Professional Services but focused on the provision of non-IT services such as Human Resources, Business and Change Management, Project Management and Health Services. McKinsey & Company qualified as a supplier under this arrangement in 2015.
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