The Defence Department mismanaged a major computer project for its reserve forces, costing taxpayers up to $65 million, says a newly released audit.

The project - the department's first experiment with a so-called private-public partnership - was eventually scrapped after four years of persistent problems.

"Oversight mechanisms did not operate as intended, and early warning signs of budget, schedule and quality problems were not appropriately assessed and acted upon," says the audit.

"It is not clear why ... early warning signs were not acted upon."

The internal audit, completed in October 2000, was obtained under the Access to Information Act.

The computer project was intended to update and automate payroll, budgeting and other administrative functions for Canada's reserve forces.

The system was to connect 365 sites across the country.

The old payroll system was error-prone and was often late in delivering paycheques to reserve members. Other administrative functions were manual and cumbersome.

In a marked departure from normal practice, the Defence Department formed a partnership in 1993 with two private-sector companies - AMEC Technologies and DMR Consulting - to share the risks and benefits of the new project.

But department managers failed to break with traditional methods of procurement, leaving the government responsible for 99% of the project's risk. The private-sector companies were simply paid their costs, plus a profit.

The auditors, for example, criticize a mark-up of $590,000 on the purchase of $7.8-million worth of computer equipment.

They argued that the additional fee, 7.5% of the hardware purchase price, was not justified.

Another contract for professional services soared 44% over budget to $1.24 million, despite red flags raised early in the process.

The reserve forces have since been provided with the same computer services used by regular members rather than their own independent system, as was first intended.

Spokesmen for National Defence said the scrapping of the $65-million project was not a complete loss - approximately $13 million worth of computer equipment and other technology is still in use.

The department later established a separate unit to ensure more professional management of such projects in future, said spokesman Wayne Harrison.

The department has not engaged in any other similar private-public partnership ventures because of the problems encountered in what was viewed as a pilot project, Harrison said.

Management asked for the detailed audit to ensure the department understood the problems and would not repeat them in future contracts, he said.

Canoe

-- Anonymous, August 20, 2001