Adscam’s lingering ill effect

Two years ago, Ogilvy Montreal invested between $10,000 and $20,000 in hopes of winning federal advertising contracts. The investment-mostly in employee time but also some hard costs-went into a 25-page proposal asking to be included in a pool of preferred ad agencies.

A number of agencies were rated, and the ones that scored high enough made it into the pool, which gave them the right to pitch for federal advertising contracts worth $75,000 to $750,000, excluding media placement, which is handled by the government’s media agency of record, Cossette Communication-Marketing. Ogilvy Montreal scored well: 991.8, securing a place in the pool as the third-best agency among 13 others.

The president of Ogilvy Montreal, Daniel Demers, wanted to recoup some of the initial costs associated with making it into the pool. So last year the agency pitched for roughly 10 creative and/or media planning assignments, spending an additional $10,000 to $20,000 per proposal. The agency won just one of those competitions-International Youth Programs, a youth exchange program run by Foreign Affairs.

The bottom line is that Ogilvy Montreal invested upwards of $200,000 for a single piece of business. Not a great return, some might say, and now in the aftermath of the federal sponsorship scandal and Gomery investigation, Demers says the government is treating the purchasing of advertising like it’s a commodity rather than as a knowledge-based expertise. “If at the end of the day, one agency is (evaluated to be) 20% better in terms of creative but they cost 50% more than another agency, the lower-quality agency wins the account. Price has become too important a factor,” says Demers. “I don’t know what money you are saving when you buy a campaign that no one remembers.”

Demers’ opinion is shared by others. Jonathan Goldbloom, vice-president and general manager of Optimum Public Relations in Montreal-whose parent is Cossette-says the focus on the mighty dollar means PR contracts are often being won by suppliers who basically “freelance out of their basement. It makes it difficult for a national firm like us.” And one agency president, who declined to speak for attribution, says during one pitch his agency scored tops in terms of creative quality; however, the agency that scored third-best in terms of creative but offered the lowest cost, won the assignment.

Has the federal government gone too far to show its objectivity?

It’s not surprising that cost containment is a priority for federal bureaucrats given the aftermath of the Gomery inquiry, as well as the mandate of a new Conservative government that campaigned on accountability. Yet the shift in how federal advertising contracts are awarded took place well before Prime Minister Stephen Harper took power in January: Public Works and Government Services Canada (PWGSC), the operating engine of the Canadian government, introduced new rules (excluding Crown corporations) back in early 2004. By June of that year-when the Liberals narrowly won a federal election-the new system of agency pools was in place as part of a three-pronged system (see “Who’s swimming in the agency pools,” right).

Richard Robesco, director, communication procurement directorate, PWGSC, is the first to say price is-and should be-a key decider when awarding work to agencies. “It is no different than how we handle any commercial transaction for government. We have just moved the procurement of advertising to the same mainstream process we do for any commercial activity,” he says. “We are basing our decisions on value, or a combination of quality and price, to make the process as transparent as possible.”

PWGSC uses a “cost per point” system. The system is used for work valued between $75,000 and $750,000, and for contracts over $750,000. Each agency is awarded a “technical” mark based on factors like capabilities, experience and strategic insight. They are also awarded a “total cost” figure, which is calculated using the hourly rates of agency staffers who would work on the assignment or contract being pitched, including account executives, copywriters and creative directors. PWGSC plugs those rates into a “costing scenario”-essentially an imaginary project based on so many hours of work-and prices out the job for each agency. The total cost figure is then divided into the total points to determine “cost per point.” The agency with the lowest “cost per point” wins the assignment.

“This way we can see if we go with bidder one, the price is $60,000 and say, bidder four, it is $85,000,” says Robesco. “We can see how much it will cost us to do the same job from bidder to bidder, and compare apples to apples.” While the technical and cost criteria share “equal importance,” he says each RFP can be tailored to the specific criteria needed, meaning more weight can be given to certain elements requested in the RFP.

Ad agencies in the pool like some of the changes adopted by PWGSC. One of the most roundly applauded: Foreign-owned agencies with Canadian operations are now allowed to pitch for federal government business. And Chris Keevil, president of Halifax-based Colour/CCL Group, says at least some attention to price helps prevent the likelihood of abuse, i.e., political favouritism. For an agency like Colour, which has never had a political affiliation, this means the chance to win government work the agency historically has never done. Colour has first right of refusal to quote on assignments worth up to $75,000 covering the Atlantic provinces, and the agency is on the list for National Standing Offers, a pool of agencies that are awarded work worth up to $75,000 (excluding media placement). “It is a fair bidding process in light of the less than fair process previously,” says Keevil. “At least it is an improvement. Does it provide for the best agencies doing the best possible work? Probably not.”

That could change. As part of the Harper government’s $164-million Federal Accountability Act announced in early May, a procurement auditor will be hired, perhaps this fall, to scrutinize how advertising contracts are decided. While Crown corporations are considered separate businesses and are thus not subject to the procurement process of Public Works, they will be included in the changes proposed by the Federal Accountability Act.

It mandates, among other things, the prohibition of verbal-only reports, the separation of advertising from collateral services like public relations, and the appointment of a risk-based audit team independent of corporate management and of their advertising processes. And PWGSC officials-led by the Treasury Board, which works to ensure value for money-are in the process of reviewing the advertising procurement process. Michael Fortier, the minister who heads PWGSC, has written a letter to ad industry officials, saying, “We will be posting the new solicitation documents on Merx (the government’s electronic tendering service, which can be viewed at Merx.com) shortly for industry feedback.” A source close to the review says the changes will likely be significant, including reducing the complexity of the procurement process methodology.

No doubt the Institute of Communications and Advertising will be the first to weigh in on the new process. The Toronto-based association’s president and CEO, Rupert Brendon, declined to be interviewed for this story, but in a report on its website, the ICA highlights a number of flaws with the new system. Among its beefs with the now two-year-old system: that agencies which handle political campaigns can still win government contracts, yet the federal media AOR (Cossette) cannot pitch for creative work; that the PWGSC does not meet agency executives in person before awarding contracts, which the ICA likens to hiring an employee based only on their resumé; and the lowest bidder approach doesn’t translate into value.

With a new system coming, the agencies selected in the pools could also change. The current roster expires at the end of the calendar year, at which point the agency pool selection process could begin again. Under the current system, price determines whether an agency wins a seat in the pool.

Take the pool for the National Standing Offers, in which the government rotates work to the agencies in the pool for assignments up to $75,000. Ottawa-based Hewson Bridge & Smith landed atop the pool. The firm’s “total points”-considering experience, education background of key personnel and understanding of the government’s needs-came in at 976. DDB Canada, by comparison, scored 992.5 points. That means HB&S’s “cost per point” was just 0.433, while DDB Canada’s was 0.98, putting HB&S first and DDB Canada last of the 10 accepted agencies.

“We had never done standing offers before and it was our decision to be aggressive on price to gain experience in this space,” says Don Hewson, HB&S president. “But as the number one agency, we have seen little work from standing offers.”

Every agency president interviewed for this story says, in fact, their agencies have seen little work from the federal government. Al Albania, president of Ottawa-based Acart Communications, says two years ago when his agency first pitched for a place in the pools, he was told the amount of work to be doled out was expected to reach $135 million. Recently, however, Albania was told that Ottawa only awarded $35-million worth of federal advertising contracts last year.

Agencies like Ogilvy Montreal have decided to pitch only for those few accounts where it looks like creative, and not dollars and cents, are given heavier weight. “I understand there was a scandal, but it is not the fault of the ad agencies but the people who managed the contracts in the beginning,” says Demers. “The government has pushed the envelope too far.” Time will tell where the government will push the envelope next.

CHRIS DANIELS is a freelance writer in Toronto.