Dept of Tourism Answers GlobalHue Questions
Below follows a transcript of responses from the Bermuda Department of Tourism [BDOT] in relation to the Parliamentary Standing Committee [PAC] meeting on the Public Accounts. The meeting centered around specifics of the GlobalHue Advertising Agency contract which was awarded by the Bermuda Government.
The multi million dollar contract with the American firm is seen as a poor decision in some circles, with claims made that the CEO is a friend of the Premier, the contract was awarded unfairly and that the company drastically overbilled. In other circles it is seen differently, with supporters citing the awards and high profile clients the firm has attracted including Chrysler, Subway Verizon, Walmart and the US Government [Navy]. The manner in which the contract was awarded has drawn ire in many circles, and the transcript below addresses many of those points.
Transcript begins below:
A. Your Committee reviewed facts surrounding the contract awarded to GlobalHue as BDOT’s overall advertising agency.
B. Financial Instructions recommend that contracts to supply goods or services in excess of $50,000 should be considered for open tender, meaning that anybody can submit a bid. From a value for money perspective, surely a $43 million contract would justify such an approach. In this instance this was not done. Instead, a short list of agencies, which the BDOT judged had the capability to carry out the contract’s responsibilities, was invited to make bids. This was not open tendering and could have precluded a qualified bidder from offering better value for money than the successful bidder.
BDOT Response:
Financial Instructions requires 3 quotes for purchase of goods and services over $5K; in this instance several agencies were invited to bid. There is to our knowledge no requirement for open tendering in Financial Instructions, thus the process applied was considered in compliance with financial instructions. The review committee was comprised of a cross-Ministry and private sector group that ultimately made a recommendation to the Minister. The fee is the portion of the agency bidding process that determines, in large part the competitiveness of the bid; in this case the agency was contracted at a lower cost when compared to the former agency. The previous agency, Arnold was contracted at a $1.3m fee on a $9.5m account. GlobalHue was contracted at $1.2m on a $13.2m contract.
C. At the end of the term of the original contract to GlobalHue, the contract was renewed without any kind of ability for other agencies to bid for it. There was no tendering process whatsoever. The contract was in fact “rolled over” in the name of “continuity.”
BDOT Response:
The roll-over of the agreement followed an internal agency review; historically agency contracts have remained in place for many years in an effort to preserve the integrity of the brand and product positioning. The same principle was applied in this instance. Additionally, the learning curve effect of a new vendor in a recessionary context would have only served to exacerbate the situation by introducing a time lag to the tourism market.
D. Your Committee recommends that Financial Instructions be amended immediately to require that all contracts in excess of $50,000 be put out to open tender. Your Committee also recommends that adhering to Financial Instructions should not be optional or discretionary. Further, your Committee recommends that there should be a series of educational seminars for department/ministry accounting officers on Financial Instructions.
E. Moreover, the contract was not vetted by the Attorney-General, a procedure that is also required by Financial Instructions. There was an indemnification clause in the contract that should have been reciprocal but was not. This potential exposure of government to financial risks could have been avoided if the contract had been vetted by the Attorney-General’s Chambers before signing.
BDOT Response:
The contract was approved by Cabinet and, as such, was reviewed by the Attorney General’s Chambers prior to submission to Cabinet (The Cabinet paper and Cabinet conclusion confirms this)
F. Cornerstone Media was given a subcontract by GlobalHue to distribute advertising in the media marketplace. This subcontract cost $33 million over the period January 2006 to March 31, 2009. This contract was not tendered, and was not approved by the Attorney-General.
BDOT Response:
Cornerstone was subcontracted by the Ad agency to purchase the media; agencies subcontract many services thus tendering in this instance would not be a process overseen by the client.
G. From a value for money perspective, Cornerstone did not appear to add any value for BDOT, as GlobalHue seamlessly took over its function after the Auditor General raised the red flag about lack of documentation and higher than average markups. The arrangement with Cornerstone was indeed costly to the BDOT while adding no value.
H. It is not clear why Cornerstone was hired in the first place or who made that decision, as GlobalHue was capable of doing that job internally at the outset.
BDOT Response:
GlobalHue was contracted to create and place advertising across all media. How they executed their media buying, whether outsourcing or not, was always the decision of the company.
I. Documentation for billings was not kept, contrary to Financial Instructions. The action of the Auditor General in demanding documentation for billings and repeatedly being refused until a denial of opinion was posed as a real possibility, plus the unusually high markups that were discovered, cast a pall of suspicion over that whole arrangement. All of this could have been avoided if Financial Instructions were followed by the BDOT at the outset.
BDOT Response:
BDOT acknowledges the administrative oversight in processing media invoices without the required backup, a process that was not in compliance with financial instructions. This situation has been rectified.
J. Tourism remains a critical industry for Bermuda and the handling of multi-million dollar advertising budgets requires an approach that is professional and compliant with Financial Instructions. The actions of the BDOT failed to live up to these standards in these instances and failed to give Bermuda its best value for money.
K. The BDOT Permanent Secretary confirmed that she had not received any pressure from anyone with respect to the decisions that were taken within the Ministry regarding contract placements or roll-overs, and as such, is fully responsible for the failure to follow Financial instructions.
BDOT Response:
The GlobalHue contract was approved by Cabinet, therefore it is unclear why the PAC would conclude that the PS was responsible for the award. Cabinet approves all contracts in excess of $50,000; Technical Officers simply make recommendations in accordance with policy
From a marketing perspective, I can attest to “historically agency contracts have remained in place for many years in an effort to preserve the integrity of the brand and product positioning. ” In marketing, switching marketing agencies from company to company can result in the ‘product image’ which is Bermuda to be positioned differently (inconsistently) in the minds of our target market, our tourists/visitors.
I would love to know the history of this matter in regards to what the UBP use to do before with marketing agencies, if any. What agencies did they use? For how long were contracts awarded? etc Bernews, that follow-up story (or data) would be great.