OTTAWA - Finance Minister Jim Flaherty says he was unaware his former chief of staff broke government rules in handing a well-connected Tory an untendered $122,000 contract to write the 2007 budget speech.

The minister told a parliamentary committee Tuesday that even though department officials warned that the contract may contravene Treasury Board rules, he was unaware until July 24, more than four months after the speech was delivered.

Flaherty said he delegated the responsibility for administrative functions to his then chief of staff David McLaughlin, who hired Hugh MacPhie to work on the 2007 budget and related communications functions.

MacPhie was once a speechwriter for former Conservative premier Mike Harris of Ontario, and worked on Flaherty's provincial leadership campaign.

"I engage people I not only know can do the job, but people I can trust," Flaherty said.

"I do not regret hiring Mr MacPhie. I do regret that administrative functions were not followed."

The finance minister said he now realizes that officials with the department expressed concerns to McLaughlin about the contract, but he was not informed. He said he was "upset" when he learned, but added that by that time McLaughlin was preparing to leave his office.

A week later, McLaughlin was appointed by the Conservative government to head the National Round Table on the Environment and the Economy. McLaughlin did not return calls and an e-mail request for a response.

Under Treasury Board guidelines, contracts valued over $25,000 normally must be subject to competitive bidding.

But Treasury Board secretary Wayne Wouters, the department's top civil servant, told the committee that there are exceptions to the rule and that under strict circumstances, such as an emergency, a minister has the authority to award sole-sourced contracts of up to $100,000, with an extension of another $50,000.

Finance deputy minister Robert Wright said he did not "disagree" with the process, but did not say he agreed, pointing out that the hiring of MacPhie was conducted through the minister's office.

"There was no difference between me and the minister on this regard," he said. "I did not discuss this with the minister and he did not discuss it with me."

Wouters did not respond directly when asked if Flaherty's office followed proper procedures, saying "under his guidelines, under the guidelines for ministers, he must ensure in taking those actions that he is complying with the regulations and the policies that we set out."

The hiring of MacPhie has led to calls from opposition parties that Flaherty resign and is currently under review by the ethics commissioner.

Emotions spilled over in the committee room Tuesday after Flaherty, under questioning from Liberal critic John McCallum, accused the opposition of engaging in smear tactics.

"Oh, that is so typical of you," Flaherty hectored McCallum as the Liberal MP began reciting other "patronage" appointments the minister had made.

"You should think twice before you go after much respected Canadians in a petty and gutter way that you do."

McCallum said he would apologize if the ethics commissioner finds there has been no impropriety in one of the issues he has raised, but said Flaherty should apologize for what he has already admitted was improper.

"He should apologize for what happened today," he said. "There doesn't seem to be any consequences for what was a clear break in the rules. I don't think anyone was fired. The chief of staff has gone on to arguably a more important job."

Earlier, MacPhie told the committee his Toronto-based communications firm had won about $320,000 in federal governments since October 2006, most from the Finance Department, with seven of the eight contracts awarded without tenders. He said prior to Flaherty becoming finance minister, he had not worked for the federal government.