:
I will call the meeting to order.
Colleagues, we are here today with a number of witnesses from the private sector. We are, in a sense, continuing a review we are doing on the subject of federal government procurement, and in particular the access of SMEs to the federal government procurement process.
The witnesses in this part of the meeting will have different perspectives, different windows. We'll begin with them. This is the first of three hearings on this subject.
We have, from the Information Technology Association of Canada, Monsieur Louis Savoie, chair of the Public Sector Business Committee; Mr. Hicham Adra, member of the executive committee of the same organization; and Linda Oliver, vice-president.
Then, from the Association of Canadian Engineering Companies, we have John Gamble, president of Consulting Engineers of Ontario; and Andrew Steeves, vice-president, ADI Limited.
Thank you to the witnesses for appearing. I'm quite certain you'll have opening remarks. We'll follow the order in our agenda.
Linda Oliver, you may begin. We'd like to keep the presentation to less than 10 minutes. I think eight minutes is the window we look for, but keep that in mind as you present.
:
Thank you, Mr. Chairman, and thank you to the committee members for allowing ITAC to come and meet with you today. We think this issue is very important, so we're very pleased to have the opportunity. We expect to take about 10 to 15 minutes for the three of us to make our presentations, and we'll try to cut that down to meet the timeframe.
Just to give you an idea of what ITAC is, and I know there is a presentation being circulated and you will be able to read it, we are a national association of only ICT companies--information, communication, and technology companies. There are over 350 members. Seventy per cent of our membership are small and medium-sized businesses, and over 70% are Canadian-owned.
It may be of interest to know--it's a startling fact when you think about it--that there are some 600,000 people employed in ICT companies in Canada. That is 20% more than in the auto sector in its heyday. There are an additional 500,000 ICT specialists who work in companies like banks, and even in the government and the rest of the economy.
We represent 5% of Canada's GDP, and 38% of Canadian R and D is done by our industry.
We cover computer hardware, software, microelectronics, services, systems integration, staff augmentation, consulting, and digital commerce.
ITAC's philosophy is that there is room for all businesses to do business with government, and we do advocate on behalf of all sizes of business--medium, small, and large.
We believe that government should be smart buyers and should buy value, results, and outcomes. We want them to leverage the private sector best practices, and we feel that at this time government should invest in ICT to stimulate the economy quickly. That will create jobs that are sustainable post-recession, and these efficiency gains will help to reduce operating costs and fiscal deficits.
Generally, that's who ITAC is. I'd be happy to answer further questions, but I'm going to allow the time now to go to Hicham Adra, who will speak to you about shared services.
Merci and thank you, Mr. Chair, and to the committee members for giving all of us this opportunity to speak to you today.
If I may introduce myself, my name is Hicham Adra. I've been with CGI for 21 years. I lead our operations here in the national capital region, so this is home for me, and I co-chair our public sector business globally for CGI, which is an important sector for us.
[Translation]
I had the privilege and the good fortune of being a part of CGI's growth.
[English]
Today CGI is a leader in information technology. We are a flagship in terms of Canada's IT industry. Given that we are the only remaining publicly traded headquartered company in Canada, I would like to take a couple of minutes to speak about CGI's own story of growth from an SME to a market and world leader in our industry.
Our company was founded by two entrepreneurs in Quebec City, Serge Godin and André Imbeau. We grew from those two people and modest beginnings as a small company to be, today, one with 25,000 employees across the world. So we have our own experience going from an SME to a company today that has close to $4 billion in revenue.
Over 40% of our revenue comes from outside Canada, and we plan to increase that to 60% or more coming from outside Canada as we work to hopefully double the company in the next three to five years.
Our sector, as you know, is intensive in terms of labour and in terms of innovation. It's also important to the success of other parts of our economy and our country, be that in the public or private sector. We believe we have a unique opportunity to really continue to create high-quality jobs in Canada around the ICT sector. We have been doing that in our company. Over the last 33 years we've created 25,000 jobs in Canada and across the world.
Innovation and partnership are absolutely critical to our success. To give you an example, we've partnered with organizations to create centres of excellence in Halifax, P.E.I., Ontario, Ottawa, out west, and in Quebec. There are thousands of people working in centres of excellence for clients in North America or worldwide from right here in Canada. In this region alone we have over 1,000 employees and we have invested millions in our centres of excellence in the national capital region.
We continue to invest in innovation. We have over a hundred business solutions that we export.
[Translation]
We continue to develop and pursue exports through our investments.
[English]
There are obviously other great Canadian stories. I happen to know a bit more about CGI, being within CGI, but Research In Motion and Open Text are also great examples. I would just put to you that I don't believe that companies such as Open Text, such as RIM, such as CGI would be as successful today if they focused on staff augmentation and if their clients focused on staff augmentation. We would not be here today if our clients focused on staff augmentation as the way to build their success. We don't think as a country we can build an ICT sector based on staff augmentation.
We actually work with SMEs. We are part of an ecosystem. But I think it's important that we be clear about the distinction between staff augmentation, SMEs, and companies that are going to create value and growth for us in the country.
In terms of shared services, it is about intellectual property. It's about transformation. It's about managing risk. It's about creating value. Shared services is a concept that's been around for a long time. It's about achieving economies of scale, facilitating best practices, ensuring that there's adoption of standards, and improving efficiency and effectiveness. This is a trend in the public and private sectors. Experts will tell you that. It's well documented. Right here, the federal government has had shared services initiatives, well documented and under way, since 2003. They're part of budgets, Treasury Board approvals, and departmental performance reports. This shared services opportunity is a great way to avoid duplication, saving potentially in the hundreds of millions per year. And these are savings that, frankly, can be reinvested in social services, defence, and health care in ways that improve the lives of Canadians. It's not about aggregation of buying. It's not about companies winning or losing. It is about implementing best practices and standards and about government acting as one and performing as one to achieve better outcomes.
There are a couple of more benefits of shared services. They allow citizens and businesses to have easier access to government services. They also reduce the number of access points. That means they reduce vulnerabilities and exposure, from a security point of view.
We believe and respectfully suggest that the government and this committee should be supporting the achievement of these objectives, which are good for all of us, and that we should be supporting organizations such as Public Works in achieving these objectives sooner rather than later.
I want to leave with you the thought that companies that can help achieve these objectives are companies that are willing to invest, that have IP, that have methodologies, that have created value, and that can continue to help their clients succeed and achieve these objectives. I don't believe and we don't believe that this can be achieved by just assembling contractors through a staff augmentation model.
I trust and hope that we can support the public servants in achieving success for all of us as we move forward.
Louis.
Bonjour, mesdames et messieurs. Good morning, ladies and gentlemen.
I'm Louis Savoie. For my day job I'm with Bell Canada. In my part-time job, I'm the chair of the Public Sector Business Committee for ITAC, representing our industry here in Ottawa.
I'll be speaking about government enterprise network services, which is essentially one of the shared services that Public Works is trying to get under way and concerning which I believe you've been asked to review, slow down, and possibly even stop the procurement from going forward. I want to make sure that you understand what it is and what benefits could derive from it to the Government of Canada.
Today the Government of Canada has 110 or 120 departments and thus that number of networks; everybody more or less builds their own. If I could compare it to your home, if you are a family of five, everybody at home has a car, but in a family of five you might not actually need five cars. You might only need three, and people would be able to share the pool of cars to get around. Networks are somewhat the same. The Government of Canada has bought 120 or so networks, and there's an opportunity to consolidate that infrastructure into a single enterprise-wide infrastructure.
We've seen this happen in other, provincial governments and we've seen it happen in the private sector over the last number of years. It is a very natural thing to do to try to achieve economies and deliver better service to your stakeholders.
Who delivers those services? Mainly you will see Bell Canada, Telus, Allstream, and Rogers delivering these services today. You're not seeing small and medium-sized business delivering networks today. It is a capital-intensive business.
Why should the government proceed with GENS? It's a cost-effective approach to delivering a common set of telecommunications networks. These networks enable collaboration within a department, collaboration between departments, and the elimination of duplication to which I've alluded. Because we're talking about one network, we're talking about an ability to more effectively secure the infrastructure.
When you secure a communications network, you also secure the information that travels on the network and the information that's at the end of the network. As you know, today cyber threats are increasing at an alarming rate.
From what we understand, the government's proposed procurement approach is value-based and outcomes-based rather than based on buying the parts piecemeal and building, integrating, and managing it yourself, which is what the ICT industry, generally speaking, supports the government doing.
You also have an opportunity to buy best practices. We serve many customers. We see a lot of other requirements and so are able to deliver the services and these best practices to you through the procurement approach of creating an integrated enterprise network.
What GENS is not is a staff augmentation project. We're not talking about just bringing people on to fill jobs. It's not a high-risk project. We deliver infrastructure projects of this nature to other customers—and to the government: we just do it 120 times, instead of doing it once, in perhaps a bigger way but a way that meets the requirements across government.
It will not reduce ICT jobs. Depending upon who wins, the jobs might move, but the jobs are required to deliver this. One of the things you should know is that in our business and in our industry generally speaking—not only Bell's and not only the telecommunications industry, but the ICT business, certainly among large businesses—we have an echo system of small and medium-sized business that we leverage to deliver our service on a pan-Canadian basis, and this won't reduce the volume of SME business.
The Government of Canada currently spends approximately $5 billion on ICT, and all we're talking about is consolidating the telecommunications spending. What we're hoping is that you will reinvest in other ICT projects to improve the way government delivers services to citizens at large.
Let me leave you with a summary and a key message. ITAC represents most of the ICT business industry in Canada. We work closely in consultation with the Government of Canada. We support shared services. We also support a competitive and consultative procurement process to achieve benefits for the Canadian taxpayers.
We would request that you let GENS and shared services go forward. Our industry needs the government to continue investing in ICTP projects and infrastructure for itself to support our industry during these difficult economic times. These investments are not wasted. They will help you deliver better services to the Canadian taxpayers.
Thank you very much.
:
Good morning, Mr. Chairman and members of the committee. Thank you again for the opportunity to be here with you today.
As you know, my name is John Gamble. As president of the Consulting Engineers of Ontario, I represent the largest of 12 provincial and territorial associations that collectively make up the Association of Canadian Engineering Companies.
Mr. Steeves is here with me today. In addition to being vice-president of ADI Limited, he is also a past chair of ACEC. The two of us have spoken extensively across the country and internationally on business issues pertaining to our industry.
ACEC represents nearly 600 engineering companies across Canada. These firms range from very large firms like the SNC Lavalins and Stantecs right down to sole practitioners. In fact, I think it's important to point out that two-thirds of our member firms employ 50 or fewer employees. We run the whole range of firm size. The services delivered also run the full range, to both public and private clients. The services ultimately touch on almost every aspect of our social, economic, and environmental quality of life.
We recognize the federal government and the public sector as a very significant user of our services, and we applaud this committee for reviewing federal procurement practices. We have long been advocates for reviewing procurement and for continual improvement. There are new demands that make this review quite timely. There's a demand for greater value for money, sustainable and green procurement, and increased infrastructure investment. This is certainly the right time for such a review.
I'll start with our overarching recommendation, then Mr. Steeves will elaborate on it, and then we'll have a quick conclusion.
Many of you will recall the InfraGuide program, the national guide to sustainable municipal infrastructure. This was a collaboration of the National Research Council, the Federation of Canadian Municipalities, and Infrastructure Canada. Its purpose was to assist public agencies in delivering, planning, and managing their infrastructure. The idea was to share information experience and to create a series of best practices. Over a number of years they developed more than 50 such best practices that are widely respected within the industry. It was certainly a very sound investment for all the partners, both the federal government and the Federation of Canadian Municipalities.
As it happens, in 2006 InfraGuide published a best practice specifically on how to procure professional consulting services, focusing largely on engineering and architectural services, although it could be applied to a wide range of value-added professional services.
We are here today to recommend, since the federal government was a partner in this document, that the federal government in fact adopt this best practice for the procurement of engineering and architectural services. This document was developed by the public sector for use by the public sector, and of the many procurement best practices we have run across, this is one that, we are pleasantly surprised to find, addresses our needs in enabling us to provide valued services and receive a fair return on our investment from these projects. At the end of the day, I think it represents the best prospect for giving taxpayers the best value for their money.
I'll now turn it over to Mr. Steeves to elaborate.
The InfraGuide, Best Practice for Selecting Professional Consultants, was produced by a group of independent experts. It recommended a procurement system based on qualifications-based selection, or QBS for short. The principle behind QBS is simple. Professional engineers, architects, environmental scientists--those services should be hired based on qualifications, experience, competencies, and backgrounds they bring to a project, not on the lowest price. This practice differs from the process used by most federal departments, where, unfortunately, price is usually the determining factor in selecting consultants.
Think about this. Think about hiring an employee. When you interview candidates for a job, you would rarely hire based on who would do the job for the lowest pay. You would hire based on who can do the best job based on the qualifications being sought. QBS exemplifies this selection process.
Let us be clear, however. QBS is not a blank cheque allowing consultants to charge whatever fee they want. Negotiating a fair fee agreement is a key step in the QBS process. As a matter of fact, it's probably the key step, but a fee agreement is based much more clearly on a defined scope of work and much better value for the client.
The concept of procuring professional services based on the QBS approach would be new to the Canadian federal government departments. However, it's widely used elsewhere. Many jurisdictions have adopted this process. In the United States, for example, QBS has been legislated for federal procurement through the introduction of the Brooks Act in 1972. By this year, almost all the 50 United States have adopted this as well, or some variation thereof.
More recently, following a recommendation of the Johnson Commission in Quebec that investigated the collapse of the Laval overpass, the Government of Quebec last year passed legislation requiring a QBS approach for the procurement of professional architects, engineers, and environmental scientists. A number of Canadian municipalities have also followed suit.
Why should MPs, or Canadians for that matter, care about how engineers and architects are procured? Part of the answer to this question comes from a study conducted by the American Public Works Association that will be released this month. We hope to be able to forward this to you soon. The benefits to taxpayers and clients who use a QBS system include giving a greater emphasis to qualifications. Projects such as buildings, highways, and wharves can be designed in a much more sustainable fashion where the environmental footprint and life cycle cost is much lower.
Life cycle cost is an extremely important consideration when one considers that engineering and design on something like this building, a museum, a dam, or a road represent only 1% to 2% of the project's total life cycle cost, while operations and maintenance represent 80% to 93%. Bad design will increase that significantly. The APWA study proves that a QBS procurement system results in fewer change orders on projects, which lowers overall costs. It reduces litigation and delays. There is better schedule adherence. The study found that cost growth using a traditional price-based procurement method was 10% of the project on average, while in QBS it was 3%--big differences.
The APWA study also demonstrated that risk was lowered for both owner and consultant, particularly in more complex projects. QBS encourages greater innovation in design. Low price does not encourage innovation; it drives it out. It provides a better way of protecting intellectual property rights.
Given that the federal government directly procures billions of dollars worth of infrastructure and building services, it is in the best interest of the federal government to ensure maximum value, including life cycle value, for those dollars it spends. The evidence is unanimous, that the best way to do this is by procuring consultants using QBS.
As a side note, I must say that my firm is considered fairly small in the consulting engineering world. We're an employee-owned firm that recently passed 315 employees. Firms like ours and the smaller firms that John referenced support QBS because among the qualifications you can include are local content, local knowledge, local expertise.
John.
:
Thank you very much, Mr. Chair, and thanks very much to everybody for being here with us this morning.
No offence to the consulting engineers, but I'm going to be focusing on this group for the first round. I'm looking forward to having some other questions.
We are here today and have you folks here today because it's no secret that there's some controversy over GENS and what the government is doing in shared services.
Right off the bat, I think everybody wants to make sure that government conducts its affairs in the most efficient way possible, because we are responsible to taxpayers. On the other hand, the government is not the same thing as the private sector, and there are other dynamics the government has to keep in mind.
As a former businessperson, I am very much of the view that taxpayers are important, and we need to make sure we run our government and government services as efficiently and effectively as possible. That does not necessarily mean lower cost. I thought the example from Mr. Steeves that you don't hire the lowest-cost employee to do the best job was perfect.
We are waiting for a report from Public Works on GENS, the impetus for shared services, and some of the issues behind the drive to shared services. We don't have that report yet, so I would like to ask you a couple of things.
The controversy seems to be that if we go to a greater use of shared services, larger companies will automatically be used to do that work and SMEs will suffer--fewer SMEs will be used. We're also facing a bit of an uncertainty about whether an SME that provides staffing is the same as an SME that provides ICT work in the larger sense.
Mr. Lavoie, you mentioned that using a large company, such as any of the large telecommunications or ICT companies, would not reduce the number of SMEs involved in government work. This is a rather long introduction to the question, but I would like to hear you address this elephant in the room--the question of whether SMEs are going to suffer or not.
I leave it open to the other two witnesses to help us with this question.
:
Merci, Madame. If I may, I will answer in English.
We're proud of our success. I still believe that we are a company that still acts like a small company in many ways, being entrepreneurial. Entrepreneurship is one of our core values. We are still growing. We compete on an international scale. Some of our competitors are ten times our size, so on an international scale we're still that company that's working hard.
You asked me a good question in terms of the region and how we grow. We would obviously deliver the business in Canada, so it could be in the region or in other parts of Canada. Today, we are obviously a major provider to Government of Canada services. To my colleague Louis' earlier analogy, I may be already selling my client four or five cars. I may end up really selling my client two or three cars, if they spend less. I may gain or lose in terms of spending, because many of these departments today are already my clients directly. If they become a client of Public Works, and Public Works then subcontracts some of that work to me or whatever, I may be getting less business or more business. The question, really, is whether it's still the right thing to do from a taxpayer perspective or from a government perspective.
To your question about how we manage resources, yes, we do leverage those centres of excellence. Those centres are built to deliver a service, so they're not necessarily always utilized to the maximum. We do act as a provider to many clients. Somebody may be 60% busy. We use 40% of that person's time to manage another client and so on, because that person could be working for multiple clients. That's how our clients get value and efficiency out of us.
We do work with small companies and large companies. That's how we grow and build. Again, we still believe there's room to grow those companies. However, if we do not do work and do projects as a country, those companies would not develop skills and capabilities that they can leverage. I don't think anyone would say that if you're going to go build a building, you would hire me personally with my own hammer to come and build a building. You would hire a general contractor, potentially, who would work with firms large and small, and that person would act as the integrator and would provide a service.
Yes, we are very active with the federal government in terms of day-to-day consultations. We offer our views, either solicited or unsolicited, on all of the projects the government has, and indeed we have a program where we have been advocating for the last few years for a national ICT strategy.
We find that the government is now poised...I guess because all the members of government these days are somewhat younger and they know more about technology. They seem to be more interested and more focused on leveraging ICT in Canada as an enabler in terms of leadership and competition for competitiveness for Canada.
We are very involved in the consultation process. We take advantage every time the department has any type of offering, where they offer the private sector to consult. We've also worked on many of the projects for professional services for temporary help, by helping government to design the model.
We find that the people we work with in Public Works and Government Services are very open to dealing with the private sector. They have us in, they hear what we say; we don't always get what we want, but they're very fair and they listen to us. So we're happy about that, and we're hopeful that this will continue.
We do have key messages for the government in terms of an ICT strategy. Part of it is procurement, but also it's government as a model user and government being more efficient and using technology, particularly at a time when there is a downturn in the economy. This is the time to invest in ICT infrastructure in government so that when we come out of the recession, we are going to be more competitive. Other jurisdictions in the world are doing that.
This is the kind of advice we give when we're asked to consult.
:
Sir, perhaps I could respond to some of your comments, because I've been waiting for the questions to come through. You did start with a question and I want to get back to that.
When I speak to my colleagues in the industry, certainly the large businesses...30% to 40% of the actual contract work they win goes to small and medium-sized businesses that support them. We can't carry all the staff all the time on our payroll, pay the benefits, all that, for the next 25 to 30 years, because once they're an employee, you're committing for the long run.
So working with SMEs and working with other companies it has to be part of the formula of how we do business. We don't have an ongoing stream of contracts coming in to keep all these people busy all the time. So it is how we operate.
I don't think doing large projects cuts out small and medium-sized businesses at all.
To your issue of security and your concern about security and large breaches, absolutely they happen. If I can use an analogy of a bowl with one hole, and the hole is where the communication comes through, if you could protect that one hole at least you'll protect what's in the bowl.
But if you have multiple holes, which is how the government is connected today in some respects, there's a potential for more breaches to occur. You might have plugged this one and that one--10 of them--but there are still another 50 that are wide open to vulnerabilities and cyber threats.
So appreciate that they could always happen. The risk exists, but it is how you can mitigate those risks, and there is an opportunity to do so by simplifying the infrastructure and consolidating some of it.
I think that responds to most of that.
:
I think when we deal at a staff level at Public Works or at Defence Construction Canada, where they have the specific expertise, I think they are quite empathetic.
Her name escapes me, but there is an employee at Defence Construction Canada who, as part of her Ph.D. thesis, actually made a direct correlation that the higher the engineering quality the lower the operating and maintenance over the next 20 years.
I think they understand it, and this is not unique to the federal government, but the challenge we have is that those who can actually make the change to the procurement are inevitably the other department.
So we are hoping, by speaking to you, in the collective wisdom of this committee, that perhaps you can shake something loose so that we can have a meeting of the minds.
Procurement is becoming very complex. One of our concerns is sometimes that the procurement methodology is done in isolation of either the technical expertise to evaluate proposals or to scope the work or sometimes even outside the context of the ultimate end user, because we can do a better job if we have a little bit more context of what the desired outcome is.
There is a pressure in government to do everything empirically, to evaluate proposals empirically. I will quote Albert Einstein, who is a little brighter than I am; he said that “Not everything that can be counted counts, and not everything that counts can be counted.” That is a very true statement.
There's a myth that as a private sector we want a completely objective process. We don't. We are professional services. We understand subjectivity, provided it is done fairly, transparently, and we understand the rules going in. We want to protect your right to hire those firms that are going to do the best job for you.
In that way, we can adjust our business cases accordingly. And your interest is, to change that business case, we want to raise our game and be a preferred service provider to the federal government.
My question is in keeping with what Mr. Bagnell said. I have a few questions. I fully understand the measures implemented to advance the InfraGuide; I served as a mayor of a municipality over several terms. I'm well informed regarding what you have been telling me. What I am hearing from large businesses is a problem for me.
A private business, especially a major corporation, has a fundamental goal of making money and sharing the profits with shareholders. Let us be clear: the less money that is spent on a contract, the higher the profits, and the higher the dividends paid out to shareholders.
However, you are presenting the opposite vision; you want to see the government get the best expertise possible. In fact, your vision is not totally opposite. You also suggest focusing in on a company's quality and ability to innovate, even if it is a young company, and that innovation in construction should also be fostered.
The fact of awarding this type of contract to a very large company, which will in turn seek subcontractors at the lowest price possible among small businesses... I am not implying that these small businesses are necessarily unqualified, but the underlying goal is to get the lowest bid, and certainly not the highest one. When a large company launches a call for tenders, it is seeking to get the lowest price. It comes down to a matter of cost and the capacity to provide the service, and does not go any further than that.
You state that we should favour competency and innovation in certain areas, but there lies the contradiction. Indeed, I, for one, believe that a private business is not a charity, and never will be.
When we learn that major companies like Rogers will be expanding regionally, this is a big problem for me because I come from a region. I would like to get your reactions to that.
:
If I can just clarify a couple of points, one is we did not write InfraGuide. The FCM and the National Research Council wrote InfraGuide, just to be clear on that point.
We are not contractors. We are professional service providers. We are licensed under provincial statutes, like doctors and lawyers and others, and we have an obligation. Our lifeblood is customer satisfaction. We're not looking for blank cheques. For projects to work we have to have our objectives aligned. That's the same for any professional service. You want to make sure you and your lawyer, you and your doctor, have the same outcome in mind. We work better under those circumstances. Our contention is that what we need to do at the very beginning of the procurement process, very early on, is to make sure our objectives are aligned, and then we can have fees that are both fair to the taxpayer but commercially viable to the firm. We're looking for sustainability in our industry. We're looking for a fair return on both our investment and the risk, because one of the motivations for the public sector to hire consulting engineering firms is to transfer risk. That's fine, as long as the return on investment is there.
The truth is we have a lot of case history in the United States. A report is being printed, literally as we speak, and it validates what the infrastructure or the InfraGuide committee has always suspected but couldn't quite put numbers around. We're seeing less price creep, less schedule creep. We're seeing better innovation. We're seeing better customer satisfaction and we're seeing a better business case for the firms, and I think that's a win all around, because then we can improve our capacity, we can provide better service, and we can grow as an industry, as you said.
You've talked about large firms, and, yes, we have very large firms, but again I want to emphasize that one-third of my members are firms that employ 15 or fewer employees. As I said earlier, as evidenced by awards juries and as real evidence on projects, they can deliver high-quality projects as well.
The industry is uniform. We like this document. We're surprised, because when a public agency says they're going to write a procurement document, we usually hide under the desk and hope it passes over, but we were quite pleasantly surprised by the outcome of this document because it was prepared by the public sector for the public sector. I probably shouldn't tell you this, but we had a contingency plan as to how we were going to discredit this document if it came up with an answer we didn't like, and lo and behold there it is.
We can live with this. There are other things we'd like, and unapologetically we want to be commercially successful, but this is a good proposition for us because it allows us to provide you and other clients with service we can be proud of with a fair and reasonable return, and I think that's the win all around.
:
Thank you, Mr. Chairman.
Thank you to all our witnesses coming today. We appreciate your testimonies and your discussions on things that are important to the issue of procurement.
I think we've probably got a broader topic today than we have any ability to decipher down, but I just want to focus in on ITAC for a number of minutes.
It's my sense we're going to have to take a couple of steps back here. We, as a committee, have not spent a lot of time understanding the reasons the government has been pursuing GENS or shared service initiatives. It's something I think we might have to take a step back from.
Now, my understanding is that right now there are 120, plus or minus, networks that government agencies and departments rely on. The idea, the thought, is that by moving to a single shared service network there would be quite significant efficiencies created within government, on the capital side and also in terms of the ability to facilitate the business of government. Right now there seems to be a significant amount of spending that's focused on things that are not necessarily supplying the core business of government or supplying the services government is responsible for. Instead there's a lot of money and a lot of time eaten up by government departments focusing on their systems.
Now, it's important for me to put things into layman's terms just for my own understanding. My understanding is that essentially what government is suggesting is they are going to replace 120 separate houses with a skyscraper that has the same square footage but is a single building. With that there are obviously a lot of tensions, because right now there are a number of different companies that are supplying a single repairman for every single one of those 120 houses. When there is a single building that will replace those 120 structures...obviously, to fix the windows on the 120th storey of a skyscraper is going to be quite a bit different from somebody from a local window supply store replacing a piece of glass in a single-floor building.
I know I'm dragging in an analogy that may or may not be appropriate, but I'm wondering if that's generally the initiative. I think it's important that we then understand why small businesses are concerned. Small businesses that may just be supplying a single individual to repair something on a smaller structure have no capacity to be involved in possibly putting on the 120th floor of a 120-storey skyscraper.
Have I convoluted the initiative even further, or are we getting to a point where that's possibly an analogy that works?
:
In your submission today there is a suggestion that there would be a saving of 15% to 20% of $3 billion per year. Obviously 15% to 20% of $3 billion is a big chunk of money. It then could be redirected into other initiatives or into other core businesses of government.
When the committee has brought struggling agencies or government departments before it, the number one necessity we've identified is to move towards more efficient high-tech systems. We see this in the payroll sector, and we've seen this--not so much now, but in prior months and years--in the Passport Canada sector. We saw that it was the number one issue in a number of other departments. They wanted to upgrade those programs so that they could more efficiently supply the real core business of government.
I see this, and I think we have a larger picture, but I have one concern.
I think we understand that a large company would be required to supply this new infrastructure or this replacement or whatever it is. My concern is that after the first contract expires, after, say, a duration of five or ten years, all of a sudden the government is committed to a single large company. I have the same concerns as my colleagues in this regard: we don't want to create golden handcuffs that require the government to continue to engage in business with one single large company because the government has already invested in an infrastructure, and replacing the provider would be much more costly than just continuing at an exorbitant rate that the large company might require to continue the service.
Is there some assurance you can provide to us? What should we, as members of Parliament, recommend the department do to ensure that after the first contract expires, somebody else would actually be able to come in and compete? My biggest concern is that we not have issues of intellectual property rights, or any of the other kinds of issues that limit the ability to have some competition down the road for that contract.
I'm running late, and I apologize, but please answer.
You've received my past submission. I have further evidence in the document in front of me, which I will forward to the committee.
I would like to talk about some parts of this evidence, as I do not want to be long-winded, and I would like to entertain any concerns you may have about my past evidence and about what I am about to say.
SME shipyards are strategic to Canada's maritime defence, security, and life-saving capability, and they contribute to maintaining Canada's marine highways. Small businesses are the backbone of our economy, especially in small towns and cities, whether in Nanaimo, B.C., or Les Méchins, Québec.
In the past, and at the present time, the government has implemented procurement policies that favour large multinational companies in the shipyard and marine repair industry to the detriment of small and medium-sized companies. The chair of this committee expressed outrage at the fact that PWGSC destroyed an entire supply chain in the furniture industry. The fact is that PWGSC will soon have wiped out the small shipyards and marine repair companies in Canada.
When the economy slows down, things get tight. The problems in the forest, fishing, and other industries have had a negative impact on operations like mine. Government policies contribute to some of the problems we have. This is why we didn't expect the federal government to contribute to our woes in an unfair and uncompetitive manner by directing contracts to large multinationals and by ignoring SMEs. Especially in these times of economic turmoil, we need Canadian government contracts to be fairly tendered in order to compete. For us, this is a matter of survival.
The recently announced federal shipbuilding and vessel life extension programs, which amount to many billions of dollars, are looked upon as increasingly important to small shipyards to fend off the effects of the current recession. The expectations of the SME shipyards were raised when they heard that shipbuilding repair would be part of the current economic stimulus package. They have heard of large projects and of some small boats to be built, but there is literally nothing in between.
The problem is that large projects often mean that there are many small vessels that SME shipyards could build, but the government likes to package them in bundles, as they believe this to be the answer. What this means is that small shipyards are shut out of every government shipbuilding project because of the cost of bidding and bonding or because the project size is beyond their financial resources.
This is not in the interest of Canada, because the skills of the SME shipyards are not maintained, and if only multinationals get to build small boats, Canada's strategic defence capability will suffer. Essentially, what it means is that multinational shipyards do all the work, both big and small.
The recent FELEX contract is an example, with all the work on the west coast going to one company via named price and all the work on the east coast going to one company via named price. Taxpayers are not getting any kind of bang for their buck.
For your information, I see a parallel in the IT industry, after reading earlier OCG evidence.
The result is that small shipyards do not get to carry out any contracts greater than approximately $3 million to $5 million. In addition, contracts seem to be getting larger rather than smaller, as the government believes that bundling contracts saves them money. It has, and will, kill the SMEs soon if nothing is done.
You've received information on some of the large contracts that have been awarded in the past on the west coast. It is obvious that these numbers pale in contrast to the contracts small business could carry out on an individual vessel basis. An SME shipyard could participate if it were done on an individual vessel basis.
This is a direct result of past tendering practices, which need to be fixed. We cannot afford to take the gamble to bid these contracts, as it would eat up a year's income or more. In addition, SMEs are shut out because they are told they have no experience, which is absolutely not the case. If what I've stated were the case, my only argument would be to ask you to intervene just because we are SMEs. The fact is that this is not the case. I'm asking you to intervene and help us to change this mindset at Public Works and Government Services because we are innovative, flexible, more effective, and less expensive. These are qualities that allow us to win contracts against large multinationals when we're not excluded from the bidding process.
In addition, the federal government has loaded their contracts with risks to the contractor by using design-build contracts, and so on. They should do the design, as they used to in the past, and tender it to the shipyards for a price to perform the work. The SME shipyards can't afford to carry the overhead of ship designers, so are left out of these opportunities. The multinational companies that can afford the overhead because of the volume of work they get use design-build to their advantage over small shipyards and SMEs.
Therefore, we talked to the federal government to see what could be done. OSME told us that this was not their file. They said it was up to Industry Canada. Industry Canada said they have no interest in seeing projects de-bundled.
OSME also said they do not set aside work for SMEs, yet PWGSC does it every day for the multinationals. In addition, PWGSC has a set-aside program for aboriginals. It is then logical--to me--that they could have a set-aside program for SMEs.
Not one department is acting in the interest of small business and the taxpayer. To me, it is obvious that the federal government needs to create separate SME policies inside the existing national shipbuilding policy framework.
I have given evidence here in the past about the SBA in the United States. Across our departments in the federal government there are many small business offices, such as Western Diversification; Industry Canada has a small business office; and we have OSME. These people should be absorbed into one area or one department that should have unyielding powers to change policies in tendering processes.
Contrary to what others have said about the IT industry, SMEs in the marine sector believe it is in the government's best interest to support them by awarding contracts directly--now. There is no way to restore competition and capability to the industry. We need immediate help, as their past practices have put us in a very tenuous position. At this point, the playing field is such an uphill climb for SMEs that they most likely will not survive.
Canada should pride itself on being one of the largest maritime nations in the world. There are many companies involved in this industry, with great technological innovations that are exported all over the world. Everything involving ships is produced in Canada and exported worldwide--except for ships. This is because of the importance other maritime nations place on their maritime industries.
Government likes supporting high-tech. High-tech is a buzzword. It exists in every industry sector. Some ships are more complex and high-tech than airplanes, yet the government doesn't seem to be able to wrap its mind around this; it calls it a traditional and sunset industry.
Travel to any coast, to the Arctic, etc., and you will see the importance of marine activity to our economy. We recently built ferries for British Columbia in Germany, a country with the highest labour rates in the world. A recent contract for a small ferry for the New Brunswick government was awarded to a Florida company.
The U.S. has a separate administration to deal with maritime issues, the Maritime Administration, known as MARAD. They award grants every year for small shipyards for infrastructure upgrade. The grants are used to help keep small shipyards competitive with large multinational companies. This year the amount was raised to $98 million as part of the stimulus program. One of last year's grants went to Ketchikan shipyard in Alaska for a new, smaller dry dock. This dry dock will service some of BC Ferries' northern vessel fleet.
We need such an administration that assists SMEs. There should also be more R and D and export support for shipyard SMEs.
Incidentally, that BC Ferries work for the northern fleet is work that we do normally in our work every year. Has Canada's government decided that it should abandon the thousands of people directly and indirectly employed by our SMEs in the shipyard and marine repair industry? Is that what this procurement policy means?
I have also talked in past evidence about the federal government doing their own work. The navy has spent hundreds of millions of dollars on both coasts, putting money into their facilities. Why shouldn't they be giving money for me to improve my facilities, if that's the case? This is work that the private sector SMEs can do and should be doing. The number of personnel in the navy's own repair division on the west coast has grown by well over 200% in the last four years.
My conclusions are as follows. Due to government policies, small shipyards have closed, and more will close during this recession. The industry is becoming extremely rationalized. Canada is close to not having enough capacity for its maritime defence security and life-saving requirements. We are now to a point where it is highly doubtful that there will be near the capacity to carry out the future shipbuilding work the government has tabled. Now is the time for small shipyards to receive infrastructure and contractual support for this work so that they become competitive players in an industry dominated by the multinationals.
The government is quite capable of negotiating sole-source contracts with small shipyards. They do it every day with the multinationals. This is done in other countries to keep competitiveness alive in the industry. It is in the public interest to do so.
I thank you for your time. I would like to advise you that all of the SME shipyards that I have talked to are 100% behind what I am saying, and they are looking for immediate solutions. One of these shipyards is in Mr. Roy's riding. Many of our locations are in smaller cities and towns, and we are very important contributors to our local economies. If something is not done immediately, the industry and the smaller cities' and towns' economies will suffer enormously, and an already fragile supply chain will be destroyed.
Thank you.
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It's very complicated. I shouldn't say it's complicated for them to do; it's very easy for them to do. But I think that because of the dollar values of the contracts and because of what you see now, with between 90% and 100% of the marine work going to one company on the west coast and similarly on the east coast, you have such an unlevel playing field. That's what I mentioned earlier, that they really need to look at basically getting the SMEs involved in contracts as soon as possible. That may be directly awarding contracts to them and giving the SMEs work.
FELEX was an example of where they were given the work. They're giving the work to multinationals. They seem to have a problem with trying to give it to SMEs, yet they have a mandate that Minister Fortier mentioned of 40%. How are they going to reach that mandate? I don't see it, when they have 90% to 100% of it going to a multinational right now. It's impossible, unless they award work directly to SMEs. That might have to be done through the local offices, to get their input.
Also, if you look at the Small Business Administration in the United States, they have set-aside programs, where they say 25% of any large contract that's given out—for instance, if FELEX was given out, then 25% would have to be given out to SMEs. I can tell you that if the multinationals were forced to give out 25% of the work to SMEs, they would not give it to me. They would give it to somebody else and make sure that I didn't get one dime of that money. That's why a set-aside program has to be a program that would award contracts directly to SMEs or look at getting the three SMEs that have their own facilities on the west coast involved in working together to build and repair ships together. That is another possibility. That could happen on the east coast as well.
Another thing with the SBA in the United States is that the contracts are enacted in Congress, as is the size of an SME. When Shereen spoke of the size of a small company being 100 people or less and a medium-sized company being 500 or less, those numbers are actually enacted in Congress in the United States and defined by Congress. They are looked at every year, and they are done specifically for each industry. In other words, shipyards and marine repair companies in the United States have an actual number that is used. Actually, it's 1,000 there, as that's how big their small shipyards are because of the large support for them. That is a number enacted by Congress, and it's specifically done for each industry.
You can't just say that it's 100 for a small enterprise when you're not talking about what industry that might be. With 100 employees, that's actually a fairly big shipyard in Canada now because of what's happened with past tendering processes. What the SBA also does in the United States is they say that projects of x dollars and under have to go to SMEs. They define what an SME is for that industry, and then, for example, contracts of $5 million, $10 million, or $20 million or less can only be awarded to SMEs and not to the large companies. That's another example of the way they do things.
We also need infrastructure support.
:
Thank you very much. I'm very glad to hear that your family was involved in this industry and it's in your blood. Sometimes it can get very difficult. It's in your blood, and that's why I'm here today.
We recently built ferries in Germany, as I mentioned in my evidence. BC Ferries spent close to $1 billion in Germany. They had one company, which was a large multinational on the west coast, that wanted to build them. They tried to have BC Ferries build them here and they would not do it. They went to a company in Germany that has been heavily supported by the government over the last 20 years. Germany looked at rationalizing the industry 20 or 30 years ago, and I think we're almost in that kind of a state now, or we're not going to have an industry at all.
Small and medium-sized enterprises are the innovators, and what we need, what we don't have, is this cooperation among everybody in the industry and in the government to try to create an industry here that is going to be here 30 years from now. Germany did that 20 to 30 years ago, and the result is that Canada is buying ferries from Germany. Canada is a maritime nation, with over 40 ferries in British Columbia alone, just in the B.C. ferry fleet. They also have highway ferries. New Brunswick, Nova Scotia, and Newfoundland all have ferries. You have ships plying the Great Lakes waters, yet we build not one of them.
Government procurement needs to be part of that solution, and we need to target those types of vessels that the government wants, and produce vessels, so that 30 years from now we have people working in this industry producing very high-value vessels to the international markets. We can do this. We have a large tug and barge industry on both coasts; we are producing tugs on the east coast for the world market.
With government assistance and with the government will to get this industry to sit down...as opposed to having small to medium-sized enterprises fighting with the multinationals, we should be cooperating to try to produce an industry. Government procurement, by giving the work to multinationals, is hampering our ability to compete worldwide. We need to look at the shipyard industry being supported from an infrastructure point of view, from a research and development point of view, and the government needs to look at this as creating an industry, as we are a large maritime nation. We need to realize that.