INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 10, 1998

• 1529

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order. Pursuant to Standing Order 108(2), this will be a study on information technology and preparedness for the year 2000.

The industry committee is pleased to welcome Mr. Monty and Mr. Desfossés from the Task Force Year 2000. If you have opening comments, please begin.

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Mr. Jean C. Monty (President, Task Force Year 2000): Bonjour. Good afternoon.

[Translation]

First of all, Madam Chair, thank you for giving me this opportunity to appear before your committee. I am very pleased to be here. I am glad to see that you have already started to follow up on our main recommendations, that you've already joined our cause and that you've decided to play a front line role so that Canada can get a competitive advantage in the challenge of the year 2000.

This afternoon, I would like to answer as many questions as possible, and I would therefore limit my presentation to a strict minimum, that is some of the major points and themes of our report.

[English]

Last summer, Minister Manley established Task Force Year 2000, made up of CEOs of Canada's key industrial sectors, to look into the preparedness of Canadian industry and to provide advice on how to minimize computer risks and take advantage of the leadership position in terms of preparedness. We immediately undertook with Statistics Canada a survey of business preparedness for the year 2000. The results speak for themselves. Although more than 90% of businesses are aware of the year 2000 challenge, only 50% appear to have taken action to address the challenge. Only one firm in ten, 10%, had a formal action plan to deal with the issue.

The lack of appropriate planning is not only evident in small and medium-sized enterprises, commonly called SMEs, since one large firm out of two had not addressed the problem in a formal way. As a result of these findings, the task force concluded that the problem was both serious and urgent. Given the situation, we decided to release our report four months earlier than planned, which was last February 3 rather than at the end of May as we agreed with Minister Manley.

[Translation]

The task force report is the product of a collective effort. With the help of our senior executives, the chief executive officers of the task force, we compared and summarized our strategies—the strategies of the businesses we manage—regarding the challenge of the year 2000 in order to help other businesses become prepared and avoid some of the anticipated errors and also reduce their costs.

We worked closely with selected partners who are well positioned to answer a number of the questions raised in the report.

[English]

One such partner was the Conference Board of Canada. The Conference Board of Canada's initial results indicate that firms will derive considerable competitive advantage from being ready. However, well prepared firms need to protect themselves from those that are not. Companies rely on their suppliers or intermediaries for a wide range of services and products. Unprepared suppliers could jeopardize the very basis of their competitiveness and put the national supply chain at risk. In some cases, the result could be business failures.

Therefore the task force urges businesses to inquire into the state of preparedness of their trading partners if they want to derive the competitive advantage of being prepared.

Another partner was ITAC. To understand our trading partners' and competitors' reactions to the year 2000 challenge and to learn from their experience, the task force asked the Information Technology Association of Canada, commonly called ITAC, to undertake a comprehensive survey of year 2000 national initiatives around the world.

ITAC concludes that although efforts in most countries are accelerating, the best prepared countries remain those having in place a strong partnership between private industry and public authorities that use all possible leverage available to turn awareness into action. In keeping with the practices of other countries, the task force concluded that those countries that manage to have strong synergies between private and public initiatives appear to be more successful.

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Our tax review also helped to focus attention on public and private authorities or business interfaces, which appear to be most effective in accelerating year 2000 preparedness. In the private sector, bankers, insurers, auditors, and security commissions, as well as national business associations, appear to have been the most active. In the public sector, regulators, legislators, and political leaders were found to be the major contributors to the year 2000 preparedness.

Our report is entitled A Call for Action. It is an urgent appeal addressed directly to business executives. Most executives in Canada know there's a problem that must be fixed, but a majority still do not realize it's pervasiveness and the extent to which it could affect their firms. Our message is that without a formal—I underline the word “formal”—action plan to address this problem, they might never realize what hit them until it's too late.

Our first recommendation is addressed to those company owners and managers who have not yet taken formal action. We urge them to do so and do so immediately. Time is fast running out and the deadline is non-negotiable. For some it may already be too late for full preparedness. It will not be enough for a company to get its own house in order. Companies do not operate in a vacuum. They are linked electronically and commercially to governments, financial institutions, associates, customers, and suppliers—and “here and abroad” is to be underlined.

The modern supply chain stretches from the supplier to the customer, often according to just-in-time schedules. One weak link can break the whole chain.

We believe this is not only a matter of crucial importance to businesses. It has become a national priority. We felt that even though the primary responsibility for action remains with firms, given the seriousness of the situation every lever must be used. The assistance of financial institutions, insurers, auditors, and securities commissions has been enlisted to use whatever leverage they have to convince businesses of the need to act. For instance, lending institutions and insurers are being asked to assist in the availability of a formal plan for their commercial clients.

Following up on the proactive and forceful approach adopted by the Office of the Superintendent of Financial Institutions, OSFI, regulatory bodies are being asked to play a bigger role by exerting moral suasion whenever possible and informing companies they deal with of the importance of Year 2000 preparedness.

National associations are being urged to show more of a leadership role in order to sensitive their membership to the problem by disseminating information and sharing best practices. Because of the significance of our bilateral trade with the United States, the Business Council on National Issues, the BCNI, is being asked to address the Year 2000 challenge and its possible effect on strategic Canada-U.S. business linkages. Plans are to organize a major meeting of top executive of U.S. companies doing business here in Canada to discuss these critical trade linkages.

To deal with pending skills shortages, the task force is recommending the creation of a special category of temporary employment authorization for persons with specialized Year 2000 skills. To promote action, especially among SMEs, a revenue-neutral tax is being recommended as well.

The task force is also proposing that any legislative or regulatory changes be delayed, whenever possible, if their implementation could divert resources from year 2000 initiatives.

Recognizing the overall impact of government preparedness—on the business community that is—the task force is suggesting to provincial legislatures that they monitor and disclose the year 2000 preparedness of provincial and municipal authorities, using a mechanism similar to what your committee or the House of Commons Standing Committee on Public Accounts has put in place.

Finally, in order to determine how firms will respond to the challenge and what progress has been achieved, the task force is recommending that Statistics Canada repeat their survey in April 1998.

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Though the formal part of our mandate is now over, Madam Chair, the task force members are not walking away from the year 2000 problem. The task force plans to meet again in May to study the results of the latest Statistics Canada survey of industry preparedness and to monitor how the responsible authorities have implemented the recommendations contained in this report. We sincerely hope that by then our call for action will have been heard and acted upon.

In closing, let me underline that we wanted our report to convey a sense of urgency and I am delighted that you responded to our call with similar urgency. I trust that by exercising strong leadership your committee can be a powerful instrument in focusing public attention on the year 2000 issue, on those who act and on those whose efforts are still inadequate.

Thank you.

The Chair: Thank you very much, Mr. Monty.

We're going to begin with questions by Mr. Schmidt.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you, gentlemen, for appearing here this afternoon. It's good to see you and it's good to see the enthusiasm you have for this task that was given you.

I have a couple of questions. The first one should be a very easy one and the next one is going to be not quite so easy. What is a revenue neutral tax?

Mr. Jean Monty: The easiest way to answer that.... Usually there's no such thing. In this case the suggestion we would make is that it's 99% revenue neutral.

We're not experts here, so let me give you the example of a company spending $100 on this initiative in 1998. The government could allow that corporation to expense for tax purposes $150 rather than $100 and in 1999 to deduct $50 of expenditures from the real expenditures in order to take back the $50 they permitted the corporation in 1998 to over expense for tax purposes. In effect this is taking away in 1999 what they gave them in 1998.

The idea here is to see how a government initiative of this sort could help provide more funds for the small corporations. We're not recommending that this be done for the largest companies in the country, only for SMEs so that you help them fund and you also increase the awareness. Anything related to a tax initiative of this sort will help smaller enterprises put their attention to the issue.

We're focusing our recommendation on both a call for action through the tax system and an incentive with some interest-free funding. In effect, the government is giving a 12-month interest-free loan through the tax system, but not at that large an amount.

Mr. Werner Schmidt: I guess we could debate the philosophy of that for some time, but I want to ask my much tougher question.

You have moral suasion through here and all the encouragement and all this sort of thing and you want to raise the level of awareness, and I think that's all wonderful. But then you're suggesting that in May you're going to come together and look at the statistical report of Stats Canada. So all these people come up and tell you yes, we are doing this and here's our formal plan and yes, we're on the way, and yes, we'll be there in the year 2000. How will you know that's true?

Mr. Jean Monty: That's a fundamental question. That's actually the first question we all asked ourselves. What is our role here? What is the role of the task force?

After a lot of debate and discussion of our task force before all of this work was done, we decided that given the size of the initiatives required and the magnitude and complexity of the work, we couldn't ask anybody else or ourselves to become accountable for the programs of our corporation, the Royal Bank, Canadian Tire, or any of the corporations in the country. The accountability had to be at the firm level. In effect, our task force and maybe your committee could show leadership but not accountability. In our opinion, accountability had to be at the unit that has to do the work.

Let me give you the reason that I personally believe very strongly about this. We're a very large company and in our group of companies, we have a series of units. At one end we have a very small outfit of 20 employees who manage our pension funds. You'd think what's the impact on 20 employees? They manage a lot of money, billions of dollars.

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Well, a pension fund management unit deals with interest rate tables. Almost all of their work is related to something that has a date in it. A huge amount of work has to be done but in the end there's a framework that really surrounds the amount of work they have to do.

At the other extreme you have a company like Northern Telecom in our group that has 70,000 employees, not 20, and works in 150 countries. Imagine me sitting at the presidency of BCE, just to use an example, and saying I want to see in detail the program of each of the companies and I will follow through on that detail on a monthly basis. That's the only thing I'd do all day if that's what I were to do.

In our group we probably have a couple hundred companies of different sizes. Put that at the national level or the provincial level or any level you want beyond one firm. The complexity is so large and the difference in the issues.... For instance, one of Northern Telecom's biggest issues is how it deals with its customers on the technology they sell. Their products have to be such that they are compliant way ahead of the year 2000 so that their customers can embed that technology in order to serve their own ultimate customers.

The issues are radically different depending on the size and type of corporation. We don't believe it's possible for somebody to understand the complexity of all of these issues at different levels of complexity and to become accountable in a regulatory format or, even more to the point, to have legislation to make that the case. We don't think it's doable or feasible, and that's why we came to the issue of leadership as opposed to accountability.

Mr. Werner Schmidt: I have no quarrel with that. I think that's absolutely understood and I certainly agree with that position.

My question leads in another direction, however. The accountability is clearly established on a firm-by-firm basis. I accept that and I think it's the only workable way. I totally agree.

My question is this. Has your task force considered with the experts who are available to you a test that a firm or a company might apply to determine whether in fact we are ready? I think that becomes the crunch question. It's not for you as a task force or for us as a committee to look at all these. It's totally impossible and impractical.

Mr. Jean Monty: I have two answers to that or two comments. Yes, we have talked about this and considered it. Again I'll give you the example of testing equipment as opposed to testing systems.

Take a telephone set. You can test a telephone set to make sure that the chips in it by themselves are year 2000 compliant. The next test you need is that you plug the telephone set into the telecommunications network of your company or of the country and make sure that it's also capable of being compliant given the interfaces. So it's interface testing.

By the way, your question is very valid because 50% of the work related to year 2000 compliance is testing; 50% of the moneys we're all going to spend is related to testing.

The biggest issue is not testing one and the other system or product. The biggest issue is integration testing. With all the complexity of each and every environment that I just mentioned to you with the example of our group of companies, I don't believe we could have a testing environment that would be sufficiently comprehensive to take account of all environments. Actually, you can't take account of two environments. Bell Canada by itself would have to create its own testing environment and so would Northern Telecom. Every unit has to do that.

Mr. Werner Schmidt: Again, I agree.

The question I was trying to get at is whether there is some sort of paradigm or set of criteria that could be applied to say that if you have this kind of a business these are the kinds of things that will happen. There will always be the additional thing, but why should each person develop the axle part of the wheel when the stuff that's out there is unique to that particular business?

Mr. Jean Monty: The answer is we don't believe that's doable. You talk to CGI, IBM, the companies that really know how to do this. There are companies that are specializing in doing only that. They have produced tools that help do the coding and search for the dates and systems and so on.

There are no tools we know of or have found or that these people have found that can test the whole architecture of a system. These tools will be able to help you decipher where the issues are. Some tools will help you code the replacement dates, but there are no systems or no tools that we know of that have been created to test the whole environment for any one unit, whether it's a government organization, a non-profit organization, or a corporation.

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I have one last comment, if you'll permit me. A not-for-profit organization in the United States is attempting to be a certifier of year 2000 compliancy. I underline the words “not for profit”. I would venture a strong guess, an educated guess, that no for-profit organization would want to become a certifier of year 2000 compliancy because you can imagine the legal issues that the organization could get into if one of those companies has in effect not done its work properly.

The legal issues that you get into in certification matters, as well as the complexity, have prevented us from coming down on the side of suggesting that either a body of the federal government or a not-for-profit organization be put together to be the compliance certifier or to have a tool for testing.

Mr. Werner Schmidt: That's not my question.

The Chair: Thank you, Mr. Schmidt. We'll come back to you.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): I want to thank the witness for appearing today. I know that you had to make a lot of schedule changes in order to be with us, and I very much appreciate the fact that you have taken the time to be with us today.

Mr. Jean Monty: Thank you.

Mr. Walt Lastewka: I read your recommendations with great interest. The things that continued to pop out at me were the words “responsibility” and “accountability”. I know that in recommendation six you made recommendations about the securities group and so forth, about how they need to do certain things. I would like you to expand on the requirements for directors of companies, the directors' responsibility for that company and the responsibility to their stockholders to make sure the companies are in compliance. You have mentioned a number of times, and it was reported, that executives need to be involved in this to make sure that without a doubt it happens. I ask you to comment on that.

Mr. Jean Monty: That's a very good point. I'm reading a little document here that was part of the series of documents, and in answering this question I'm going to try to address something, because the gentleman who just asked me a question doesn't appear to be satisfied with my answers.

Mr. Werner Schmidt: Yes.

Mr. Jean Monty: I will try to embellish on this answer to try to help you again, but if you want to come back to it, I'd be delighted to take another question.

The Canadian Institute of Chartered Accountants put together a very good bulletin for boards of directors to in effect help boards of directors go through a deliberate process of due diligence with the managers or executives of the corporations they are directors of and to help them go through a review of the process itself without necessarily reviewing all the details of the work.

Basically it comes back to the definition of a formal action plan that we're recommending corporations go into, and maybe that's the sort of work this gentleman would like us to get into in more detail. It gets into whether the corporation done a full inventory of what has to be done. Here the tendency of all of us is to think in terms of information systems, payroll, accounts payable and all of that. But we also have to inventory our security systems, our heating and ventilating systems and our telecom systems and so on. So it's more than just information systems. We're talking about all sorts of automated systems. That's the first thing.

Second, boards of directors have to ask management, “Has this been inventoried? Have we assessed the impact of the year 2000?” In effect, there are six steps to this. Third, let's convert our systems. Fourth, once we've done the conversion, there's the testing. Fifth, we know that in the end we will not be able to do everything and we might make some mistakes, so what about contingency planning? Lastly, what about partners?

So that's another way that a third party, referring to the previous gentleman's question, could look at the process that corporations and organizations should go into, and that's what this paper is recommending as well.

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How can boards make sure you ask the proper questions to follow through that six-step process and ask management to come back periodically to see whether those steps have been followed, see the result of their work and, very importantly, the testing issue I referred to before?

Mr. Walt Lastewka: We now know very much from surveys, your report and many of our members' discussions in their home areas about SMEs that have put it off. It's something they have to get to some day, and they're not really doing it. My concern has been that many SMEs are tied into larger systems, so if the mother system carries on and they're not ready, they could find themselves without production schedules and materials. They could be just left out in the dark.

I'm not sure whether your report spoke strongly enough about that, and I'd ask you to add to your report that we should get the message to these hundreds of thousands of SMEs we have that create jobs in our country.

Mr. Jean Monty: Actually that's something I have not raised.

Of the $5 million, our task force will spend 80% on communications. Let me explain that. You're right that it's fine to talk to the Royal Bank and Bell Canada, but there are many more companies than those and the federal government. There are hundreds of thousands of smaller enterprises in the supply chain.

The first thing we'll do in our communications strategy to address the issue will be to have about a dozen sectoral meetings across the country. They will be led by one member of the task force or another and will take place across the country. But that will not be enough.

The second item is a direct mail program. The first is to be sponsored by the Stentor companies. Each phone company in the country will send to approximately 800,000 corporations a direct mail package highlighting the issues and suggesting material to look at in order to help them or the owners or boards of directors of their companies address the issue.

The second direct mail program will be from the bankers. The Canadian Bankers Association or the banks themselves will do the same type of mailing a couple of months later to the same group. We will do it twice. So some who may have been missed by the group of telephone companies will be caught by the banks.

The last piece of our advertising program will be print media. We have a set of ads that will start at the end of February or early March in print media across the country in order to highlight the issues. The ads will be somewhat provocative in order to really catch the attention of people who don't believe this is as important as we think it is.

So we will address all of that. We have also put together a checklist of items for SMEs to look at. It's a couple of pages and it's in our report on pages 62 and 63. It's a summary, because very few small enterprises or SMEs will want to go through such a thick book in terms of looking at this issue; they don't have the time. So it's a two-page checklist for them to look at and ask one of their executives to act upon.

We think we've put enough material in the window for information and checklists for either boards of directors or company owners in order to help in the process. But in the end the accountability has to be at the owner level or the business manager level.

Mr. Walt Lastewka: There are a lot of companies that are very proud about being quality ISO 9000, and it takes a lot of work to get to that point. We could have quality ISO 9000 companies that aren't year 2000 ready.

Mr. Jean Monty: That's very true.

Mr. Walt Lastewka: Since 2000 is an Olympic year, some kind of gold seal should be given to somebody who is year 2000 compliant. I think, Werner, you were getting at that. There has to be some recognition that they are ready and they've tested their systems.

Mr. Jean Monty: One of the things that will put some initiative in the system is companies such as our own and most of the large companies have already sent to their suppliers a very firm letter urging them to be ready on this issue, because if they're not ready, they're going to be off the supplier list.

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That's an interesting inducement. You just can't afford, if you're Chrysler or Northern Telecom or the Royal Bank, to have suppliers send you products that will spoil your own systems and cause you to have problems with your own customers. That's probably the best incentive you could have.

The certification process is going to be interesting, because it's going to be de facto certification. If you're not compliant, you will not be able to serve a hell of a lot of other customers.

I'm not very fond of a great big.... First, it's too late. Setting up a great big certification process at this stage, in my opinion, is too late. I think we have to get down to action on doing stuff, as opposed to asking a third body to get into the certification game. As I did say, though, a not-for-profit organization in the U.S. has decided to do it.

There is a gentleman in the U.K. who has been asked to be the czar, if you will, of the millennium bug. I received his recommendation just yesterday. His recommendation in effect is to put into place an accountability system, but not to put himself in the position of certification.

The Chair: Mr. de Savoye.

[Translation]

Mr. Pierre de Savoye (Portneuf, BQ): Mr. Monty, the problem of shifting to the year 2000 is a considerable one which will be very costly. Since I see that the cameras are rolling, I would like to raise the awareness of our audience to the magnitude of the problem.

Of course, there are normal application programs, commercial programs which are generally written in Cobol. There are others, older ones, that are written in spaghetti code. For those programs, it will be very complicated and very costly. There are some that were updated regularly and that are structured. Theoretically, it shouldn't be too difficult to correct those.

However, there are many companies, often quite large ones but more often smaller ones, that use packages that are not necessarily the most recent version. In some cases the supplier may no longer exist. These could even be pirated copies. Those people are heading towards disaster and they don't even know it.

There is also this unknown code that you referred to that is contained in a chip—what is called the hard-wired code in a chip— that operates heating systems, electrical systems, security systems, specialized tools or any other machinery. No one really knows what is coded into that chip. We know that it works right now, but when January 1, 2000 arrives, it is possible that everything will stop.

If the supplier did regular maintenance, things will be OK. If the supplier did not do regular maintenance, if the supplier doesn't even exist anymore, the technical documentation will have to be consulted. If the company doesn't have it, they're undoubtedly going to be faced with a big problem.

Moreover, and you also referred to this, all this has to communicate with other equipment, with other local or remote systems. This is going to be very expensive, Mr. Monty. A company will have to purchase services in order to modify the code or acquire new software, new processors or even new facilities.

You stated that it's completely impossible to obtain absolutely valid certification externally. This is a complex process that is different for each company. Mr. Monty, besides the technical aspects that are involved here, there are other financial aspects. You mentioned earlier that there may be some tax solutions. Of course, one might think of a tax solution such as a tax credit.

You also said that your company had warned its suppliers that if they did not comply, you would find others who did. I heard that certain banks might refuse to extend credit to certain companies or that insurance companies might refuse to insure them.

There are therefore two types of approaches: the positive approach, in which you're given favourable tax treatment, namely tax credits, or the punitive or negative approach, under which you're turned down for credit or your insurance is reduced, or suppliers are threatened with the loss of a client.

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Personally, I fear that with the second approach, we will quickly and pointlessly end up in a chaotic situation. The deadline is fast approaching. And yet, people cannot solve this in the next three months. We'll have to really roll up our sleeves between now and January 1, 2000. What do you think? Should we focus on positive incentives or negative warnings?

Mr. Jean Monty: We are greatly in favour of positive incentives, encouraging companies to take action, rather than punitive intervention.

When we stated earlier that business suppliers like ours, the biggest Canadian companies, would be in a tight jam if they did not comply, we did not mean that they had to comply by April 1998. Most of the time, we asked them to be ready by the summer of 1999, to give time to large companies that use the products and services of the smaller medium-size businesses to find another supplier that would comply.

We're seeking to encourage action rather than punishing companies, because the program or the project is so vast and so complex that it would be rather silly to be punitive at the outset. On the other hand, a company that runs the risk of not being ready must suffer the consequences.

This is where we see the case of the banks, insurance companies or government loan programs. One cannot simultaneously judge the leaders of their institutions according to their way of doing business and ask them not to be punitive towards those who have taken unwarranted risks. We cannot ask them to lend money to the people who are in difficulty because they took no advance measures, and applied no plan of action to solve the situation they were in.

So to our mind, encouragement must come first. But the punitive measures must follow some day because those with whom these people deal, such as the buyer of the product, the lender or anyone else, will suffer from the management practices of the company in question. Therefore, to our mind, both attitudes have some validity, but we must initially choose incentives.

Mr. Pierre de Savoye: How much time do I have left, Madam Chair?

[English]

The Chair: One minute.

[Translation]

Mr. Pierre de Savoye: I have one last question, Mr. Monty. If we want to emphasize incentives, which tax incentives, such as tax credits, would you recommend?

Mr. Jean Monty: We have adopted an approach in light of the current financial situation of governments. We are not of the opinion that government should pay for business, and certainly not for large businesses. We are not asking for any tax incentives for large Canadian corporations. It's up to them to meet their own challenges, and this one in particular.

A company like ours, Bell Canada Enterprises, will spend 450 million dollars for everything associated with solving this problem. The major Canadian banks will have to spend something in the order of one 100 million dollars each. Therefore, we should not recommend that some be financed when others have already shouldered their responsibilities.

With regard to small- and medium-sized businesses, asking the government to pay for those who did not fulfill their obligations and have not taken on their responsibilities would be to go a little too far, in our opinion. Indeed, the government itself will also have enormous costs to cover. I don't want to speak on behalf of the chief of information services of the Canadian government, but I believe that the total bill for the government of Canada for this will be in the order of over 1 billion dollars. The government itself therefore has its own problems to solve and its own responsibilities.

However, in terms of incentives, we've suggested that the Department of Finance examine the possibility of creating a tax credit in 1998, which would be reimbursed by the company in 1999, so that there would be a revenue-neutral effect for the government of Canada. This exercise would help finance the expenses incurred by small and medium-sized businesses to complete the projects in question. That is the limit of our recommendations regarding incentives in our report.

The Chair: Thank you. Mr. Shepherd.

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[English]

Mr. Alex Shepherd (Durham, Lib.): Thank you.

I thank you for bringing out your report four months early, I believe. Is that correct? We're all very appreciative of that.

I'd like to address the summary here. In your report you talk about firms already having budgeted approximately $12 billion for the year 2000 problem. Now, maybe I'm wrong about this, but you said earlier on that only 18% really have any kind of plan in place. If I take my mathematical hypothesis, it would work out to a project costing $60 billion to $70 billion if 100% of the people were compliant. In other words, it would represent almost 10% of our gross domestic product. Is that a clear estimation?

Mr. Jean Monty: The $12 billion was estimated from the information from the 2,000 companies surveyed by Statistics Canada. That information was extrapolated for the national economy. So it's very much an estimate of the total. The companies that were surveyed were not estimated to go after a bill of $12 billion to solve their issue. The bill was a lot smaller for those 2,000 companies, but Statistics Canada attempted an extrapolation.

It's very much a gross estimate. Out of the whole Statistics Canada survey, the most difficult number is that $12 billion. The reason for that is that most of us believe it's underestimated. But we don't have a better number to give you.

For instance, when I say that the top four or five banks will spend close to $100 million each, the Government of Canada will spend $1 billion, and we will spend, in our group of companies, $450 million, already you're close to $2 billion with only about half a dozen institutions, albeit the largest ones.

I have to believe the number is at least that amount, but this is an estimation on the survey we have done, given the answers that were provided by the corporations as to how much they intend, or think they will have, to spend. Many of them didn't answer. They didn't know the answer. So there was an estimating procedure used by Statistics Canada to come up with the number of $12 billion.

Mr. Alex Shepherd: So the issue, obviously, especially for small and medium-sized companies, is going to be one of affordability. It isn't a matter of just awareness. We also have a problem of affordability.

You talked about maybe skewing some of those tax benefits. Presumably you're thinking of companies that would be eligible for the small business tax deduction.

Mr. Jean Monty: That's one possibility. We have not recommended a specific formula. We're not experts. We have asked the Department of Finance to look at the different formulas that they think would be most effective.

Mr. Alex Shepherd: Okay.

You were talking about a tax credit system. I guess I stand back from that. I think you were talking about the actual software, the writing of the programs and so forth, but obviously there's a hardware component to this. The hardware component of the tax law falls on what we call capital cost allowance. Of course, there's no such thing as a 100% write-off for computer equipment. Should there be in this case?

Mr. Jean Monty: I think the issue is really to get at not only the hardware or the information systems but also the human resources costs, and to try to find a measurement of all of these and put an incentive on those expenditures and accelerate that expenditure in some fashion. I wouldn't try to redo the tax act on capital cost allowances for this one initiative. It has to be something simple, something where you can recover the following year on the expenditures so that it is revenue neutral, except for the interest-free financing implied in the comments I've made so far.

It's not an easy initiative for the Government of Canada to look at, for the Department of Finance to look at, but in the end, the issue, while it is very large, is an issue of dislocation of resources, not in addition to.

Let me explain myself. It is true that we will spend billions of dollars on this, but what will most likely happen is that spending billions on this is not going to be over and above the things we wanted to spend in the first place, it's going to be in lieu of. There are not enough human resources, to start with, to do both.

The Government of Canada, large enterprises, small companies, whatever, had plans to modernize systems. Whatever their plans were, many of us are having to readjust our plans and redirect our resources to do this type of work.

So when you look at this, there is going to be, obviously, a bump or a bulge in our expenditures on information systems in 1998 and 1999—that started in 1997—but it would be false for us to say that this is going to be totally an overage, an “addition to”. When you look at the incentive the tax department can look at, it is a very complex formula to go deeply into the capital cost allowance for our computer hardware and change the rules on that.

• 1615

We're not going that far. For small enterprises we're trying to find a simple simple technique to help them fund this next 18 months of expenditures.

The Chair: Thank you, Mr. Shepherd.

Mr. Jones, do you have a question?

Mr. Jim Jones (Markham, PC): Yes.

You've mentioned many times that governments and this committee could show leadership. Could you expand on what you mean by that?

Mr. Jean Monty: The best thing that we think we can do as a task force—and with your help, we can do that very well—is to build national coalitions in order to get this accountability up.

Therefore, you'll see that a lot of our 18 recommendations are directed at asking the securities commissions, the Canadian Institute of Chartered Accountants and the regulatory bodies to do their work with us in getting their members or the listed companies on the Toronto Stock Exchange to disclose their programs in order to build moral suasion and force management of these different entities to get their jobs done, because it will affect everybody else if they don't.

One of the things that I certainly would recommend—but you do your own work—is that you ask some of these very important bodies to come before you to tell you what they've done for their members.

For instance, what about one of them in particular, the nuclear industry, Atomic Energy of Canada? What about Transport Canada, related to the air traffic control system? What about the telecommunications services industry, an industry I know well? You could ask the deputy minister at Industry Canada to come before you or you could ask the CRTC chair to appear so you can see what they are doing at the CRTC with the companies they regulate. You could ask them to come and present a program.

You could also ask the securities commissions in Ontario and Quebec to come and tell you what they are doing. They are doing very good work, by the way. I saw a very good program at the Quebec Securities Commission and I know the Ontario Securities Commission has one as well. That was reported recently after the reproduction of our report in the national media.

You could ask some banks. You could ask one bank and maybe the Office of the Superintendent of Financial Institutions, OSFI, to come and make a presentation to you about what work they are doing. One of the things I should tell you is that the banks are further ahead than anybody else in the country, so maybe you shouldn't waste your time on the best organizations; maybe you should look at other types of organizations like the Retail Council of Canada, for instance.

There's a list of organizations. StatsCan, on their next survey, could come and explain what type of questions they're going to ask and why. The Conference Board of Canada has done very good work, so you could ask them to come here, but they're not necessarily going to be in the mode of asking their members for accountability. Maybe that's not a very good suggestion. But what about the Canadian Chamber of Commerce and the Alliance of Manufacturers and Exporters of Canada?

The list is long, but if you look at our 18 recommendations, you could pick, depending on your time and your desire to get into this issue, a half dozen of the main institutions with an impact on accountability. They could come before you and explore with you what they're doing. I think that would be very useful for our task force work.

Mr. Jim Jones: Are there any large companies that are already compliant?

Mr. Jean Monty: Many large corporations, some of the large banks, are very far ahead. To say that they are complete...I know one company in our group will be finished by October 1998. It's Northern Telecom, because they have a requirement for their customers to use their products and then they have an impact on the systems of others. IBM has to be very far along; you could ask John Wetmore, the head of IBM Canada, who was on our task force. They're very far along, so you could ask them to come and talk to you about what they had to do.

The Bank of Montreal has a very good program. I'm on the board of the Bank of Montreal. They presented their program to the board. It's probably the best program I've seen, and they will be ready by the end of this year. But to say that one company is 100% complete, one of the largest companies in the country, I couldn't point to one. I know some are at 60% or 70% preparedness, and I know many that will be finished by the fall of this year, well in advance of the deadline, in order to spend a lot of time on integration testing with their own suppliers and their other systems in their group of companies.

• 1620

The Chair: Thank you very much, Mr. Jones.

We will turn to Mr. Bellemare.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Not so long ago, just a few days ago in fact, we heard people from the National Research Council of Canada. One of the scientists stated that the problem with the year 2000 does not really concern in the year 2000 as such, but rather the year 1999. Do you agree with that and if so, could you explain why you agree?

Mr. Jean Monty: Indeed, the problem is already here. It is not the problem of the year 1999 or 2000 as such. In certain cases, such as credit cards for example, two dates are indicated: the date the card goes into effect and the expiry date. In some cases, that date goes beyond the year 2000. The computer systems of credit card companies have had to be adjusted so that their cards would be valid. Therefore, a card is put through this machine in order to determine its expiry date. Those systems already operate in compliance.

I can give you another example. In certain companies, including some in our group, orders are taken from clients over a two or three-year period which goes beyond the year 2000. They've already had to adjust their billing and ordering systems to accept orders and the year 2000 date. Therefore, there are some systems that are already adjusted to take the year 2000 into account.

What you're referring to is a practice that has existed in informatics: the number 99 was used to signify that the program was finished or to indicate an error. It was a code. Forty years ago, the year 1999 seemed very far away. No one bothered about it and they used 99. Moreover, four figures were never used in dates; 99 was also used to indicate the year 1999. The year was indicated only by those two last numbers. In certain systems, in the year 1999, the 99 may mean that there is an error and the system will stop working.

In September 1999, or worse yet, on September 9, 1999, when there will only be nines, significant problems will arise. Therefore, there will already be problems in 1999, before January 1, 2000.

But there is a host of other problems to solve first, given all the other examples I gave you, that go beyond the difficulty of the year 1999 or 2000.

Mr. Eugène Bellemare: I'm referring here to your recommendation number 2. Do you believe that federal government departments are part of the national supply chain and that as such, they should refuse to deal with businesses who have not solved the year 2000 problem?

Mr. Jean Monty: I think so. However, I'm not the Canadian government and I'm not a deputy minister in any government department. You should put that question to them.

For example, the Conference Board of Canada has listed some of the factors important to us all in our day-to-day lives, such as tax and sales tax collection—which we may not like but that exist nonetheless—the issuing of cheques, national defence, health care management, customs, public transit systems, police services, firefighting services, street cleaning, garbage collection, and the list goes on and on. Obviously, if important suppliers of public services are not equipped with systems that are in compliance with the year 2000, we will have problems.

It is therefore important for the Canadian government to ensure that its suppliers are in compliance, so that Canadian citizens receive the services they are entitled to. I am certainly not in a position, however, to go into more detail because the mandate our task force identified for itself was to study private firms rather than government. Our private sector mandate was broad enough that we decided to leave to others the problems and challenges facing governments.

Minister John Manley responded to our report recently in a meeting that he and I had. He assured me that he was setting up communications channels with his colleagues in the government of Canada and the provincial governments to ensure that the various levels of governments and the various federal departments took the necessary steps to ensure that Canadian government organizations would meet the year 2000 challenge. But that is outside the ambit of our task force.

• 1625

[English]

Mr. Eugène Bellemare: I have one last question.

Mr. Monty, you suggest in recommendation four of your report that banks should not lend money to clients who are not ready for the year 2000.

That could create a lot of problems, more than just not getting a loan. It could be catastrophic. Shouldn't the banks have some kind of responsibility to assist rather than say that if you don't have that program, you're out? Wouldn't there be a risk that some banks on some occasions would use that as a raison d'etre to...?

Mr. Jean Monty: The banking business is a competitive business. I don't believe any bank wants to intentionally give the business to another institution that would be more encouraging or more supportive if any one of their customers didn't deal properly with the issue of the year 2000 challenge.

The recommendation we made in our report was not to cut off lending. The recommendation we made in our report says to make sure there is a plan, a formal plan, in place that can be discussed and reviewed in its process, not the detail of the execution of the plan, by the lending officers. After that, we believe the bank will have done its own due diligence. It's very difficult to ask financial institutions to put themselves in the position of actually being the monitors of the execution of the plan. I don't think any institution would want to do that, nor would the Government of Canada want to do that.

So if you read the recommendation, it's really to make sure that when you do a loan part of your due diligence process, among another probably couple of dozen of items, you get from the corporation or organization in question, sometimes a not-for-profit organization, the process they've gone through to review the year 2000 challenge and to satisfy yourself, in your due diligence as a lending officer, that this is done.

If it's not done, that doesn't mean you don't give them the credit or the funding or the loan. You ask them to say what they're going to do about it, because you want to help them and you have some information people, systems people, who have gone through this. There's a checklist available from the task force, and information. You can ask them why they haven't done it.

Let me give you an example. You remember the environmental laws put together in this country and many other countries around the world that in effect are encouraging the banks, the financial institutions, to use in their due diligence process one of the checklist items—that is, satisfaction of environmental laws in this country.

This is a good example. The banks have used this, because there is a liability on all of us as Canadians and on them as institutions. They have used their due process and due diligence in assuring themselves that they're not making a loan to a corporation or an entity that will get in trouble with environmental laws with significant liabilities that would put the corporation in jeopardy.

We think this is a good example of how this should be managed or dealt with by lending institutions with regard to the year 2000.

The Chair: Thank you, Mr. Bellemare. Mr. Lowther.

Mr. Eric Lowther (Calgary Centre, Ref.): Thank you, Madam Chair.

I'd like to applaud you, Mr. Monty, that you have the courage to step into this job. It seems like a big mountain, almost a thankless task. If everything goes great on the first day of 2000, everybody won't know you did it. If it doesn't go well, they'll be looking for you. So I applaud your courage to step into it.

Along those same lines, at the start here you said this is a national priority, it's serious and it's urgent. I wonder if you can give some quantification of the seriousness and the urgency of this problem.

We talk about the $12 billion to have the fix and to get it working, but in your numbers you talk about the number of businesses who still haven't really grasped the concept here on how big this is. I think it would be helpful to have some idea, within relative terms, of the seriousness and urgency.

Is this like a stock market crash, a prolonged recession, a 60¢ dollar—what? Can you give us any idea on that?

• 1630

Mr. Jean Monty: We asked better people than me to look at this, and we asked the Conference Board. The way we asked them to look at it is the encouraging side, the positive side: if Canada is ready and if corporations in this country are ready ahead of others, will that improve our competitiveness? Their answer was clearly yes.

The other side is what is the negative if we're not ready. That's a very difficult one, because the system is such that there will be adjustments in, for instance, contingency plans. Assume that a corporation can't do its payroll because they haven't worked the payroll system. Somehow or other they'll write cheques. Somehow or other they'll do the manual circumventing of the system to get this thing done.

There are certain things that are not so easy: security systems are very difficult, air traffic control systems are very difficult, and energy control systems at the national or provincial level are very difficult. So to say we're going to be able to do contingency planning on everything is a gross overestimation.

The work that was done by the Conference Board led us to believe the dislocation issue is probably greater than the overall national issue. For instance, 1% of GNP would be something that you could say would give me an order of magnitude. They can't even say this, because they believe that in the end there will be some corporations that will be ready and take advantage and steal the business from somebody else and be able to deliver on the compliancy and the products and systems that somebody else will not be able to deliver. The issue is that some companies will go bankrupt and not be able to do it, will not be ready, will not be competitive, and others will steal business.

Can Canadians steal business from other corporations in other countries? That is something we'd like to think is doable.

Mr. Eric Lowther: Just on that same track then, is the task force, or the Conference Board or perhaps the government.... To your knowledge, is anybody assessing whether we should prioritize certain functions within our society that really need to be 2000-compliant, like emergency services, or health care, or law enforcement, or whatever, so there isn't chaos on day one of the year 2000?

Mr. Jean Monty: I think there's some work being done, and here I'd like Alain Desfossés, the head of our secretariat, to help me. There's some work being done by another committee of the House, the Standing Committee on Public Accounts, to ask the CIO of the federal government to present those priorities and make sure the work is done by the federal government on the high-priority items that affect all of us.

Alain, am I correct in saying that?

Mr. Alain-F. Desfossés (Secretary, Task Force Year 2000): Yes. I understand a request was made to ensure that there's more transparency on mission-critical functions performed by the federal government. They're still expecting the report any day now from the information officer of the Canadian government.

Mr. Eric Lowther: Thank you. I would like to give my last two minutes to Mr. Schmidt.

Mr. Werner Schmidt: Thank you.

Every once in a while, Madam Chair, I think we take for granted the work of our translators. I want to commend them for the speed and accuracy with which they're translating this afternoon. I've been watching this, and I thought to myself, man, they work behind the glass, they have to be recognized every once in a while. I think they've done just a fantastic job.

I also want to commend the chief executive officer of BCE for stepping into this thing.

I want to correct one other thing, though, I'm not looking for a certification officer. My series of questions were not directed that way because I know that's an impossible situation. It wouldn't work, never mind how desirable it might be. I don't even think it's desirable, but never mind, it wouldn't work.

The point here is I think we need to recognize what the consequences are of not being ready. I know the Conference Board has done some of this work, the CGA people have done some of this work. And I know you're concerned about this in your organization, which is a huge organization.

You, as chief executive officer, must be really concerned. What are the consequences if we aren't ready? You must see also for not only your group of companies but the companies with which you do business, which you rely on for your success. What are the consequences if we're not ready?

Mr. Jean Monty: We'll lose business. It will be something that will be very difficult to come back from, because we'll lose the confidence of many of those customers, and losing business in one year because you're not ready doesn't mean you're going to get it back the following year. You will have hurt many of your own customers and their supply chain. So we have put a process in place where each of our boards of directors and each of our companies in our group go through a very serious and rigorous process to make sure the work we're talking about here is done. But as the months go by it will become even more important to talk to our suppliers beyond the barriers of our corporation.

• 1635

I can't do more than say to you that at least for the companies I'm responsible for we're putting everything to work to make sure this work is done at the expense of putting some very valuable and high-return projects aside. Don't forget that the $400 million we're going to spend on this will not return us even a dime.

The opportunity cost of not doing it is huge, but the cost of doing it will not be borne by more revenues unless somebody else is not ready and we take business from our competitors. But in the end we are putting processes in place that we hope other corporations will have put in place to get the work done.

Mr. Werner Schmidt: I think that's the financial side of things, but isn't there also a human side to this? What about life support systems, for example, that are monitored and a whole host of technological devices that some of us carry around in our bodies? I don't have one yet, and I hope I never will, but some of us do. What happens there?

Mr. Jean Monty: That's a very good question. One of the things you could do is have some of the associations that bring together members of the health industry in this country present to your committee the work they're doing with their members in the health area to make sure they're ready. But this was not something we addressed as part of our task force.

Mr. Werner Schmidt: Yes. Thank you.

The Chair: Mr. Murray.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chair.

Mr. Monty, I want to thank you for performing a very valuable public service. You've talked a lot about government showing leadership, but I think it's fair to say that if we hadn't had a committee chaired by someone of your stature—and I'm not trying to butter you up here—and the members of your committee, the alarm bell wouldn't have been rung quite so loud.

I think there are a lot of people who are either still skeptical or just overwhelmed by the idea of what they're facing. I won't ask you to answer, but I'd like to know if you'll be comfortable getting on an airplane on January 1, 2000, and landing at a busy airport.

I'd like to ask a different question about opportunities from all of this. Does anybody win? Do you see any opportunities for Canada if we are ahead of the pack, or are we so enmeshed in the world economy that even if we are ahead of the game in some area others will be behind and we will never really be able to take advantage? Have you come up with any ideas on how we might seize some opportunities?

Mr. Jean Monty: Thank you for the comments you made about the members of the task force. Without necessarily wanting to butter up a minister of the government, Minister Manley had the foresight to put this task force together. I didn't go to him and say I wanted to create a task force; he created it. So I want to give him credit for that initiative.

On the issue of how we take advantage of this in a constructive sense, the companies in this country that are export-oriented have something to look at here. ITAC did work for us with regard to other countries and who was really leading the way here, and we have found that Canada, to our credit, as a group of institutions or as a country is not far from being the leader. We're not necessarily the top one, but we're certainly not behind everybody.

The U.K., the United States, Australia, Denmark and Canada are in a group where we're learning from each other. We're exchanging web sites on the initiatives. Kevin Lynch, the Deputy Minister of Industry Canada, told me earlier today that he's back from the U.K. and he brought our report to his U.K. counterpart, who was very interested in some of our recommendations. We're obviously interested in some of the work the U.K. has done.

We're all learning from each other. In this respect, I don't think we can expect to gain from countries like the U.S., the U.K., or Australia, but there are other countries that are far from being serious enough about this—there's no point in mentioning them, it would not be proper—where some companies could take advantage of greater exports of their products if their local competitors in those countries are not ready.

• 1640

So that's the intent. That was very much the intent of Minister Manley in initiating this report. Can Canada improve its competitiveness in being ready ahead of some of its competitors? I think the answer is that it's possible, but for export-oriented industry segments primarily.

Mr. Ian Murray: You address this problem of human resources with the idea of fast-tracking immigration. Is there any guarantee that those people haven't been snapped up already? I mean, in every country.... Essentially, I guess we could look at some less developed countries that turn out a lot of engineers or computer scientists but don't have the computer infrastructure in those countries. They may be available to come here. But are you aware of whether the resources do exist?

Mr. Jean Monty: That's an excellent point. Our company, for instance, has a big coding group of scientists in India, in Bangalore. We're not the only ones. I know of many of our high-tech corporations in this country that have that access. We have access to very good computer science people in China, some in Russia. In the end, the issue is going to be whether we ask these people, who already are working in a lot of our projects, to stop the work on those projects and work on this, and can they, in effect, farm out.

Some companies have actually put a business plan together to specifically do that for the next two years, get those resources and actually get them to work on Canadian projects for year 2000 compliancy. So the market system is already at work trying to find these resources. If Immigration Canada were to help these companies that have dedicated their business plan to doing this work.... Some people are going to make money at doing this, let's face it. But that's not necessarily wrong; that's how the system works.

So there are countries where availability of resources is a little better than here. We already lack resources in Canada right now for this area of work, not only for year 2000 but for the whole area of systems in computer science and engineers. But it's going to be an issue of getting access to those countries that have a surplus, and there aren't that many. Some companies have already locked up a lot of those resources.

Mr. Ian Murray: Do I have time for a quick question?

The Chair: Yes, Mr. Murray.

Mr. Ian Murray: Anybody who doesn't meet the target—whether it's 1999 or January 1, 2000—you've missed the boat, essentially. But some people will miss the boat. We'll discover things that we never thought of that have to be cleaned up here and all over the place. So would you envisage that these workers, if we bring them in, would actually be needed for a number of years and that there would be continuing jobs after year 2000?

Mr. Jean Monty: I think it's fair to say that it doesn't stop on January 1, 2000, but it doesn't go very much beyond, because it's going to be very expensive to use contingency plans to work around systems that are now part of our daily lives, where we have saved a lot of money developing those systems. So I don't believe it's going to be very long after the year 2000.

Mr. Ian Murray: Thanks.

The Chair: Thank you, Mr. Murray.

[Translation]

Mr. de Savoye, do you have another question?

Mr. Pierre de Savoye: Madam Lalonde, do you want to take over, with your permission, Madam Chair?

The Chair: Ms. Lalonde.

Ms. Francine Lalonde (Mercier, BQ): Mr. Monty, I was very pleased to see that you submitted your report in February, because when we had worked on the issue, I wanted to have you appear before the committee and I felt that doing it in May was much too late. I am therefore very happy.

The first sentence in your report says that "the cause of the problem appears deceptively simple." I think that that statement is extremely important. My colleague, who has generously replaced me during a speech, was telling me that you dealt with this issue. If I raise it again, it is because it is the main obstacle in the end.

Many people are telling themselves that someone has found a simple solution. Everyone is talking about a whiz somewhere who has found the magic potion. Since there is a magic potion, there is no point getting worried about the problem. In fact, I read about someone who was very well informed who said that if companies planned to invest more in 1999 than in 1998, that was a concern. If they did not know how much it would cost, that was an even bigger concern.

Mr. Jean Monty: You are right. There are indeed very good tools that have been developed by smaller firms, which help to detect some of the problems and that make system conversions much more efficient.

• 1645

Our task force, however, like most informatics firms and informatics groups in large companies, have not found any alternative to going through the hundred million lines of code that a company like Nortel may have, or 140 million or whatever the figure is, and working with those tools to identify problem areas and do the conversion. There is no magic solution on the horizon that allows companies to delay this work in the hopes that a miracle will happen and that 1999 costs will be lower. We haven't found these magic solutions, but a number of very effective tools have been developed and some firms will have a very good bottom line thanks to those tools.

Nonetheless, that will not meet all the needs and will not substitute for the need to carry out detailed work and to implement the six parts of the formal plan that we suggest in our task force report. In our view, the difficulty is making firms aware of the fact that, even if the problem may seem a bit petty, it must be dealt with, and this is maybe the biggest challenge that we have and that you have.

Ms. Francine Lalonde: In discussing the problem with these computer whizzes, I learned that the most difficult step was the one that I thought would be the easiest, that is testing, because once the problems have been detected and identified, either a new system has to be put in place or the database software has to be changed, or something else. Testing will practically require two parallel systems: a new system that allows operations to carry on, and the converted system, while it is being tested to see if it will work.

Mr. Jean Monty: That is true. I said earlier that 50% of the work—it varies between 45% and 55%—involves monitoring. And this testing is done not only in real time, but in an isolated environment. There is also integrated testing in which all the systems are tested together. That is the greatest difficulty of all: verification.

Ms. Francine Lalonde: We are grateful for your report but, the work has yet to be done, because you have pointed out...

Mr. Jean Monty: Every economic agent in Canada must take responsibility for meeting the challenge. What we have done is to ensure that most economic agents are made aware of the challenge, and we have sent out a call for action. We therefore need large scale communication. We are also offering tools that help pose the questions that need posing, but all this is no substitute for the action that must be taken by each economic agent in Canada.

Ms. Francine Lalonde: Thank you, sir.

The Chair: Thank you, Ms. Lalonde.

[English]

Mr. Ianno.

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you, Madam Chair.

Thank you, Mr. Monty, for giving us a great report. I have a couple of questions. I looked through the report to see if they were answered in some form. Sometimes it's so obvious.

Can someone starting a business or a system today buy computer hardware and software that already has all of these concerns dealt with?

Mr. Jean Monty. Yes.

Mr. Tony Ianno: When did this all begin in terms of...?

Mr. Jean Monty: It depends on the supplier. Some suppliers were compliant three years ago on many of their systems, but it's all over the lot.

Mr. Tony Ianno: How would a small business know whether the system they bought last year is up to date?

Mr. Jean Monty: They basically have to go back to their supplier of that system, or their adviser, and ask the question and request a test be made in order to assure themselves. The issue is really beyond that, though. That's certainly a step that has to be made, but what about the applications that were built by this enterprise on the hardware or the information software they've received?

A simple spread sheet program on any information tool that has been bought goes beyond what a supplier can do, because the individual or the corporation has provided a program that has been built by that organization. So both of these have to be taken care of, making sure that the hardware you bought and the systems you bought are compliant and then doing your own testing on the systems you've built.

• 1650

Mr. Tony Ianno: I'm trying to bring it to the grass roots, my constituency, where a person has one, maybe two computers, has taken stuff off the shelf, bought it from a person in the corner store who sells computers, a year ago plus. What procedure do they take to go and ask the right questions to be able to deal with it, since they are not experts and they don't have information technology people?

Mr. Jean Monty: They basically have to go to that supplier and the manufacturer. They have help lines and they have to be cognizant of the issue and ask the questions and go from there. I don't think there's a silver bullet in that answer, either.

Mr. Tony Ianno: With BCE and other companies such as yourselves, which spend the $450 million, your suppliers that are small businesses, I understand, should be trying to fix the problem as best possible, but often their systems are very simple. Other than checking in the way we talked about previously, how do they check with BCE or another large company to make sure their systems are compatible?

Mr. Jean Monty: If they are a supplier of ours, we would offer, because it's in our interest, to take their product and test it with our own systems, or to take the piece of information that they send us and that would feed into our systems. We would test that interface. We have to do that. We are interested in doing that, because this is important for our business. That is true not only for our company but for all companies that deal with their own suppliers.

Mr. Tony Ianno: You also mentioned about that non-profit group in the States. Is there an equivalent in Canada?

Mr. Jean Monty: Alain, would you be aware of an equivalent not-for-profit organization that has put itself in the business of certifying year 2000 compliance in Canada? I'm not aware of any.

Mr. Alain-F. Desfossés: No.

Mr. Tony Ianno: Has your task force possibly recommended to the government that they set up some quasi-group which might be able to help, especially with small businesses which don't have the ability to do it themselves?

Mr. Jean Monty: Because of all the comments I made earlier to two or three other questions, we came down on the side that this was probably not effective and the best thing we could do is spend our money on raising the call for action to as many people as possible, the hundreds of thousands of businesses, and providing tools such as the ones we were talking about: web sites, information on what to do. We felt this was more effective than developing a certification program and asking a unit of government to do that for SMEs.

The Chair: Mr. Monty, you've been very generous with your time. We appreciate your being with us. I understand you have another commitment.

Mr. Jean Monty: Yes, I have a dinner to attend in Montreal.

The Chair: Is Mr. Desfossés able to stay?

Mr. Jean Monty: Mr. Desfossés could stay.

The Chair: That would be wonderful.

Thank you again for your report. Thank you for your time.

I understand Mr. Rand will join the table in case there are any questions.

Mr. Jones, you had another question.

Mr. Jim Jones: Yes. Are all the products manufacturers are manufacturing or producing year 2000 compliant, or are there still people out there making software or hardware with embedded chips which are not 2000 compliant?

Mr. Alain-F. Desfossés: There is definitely hardware that is non-compliant and that is being sold as we speak.

Mr. Jim Jones: New.

Mr. Alain-F. Desfossés: New. And there is definitely software that is being sold off the shelves as we speak. This was one of the reasons why in the report the task force invited consumer groups to apply pressure where they should to make sure consumers are aware, before they walk into stores, that they should seek proper certification by the vendor, or by the manufacturer through the vendor, that the products being sold are compliant.

Mr. Jim Jones: Would this not have been a good recommendation by the committee, to have at least anybody who is making products for 1998 and 1999...that they are certified or they are compliant, with a seal on them? People could be buying these products, devices, thinking they are compliant and maybe relaxing a little because they churned their inventory, their systems, and bought these things?

• 1655

Mr. Alain-F Desfossés: No. We suspect that as soon as that issue is visible enough and consumers expect year 2000 compliance on the products that they're purchasing, the rules of competition, the market forces, will be such that there will be no software manufacturers or hardware manufacturers who will still want to make non-compliant products.

Mr. Jim Jones: We should have something like Microsoft. When you're developing a product for Windows 95 or something you can put their seal on your product saying that you're Windows 95 certified. We should have the same type of thing out there now. We're talking about only 700 days or less left.

Mr. Alain-F Desfossés: I should point out that as we speak most brand-name manufacturers advertise their products on their web sites. Or they advertise that their manufacturers who are complying have some deadlines by which the corrections will be available to fix some of the products they have. They even mention some of the products that will not be made compliant at the end of the day so that consumers are aware ahead of time that the time is right to change their products and they can buy something else.

The Chair: Thank you, Mr. Jones.

[Translation]

Ms. Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): A number of my questions have already been asked by other members of the committee, but I would like to come back to two points. First, you have clearly indicated that the percentage of SMEs who are even aware of the Y2K problem is very low. It is reasonable to expect, then, that, despite a vast campaign to raise awareness, many of the SMEs will not be prepared by the critical date.

One of the recommendations was that regulated credit institutions should require that firms borrowing money have an action plan ready. That is fine for SMEs that have existing access to credit. But studies, even by the Canadian Bankers Association, show that the vast majority of SMEs came into being without credit from lending institutions.

How can we bridge that gap and reach people who are in business but who do not have credit? They are operating by withdrawing money from their RRSPs or with personal loans from family or friends.

Second, how can we raise awareness by the year 2000 among future entrepreneurs who will probably not ask for loans from financial institutions? Have you thought about that and, if so, do you have suggestions for the committee? How can we, the members of the committee, play a role in this area?

Mr. Alain-F. Desfossés: That is an excellent question. The problem is not one of awareness. According to statistics already published, only 9% of firms are unaware of the problem and only 10% of small businesses are unaware.

Fifty percent of small businesses are already taking action. Unfortunately, too few or them are taking a systematic approach, with the result that they are not fully aware of the scope of the problem that may come back to haunt them. It is therefore not a problem of raising awareness; they must act and take a systematic approach.

It is true that only one out of every two firms, if I understand correctly, depends on bank loans. There again, as Mr. Monty mentioned, the task force recommendation is to get financial institutions to make companies aware of the need to adopt an action plan based on risk assessment, risks that must be assumed by both entities.

• 1700

The Task Force will very soon have the opportunity to participate in a vast communication campaign. The Stentor Group will be writing to 800,000 business executives, which is about the number of small enterprises in Canada. Chartered banks will follow but, as you say, only one of two businesses will have access to this information or benefit from it.

A vast communication or publicity campaign will be launched within two to three weeks in specialized periodicals dealing with the business world, newspapers, dailies and quarterlies. The Canadian Federation of Independent Businesses will circulate a copy of what we call the checklist for small enterprises to some 88,000 of its members.

To all this we must add the pressure which will be brought to bear on them by big businesses wanting to know about the state of preparedness of the companies which supply them and which they need. Given the fact that the work required from a small enterprise is not as large as what is required from a large enterprise and given the fact that there are still nearly two years left, namely 23 months, I am quite hopeful that small business executives will react on time and make the right decisions.

The Government of Quebec, with the support of real estate brokers and chartered accountants, took some samples, somewhat in the same way as we did. The interesting part of this, is that the conclusions drawn from the samples are more or less the same as the conclusions that Statistics Canada arrived at on a national scale. This is the reason why the task force wanted to invite not only federal authorities but also provincial and municipal institutions to help us sensitize businesses in this country.

Ms. Marlene Jennings: I have another question. In the report, it is recommended that the Canadian government look into the possibility of levying or instituting a neutral tax to help companies which must make investments to face the year 2000 problem. In the long run, their expenses would be neutralized if they could face 150 per cent of these expenses or investments in 1998 and then only 50 per cent in 1999 to remedy the fact that they have already taken 50 per cent of this investment. I think that this is an excellent idea and the government should look into the possibility of doing this kind of thing.

I believe that one of my colleagues mentioned that it would be probably for the SMEs which in the fiscal environment, can make capitalizations, amortizations, capital investments, etc. Well, there are nonetheless quite a few people who belong to what we call the independent workers, they are not companies, but they do work. They could be made aware of the year 2000 problem. The person might have taken some active measures, but the expenses he had to incur might not be tax deductible. Obviously, I am not an expert on taxes. Have you considered this solution or were you only concerned with SMEs in the strict sense of the word?

Mr. Alain-F. Desfossés: I think that we are dealing with SMEs in the common sense of the word.

• 1705

On the other hand, we must recognize the fact that a business with six or more employees probably has a bigger challenge to face than a business with only one independent worker.

Secondly, the tax incentive, as it has been proposed, is neutral and, consequently, brings no pecuniary benefits to the business over a period of two years. It only allows it to amortize more of the costs incurred during the first year, which must be reimbursed during the second year, with the idea that, the more quickly you act, the more quickly you can access resources which are becoming increasingly scarce because they are coming under increasingly fierce international competition.

Thus, the more quickly you incur these costs, which are unavoidable in any case, the less costly it will be for you. So, this is a neutral tax incentive, and as a matter of fact, it will help companies save money during the two coming years.

Ms. Marlene Jennings: Thank you. One final question. You spoke about the role of consumers protection groups. Could you elaborate further on this point? Either you, or Mr. Monty I believe, stated that the consumers protection groups could have or already had a role to play to make sure that the public be aware of the year 2000 problem. If they are playing such a role, it could become a way for the public to apply pressure on product manufacturers to make sure that these products be year 2000 compliant. Could you amplify on this topic?

We might wonder what kind of measures these consumers protection groups could take. It is not simply a question for them asking SMEs whether they already have any idea or not.

Mr. Alain-F. Desfossés: Listen, it is difficult for us, as we are a task force essentially made up of big business executives, to become spokespersons for consumers.

However, in the report, in the chapter which deals with the role of parliamentary institutions, both federal and provincial, an invitation has been addressed to consumers' movements to voice their minds on the topic. I must say that I have not to read many articles in specialized magazines and periodicals over these past months regarding that topic, and more particularly about things concerning consumers as such.

If you look at page 57 of the French section of the report, you will see that we are inviting employees, either directly or through the intermediary of their unions, to ask business executives to give them an account of the preparations being made for the year 2000.

Basically, as Mr. Monty was saying, it is a question of trying to find or to create a coalition, or some expression of a coalition of all the components that make up the social and economic life of our land, and this would require obtaining accounts from organizations whose survival and continued activity are essential to the prosperity of our country.

[English]

The Chair: Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

I have one short question on the motivational basis more than anything else. It seems to me a lot of the small businesses, particularly, know about the problem. They're aware. So the fact, if you like, is understood, or at least known.

Some understand it very well. In fact, most of them even understand what needs to be done. But I do find this every once in a while: “Yes, but it's not going to affect me”.

This leads us to the third thing. They know, they understand, but they will not accept that it affects them. How do you move? You talked about all these incentives. This is a totally human thing. How do I accept that it's my problem?

Mr. Alain-F. Desfossés: I think the year 2000 challenge is that once people are sensitized to it, a denial process quickly follows.

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Mr. Werner Schmidt: Very much so.

Mr. Alain-F. Desfossés: It's somebody else's problem, not mine. It can't be that bad. It's information technology, so I will delegate it to the specialists.

That's what you and I probably do when we have a computer problem. We give it to the specialists. They fix it and we're happy with it.

I think the task force has tried for a blending of the incentive approach and the punitive approach. Well, it's not punitive so much as peer pressure. If a smaller business is told by their customers that unless they demonstrate that they're eagerly working on their year 2000 challenge, they risk being dropped from a supplier's list within the next six months, that's enough, I believe, to convince a business executive to say, “Let's not deny that problem any more. Let's act upon it. Let's, at the very least, know the extent of a problem that I hope I don't have.” Once they do that, the matter is behind them, and they can proceed with the rest of their business as usual, knowing that they're going to go through the passage of time unharmed.

Those who will not, despite all of the communication campaigns and the pressure they will sustain—the call for action that various institutions nationally will express—their customers will know it, and will probably switch around. They'll suffer from their own lack of action on something that is being described as very much a commercial undertaking.

So it's something no company is immune to and about which all companies obviously have to do something.

Mr. Werner Schmidt: I'm concerned about this from a commercial point of view. There's no doubt that it's very realistic. But the other question I have deals with the professional people—the psychologists, the medical practitioners, the various health services. The operations here aren't so much in the money-making business, as far as a business transaction is concerned. They do have a very significant role, and they don't accept this—well, they may not; some do—as their problem. Is it their problem?

Mr. Alain-F. Desfossés: You're talking about the service providers, I assume

Mr. Werner Schmidt: Yes.

Mr. Alain-F. Desfossés: Most of them have been active on that issue for years—a couple of years, anyway—and have felt that time was passing by more quickly than the pick-up rate was taking place. I would say there are a lot of social concerns on the part of the service providers about the fact that there are not enough investments being made to.... They don't necessarily look at it as only a commercial undertaking. They care.

Perhaps what has made a difference between the approach Canada has taken with what we've seen elsewhere is that, for the first time, we've had presidents and chief executive officers of corporations, who had lived what it was to do a year 2000 project, turning around and talking to other CEOs and other presidents of corporations, saying, “Don't underestimate that problem”. Their voice, to them, is much more credible than that of service providers who are trying at the same time to sell their services.

The task force hopes that because the messenger is often becoming the message, it will be different this time. They'll be more credible in the message they'll convey than the service providers have been so far.

The Chair: Thank you, Mr. Schmidt.

Mr. Shepherd, you had one final question.

Mr. Alex Shepherd: Mr. Jones raised a very interesting point, I thought. I'd like you to address that.

There's going to be a huge incentive for maybe not the main-line software programmers in this country but the people who have written packages for applied use in industry or whatever to dump their products on the market because they're no longer useful.

Should the Canadian Standards Association go out there and say that you cannot sell products today that are not year 2000 compliant?

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Mr. Alain-F. Desfossés: Well, a standards organization is, I believe, by definition a voluntary organization that's trying to define norms that are getting implemented not in a compulsory way but on a voluntary basis.

Mr. Alex Shepherd: Okay. Just regarding the Canadian Standards Association, in your research, have you looked at that issue? Is that a big problem? It would be purely economic for somebody to try to get rid of their inventory.

Mr. Robert N. Rand (Director of Operations, Task Force 2000, Industry Canada): I think there are complex industrial organization issues here. Just as in industry at large, in the information technology industry presidents of firms are making decisions about whether or not to become year 2000 compliant or sell out the remainder of their intellectual capital to a larger competitor. There will be a certain amount of churning in the marketplace as a result of this.

With respect to standards, one of the challenges that frankly has to be faced is that at the present time there are no really clear and internationally accepted standards for year 2000 compliance. So putting a seal of approval on a software box can be confusing.

Perhaps by the time we get a little closer to 2000, this issue will have been more successfully addressed by standards bodies that typically, in a situation like this, take the advice and the established practice of firms already in the industry, whether these are hardware or software firms. The standards-making process is a consensual one.

I personally think this issue is very well taken. The main challenge is the amount of time remaining. The standards process tends to move rather slowly. At the moment there isn't an alternate mechanism, nor are there clearly defined standards that could be applied.

Mr. Alain-F. Desfossés: My understanding, however, is that more and more corporations are looking at the British standards that were developed a couple of years ago as being one of the good models to follow. The more that people follow that standard, the more it becomes a standard.

The Chair: Thank you, Mr. Shepherd.

I want to thank you, Mr. Desfossés and Mr. Monty, and all the members of your task force for preparing the report and for coming before us today on behalf of the rest of your members. We welcome the challenge along with you to try to bring information out there to small and medium-sized businesses as best we can as a committee, which is what we have undertaken to do.

We recognize that there is a multitude of problems, such as embedded computer chips. We could go on for hours here today. We will try to bring the different groups before us.

We are being called in for a vote now. We thank you for your time. We look forward to meeting with you again.

Mr. Alain-F. Desfossés: Thank you, Madam Chair and everybody.

The Chair: The meeting is adjourned.