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AREAS OF CONCERN

During its hearings, the Committee found that not all areas are as far along in solving the Year 2000 problem as it would have anticipated, while some areas have special problems to overcome. The Committee's concerns focus on lack of progress, possible lack of sufficient public funding for becoming compliant, lack of progress by some important trading partners, and the serious safety or environmental consequences if problems are not adequately handled.

Health Care

An area of almost universal importance to Canadians is our health care service. While noting with interest the progress made since last spring, the Committee heard that this sector remains challenged by slow vendor responses, lack of funding, and lack of skilled personnel.

The Committee was informed the federal-provincial-territorial governments are now working on the Year 2000 issue. To address the need for enhanced information exchange among governments, Health Canada has co-operated with the provincial and territorial governments in establishing the Year 2000 National Clearinghouse for Health (CYNCH) to promote the sharing of information on compliance initiatives. One area where all health care providers could work together is to ensure the continued safety and supply of blood, blood products, and pharmaceuticals in the year 2000. Although CYNCH appears to be an excellent initiative that should be expedited, the Committee feels that a more comprehensive pooling of information and efforts would further assist this sector and recommends:

Recommendation 4:

That Health Canada actively canvass the provincial/territorial governments, local health authorities and health care associations as to what additional information on health sector Year 2000 problems and solutions could be shared nationwide over the Health Canada Internet site.

Health Canada's database on medical devices still contains major gaps since many manufacturers and distributors of medical devices and equipment have not provided the compliance information requested. The Canadian Hospital Association (CHA) indicated that this lack of information remains the greatest challenge for health care facilities and agencies. The information coming from organizations that have begun or have completed testing on medical devices and equipment indicates that the failure rate of equipment is relatively low, in the range of 7% to 10%, and the failures that were found are relatively minor. Nevertheless, significant time and human resources need to be expended to find these problematic devices.

Recommendation 5:

The Committee reiterates Recommendation 10 from the May 1998 Report:

That Health Canada publish the names of manufacturers and importers of medical devices who do not furnish necessary Year 2000 compliance information in a timely fashion, and start regulatory or legal action against them.

The CHA explained that the health sector across Canada is actively working on Year 2000 compliance management and that health care facilities and agencies are now preparing contingency and service continuity plans. The Committee also heard how the Year 2000 problem affects not only hospitals but the full spectrum of health care: long-term care facilities; home and community agencies; community health, public health, mental health, and addiction services; private clinics and medical laboratories.

An indication of the level of preparedness was provided by the results of an Ontario Hospital Association (OHA) survey conducted in July 1998. This survey showed that, though remediation was in progress at 26% of the responding hospitals, the majority had not yet reached the remediation stage and most were in either the inventory or the assessment stage. The estimated cost to correct the Year 2000 problem for the hospitals in Ontario is between $400 million and $700 million over 3 years. The Ontario government has budgeted an additional $300 million in the health care budget specifically for this problem. The Committee was also informed that the Alberta government has provided $170 million for the Year 2000 problem in its provincial health care and that the New Brunswick government would be providing extra funding for its hospitals. As the final cost of Year 2000 remediation in the health care sector remains uncertain, the Committee recommends:

Recommendation 6:

That the federal and provincial/territorial governments monitor the total costs of Year 2000 remediation in health care to ensure that high quality medical services to Canadians are not compromised.

Small and Medium-Sized Enterprises

The Committee heard from numerous witnesses that many SMEs, in most sectors such as manufacturing and resources, persist in not preparing to meet the Year 2000 problem. One witness noted that, in a published survey by the Canadian Federation of Independent Business, 97% of Canadian SMEs said they were familiar with the Millennium Bug and its potential effects on their business systems. Some informal steps have been taken by 73% of these businesses but many have not implemented a formal action plan. Most sectors expressed concern with the inaction of SMEs.

SMEs that do not correct the Year 2000 problem could, like other businesses, find themselves with serious difficulties at the year 2000, up to and including going out of business. Even though many SMEs have a very short time horizon for their activities, waiting until near the end of 1999 may well prove fatal. Many SMEs may find that correcting the Year 2000 problem is a relatively simple task, such as replacing or upgrading their hardware and software or installing a simple "patch". They first need an assessment and they must leave enough time to correct any problems discovered.

The Committee had the opportunity to be briefed on a new initiative designed to help SMEs to address the Year 2000 problem. The Year 2000 First Step Program is a joint Industry Canada and Canadian Imperial Bank of Commerce initiative designed to give Canadian SMEs access to an affordable, customized means of taking the first steps for preparing for the Year 2000 challenge. For a modest fee, each business will receive a customized assessment, including an inventory of all of the business hardware and software, a diagnostic testing of systems, and an action plan specific to its own unique Year 2000 challenges. In addition, the Year 2000 First Step looks at the particular Year 2000-compatibility relationship between a business and its customers, partners and suppliers. The Committee encourages SMEs across Canada to use this service and start on the path of Year 2000 readiness.

Manufacturing Sector

In spring 1998, the manufacturing sector's major concern was its high dependency on untested embedded chips on the factory floor. This situation does not appear to have improved as much as the Committee would have hoped. The Alliance of Manufacturers and Exporters Canada, whose members account for more than 75% of this country's total manufactured output, outlined the results of its survey conducted last summer: 58% have a formal plan, with the majority of companies appearing to focus on front office information technology (such as billing and personnel systems), while only 36% have worked on embedded chips. Smaller companies are generally the ones not working on the Year 2000 problem.

The Committee was informed that the time and effort necessary to become Year 2000 compliant might force some companies out of business. In many cases, the lack of an inventory of parts and products that are Year 2000 compliant hinders remediation plans. It was also noted that many companies in this sector are not looking at the wide range of Year 2000 issues such as safety, environment or legal liability. The Committee is concerned by the overall progress of this sector of the economy and encourages manufacturers of all sizes to work more diligently to become Year 2000 compliant.

Retail Sector

In a written brief, the Retail Council of Canada (RCC), which represents 7,200 retailers across the country as well as 100 sectoral associations, reported that all major retailers are working on the Year 2000 problem in terms of their organizations, the supply chain and business relationships. Major retailers' risk assessment and remediation are well underway. Several sector-specific initiatives have been established to allow all partners in the supply chain to work closely together. Members of the RCC are concerned that few Year 2000 initiatives have been undertaken abroad. Many of RCC members' trading partners overseas are just starting Year 2000 initiatives at the formal request of Canadian industry and their success in becoming Year 2000 ready is uncertain. The Committee has reservations about the level of preparations of smaller retailers and the availability of supplies from outside Canada and the United States in the new millennium.

Agriculture and Mining Sectors

The Committee had an opportunity to review the resource sectors. Unfortunately neither the forestry nor fishing sectors participated in the hearings and their status with respect to the Year 2000 is unknown.

The Canadian Federation of Agriculture (CFA), which represents through its members over 200,000 Canadian farm families from coast to coast, explained that this industry only started its Year 2000 efforts in early 1998. The CFA's booklet on the Year 2000 problem and farmers has been prepared and distributed and the CFA has a Web site on the issue. The Committee was informed that, in general, the processing industries are well on their way but farms tend not to be prepared. As with many sectors, embedded chips are found throughout in such equipment as milking machines, feeding systems, and environmental controls. The farm sector needs information that is farm-specific as well as greater access to expertise.

The CFA mentioned the "Rural Factor" as one of the unfortunate realities of living and operating a business in rural and remote areas. For example, failures of power or of pumps at the local gas station or disruptions in telephone services, will last longer than similar events in more heavily populated areas. Similarly, replacement equipment will take longer to deliver and it will probably require outside expertise for installation and later repair. A part of one of the CFA's recommendations would allow farmers 100% immediate write-off for emergency power generators needed as part of their Year 2000 contingency planning. The Committee has already sent a letter to the Minister of Finance in support of this request (Appendix B is a copy of the letter). The Committee has concerns that farmers may not have sufficient time and expertise to become Year 2000 ready.

The Mining Association of Canada (MAC), whose member companies account for most of Canada's output of metals and major industrial materials, indicated that the mining industry had identified the Year 2000 problem as a business risk and was working diligently to remedy the situation. The Committee heard that since this industry uses some of the most sophisticated high-tech equipment in the world, such as computers, satellites, the global positioning system (GPS), robotics, and remote control systems, its exposure to the Year 2000 problem is significant. Many newer mines face a lower level of risk but older operations are a challenge since they utilize a wide range of different systems of different ages, many with embedded chips, that require more resources to achieve full compliance. Among the most serious implications of the Year 2000 challenge is the threat to the health and safety of workers. Examples of areas where a Year 2000 failure could have serious consequences are: the breaks on the hoisting system which transports miners underground and brings them back up to surface or the failure of gas-monitoring equipment in mines or of the process controls that could result in damage to the environment. These examples illustrate the potential for life-threatening and environmentally damaging consequences, possible litigation, and contravention of federal statutes and regulations.

A MAC survey conducted in the third quarter of 1998 showed that 42% of organizations had completed their remediation testing stage to ensure Year 2000 readiness with an average projected completion date of March 1999. Of all respondents, 57% have started planning special operating procedures, while 30% are testing plans; 43% have a contingency plan to deal with failures of critical business or operating systems and the remaining 57% are currently planning for completion in early 1999; 43% have contingency plans for dealing with failure of key suppliers and the remaining 57% are preparing such plans and will be completed in early 1999. Although these results are encouraging, the Committee feels that, given the potential safety or environmental consequences of inadequate responses, this sector should be examined in more detail in the future.