:
Thank you, Mr. Chairman, and good afternoon, everyone.
First I would like to thank committee members for this opportunity to share with you information about PWGSC's procurement activities.
[English]
George Butts will provide an overview of procurement activities, the constraints involved, and the impact of trade agreements.
Marshall Moffat will describe his group's role in reaching out to the 99.9% of Canadian companies that are not large corporations, the group's successes to date, and its prospects for the future.
I'd like to add that in the audience there are also some members of the acquisition team who can, upon request, answer your questions.
[Translation]
First I'll give you an overview of our activities.
As the federal government's central purchasing agent, PWGSC is Canada's largest buyer of goods and services. It alone represents 85% of government procurement by value. We manage more than 60,000 transactions a year totalling some $12 billion.
Our goal in procurement is simple: it is to fulfil government's operational requirements - everything from uniforms and equipment for the Canadian Forces to office supplies.
We work, however, in a complex environment, influenced by trade agreements, Treasury Board policy, various statutes, and oversight bodies such as the Canadian International Trade Tribunal, as well as the Auditor General.
[English]
In addition, under the Federal Accountability Act, PWGSC is putting in place a code of conduct for procurement. The FAA also creates the position of procurement ombudsman. Under Government of Canada contracting policy, we must ensure an open, fair, and transparent procurement process while working to remove barriers to competition.
Implicit in all of our activities is a commitment to obtaining the best value possible for Canadian taxpayers. It comes as no surprise that this has a significant impact on the economy, and you will be hearing more about this later in our presentation.
[Translation]
While we occasionally find ourselves in the spotlight, it must be said that the vast majority of our contracts are trouble-free.
Fewer than 1% of contracts are challenged through the Canadian International Trade Tribunal, and only one in five of those challenges are validated.
That said, Mr. Chairman, we are always striving to improve.
As the committee knows, we are in the midst of a transformation effort. Ours is focused on changing our procurement role from one based on transactions to one based on the provision of strategic management of supply, and the creation of a whole-of-government approach to procurement.
[English]
Our approach to procurement is collaborative, and we are working hard to build partnerships with Canadian businesses. Over the past several months, we have set up consultation committees with key industries to allow us to hear first-hand their challenges and concerns prior to finalizing our procurement strategies. The committee on temporary help, for example, has met 16 times since last November. These meetings are instructive both to us and to suppliers, and they underscore our commitment to fairness and transparency, as well as good value for taxpayers.
ln addition, we set up the Office of Small and Medium Enterprises to break down barriers to doing business with the Government of Canada in all regions of the country. You will be hearing about this from Mr. Moffat, but first I would like to turn the floor over to George Butts.
:
Thank you, Madam Saint Pierre.
Mr. Chairman, I too appreciate the opportunity to address the committee and to share with you some specifics of public procurement from the perspective of PWGSC that I have realized over my 20-plus years in public procurement.
This will be a fairly quick overview, starting with the contracting principles and objectives and leading up to a typical contracting process. We've provided a number of slides that really only introduce a number of the issues and topics related to public procurement. My focus will be on the process and the management control framework that supports that process.
Public procurement is not just about buying something at the lowest possible cost. We are committed to doing the best possible job for taxpayers on behalf of our clients. Each procurement file that goes through our offices is handled in a manner that respects the principles and objectives as shown on this slide.
We often illustrate public procurement as a balancing act, wherein we endeavour to supply multiple needs—client operational requirements, socio-economic objectives, industry demands, cost to taxpayers—and all with considerable oversight and review by both public and private interests.
The legislative and regulatory framework in which public procurement operates is at times daunting, making the task of the procurement officer one that is effectively managed by trained professionals within PWGSC and client departments.
Public procurement is a job. It's a career within PWGSC, not simply an added function carried out by a program or project manager. Our procurement officers are trained to carry out their roles. They fully appreciate that they represent the Government of Canada when they solicit bids or undertake contract negotiations, often involving millions of taxpayer dollars.
Madam Saint Pierre, in her opening remarks, stated that PWGSC, on behalf of the government, spends approximately $12 billion annually through procurement. Now, this total of course varies each year and is reported in two databases, one via the Treasury Board Secretariat, as required by our trade agreements, by calendar year, and the second within PWGSC's database, where we report on fiscal year or the budgetary year. Thus, when you take a look at procurement numbers, a bit of a cautionary note: you may see figures that sometimes do not always reconcile. Make sure you're looking at calendar year versus the fiscal year.
Now, slide 5 is provided really to illustrate that the contracting is carried out by many entities within the government. You will see here that government departments issue a significant number of low-dollar-value contracts. When I refer to “low dollar value”, I'm referring to less than $25,000.
PWGSC, in fact, only issues about 10% of the number of contracts, but this represents between 80% and 90% of the dollar value spent on procurement each year. So again on this slide, you can see the less-than-$25,000 contracts, awarded mainly by client departments, the 109, 110 client departments, comprise in the order of 368,000 or 370,000 documents, for just under $1 billion.
Slide 6 is provided to illustrate how we buy things. The government contract regulations require that we solicit bids, except in some excluded situations. “Electronic tendering”—as I go down the left-hand column—refers to our posting a notice of opportunity on the government electronic tendering service, commonly known as MERX. “Traditional competitive” is inviting tenders through source lists. An ACAN, or advanced contract award notice, is posted when we think there is only one supplier who is capable of meeting our needs. It signals our intention to negotiate with that supplier and invites others who think they can satisfy the requirement to challenge it. You will see on this slide, “non-competitive row”, almost the bottom right-hand corner, that the majority of our contracting is awarded as a result of competitive processes.
On slide 7, I've attempted to show what we buy, and that everything is classified via a goods and services identification number, GSIN, some 17,000 categories of goods and services that we buy. They're all classified into various groupings, again down the left-hand column: goods, services, construction, telecommunications, and architectural and engineering services.
The numbers on the chart represent the authority limits for entry into contract. You will note they are highest when we follow an electronic tendering process. Why? That's because it is the most open process. Again, this is when we post the opportunity on MERX, the government electronic tendering service. For any contract above the high values you see on these charts, we are required to seek the authority of Treasury Board to enter into the contract.
I'll spend one more moment on this chart. Look at goods, electronic tendering, you'll see two figures on the top, $30 million and $40 million. The department or the minister has $40 million worth of authority as assigned by Treasury Board Secretariat to enter into a competitive contract whereby we have solicited bids electronically. If we use source lists, next column, that authority drops to $10 million. If we go non-competitive or sole-sourced, the authority drops to $2 million. So sole-sourced, anything above $2 million, goods, contracts, we're required to go to Treasury Board submissions.
The number just to the left of those three that I pointed out, $30 million, $7.5 million, and $1.5 million, those are the numbers that are delegated within the department to officials, to bureaucrats. So between $30 million and $40 million for electronic tendering, we have to go to the minister; again, above $40 million we go to Treasury Board. Below $30 million, the ADM has a matrix that delegates it throughout the entire department to all levels of the organization.
The figures below that, the $400,000 across the board, are authorities that can be delegated to client departments to enter into contract. Of note, for goods that authority must be delegated by the Minister of Public Works and Government Services to other departments. All departments have been delegated $5,000, not $400,000, and there are only in the order of 16 that have accepted $25,000 delegations, a few more in the pipeline right now.
I'll move on to the final slide. This was really one that could take me a long time to go through, but I've tried to summarize it as well. I first used this slide to describe the process to the public accounts committee when they were reviewing the 2003 reports of the Auditor General on sponsorship and advertising.
The slide attempts to summarize a typical--and I must stress this, typical--process for contracting within Public Works and Government Services. It shows the various key stages of a contract, from inception, defining the requirement, to paying for the services received.
A couple of key points on the slide: First of all, responsibilities are segregated. You'll see at the top of the slide, outside the boxes, I've indicated project and payment authority in the customer department and contract authority within PWGSC. Our responsibilities are segregated, and the authorities are well articulated in the contract. Where there are joint responsibilities, these are generally well defined and understood by both the client department and Public Works and Government Services.
Secondly, contracts are not awarded in a factory. There is no one-size-fits-all approach to every requirement. Where this may be possible in areas of recurring needs, for example, standing offers or supply arrangements are put in place. Many people are involved, and a series of checks and balances are employed, depending on the risks associated with each procurement, whether those risks be determined by dollar value or other sensitivities.
As you go through those nine boxes on this chart, you will see checkpoints of approval authorities, legal risk reviews by our colleagues in the Department of Justice, contract quality control reviews, Treasury Board reviews, etc. There's a series of them.
The next point I'd like to make is that procurements are planned and advertised, bids are received and evaluated, and contracts are approved and awarded and managed with professional quality and care. Each step respects the principles of open, fair, and transparent procurement.
With that, I'd like to hand off to my colleague, Marshall Moffat, to deal with the OSME.
What I'd like to do is take you through this deck and give you a bit of insight into what we're doing in the Office of Small and Medium Enterprises and how we're helping smaller companies do business with the Government of Canada.
On slide number ten there's an outline of the four areas I'd like to cover. The first one is the role small and medium enterprises play in the economy. Second are the kinds of concerns and challenges smaller companies face in doing business with the Government of Canada. Third is our mandate and how we help small and medium enterprises do business with the government. Finally are some recent examples of the impact the office is having in helping smaller companies increase business opportunities with the government.
I have to point out that the Office of Small and Medium Enterprises was established in September 2005. Then last spring the government made a decision to add six new regional offices to what was, at that time, only our headquarters office so we could reach out to smaller companies right across the country. Those six offices were established this past fiscal year. So the last fiscal year was kind of a phase-in period in which those offices were getting up and going and getting staffed with people. This fiscal year that we're just starting now is our first fully operational, fully staffed year as an office.
Slide number 11 speaks a bit to the importance of small enterprise in Canada. Of the roughly 2.4 million companies in Canada, 2.33 million are small and medium. So there are very few large companies in Canada. Smaller companies account for 45% of GDP and 66% of employment. And they're ubiquitous right across the country.
The bottom half of the slide shows how smaller companies have interacted with government procurement over about two years, from January 2004 to September 2006. So that's two and three-quarter years. Almost 80% of the total number of contracts that George Butts was talking about earlier are with small and medium enterprises. About one-third of the value of the contracts are won by small and medium enterprises.
Slide 12 gives an overview of the concerns of smaller companies, which they have expressed to us. We interact with small companies right across the country on a daily basis. These five issues, or challenge areas, for smaller companies were identified in the first few months of our existence and have been maintained since then. There's a clear consensus among companies as to what their challenges are.
First is access.
Second is accountability, in the sense of transparency. They're always telling us that there are improvements that can be made in transparency and in ease of accessing information.
Renewal means procurement renewal--the approach we take to that--and being mindful of ensuring that smaller companies continue to have access.
Complexity is a problem. Smaller companies don't have a lot of time to pore over complex documents. What can we do to improve that?
Finally is the socio-economic challenge. This is the aboriginal set-aside program, access of regional firms to opportunities, green procurement, environmental impacts, and innovation--that is, buying innovative products from companies.
I'd like to mention just one quick overview point on this to indicate the nature of how we have responded to these challenges. First of all, on the complexity issue, the department has been simplifying the language and templates and standardizing the language and templates in all the requests for proposals that go out from the department, from the smaller, simpler proposals all the way up to the very large and complex ones. We have templates now for all these different types, including standing offers, and we're using them now. It makes it a lot easier for a company.
We've front-end loaded the crucial information that a company would have to see about a particular request for proposal to know whether it's something they need to get involved in. So on the first two to three pages, all of the key information of what we're looking for, how big the order is going to be, and who you have to contact about, all that is right at the front so that a company can make a decision fast and doesn't have to search through the document to find the information it needs. That's just one example of what we're doing in making things simpler for them.
What we're doing on access is a couple of things. The key problem that smaller companies have is scale. Because they're small, it's difficult to respond to a large-scale requirement, whether the large scale is just the size of an order, or whether it is the breadth of product line that you have to supply, or whether it's the geographic scope you have to deliver to. What we've been doing in designing new requests for proposals is we've been trying to design them in such a way that smaller companies aren't inhibited from being able to bid by those three constraints.
First, in terms of just the size of the order, we're developing tiers, so that for smaller-scale orders you can bid solely on them if you want, and the requirements for those are leaner requirements than for the very big ones, so that smaller companies have access and can move up a ladder. Secondly, on product breadth, we're often taking the full product breadth of what we need and dividing it into vertical components and allowing companies to bid on one or more of those subclasses of product. Thirdly, on geography, we're continuing to use regional master standing offers so that regional firms have the choice of bidding only in their regional area of operation and capacity of delivery. They don't have to bid, necessarily, nationally. I just want to give you a conceptual understanding of the ways we're responding to these issues.
On slide 13, this describes the mandate of the office. We basically do two things. First, we reach out to smaller companies to understand their issues and to equip them with the information, through our regional offices, that they need to understand the procurement system and identify their business opportunities better. Secondly, we work within the procurement system to try to identify with our colleagues, like George Butts, ways that we can design our procurement plans so that smaller companies have an opportunity to bid. So these are the detailed things we do, but basically those are the two big functions.
On slide 14 and the following slides after that, I just want to give you a brief overview of some of the impacts that we've measured in recent months. First, on engaging smaller companies and trying to interest them in doing business with the government, we've had 3.3 million visits on our Business Access Canada website. We'd seen that over 8,000 new suppliers have registered this past year to do business with the Government of Canada.
On slide 15, on assisting and informing smaller companies on procurement opportunities and how the procurement system works, we responded to over 7,000 inquiries from smaller companies, asking for help about “How do I do business with the Government of Canada?” We've staged over 300 events, often cooperatively, with the provinces to inform groups of small and medium companies on how to do business with the government. That has had roughly 6,200 participants. These numbers represent the phase-in year. We're going to try to increase these numbers significantly in this coming fiscal year.
On slide 16, on procurement policies that the department has modified to ensure access, we have two examples I want to show you. First of all, for office supplies, the number of smaller companies has increased from 24 to 68 across the country. In the case of servers, and these are the computer servers that your desktop goes to when it needs to be connected elsewhere in the system, the SME involvement as qualified companies has increased from 21 to 42. From 2004 to 2006, the percentage value of contracts that have been won of the total by small companies has increased from 24% to over 30% last year. The trend is upward.
On slide 17, the last slide, we're also improving our ability to analyze the participation of smaller companies in procurement and also what the impact of procurement is on the economy, regionally and nationally.
I want to share a couple of pieces of information with you. First, when we buy goods and services, the labour costs imbedded in all of those products to the companies we're buying from is equivalent to approximately 140,000 full-time jobs in the economy. Second, we buy $12 billion in Public Works, and after you use the multipliers and Statistics Canada's input-output model, the CANSIM model, the total impact on the economy is $19.5 billion a year from our $12 billion in procurement.
We're working diligently now with Statistics Canada and Industry Canada to deepen the specificity of this information. We're looking at different industry sectors and different provinces as to what the impacts are there. We will have the capacity soon to go all the way down to individual cities.
Thanks very much.
:
Thank you very much, Mr. Chairman.
Thank you for the invitation to appear before the committee.
My name's Elaine Feldman, and as you said, I'm the vice-chair of the Canadian International Trade Tribunal. On my left is Reagan Walker, who is the tribunal's general counsel; and on my right, Randy Heggart, who's the director of procurement review at the tribunal.
Let me start today by giving you a brief overview of our mandate.
The tribunal's an administrative tribunal, operating within Canada's trade remedies system. We are an independent, quasi-judicial body that carries out its statutory responsibilities in an autonomous and impartial manner and reports annually to Parliament through the Minister of Finance.
The tribunal hears cases on dumped and subsidized imports, safeguard complaints, and appeals from customs and excise tax rulings. When requested by the federal government, the tribunal also provides advice on other economic, trade, and tariff matters. The tribunal also hears complaints about federal government procurement. I'm appearing today to discuss that aspect of our mandate with you.
Bid challenge began in Canada on January 1, 1989, with the coming into force of the Canada-U.S. Free Trade Agreement. At that time, it was handled by the Procurement Review Board. The United States has had a similar mechanism in place since the 1930s.
The bid challenge portions of the North American Free Trade Agreement, the Agreement on Internal Trade, what we call the AIT, and the World Trade Organization Agreement on Government Procurement, the AGP, came into force on January 1, 1994, July 1, 1995, and January 1, 1996, respectively. The government mandated the tribunal as its reviewing body for bid challenges under these agreements.
I have provided to the committee a briefing document on the provisions and coverage of the three trade agreements, and now I will provide a quick summary of the key objectives and provisions of these agreements.
Generally stated, the objective of procurement review in Canada is to ensure that procurements covered by the trade agreements are conducted in an open, fair, and transparent manner, and, whenever possible, in a way that maximizes competition.
As a party to NAFTA and the AGP, Canada has agreed to provide suppliers from the other countries that are parties to this agreement with an equal opportunity to compete with Canadian suppliers for contracts involving specified classes of goods and services, including construction services bought by certain government departments, agencies, and enterprises, such as crown corporations.
The signatory countries have reciprocated by opening up their government procurement opportunities to Canadian business. These agreements guarantee national treatment and non-discrimination for goods and services originating in Canada, as well as to the suppliers of such goods and services.
Some notable exceptions to the coverage of these agreements are communication services, transportation and relocation services, shipbuilding and repair, and goods and services related to military operations, such as armaments and vehicles. The agreements also allow exemptions for reasons of national security and for small and minority businesses.
As a party to the AIT, the federal government has agreed to provide all Canadian suppliers with equal access to procurement opportunities involving most goods and services, including construction services, in the government departments and agencies and crown corporations listed in the AIT.
The AIT prohibits the federal government from discriminating against goods or services of a particular province or region and the suppliers of such goods or services and those of any other province or region. The AIT imposes constraints on procurement procedures aimed at promoting equal access to procurement for all Canadian suppliers.
Although most federal government procurements with a value of over $25,000 are covered by the AIT, notable exceptions are advertising and public relations services, health services, and social services.
The AIT contains exemptions for national security, for measures with respect to aboriginal peoples, and for measures that are part of a general framework of regional economic development. The AIT also allows preferences for Canadian goods and suppliers and for Canadian value added, as long as those are consistent with Canada’s international obligations.
I would now like to talk briefly about how the procurement review process is carried out at the tribunal.
Suppliers may challenge federal government procurement decisions that they believe have not been made in accordance with the requirements of NAFTA, the AIT, or the AGP.
Potential suppliers who believe they have been unfairly treated during the solicitation or evaluation of bids or in the awarding of contracts on a designated procurement may lodge a formal complaint with the tribunal.
A potential supplier is encouraged to attempt to resolve the issue first with the government institution responsible for the procurement.
If this process is not successful or a supplier wishes to deal directly with the tribunal, the supplier may ask the tribunal to consider the case by filing a complaint.
When the tribunal receives a complaint, it reviews the submissions against certain criteria. If the tribunal decides to conduct an inquiry, the government institution is sent a formal notification and a copy of the complaint itself. An official notice of the complaint is also published in MERX and in the Canada Gazette.
If the contract in question has not been awarded, the tribunal may order the government institution to postpone awarding it pending the disposition of the complaint.
After receipt of its copy of the complaint, the government institution responsible for the procurement files a response. The complainant and any intervenor are sent a copy of the response and then have the opportunity to submit comments. Any comments are forwarded to the government institution and other parties to the inquiry.
Once this phase of the inquiry is completed, the tribunal reviews the information on the record so far and decides whether a public hearing is necessary or whether the case can be decided on the basis of the information on the record. Generally, cases are decided without a public hearing.
The tribunal then determines whether the complaint is valid. If the complaint is found to be valid, the tribunal may make recommendations to the government institution, such as to re-tender, to re-evaluate, or to provide compensation.
The government institution, as well as all other parties and interested persons, is notified of the tribunal’s decision.
Recommendations made by the tribunal in its determination are by statute to be implemented to the greatest extent possible.
The tribunal will ordinarily award reasonable costs to the complainant or the government institution, depending upon which one is successful the case.
In the last five years, the tribunal has received 330 procurement complaints. Consider that during the same time period there were more than 100,000 contracts for goods and services above $25,000 issued by Public Works and Government Services Canada alone. Although the complaints represent only a small percentage of the procurements performed by the federal government, their small numbers belie a significant impact on the integrity of government procurement through the disciplinary and instructional effects of complaints found valid.
Of those 330 complaints, 315, or more than 95%, were filed by Canadian suppliers. As you can see, the procurement review mechanism at the tribunal has primarily become a vehicle for Canadian business to address its concerns with the way some government procurements have been conducted.
With 18 years of procurement review experience in Canada behind us, it is important to emphasize some key lessons.
Truly competitive procurement processes require open bidding, clear procedures, and transparent criteria for selection.
Such a process enhances the integrity of the procurement system in Canada, invigorates the delivery of government services, and translates into savings for the taxpayer.
One of the intended purposes of the is to ensure that the bidding process for government contracts remains fair, open, and transparent. Along the same lines, the Canada-U.S. free trade agreement and its successor, NAFTA, required that Canada adopt and maintain bid challenge procedures for procurement in order to promote fair, open, and impartial procurement procedures. The formal process of procurement review at the tribunal allows Canada to meet these obligations, as well as similar ones under the AIT and the AGP.
Before opening the floor for questions, it is important to set out the areas within which I am able to answer questions. I am speaking today in my capacity as vice-chair of the tribunal. Our mandate is to ensure that federal government procurements respect the obligations set out in our domestic and international trade agreements. I am thus able to answer questions on the provisions of the trade agreements and on the tribunal's procurement review process.
As an adjudicator, however, I am not at liberty to speak to individual cases. Moreover, I must stress that the tribunal administers these provisions of the trade agreements but has no policy responsibility with respect to the trade agreements. I am therefore unable to speak to government policy.
Mr. Chair, I would now be pleased to answer any questions you and your colleagues may have.