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I'm going to call this meeting to order.
Good afternoon, everyone. Welcome to the 15th meeting of the Standing Committee on Government Operations and Estimates. We are reaching the third or fourth week of our study into the effectiveness of the Office of Small and Medium Enterprises, OSME, and the Canadian innovation commercialization program. Further to that study, we have witnesses today, in person, from Virtual Marine Technology Incorporated. Captain Anthony Patterson is the president and chief executive officer.
Good afternoon, Captain Patterson.
By video conference from Edmonton, Alberta, we'd like to welcome Geoff Hayward, the president and chief executive officer of DataGardens.
Welcome, Mr. Hayward. Can you hear us in Edmonton?
:
Thank you very much. It's a pleasure to be here.
I'll just give a quick description of VMT and our experience with the CICP program.
Virtual Marine Technology is Canada's largest marine simulation company. We enable our customers to implement enhanced, immersive, safe, and cost-effective training environments, mainly to improve safety on board ships and offshore structures. We were established in 2004 as a spin-out company from the National Research Council and Memorial University of Newfoundland, and we hold the exclusive worldwide licences to commercialize small craft training technology from those two organizations.
We are a small business, in that we are less than 50 people. We are privately held, incorporated under the province of Newfoundland and Labrador, with a branch office in Victoria, British Columbia, and our primary market is the offshore oil and gas industry, with secondary markets in shipping and defence.
Our experience with government to date is that we've had great support from the federal government on our innovation agenda. The federal government co-invested with the oil and gas industry in Newfoundland to develop the types of technologies that we're bringing to market. We've also had great support from the federal government for marketing of our technologies, particularly through ACOA and the trade commissioner's office in the Department of Foreign Affairs.
However, we've been unable to sell products directly to the federal government, primarily because a company like ours, which is relatively small, with new technologies, is normally screened out on risk assessment criteria, either financial or technical. In our view, CICP is the only practical way for the federal government to procure new innovations, like the ones we have, from us.
Our experience with CICP is that the particular project we are offering is to improve the training for small, high-speed craft operators--for instance, for people who operate search and rescue craft, or law enforcement. The scope is to evaluate the effectiveness of our new product in meeting return on investment criteria. The department that picked up our technology was the Canadian Coast Guard, and it will be deployed at their training school in Bamfield.
As for what's good about CICP, the online application was a great innovation. I think you should do more of that. The staff have been very helpful, and the bid and negotiation process was typical for government procurement. So there were no shortcuts; this was a full-on procurement with the federal government.
There are areas where we see room for improvement with CICP. There's no contract extension capability within the procurement vehicle. We actually had three divisions of the federal government that wanted to procure our technology, and once we selected one, it blocked the other two. And if you're not careful how you structure your program with CICP, you may be barred from future procurement opportunities with the federal government.
In conclusion, I would say that CICP is a great program. It's an essential but missing part of the spectrum of Canada's innovation strategy. We're very good at innovating things, but we're not great at bringing them to market. This program I think will help that. I would say that the CICP program needs to made bigger. Perhaps things like IRB set-asides could fund portions of something like the CICP program. You need to enable departments to buy more units under the same procurement vehicle if the trials prove to be successful, and I think the program scope needs to be expanded to include the purchase of early stage products instead of prototypes.
Those are my opening remarks. Thank you.
:
Thank you very much for the opportunity to speak to the standing committee.
I'd first like to tell you a little bit about our company, DataGardens, and some of my observations about the challenges faced by ICT companies in western Canada and more broadly in Canada; how CICP plays a role in addressing those challenges; some of our particular experiences through the CICP program; and, finally, some of the benefits and costs to us as a company in participating.
First, to tell you a little bit about DataGardens as a corporation, we were founded in September of 2007. We've done something that we feel is quite remarkable, and we've been fortunate to receive international recognition for our capabilities and our technology. There is a revolution that's happening all around us in the field of computing, and it's called cloud computing. Cloud computing traces back to the capability to take physical computers and abstract all the essence of their processing, put them into software containers called virtual machines, and have many of these virtual machines running on one physical computer. Each of these virtual machines has its own operating system running quite independently and logically disconnected from all the others. But through this miracle of virtualization I'm able to take one physical box and run 20 computers on it, 20 of these virtual machines.
What DataGardens developed is the capability of moving these virtual machines, while they are still running, over large geographic distances. This is something that many companies have wanted to do for a long time, and we were the first to succeed at it.
Through this innovation we were fortunate to be recognized in 2009 as the number one start-up in the virtualization sector in the world by Virtualization Congress; selected by IDC as one of the top ten cloud computing companies to watch this year; and we've won several other awards, including top technology awards at IEEE GRID and Open Grid Forum.
I say all of this not to boast or in any way try to claim some special status, but to point out that like a lot of companies we feel we have excellent technology, and yet we are very severely challenged as we struggle to commercialize that technology. Canada has many powerful programs--IRAP, notably--that help companies like ours develop these incredible technologies. And yet there are tremendous challenges that we confront in finding the capital and the management resources to successfully commercialize those.
Particularly in western Canada, we feel that most companies like ours are poorly capitalized--have excellent technology, yes--and have some weaknesses in sales and marketing.
We have a huge challenge in confronting what I call the commercialization gap, and what the CICP also calls the commercialization gap, of proceeding from an early stage pilot capability or beta capability and pushing that forward into the market as a game changing product. I feel that CICP is one of the most important initiatives, if not the most important initiative, that I've seen come out of the federal government for helping companies like ours address this commercialization gap. It is critically important for a number of reasons. The benefits we have received....
Actually, maybe before I get to the benefits, I should tell you a little bit about the division of the federal government that found a desire and a need to adopt our capabilities. This ability of moving live virtual machines...powerful though it may be in principle, what's the use case? What is the application? Why do companies want this? One of the most important applications for it is the ability to provide non-disruptive disaster recovery protection for a business. If my business goes down or my data centre goes down, I'd like to have the capability to evacuate all my live virtual machines to a remote location and keep them running without any interruption in service whatsoever. That's the capability we offer. We believe it is quite disruptive in the industry.
We were fortunate enough that the CTO's office of Public Works recognized that uniqueness of our capability and selected us as one of the technologies they would like to deploy. They had three use cases for us. Public Works now, as Shared Services Canada, has the challenge of taking over 300 data centres and consolidating them down to about 20, to achieve efficiencies of operation to avoid some of the excess expense that we, as Canadian taxpayers, are bearing.
To use our product to live migrate virtual machines, to move an entire data centre from one site to another without anyone noticing any interruption in service whatsoever, is a tremendous capability for the federal government to have, and for that capability to be exposed just through software that can be deployed by their engineers in a very facile fashion, moving without any need for engineers to actually go on-site, is a tremendous capability. That's use case one: consolidating data centres.
The second use case was to provide disaster recovery protection, or what's also called business continuity protection, to all the divisions served by Shared Services Canada as a service--business continuity as a service--a revenue-generating centre for Shared Services Canada, while providing this data protection service to the divisions of the federal government.
The third use case was for Shared Services Canada to use our product for their own internal data protection. We have gone through extensive testing now with Shared Services Canada. We're now launching on a phase of an actual production deployment with one of the divisions served by Shared Services Canada, and we're very excited about that development.
Now with that background, I would like to just take what time is left--a couple of minutes, I hope--to tell you about the benefits that we have received from participation in the CICP program.
First, to put it in the most blunt fashion possible, we have received $500,000 of revenue, which is vital to an organization of our size. But looking beyond the obvious, the customer reference is critical. We are now working with some of the largest managed service providers, or cloud providers, in the world, multibillion-dollar organizations. Actually, they look for customer references--who has deployed your product before. The fact that Shared Services Canada is a customer is a very important reference point for us.
Customer feedback, help to improve our product...we've received tremendous help from Shared Services Canada as we struggle to improve our product to better meet their needs and the needs of other cloud providers.
Follow-on sales opportunities--we hope to secure additional sales to Shared Services Canada over the coming year. We expect that Shared Services Canada will influence other government departments that aren't served by Shared Services Canada to look favourably upon our product.
We have also received help from Shared Services Canada to secure financing for our company, and new channels and strategic partners. So there are tremendous benefits.
In terms of shortcomings to the program, there are none that have affected us directly. I would point out that there is a significant overhead for companies in going through the due diligence to determine whether they will be accepted into the program. That's a risk factor for a lot of companies. There's a lot of effort involved in it, but it's something that we are very much appreciative that we went through.
I'd like to summarize by saying that CICP has been a vital component in our corporation's growth, and we would like to see the program expanded in the future.
:
Thank you, Mr. Chair, and thanks to our witnesses.
Captain Patterson, we had a chance to briefly chat before the meeting, and as I mentioned, I represent the Okanagan, Kelowna--Lake Country. You said you have an office in Victoria as well as in St. John's, so you're covered coast to coast in that respect. I commend you for your innovation and your company's continued creativity to use that technology to help oil and gas exploration up the coast.
If you could clarify, in your opening statement you commented that you had screened out on the risk assessment criteria. Maybe you could expand a little bit, say what exactly happened, and your recommendations as to how we could maybe.... The focus of this committee is that we're looking at the small business office and how we can make OSME and the CICP program more flexible and adaptable to utilize those Canadian technologies.
Maybe you could expand on your experience a little more, please.
I thank the witnesses for being here today.
Mr. Patterson, in your presentation, you said it was difficult to get federal government contracts.
As to you, Mr. Hayword, you talked about a
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struggle to commercialize that technology, finding the resources to do it.
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The federal government website promotes a service that helps SMEs bid for federal requests for proposals.
I would like both witnesses to deal with impacts. It is a known fact that Canada will soon sign a free trade agreement with the European Union. European companies will be allowed to bid on requests for proposals of the Canadian government.
What is it the Office of Small and Medium Enterprises can do to help SMEs compensate the impact of this opportunity that will be awarded to European companies to bid on federal contracts? What will be the impact of this competition between Canadian and European companies on SMEs?
I want to thank our guests for coming today. Often I'm asked who I meet that impresses me the most, and I often answer entrepreneurs. I want to thank you both for taking the risk and having the vision--much more vision than I have, to be perfectly honest with you, on lots of things. It is organizations such as yours that are driving the economy and will make the difference for us in the long run.
I have a couple of questions for you. I appreciate your comments. The recent report on whether we're getting bang for our buck on innovation was mentioned, and it looked at IRAP and SR and ED. It looked at this program, and it looked at the sustainable technology development corporation. It probably doesn't fit into either one of your organizations, but there are models that we are using. At the end of the day, the report said maybe we'd be better off doing more of a direct subsidy to businesses than offering tax credits, because you're not sure what you're going to get, the bang for the buck.
My question for you two, because you are involved, which I've asked of others is this. What do you believe the role should be for the Government of Canada in picking winners and losers in that? Is that a problem or not?
The overall concept of this report--I'm not sure you've had a chance to see it, as I know you're busy doing other things—basically is that maybe we should be moving away from the SR and EDs and the IRAPs, particularly SR and EDs because it's the tax side, to a more direct subsidy, such as sustainable technology development, for which you would need a business plan and we'd help you. We're angel investors, in a sense, to get you to commercialization. I know this is a one-off program, and I want to come back to that, but how do you feel about the Government of Canada being involved in picking winners and losers?
I will start with you, Captain.
Given that few minutes of opportunity, I have two questions of my own, if the chair can take the liberty to ask two brief questions here.
First of all, two things that both of you identified are the bundling factor and trying to compete as a small competitor, to elbow your way into government procurement with such dominant large actors. The United States' office of small and medium-sized enterprise, or the counterpart, actually has a mandate to compel government to unbundle contracts, to the greatest extent possible, in order to enable the greatest number of smaller entrepreneurs to get a foothold and grow their companies to be big actors some day. Our Canadian office has no such mandate to recommend to government that they do that.
Would you recommend that there could be a secondary benefit in government procurement if it could facilitate more small entrepreneurs to incubate and grow and become large actors? That's my first question, the unbundling.
The second is that both of you have identified venture capital as an issue. Something I was working with in my past life, and we've had witnesses here representing venture capital funds whose source of money is the labour-sponsored investment funds.... The GrowthWorks organization that Tom Hayes represented here I believe was one of the venture capital firms that worked with you. Is that not right, Captain Patterson?