EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 30, 1995

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[English]

The Chairman: I call this meeting to order. Good morning, colleagues.

I would like to thank and welcome this morning the officials from Health Canada: Robert Lafleur, the senior assistant deputy minister of the corporate services branch; Eric Russell, the director of the materiel management division of the assets management directorate of the corporate services branch; and Luc Ladouceur from the financial information and accounting services division of the corporate services branch.

Ladies and gentlemen, small business is the future of this country and we as a committee are committed to assisting it. As colleagues know, this committee has undertaken a study of government contracting and is concerned with the percentage of contracts that are non-competitive and the rise - and some would call it an alarming rise - in cost overruns or amendments to these contracts.

The purpose of this committee, colleagues, is to focus on ways to improve the relationship between small and medium-sized business and government. Citizens of this country, as many of us know, are faced with tough cuts, and yesterday's announcement by the Harris government is a good example of the drama or the size of these cuts that are occurring. This is not to say that there is not a lot of opportunity out there. In fact, government contracts at the federal government level are available, as you know, on a year-over-year basis to the tune of around $9 billion or $10 billion. So it's indeed very significant.

The purpose of this exercise is pretty simple. Let's open up these contract opportunities to as many Canadians as possible, in a manner that will foster improved opportunity, access, fairness, competition, and transparency in government contracting. So with that very brief opening statement, I would ask our witnesses to please begin with the presentation. Thank you.

Mr. Robert S. Lafleur (Senior Assistant Deputy Minister, Corporate Services Branch, Health Canada): Thank you very much, Mr. Chairman. We're very pleased to be here this morning to work with the committee. Hopefully we'll be of some use to the committee in helping it to achieve its mandate.

Mr. Chairman, you introduced my two colleagues who are at the table with me. We have brought along other people from the department, more specifically involved with the program branches, who might be helpful to the committee in more detailed questioning. So I'd like to introduce them very briefly to the committee and we may call on them during the course of the hearing. They are Mr. Weldon Newton, the director general of the management and program services directorate of the health protection branch; Philip Martin, the director of financial services of the medical services branch; Judy Lockett, the director of management planning and coordination directorate of the health promotion and programs branch; Orville Marquardt, the director general of the department planning and financial administration of the corporate services branch; and Gordon Peters, who is the director of internal audit for the department.

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Mr. Chairman, Health Canada's mandate is a very broad one in the health field. It involves a wide spectrum of activities, including health protection for Canadians, consumer safety, management of pesticides, public health research, population health programs such as prenatal nutrition, and the reduction in the use of tobacco, the provision of direct health services to first nations, and a wide variety of other activities.

To fulfil its mandate, Health Canada employs some 6,000 people right across the country and we have a budget of $1.5 billion. We use a variety of instruments to perform our tasks, including, obviously, contracts.

In the Treasury Board reports that are the subject of this committee's attention, it is reported that in 1993-94 we spent some $406 million through contracts. Of that, $13 million or 3% was awarded non-competitively by Health Canada itself. In fact, the number of non-competitive contracts below $30,000 has decreased by 22% and the total value of those contracts has decreased by 57% over the three years, 1991 to 1993. The number of amendments to contracts under $30,000 has also gone down by 26% and the value has decreased by 85%.

Contracting is something that we monitor very carefully and we make every effort to promote competition in contracting. However, we have a number of specific situations in our program delivery that make it difficult, sometimes impossible, to go to competition. We'll deal with that later in our presentation.

The Chairman: I don't want to interrupt, but to allow adequate time for colleagues to question, as you know, we had to do some scheduling because of some parliamentary changes yesterday. Could you keep your remarks to within 15 minutes, which would allow everyone ample time for everyone to question?

Mr. Lafleur: I was just closing, Mr. Chairman. I was about to say that I realize the committee would prefer to spend its time asking questions. That's the extent of my opening remarks.

The Chairman: Okay. That's perfect. Mr. Gilmour.

Mr. Gilmour (Comox - Alberni): We were given a Treasury Board document that lists all the departments and the competitive and non-competitive bids over the last three years. This came from Treasury Board.

I notice in 1993-94 - it's lumped together Health and Welfare here - $187 million were non-competitive bids compared with $218 million that were competitive. So a little less than half, basically, went to a single supplier without a bid. Why is this?

Mr. Lafleur: Mr. Chairman, I'm not certain I can respond to the question comprehensively because part of the contracting that was non-competitive was done on our behalf by Public Works and Government Services. I can account in detail for the contracting done directly by Health Canada, but the bigger part of that was done by Public Works and Government Services.

Mr. Gilmour: I'm getting a little uncomfortable, because we had the same response from the Department of National Defence the other day in that, yes, they initiated the contracts but Public Works actually fulfilled them.

What is your association with the contracts? Public Works lets them out, but in your department you're obviously the people with the expertise. I'm quite uncomfortable that they're doing it and from your remarks it implied that Public Works was doing it on their own. Could you fill me in on that relationship so that I can understand more fully who's in control?

Mr. Lafleur: Yes, I'd be pleased to.

No, I wouldn't suggest that Public Works operates on its own, but we are part of an overall system for the governance of contracting and guided overall by the policies of the Treasury Board and the delegations of the Treasury Board. Within that, for all government departments, Public Works has delegated higher authority than the operating departments and does the contracting on the behalf of operating departments.

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In many cases, we provide information to Public Works that might help guide its contracting. We will provide information about where the expertise is available, to the extent that it is known to us. We'll obviously provide detailed information about what our requirements are, and to the extent it has happened that contractors have identified themselves to us, we'll convey that information to Public Works.

Of course we'll help during the course of the contracting to the extent that they need our assistance. But essentially they ultimately make the decisions on how the contracting will be handled and which portion of it may be done non-competitively and which portion will be done competitively.

Mr. Gilmour: Thank you.

Mr. Chairman, I haven't looked extensively at our schedule, but I would hope we will have extensive time with Public Works somewhere during these hearings -

The Chairman: It's scheduled for the end.

Mr. Gilmour: - so that we can get a better understanding of what they do and who is holding the purse strings.

An issue this committee has been looking into is the $30,000 magic figure, whether you go under it. My understanding is at that point it can be handled locally and doesn't require senior approval. Would you fill me in more on this $30,000 limit? I understand in your address that it's going down, but what level is it at now of the number of...? My point is that a contractor can underbid the $30,000 and then do a top-up at a later date.

Mr. Lafleur: Yes, it is possible for contractors to attempt to underbid at first and then see if they can raise the amount by an amendment later.

The $30,000 limit is really established by the board to facilitate our work in contracting. The limit was established in 1982. That was the last time it was changed. Prior to that, it was $15,000.

It is the limit below which it is possible, under certain constraints, for departments to sole-source a contract. The constraints are generally cost-effectiveness, urgency, and the nature of the work, which sometimes is so very specialized that there is only one contractor available. These kinds of standards are applied to all government departments as they receive this particular delegation.

Within the departments, and within our department more particularly, we establish other constraints to try to oversee the management of contracts under $30,000. Essentially, purchases involving contracts below $5,000 are left up to the manager, and the manager has a framework of responsibility and guidance to help them make that decision.

Above that, we use other constraints on the manager's discretion. We use a contract officer who oversees the rationale for going sole-source, and when we are in the upper ranges of that amount we'll use a contract review committee.

So essentially it's made to facilitate access to goods and services for small amounts when it is not particularly efficient to go through a full competition, although it is permissible. Most departments use the $30,000 extensively.

Mr. Gilmour: Thank you.

The Chairman: Dr. Duhamel, please.

Mr. Duhamel (Saint-Boniface): Thank you, Mr. Chairman.

[Translation]

Thank you for your presentation. I'd like to get confirmation of what I thought I understood at the beginning. You did indicate, didn't you, that in all the sectors we're examining at this point, there are decreases in your department; there are no increases. Did I understand you correctly?

Mr. Lafleur: For the three-year term presently being examined, our department as a whole did undergo a decrease, yes. In one of the years a slight decrease was followed by a slight increase. But, overall, there were rather important decreases during those three years.

Mr. Duhamel: In that case, it was sort of a success, wasn't it?

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Mr. Lafleur: Success insofar as our action had some influence?

Mr. Duhamel: Yes. For example, you did limit growth. You were able to decrease it. Actually those measures were successful.

Mr. Lafleur: Yes, but I don't want to take full responsibility for that decrease, in any case.

Mr. Duhamel: No, but tell me why you are so successful.

Mr. Lafleur: There were also decreases in programs.

Mr. Duhamel: Of course, you did acquire experience in that area. Why and how did you arrive at these decreases?

Mr. Lafleur: Some years ago, in the area of financial management, which is increasing delegated to managers, we decided to develop guidelines defining the responsible authorities, the necessary training, detailed information on day-to-day management and basic principles. Thanks to this framework, we can follow the managers' work. We give a lot of training. We send out bulletins to officials almost every two or three weeks on contract management. Of course, we also do some auditing.

I should also point out that there are the normal increases and decreases in program management because some years managers let out fewer of some kinds of contracts than others.

[English]

Mr. Duhamel: I'm not trying to put words into your mouth, but I assure you that some of the things you've done - for example, creating additional awareness of the problem, sharing information, following up, being on top of it, if you wish, and as I understood it, perhaps a certain amount of centralization of your efforts - have reaped some results in terms of limiting growth and perhaps even decreasing what might have been. Do I have that straight?

Mr. Lafleur: They appear to have had that effect, but also the constraint overall in the availability of resources has caused managers to be more careful how they use them, and maybe they do overall less contracting, overall less contracting of certain types. So there is that influence as well.

But certainly the level of awareness of managers has been increased dramatically, and I would have to assume that has helped to guide managers in making their decisions.

Mr. Duhamel: You understand the problem we're facing right now. It seems to me there are perceptions that may not be correct. I don't know, and that is one of the objectives of the committee obviously.

There are certain realities as well that are causing some discomfort at the very least, because we wouldn't be talking about this if that was not the case. Do you have any advice to give this committee?

I say that openly and I assure you that I understand the kind of difficulty you may feel you find yourself in, and that is advising others. But I'm talking about advice generally. What can we do in order to counter some of the misperceptions and perhaps counter some of the realities that exist that should not exist? Surely you must have some insights into that.

Mr. Lafleur: I'm not sure I could give advice to the committee. We do have a story to tell, and we do try to share it with colleagues in the field so that other departments may benefit to the extent that they may not have applied some of these approaches.

I'd say generally that we treat managers responsibly and we give them responsibility, but we help them understand the framework within which they exercise that responsibility. We then support them through various instruments, in terms of accounting, in terms of reporting, so that they can know what is going on and are able to track it.

Essentially, we work with adults and we try to treat them as adults. We have found in the Department of Health that it has paid dividends.

Mr. Duhamel: I've heard some people suggest that the way in which we count contracts and other related matters may vary from one department to another. In other words, our data is perhaps not as sound as it could be, so that some people who approach it from a particular perspective may be taking a hit they shouldn't, and others who are more prudent or have some other insights into how this might be done are perhaps getting away with more than they might under normal circumstances.

Do you have a comment with respect to that? How is our database? How does yours compare to other departments?

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Mr. Lafleur: I think it's generally similar. As a result of the central agency's asking for reports, we tend to report on the same things and structure them in somewhat the same way. However, the gathering of data is always something that can be improved upon, and that's under evolution.

We are now, as public servants, using more and more data and information to understand the import of what we're doing because it is very important we use every dollar efficiently. So certainly a large measure of improvement could be made.

There are things that are difficult to understand sometimes in the way in which data is structured. For example, Mr. Gilmour made reference earlier to non-competitive contracts for Health Canada in 1993 going up in value to $187 million. My colleagues tell me that some large contracts are technically spread out over a number of years but counted as one year when the statistics are put together.

So sometimes things like that may skew the information a little. But overall we have enough to have a good sense of what is going on. In preparation for this committee hearing, we looked at our statistics upside down and every which way to try to really understand what the picture was for us and that it was in fact accurate. We found that in our case our non-competitive contracts are going down generally.

The Chairman: Mr. Bryden.

Mr. Bryden (Hamilton - Wentworth): I appreciate the presentation. However, I find myself again in a position where I don't seem to have enough data to get a real feel for what's going on here.

I take it what you said was that you confirm the total for 1993-1994 of non-competitive contracts was $187 million or thereabouts. Is that correct? Of that, contracts of less than $30,000 only amounted to - it's in your presentation here somewhere - $13 million. Have I got it correct?

Mr. Lafleur: Yes, $13 million in terms of non-competitive contracts that we controlled.

Mr. Bryden: So what we really have here is over $150 million. The real problem is over $30,000, not under $30,000, in actual money terms. Is that correct? It's $150 million to $160 million, versus $13 million.

Mr. Lafleur: In that year the figures show the bigger amount is over $30,000. Whether it's a problem, I'm not certain. It may be the way in which the figures are represented for one or two big events that happened that year.

Mr. Bryden: So then perhaps we can help you assess that problem. What I would like you to present to this committee is the top 50 non-competitive contracts you have let, their dollar value, and tracked over the last three years. I've asked the same of the Department of National Defence. This is a way in which the members of the committee - and I know we'll all be fascinated by this - can actually see who is getting the non-competitive contracts and the big dollar values. Is that possible to do?

Mr. Lafleur: I'm sure it is. We'll have to work with Public Works and Government Services because, as I mentioned, Mr. Bryden, a large number of our contracts are let by that department on our behalf, including non-competitive contracts.

Mr. Bryden: Isn't the $187 million the contracts you've let?

Mr. Lafleur: No, that is the total number of non-competitive contracts, only a portion of which the department has let directly.

Mr. Bryden: Do you know what portion that is?

Mr. Lafleur: We have actually let $13 million.

Mr. Bryden: No, $13 million pertains to the contracts under $30,000. I'm talking about the $187 million, which is for the most part above $30,000.

Mr. Lafleur: Of that total amount, approximately 40% are those we are responsible for.

Mr. Bryden: That's still a substantial number.

Mr. Lafleur: Yes, of course.

Mr. Bryden: I'm happy to look at both. So if you can do that breakout for me and separate those you've assigned to Public Works and Health Canada, that would be very useful.

Mr. Lafleur: We'll do that.

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Mr. Bryden: I also want to ask you if the the tobacco reduction strategy is a program that involves contracting out.

Mr. Lafleur: Yes, the department is involved in that strategy.

Mr. Bryden: That program involves contracting out.

Mr. Lafleur: It does.

Mr. Bryden: I'm interested in finding models of how a department actually conducts itself in contracting out with specific areas. Yesterday or the other day I asked the Department of National Defence to give me the details of the contracts they let for a specific project. In their case it was a vehicle they were buying. Can you do the same for the tobacco reduction strategy? I'd like to see it as a model. I'd like to see how many contracts were non-competitive and how many were competitive because that was quite a substantial pay-out. I think we were looking at about $60 million for that particular program.

Mr. Lafleur: Yes, it is a large program and it continues to be a large program. Yes, we'll provide that information.

Mr. Bryden: I'd like an analysis of how many contracts were non-competitive, how many were competitive, how many were about $30,000, how many were below $30,000.

Mr. Lafleur: We'll do that.

Mr. Bryden: Then the members of the committee with their great expertise can analyse that. Lastly, I notice in your presentation, and I'd like you to comment on it a little, that you don't like the idea of having to use the OBS system and that you want the decision to go with traditional competitive and non-competitive bidding and the letting of those contracts to remain with the department. Can you elaborate on that because that runs a little counter to what other departments have been saying here?

Mr. Lafleur: I wouldn't suggest we don't like it, but every system has its particularities. This one has two aspects that make it less attractive for our needs. One is the cost. Various formulas are used for participating in the OBS and there is a cost to each of those. Either it's a cost because you're tied in on the continuous basis directly through your computer system or certain stations are tied in and there's a cost on the monthly basis.

The other reason is that the system is very broad and attracts a very broad interest when for many of the activities we are involved in, in fact most of them, the community we end up selecting from ultimately is very small.

We're dealing with scientific matters, with specific research, where only two or three institutions do the specific research we need to have done. We deal with specific communities in the delivery of programs, for example, native communities who receive public moneys through Health Canada to essentially deliver programs on reserves on behalf of natives.

For all those reasons when we look at OBS, it's less useful than either the non-competitive or the normal competitive process because there's an extra administrative burden. If we were dealing with purchase of goods and services that are more generally available, more generally bought by departments, and where a large choice of enterprises are providing those services, we would probably use OBS more.

Mr. Bryden: This is a little contrary to my own experience. I would have thought in the area of scientific endeavours, for example, the experts of the scientific community, OBS would be perfect because this would be a way of making sure the most confident scientist or medical expert would bid on whatever service you had to offer. After all, these are people who surely at every university and medical facility across the land would know how to use a computer.

Don't you see that as a bit of a contradiction? Why would scientists not get a better advantage? Why would you not get a better advantage in advertising as widely as possible for your particular scientific needs?

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Mr. Lafleur: We do try to advertise as widely as possible but in doing that we prefer the normal request for proposals. Yes, there is a large scientific community from which to choose, but that scientific community is divided into specialty areas. In the various programs that are managed by Health Canada we are in such continuous dialogue with those communities that the scientists we have within the department know very well what the composition of that community is. They work with universities -

Mr. Bryden: Excuse me, I'm very sorry to interrupt. If I may make a suggestion, that may be a problem rather than an advantage because the scientific community is no different from any other community of people. People play favourites and they have their own axes to grind.

If I may, I would urge you to consider that position very carefully because I think it's very important especially in the area of science to get your message out for what you require so the very best can compete. I really find it uncomfortable relying only on scientists within a department.

Thank you, Mr. Chairman. I'm sorry to interrupt you on that, but I couldn't help but make that point.

Mr. Lafleur: Mr. Chairman, I'd like to add one piece of information to that for the governance of the committee. When my remarks were made with reference to OBS, they were made with reference to those contracts we handle within the department, which essentially is up to $50,000. Within that, we use it sparingly. Above that, our contracts go to Public Works and Government Services for administration. They use OBS quite extensively for our contracts. So I was referring to those contracts below $50,000 where it's a less useful tool for us.

Mr. Bryden: Thank you for that clarification.

The Chairman: Before I call on Mr. Bellemare, who's our next questioner, Dr. Duhamel and Mr. Bryden have both asked a question. I'd like a clarification for the committee.

You say Public Works administers the contract. I think we all accept that. I'm not suggesting you're trying to shift blame or onus, but isn't the final authority resting with you? It's your contract. So ultimately you are responsible for that contract. You're responsible for it to be implemented. I don't want anyone to be left with a misconception that it's Public Works. Health Canada is actually on the line for the final authority to have this administered. Yes or no?

Mr. Lafleur: In terms of the use to which the contractee is put, yes, and in terms of the output of that contract, yes, because obviously it's done for our program delivery. But in terms of the machinery of going out to seek offers, the structure in government is that Public Works and Government Services is our common service agency. Rather than have every department try to maintain the level of expertise necessary to handle in a sophisticated way the OBS and other large requests for proposals, the government has chosen to put all of that into one organization.

The Chairman: The reason I'm drawing this to our attention, colleagues, is that Public Works and Government Services has one of the best records in government for administering contracts. What we're trying to get at - and I think it's important all the departments don't try to hide behind the skirts of Government Services because Government Services is in fact the facilitator whereas at the end of the day you're responsible for administering the money. So I want to make sure we clearly understand that. It's your money. You determine who gets the job and that the job gets done appropriately and on time and all of that.

Mr. Lafleur: Certainly, there's no intention, Mr. Chairman, of hiding behind the skirts of PWGSC. In fact, I think we have a good story to tell and we're quite proud to be able to tell it.

The Chairman: That's great. I just wanted to defend Government Services here a little. Thank you.

Mr. Bellemare, please.

[Translation]

Mr. Bellemare (Carleton - Gloucester): Mr. Lafleur, in your relations with Treasury Board concerning contracting out, do you follow a series of directives or regulations that require contracts be let out in such a fashion rather than another?

Mr. Lafleur: All the authority we have concerning contracts comes from Treasury Board. So we must, first of all, follow Treasury Board directives in the area of delegated authority.

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After that, for the general management of contracts, advice of all kinds is given to us by Treasury Board as are the procedural regulations. We implement those and our department often uses them in our training.

Mr. Bellemare: You talked about procedural regulations. Does Treasury Board audit to see if you have actually implemented those procedures? Does it do it on an ongoing basis, every week, every month?

Mr. Lafleur: They don't do it every week, in the sense that they don't come and see what we're doing every week. They do ask us regularly for data and, based on the global data, they can understand what we're up to. If our figures indicate that we're giving more or fewer non-competitive contracts, they can find out, and there's also an auditing system through which the government establishes a service that audits the central agencies and each department.

Mr. Bellemare: Do you use internal or external auditors?

Mr. Lafleur: We use both. Our resources don't allow us to have very many auditors. So we have a small group of internal auditors to which we add auditors from the outside.

Mr. Bellemare: During the last two years, did the Auditor General look at the question of contracting out at Health Canada?

Mr. Lafleur: Not specifically at Health Canada, but we do share the results of all our audits with the Auditor General.

Mr. Bellemare: Naturally, your contracts are either for goods or services. What concerns me, and I'd like to hear what you have to say on this, is that it seems that there's an attempt to decrease the public service drastically, depending on the meaning of the word ``drastically'' for whomever is using it.

Are we heading towards a regime of phantom functionaries? Could it be said that in the public service, in your department, for example, you're decreasing the number of public servants and then hiring back people by contracting out, contract employees, in other words?

In doing this, there's a risk of winding up with two kinds of public servants or two public services: one with a group of in-house employees and another whose members are either on site or elsewhere and who are basically not public servants but phantom functionaries. We could wind up one day with two groups delivering government services: one, growing older by the day, well versed in government culture and serving the public, and another group of phantom functionaries, as I call them, made up of people serving only themselves and not the public and on the lookout for the next contract.

From what I can see, that dichotomy is being established. Do you share that concern?

Mr. Lafleur: I can't say anything about the ongoing global staff reduction exercise or government policy as such. I can simply say that based on my own personal observation, the government is trying to deliver services to all Canadians using a combination of public servants and private sector people.

There's a lot of expertise available in each camp. The goal is to offer the best possible service at a reasonable cost.

For a long time now, at Health Canada, from the very beginning, we've been using different mechanisms to involve the Canadian community in our work.

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As our resources are not enormous, we give out a lot of contracts and financial contributions to groups so that they can share this national burden of health programs.

Things are working extremely well in our department. Of course, we're always trying to ensure a fine balance. It has to be very closely followed. I find we generally manage to offer good service thanks to that combination.

Mr. Bellemare: In the areas of accountability and transparency, have you had to impose any disciplinary sanctions during the last year?

Mr. Lafleur: Yes. You always get a few of those cases in any department because there are so many activities and so many people. Yes, there were some.

Mr. Bellemare: I'm happy to hear that because it means that someone in management is keeping an open eye.

Mr. Lafleur: Yes.

Mr. Bellemare: Congratulations on that; did this happen because of complaints, whistle-blowing or internal audits?

Mr. Lafleur: Both, Mr. Bellemare. In one case it came from Treasury Board which, in its ongoing oversight of departments, noticed that there were certain developments in the management of certain kinds of contracts that required a more detailed examination. So the investigation was undertaken and it turned out they were right. Things had to be changed and they were.

Sometimes these things are caught during ad hoc audits or swoops as they are known in English. These are surprise audits carried out during the year. They sometimes come up with deficiencies we have to look at, small things. Generally speaking, regular audits show, more often than not, that managers are very disciplined in the way they manage contracts.

Mr. Bellemare: Still in the area of accountability and transparency, what kind of checks do you use to stifle potential favouritism? As you know, people from the outside may figure things are going well inside government, that a lot of contracts are being given out and that, according to the figures, the government is handing out 9 billion dollars' worth of contracts in all fields and some must have it pretty easy.

These are very unkind comments that are not necessarily accurate. I'd like to know how you check and stifle possible favouritism shown by a manager whose is sole sourcing, often with his chums.

Mr. Lafleur: We've developed a certain number of instruments we use in contract management. For example, there is a form each manager has to fill out for each non-competitive contract, we call a checklist, that asks for all kinds of information. They're to be put in the file of each one of these contracts.

For contracts under $5,000, the forms remain on file and we do little audits every now and then. For contracts over $5,000, that information is brought to the attention of an audit committee that examines it, especially in the case of more delicate contracts like those that go to retired public servants. In the higher bracket, from zero to $50,000, all non-competitive contracts are submitted to this audit committee. That's one of the things we do.

I should add that there are two other factors: the decrease of resources for public servants and, in the case of Health Canada, the devotion I see shown by our public service to the cause of our health programs. They want the monies to be used as efficiently as possible whether it's research on breast cancer or AIDS . They want that money to be used in the best possible way. That factor is also at play.

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Generally, public servants judge and evaluate. They haven't had an increase for many years. They feel that money used unwisely means their salary increases will be delayed even further.

That's a factor that has been bearing fruit more and more in public service ranks, in a way.

Mr. Bellemare: Thank you, Mr. Chairman.

[English]

The Chairman: Thank you, Mr. Bellemare.

Mrs. Chamberlain (Guelph - Wellington): I'd like to go back to what the chairman was asking about, whether it is Public Works or Health. Who makes the decision to go to competitive bid? Is it Public Works or Health?

Mr. Lafleur: I'll let Mr. Russell answer that. I have to give him a chance to share his knowledge with the committee.

Mr. Eric Russell (Director, Material Management Division, Assets Management Directorate, Corporate Services Branch, Health Canada): If it's a contract that is being processed by Health Canada, we make that decision in various ways, depending on the value of the contract. It could be done by the responsibility centre manager, the contracting authority, or, if it's up to $50,000, it would be the manager's view in conjunction with our contract review and control committee.

With a few special exemptions, our financial delegation only allows us to go to $50,000. Above that we go to Public Works and Government Services, and it is their decision. On occasion we will attempt to influence their decision because we may have our own agenda related to getting the work done, but it is Public Works and Government Services that has the final say, as well as their own accountability structure that they will not breach for Health Canada's sake.

Mrs. Chamberlain: Are you happy with the non-competitive system? Do you like that?

Mr. Lafleur: Yes, we are. We realize that the competitive process is important, and I share the committee chairman's view that overall, it is the best guarantor of getting value for money. It's in the interest of the public service to ensure that contract opportunities are available right across the country, but in terms of daily administration and the pressures of getting things done - and increasingly, with fewer resources - it's useful to be able to go directly, up to a certain limit.

It saves on administration, so more of the money can then can go into delivery of the contract itself. When we're dealing with those small amounts, in most cases we know the community we have to ask for the services, and it's usually very limited.

Mrs. Chamberlain: So in general you would say that non-competitive contracting is a good way to go, and there aren't abuses in it.

Mr. Lafleur: I don't know if there are abuses. Our audits have not shown extensive abuses in the case of Health Canada, and we've taken action where it has.

I think it's an important tool to have, and I think most departments would agree. Obviously it has to be monitored. We have to look at anything that we use regularly to make sure it's being used for the purposes intended, and not skewed to other purposes.

Mrs. Chamberlain: You talked about the OBS a little bit. You said you weren't crazy about it, certainly below the $50,000 mark. Does it meet your needs above it? Are there things we could do with that system that would make it more pleasing and useful to you and your organization?

Mr. Lafleur: I'm sure there are ways of improving that system, and I know my colleagues are discussing other ways that might be used to achieve the same purpose.

For example, to what extent could we use the Internet, the information highway, to take advantage of the fact that we have some major leads in that field worldwide? There are probably better ways of focusing information and packaging it so that when you use OBS you don't a lot of information that in the end is not very useful in doing the contract. But it is important and it is used on our behalf by PWGSC, and we have been satisfied with it.

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I know that my colleagues in other departments, who deal with programs where the services and goods they're purchasing are more widely available, use it extensively. In our case it's a little less useful, because our fields are so specialized.

Mrs. Chamberlain: Thank you.

Mr. Bellemare: I have a short question. Some people out there are bad-mouthing Health Canada, saying you're more oriented toward public relations than to research. It's difficult to respond to these people, because watching TV or reading any of the print media, the first thing we see is all the ads coming out of your department. Given the cost of advertising, especially television advertising, one wonders how much of your budget that eats up. It brings up the bigger question of how much are you public relations, and how much are you research?

By research I'm thinking about the poor guy out there who wonders if the pills he's taking are the right thing. Because of the huge amount of information that comes from American television and these inquiries and so on, the Canadian public gets a little mixed up about health, health research, pills etc. Are they acceptable or unacceptable? Are they acceptable in one country but not in another country? This is rather confusing. Do you do this, and how would it relate to contracts?

Mr. Lafleur: That's a broad question. To those who think we're substantively about public relations, I would invite them into our labs to see the dedication of the people there. I would invite them onto native reserves to see the dedication of people in isolated areas trying to assist in improving the health of natives. I would have them sit in on the selection process for research projects with what everybody recognizes are far fewer dollars than ought to be available for that research.

We're involved in some public relations in a sense, and I think that's good because we have a good story to tell Canadians and I think they should know about it. I would hope every one of us is involved in public relations in that sense.

We certainly don't spend money simply to present an image of Health Canada. We try to spend all our money on program content, to deliver those programs, and whenever we go through reviews like program review one and program review two, that is uppermost in our minds. Every dollar that is used in other than program delivery should be looked at very carefully.

The Chairman: Thank you.

Mr. Bryden: I would like to follow up on Mr. Bellemare's line of thought. Are the contracts you let for advertising purposes competitively let and subject to the OBS system?

Mr. Lafleur: Some are. Most of them are competitively let. They're not advertising contracts as such, they're health promotion contracts. One of the tools in doing health promotion is communications, so we use the airways to communicate health messages.

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Mr. Bryden: This is a fascinating line of thought. So you have to deal quite extensively with public relations firms.

Mr. Lafleur: Yes, and with health communities, specific groups of people who are interested in a particular aspect of health such as AIDS or breast cancer, for example.

Mr. Bryden: Do you let contracts to groups like that? These are NGOs that you are referring to.

Mr. Lafleur: Yes, you could describe them as that.

Mr. Bryden: And many of those would be non-competitive because they're special interest NGOs.

Mr. Lafleur: No, they would assist us in developing the program that would then be put out for contract and managed by an advertising company. Nearly all of those are handled by PWGSC on our behalf.

Mr. Bryden: Mr. Chairman, I'm going to ask for a bit more information, and perhaps the officials can bring it to us.

I would like to see a list of for-profit public relations firms that have received health promotion contracts over the past year, the fiscal period, so that I can examine whether of these were competitively or non-competetively let. I think it would be interesting for this committee to see that.

Mr. Lafleur: We'll make every effort to provide that, Mr. Chairman.

The Chairman: Thank you.

Mr. Bélair: I listened with great attention to your presentation. It seems as if the number of contracts may have been reduced - I am talking about sole-sourcing - but I think it is becoming more and more apparent that the reductions in the civil service, including Health Canada, may have an impact on the processing of the contracts.

Mr. Lafleur: I have no evidence of that at the moment, Mr. Bélair. I've described the process that we use. There's no doubt that overall, managers are under pressure because less time and money is available, and there are fewer people to do the work, but I've seen no indication that is undermining the quality of our contract administration. The audits certainly don't demonstrate that.

Mr. Bélair: In the name of cost effectiveness, which is something you mention in your brief, I suppose it is much easier to go to sole-sourcing for contracts because of the lack of people power. There are fewer civil servants in your ministry, so there's also cost effectiveness involved.

Mr. Lafleur: There is no doubt. It's less administratively complex. That's why Treasury Board has delegated to departments, under certain rules, authority to do non-competitive contracts under $30,000. It is always the question of balance - how much value does the Canadian public get from this exercise? If you spend most of that money or a large chunk of it on administering the getting of the contract, then you are undermining the objective of creating value in the delivery of the service. When the contract is bigger, that portion of extra administration is proportionately smaller and doesn't affect the contract quite as much.

Mr. Bélair: Thank you.

The Chairman: Colleagues, I want to conclude with a couple of questions as we try to complete the record in terms of the advice we want to give back to Treasury Board as a committee.

How do you advertise the contracts that have been discussed, particularly the advertised contracts to potential bidders?

Mr. Lafleur: Most of them are handled on our behalf by Public Works and Government Services, and in nearly all cases they would use the competitive process.

The Chairman: How do you advertise the non-competitive ones? Is there a list of suppliers the different line managers throughout the country would have?

Mr. Lafleur: To the extent that we use the non-competitive process for advertising contracts -

The Chairman: Forget about advertising - in any contract.

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Mr. Lafleur: In general, the manager would have a list of the groups or enterprises that could deliver on that contract.

The Chairman: Are those suppliers rotated?

Mr. Lafleur: The list is continually added to, yes, and where possible - -

The Chairman: I don't mean added to -

Mr. Lafleur: A series of directed contracts would go to various suppliers, so you do end up giving everybody an opportunity.

The Chairman: This goes back to what was asked earlier. If you give it to person A, does person B or person C...? In other words, does some sort of rotation occur?

Mr. Lafleur: Where possible. There are some contracts, for example contracts given to university research facilities, where we know the only one in Canada exists at university X, and that is the one that would get the contract.

The Chairman: Okay.

I was particularly struck by something Mr. Bellemare and Mrs. Chamberlain talked about in terms of the human side of this. One of the problems we're trying to grapple with is the data. We're interested in the human component here, in particular how we access and how our constituents across the country access this large amount of money they see going out.

I don't think anybody thinks there are some shenanigans going on. I don't think that's the issue and I don't think you think that's the issue. The issue is that people see this large amount of money and they want the ability to compete for that. Can you help us? This goes back to what Dr. Duhamel said. What can we recommend to Treasury Board in terms of some principles to be followed?

Mr. Lafleur: I would encourage wider use of the informatics capability that is building in Canada, and to use that to package information. It is no good to have it available as raw data, because it just paralyses you with a wide spectrum of information. It must be packaged. I think work is under way in that area.

The other one is that I would invite Canadians who are interested to make themselves known to government departments. Most public servants want to manage the best possible contract and get the best possible service done. The information that they have is what they have. So if Canadians are interested in specific fields of health, for example, tell them to write to us. We'd be pleased to explore with them their capabilities and what they might be able to do.

The Chairman: I think that's one of the reasons we've tried to focus or highlight this issue. Through the media and other means such as this television broadcast, hopefully we're in a position to have them write Health Canada.

On behalf of the committee, I want to thank you for being here. We appreciate your intervention. We've given you a few tasks to do and we look forward to receiving the results of that as soon as we can. After reflecting on some of the other things that were said, either by Government Services or Treasury Board, if you think of other things, please contact our researcher because we'll be coming out with a policy recommendation shortly. Thank you.

We're going to pause for three or four minutes, until the next panel of witnesses.

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The Chairman: We're resuming our discussion involving a study of government contracting in terms of the process, the procedures, and the systems, and how it relates particularly to some issues the committee members have identified as being of interest to them involving small business and access to government contracts.

I'd like to welcome the officials from Revenue Canada, Mr. Dudding, Mr. Crandall, andMr. Jones. I apologize for yesterday's change due to the parliamentary schedule changing, and I appreciate the accommodation you've made our committee by presenting today.

We were hoping we could have a very brief overview, which would allow an opportunity for colleagues to ask some questions of you. I think you're going to lead, Mr. Crandall. Please proceed.

Mr. William Crandall (Assistant Deputy Minister, Finance and Administration Branch, Revenue Canada): Thank you very much, Mr. Chairman. We're very pleased to be here today and I hope our comments and observations will be helpful to your committee.

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We don't have an opening statement per se, but I did have a chance earlier this week to send some material to your committee in advance. I also tabled with your clerk just a few moments ago a couple of other pages for that. What I thought would be most useful for us to do would be to walk you through a certain section of that material, which I think will clarify many of the issues your committee is concerned about vis-à-vis Revenue Canada.

If you're agreeable to that, Mr. Chairman, I would ask your members to turn to tab 2 in that material, page 5. We have given to the committee today a page 5(a) and a page 5(b). I think these numbers are extremely important to understand the procurement activity at Revenue Canada and to understand the issues your committee is pursuing.

What we have on page 5 are the 1993-94 totals for procurement activity associated with Revenue Canada. The first line is from the annual contracting report, which I believe is the Treasury Board report that you and your colleagues have been reviewing. You'll see from this that there was $234 million of procurement activity covered in that report for Revenue Canada. Of that,$151 million was considered non-competitive and $83 million competitive.

Taken on the surface, Mr. Chairman, those numbers are very alarming indeed, in terms of the percentage that's non-competitive. But I think after you hear our explanation of what's involved in this, you'll understand that things are actually not what they appear to be with respect to those numbers.

That number is composed of two separate components. The first is the middle line on that page, which is the contracting that's done on our behalf by Public Works and Government Services Canada. For all of that contracting activity, they are the procurement agent. We make our request to Public Works, they make the procurement decisions, and they execute those particular requests on behalf of Revenue Canada.

The second line, which is the one we want to talk about most this morning, although we're happy to answer questions on all of these, of course, is the actual procurement activity in Revenue Canada itself. In looking at that particular line for 1993-94, you can see that we had $87 million of procurement for which we were the procurement agent, $76 million non-competitive and$11 million competitive.

I'm going to ask my colleague Mr. Dudding, who is our director of administration, to explain to you right now the nature of that $76 million competitive and what we're actually doing about some of the problems that reside in that particular category.

Mr. Randy Dudding (Director, Administration Directorate, Finance and Administration Branch, Revenue Canada): Mr. Chairman, the $76 million non-competitive that's shown for Revenue Canada is basically services contracts. There's some minor construction in there, but the Revenue Canada line altogether is basically services, whereas the PWGSC line also includes a large array of goods. So exact comparisons between the two lines are not possible.

Within the $76 million, we have approximately $71 million which represents Informatics professional services. These are people, such as computer specialists, programmers, and analysts, who are hired to do a variety of computer type of work for Revenue Canada.

The remaining $5 million would be a variety of other kinds of service contracting that Revenue Canada would have and, as I said, some construction.

That $71 million in the informatics has come about over a series of years. The earlier data that the committee has available to it for 1991-92 and 1992-93 does not include this type of information in the annual contracting report. I think one of the difficulties the committee would encounter in looking at trend lines is that we weren't asked to report that kind of information to PWGSC in the annual reporting, so you would notice that dramatic increase in non-competitive contracting for Revenue Canada. There was a practice within the department in terms of the informatics and the contracting that did come up with a series of contracts of less than $30,000.

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We can, if you would like, explain the steps we've taken to change that process from being non-competitive, which it was in 1993-94 and before then, into a competitive process, starting last year and continuing into this year.

Mr. Crandall: If I could summarize that, Mr. Chairman, we're saying that for 1991-92 and 1992-93 we didn't report those informatics professionals. There were substantial amounts involved for those types of people and those types of contracts.

They're largely a requirement for us because we're obligated to start up big systems in a hurry, to implement tax policy sometimes - we get very short notice of that because of budget secrecy - to implement the GST when that was happening, and to do various other programs. I think that's the main thing. This wasn't in the previous numbers, therefore, the trend you see for competitive is vastly overstated for 1993-94.

Perhaps more important, though, as my colleague has said, is that we've done something about these contracts to make them competitive. As our business lines mature, we run out of reasons why it's acceptable to have these contracts as non-competitive. And we put these kinds of service contracts on a competitive basis beginning in 1994-95.

If I could draw your attention to the next page, which we've called 5(a), you can see what a big difference it makes. Just look, Mr. Chairman, at the bottom box on that page. It deals with 1994-95 goods and services. The top box is an explanation of what we just had on the previous page. You could see that for Revenue Canada procurement, we're down to $75 million in total for 1994-95, with only $14 million as non-competitive, and $60.9 million as competitive, because we've changed that process.

I think that was a process that needed changing and improving, and we've done that. I think we have a better statement of what the balance probably is between competitive and non-competitive.

I would also add, Mr. Chairman, that the amounts shown in this particular box on this page 5(a) represent goods for us as well. With our $5,000 authority for purchasing goods, there are frequently a number of straight purchases that would be included in those many transactions making up that non-competitive portion.

So you can see that we had $12.8 million for amounts less than $25,000 in 1994-95 that was non-competitive. That meant 24,000 separate transactions. So these are probably mostly fairly small purchases of goods needed for running then day-to-day business of the department.

I think we have a better statement now of what the non-competitive dimensions are. I think we've fixed this discrepancy in the screen for 1993-94. It did misstate that particular nature of our problem.

I'll make one other last point, if I could, Mr. Chairman. Amounts are shown on the original page 5 for PWGSC contracting for Revenue Canada. These are numbers provided to the Treasury Board by Public Works and Government Services Canada.

We work closely with them, of course, and we're aware mostly of what's in them, but they're not necessarily numbers we've provided; it's hard for us to talk about them sometimes. But we do think that they do not include all our printing services. And for Revenue Canada, printing is a major facet of our budget.

In the information we gave you, I believe we noted for you that we spend perhaps $30 million to $35 million each year in the private sector on printing. I think we're very proud of this process on printing in the sense that it's extremely competitive, it uses the open bidding system, and it has very low thresholds for emergency contracting, or whatever. We do not do this type of activity in house. As a result, we believe we get very good value in the private sector and we have a record of distributing that printing widely throughout the country to various printers, depending on the competitive bids they make.

If that amount had been included in the Public Works and Government Services total, the vast majority of that would have been competitive and would have, again, changed the balance in this particular report.

Those were the comments we wanted to make at the beginning. We're fully prepared to answer whatever questions you have for us today.

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The Chairman: Thank you. Your presentation's very insightful. I don't think we have 1994-95 for any other department. Treasury Board or Government Services were putting those together. So thank you for giving us that information.

Mr. Gilmour, please.

Mr. Gilmour: It certainly does improve the picture when you see that your trend is going in the right direction. However, when I compare Revenue Canada with a number of other departments, you're still a fair ways behind, by just looking at the ratio of competitive to non-competitive bidding. So I'm hoping you will be continuing this process to ensure that more and more goes out to competitive bids.

With every department we've had so far, DND, Health, and now yourselves, we get into this interchange between Public Works and yourselves. I'd like to hear your comments on how you feel the interchange between Revenue and Public Works is working in dealing with the contracts. Are you comfortable with it? Where can it be improved? I gather various departments do it in a different way. It's not an even, across-the-board situation. Could you expand on that, please?

Mr. Crandall: I'll start off. I think we are generally very satisfied with our relationship with Public Works and Government Services Canada. They have been very helpful to us over the years in providing the leadership on procurement authority that we've been looking for.

But sometimes we have our differences. Sometimes we feel that when they're the procurement authority they're not recognizing our operational requirements for expediency as much as they should. On the other hand, in our own department when it's our procurement authority, our own managers feel that we aren't recognizing their expediency as much as we could and forcing them to go through the necessary processes.

I think that Public Works has done a fairly good job at trying to help us all live with the complexities of the procurement system and the NAFTA, free trade, and other agreements that are making this process a little bit cumbersome. They've been quite innovative with respect to things like OBS and other factors like that.

Mr. Dudding is closer to it. Perhaps you're interested in his views as well.

Mr. Dudding: There's one other aspect. With Public Works and GSC, there's a level of expertise the department has that we don't have. In many respects, we will use that expertise and infrastructure rather than trying to build it ourselves. With reducing budgets, we feel the best value for us is to go to PWGSC rather than trying to replicate those capacities within Revenue Canada.

So generally, as Mr. Crandall said, we're satisfied with the relationship with them. There are bumps along the road, but generally the two departments get along very well in that respect.

Mr. Gilmour: I have some difficulty in breaking this down, because we don't have enough information. Mr. Bryden has been pursuing this as well in getting the top 50 contracts. Would it be possible to give a breakdown of the non-competitive contracts? Looking at it now, we don't know whether it's a procurement for pencils or whether it's one major contract expenditure that's gone for millions. Can you break it down by category so we can at least get into the meat of it? We simply don't have the tools to get down into seeing where the contracts are and basically, how well it's managed.

Mr. Dudding: I assume, Mr. Gilmour, you're referring to the PWGSC line.

Mr. Gilmour: Yes.

Mr. Dudding: The detailed data is available. We have a report from PWGSC showing where they have let the contracts and with whom.

I would add one complicating factor to the data. I'll use a simple example, if I could.

Say we competitively procure for a mainframe computer. We have several of them for running the tax system. The mainframe computer would show up somewhere in the data in one of the years as a competitive acquisition. But with every computer, of course, comes software, operating systems, and maintenance and repair in subsequent years. Because of the procurement, they would necessarily show up as non-competitive.

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For example, we would use IBM operating systems on our mainframe computers. Well, there's only one supplier of operating systems, so Public Works necessarily shows that as a sole-sourced, non-competitive contract. So you have a whole series of those kinds of non-competitive contracts showing up because they have no choice from whom they acquire those services.

As well, if a contract were initially let competitively and the department - it could be Revenue Canada or any other department - comes along the following year or two years later and decides to amend the contract to expand it or renew it for whatever reason, that too would be non-competitive.

To try to make long story short, a competitive action could necessarily lead to a whole series of non-competitive actions following it. It's very difficult, and I can appreciate the difficulty the committee would have in trying to follow this data through. It can become very complex.

Mr. Crandall: Mr. Gilmour, we've already told you the vast majority of Revenue Canada procurement was informatics services professionals. Using 1993-94 as an example, it was over 90%. The other small portion is for things such as expert witnesses for income tax or GST cases, especially in areas such as real property evaluations, appraisals of one kind or another and complex tax shelter or SR and ED cases, where we'll hire an expert to help us in court. We know who those experts are. They tend to be few and far between, so we tend to sole-source that activity, but it's not a dramatic amount of money involved.

We could do an analysis of, say, the top 25 contracts in that Public Works portion and group those into certain things such as Mr. Dudding was saying, residual computer-related issues, or whatever it might be, and we could provide that to the committee simply for your information and further use, as need be.

Mr. Gilmour: I would appreciate that.

Mr. Crandall: I'd be willing to undertake that and see if we could do that.

Mr. Gilmour: I would also request that you supply us with the number of contracts that were in the under-$30,000 category and got topped up. My point is there is the opportunity for a contractor to underbid the $30,000 and then, at a later date, have it topped up.

I would like to see the proportion of the $30,000 contracts that stated $30,000 and were fine, and the number that were topped up, just so I can get a feel for whether this situation is being abused.

Mr. Crandall: Mr. Gilmour, if I could refer you to page 5(b) of the pages we gave you, we didn't talk about it in our opening remarks, but that deals with contract amendments for 1993-94 for the Revenue Canada portion.

This is saying we had 343 contracts that year that were amended, out of our total of some 8,000. The vast majority of those applied to that same informatics professionals category we mentioned before.

Mr. Gilmour: These would be under $30,000?

Mr. Crandall: Yes. We had a total of $8.1 million worth of amendments to those informatics contracts, and we told you the base contract totalled $71 million. So there were $8 million worth of amendments to those, and probably some of those amendments took it from under $30,000 to over $30,000.

We've addressed that problem, as I mentioned earlier. That probably was a poor contracting practice on our part, and we're not doing that any more. We want the stated amount for the right amount of time, and a contract is a contract. When it's over, it's over, and there's another competitive process if similar work needs to be done again.

So those are the amendments for the Revenue Canada portion. It would be a lot more difficult for us to get amendment information on the Public Works and Government Services portion.

Mr. Gilmour: What is the split then? What proportion are Revenue Canada contracts as opposed to Public Works?

Mr. Crandall: If you look at 1993-94, our original page 5, we did $87 million worth and they did $146 million on our behalf. So it's almost two to one.

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Mr. Gilmour: Okay. Thank you.

The Chairman: Mrs. Chamberlain, please.

Mrs. Chamberlain: Good morning. I'm pleased to have you here today. You're the body a lot of my constituents really don't like very much. I'm sure that's not news to you guys.

Some hon. members: Oh, oh!

Mrs. Chamberlain: I'd like to ask you a little bit about the OBS system. Do you use it at all?

Mr. Dudding: Over this past year, Revenue Canada itself only used it ten times, but Public Works and GSC would have used it a lot more for requirements we would have given to them. There are many instances in which we have the authority to do the contract, but because we don't have the contracting expertise or infrastructure, we'll ask them to do it. They in turn would put it on the OBS or some such mechanism, but it would be their decision to do that.

I can't answer your question directly other than to say it's their call, and for the most part they do a lot of that.

Mrs. Chamberlain: Why would you not have any play in this?

Mr. Dudding: For the most part it's just expertise. We don't have the contracting expertise to do it ourselves. We're trying it out, and as I said, this past year we've done ten.

Mrs. Chamberlain: Did you like those ten?

Mr. Dudding: It works. In spite of the data, we're very much in favour of competitive processes, and we try to get those ideas into the hands of our managers as well. As to using OBS in the future, I think we'll want to do more of it as we get comfortable with it.

Mr. Crandall: I mentioned earlier that we do about $30 million to $35 million in printing each year. My colleague, Mr. Jones, as director of our publishing, could tell us that a lot of it is done on the OBS.

Mr. Ray Jones (Director, Publications Directorate, Finance and Administration Branch, Revenue Canada): The Public Works rules now are that anything over $10,000 of printing in the printing business has to go on OBS. We have a lot of contracts in excess of $10,000, and they are put on OBS.

First of all, we only started using it this year, 1995-96, and for most of the printers we use, it took them some time to begin to understand how the OBS works. Generally speaking, there's satisfaction with it.

There's a bit of concern on the part of printers about the cost. There's a cost now that they didn't have in the past. There's also a bit of a problem from time to time in getting the tender documents from the OBS supplier to the printers. There's a timeframe there. Especially in circumstances where we request Public Works to have a short timeframe on the OBS, there are often some problems in making sure the printer gets the documents in time.

But generally speaking, we're quite satisfied with the operation of it. As I say, there's been a little bit of a problem in just getting used to dealing with it.

Mrs. Chamberlain: Mr. Dudding, you seem really reluctant on it. Can you elaborate a little more on that for me? You say you're not comfortable with it. Can you tell me a little bit more, or is it just going to take time?

Mr. Dudding: It's more just a question of time and getting comfortable with it ourselves. It's not because we have any inherent discomfort with the system. As with many other things, it's trying to get used to it ourselves.

Mrs. Chamberlain: If there are problems associated with it and it's not going to be good for you, that's something the committee really does need to know, in particular for different departments. Obviously you are all different and your usage would be different.

One of the main goals of this committee is to find out what works well and what doesn't work well. You really are a key piece in that. You don't need to fall in line and say you'll try to use it. If there's something that is really not good for you, we need to know that.

Mr. Dudding: Perhaps I've misled you. For many of our requirements, PWGSC will use the OBS on our behalf. The ten times I referred to we were using it ourselves. There's a lot of Revenue Canada procurements on the OBS, but PWGSC would have put them there.

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Mrs. Chamberlain: Your first contracting figures that we went over were so high in non-competitive bidding. Tell me why that was. Why would you be doing so much business? I know you've explained that the figures are tightening up now and you are competing and putting that out more for competition.

I'd like to know your philosophy on this. Why are you moving in the direction of more competitive bidding? Why didn't you before?

Mr. Crandall: It's a fair question to ask us why we didn't go competitive on these in the first place. The only answer we have for your committee is that many of these large projects for Revenue Canada were on a very fast start-up cycle. I refer there to a lot of things that have been done in the last few years, such as the switch-over of the family allowance to child tax benefit, various budget initiatives and even the implementation of the GST in 1990-91.

We realized we had better tighten up those practices, because it's one thing to go and get a lot of computer expertise fast.... We have systems that require a lot of professional informatics labour to run them. They are systems that were developed and built in the seventies and have been added to and patched up. They work very well, but they require a fair bit of care and nurturing still.

As the organization matures, we did a number of very important things. For one thing, we said we had too many of these people on contract. They should be regularized staff if it's ongoing and it should not just be short-term work. So we've in fact reduced the number of these people we have from something such as 500 down to 250 or fewer.

Another thing we did last year was cut the per diems for all these people by 10%. We just said that we thought there was an adequate supply of these kinds of people for government work and we weren't going to pay the rate any more. Our world didn't end, and we managed to staff it up and get the job done.

I guess in answer to your question, it probably wasn't 100% satisfactory procurement practice to begin with, but we've really tried to fix it up now by making it competitive.

Mrs. Chamberlain: You may not know this offhand, but it an area that I'm really interested in and it has come out in previous government operations committees. At a time when governments had to scale back, we've had employees who've either retired earlier or gone on buy-outs. They often come back in another life to do these contracts, sometimes at a greater rate than when they left.

My concern is that with the unemployment rate such as it is, we really have to seriously question when we are going to give people two, three and four jobs on top of a retirement package, if that's occurring. I don't really think I have to go on at great lengths, because you understand where I'm coming from. I'd like you to comment on that for me. Are we doing that kind of practice? Are we starting to watch out for it?

This is very serious for our economy as a whole, and it's not being done just in government. We should really be very clear on that. It's done all over Canada. Everywhere people are retiring and then going back to get two or three jobs.

I really wonder what we're doing in our own backyards, so to speak. What's happening?

Mr. Dudding: There are two parts to it. For people who have taken the early retirement incentive, because that's the only one that applies within Revenue Canada, we have our own central control on that. Every one that has taken place gets reported basically to my office. We monitor people who have taken the ERI, at least from the Revenue Canada perspective, so that we're not somehow bringing them in through the back door.

Mrs. Chamberlain: So we're not doing that?

Mr. Dudding: Certainly not within Revenue Canada.

We also made our officials in the field very aware of the government policy in that respect, because the limits are a lot tighter. Treasury Board announced much tighter limits in terms of being able to bring people back who have gone on ERI and EDI.

There are only two examples I can think of within Revenue Canada. We recently had some auditors who were working on cases. They took advantage of it. We had to bring them back so they could appear in the subsequent court case. We gave them fairly low, very limited dollar value contracts just to do that. We're very aware of the Treasury Board policy on this and make sure that our people who do the hiring across the country are also aware of it.

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Mrs. Chamberlain: I'm very pleased to hear about this. If that's happening, then I think it's a real step in the right direction, because it's not happening in all departments and it's a major mistake for our country and our economy when we start doing this kind of thing.

Mr. Dudding: Occasionally what will happen - and it's difficult for us - is that you may contract a consulting firm, let's say, to do a particular study. They may have working somewhere in the background a retired public servant, but we don't have the contract with that individual who's with the company. They may have chosen to use this particular individual, and we really have no control over that.

You see some instances of that. I haven't seen any within Revenue Canada at this point, but it is difficult to slice that out. I think the government's policy even allows for this.

Mrs. Chamberlain: So noted. With the unemployment the reality is people retiring at a much younger age, sometimes by choice or sometimes by buy-out. The compilation of several jobs on top of it is not really helping anybody out. But your point about perhaps they are in a consulting firm, or whatever, that's quite possible.

Mr. Crandall: I should add that we have also taken measures, I believe along with the Treasury Board Secretariat, to try to identify even that situation wherever possible by seeking to know the names of the people involved if you're going into a contract with a consultant and whether or not they're going to be a prime worker on a particular project.

The government would take a very rigorous and stringent approach to having those people, even if they're representing a firm, if they're under the situations you talked about. So we are aware of it and we're looking hard to make sure it doesn't happen.

Mr. Bellemare: If it makes you feel good, I have no problems with Revenue Canada. I see you as a plus on the accounting side for the government because we provide services, but we need money to provide the services. You probably have problems with Justice or other areas, or maybe with their accounting machines.

I'm intrigued, though, by the fact that you presented the committee with a two-page report. And this two-page report has very little on it, but to me it begs many questions. I have the French copy, so I will translate as I go along.

Acquisitions à Revenu Canada - what you're getting or what you're contracting. You have two paragraphs, one 1993-94, and what appeared to be at the beginning for public relations reasons. This is the perception you gave us, or at least you gave me. You have a second paragraph that talks about 1994 and 1994-95. As a good person who is caught speeding tells the police, yes, I was speeding and here's my reason. That way you don't annoy the cop, and he may be lenient.

So here we have a case where in 1993-94 - not in your exact words - you were embarrassed by that paragraph, and you quickly pointed out that you're a much better person this year in 1994-95, and you gave us these figures. But it begs the question that this is only for half a year because records would show to the end of September for 1994-95, maybe October, but I believe it would be closer to August. You're halfway there in your record keeping. So the comparison to me appears skewed.

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The second area where you give the wrong impression is that for the year 1993-94 you talk of contracts over $30,000, but in the lifesaver paragraph you talk about $25,000 and over. So I say this is a kind of legerdemain game. Maybe you're picking up some habits from some of your clients and you're trying to confuse the reader. If you're not trying to, you're certainly succeeding in doing it, for which some of us will dog you and say wait a minute; what I don't understand, I don't believe.

Then I go to the subcontracts, or contracting out. I started to do a little fast calculation, and in last year's operations your non-competitive contracts average to about $135,000 per contract. That is, of contracts less than $30,000, the total amount was nearly $76 million. The number of contracts was 5,530. If you do the arithmetic, you arrive at $135,000 per contract when we all know there's a limit of $30,000. Wow, they say.

Then we look at the paper you presented to us today on your good year - that's the half of this year - and they come up to an average of $500. Well, that's quite a difference from $135,000 - this year, $500.

When I look at the contracts over $30,000, you had 9 last year and 43 this year. The 43 this year are over $33,000 on average. You're talking about the $25,000 mark or threshold. You've gone over the threshold by at least $3,000. You've improved.

But it's hard to follow you or to believe you because you're only giving us a half-baked cake. We're not there yet. Your figures haven't been audited. You could tap dance on that table and I wouldn't believe you, because they're not audited. You would say he's right, because non-audited figures keep changing and we know in accounting tomorrow the figures will be different. You gave me today's picture, and today's picture makes me wonder about the.... Am I totally out of whack, or are you? Or is there a game being played here, a game of legerdemain in figures?

This is a comment, okay? I don't want you to give me a snow job on the good things, all right, because having been on public accounts for five years, I've heard them all; I know the answers. So this is a comment I'd like you to bring back.

When it comes to people who are expert on figures, you should present us with figures that are simple to comprehend, because that's your expertise. If you were in another department, I would understand that the figures could be a bit slushy because that's not their expertise.

I would like to ask you this question: How many of Revenue Canada's contracts are administered by Public Works? I'm talking about 1993-94, not the Christmas gift you're trying to give me this year.

Mr. Crandall: The total number of contracts in 1993-94, as reported by Public Works and Government Services Canada to the Treasury Board, for Revenue Canada was 2,389.

Mr. Bellemare: Of these, how many contracts were there where you decided who would be the contractee but Public Works did the paperwork?

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Someone has to do the paperwork. You're busy collecting taxes or chasing people in Bermuda. You want Public Works to do some contracts and you say it's Mr. ABC, company DEF; now, we don't have time to do the paperwork, it's all legalese, and you do that.

In how many of these 2,389 contracts were the contractees actually already chosen prior to Public Works doing the paperwork?

Mr. Crandall: None.

Mr. Bellemare: None?

Mr. Crandall: Mr. Bellemare, the answer to your question is that Public Works in those cases is the contracting authority. We make a requisition to them. But in reality there is no yes or no answer to your question. There's always a discussion between the managers who require what it is the government needs to procure and whoever the procurement agent is, be it inside the department or be it Public Works and Government Services Canada.

As my colleague said earlier, what PWGSC has for us is expertise in the procurement business, and our managers will always discuss with them what's the best procurement strategy for any particular procurement that goes to them, who are the potential suppliers, where we can get the best price, how we can best satisfy the product, what are our timeframes, and so on. But at the end of the day it's the procurement agent, it's the procurement authority who remains accountable for the process of procurement.

Mr. Bellemare: You flattered my comfort zone. That's good. I appreciate that.

Are you following the Treasury Board guidelines in contracting out? Some people may suggest - not I, I wouldn't do that - tax avoidance. You are experts in checking up with these guys, so you know all the tricks and you would know the tricks of how to out-trick Treasury Board and their guidelines. Do you ever avoid their guidelines and just take initiatives, albeit that these initiatives are very honest and nice and for the benefit of the country?

Mr. Crandall: I would just say that we are attempting to follow all their policies and procedures -

Mr. Bellemare: Excuse me, there was a key word. You are attempting?

Mr. Crandall: Attempting to follow all their procedures and policies whenever we can.

Mr. Bellemare: That's an interesting word, attempting.

Mr. Crandall: I believe we are. If I'm told there are cases where we're not, we will certainly look into it.

Mr. Bellemare: The answer is not for sure yes or no.

Mr. Dudding: If I could add, regarding the $76 million we were talking about earlier in the non-competitive Revenue Canada activity, of which there were 71 informatics professionals services, there was a bad procurement practice at the time. We followed the letter of the law, but the people doing it took advantage of the letter of the law and -

Mr. Bellemare: Excuse me, you said there was bad procurement practice at the time. What time?

Mr. Dudding: In 1993-94 and previous to that.

Mr. Crandall: Excuse me, Mr. Bellemare, if I could.... I already spoke about that particular situation, and what I said about that was that we had taken the particular stance we did on those informatics professionals for a number of operational reasons. As my colleague says, the letter of the law wasn't violated. But we don't think it was the best administration of procurement in our department because in fact it resulted in contracts being established at low thresholds and not being competitive, and frequently being repeated. Therefore, as we told the committee when we came in, we took measures to make that process competitive.

Mr. Bellemare: Without -

The Chairman: Last question.

Mr. Bellemare: I was thrown off one side.

Who audits your books? Do you do internal auditing, or is it an external auditing group that comes in and checks your books...that is, in the contracting-out account?

Mr. Crandall: There would be two forms of audit. The audit general in his normal audits of Revenue Canada would decide whether he wanted to do regular or periodic audits of any facet of our operations, including procurement, and occasionally does. We also have built right into our policy the requirement that our own internal audit will look at procurement issues on individual internal audits it's doing within the department. It has the capability, if we so request, to carry out an audit of procurement function per se.

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Mr. Bellemare: You mentioned the Auditor General. When was the last time he did a comprehensive audit of Revenue Canada?

Mr. Crandall: Of Revenue Canada? What do you mean, a comprehensive audit of Revenue Canada?

Mr. Bellemare: Of Revenue Canada...we're talking about contracting out.

Mr. Crandall: In the area of procurement and contracting out? I don't think he has done one, to the best of my knowledge. I think he has included various procurements as part of his normal attest audit. I think he has also included procurement-related issues in some of his comments on his other audits.

Mr. Bellemare: Yes, but the attest audit is only balancing the books. Comprehensive audit is whether you are following the right thing, whether we are getting the right amount of value for our dollar.

The Chairman: I want to follow up with an important aspect of what Mr. Bellemare said in terms of completing the record. I think Mr. Bellemare was trying quite correctly to put us on track for the practices of the past.

Mr. Bellemare, I don't think you were trying to get more of a confession. I think they've acknowledged there were practices that may have followed the letter of the law, and now you're looking for improvements.

What our committee is trying to do, and what I think Mr. Bellemare was trying to do, is focus on the positive improvements you would suggest. We're trying to put some guidelines back to Treasury Board. We've seen your preliminary start on it. What are some of the changes? Are there some changes?

For example, you've talked about the $30,000 level; you said it shouldn't be lowered because you can figure out a way to make some changes in that $30,000 level that allow you to get under the OBS. Are there some suggestions you are using that other government departments might use, or that indeed Treasury Board might be able to give us back to all of you? Are there some suggestions you could offer?

Mr. Crandall: I don't know if we have any really good specific suggestions, Mr. Chairman, but I would make one that I think is really important. It also goes back to Mr. Bellemare's comment. We tried, when we came in here today, to identify to the committee that there are some real problems in reporting on this information.

Mr. Bellemare: May I interrupt here? I have a very, very important concern, Mr. Chair. We're discussing this item as if Revenue Canada were a new institution that began four or five years ago. I've been here now nearly eight years and it's always the same thing - oh, we just caught up on a problem and we're going to fix it next year. They've been in operation maybe since 1867. It's only in 1995 that all of a sudden they say, oh, by the way, gee, this is awful and we have to change the gears here a bit.

I'm a little concerned about the answers. I don't think -

The Chairman: That's valid.

Mr. Bellemare: - we as members of Parliament should accept these answers. Is it just yesterday we discovered these problems? Wow, what have we been doing for the last 128 years?

The Chairman: Your concern is well spoken. I'm not going to add to that.

Mr. Crandall: What I was trying to say earlier, Mr. Chairman, is that there's something wrong with the reporting of the information. If the Treasury Board and the parliamentarians are going to make decisions about what's happening and try to look at what's really a problem, we all have to be able to compare apples to apples so that we can see what's really happening. We were trying to make the point that in the 1991-92 and 1992-93 data there were some instances where apples weren't being compared to apples. It particularly affected the comparison for our department. I don't know what it does for the others.

Then I look at the issue of why we put $25,000 versus $30,000. That's because the reporting format for 1994-95 was changed to $25,000, the NAFTA threshold, from $30,000. Before, people used to report on plus or minus $30,000, and now it's on plus or minus $25,000.

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Sometimes people are giving you numbers that include just services; other times, they are including goods and services. All these things make a big difference. People really have to work hard at the outset to decide what it is they want to measure from all this. What do they want departments to report on? What does Treasury Board want departments to tell them so they can do a proper analysis? Then ministers of the Treasury Board and members of Parliament can have some good data to make those kinds of decisions on.

We're very keen on trying to make sure the reporting is based on apples to apples.

The Chairman: I think that's a very valid problem. I am new to government operations, but I know this committee has wrestled with this problem in terms of making sure that apples are apples. That's one of the difficulties with this chart we've got, because this chart contains numbers that not only are confusing, they're a little misleading. In fact yesterday Mr. Bélair and I were both confused with what each of us was asking.

I was confused about what was included in OBS and there was a genuine confusion that both my colleague, the researcher here, and I were trying to wrestle with. We'd be happy to receive some of your suggestions that Treasury Board might consider because that's one of the problems we're trying to measure - a yardstick of what is out there. It is this common statistical data base.

One of the reasons, as you know, is we want to know if there are some regional sensitivities that are being ignored. Is there fair and equal access across the country? Are small businesses being given this opportunity to compete and is there something for them to compete for? In other words, to put a human face to all of this statistical data we members of Parliament are concerned about making sure that, as Mr. Bellemare calls it, this big well-established Revenue Canada, if they are going out there giving these numbers, aren't creating loopholes themselves. They're not the master of loopholes, but they are certainly the people who see everybody trying to use loopholes.

What we're trying to do is to put a common face to it and a regional face, because there may be somebody in Kamloops or in Sudbury or in Sarnia who isn't in the golden triangle of Ottawa-Montreal-Toronto for provision of service. We are trying to put a level of service at the small business end of this.

In trying to frame a question, would you give us some specific concrete suggestions not only on data but on how small business might be able to better get access to some of the contracting work that's being done by Revenue Canada, including printing perhaps, now that you've drawn that to our attention?

Mr. Crandall: Mr. Chairman, we'll certainly give that some thought.

There is an issue, you know, your committee might be interested in. I'll try to give you an example. In Revenue Canada, of course, we have a lot of personal computers and computer systems and what not and we used to have a whole variety of maintenance contracts for those computers. Recently, in order to generate the very best price, we moved to a national competition for a company to bid on and provide maintenance for all our computers across the country, I think it was.

Things like that are good in that they save money. They give you best price. They give you maximum reliability. I am not sure that all companies can get their oar in the water when you go national like that versus if you had 65 different arrangements for each office we have cross the country. So it's the type of thing your committee might be interested in. We will take a bit of a look at some of the suggestions you want and perhaps we could give something back in writing to the committee on a couple of those things if we have some good ideas.

The Chairman: Yes, we'd appreciate receiving that very quickly, because next week we're bringing the Canadian Federation of Independent Business with a series of panels on small businesses' reactions to what they're hearing from you as large line departments.

I want to thank colleagues for your patience and thank you, sirs, for being with us today. I know we all want to try to do a better job in terms of not only reporting but getting those contracts out there, particularly to the regions. Maybe even regional consultants might be considered a mechanism.

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I have one last question I'd ask you to consider in replying to us. How would you feel about a small business set-aside? In other words, within Revenue Canada you say a certain percentage of our money must be spent on small business. I don't think any of us would worry about what region it was spent in as long as it was spent on small business. How would you feel about that? What's your reaction?

Mr. Crandall: We'll think about that. I think we could probably work with that if that were considered to be an important government objective, and it may well be. Of course, we would have to work with you to address those definitional issues about what is small business and what we mean and how we know. How would you set up government to restrict tendering to small business if you wanted to be competitive on these?

The Chairman: I'd use the term ``open government tendering'' rather than restrictive. It's a definitional question.

Mr. Crandall: Yes.

The Chairman: Thanks very much. We appreciate it.

Mr. Crandall: Thank you.

The Chairman: We're adjourned.