[Recorded by Electronic Apparatus]
Tuesday, March 26, 1996
.1105 
[Translation]
The Chair: Ladies an gentlemen, I call the meeting to order. Since this is the first meeting of the committee I want to welcome you all. I am sure we will do some very interesting work.
[English]
I'd like to welcome our first witnesses and thank them for accommodating us on such short notice.
Dick Harris told us that it was a briefing well worth waiting for, so we're in your capable hands. Perhaps you'd like to begin by introducing yourselves.
Mr. Richard Neville (Assistant Secretary and Assistant Comptroller General, Treasury Board of Canada): You certainly put the challenge to us, Madame la présidente.
Madam Chair and distinguished members of this committee, I wish to congratulate you for your recent appointments. Thank you for the opportunity to be here and provide you with a brief overview of the world of contracting.
I'm very pleased to have with me Ron Campbell, the director of the contract and project management division. Mr. Pierre Adm is a senior project officer in Mr. Campbell's division.
Let me begin by stating that we are very pleased to be given the opportunity to work with members of this committee on such an important issue as contracting. We have traditionally worked very closely with this committee to improve contracting practices. I look forward to continuing with this association.
[Translation]
The establishment of appropriate contracting procedures is important for three reasons: firstly, to obtain the best value for Canadians; secondly, to help managers reach their program objectives; and finally, to ensure a procurement system equitable to suppliers.
[English]
In order to familiarize you with these concepts, following is a short presentation on this subject. It's basically a deck that I'll go through with you. We'll be glad to answer questions you may have after the presentation; however, please feel free to stop me at any time if you require clarification during the actual review of the deck.
If you'd care to turn to the first page, I'd like to deal with the overview on page two in the text. Could you please turn to this particular page. This shows the interrelationships between the Treasury Board, Public Works Government Services Canada, and departments.
Insofar as the Treasury Board is concerned, being the Treasury Board ministers, they're supported by the Treasury Board Secretariat, of which we are all part. We're responsible for setting the policy for contracting. With respect to approving contract entry over delegated authorities, I'll get into that in a few moments. Once you get to a certain threshold, anything that's above that requires Treasury Board authority.
We're also responsible for monitoring, viewing and reporting to Parliament on contracting activities. In terms of PWGSC, they issue approximately 50% of all contracts from the federal government. The reason it's 50% is because for goods - in other words, something that is tangible, like tables, chairs, tanks - they do all the contracting over $5,000. Departments have delegation authority up to $5,000. It is mandatory that anything above $5,000 be acquired through PWGSC.
Insofar as service contracts are concerned, whether it be with a consultant or whatever, that is optional. Departments are not required to go through PWGSC. They could do that on their own. That being said, a good number of departments still go through PWGSC because of the expertise that department has in the contracting field. If a department doesn't feel they've got that kind of in-house expertise, they'll still use PWGSC.
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Hence, when you put the two together, almost the 100% in terms of the goods, anything over $5,000 is mandatory. And then optional with respect to services, you get PWGSC issuing about50% of all contracts.
Once a contract has been let, PWGSC is responsible for monitoring the contract awards. They're also responsible for monitoring the contract results subsequent to the contract actually being issued, and they operate something I think is probably new terminology to you, what is called the ``open bidding service''. That is something you'll be hearing a lot about over time.
Just to give it to you in a capsule overview of it, it's an on-line system that puts all of government's requirements through an electronic bulletin board, which allows the supplier community to have access to what the government is procuring. So it's very much open and transparent to the community in terms of what's being requested. You'll be hearing about open bidding service a lot in the next several meetings. That's basically PWGSC's role.
Departments - as you can see, the dotted line, it's optional with respect to service contracts - basically can issue their own service contracts. They are required to request authority for contracts as required. So if they go over a threshold that's been approved by the Treasury Board ministers, if they exceed that, there's a requirement to come back to Treasury Board ministers. They have a responsibility, once the contract is let, to certify value for money; in other words, sign that the work has actually been done and the service is rendered. And they have responsibility for audit practices, to make sure that the process is well carried out within the departments.
Other considerations in this chart are fair access safeguards. There is what is called the Canadian International Trade Tribunal, to which suppliers could have recourse if they feel that inappropriate action has been taken with respect to the trade agreements. When we talk about the trade agreements, we've got the North American Free Trade Agreement - I think you're all familiar with the NAFTA - and we've got the World Trade Organization, which used to be known as GATT. For those of you who may still be working with the GATT arrangements, it's now called the World Trade Organization. We've also got the internal trade agreement, ITA, which is within Canada between the provinces and the federal government. Those are other fair access safeguards that come into play in the overall process.
If you turn the page, what you have here is a very high-level synopsized Treasury Board contract authority threshold chart. It's not comprehensive in the sense that every single delegation has been given, but just basically speaking, as we try to provide an overview of contract, these are some of the thresholds we deal with.
If you look at the construction as an example, construction-type contracts basic to all departments, if you go the right-hand column, if your contact is non-competitive, what you have there are two separate columns. A department could enter into a non-competitive construction contract up to $40,000 without coming to Treasury Board for authority. If there's an amendment to that contract, they could go up to another $40,000 again before coming to Treasury Board.
Let's take an example, a case in point. If a contract is for $50,000, it's over that $40,000 threshold so they must come to Treasury Board. If the contract is for $30,000, they can sign it themselves. Subsequent to the contract being let, if there's an amendment for $50,000, they must come to Treasury Board; if it's less than $40,000 - let's say it's for $30,000 - then they can sign that themselves. So the most a department could sign on a construction contract, generally speaking, would be $40,000 at the outset, plus an amendment for another $40,000, for a total of $80,000.
Public Works and Government Services have to hire a delegation, up to $200,000 for entry and up to $500,000 for an amendment. That will give you an idea of how this particular chart works. You can look at any one of the components, whether it be non-competitive or competitive or open bidding. Open bidding means you've used the open bidding service I referred to earlier.
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I think the most interesting one on this page is under ``Goods''. You have ``Basic to All Departments'', and if you look at the right-hand column you will see $40,000, $40,000, entry, amendment. Please bear in mind that the Minister of Public Works and Government Services, through the act for which she is responsible at present, can delegate up to $40,000 but has chosen at this point to delegate only up to $5,000. So de facto what is in place today is $5,000. Departments must come to PWGSC if they are contracting over $5,000; below $5,000 departments can contract for goods on their own.
As you can see, Public Works and Government Services has a much higher delegation, in this case for goods up to $2 million, if it's non-competitive, plus an amendment up to $1 million. That goes up significantly as you go across the page and look at competitive, $10 million, $5 million and open bidding that can go as high as $20 million on entry, and another $10 million on amendment if they've gone through the open bidding service. Anything higher than that would require Treasury Board approval.
Insofar as services are concerned, you can see that the concepts are the same. It's just the numbers that are a little different, and you have one extra line for Transport Canada.
That's a quick overview of the thresholds. I have here a section of the Treasury Board manual on contracting, Appendix C, and therein there are exceptions - in other words, different levels of authority for different departments based on their needs. I took a gander once more the other night, and there are a couple of examples. I want to give them to you to give you the flavour of this appendix.
The minister responsible for the National Archives of Canada may enter into or amend a contract to purchase historical material if the total of the contract, including any amendments thereto, does not exceed $150,000. It's pretty safe to say that the minister responsible for the National Archives would have authority to purchase something in his or her own field over and above the general threshold. So in this case it's $150,000.
As another example, the Minister of Agriculture and Agri-Food may, for contracts related to the review of pesticides registration, enter into a non-competitive service contract if the amount does not exceed $100,000.
Those are some examples of exceptions, but over the years they have been granted for one reason or another with the approval of the Treasury Board. They're all detailed in Appendix C.
I've gone into this to give you a sense of the complexities of delegation of authority. There are different thresholds all the way through, and one must work with and respect those thresholds.
If you will turn the page, I can give you TBS's perspective as well on contracting. I'll try to be brief, Madam Chair.
Contracting objectives for the Treasury Board at this point include best value, which is the optimal balance of benefits and costs, not the lowest price. In other words, even though someone may have the lowest price in a submission, it may not be the one you go with. You go with best value, which combines the optimal balance of benefits and costs.
We are also concerned with access, in other words access for all suppliers to participate in the process; openness in the process; fairness, as it must be seen as fair and transparent to all. We also must withstand the test of public scrutiny, both in terms of prudence and probity. I can't stress that enough, but at the end of the day that's what it all comes down to. You must be able to withstand the test of public scrutiny when you are in a contracting mode.
Competitive solicitation is self-justifying and the reason is that it's transparent. When you go into a competitive situation it is seen to be transparent by all participants, and it's a lot easier to explain to losing bidders and the public how that particular contract was let. Having been a regional director general for several years within Public Works and Government Services Canada, and having worked with suppliers that have not won a contract, trust me - it's a lot easier to explain to them how the process evolved when you have a competitive situation than when you have a sole-source contract.
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It also solves ethical problems. You avoid having ``contract splitting''. Again, for those of you who may not be familiar with that term, contract splitting is when you have a situation where your threshold is x. If the contract is slightly above that, the tendency is to try to split it so you bring it back within the threshold and issue a second contract. That's contract splitting. Obviously, we all try to avoid that, and we're trying to look out for it. In case you hear that term, that's what it refers to.
Also, it is solving an ethical problem in that it's publicly perceived as patronage. You've situations where it may be deemed to be political and/or bureaucratic. So by going competitive you eliminate that perception. So we end up by saying that competition is best and we always strive for competition.
Having said that, why do departments have difficulty in establishing Treasury Board policy? There are a lot of reasons. If you can put yourselves in a departmental perspective or in their shoes for a moment, first of all there is a time constraint. When you go competitive, it is more time-consuming, as a general rule, than if you sole-source a contract.
Costs are involved. Obviously, time is money. If it takes more time, there are costs associated with that. In a lot of cases it's seen by departments as being an administrative burden. It's not as quick to get a contract out through the competitive process as it is when you sole-source. They have mutually exclusive sub-objectives. A lot of program managers would like to get the program delivery out but not necessarily be concerned with good contracting procedures.
Also, you need a knowledge base and expertise. So you normally have to have an identifiable contracting organization that has sole responsibility for contracting. That's sometimes a constraint on departments, especially ones in downsizing mode. There are limited human resources. We've had significant reductions in our government's workforce over the last several years; hence, limited resources are available for this particular activity. You also need trained and knowledgeable individuals. To train and give that kind of experience to human resources obviously creates some constraints.
Continuing with other reasons why departments have difficulty in following Treasury Board policy, there are rigidities within the contracting process itself. First, there is something you'll be hearing quite often, government contract regulations, or GCRs. They're the regulations that govern overall Treasury Board policy insofar as contracting goes, which departments are required to follow.
The government contract regulations state at present that any contract over $30,000 must be competed.
There are four exceptions to this. One of the exceptions deals with emergencies. If you have an emergency, you are not required to follow that particular policy, but you must be able to defend your actions.
Mr. Harvard (Winnipeg St. James): Why is that?
Mr. Neville: For a lot of reasons. We've been trying to monitor the usage of competitive contracting. We felt that was a better number to work with. It also ties in with the various trade agreements, which is $25,000. Also, this committee has had input into that particular decision. Through previous recommendations we are trying to accommodate the views of parliamentarians in that sense. So we are bringing it down to $25,000 at this point, or putting the wheels in motion to make that occur. Again, departments would feel that's a rigidity in the system, that we're bringing the threshold from $30,000 down to $25,000 for competition.
You have common law, you have TB delegation of contracting authority - again any restrictions, any thresholds as perceived by departments as being obtrusive.
Also, there is the requirement to go to PWGSC. Anytime you are over $5,000 in a goods contract or a procurement situation, you must go to PWGSC. Departments feel that's onerous.
Also, there are the obligations of the trade agreements. Whether it be NAFTA, internal trade, or world trade, that's the law in Canada, and it must be followed. Where you have thresholds - they're all different, I might add - between the various agreements, there are different thresholds. So you have to keep track of the various delegation authorities in order to meet your requirements. That's a constraint on departments.
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Also, the agreements cover goods, services, and construction, a good majority of the work that's being done. There were only a few exceptions, which are very limited in most cases.
Moving on with other difficulties being envisaged by departments, you have aboriginal procurement obligations. There are a number of land claim settlement agreements that have been signed, and for all intents and purposes each one has a different threshold as to what is required in terms of contracting. So one must keep in mind the various land claim settlement agreements, plus there's a possibility of having future business set aside. That's being discussed by departments, so that's another potential problem for departments.
There is also the reporting of the contract awards, reporting for each trade agreement, GCRs, and aboriginal procurement. The onus is on them to prepare those kinds of reports. We will be coming back with the contracting report for 1994-95 later this spring, and a key here is preparing harmonized single formats. With a single report, we're going to try to take away some of the concerns departments have, starting with the 1995 fiscal year. But I have to say that in the interim it still is onerous on departments.
I will now turn to the next page, which has a number of pie charts. This is total government contracting activity, the universe of contracting in government, if you wish. I would like to start with the left side, the number of contracts, and go to the bottom, 1991-92.
There were 191,000 contracts issued in 1991-92, 171,000 in 1992-93, and 183,000 in 1993-94. Generally speaking, the contracts are basically on the decrease in terms of volume of contracts. But in terms of the competitive versus non-competitive, I think you'll notice that it's getting less competitive, again on a downward slope. So you're having more non-competitive contracts issued in terms of volume.
On the right side of that page you have the dollar values of contracts. If you start at the bottom, for 1991-92 it's about $9 billion and it remains pretty steady, with $9.8 billion in 1992-93 and $8.9 billion in 1993-94. So they're the same in terms of the overall expenditures, but again, if you look at the competitive area, there's been a slight decrease. I don't think it's so much the dollars here, because you could have one contract that's significant; you have to focus on the number of contracts, and you can see that there's a decrease there.
That being said, we think the real story is on the next page. I think everything else we'll show you today can be summed up on this page. These are the contract amendments for the same period. Again, if you look at the number of contract amendments, in 1991-92 there were approximately 40,000 contract amendments, and that's pretty steady over the next 3 years. But if you look at the amendments below $30,000, you'll see a significant increase, hence it raises questions as to why there are that many amendments below $30,000. I think we can all guess.
On the right side, you will see the dollar equivalents. Again, there's a significant increase in the amounts of amendments. That can probably be explained in terms of some of the major amendments that have taken place. We're still mainly focusing on the competitive versus non-competitive, or contracts over $30,000 versus those below $30,000, which is on the left side of the page. We see a significant problem evolving as a result of these statistics.
There are four departments with significant contract amendments, probably the ones you would expect in some instances, others maybe not. In 1991-92 National Defence had 16,500 amendments worth $311 million, going up to 18,000 worth $598 million and then 17,974 worth $1,114 million. The Canadian Space Agency had 156 amendments in 1991-92, worth $5 million, and462 amendments in 1993-94, worth $125 million. You can see that the others have had an increase as well, generally speaking. Those are the four departments that have had the majority of contract amendments over these last three years.
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I'd like to turn now to best practices to ensure quality contract management. Here are some of our suggestions that departments could put in place to improve the process. One, have the right structure to support departmental contracting initiatives, and another way of phrasing that would be to say departments should have a separate section dealing with contracting; two, effective contract review mechanisms internal to the department, probably even sign-offs at the deputy minister or assistant deputy minister level for, first, all non-competitive awards, and second, for all contracts with former public servants, excepting for EDI or ERI, the early departure incentive or early retirement incentive; three, ensure contracting risks are covered by internal audit; four, training of managers and procurement staff, which is critical to ensuring a viable contracting process.
Within TBS, we've tried to resolve some of the issues by carrying out the following actions or initiatives. We've now met with deputy ministers on several occasions to discuss means of achieving improvement in the coming years. Deputy ministers, from their perspective, have undertaken to review contracting practices in individual departments to ensure optimum competition and to strengthen the justification for entering into non-competitive contracts. Those are the assurances deputy ministers have given us. Current data collected provides only a snapshot of total government contracting activity, and identification of trends, changes and data input will improve the value of the 1996 contracting report. Basically, that's what we've done.
I'd like to go on to the next page as well. We've also issued a number of documents to assist departments. I'll leave that for you to read at your leisure, but there are a number of policies, guides or directives that have been issued to help departments along. Audits have been carried out by all departments to ensure that year-end expenditures - where appropriate - are charged to the proper fiscal year. Again, we're quite concerned about that accounting taking place, and through internal audits we're getting that assurance.
As well, we do provide various training courses related to proper contracting performance that are available through Training and Development Canada. We have been involved in the development of these courses, and we actually will go on site to help the departments concerned.
TBS maintains auto-review evaluation functions that liaise with departments. To date, there have been 57 audits of contracting policies conducted by 24 departments, so I think we're doing our homework in that sense. We will assess the information after 1994-1995 again to identify any changes in the trend.
That said, we want to be careful because those transactions have already taken place. So although we'll be reporting on them shortly, it doesn't necessarily mean there will be a change in the trend. We expect that to take place as of 1996 when we've put the new procedures into place.
The above initiatives aid in ensuring proper contracting within the federal government. However, they really reflect an interim approach during transition. Our long-term goal is to put a financial information strategy in place that will upgrade accounting information and make it more visible for managers.
That, in a nutshell, is an overview of contracting. If we had more time, we'd obviously be in a better position to provide you with additional information. But as a starting point, I hope this has given you some kind of an overview on contracting.
The Chair: Thank you, Mr. Neville. I'm sure that your presentation has inspired many questions, especially since you're uniquely placed to provide us with an update of recent developments in the improvement of contract management. I think we're all interested in seeing how we're getting value for our money.
We'll begin with five-minute rounds because our time is short.
[Translation]
Mr. Fillion, you have the floor.
Mr. Fillion (Chicoutimi): I would like to go back to page 3 of your document which is the key table, just to get a better understanding of the terms used. When you talk about non competitive contracts, does it mean it is a sole source contract?
Mr. Neville: Yes, as a general rule, it is a sole source.
Mr. Fillion: In such a case, there is no bidding if the amount is lower than those that appear in each column.
Mr. Neville: That is correct.
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Mr. Fillion: Now, with regard to competitive contracts, is there a limited number of bidders? Are there limits also with regards to some sectors, some regions, the goods or services to be procured?
Mr. Neville: Good question. It all depends. Again, as a general rule, the contracting officer determines the number of suppliers that will be invited to bid. Therefore, it is not necessarily a fixed number. It can be a large number or it could be as low as two.
Mr. Fillion: Is it through invitation?
Mr. Neville: Yes.
Mr. Fillion: Which means that it is determined by the officer.
Mr. Neville: Yes. In Public Works and Government Services Canada, there is a computer system that selects the names of three suppliers if the amount is between $2,500 and $5,000. If it is under $2,500, it is at the discretion of the contract officer.
Mr. Fillion: Your information system is the OBS, is it not?
Mr. Neville: Yes.
Mr. Fillion: I am new to this. Do you have tools that allow me, as a member of Parliament, to check on a regular basis what contracts you put out to tender?
Mr. Neville: Yes.
Mr. Fillion: Can I receive something in my office that would allow me to follow this day-to-day?
Mr. Neville: It is a question you could put to our colleagues from Public Works and Government Services Canada who will appear next. They know all about this and, indeed, they offered MP's an electronic service that will allow them to follow these files from their office. I think you could have access to it as of today, at a small cost or even for free.
Mr. Fillion: Maybe you would have to check this out, because I recently made a request for this service and was told that it would cost $1,000 or more a month. Is this possible? Maybe we are not talking about the same system.
Mr. Neville: I do not think we are talking about the same thing. Generally speaking, even an outside supplier could access this service. For a typical supplier, the cost is around $300 a year. That would be a supplier who uses the system quite frequently, maybe twice a week or once every two weeks.
With regards to what has been offered to you, I suggest to ask Public Works and Government Services directly, but I believe the cost would be minimal in your case or even nil. But I am sure it is not $1,000.
Mr. Fillion: What kind of information does one find in this program you are talking about?
Mr. Neville: You will be able to see all contracts which are in the competitive system. It also shows contracts already awarded, the name of the winning supplier and other statistical data, as well as notifications of seminars.
Mr. Fillion: Does it also show the new invitations to tenders or the new contracts?
Mr. Neville: Only if they are in the system. You also see the new calls for tenders.
[Technical difficulties - Editor]
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[English]
The Chair: Mr. Gilmour.
Mr. Gilmour (Comox - Alberni): Last year we heard from a number of agencies - DND, Public Works and Indian Affairs - on how the contracts in their particular areas were awarded and how Public Works fit into the situation. In most cases they were saying if it was a lower bid and if a lead agency was in favour of a particular contract, then normally it would be awarded in that direction.
I'd like to touch on a specific contract, not that I expect you to know it, but I want to use it as an example. I think the chair is aware of it. It was a $35 million contract to maintain twelve minesweepers. You can't call them minesweepers today; they're maritime vessels. Halifax Shipyard had the lowest bid. They had the best technical bid. They were the group recommended by DND to get the contract. They didn't get the contract. It went to another company that had $1 million-higher bid.
The question I would like to ask is this. I fully understand that there's an audit. You can audit the contract - that's easy to do - but what process do you have that covers the awarding of the contracts? Is there any mechanism that goes into dealing with competitive bids - in this case there were four - that would go back into that process to go over how the contract was awarded?
This one appears on page 4. When you're talking about openness, fairness, transparency, public scrutiny and perceived patronage, they all fall into this awarding. What mechanism is there to check on this?
Mr. Neville: I'm not familiar with that contract, so I can't speak to it specifically. I'll be generic in my response.
When a department puts forward a requisition to Public Works and Government Services Canada for something, a good in this particular case, PWGSC has the responsibility, with their professional group, to look at the demand and the specifications and make sure they're appropriate under the circumstances, and to try to determine how best to source that particular requirement.
They prepare what is called a ``procurement plan'', or something as large as that, which they then discuss with the client and get concurrence. Then they go out and follow the procurement plan. The evaluation is done in-house, based on the submissions I receive, and then the contract is awarded according to a decision that's taken.
Subsequent to that, if a supplier feels the decision was incorrect, in their opinion, they can come back and ask for a debriefing. That's granted, I think, in almost every instance. That's a pretty thorough process, where officials of PWGSC actually sit down with the supplier concerned and go through their proposal, go through the process that occurred and then give them comments on the results.
In one instance that I can recall specifically, they even had a third party monitor the process all the way through so there could be a more objective debriefing subsequent to the awarding of a contract. As I was stating earlier, a debriefing is offered to suppliers, and they can avail themselves of that particular process.
Mr. Gilmour: In this case, I understand they did a debriefing and it was rather surface. They were not at all satisfied. Does Treasury Board oversee any of this, or is it in-house? And once Public Works decides on a contract, does it stay in-house?
Mr. Neville: If it's within their delegated authority, yes, it stays in-house, unless something comes to our attention. Generally speaking, that's why we have delegation of authorities and that's why there are thresholds. The thresholds are such that we expect that PWGSC will be very professional in how they carry out the contracting process overall, but if it's over a certain limit, then it comes to the Treasury Board and Treasury Board ministers would actually render the final decision.
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Mr. Gilmour: What's the limit?
Mr. Neville: As you can see on the chart on page 3, if they went through open bidding - and I'm not aware that they have or have not, I'm just saying if they did - then it would be $20 million for PWGSC and an amendment for $10 million. It would have come to Treasury Board ministers if it was over those amounts.
Mr. Harvard: Let me make one short comment on the discussion going on betweenMr. Gilmour and Mr. Neville.
Mr. Gilmour of course is referring to Fenco MacLaren. Fenco MacLaren has asked for a judicial review. I assume that will go forward, so whether any mistakes were made will depend on the courts.
It would be reasonable to assume that if the courts found that a mistake was made it might be incumbent upon the department or somebody to ask whether the policy is foolproof or whether the policy as such should somehow be beefed up or shored up so this kind of thing would be prevented in the future. I really think that until we find out what the court or courts say, we're just going to have to exercise some patience.
I can understand. I've heard a number of questions from your party, Mr. Gilmour. I think we're just going to have to show some patience because of the judicial review that has been applied for by one of the grieving parties, if I can put it in that way.
The question I have for Mr. Neville has to do with so-called amendments to contracts. There is what I guess you might call an increasing spate of amendments. In a generic sense, why are there so many amendments? I think that amendments raise questions. There may be some very good reasons as to what causes them. Maybe you could just enlighten us on that.
Mr. Neville: We're concerned with the increase in amendments, specifically those under $30,000. We ourselves have been looking into it. I don't think we can put our finger on one reason in particular.
Generally speaking, there have been some contracts that are close to the $30,000 limit, which is the cut-off for competitiveness. We require departments to go competitive if they're over $30,000 unless there's a specific reason not to do so. Therefore you have a scenario wherein if it's a tad over $30,000, probably it's easier for some departments to let the contract out at a level lower than $30,000, and if there's a requirement later on to complete the work, an amendment might be put forward.
Mr. Harvard: If that were the case, would that be a violation of the spirit of the policy?
Mr. Neville: I think that would be a violation of the spirit of the policy. I'd say yes.
Mr. Harvard: You can't put your finger on it, especially with regard to the increase itself?
Mr. Neville: As you can appreciate, it's very difficult to pinpoint that. They word the amendment in such a way that it's hard to make the link between the two.
Mr. Harvard: Is there any way of generalizing the complaints that come in about the letting of contracts, the way the contracts are executed and evaluated? Is there a particular kind of complaint that you're hearing from suppliers over and over again that may raise some concern in your mind, or is it all over the place?
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Mr. Neville: First I will put that in context. I stand to be corrected on the numbers, but I've always used these approximations because they're easy to follow. Think of 1,000 contracts a day, give or take, that are being let - maybe a little bit less, but just to bring it home, 1,000 contracts a day. You have one winner, of course, for every one of those contracts, but you may have up to 4,000 or 5,000 disappointed suppliers on that particular day. So today being March 26, there are1,000 contracts somewhere across the country being let by the federal government; 1,000 suppliers will be happy today, and 3,000 or 4,000 suppliers will be disappointed today. Multiply that by five and you've got maybe 15,000 suppliers per week who are not necessarily happy campers. Over a year you've got a high number. That being said, the number of complaints we get are very few. Less than one per cent, I think, would be a fair approximation.
The bulk of those complaints are that they think they probably have a better product, and though it may be a bit more expensive than the one that won, they're putting the case forward that they have a better product, of better value. That's one category, and of course it is subjective. It is based on their perception as opposed to the assessment of the contracting officer and the client department.
The other kind of complaint is pretty straightforward - that they have the lowest price, period, full stop, and we should have taken their particular product. As we are representing the crown, we want to get the lowest expenditures, and theirs had the lowest price, so why didn't we take their product? Again, we're not matching value for money here - just price.
I think between those two types of complaints, by far the majority of complaints are covered.
[Translation]
The Chair: Mr. Crête, you have three minutes.
Mr. Crête (Kamouraska - Rivière-du-Loup): Do you have a breakdown of contracts by province or region? Also, do you hold briefing sessions for small and medium businesses throughout Canada in order to explain them how to register for the system?
Often, there is a perception that it is much more a question of having the right contacts, not necessarily political contacts, but rather contacts with officials or others. Are there any statistics that we could see?
Mr. Neville: I think these are two different issues. First, regarding a breakdown of contracts by provinces, it is costly to collect data and we have to reduce our costs. There is no system that would pick-up all contracts and break them down by province.
Mr. Crête: Unemployment figures tell us that there should be other means. This is part of the means. If we could see the breakdown of government procurement, we could see if it is equitable or not.
Mr. Neville: There are three aspects to this question. Firstly, there is presently no statistical system that provides a breakdown by province.
As for your first question, I would like to make two points. First, the invoices we get from suppliers are not always related to the right province. Let me give you an example. Esso sends us from Nepean a bill for hundreds of millions of dollars of fuel. I think we all recognize that fuel is not being manufactured in Ontario. I would not want to throw around figures that I would have difficulty justifying later on.
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Thirdly, in the Publics Accounts document, there is a table providing a breakdown of some government expenditures representing about 27 per cent of total spending. It is a breakdown for very specific programs, but not for total procurement spending.
Mr. Crête: It is not a geographical breakdown?
Mr. Neville: When I say provinces, it is geographical.
Mr. Crête: Therefore, these 27 per cent are broken down geographically.
Mr. Neville: Yes, of course, but it is only 27 per cent of all Public Accounts.
I think this answers your first question. As for your second question, you should put it to my colleagues who will appear next. There are several programs within Publics Works and Government Services aimed at giving small businesses access to the system, more today than in previous years.
When I was regional director general in Quebec, we had many meetings with the provincial government to ensure we were reaching all small and medium suppliers. If you want to know more about this, I suggest you should put those questions to my colleagues later on.
The Chair: Thank you, Mr. Neville.
[English]
Mr. Gilmour, three short minutes - any questions?
Mr. Gilmour: No.
The Chair: Mr. Jackson.
Mr. Jackson (Bruce - Grey): I don't envy your problems. Coming from the city where we used to have the biggest contract in town, and then going to the feds where you have that many contracts and you have everybody for different reasons saying they don't get the contracts, your remarks are appreciated in regard to Mr. Harvard's comments.
I have two questions with regard to main contractors and subcontractors. I know there is a question on the Hill right now about an incident involving a woman employee. I'd like to make a comment and then ask a question. In some contracts you say that the lowest contract is not necessarily taken, that you might find a bank problem or a character flaw or something like that.
Mr. Neville: Sorry. I was following you until the last -
Mr. Jackson: People could tender but you wouldn't necessarily go for the low contract.
Mr. Neville: Right, because we go for the value for money as opposed to the lowest cost only.
Mr. Jackson: That would be in the fine print someplace. There would be all kinds of reasons why you might not accept the lowest bidder.
Mr. Neville: Correct, because the quality of the goods may not be there, the service standards may not be met or may not be the same, or because of the qualifications of individuals being put forward. A lot of factors come into play. We go for value for money as opposed to lowest cost.
Mr. Jackson: So you get most of your complaints from that department.
Mr. Neville: I said there are two categories of complaints, and that's one of them, obviously - people who have put in the lowest bid don't always win, and feel that we should have chosen them.
Mr. Jackson: Okay, we'll go back over that. The question I'd like to ask you is whether the main contractor must satisfy all the compliances the federal government has in regard to pay equity and all the regulation government has with regard to its employees.
Mr. Neville: We only deal with a prime - a main contractor. We are not responsible for dealing with the businesses they may have aligned themselves with. We hold the prime as being the only contracting authority with whom we interact.
We expect that they meet all of the federal requirements; that's so stated in the master contract. In cases where there are more than 100 employees, for example, they must meet certain conditions in terms of equity. There are other conditions for environmental considerations based on that particular requirement. It depends on the contract. You'd have to look at each one individually.
The federal government's overall requirements are being set in terms of the prime. We hold the prime accountable for those requirements.
Mr. Jackson: Given that, we get a lot of complaints from the subcontractors, when for instance they seem to be the last ones paid, or they don't receive their salaries, or they have equipment taken from them without being paid for it. Does the federal government not have any obligation? They have to go to the major contractors?
Mr. Neville: Correct. Again, when I was the regional director general in both the west and Quebec, I did get some complaints from subcontractors who wanted to get paid more quickly or who had some complaints about the prime.
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The Chair: Mr. Bryden.
Mr. Bryden (Hamilton - Wentworth): I just have a comment on the question, or a couple of questions perhaps. But for the benefit of my colleagues here who are on this committee for the first time, and I think there are only two of us right here who have any real history, the trend towards more non-competitive contracts and the trend towards more amendments under $30,000 were identified by members of this committee last June and resulted in the cooperation of Treasury Board's quite extensive analysis of the problem. So I want you to know that very good work has been done in this committee in cooperation with officials.
I suspect we're probably one of the most effective committees and I congratulate Treasury Board for obviously showing they have made a lot of progress and they've given a lot of thought to the issues.
The Chair: Mr. Bryden, that's why I refer to them as exemplary officials.
Mr. Bryden: Well, they are indeed.
Mr. Neville: Thank you.
Mr. Bryden: I'd like to take it though into a question. In looking at your presentation, I see you're now talking about possible business set-asides. I would like to hear Treasury Board's view on the whole issue of set-asides. Do you think set-asides are the way to go in terms of more competitive bidding?
Mr. Neville: I really don't think it's appropriate for us to comment. We respect political decisions and carry them out. That will be dealt with in a political forum as a program issue, and whatever the decision is, we'll be more than pleased with it.
Mr. Bryden: Well then, may I suggest to this committee that the issue of business set-asides is a major issue that this committee should be considering and it shouldn't be left to consideration. I don't know where it's being debated. It certainly isn't being debated in the House of Commons or in caucus or anywhere that I know of, so perhaps it's an issue to be brought before this committee for discussion.
Would you explain though, Mr. Neville, what we are talking about when we talk about business set-asides?
Mr. Neville: Generally speaking again, when you talk about business set-asides it means you would take a certain portion of the market or the contracts to be let and set them aside for small business. That would be my understanding of business set-asides.
Mr. Bryden: I see you have business set-asides under aboriginal procurement obligations. Are we talking about business set-asides that apply to aboriginals, for example?
Mr. Neville: I understand that's being discussed and that's a possibility.
Mr. Bryden: Isn't it true that you could have business set-asides by province, for example? My Bloc Québécois colleagues here could make an argument that there should be a certain amount of business set-asides for Quebec. You could argue that case because you are the Bloc Québécois and think often in terms of sovereignty, but it could equally be argued for Ontario, B.C., or whatever.
That is the issue, and I think it is an issue this committee needs to address, because if you set a regime for business set-asides for one group, then you must set it for all groups.
The Chair: Mr. Neville, you have the final word here.
Mr. Neville: I think one has to respect as well the internal trade agreement, which has been signed by all parties, which tries to do away with that kind of scenario. So within the framework of the existing legislation, that is problematic.
The Chair: Mr. Neville, would you please refer to a report that's coming down in late spring? Can you give us an estimated pending date for which we could wait with bated breath?
Mr. Neville: My supervisor asks me the same question almost daily. We are dependent on another department in terms of getting the information, which complicates it, obviously. That being said, it's still our responsibility, so I'll be accountable.
We would like to have that information in our own hands probably towards the end of April and then be in a position to discuss it and analyse it internally and then bring it to Treasury Board ministers. So it would still be a few months away, to be quite honest with you, Madam Chair.
The Chair: Thank you. Would you permit me one quick question, if I can indulge myself here? If you were to offer a guess as to what percentage of contracts could be described as the contracting out of tasks that were once performed by public servants, does the reduction in the public service justify and exceed the added costs of these contracts? Are there studies done to that effect?
Mr. Neville: Madam Chair, you've used a term we haven't used this morning yet. Let's make sure we're clear on terminology lexicon here. You've used a term ``contracting out'', which is not what we've been talking about this morning. We've been talking about contracting.
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The Chair: Yes, I realize that.
Mr. Neville: Contracting out for us has a specific meaning in line with what you've stated: that you take work that is being done in government today and you actually transfer it out to the private sector.
The Chair: You farm it out. That's right.
Mr. Neville: Exactly. Okay. So in that context I think it's safe to say we have done a minimal amount of contracting out over the last several years. Maybe this will be more so in the future, but we have done a minimal amount so far. I don't know what the percentage is; probably it's very small. The downsizing may increase with all sorts of other methodologies and scenarios that are being put forward, so I couldn't give you a guess as to what it will be.
Just to make sure we're on the same wavelength, contracting out proper has not been a significant amount over the last several years.
The Chair: Thank you for the clarification and thank you for your patience. It's obvious byMr. Bryden's question that we need you back for another round. I hope you will agree that this was not painful and that you're more than willing to come back again to see us at a later date. We promise we'll give you more advance notice. Thank you.
Mr. Neville: Yes, thank you.
The Chair: We'll take a short recess of maybe a couple of minutes to usher in our next witnesses.
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The Chair: To begin, I'd like to welcome Mr. Williams and Mr. Stobbe. Welcome. And because we're running a little bit late on the clock, I will forgo the courtesies we usually provide. I'm sure your presentations will give us much food for thought. Thank you, welcome, and please forgive us.
Mr. Alan S. Williams (Assistant Deputy Minister, Supply Operations Service Branch, Public Works and Government Services Canada): Thank you very much, Madam Chair.
On behalf of the deputy, Jim and I are very pleased to be here. Our understanding is that what you would like at the outset is an overview as to the government procurement process, so I'll take you through a deck that I think I've distributed. Please feel free to interrupt and question any time you have any issue we can expand on.
I distributed a deck and I also distributed a one-page piece of paper that I thought I would just talk about briefly at the beginning and then go through the deck. You could keep this in front of you as we go through the deck page by page.
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Essentially, when we talk about the procurement process, which is outlined here, we will discuss the values and the principles that underlie the whole process. There are basically three values: integrity, openness, and competitiveness. What I've tried to do is colour-code it so that you can see how these three principles impact on different parts of the process.
As well, we have two major objectives in undertaking a procurement process. The first is to try satisfy the client's concerns and needs. Secondly, there are often socio-economic objectives. You'll see that those two indicators, points 4 and 5, are also colour-coded on the chart.
Everything we do in terms of the procurement process can be seen within the value system of integrity, openness, and competitiveness, as well as the two major objectives. Hopefully that gives you a broad perspective on what we're trying to accomplish.
Let me now just walk you quickly through the deck, obviously leaving room for questions as necessary.
First of all, to give you some sense of perspective on numbers, while there are about $57 billion or $58 billion of expenditures in the public sector, the federal government itself accounts for about $14 billion of that, roughly 25%, and our department in particular accounts for about $8.6 billion. As we go through the presentation, you'll become better aware that of course all government departments do a fair bit of procurement. We do some of it on their behalf, but others are delegated authority to do it on their own.
For your information, in terms of our own particular department, the biggest of our four main clients would be the Department of National Defence, which accounts for about $3.6 billion of the $8.6 billion. Of course, a lot of the major procurements are for them. We're our own next biggest client, mainly because of the way we categorize procurement; we conduct a lot of standing offers. As we do that on behalf of all government departments, those standing offers are a big part of government business, to the tune of about $1.4 billion in total for our department. Those are in fact the two big areas of the $8.6 billion.
Also, in terms of giving you some perspective on the kind of goods we procure, the biggest would be in the computer area, the EDP area, where we procure about $1 billion per year. Printing and publication would account for about $500 million, fuels for nearly $500 million, and ammunition for about $250 million. That gives you some sense of where in fact we're procuring goods on behalf of government departments.
As I just indicated, as we undertake our contracting, these three guiding principles really are the guts of what we do. We try to view these values in all of our contracting officers. We try to have as rigorous a process as possible and certainly make sure that whatever we do, the integrity of the process is not compromised. This involves not showing favouritism to one particular supplier over another and making sure that everybody has an equal shot at rules and at the particular kind of transaction we're talking about.
As I indicated at the beginning, there are two main objectives. Every procurement is designed to meet a client's objectives and in fact, in many cases where no trade agreements are involved, there are often socio-economic objectives as well that we try to enforce.
Now what I'll do is take you through each part of the procurement process, starting with the requirements definition. It all starts with that.
There are a number of ways of defining the requirements. You can in fact try to articulate, in terms of performance, the speed of a computer, the response time, and those kinds of issues. Designs can be specified. For instance, in the computer world again, you can specify what kind of an operating system you want. In the last kind of scenario are trade names or equivalents. That's the kind we try to avoid, because that of course can limit competition.
Part of our main task in terms of our department is reviewing these requirement specs by the client departments to try to prevent what we call wired specs or lockouts. We really want to try to avoid any kind of sense that we're focusing on a particular supplier to acquire his or her particular good. That's one of the key challenges for people within our department.
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If in fact there are no trade agreements we have to contend with, then we do have a process that does look extensively at the socio-economic opportunities.
In the main, for between $2 million and $100 million, a number of committees are struck. There's a procurement review committee that consists of roughly 15 departments, including the economic organizations. They review the procurement to see whether or not the short-range acquisition plans lend themselves to some kind of socio-economic benefit for the country. If in fact they do, then these are passed on to a procurement review committee, which is a higher-level committee that will determine the extent of the potential industrial and regional benefits.
There is a wide range of initiatives on socio-economic programs and Canadian content. There are ones that touch on the IT sector. There are programs that require employment equity provisions to be adhered to, as well as shipbuilding, munitions, and comprehensive claims. There are lots of these different kinds of programs in place in the appropriate kinds of circumstances.
Once you've in fact gone through the socio-economic review, we then get into our procurement strategy. In this area, we really are trying to establish the best way of procuring the particular kind of good, again keeping in mind our values that I indicated at the beginning. I have indicated three kinds here: an invitation to tender, a request for quotations, and a request for proposals.
The invitation to tender is a methodology you apply when in fact you know there's competition. By that, I would mean two or more possible sources. There's a very well-defined requirement against which you can set a very clear criterion. The pricing is going to be consistent, so you can easily compare that, and you'll always take the lowest price. When you do that and when you have those kinds of conditions, you can have a simple method, which is an invitation to tender.
Say one or more of those conditions don't apply. Say you don't have more than two or more suppliers who are obviously well known to you, for instance, or it's not just a price object you're going to make the decision on, but quality issues as well. Then you send out a request for proposals in which you are asking suppliers to send in their proposals that you will assess against criteria.
The request for quotations are used for low dollar values, usually under $25,000. You have a well-defined requirement, and again, you're going to bid just on price, so you ask just for different quotes.
When in fact you go out and solicit these bids, you can in fact.... Certainly in our department we try to use the open bidding system to whatever extent possible irrespective of the value of the contract. That would be our main kind of source of public advertisement. When you have contracts below $25,000, you might go to pre-defined source lists whereby we have automated systems that pull out two or three pre-qualified suppliers on a rotational basis.
In terms of non-competitive contracts, there are a number of reasons you may be aware of that in fact are under Treasury Board policy as appropriate for sole-sourcing.
The main one, which is 70% of this kind of activity, is what we call a selected source, whereby you may be buying something so simple and of such a low dollar value that it's not cost-effective for the Canadian taxpayer. In some instances, they are fixed by regulations.
Take telephone charges, for instance. There's no need to compete in those kinds of issues. National security is one other area. Sometimes you have government objectives, for instance to purchase furniture from CORCAN, which is Correctional Services, or the munitions program, for instance. That's the main source of what's non-competitive that might be valid.
Also in terms of soliciting, part of our key requirements is to focus on the kind of evaluation criteria by making sure it's clear, precise and well known to bidders and looking at minimizing risks on behalf of the crown by putting the appropriate insurance clauses or indemnification clauses in there. These would be some of the key factors in developing a procurement strategy.
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Once we define the procurement strategy and you decide whether it should be competitive or not, then in fact we go through, especially if it is competitive, the open bidding service. The open bidding service, in case you're not aware, is an automated system nationally accessible by businesses across the country giving access to companies on government contracting opportunities. You can do it electronically, or there is a publication of government business opportunities you can access if you don't have electronic facilities.
There are about 25,000 companies on it. Three-quarters of them have fewer than 15 employees, so you can certainly categorize them as small enterprises. Normally, opportunities go on the service for goods and services that are more than $25,000, for construction more than $60,000, and for print opportunities more than $10,000.
The company we're using right now is Information Systems Management, ISM. We entered into that contract with them in 1992. It was just recently extended to 1997. We are in the process now of working actually with provinces to look at going through and deciding the best way to re-procure that system for beyond May 1997.
We might come back to the system in general. If you wish, I can also bring in a demonstration on the system and how it works so you can see it first-hand. This makes it a lot easier than simple words.
When in fact we do not issue a competitive contract for one of the reasons, we still issue an ACAN, which is an advanced notice of a contract award we have issued. That gives people an opportunity to contest the non-competitive nature. About 40% of the non-competitive contracts do have ACANs associated with them. If in fact someone legitimately has a concern or can show that he can produce the same product or the same service, then we will go back and compete for the particular good or service on a competitive basis.
Once the bids come in, they will be evaluated. When you have requests for quotes, it will just be based on the lowest price. For proposals, though, we will look to make sure that bidders are first compliant. In terms of compliance, there will usually be a range of technical requirements they will have to satisfy in order to meet the client's specifications.
In addition, there will be the contractual kind of arrangements, or terms and conditions that would be specified, that they will have to meet as well. So there are two basic kinds of terms and conditions they have to meet, and it will be specified whether or not we'll be accepting based on the lowest price or on value. Value, in essence, can be determined by looking at the rating we give them as divided by, for instance, the total dollars. You divide one by the other to get a cost per point. The more points per dollar, the higher the value that will be attributed to it.
We do negotiate in certain instances to make sure that the government gets what we call the most-favoured-customer term. When in fact we're going for a source bid, we don't simply accept the price that's brought forward, but we have experts within the department that do in fact work with the company to look at its cost structure, direct materials, labour and overhead, making sure that we're comfortable with the kinds of costs the company is attesting to, then adding on a reasonable degree of overhead and coming to some agreement in terms of the final price.
That means that we would want to be sure that if we're procuring a good, the government is getting the best possible price and that they're not giving that same good to somebody else at a better price than they're giving to the crown.
There is, as you would expect, a hierarchy of delegated authorities in the procurement business. It differs for goods and services. In essence, for goods our minister has delegated authority. It's a mandatory service that has to come through our department. We have just recently delegated authority to client departments for up to $5,000. So they have been delegated that authority by our minister.
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In terms of services, client departments need not come to this department. They can procure them on their own, and you see their limits on the sheet here. Obviously it's easy with open bidding systems to try to undertake contracting on a competitive basis. You give them much more latitude than if they're trying to sole-source.
Once a particular contract has gone through the necessary approvals, either through the department or through the Treasury Board, and the contract is awarded, part of the process on our part is to debrief the unsuccessful bidders. We usually don't have to wait very long. They usually want to know fairly quickly why they were not successful. We publish contract award notices so that people will be aware of who won a particular contract.
The Canadian International Trade Tribunal, a fairly recent introduction, is an opportunity for any supplier to challenge any aspect we've already discussed. They can contest an aspect prior to the contract and the awarding of the contract for any reason. If challenged, the CITT will conduct an investigation similar to the Superior Court process. People will be forced to attend hearings, witnesses can come forward, and they have fairly extensive powers in terms of stopping the award, stopping the work, paying costs to the preparer of the bid. They can also make certain recommendations that aren't as binding, but we take them fairly seriously as well.
To give you some sense of materiality, in 1994 you can see that less than 0.05% of our procurement actions resulted in complaints. Between 1989 and 1995 36 cases were won by the suppliers. In the seven years or so there were about 173 complaints, just to put that in perspective. Nearly 60% of them were dismissed, either because of lack of jurisdiction by the CITT or because they were late filing or they didn't think they had a valid basis. About 21% were resolved and about 21% were upheld.
The major reason was that it was felt the evaluation criteria were unfair in some way, shape or form, so the case was upheld for that reason. Very often they felt the rationale given for sole-sourcing wasn't valid, and that we should have tendered openly. In other cases the specifications were too biased to a particular company and the challenge was successful for that reason. There were two cases where they...[Technical Difficulty - Editor]...on the part of the department and that led to the supplier winning the case.
One interesting change is that when we were operating under the free trade agreement, there was a maximum threshold of approximately $210,000. Under NAFTA there isn't any such upper threshold, so you can expect the liability to grow dramatically now that NAFTA is in place.
The members of the CITT are OIC appointments. There are about seven full-time people on the tribunal.
Once it has gone beyond the challenge stage by CITT, our department again plays a key role. A lot of these contracts last for many years; a lot of them are complex, especially in the information technology area. I don't think it would surprise anybody to know that a tremendous number of changes occur during the length of a contract. The technology may change or the requirements may change, so we spend a great deal of time monitoring and managing the contract with the client, on behalf of the client. Very frequently amendments have to be made for all the reasons I've articulated. This is just good business practice, and our objective is to get the best possible value for the taxpayer in managing the contract.
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During the contract administration phase there can still be arguments for a number of reasons. Internally we have dispute resolution boards. There is a contract claims resolution board that was formed in January 1994. It has two dimensions: one that looks after the construction area, a contract dispute advisory board with an arbitration panel of three people; and in goods and services there are five or six people, including the users, who try to resolve the claims a claimant may have.
If the supplier is still not happy, there is the option of litigation. People can always try side-bar ways of resolving it separately, one on one, if they think that might lead to some results.
Hopefully I haven't gone too quickly. I wanted to try to give everybody an overview of the process. Jim and I would be pleased to take any questions you may have.
The Chair: Thank you for a very succinct presentation.
[Translation]
We have about 21 minutes left that we might share between us. We will have one seven minutes round each.
Mr. Fillion, you have the floor.
Mr. Fillion: My first question is about the OBS, the Open Bidding Service. As MPs, we receive on request a publication, but it is not always easy to consult because you produce several of those a week. Would it be possible for members to have access to this OBS system?
Mr. Williams: Yes indeed. The other question is whether there is a cost.
Mr. Fillion: Yes, exactly.
Mr. Williams: I am not sure if there is a cost for MPs, but I will check and will let you know.
Mr. Fillion: Thank you. It would be nice for members of this committee to have this tool in order to monitor this issue.
On another aspect, you emphasize the resolution of disputes by the Canadian International Trade Tribunal, but you also get complaints related to internal trade, do you not? I am surprised you would not mention them.
Are there any disputes with suppliers related to internal trade rules and where are they settled? What is their percentage? I must say that our small and medium businesses are not always happy with the results of tenders. You must be getting complaints related to internal trade, but I did not hear you mention those.
[English]
Mr. Williams: In the agreement on internal trade as well as the NAFTA provisions required in the beginning of the process, there's a rigorous vetting of the requirements. Where the procurement is subject to the agreement on internal trade, then we will quite naturally insist upon the provisions of those trades, making sure it's accessible where appropriate to all businesses, small and medium, across the country.
When we have situations where a particular small or medium-sized enterprise feels it wasn't made aware of a particular procurement or was left out of the opportunity.... I don't know if that's the kind of situation you're alluding to. We are trying to address that kind of concern by being much more proactive in our supplier promotion activity. We have done this a little over the last number of years. Since the committee meeting last fall as well, it's become very clear to us that there's a need to be even more extensive and aggressive in this area. We have been organizing ourselves to have a more outreach kind of situation, which we're hoping to launch more fully over the year. We plan to have many more seminars and make it more open and available to as many businesses as possible.
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Also, of course, if ever we become aware of a particular business that for some reason was left out, we try to make it a point to have either ourselves or our regional people get in contact with them and apprise them of either the -
[Translation]
Mr. Fillion: In each of the regions, whether it be a province or a region, is there a resource person whom elected officials or suppliers could contact? Who would it be in Quebec?
[English]
Mr. Williams: Yes, absolutely.
[Translation]
In each region, there are officers who can answer all questions. In Ottawa, for example, we provide policies and support to all regions.
Mr. Fillion: Could you send us a list of these people?
Mr. Williams: Certainly.
Mr. Fillion: For each region.
I am a little bit concerned about the number of amendments being made to contracts, whether competitive or not. There are a lot of amendments being made once under way. Is this not somewhat contrary to the principles you want to adhere to, that is integrity, transparency and competition? I have some difficulty with this. Are you making contracts that allow some changes to be made in order to favour somebody? It is a question that comes to mind.
[English]
Mr. Williams: Let me distinguish between the steps we take up to the moment we issue the request for proposal and what happens after we receive the bids and award and manage the contract.
Without question, as I said, it is important that every bidder has equal access and openness to the particular procurement opportunity that's in front of that particular firm.
So where we're in fact comfortable, with the client, that the requirement is clear and the terms of the conditions are clear, we will then specify these in the request for proposal, as well as evaluation criteria. We will not, as a rule, amend these. That's what goes out, and we will live or die by what we said in there, to make sure we're not making any changes or amendments that would provide some kind of favouritism.
There's only one person any of the suppliers are allowed to contact. It's the same contract officer, and he or she ensures there is openness, transparency and a level playing field.
However, once the contract has come in and been evaluated, and say we have issued the contract, very often the contract can last for many years. Many of our large-scale contracts are in the information technology area. Well, this field changes so dramatically that we're well aware of the fact that what was reasonable for our client to want at the beginning of the process may be totally inadequate two or three years hence, based on the increased capability of the industry.
Now we have such sophisticated communication capabilities and sophisticated, user-friendly systems that to ask for a much slower, outdated model of a computer that we thought was state-of-the-art two or three years earlier wouldn't be appropriate. You can expect that these kinds of reasons might arise, in which case we would try to renegotiate and make amendments to it.
It also could be, for instance, that you ordered a certain number of goods - say 3,000 widgets of one size - and now, for downsizing reasons, we only need 2,080. Well, we would negotiate a contract amendment to reduce the price in that, or vice-versa. So you have quantity changes.
Also, what you thought was a reasonable quality of product, for example in technological advances or environmental changes, might change. So you would negotiate an amendment to the contract for that kind of situation.
They do occur. In our particular business we issue about 110,000 transactions. About 30% of those have some kind of amendment. Is that an issue or a problem? It could be, but I think the records for our own particular department show that over the last year these are going down, both in terms of numbers -
[Translation]
Mr. Fillion: I hope you do not think it is normal to have so many amendments.
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Thank you, Madam.
[English]
The Chair: Mr. Williams, the last word is to you, and then we go to Mr. Gilmour.
Mr. Williams: It's an area we're watching, but my point is that I don't think contract amendments by themselves should be alarming. You could also argue that it's part of good contract management.
The Chair: Mr. Gilmour, you have seven minutes.
Mr. Gilmour: I think Mr. Bryden and I are the only originals from the committee from the last time, and we heard from Public Works, DND, and a number of agencies on how contracts are let out and how they're supposed to go, which was fine. But there's one example - I'm sure you're aware of the Halifax-Fenco MacLaren contract. To summarize for the committee, Halifax Shipyard had the lowest bid, the best technical bid, and they had a shipyard, but the bid went to Fenco MacLaren, which doesn't have a shipyard and was $1 million higher.
Are you prepared to bring the process in front of the committee? It goes against everything we have heard over the last several months about how the contracts are to be awarded. Are you favourable to that?
Mr. Williams: I certainly would be. I would also point out that we are not conducting an independent review of that case.
Mr. Gilmour: Great.
Mr. Williams: But I will point out that nothing I have said differs from how this contract was processed.
Mr. Gilmour: I'm not saying there was anything wrong -
Mr. Williams: No, I know.
Mr. Gilmour: - but the perception is clearly there that it looks odd.
Mr. Williams: The key point is that all bidders must comply with the terms and conditions, both technical and contractual. That was not the case on behalf of Halifax Shipyard.
Mr. Gilmour: Okay.
The Chair: Mr. Gilmour, do you have any further questions?
Mr. Gilmour: How long would that process be, if you were to go through that contract - for bidders?
Mr. Williams: I'm trying to recall. I think the actual evaluation took place over a number of months in the late summer or early fall.
Mr. Gilmour: And is Halifax going to litigation now?
Mr. Williams: I think it is too soon to tell. We are conducting a review of the situation.... Let me rephrase that. They have put an inquiry in place. It's not litigation, but they have asked for some kind of judicial review or opinion on the matter. That's where it sits.
Mr. Gilmour: Okay, so it's being actively reviewed -
Mr. Williams: That's right, but it's a step short of litigation. They're not in litigation right now.
Mr. Gilmour: Thank you, Madame Chair.
The Chair: Thank you, Mr. Gilmour.
Mr. Gurbax Malhi, a quick question.
Mr. Malhi (Bramalea - Gore - Malton): When the department reviews the unsuccessful bidders, can they provide them with a reason?
Mr. Williams: Yes.
Mr. Malhi: Can they also encourage the people so that the next time they have some improvements?
Mr. Williams: Absolutely.
The Chair: Mr. Jackson.
Mr. Jackson: I think Mr. Fillion asked the question I wanted an answer to - how does one get on-line? Are these people all...? You have other clientele and they more or less get the information right through their faxes and their computers.
Mr. Williams: Are you talking about the OBS system?
Mr. Jackson: Yes, for the OBS. Is there a special program to access it?
Mr. Williams: Yes, if you have the electronic capacity you can contract with the service provider, ISM, and for a fee get access to procurement opportunities. It was done in this way to ensure that it's user pay. The taxpayer is not paying the bill for this. It is the suppliers who are doing the business.
To give you some sense of the cost, on average the typical supplier would spend between $300 to $400 a year to access these opportunities. That includes a fixed fee, line rental and typical use of the line for the year.
Mr. Jackson: Thank you.
The Chair: I have a couple of quick questions.
Being in the process of downsizing, we can envision the sight of vast government space sitting vacant. This begs the question of whether the government has been successful in matching the lease terms to the timing of government downsizing. Would you care to comment? To what extent, if any, is the government paying for empty space?
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Mr. Williams: That issue.... I hate to pass the buck, but in our department -
The Chair: How did I know you were going to say that?
Mr. Williams: - I look after procurement for goods and services. A colleague of mine is responsible for the realty area. I'm sure he would be only too happy to try to address your question.
The Chair: Mr. Stobbe.
Mr. Jim C. Stobbe (Assistant Deputy Minister, Government Operational Service Branch, Public Works and Government Services Canada): If I may just add to that, the program review for Public Works and Government Services Canada includes very ambitious budget reductions in the area of leased accommodation. Those budget reductions were made cognizant of the government's state of intention to reduce the public service by 45,000 public servants.
The achievement of those budget reductions is a logistical nightmare. Leases are not generally annual affairs. They tend to be long-term leases whereby the government achieves very favourable lease rates. Getting out of leases early is an expensive proposition. Matching downsizing in individual departments to individual buildings and contracting the space requirements is a huge task.
Our budget is indeed being adjusted commensurate with the downsizing of the public service and the reduction in lease requirements. I'm sure Mr. Nurtz would be happy to come and brief the committee on that.
The Chair: Mr. Stobbe, I see you've understood the crux of my question. Thank you very much. And we certainly thank you for obliging us on very short notice and appearing before us. I'm sure we're doomed to a few more rounds with you, if you'll agree to come back.
Mr. Stobbe: We look forward to it.
The Chair: Thank you.
The meeting is adjourned.