[Recorded by Electronic Apparatus]
Tuesday, April 16, 1996
.1105 
[Translation]
The Chair: Since we have a quorum, we may begin. I wish to welcome our guests today:Mr. Little, Deputy Secretary and Deputy Comptroller General, and Mr. Campbell,
[English]
I hope that's not an omen.
[Translation]
Director, Contract, Project and Risk Management Division.
[English]
Before we begin, on behalf of all committee members, let me express appreciation that Treasury Board responded so swiftly and openly to our request. It really is a comment on the value of the quality of leadership that I know you're currently enjoying in Treasury Board. I know Ovid will agree with me.
Mr. Jackson (Bruce - Grey): That's my boss. We're all working for a good minister, aren't we, fellows?
[Translation]
The Chair: Let us go to our guests.
[English]
Please begin.
[Translation]
Mr. W.E.R. Little (Deputy Secretary and Deputy Comptroller General, Financial and Information Management Branch, Treasury Board Secretariat): Thank you, Madam Chair.
[English]
Distinguished members of the government operations standing committee, thank you for the opportunity to discuss the response of the Treasury Board Secretariat to the report tabled last December by the former chair of this committee, entitled Small Business is Our Business: Preliminary findings on government contracting.
As stated in our president's recent letter to you, which I believe has been circulated to members of the committee, the findings of this committee are generally in line with ours and should serve to significantly strengthen our review of government contracting. We have traditionally worked very closely with this committee to improve contracting practices and I look forward, as does my president, to continuing this close association.
You were recently provided with our document entitled Response to the Preliminary Findings on Government Contracting,
[Translation]
Response to the Preliminary findings on government contracting.
[English]
It looked like this. If I may, Madam Chairman, I would like to have a moment to rapidly run through the document with you, and then of course I'd be pleased to answer questions at any time you wish.
If I turn to slide 2 of the deck, this is a summary of the committee findings that were sent to the president. There are six general observations, and we will discuss each one of these observations subsequently, in terms of our response and what we are doing to improve the contracting regime.
You can see that the first proposed action from your committee was for the Treasury Board to strengthen its policies and guidelines on mandatory contracting for contracts over $25,000, to be open to bidding through the open bidding system, and to introduce sanctions and codes of conduct. The second proposal was to create Contracts Canada within PWGSC. The third was the need for departments and agencies to review all sole-source contracts and to promote competition access, transparency and fairness. Fourth was improvement of the open bidding systems. The fifth proposal was to improve that contract reporting framework to provide more and better data. Finally, certain proposals were made to deal with amendments to contracts.
.1110
If I may, I will take each one of these in turn.
The first is the strengthening of Treasury Board policies and guidelines - on slide number three - on contracting, the mandatory use of OBS for contracts valued at over $25,000, and the introduction of sanctions and codes of conduct.
I'm pleased to report the response we are bringing to the table today. Ministers have approved a policy change in December that now provides for the requirement for all departments to pay their bills within 30 days of receipt. And interest rates will now be standard. We will pay interest on overdue accounts at prime plus 3% on all late payments.
However, our main interest is to get the bills paid within 30 days, because that's really what I think you were hearing from small and medium-sized businesses. That now is in effect and will be monitored by the Treasury Board through the public accounts in terms of determining how successful we are in improving that situation.
Secondly, we have taken action in response to your recommendation to initiate the lowering of thresholds for competition from $30,000 to $25,000. That requires an Order in Council and changes to government contracting regulations, and we're in the process of putting that through the official channels. This means that in the future, departments will be expected to undertake the full process leading to the decision in competition for contracts down to the $25,000 level from the $30,000 level.
We also have undertaken an increased emphasis on training of departmental managers and staff, and have followed up with communication of not only the existing policies but also the future or changed contract policies, as you recommended.
My next point is the fact that the committee recommended mandatory use of the open bidding service for contracts over $25,000. If I were to list the positive aspects of the open bidding system, I would stress that it fosters open and transparent competition. It provides about 27,000 companies with access to public sector business opportunities, which are published by our colleagues at Public Works and Government Services Canada. There are opportunities in 26 federal departments and agencies and 5 provincial governments.
On the negative side, however, for departments and agencies who use the OBS there is a cost associated with each transaction, and there's a significant time-consuming factor when it's compared with a competition organized by soliciting bids by mail or by telephone. On the negative side for suppliers, I highlight the monthly subscription costs as well as the costs involved every time a bid is prepared. It's something that I'm sure you've heard from small and medium-sized businesses during previous consultations.
What we really have now is a situation where the use of OBS is mandatory for procurements that are over the thresholds of several of the trade agreements that we are obligated to follow.
For example, for lower-level procurements under $25,000, we believe the cost-effectiveness of using OBS has yet to be proven. There are circumstances, particularly when you are looking for a contract in remote areas, where it may not be appropriate to use OBS. For these reasons, we believe Treasury Board should continue to promote the use of OBS, rather than make it mandatory, to enable departments to adapt - as they are capable of doing - to its benefits.
However, I am working closely with my colleagues at PWGSC on this issue. They will give you an update a little later on the work they are doing - and doing very successfully, I think - in making OBS a very valuable tool.
I believe that as we progress in this area departments will voluntarily apply to use the OBS on a mandatory basis. I think that is more powerful than if we directed the premature use of a tool that isn't quite mature enough to satisfy the requirements.
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On the next slide, on page 4, we deal with recommendations to create an entitlement called Contracts Canada within PWGSC. It was recommended to heighten awareness and access for small and medium-sized enterprises interested in doing business with the government. We are pursuing this initiative with officials from Public Works and Government Services Canada and my colleague Alan Williams, who will be briefing you shortly on the situation.
As PWGSC is unfolding its plan, we believe there is a possibility to regroup and enhance some of PWGSC's current activities into a single unit. Its prime direction would be to heighten awareness and access for small and medium-sized enterprises interested in doing business with the federal government. I look with interest to Alan's presentation, which I think you will find very positive.
In terms of the need for the department and agencies to review sole-source contracts and to promote competition, access, transparency and fairness, we have a policy now that emphasizes that contracts should be competitive in every case, except where there is a clear understanding why it isn't necessary, in order to promote competition, access, transparency and fairness. Departments are urged to subject all of their procurement contracts to competition where practical.
Members will recall that our data indicate that during the last three fiscal years, about 40% of the contracts under existing thresholds of $30,000 were in fact competed. Managers do their best to deliver programs efficiently, yet there are still legitimate situations in which it makes more sense to direct a contract rather than solicit bids. Departments have been asked at a variety of levels, including at meetings with deputy ministers and with me writing to deputy ministers, to establish clear mandates for contract review mechanisms within departments where these do not currently exist; and where they already exist, to see that they are operating effectively in monitoring non-competitive contracting situations.
Members will recall that there are four cases where it may well be more appropriate to have non-competition in contracting. They are, perhaps in order of use, when it's under $25,000, the new limit at which it is not mandatory to use competitive contracting. The second is in situations where there is a single supplier that is clearly identified. In that instance the OBS helps very much in clarifying, because you put the bid up for public notice and if there is no other response, you know there is only the single supplier. The third is in the case of public interest, a fairly wide criterion, but there are specific situations that it fits. The final one is in the event of an emergency, which is very rare - perhaps seven to ten cases a year. It's mainly dealing with environmental issues.
We believe we are now in a situation where the departments' ability to be effective in their contracting activity and to meet program delivery needs is balanced with the obvious requirement on everybody's part to use competition as a means of obtaining best value and open, transparent and fair contracting.
We have also recommended to departments that where there are non-competitive contracts, we expect the level of approval of those contracts to be quite high in the organization. In specific instances we've suggested that this in fact is the responsibility of a deputy or assistant deputy minister. We've also recommended, and are following up in another forum, that sufficient internal audit be undertaken in the contract regimes within departments to ensure that what we're talking about is in fact being appropriately applied.
The sixth slide deals with recommendations for improving the open bidding system. You'll recall that the open bidding system was introduced in June 1992. Since that time the subscriber base, as previously reported, has reached approximately 27,000 companies.
A survey of subscribers has been conducted every year. The PWGSC has just received the results of the most recent survey. I understand Alan Williams from PWGSC will be sharing the results of the survey with you, which I believe were very encouraging. I'll leave it to him to give you the details.
.1120
As a consequence, we are working closely with our colleagues in PWGSC to ensure that the OBS costs are eliminated or reduced to the extent possible, that procedures are simplified and that we take advantage of other channels of distribution as alternates to help advertise the various competition contract opportunities through such media as the Internet. Alan will have more details on how that particular review and activity are proceeding.
Turning to slide 7, this series of recommendations deals with improving contract reporting to provide more and better data, including competitive and non-competitive contracts, amendments and justifications, with the data being made available semi-annually.
We believe this is an important opportunity to obtain better information, and we have followed up on your recommendation. We have requested, through a particular piece of paper that went out in early March - which I'd be pleased to table with the committee, if you would find it useful - a contracting policy notification that sets out the parameters of the new reporting system we expect to have in place during 1996, which covers everything you've recommended and some additional detail that we think can be made useful. I will table that with you.
To summarize, we are asking departments to gather statistics that will enable better monitoring of their contracting performance and to address certain information gaps that concern this committee and us. Such data show, for example, justification for sole-sourcing and breakdown of amendments to contracts - which is a significant problem - to identify those arising from both competitive and non-competitive contracts and those emanating from contracts both above and below the$25,000 threshold we've set. We believe this will go a long way towards providing us better and improved information with which to continue to improve the contracting framework.
I should allow, however, that a much more elaborate system could be put in place to provide even more information, but it's very expensive. One has to balance the need for information for monitoring purposes with interfering, through cost and time, with the actual activities of the departments.
We believe we will be able to provide you with sufficient information on an annual basis to enable you to be sure of progress, and that this will provide sufficient time for departments to take corrective action, which is really what we're after, so that we're not asking for reports before improvements have been put in place. We will continue to work on improving the system until any other gaps identified are eliminated.
Finally, I'd like to turn to the subject of contract amendments, which is on the last slide of the deck. Here we have a situation where we think there is more work required before we take the kinds of actions that could be possibly put in place in terms of the recommendations this committee has made. We believe it's very much up to the departmental delegating contracting authorities to justify amendments, rather than the contractor.
In other words, you don't wait until after the fact to justify it. It should be before the fact. Clearly a decision taken by the departmental management group on why they want to amend a contract...
We believe before-the-fact monitoring of contract amendment activities by department officials and review committees will also be more effective in reducing unnecessary cost overruns that may be in train, rather than waiting until after.
Furthermore, we believe it's important to leave flexibility in the system. A variety of circumstances can result in a contract amendment of varying amounts, depending on the circumstances. For example, there's a difference between what may be a construction project and what may be a service contract, and there should be appropriate opportunities for amendments to take place, with full accountability on the part of the manager, to be explained if it turns out after the fact that it was an inappropriate decision, which we believe will be kept at a minimum through the other actions we've put in place.
.1125
We also believe, of course, that putting in a variety of tolerances produces yet another 15 pages to a book that already is quite massive, and very detailed and difficult to understand except for true professionals. We'd like to make this as simple and effective as possible so managers at all levels will make appropriate use of the framework.
Finally, Madam Chair, we believe the current contract amendment authorities will be appropriately dealt with by departments, based on information they have and by additional contracting data that we're asking for in terms of breakdowns of amendments in the future so that we can identify those arising from both competitive and non-competitive situations. For those emanating from contracts below as well as above the new $25,000 threshold, this will significantly enhance the monitoring of contract performance in the future.
This concludes my overview, Madam Chairman, and I'd be pleased to answer any questions members may have.
The Chair: Thank you.
We'll begin our round of questions.
[Translation]
Mr. Fillion, you may have the floor.
Mr. Fillion (Chicoutimi): Thank you for your overview, Mr. Little. I learned some things from it, but I would like to know more about a few points, such as the lowering of the threshold from $30,000 to $25,000 for single contracts. Some very quick calculations show that more than 60 per cent of these contracts are amended along the way; no guideline or any of your comments assures me that, somewhere along the way, the number or percentage of amendments to these contracts will be reduced.
Although we are prepared to lower the contract threshold from $30,000 to $25,000, do we have any means of reducing these amendments, which sometimes raise the value of the contract to a level at which there should be bids, rather than a single supplier? That is my first question.
[English]
Mr. Little: In response, Madam Chair, I would like to acknowledge to the member that we are very much concerned with the amendment situation, as he is, but we believe the response we're giving you provides you with assurances through three activities that we have undertaken with departments to put into effect.
The first is that we expect contract review committees to be established inside individual departments where they're not now established. They will engage in a review of all contract amendments that take place and ensure that there is a second review, if you like, of decisions taken in non-competitive situations where it is understood, before the fact, why these particular contract amendments are required.
You will accept, sir, I'm sure, that there are instances - perhaps obviously not as many as there are now - where it is truly justifiable to put a contract amendment in place rather than to set a new contract. It may be for a small amount of money, it may be for a rapidly changing situation, it may be for circumstances where the money already invested is best continued, in terms of sunk cost and for a variety of other circumstances that I'm sure you're more experienced in than I am.
Secondly, we have changed the reporting system. We will now report to you on an annual basis, but internally we're looking at more frequent reporting to ensure that the amendment situation has been brought under control. When I'm back in front of you, as I know I will be - and frequently, I hope - I will be required to demonstrate that there has been a change brought into play through the fact that we're reporting more accurately on contract amendments, both above and below $25,000.
Finally, sir, the kind of attention that we've been paying to this matter has resulted in a change in the emphasis within departments on the importance of ensuring fairness and transparency in our contracting practices. My sense is that this attention will result in an improvement, which we will be pleased to bring back to you in the future.
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[Translation]
Mr. Fillion: In the light of this answer, to what extent are you able to check the level of trust placed in public servants in the letting of these contracts?
Take, for example, an event estimated to cost $100,000. What proof do you have that the public servant or person concerned will not divide this bid from $100,000 to $25,000 so that he can subsequently amend the contract? Does this happen frequently? Do you have any way of making sure such things do not occur?
[English]
Mr. Little: This, sir, is referred to as ``contract splitting'', which is a term you are familiar with that describes the practice you are suggesting is undertaken from time to time by public servants.
I would be foolish to sit before you and say that this has not happened, and that there are circumstances that would lead me to believe that it's continuing, but I believe that a much reduced pace now...that we've paid increasing attention to the whole issue.
It is not acceptable to contract split. We have within departments, which is where the responsibility lies, this issue of a double check, which is a contract put in place by a manager. The contract is reviewed by a contract committee that has the obligation to ensure that it [Inaudible - Editor] if the amendment is appropriate and there isn't any contract splitting going on. We have requested departments to place increasing emphasis on internal audits to ensure that reviews are taken of this whole issue.
I can report to you that, by my statistics, there have been 57 internal audits conducted by 24 departments in the last 3 to 4 years on this particular issue. These were allotted in the contracting regime. Those audits are available and we use them as a means of encouraging, through an interdepartmental committee, an understanding of where this practice is inappropriate, where it needs to be prevented...or in cases where it is blatantly continuing, that disciplinary action is taken as appropriate.
[Translation]
Mr. Fillion: Are the departmental review committees created to check these amendments advised as quickly as possible that contracts will be amended, because very often the decision is given almost immediately? The contract has been let and the committee does not have three to ten days to approve amendments, since the contractor or supplier is already there.
Do the people who wish to amend these contracts advise the committee soon enough to give it time to check the amendments and approve them?
[English]
Mr. Little: The answer to that question, sir, is within the delegated authority of the departmental management structure. In my experience in departments, for example, we would say a manager can undertake an authority without prior reference to a contract amendment that will say that limit is perhaps $5,000. I'm talking about services now as opposed to goods.
Above a certain level, it is expected there will be a pre-examination of that amendment by the contract review committee. So if I have a contract for $100,000, and it has been let competitively, I would see, let's say, a $50,000 amendment to that contract amendment coming back to the contract review committee for prior agreement and approval, if you like, before the amendment is let.
In other circumstances where the amount is minor or it is a question of standing performance over time, where you have confidence in the manager, then I would see the authorities being increased and the prior approval would not be required, so that we can get on with life and what's really important - delivering the services and programs to Canadians.
There's always a balance, but what I would expect in poor performing organizations and in areas where we have results from our reporting system that indicate there's an increase or not a decrease, which is what we're really searching for, then we will pay attention to that department and ask them to ensure that they are appropriately using the contract review committee and other mechanisms to ensure that appropriate contract amending is taking place. Where it is not, the committee, as I'm sure it has done in the past, would be looking for that department to come and report its performance and its circumstances to the committee.
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The Chair: Mr. Gilmour. You have five minutes.
Mr. Gilmour (Comox - Alberni): Thank you. The OBS system has been described as user-unfriendly, partly because it came into being before the Internet. There are some costs associated with it that smaller contractors particularly find relatively onerous.
It is my understanding that the ISM corporation owns the OBS system and that it was subsequently bought out by IBM. My question is, where is the cashflow to the OBS system? Is it a cash-neutral system? Does the government make money on it? Does IBM? IBM, I would suggest, obviously makes some money on it. What is the cashflow of the system and what is being put in place to make it more cost-effective and more user-friendly?
Mr. Little: I will give you an overview answer, if I may. My colleague Alan Williams is sitting in the back of the room, and he will take notice that there is a requirement to provide even more detail to you, because it is in his area that this is particularly being managed - and well-managed, I might point out - by my colleague, who had better say the same thing when he gets up here about me. We'll have to see.
First of all, it's important to recognize that we have begun the development of a request for proposal, jointly with provinces and territories, for a renewal of the OBS system. It will go to competition in 1997. We are going to redo the OBS system on the basis of a new proposal and competitive bids. Whether the bid is won by the same company depends entirely on the best value that will come out of that review by Public Works and Government Services Canada.
I offer that by way of an indication that we're very serious about working together as a community in improving the OBS, both as a government user and as a supplier-based community involvement.
The details on cashflow I will leave to my colleague, if I may, because he has the details of the contract and who's gaining what by it. It was let competitively, to begin with, and I'm sure there is a profit associated with operating it.
Mr. Gilmour: Regarding amendments, there are a number of ways they can be circumvented. One method you have spoken of is contract-splitting. I think that's in hand and being reviewed. But there are also sequential or serial contracts where a company or an individual may do a portion of a project to a certain point, and it is then logical at the next stage to employ that person for the next portion. It goes on and on. What is in place, not to prevent this, but to monitor possible abuse?
A second example of manipulation occurs when different firms change their names or use a number of shadow companies to basically keep a contract in the family. Could address those two points, please?
Mr. Little: Sure, I'd be pleased to. In the first instance, where we're dealing with a series of follow-on contracts, there is first of all a clear understanding that when the contracts go above the limits for departmental authority, there is a built-in check and balance, which is that departments have an authority for goods up to $5,000 and for services up to $50,000. Anything above that goes from the department through the contracting authority, Public Works and Government Services Canada, who engage in the process of contracting.
There is a whole series of exceptions to that, depending on circumstances which we have listed in the book. Given that that is the process, part of the reason for that mandatory use of PWGSC supply operations for contracting is to try to use experts, within departments but also within the contracting authority, to ensure that we are appropriately opening the process to competition or to non-competitive situations.
.1140
For example, where this would be acceptable and clearly understood is if you had a ship repair or an aircraft contract with a company that had set up enormous sunk costs associated with doing the repairs and overhauls, and there was a continuation of a contract because of demand increasing, then you would carry on with that same contractor as opposed to rebidding the whole process. Every once in a while it's appropriate to rebid the process to ensure that best value for the dollar is being obtained.
In cases where a situation seems to be developing where you are using repeat contracts with the same contractor, we would expect both the department and PWGSC to ensure that this is known and open, either through OBS or through a competition.
We're also very much aided by individuals in the marketplace who frequently refer to our attention situations they think are of this nature. These are all investigated and appropriately dealt with.
Again, sir, I cannot say it's perfect and that these things will never happen. I do think we're aware of those kinds of circumstances and have put in place measures for trying to prevent them from happening in the first instance.
In the second case, your reference to a contract practice in which companies are using different corporations to do the same thing, again, we're very much reliant on Public Works and Government Services Canada to maintain an authorized supplier list. On this list are companies that are required to present to PWGSC their circumstances so that we can be assured that they are an authorized company, that they have a financial background that can deliver the size and magnitude of the contract, are a legal entity with which a contract can be entered into, and other very important considerations.
We depend on that kind of supplier list to be kept up to date and current - to be used to prevent companies coming in with ten different companies that are owned by the same ones.
This should not be confused, sir, if I may, with a consortium, which is a deliberate construction of partners in the private sector who bid on a contract - where we would naturally expect that an individual supplier may join three consortia at the same time to make a bid. He wants a winner out of one of them; it doesn't always happen. There are practices that lead to repeats, if you like, or different company formations around consortia, that are standard practice in certain parts of the sector.
The Chair: Mr. Harvard.
Mr. Harvard (Winnipeg St. James): Thank you, Madam Chair.
Mr. Little, you were mentioning that as of December the government will be paying its bills within 30 days. I'm wondering about the other side of the ledger - that is, invoicing. I got a rather loud complaint the other day from a gentleman who owns an aerospace consulting firm. He was complaining about getting invoices from the airworthiness division of Transport Canada as much as as one year later. In one case a particular file had already been closed and they didn't even have a number to attach the invoice to. Could you comment on that?
Mr. Little: My first comment is that there is one hell of an interest bill associated with that particular invoice. If an invoice has been issued a year after the event, we have lost a significant amount of opportunity for that money - I don't know the size of it, sir - to be brought in from the government's cashflow point of view; we've lost a lot.
In terms of the company, of course it's appalling, for business practice, to receive yet another bill long after the file has been closed. We know from personal experience as individuals how inappropriate that activity is.
I would hope they have complained to you and you have, I'm sure, dealt with it appropriately in terms of the department being called to task for a situation that is unacceptable.
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Mr. Harvard: Is there a guideline?
Mr. Little: Yes, the guideline is that the invoice is to be in the hands of the supplier as rapidly as possible and that normally there is in the contract a period of time described as the appropriate billing period. It may be progress payments or it may be after-the-fact invoices, but that's described in the contract itself, and each individual contract would have that information.
I don't know what this one is, but obviously there was not a situation where someone said a year later, you send us an invoice.
Mr. Harvard: I have a question on another issue far removed from this. It has to do with the government's new policy. I don't know the correct title, but it has to do with aboriginal set-asides. I'm sure you're familiar with it.
I want to know from you, Mr. Little, when it comes to these guidelines and these new policies for stimulating business to go towards aboriginal-owned companies, how does that affect Treasury Board guidelines? Here this morning you've been talking about greater accountability and greater competition so that the public is better served in all instances. How does the set-aside policy square with your guidelines and policies with respect to accountability and, especially, competition?
Mr. Little: That is a very important question and a very difficult one for me to answer, because what is essentially at play here is a series of mutually exclusive objectives that are all in themselves individually meeting public good.
It is very hard to have a set-aside program on a specific part of the sector, whether it is for aboriginal business, for small business, for the west or whatever, which then you can match with open, fair and transparent competition, where you're obtaining best value from wherever the marketplace is providing it. This is a situation where the bureaucracy is expected to do the very best it can to meet all of the objectives fairly and openly.
What we have here is an example of encouraging the development of a particular part of the economy so it can become much more self-acting, if you like, without the requirement for subsidy or special attention and care. We're in a development phase where we're using public procurement practices to help in that area so that in the future it will be better, and that is where we get a situation [Technical Difficulty - Editor] are set that in this case are not mandatory.
We haven't said that 3% of the business must be done. We've set a target that we're interested in departments attempting to ensure they are following good contracting practices, and in many instances it is sensible in fact to use aboriginal businesses to provide the contract activity on reserves or up north or wherever the business structure is. But at the same time I do acknowledge it's difficult to successfully achieve all of the objectives that may be set, in which case we expect professional behaviour to dictate the best value for the taxpayer.
I will ask my colleague to give you more detail on what we've done in our policy, if you wish.
Mr. Harvard: Do you have new guidelines?
Mr. Little: Yes.
Mr. Harvard: Can the committee have them, as they pertain to the set-asides?
Mr. Ron K. Campbell (Director, Contract, Project and Risk Management Division, Financial and Information Management Branch, Treasury Board of Canada): Yes. Actually the implementation of it is still in the developmental stage as to what types of companies would qualify and what the breakdown would be to ensure they are an aboriginal company versus sort of a shadow company. We're in the process of developing these into a contracting policy notice. So we would be quite pleased to give you one when we have that available.
The Chair: Could you give us a little bit of a timeframe as to when that would be available to us?
Mr. Little: If I may, I'd like to introduce Mr. Robert Kelly, who is our policy developer.
The Chair: Welcome, Mr. Kelly.
Mr. Harvard: I would like to interrupt and say there has to be something available. A number of small airlines are headquartered in my riding, airlines that have served northern communities in Manitoba, and of course they're very concerned about the new set-aside policy. They've already gotten their hands on some guidelines. So if the airline industry has guidelines, surely this committee can have guidelines.
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Mr. R.J. Kelly (Group Chief, Contracting Management, Financial and Information Management Branch, Treasury Board of Canada): Madam Chair, initial communication to departments went out at the start of this month, since the program went into effect on April 1. I think the key is that procurements will be directed to qualified aboriginal firms, so the basic Treasury Board rules still apply. All of these procurements were outside the trade agreements, so they revert to the basic Treasury Board rules Mr. Little has been speaking about.
That's the initial phase. The future phase will be to develop lists of qualified aboriginal firms, which will be made available to all departments. Indian Affairs is working on that right now. A series of seminars and workshops is being planned for the private sector as well as for government officials. That would be the second contracting policy notice that my colleague Mr. Campbell just referred to, and I expect that would available in another six to eight weeks.
The first one is certainly available and I'll give a copy to the clerk.
The Chair: Thank you, Mr. Kelly.
Mr. Fillion.
[Translation]
Mr. Fillion: You have touched on a problem of great concern to me, namely letting contracts in outlying areas.
If I recall correctly, you are about to put some mechanisms in place to promote participation by small- and medium-sized businesses in outlying areas.
Have these guidelines encouraging the various departments to comply been published, or are they just being drafted?
[English]
Mr. Little: Excuse me. I need a clarification, if I may, Madam Chair. Sir, are you referring to aboriginal small business set-asides using rural areas?
[Translation]
Mr. Fillion: No. I am talking about outlying areas, the ones outside administrative centres such as Montreal or Vancouver, which are very large marketplaces. I am talking about small areas like Saguenay - Lac Saint-Jean. In addition to your OBS system, do you have any other ways of encouraging small businesses to submit tenders to the government? Often people in outlying areas do not have the necessary information.
Mr. Little: May I continue?
The Chair: Yes.
[English]
Please continue. There's something wrong with our translation, I think.
[Translation]
Mr. Fillion: Should I start again?
[English]
Mr. Little: The answer to your question, sir...
[Translation]
I understand the situation and I can start again in English if you will allow me.
[English]
I have no work under way in terms of set-asides for small and medium-sized business in outlying rural areas. This is not a government policy currently in consideration. However, again through our colleagues in Public Works and Government Services Canada, we do have a regional distribution of activity that I think would be partially an answer to your question about how to deal with those small and medium-sized businesses outside the major centres.
Again, without wishing to duck the question, I will leave that for my colleague to describe to you. Mr. Williams can describe how regional Public Works and Government Services contracting activity tries to generate local business for small and medium-sized business in specific areas of the country. I'll leave it at that; again, we aren't doing any policy work in terms of set-asides in small and medium-sized business in rural areas.
[Translation]
Mr. Fillion: I will try to explain differently. When you let major contracts for a building, in many cases, you call for tenders from four, five or six suppliers. Could a seventh supplier not be asked? I will give you a very concrete example.
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In my area, when a building was put up on the base in Bagotville, people from outside the area were invited to submit tenders. In my area, there were people prepared to do the work, who had the expertise required and who had already built similar facilities.
These companies have the necessary potential to fulfil building contracts worth $10, $12 or $15 million. Could these companies not be asked to submit their tenders? These medium-sized businesses with between 50 and 125 employees could fulfil turn-key building contracts and provide exactly the same service as the big companies.
[English]
Mr. Little: It's an important question and one that's not easy to answer in general terms, but let me try.
What you're trading off here is a series of objectives. From the perspective of the local contractor, it would be more important for eligible bidders to be restricted to those from the local community. From the taxpayers' perspective, however, in terms of ensuring best value or best price, opening the competition to the widest possible area assures you of getting sufficient bids, in that you will obtain significant variations in price, time, risk, quality or any of the other considerations that go into a contract.
Yet both are important and both are the kind of achievements one would want to have. In other words, you want best value and you want maximum competition, but you also want to enable the local community to develop, and this would be a prime way of trying to make it happen.
What tends to happen is that a particular area is judged by the department that is putting up the hangar - how it wants to proceed. It may view the local community as not only the source of building it, but maintaining it or keeping it available for emergency repairs or what have you. What the contract would then do is include the condition that we want local suppliers who are within24 hours of being able to do whatever. You would put that in as part of your contract consideration.
In instances where that's not required - in other words, where there isn't any local need response - you're then measuring local requirements versus national objectives in terms of the best value to the taxpayer. Here I would have to go to each individual case and ask the officials to explain to you why they took the particular decision they or their minister did.
[Translation]
Mr. Fillion: Madam Chair, I would still like...
[English]
Mr. Little: Excuse me, but one other point I must make is that a July 1, 1995 agreement on internal trade prohibits the behaviour I was just describing from taking place. This is an agreement with the provinces where there must be a national competition for construction or services above $100,000, and for goods above $25,000. I'm reminded that there is a legal requirement for us to maintain national competition.
[Translation]
Mr. Fillion: I would simply like to add something. When we say outlying areas, we are not talking about areas that are completely unequipped and incapable of providing services to a population. In my area, the population is 300,000. There are engineering firms that, even though they are not SNC-Lavalin Inc., employ 100 people, have the expertise and can do the job.
The engineers in the National Defense building department systematically refuse to consider the possibility of retaining their services or calling for tenders from firms in each of the regions. This is the question I was raising. I was suggesting that these firms be asked for submissions very often. Only large companies are called on to carry out engineering jobs, when valid expertise is available in our regions.
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If the service is provided by outlying areas and is properly structured, this may be to the advantage of the government in terms of grant sizes. The government may be able to save money by turning first to small companies.
[English]
The Chair: Do you have any comments to make or -
Mr. Little: I accept the member's comments entirely.
The Chair: Thank you.
Mr. Gilmour.
Mr. Gilmour: Thank you, Madam Chair. I have a short one.
Earlier you suggested that Treasury Board had sent out mechanisms to the other departments to review the contracts. What has been the response from those departments? Are they in agreement that they will review these contracts?
Mr. Little: The response from the departments, on the basis of meetings with deputies and correspondence with deputy ministers, where this whole issue of review and request for further attention was thoroughly discussed - there was no objection from any of the participants, or in writing, to letters we sent that indicated they weren't in favour of what we were trying to do.
Like everyone else, deputies receive all kinds of pressures and requirements and they have limited resources, so I can't promise that they immediately dropped everything and turned the whole audit function toward this particular area, but I know from their response that they are acutely aware of the need to ensure that contracting practices are above suspicion and open to review. They want to ensure that we're not just saying something and carrying on with former unacceptable practices.
I would propose that we annually report to Parliament on the review, internal audit, evaluation function, and what we're doing in government. As a subset of that we would obviously keep track of the number of internal audits taking place in the contracting area, as well as the results of those audits. Through that open process, we would subset that to you. As I indicated, we've had 57 in24 departments, and I would continue to bring to your attention how we are proceeding with internal audit work in the contracting area.
Mr. Gilmour: Okay, but internal audits are a formal process. This is more of a review. I would hope the reviews of all the contracts of the departments would also be reported on an annual basis.
Mr. Little: Yes, sir. And we've undertaken to do that through our revised and improved contracting reporting system, which we're tabling with you today. It is a practice that we will be following.
Mr. Gilmour: Thank you.
The Chair: We are running a little late. Maybe we can make the next round four minutes.
Mr. Bryden.
Mr. Bryden (Hamilton - Wentworth): I'll do my best, Madam Chairman.
I'd like to pick up on some of my colleague's questions with respect to aboriginal set-asides. I have a backgrounder from the Department of Indian Affairs and Northern Development, so I do have some material to work from. It says that one of the principles of the new policy is that all procurements over $5,000 for which aboriginal populations are the primary recipients will be restricted exclusively to qualified aboriginal firms. Do other G-7 nations have similar business set-aside programs based on the racial make-up of firms they might be doing business with?
Mr. Little: Yes, sir. Can I confirm that this document is an internal instruction from DIAND?
Mr. Bryden: You can look at it if you like. Would that be helpful?
Mr. Little: Yes, it would help to quickly identify it.
Mr. Bryden: Especially when you have an opportunity.
Mr. Little: I want to be certain I'm not giving you an answer... Thank you.
I'm going to give you a preliminary answer, but I'll study the document and come back if it turns out to be incorrect. This is referring to practices that the Department of Indian Affairs and Northern Development intends to adopt in terms of its business. I think that would be an important point, because we are continuing to work on a wider contracting policy that will cover this for other departments.
In terms of the G-7, we would not be permitted to proceed down this road unless it was within the terms of the NAFTA or World Trade Organization agreements. It is a practice of other countries who are signatures of these treaties to set aside programs that are either continued or are to be put in place.
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I will have to research the situation in terms of aboriginals. And I'll come back to you with a comment on which countries have a similar type of practice, if you wish. At this point, I just know that it's legal for us to do this in terms of those trade agreements. Therefore, I'm sure other countries are also engaged in it.
Mr. Bryden: Did they help? I'm looking for models in other G-7 countries. From your point of view, from the Treasury Board's point of view and the setting of policy, that material I just gave you indicates that the aboriginal firms are subject to an eligibility audit that includes the requirements and the terms that the firms be owned 51% by aboriginals and have a workforce that is 33% aboriginal employees.
How does one determine the racial make-up of a company like that through an eligibility audit? How do they determine whether people are aboriginals or not?
Mr. Little: In this particular instance, the audit would constitute asking a company to report its hiring or make-up practices in the same way as we do now with issues connected to targets for other equity groups. We have a contracting practice that requires companies to have a certain process in place to ensure that they're meeting national objectives on this particular area, which my colleague Mr. Williams will be pleased to give you more details on.
Undoubtedly he would want to tell you that we have some difficulty because these are self-reporting mechanisms. We don't go in and start telling them to line everybody up, that we'd like to have a look at their religious requirements or what have you, but we do ask companies to report to us on the basis that they would be using self-identifying programs within the company to help respond to this.
Mr. Bryden: That actually raises an interesting point. Will there be sanctions if a firm is cut out for not being honest about its aboriginal make-up, about its racial make-up?
Mr. Little: In the same way as firms are expected to meet certain other, as I say, ``equity group requirements''. If they do not meet them or they cannot demonstrate with reasonable assurance that they are meeting them, that sanction is to remove them from the qualified list.
Mr. Bryden: I have a final question along these lines. How does this whole aboriginal set-aside program square with the equity employment legislation that was just recently passed, with the amendments recently passed in the legislation itself that would require companies to reflect the visual minority make-up, the gender make-up, etc., of companies as they reflect society at large?
We seem to have companies here that are allowed to have actual particular quotas of people. Is this at odds with at least the spirit of the equity legislation?
Mr. Little: I don't really feel qualified to answer this question, because to say so would assume that I have complete knowledge of both legislations, and I don't. Could I simply take notice that you would like a response? I will have one prepared in writing for Madam Chair.
If I may, from a personal perspective, my guess is to say yes, we do have an understanding of the spirit of both of these legislative requirements. I believe there's probably an issue of emphasis that could be brought into question like you are doing, and I would like to check that out before I give you an answer.
Mr. Bryden: That's fine. I'd actually just like to clarify whether there is a contradiction in principle with the spirit of the equity employment legislation in this aboriginal set-aside program.
I have one final question, Madam Chairman, not on this subject. I'd actually like to turn toMr. Little.
Mr. Little, you were mentioning that it is the responsibility of the departmental delegate and contracting authorities to justify contract amendments rather than the responsibility of the contractor.
If I remember the debate that preceded this in this committee, there was concern that people were being awarded contracts who hadn't been particularly honest about the potential for amendments down the road. I think what we were looking at a question of the contractor himself. It was a question of the person seeking the contract being honest with respect to the bidding process.
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So while I appreciate what you're saying, is there not another side to this as well, where the person who is bidding has to bid with a high degree of honesty?
Mr. Little: Absolutely, sir. I think you're referring to low-ball bid, where a company will come in low as a basis for getting in the door. Then they will say ``expect contract amendments'', which is where they make their money.
We have done two things, I think, that may have changed the landscape. First, we have changed the policy in the last year from one where it was evident that we were simply using the lowest possible price as the overriding criteria on contract award to something that we call ``best value''. By this we mean that we expect a contract proposal, an RFP, or a statement of work to be set out, where you list the criteria you are going to measure the individual bids within to determine the contract winner.
The intent here is that price will always be one of those considerations, of course, but there may be other circumstances that we now want to measure in terms of a contract award that provides better value over longer periods of time or through the assurance that we have a minimum amount of risk, that this kind of practice may be taking place, or what have you. That's the first policy kind of framework that I think helps to describe what we've done to try to curb this.
The second largely has to do with the training and the expertise of the contract staff. Here again, I refer to Public Works and Government Service Canada as a centre of expertise that departments rely on to help them deal with situations such as low-ball bidding and to help them prevent it from occurring.
Within departments, there are contract and procurement staff who, I hope, continue to be centres of expertise, although as downsizing continues I continually worry that we tend to lose these experienced people. Then, of course, you have to go through the whole learning curve again.
In the particular area of information technology, which I have a responsibility for within the Treasury Board, we are developing - and will certainly have available shortly, I hope - a framework around the managing of IT projects, because in the past this is one area where it has happened all too frequently. I would be pleased to come back at some other time to describe it in more detail. We've set up a framework around a series of functions and activities, from the very beginning of a thought of a project through to its actual completion. We hope it will provide more rigour in the management process.
Part of that includes the procurement aspect. My colleague Alan Williams - who is now very familiar to you, and who will be quite magnificent when he comes to see you, after I've described him so often - and I are working together in terms of developing a new process that we hope will go a long way towards eliminating the problem of possible low-ball bidding.
The Chair: Mr. Bryden's question will end this session. You've certainly been generous with your time, but we'd also like to take you up on your offer to see you again, and again... I, myself, have a list of questions that I would have liked to ask.
So with your permission, perhaps I can invite the members of the committee to give us written submissions for questions they'd like to have answered, and perhaps we can have written responses. You've obliged us in the past.
Mr. Little: Yes, Madam Chair, we would be pleased to do that. There are some remits I owe you from this session that we will immediately proceed with. I would be grateful if you would send the request for further information to my president. We would be happy to prepare responses for him.
The Chair: Thank you for your kind indulgence.
Mr. Little: Thank you very much.
The Chair: We'll take a one-minute recess just to stretch and welcome our next guest.
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The Chair: I'll skip some of the formalities because I think we're well acquainted with you, since you've been volunteered for so much. We're looking forward to your presentation.
Mr. Alan Williams (Assistant Deputy Minister, Supply Operations Services Branch, Department of Public Works and Government Services): Thank you, Madam Chair. It is indeed a pleasure for me to be here.
With me is Janet Thorsteinson, who is our director of supply policy directorate, and she will guide me whenever I seem to be taking a wrong turn.
Before I continue on the same lines as my so-called colleague Bob Little, one thing I was thinking about was that next time we do this maybe I should go first; that way I can pass a lot of things on to him.
The last time I was here there were two questions that came up. I believe Mr. Fillion asked about OBS subscription fees and whether there's a special rate for MPs. The answer is yes, there is. The cost for the general public is about $130 and the cost for MPs is about $37. What we're going to do is follow up with a kind of information package to members of Parliament so they all can be aware of this. If they want to subscribe to it, they'll have that open to them.
The second question from the last time I was here centred around providing a list of employees in each of the regions that local suppliers can get in contact with should they wish additional information. I have supplied that information to the clerk, the names of the contact points, and that is available for distribution by region. Again, if there is any more information you want on that, I would be very happy to supply additional information.
Maybe now I'll go through my presentation rather quickly to allow you more time for questions. Mr. Little was kind enough to pass a lot of things on to me, in any case.
What I would like to do perhaps is dwell on Contracts Canada and OBS, as those are the two main areas that fall within PWGSC's jurisdiction, and maybe add a little bit to the reporting area. Then I would be pleased to answer any questions.
With regard to Contracts Canada, this in our view
[Inaudible - Editor] the recommendation and has considerable merit. As you are aware, right now we've got well over 125 departments and agencies that are out there making contact with suppliers around the country. It would be a lot more advantageous, without question, both to them and to the Crown if in fact instead of each department doing it on its own, there was a more harmonized effort, thereby saving costs and making it more readily accessible to suppliers.
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We think this is an excellent idea. We are now exploring this with our colleague departments and making sure they understand that our objective here is not to remove from them any delegated authority or to centralize, but merely to provide more of a one-window opportunity for our suppliers to better understand how to do business with the Crown.
For the information of members, we do right now have a centre for supplier promotion. We initially started something in the late 1980s and it's evolved into a much more aggressive kind of organization right now. One of the slides you have there shows we have distributed during the past year 15,000 copies of Your Guide to Doing Business with PWGSC and 25,000 fact sheets. The numbers of seminars are increasing by 5% to 10% a year. You can see the numbers of 182 last year and 14,000 suppliers attended these events.
We should tell you too that we do an assessment afterwards and try to get feedback as to how we can do these things better. In our last evaluation, 80% indicated they had a better understanding, and we're going to work with them to see why we can't get that percentage up even higher. At these supplier promotions, 60% are in fact from small businesses, so we are trying as best we can to get our information out to small businesses.
I think also, as the world moves more towards increased delegation, it really is more important for us as departments to harmonize our efforts. If we can do that through this kind of mechanism, I think everybody would gain. This is something I think our minister and we take as a key thing and hopefully we will be able to move it forward throughout the government.
Let me move now and talk briefly about OBS. There is no question that the OBS as a system has its critics. Our objective is to work with those critics to try to make it better. It's easy to say; the question is how to do it.
We are on the last leg of an existing contract with ISM. For people's information, that contract was competitively bid back in 1991-92 when they won it, and at that time they came in with the best rate structure for suppliers. While the government owns the data, the system itself is run on a user-pay basis by ISM.
I don't know how much money they make on it. We wouldn't be privy to that information. But what we can tell members is that they provided at that time the lowest rate structure on behalf of suppliers. In fact, when we had an option to renew the agreement, which we have done for another two years ending in May 1997, we were able to extract a price decrease because of the increased number of suppliers that are on the system as opposed to initial expectations.
There's some commentary on it by the supplier survey. We did go out in the fall, as we periodically do, to try to get an assessment as to how people feel about the system itself. Here are some indicators for you. In terms of degree of satisfaction, that had gone up from 83% in 1994 to 90% now. Therefore, 90% of the suppliers indicated their satisfaction with the system and 83% would recommend the OBS to their colleagues. In other words, they felt that was the right kind of tool and technique to use. That's up from 76%. In general, the degree of satisfaction, 60% plus, indicates you need that kind of a system in order to effectively do business with the Crown.
Can it be improved? Yes, we have tried, and the system is accessible through Internet. But when I talk about the upcoming contract we are working on right now, we're in fact going to try to have it even more user-friendly through the Internet process. We have just now put in place the capacity to get bid sets in an electronic fashion. Not only will this speed up the timeliness of the activity, but it will be a much more cost-effective system from a supplier's standpoint. That should show some decrease in costs.
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We are right now working - and, I should point out, constructively - with provinces. There is a joint federal-provincial task force chaired by Alberta that's looking at the next operation of OBS. Our expectation is that well more than half the provinces will in fact be cooperating with the federal government in having one system that all suppliers can access, which I think is a very positive constructive activity. We hope to go out with this new request for proposals probably by the end of May and have a winner determined probably by the end of the calendar year so that we can get ourselves in place for May 1997.
The final topic had to deal with reporting. I think my colleague has commented extensively on that. I add the comments that the report you will be getting for the 1994-95 data is later than it probably should be. One of the things we will be doing, and we've already started, is to change the process so that we can provide members with information hopefully by the fall on the year that is just concluded. I think that should be of benefit.
The other thing too is that I believe the information we will be providing you now again will be of better value. For example, we are trying to separate out, in terms of Public Works and Government Services contracting, the work we do on behalf of client departments as opposed to work we do for ourselves. So when you look across all government departments, that again will allow you to better assess performance from department to department.
With those few introductory words, I would be very pleased to answer any questions that you may have. Thank you very much, Madam Chair.
The Chair: Thank you. I just wonder how much cashflow OBS generates.
Mr. Williams: As I said, we know the rate structures, we know how many subscribers are on there, but we do not know... This is totally user-pay; it's run by the private sector, so we are not privy to any of the information as to how much money they generate, whether they make a profit or loss and how much that would be.
The Chair: Thank you. I guess, Mr. Fillion, we're going to do five-minute rounds each.
[Translation]
Mr. Fillion: In the last point in your document, among the improvements proposed by the federal-provincial task force to invite people to tender, is it suggested that all calls for tender be concentrated in one place, whether they are from a province or the federal government, or even a municipality or a district?
[English]
Mr. Williams: Yes, until the last point. The expectation is that the provinces that come on side will in fact put their bid opportunities on this same system the same way the federal government would. If you're a supplier in any part of the country, you can go to it and you will have access to the opportunities for procurement not only through the federal government but also those through the provinces.
Whether or not municipalities get onto it at this stage, I'm not sure. That'll be up to the provinces, I guess, to decide. Right now we're pretty confident that we'll have probably six or seven provinces on side with us.
[Translation]
Mr. Fillion: If you took this route in order to centralize further, there are certainly studies to prove that you will come out the winner on these contracts. I am not sure, however, that you will be helping small- and medium-sized businesses. Unless someone shows me evidence to the contrary, I am afraid that, once again, with further centralization, it is the biggest companies, the ones with the marketing people and the lobbyists, that will benefit to the detriment of the small- and medium-sized businesses and very often the outlying companies - not remote or backward, just outlying - that could also offer services.
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[English]
Mr. Williams: To elaborate, I think it's important to note that in the open bidding system, if my memory is correct, 40% have between one and ten employees and two-thirds have between one and fifty employees. A large number of firms making themselves accessible and using the system are in fact ones that you and I would normally call small or medium-sized enterprises.
The second point is that I view the OBS as...I wouldn't use the word ``centralized.'' To me, we're looking here at a mechanism to disseminate bid opportunities in a cost-effective way for suppliers themselves. If you talk to suppliers, how are they to know about opportunities? This in particular deals with the small and medium-sized ones. The large, large businesses are very much aware of the large procurement activities going on. The smaller ones have a more difficult time. If you put it in the newspapers, it's been readily apparent to us - and this is why we've moved - they could miss it on a particular day or it could be in one newspaper or another.
So the focus of the system is not to centralize information but in fact the opposite, to allow the small and medium-sized enterprise to access it in a cost-effective way.
The key question is whether they can afford it and understand it. Based on our satisfaction index, 90% are saying they aren't satisfied. Everybody would like it cheaper. By competing this, we hope to make it cheaper for our suppliers across the country.
I think this is consistent with your objective of making information available to small and medium-sized enterprises. Hopefully we'll do it this time, as we learn, in a more user-friendly way. The technology today is much more advanced. We will be using the Internet a lot more and could try to address some of your concerns that way. Competing aggressively and making more opportunities on there will make it more worthwhile for the bidders for the system to come in with the lowest prices possible.
[Translation]
Mr. Fillion: A short question, for the benefit of the committee: Did you attend or take part in the 182 trade fair seminars in the various parts of the country? Could you send us a list indicating where they took place? Furthermore, I wish to thank you for the answers you provided at the beginning of your presentation and for your answers to my questions; I forgot to congratulate you earlier. I also thank you for following up these questions promptly.
I would now like to have the same list for the 182 seminars for the whole committee.
Mr. Williams: We would be most pleased to provide you with such a list.
Mr. Fillion: Thank you.
The Chair: Thank you, Mr. Fillion.
[English]
Mr. Gilmour: I appreciate your comments on the ISM financial structure. However, I still have a level of discomfort because ISM was bought out by IBM. IBM is a very good business company and bought it for a reason: obviously it was a good financial deal. However, you're saying you don't know how much they're making. At the same time we have suppliers saying it costs too much. This isn't a question; it's a comment. I have a high level of discomfort with what is a fair and reasonable cost for this system when we don't know what the other end is.
Mr. Williams: One thing to keep in mind, which in fact acknowledges your point, is that this was the first time we did this. When we went out for tender back in the early 1990s a lot of the volumes and the degree of take-out and how it would be used weren't known. A lot of companies just based it on their best guess at the time. I think we've learned a great deal. As a result, when we go forward now we will have a better understanding of the actual take-up and how it's being used.
If we combine federal and provincial opportunities, I think there will be a lot more competitiveness in the marketplace in going after this contract. I would be surprised and probably disappointed if we didn't come back with a new rate structure that is less than the existing one.
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Mr. Gilmour: On another point, one of the criticisms I hear from small business - in fact it impacts both the business community and Public Works and Government Services - is that there's no shortlisting in doing contracts, or at least I'm not aware of any shortlisting.
My point is that maybe 25, 30 or 40 people respond to a contract, all of whom have to prepare all the contract specs. Your department gets it and 25, 30 or 40 have to go through, which takes up the time of your department. Is there any way - and I've had this from suppliers - of doing a quick one- or two-page shortlist or contract spec so that you could save time for the small business communities and save time for your department, to condense the system, the timeframe?
Mr. Williams: Well, I'm not sure. Are you saying we have too many suppliers bidding on a particular activity? You're always trying to balance off openness and transparency with cost and timeliness. We could without any question be more restrictive in who we allowed into the process, but without question, if we were to do that, you would get the other appeals, asking why you're directing these kinds of issues too much.
So our objective is to try to be as open as we can to put in on OBS. When in fact there is a smaller dollar amount, that would then compensate in terms of timeliness and cost. Then we have various vendor rotational systems where we would select three or four on a rotational basis because of the low dollar value, and to keep the cost down, not have so many people taking the costs of putting in bids when the actual value of the contract is low.
So on low-value contracts, we will in fact do that, but where it gets above our threshold of 25,000, we're less reluctant to do that. We like to, where possible, make it as open and transparent and leave it to the supplier to decide whether or not they wish to compete.
On the OBS, too, one of the advantages is that you are made aware of who the other bidders are. You can, therefore, ask about the other suppliers that expect an interest in the particular bid. You can gauge your degree of interest based, to some extent, on that.
Mr. Gilmour: Thank you.
The Chair: Thank you. Mr. Bryden.
Mr. Bryden: I was very intrigued by your remarks that OBS may be going to the provinces as well, so I would like to just present a hypothetical problem to you.
What happens if Ontario, for example, gets on the OBS system and Quebec does not? Does this not create an unfair advantage to people resident in Quebec, who then will be able to have access to OBS reports of Ontario contracts, whereas people living in Ontario won't have similar access to Quebec opportunities? Isn't there a need if you're going to go to the provinces for absolute reciprocity here?
Mr. Williams: Actually, I think the repercussions would be in the opposite direction, because really what you're saying here is that if you're a supplier and you're resident in Ontario, and Ontario decides not to go onto this - in fact, they are going onto it, but if they decided not to - then suppliers in Ontario, to find out about opportunities nationally, would have to go to the OBS. Then they would have to go to some other system as well in order to find out what are the procurement opportunities in their backyard. So for those provinces, I would argue, that decide to go it alone, the suppliers in those localities, instead of going to one porthole to get the information, to find out all the opportunities, will have to go to more than one.
Our expectation is that a couple have developed their own, as in B.C., so we don't expect B.C. to go on because they've put too much time and effort in theirs. But if you're a supplier in B.C., you will have to go to theirs. If you're interested in the national one, you'll have to somehow hook up to the national one. Having said that, we are still going to try to see if there is a reciprocal arrangement we can make with B.C. to share the data in a cost-effective way. I think it's detrimental to the suppliers in those areas that don't have one system to go to. It's hard to learn two systems, etc.
There's no disadvantage at all if all the jurisdictions put their opportunities on there. Then you just go through and see them all, and it's one set of software. It's one modality. It's one way of doing business. I think it dramatically reduces costs to suppliers.
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Mr. Bryden: Is Quebec...?
Mr. Williams: Quebec is on as well.
Mr. Bryden: What about B.C.?
Mr. Williams: B.C. and a couple of the provinces in the Atlantic are still discussing and debating this.
Mr. Bryden: That's all, thank you.
The Chair: Maybe I can seek a point of clarification. How does PWGSC determine its rate structure for the ISM service?
Mr. Williams: What we would do typically is go out not for the cost but for the kind of services, the kind of products, we expect the system to deliver. I think in the existing ISM contract, when we went out there were, for instance, 67 different kinds of products, be they reports or be they processes, that we wanted. So we would articulate these in terms of the requirements in the contract and they would then, based on that, have to base their rate structures on what it would cost them and what price they're going to deliver it to us for to meet those requirements we specify in the contracts.
The Chair: When it comes to competitive bidding down to $25,000, to what extent can you reduce the number of exceptions? Is there a way you can calculate that?
Mr. Williams: When you say ``reduce exceptions'', you mean have more done on a competitive basis as opposed to a non-competitive basis?
The Chair: You're always weighing costs and administrative cost, or you're bargain-hunting, to a degree. My question is, how feasible is it to have...what are the number of exceptions?
Mr. Williams: As Mr. Little said, there is a range of exceptions you can use, and likely they're all valid. I think it's up to every department to ascertain whether or not it's legitimate or whether or not they want to be competitive.
Now, you can be competitive by simply going out and trying to get three competent capable companies to do it. I would argue that's what you ought to be doing. The position I think we take, and I think the Treasury Board takes, is that departments, wherever possible, should compete the particular contract. There are cost-effective ways of doing that. There are, however, circumstances, as we talked about last time here with Mr. Little, where, for one reason or another, there is no more than one valid supplier. But I think you're right; you really have to challenge yourselves and question it - is that really legitimate? - and where you think not, force the contract to be competitive.
The Chair: Are the questions listed on the OBS?
Mr. Williams: Anything that goes on the OBS is, by definition, competitive, or if in fact we've gone out to one firm, we will produce what we call an ACAN, advance contract award notice. It may be because we were not aware that anybody else had the particular product line or capacity - and if in fact we do that and we find out that and we find out there are others who say they can do it, then we will take it off the OBS and compete it.
The Chair: So they're not listed on OBS.
Mr. Williams: No, because normally OBS implies competitiveness.
The Chair: I'm thinking out loud here, but what would stop you from, say, putting out all the contacts on Internet, having the public or small businesses at least give a letter of interest or show of interest, then having an official review and deciding whether or not it's a competitive bid, depending on the response? Wouldn't that lead to more openness of the system?
Mr. Williams: Anything over $25,000 that we put through on OBS is done exactly that way. So your comment is very valid. In fact, it works for over $25,000. When it gets to under $25,000, then I think you have to balance off the cost versus the timeliness of this thing. You're really talking about fairly small contracts and the cost to both the government and the suppliers. The delay may really be a very negative factor. I think that's the balance you'd have to look at.
The Chair: I think we've performed almost a miracle. Actually, there are other questions we can explore. I'd like to reserve the same privilege we reserved with Treasury Board to submit questions in writing, and also to have you back again.
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Mr. Williams: I've enjoyed coming here to discuss these issues with you. As I said before, there's a lot of discussion on the OBS system. Certainly I would be prepared to give you a formal demonstration of the system so you can see first-hand how it works, at your convenience.
The Chair: I think that would be very helpful, thank you.
We are adjourned.