Government Operations Committee on June 17th, 2008

[The Chair, Liberal, Diane Marleau]

I'm going to call the meeting to order.

I'm going to start off by telling people that Mr. Warkentin is a father again. He has a beautiful baby girl, born on Father's Day. So he's not here today, and we have Mr. Merrifield instead of him—I hope you can come up to the task.

We're going to have two different panels before us today. We decided to divide it in two and invite Public Works as well, because we felt we couldn't just invite you gentlemen, much as we like you, and not give the chance to Public Works to respond or to address some of the issues you may bring up.

We have as witnesses, from the Canadian Business Information Technology Network, Mike O'Neil, who is the chair, and Jeff Lynt, who's a director; as well as David MacDonald, as an individual.

Usually we allow our witnesses to make a statement for up to 10 minutes. I don't know if you have one statement from Canadian Business Information Technology and then another statement from Mr. MacDonald.

Would you have a statement to give as well, Mr. MacDonald?

[David MacDonald, As an Individual]

Yes, I do.

[The Chair, Liberal, Diane Marleau]

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Madam Chair, on a brief point of order, we certainly welcome our witnesses here today, and I think it's great. The more witnesses, the better. That's what we're here to do.

We're seeing information and biographies from the library, with no translation for relevant articles. I don't know what was presented to you as the chair, but we've been presented with nothing. It's a little bit more difficult to prepare to ask intelligent and meaningful questions of our guests when we're just getting our information this morning.

That's really not acceptable, and I would just like to have that on the record. If in the future we don't run into that situation, it would be certainly much appreciated.

[The Chair, Liberal, Diane Marleau]

As we're nearing the end of the session—

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I realize that.

[The Chair, Liberal, Diane Marleau]

—there has been a little bit of urgency put upon me to invite these individuals.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I recognize the urgency in the session, but preparation is key as well.

[The Chair, Liberal, Diane Marleau]

Yes. Thank you very much.

We'll start with Mr. O'Neil or Mr. Lynt.

[Mike O'Neil, Chair, Canadian Business Information Technology Network]

I wish to thank the committee and the members, and everybody else present here, for allowing us to speak to you today.

My name is Mike O'Neil. I am chair of CABiNET, Canadian Business Information Technology Network, which is a non-profit organization representing about 20 IT professional service providers, mainly based in the national capital region. Our combined sales are valued at over $100 million and we have about 1,000 subcontractors and/or employees working for our companies.

Let me first start by taking the time to review this issue. What is at stake here today: first, the Government of Canada's ability to find cost-effective solutions that meet its needs; the Government of Canada's control over its IT projects and initiatives; the very existence of many small and medium-sized enterprises, or SMEs, that until now have provided loyal and cost-effective services to the Government of Canada; innovation, flexibility, and entrepreneurship that will soon disappear due to the way the proposed procurement model is being structured for this initiative; and last, the financial stability and job security for about 5,000 highly trained professional IT resources in Canada.

Currently, the Government of Canada purchases commodities that can be described mainly as hardware and software products and network bandwidth. It also purchases IT professional services that support these products--develops architectures and provides operational support, etc. Both types of procurement are clearly separated in the acquisition process today.

At the present time, SMEs have competed and won between 65% and 70% of the value of the contracts for IT professional services within the federal government. The total value of all contracts awarded by the federal government for IT professional services was recently estimated at $600 million annually. SMEs have won the great majority of these contracts due to their ability to effectively respond to the federal government's needs, their knowledge and abilities, their low overhead costs, their flexibility, and their innovative solutions.

The government has tried in the past to bundle several contracts and develop large IT projects. For the most part, they failed to deliver on expectations, went over budget, and became unmanageable. Examples are the firearms registry and the Secure Channel project.

When the government contracted for services and solutions in what we call “chewable chunks”, i.e. manageable projects, the projects typically succeeded. The shortcomings of the large bundles contracts were made clear in reports from the Auditor General and the House of Commons Standing Committee on Public Accounts.

The government's brightest new plan is to have an even bigger project. Their reason is to cover anticipated cost savings and an aging workforce. Let us clearly explain that we are not opposed to what is called the shared services initiative. We are adamantly opposed to the bundling of IT professional services with generic commodities, such as network bandwidth, and we are in general opposed to the bundling of IT professional services contracts.

What is the government proposing? Based on a request for information, an RFI, published on the government's electronic bidding system MERX in December 2007, presentations made by Steven Poole, CEO of the information technology services branch at PWGSC and an amendment to the RFI that was published on Friday, June 6, the government intends to bundle the commodities and the IT professional services together in order to issue four what we call “pillar contracts”, each of a value that could exceed $1 billion annually for a period of up to 20 years.

Is bigger better? This simplistic approach to problems makes absolutely no sense and can only be conceived by people who are not spending their own money. Additionally, it makes no financial sense.

As you know, the cost of products in the IT world has decreased immensely in the past few years. In the last 15 years, the cost of network bandwidth and computer hardware has decreased to a fraction of what it was 15 years ago. For the Government of Canada to suggest they can purchase products for a 15- to 20-year period and save money in the long term defies any prediction made by industry analysts. When this question was raised with Mr. Poole, his reply was that the government would find ways to negotiate with the winning bidder to solve this problem. We believe that to commit the government to such a lengthy contract period makes no sense whatsoever.

Lack of ongoing competition will also increase the cost to taxpayers. Currently, when RFPs are issued, many companies, including SMEs, can compete, and they're aware of the fact that generally most technical evaluations of the bids are fairly close. Bidders know that costs will be a deciding factor. The ensuing competition results in lower costs for taxpayers. By eliminating all SMEs from the bids, the government will be creating a situation where two or three large IT companies will dictate all prices, which historically has never resulted in reduced pricing but rather has increased it.

It's hard to understand why, in this case, senior bureaucrats are trying to eliminate competition while in most sectors the government is attempting to establish competition to reduce costs. A classic example is the home telephone industry.

In the past, similar attempts involving large IT professional services contracts have resulted in cost overruns and project delays. Recent examples include the firearms registry and the social services system that was attempted in Ontario in the late 1990s. A number of additional examples can be easily provided.

We urge you not to take only our word for it, but also take the words of an officer of Parliament, the Auditor General, and those of Ontario's provincial Auditor General, who both condemned large IT projects.

It is interesting to note that when the Canadian government decided to establish an efficient and cost-effective system to collect taxes--in this case the GST--it turned to a local group of SMEs that successfully delivered the requirements in a cost-effective and efficient manner.

It also makes no organizational sense. The negative impact for the Government of Canada resulting from this proposed acquisition model doesn't stop at financial considerations. The government will also lose its ability to count on the flexibility and innovation that characterizes SME companies.

SMEs are able to offer various solutions. We're not bound to one model; we're not tied to a single system or vendor solution. SMEs offer a challenging, innovative, and interesting model to our employees and subcontractors. Due to the type of employees that SMEs attract, they are able to better service their clients. Handing a single contract to one company for a period of up to 20 years will destroy any need for ongoing research and innovation within that government sector.

At this time I would like to introduce Mr. Jeff Lynt, who is president and CEO of one of the fastest growing IT companies in the Ottawa-Gatineau region. His company specializes in service management consulting.

[Jeff Lynt, Director, Canadian Business Information Technology Network]

Thank you, Mike.

My name is Jeff Lynt and I own a small business in the Ottawa-Gatineau region. I live on the Quebec side and employ approximately 40 people.

The government's proposed changes will either force me to lay off a number of my employees and subcontractors or become subservient to a large company. This will force me to cut salaries; however, history has shown that the cost to the federal government will be the same or higher. My company will lose the ability to innovate and propose solutions to our clients and will be constrained by the business model of the larger company. Once the large company is able to hire enough employees, likely by raiding our resources, it will terminate its contractual relationship with us and this will be the end of opportunities with the Government of Canada in this sector.

SMEs are the engine that drives the economy. This is not a statement that I invented for this presentation; it is a statement that was heard during the last federal election campaign by the Conservative candidates who touted their parties' championship of SME issues. The latest proposal makes no sense. Their response to our concern was to state that large companies would be given points in their evaluation if they had a plan to provide subcontracts to SMEs. This is an insulting and demeaning offer. At this point, SMEs compete and win about 70% of the contracts awarded by the federal government. Why would we suddenly be satisfied to subcontract to companies that we regularly beat in open, fair, and transparent competitions?

In April of 2006, the new Public Works and Government Services minister, Senator Michael Fortier, stated that the government will make it easier for small business to bid for government contracts. I certainly did not think the government would go back on its word and do the exact opposite of what it promised. My sincere and deepest hope is that the Conservative members of this committee and the parliamentary secretary to the PWGSC minister will announce today that it was a mistake and that the government will honour its commitment to SMEs.

My financial stability, and that of my family, is on the line. My business is at stake. I urge you to make a motion today to send to the House asking the government to cancel its plans, initiate true consultations on this issue, and respect its promises to SMEs.

Thank you very much.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. Lynt.

We'll go to Mr. MacDonald.

[David MacDonald]

Good morning. My name is David MacDonald. I'm a subcontractor working with an SME that is not a member of cabinet and on a contract unrelated to the federal government.

You may wonder why I'm here today. It's simple: the government's bundling of IT professional services contracts will have a direct and major impact on me and all others in my profession. The disappearance of SMEs will decrease competition for our services. At this point, there are a number of SMEs vying for our services. This allows us to secure a daily rate that ensures adequate revenues for our families. With no competition, our rates will be driven down, and this will have a significant impact on my livelihood.

The other concern I have is that large companies usually hire employees rather than subcontractors. This will force modifications to our business models, and those forced to enter an employee relationship with these companies will lose income and have their individualism stifled through corporate policy.

One might wonder how this will result in decreased costs for the federal government. Past RFPs show that large companies, even with their own employees, are more expensive than SMEs with subcontractors. The reason is simple: they have a higher overhead and a larger financial responsibility to their shareholders.

There are approximately 5,000 professionals like me who will be directly affected by the government's decision. If it made business sense and had real economic benefit for Canada, perhaps I would have been more reluctant to appear here today. Unfortunately, this is not the case. This is a bad plan that will have a very negative impact on everyone but a few senior bureaucrats, whose legacy will have been the destruction of the information technology SME sector and the unearned growth of a couple of already large companies.

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. MacDonald.

Mr. O'Neil?

[Mike O'Neil]

I'm just going to finish—

[The Chair, Liberal, Diane Marleau]

Okay.

[Mike O'Neil]

—what I started.

We noted in Mr. Poole's presentation that he describes the future winner of bids for these billion-dollar contracts as partners. We choose to describe the government as our client. There is a fundamental distinction.

The government as the client presently drives the agenda in contracts it awards. Mr. Poole recognizes that as a “partner” the government will not be able to make all the decisions required to protect the interests of the taxpayer in awarding these monstrous contracts. Instead, it will have to attain the agreement from its “partner”, the winner of the bid.

We think this philosophy is wrong for the federal government. We ask you to remind the PWGSC senior bureaucrats that the will of the people is expressed through Parliament, and that when a parliamentary committee makes a recommendation, one should not ignore it and do exactly the opposite.

Mr. Poole cannot plead ignorance since he was already a witness in front of the public accounts committee, where he clearly stated that PWGSC did not agree with these large IT contracts.

We ask this committee to force this government to fulfill the promise it made to Canadian voters and promote continued direct access to government contracts for small and medium-sized businesses. It should give us the opportunity to increase our share of government contracts rather than eliminate it.

We hope you will ask the government to guarantee that SMEs will be given the ability to bid directly on the $600 million in contracts currently awarded by the government in IT professional services. SMEs have proven their ability to get the job done for their clients in an efficient manner. We have proven our ability to serve Canada well. We have also proven our ability to win these contracts through competitive procurement. Do not allow the government to take away our ability to bid directly for its business.

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. O'Neil.

We will now go to questions.

Mr. Proulx.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Thank you, Madam Chair.

I wish to thank the witnesses for appearing in front of us this morning. I understand this was done in an urgent manner, so there are some different points I would like to question you on, if you don't mind.

Some years ago this same committee and other committees were faced with very similar, and I'm choosing my words, “attempts” by the Department of Public Works and Government Services Canada to bundle deals as far as office equipment and temp services were concerned. In both of these cases we were successful in making sure that everybody understood, including everybody in Public Works, that these attempts were particularly bad for small and medium-sized businesses and for the Canadian economy and were probably excellent for a very few suppliers that would be chosen under, might I say, “dubious” or “questionable” circumstances. In both of these attempts we were successful in making sure this bundling did not happen on a large scale as had been planned.

Mr. Lynt, you are local. You covered the fact that you live on the Quebec side. You are well aware of the problems that I would encounter as a member of Parliament for the riding of Hull—Aylmer, where huge numbers of people employed in the IT sector would be out of jobs. I am pinch-hitting here this morning, but I presume, from reading transcripts from one or two of this committee's past meetings, that most small or medium-sized companies would be excluded from the tendering process because they could not meet certain conditions. Presumably some of these conditions would be something like having business offices in several Canadian cities.

Tell me, do you have offices in cities other than in the national capital region?

[Jeff Lynt]

No, just in Ottawa.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Just Ottawa–Gatineau?

[Jeff Lynt]

Yes.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

And you employ, did I hear, 40 employees?

[Jeff Lynt]

Approximately 40 employees, yes.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Never mind your personal situation or your company's situation, but what do you think would happen to these 40 employees if this bundling process were put into place?