Government Operations Committee on April 28th, 2009

[John Reid]

I have just a couple of thoughts there. I think if we looked at the employment growth within Public Works over the last 10 years, there would actually be many more people within the organization than fewer people.

If, when everyone woke up in the morning, they looked at their jobs as to how they could stimulate the economy, that would be a good mindset to have. Part of that is giving them discretion and authority. You have difficulty attracting young talent and motivated talent if you don't have the right culture. I know that's being looked at by Kevin Lynch, whom I've known for quite some time.

Actually, it's a fairly complicated answer to your question, but I think it's a serious concern. You have to get the culture right. Part of that is addressing the point that Charles made about giving the managers authority and then creating a mindset that is far, far different from what we have today. I think you'd have much higher rankings in terms of job satisfaction. I think you'd have many more companies that count the government as a customer. I think we'd all be in a much better place two, three, four, or five years from now.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

In fact, you are telling us that the problem at PWGSC is that the culture of the department is such that it simply cannot work effectively at the present time.

[John Reid]

Would you agree, Charles?

[Charles Duffett]

I don't know about that one.

John?

[John Reid]

If you did a 360° review.... I mean, I don't have the results. I would do that. I would do a 360° review and then you would hear how people feel about their jobs, responsibilities, and job satisfaction. I would only be surmising, but I have a few family members who work for different ministries and I think the work Kevin Lynch is doing in looking at the culture is very important. That will solve a lot of problems and get the skill sets and smarts you need to make the right decisions.

[The Chair, Liberal, Derek Lee]

Mr. Warkentin, you have the last four minutes.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Chair.

I think I'm coming to an opinion of my own as we continue these talks and have these discussions. The opinion I'm developing is the sense that government, by its nature, specifically maybe this department, has become very risk averse. It seems, possibly because of past events, that everyone is averse to risk. There now seem to be a set of policies and a framework that ensure that risks aren't taken and that there's no chance things might fail.

Of course, we all know that when we're thinking about innovation, development, creating value like you've talked about, and investing in or contracting to companies that don't have a proven track record with technologies that have proven track records, there's a possibility of risk. These may be some of the limiting factors, so maybe it isn't an issue of set-asides.

When I hear of set-asides, I get a little concerned, only because that doesn't allow for the innovation and creative spirit that are unleashed by small businesses, something that I was part of and something that I know many people within the small business sector are. I believe strongly that this is going to be the real saving of the economy, that the stabilizing factor and also the impetus for saving the economy are going to come out of the small businesses, because they're going to come up with the new ideas, the new innovations, and the new products.

Maybe you'll just comment in terms of the risk factor. Obviously there's risk involved. In many cases, there may have to be a change in the framework of the rules when it comes to even competing for these contracts, because I think you've identified certain circumstances where there is possibly only one provider for a particular product. How can we move to address that and still address the desired outcome for competition in these contracts and the rest of it? It's a big issue, but maybe you could comment in terms of the risk issue.

[Charles Duffett]

Sure.

The way I see it is that there's risk in everything, and there's risk not only in the government but in the private sector as well. We take these risks and we take these chances, but I think that in the private sector we tend to build it in and say that the reality is that you just have to take these risks.

It's like some of the scandals that happen. There are always bad apples, but to me they always represent 2%. What we want to do afterwards is put on so many rules and regulations and layers of this stuff, but we just impede the 98% who are actually doing a good job or want to do the right thing. We just over-rotate on it and we kill their ability to manage. That's what we're saying.

Earlier, we also brought up the point that we can't find talent. Someone brought up the point that in the federal government it's hard to recruit talent. You should look at your own staffing requirements, because if you wanted to hire Bill Gates, the founder of Microsoft, you couldn't hire him. He doesn't qualify.

[Chris Warkentin, Conservative, Peace River, AB]

Well, I think that's something we may want to look at further. I think it is probably a larger issue and possibly doesn't concern procurement. It's probably an issue that is government-wide, and I know colleagues around the table share concerns that we don't want to see a culture permeating the civil service to the extent that we don't have the ability to provide the services and the innovation that Canadians desperately need and deserve.

Thank you.

[The Chair, Liberal, Derek Lee]

On behalf of all the members, I also want to thank you for coming out. I think you've managed to address most of the spectrum of issues the committee is dealing with in this set of hearings, so we thank you very much for that.

I will suspend the meeting now while we put in place the hook-up to our friends in Washington.

Thank you very much. You may withdraw now.

[The Chair, Liberal, Derek Lee]

We're on now. Good.

Hello, Washington.

[Joseph Jordan, Associate Administrator, Government Contracting and Business Development, US Small Business Administration]

Good afternoon.

[The Chair, Liberal, Derek Lee]

We'll reconvene the meeting then.

We're back in order, colleagues, pursuing our study of the federal government's procurement process, in particular with respect to small and medium-sized enterprises.

At this point, we are delighted to have as a witness Mr. Joseph Jordan, who is the associate administrator of government contracting and business development with the United States Small Business Administration.

I understand that following the election and inauguration of the new President there has been some turnover in much of the U.S. administration, and there are a number of people in the administration there who have come in with a whole lot of experience. We're delighted to have them assist us today with many of these issues.

Mr. Jordan, our Canadian infrastructure dealing with small business is probably a lot less robust than the American model, so we're very interested to hear how your model is operating and any advice you can give us as we address this continuing question of how we manage to allow small businesses to compete with the big businesses in federal government procurement, stimulate the small business sector, and stimulate innovation, etc. Anyway, I understand you'll be able to make a presentation.

[Joseph Jordan]

Yes, I was going to give some opening remarks and then leave it open for any and all questions that you may have.

[The Chair, Liberal, Derek Lee]

That's great. We have just about an hour, if you have that long.

Please go ahead right now.

[Joseph Jordan]

First of all, thank you for inviting me to participate. It's really an honour and a privilege to be able to discuss small business procurement and what we're doing here and how we've looked at things from inception to where we are now. I only want to give some brief opening remarks with a little bit of history and also how we approach small business procurements. So thank you again.

I am Joseph Jordan. I'm the associate administrator, government contracting and business development, here at the U.S. Small Business Administration.

As spending across the U.S. government has increased over the past several years, the dollars going to small businesses have also risen. In fiscal year 2000, small businesses received $44 billion in contracts out of the $200 billion in total federal government contracts. In fiscal year 2007, that number has grown to $88 billion out of the $400 billion total. The SBA is working very hard to see that number increase even more in the future.

One note before we go further is that your invitation had mentioned both small and medium-sized entities. The U.S. government doesn't recognize specifically medium-sized firms. We create size thresholds for small businesses, but consider every other entity to be other than small. That's one small point I wanted to clarify up front.

To quickly outline and explain the history of the SBA, I want to talk a little bit about our goals and objectives and how things are structured.

The SBA was established in the 1950s to shore up the U.S. industrial base for both national security and economic reasons. One of the key methods was to ensure that small businesses were given a fair share of access to government contracts. Over the last five decades, as government spending has increased dramatically, small business participation in government contracting and ensuring their participation is even more crucial.

In the area of procurement, having a single government entity devoted to small business is extremely important. The government has a single source for policies relating to defining the size of small businesses, what fair participation is, and certifying that certain firms in socio-economic categories do in fact belong in those categories.

The SBA has the standing to talk directly to other federal agencies about their procurement practices, and the ability to get White House involvement if there are any disagreements. The policy of the U.S. government is that small businesses should have the maximum practicable opportunity for government contracts. It is SBA's mission to foster that environment and ensure that small businesses are receiving their fair share of government contracts.

The SBA office of government contracting works to achieve those goals in five ways: first, working with other federal agencies to ensure that their policies and procedures take small business concerns into account; second, working directly with small businesses on education and training to increase their marketability as government contractors; third, educating small business and government agencies on how best to work together; fourth, utilizing technology to foster and streamline these relationships; and fifth, promoting transparency within our programs and our data.

A few of the areas I mentioned overlap, and I want to quickly detail them in my following comments.

There are several ways in which we work with the other federal agencies. First of all, in terms of creating goals for small business participation in federal contracting, the federal government has statutory goals for small business participation: achievements measured in the percentage of dollars spent by the government. The government-wide goal for small business dollars is 23%, with several sub-goals for certain socio-economic categories. The Small Business Administration is responsible for negotiating these individual goals with each agency, keeping the statutory government-wide goals in mind. Results of each agency's small business spending are reported every year in the Small Business Goaling Report, which is released to Congress and the public.

We also have a score card. The SBA produces an annual small business procurement score card, based on the government's small business achievement. Each agency is assigned a score, such as red, yellow, green, or a numerical score based on whether or not they met their individual small business and socio-economic goals. Agencies are also assigned a progress goal and given some credit for improving their achievement, even if they didn't fully achieve the ultimate goal.

SBA is also the single authority within the government for determining size standards for small businesses. There is a staff within the office of government contracting solely dedicated to monitoring and analyzing industry trends to determine the proper threshold for a small business in each of the North American industry classification system, or NAICS, codes.

This is the only entity within the U.S. federal government that defines the size of a company. There is no designation, as I said, for medium or large firms. A company is either small or other than small.

We also have procurement centre representatives, or PCRs as we call them. These procurement centre representatives are individuals who are placed within buying activities and are responsible for reviewing procurements to ensure that unjustified contract bundling is not happening, and that small businesses have maximum opportunities for contracts, both prime contracts and subcontracts.

The SBA handles company protests and determines whether a particular business qualifies as a small business or as a service-disabled veteran-owned small business, under the existing standards set forth in the Code of Federal Regulations, when an interested party protests the size status of a business responding to a government solicitation that's either a small business set-aside or a service-disabled veteran-owned set-aside. And I can go into the different socio-economic programs more, at your request later.

We also have a natural resources sales assistance program. The U.S. federal government sells large quantities of natural resources and surplus real and personal property authorized for sale in accordance with public law. The SBA cooperates with other federal agencies to channel a fair share of this property and these resources to small businesses.

The SBA also works directly with small businesses to make sure they are aware of contract opportunities and they are ready to compete for them. Through SBA's vast network of field offices and resource partners, we are able to educate numerous small businesses about the opportunities in federal procurement. Many small businesses outside of the national capital region are not as aware of how much the government is spending and that they could sell their products or services to the government.

Through that same network, SBA is also able to conduct training sessions for small businesses on topics ranging from how to market yourself to the government to how to find procurements in your industry or how to win additional work. Commercial marketing representatives, or CMRs, are SBA individuals who work with the largest prime contractors to assist them in achieving the various small business goals in their subcontracting plans. They also work with small businesses to match the small businesses' capabilities with the prime contractors' needs to create these subcontracting plans.

We also heavily utilize technology to achieve our small business objectives. The integrated acquisition environment, or IAE, is a network of several IT systems related to procurement. The government puts nearly all procurement information online now through a collection of these inter-agency systems. Everything from the original bid solicitation to vendor information to the details of the actual award is online and searchable, and the SBA is an active participant in the governance and maintenance of all these systems.

All solicitations are posted to the Federal Business Opportunities website, and any vendor is able to search by agency or type of work or other criteria to see what contracts are out there they should be competing for.

All vendors must be registered in the central contractor registry to obtain federal procurements. This system includes SBA's dynamic small business search and has all the relevant socio-economic and size standard information so the agencies can find the small businesses that can provide the goods and services they need. We also report out the information through the federal procurement data system once a procurement award is made.

Transparency is another issue that's very important. All the systems I mentioned above are available free of charge to the public, and they're all searchable, though some require pre-registration.

There has been heightened attention to procurement integrity in recent years, particularly due to the increased access to all the information in the systems I mentioned above. The press and the public have vastly more information about federal spending than they ever did before, and many more questions are being asked and more accountability demanded as a result. Increased transparency and accountability is good news for small businesses, as most of the public agrees that small businesses should get a fair share of federal spending.

Increased transparency has also increased vendors' ability to do business with the government. Vendors are able to constantly view solicitations and awards occurring in their industry, the press is able to review trends or spot inconsistencies in practices, and the public is able to see how taxpayer dollars are being spent. If a vendor does not win an award, they can seek a debriefing with the agency and have the selection committee go through their proposal with them, pointing to areas that can be strengthened or where a mark was missed.

Anecdotally, we've heard from small businesses that this process, while perhaps not pleasant, is very useful in learning how to do better next time.

I know that was a lot of information. That does conclude my opening remarks. I want to thank you again for the opportunity to speak before you all today, and I welcome any questions you may have.

[The Chair, Liberal, Derek Lee]

Thank you very much for your presentation. It has raised a whole lot of interest around the table here.

In my opening remarks I failed to congratulate you on your recent appointment, so I do that now.

[Joseph Jordan]

Thank you very much.

[The Chair, Liberal, Derek Lee]

I'm going to turn to Ms. Hall Findlay, and I think we'd best stick to five-minute rounds here, as we did in the last hour, if that's okay with members.

Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair, and thank you very much, Mr. Jordan, for helping us today.

Just as an aside, in a past life I helped a number of clients with procurement in the United States, both with the federal government and with a number of state governments, and I have to say that in most cases I came away impressed with the process, in particular with the transparency aspect of it. I'm particularly glad that you're here today to help us out.

I have a couple of quick questions. You don't have a medium-sized enterprise category. What is your threshold? What is a small business, in your world?

[Joseph Jordan]

I certainly anticipated that question, but it's a somewhat complicated answer, in that there is no one threshold for small businesses. It depends. In each of those NAICS codes, those North American industry classification system codes, the threshold may be slightly different. For example, dress manufacturers and shipbuilders are going to have different threshold sizes within those industries for what qualifies as small or other than small.

Two factors can be considered, and the one we use depends on the industry. It's either the number of employees or revenue. Very frequently, people will refer to a small business as any business with fewer than 500 employees. That's a general anecdotal type of threshold, although, as I said, each industry is going to have a different threshold.

I can very easily follow up with you and provide you, industry by industry, with the cut-offs between small and other than small. If that would be helpful, I'd be happy to follow up with that.

[Martha Hall Findlay, Liberal, Willowdale, ON]

There's probably no need, because in our world, both categories in our SMEs tend to fall under the 500-employee threshold. I'm interested that you actually have different factors in your determination.

We have had a number of discussions and a number of meetings here about how to help small businesses. Your description of some of the things you do is very helpful. We have had some pro-and-con discussions about set-asides for federal contracts. You seem to do this, and you seem to do it effectively. Can you briefly tell us what you do, whether and why it is effective, and whether you have any concerns that have arisen from the process?

[Joseph Jordan]

I sure can.

We separate their goals. There's a goal for small business participation in contracts government-wide; that's the 23% I mentioned. There are also four sub-goals: 5% for women-owned small businesses, 5% for small and disadvantaged businesses, 3% for service-disabled veteran-owned small businesses, and 3% for what we call HUBZone businesses, which are historically underutilized business zone businesses.

Now, those are goals, but there aren't necessarily set-aside programs with each one. The tools to achieve those goals are different by category. We do have set-aside programs for service-disabled veterans, for small and disadvantaged businesses, and for HUBZone companies. When two or more small businesses may compete for any contract, it should be set aside for small businesses.

The use of the actual tools within each category is slightly different. I just wanted to make that distinction somewhat, because in preparing for this, I read some of the past testimonies of individuals in front of your committee, and occasionally the percentage goals and the term “set-aside” had been conflated.

Some of the challenges we face include educating the agencies--each individual agency, down to the actual individual contracting officer--as to when a set-aside is appropriate to use. We don't put pressure on them to choose a particular program or to strive for a particular goal when multiple categories would qualify for that procurement, but we want them to, first of all, set aside for small businesses and then look at the socio-economic categories in groups to see if any of those are the most appropriate to focus on for that procurement.

Some of the challenges, again, include educating them and helping to give them the information, because the regulations and the statutes can sometimes be burdensome on both the agencies and the small businesses in terms of understanding how to compete most effectively. I'm sure this is true with any government. That's where the challenge comes in.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Perfect.

I have more questions, but we'll get you on the next round. Thank you very much.

[The Chair, Liberal, Derek Lee]

Thank you.

I'll recognize Madame Bourgeois, pour cinq minutes.