Government Operations Committee on March 3rd, 2009

[The Chair, Liberal, Derek Lee]

Thank you, Monsieur Roy.

If colleagues are in agreement, Ms. Gallant will take the next Conservative Party round.

[Some hon. members]

Agreed.

[The Chair, Liberal, Derek Lee]

Agreed.

Go ahead, Ms. Gallant.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

I would like to mention that my office did take advantage of the Public Works offer to hold a seminar for our local provider-suppliers on how to use MERX and how to navigate the system. It was received very well and the follow-up was good.

At about the same time as we had the seminar, there was this problem that was just emerging with the new master standing offers. I believe that's how they're referred to. It may be the same thing as Madam Bourgeois was speaking about when she called it grouping. Our people were calling it bundling.

Apparently this started as a consequence of the ad scam and was former Prime Minister Martin's solution to being more transparent. It's something that's come from a previous administration. The idea was to bundle these contracts or standing offers to make it more efficient; you're processing fewer tenders and therefore it's supposedly less work.

The example I'm going to refer to is for the supply of hardware to government offices and agencies and military bases in Ontario. In this case, the stakeholders were not consulted and the so-called competitive process was highly flawed.

First, the existing suppliers throughout Ontario had been checking MERX towards the end of their contracts and found nothing. It had been the common practice when Public Works was busy with other tenders that they would just extend their contracts for another couple of months. They thought that was the case in this instance, but days before their actual contracts were to expire, they were told by the military bases themselves, by the officers who did the purchasing, that they could deal with them for only a few more days because their contracts would end, which came as a shock to all these suppliers because they thought they were going to be renewed for another couple of months.

There had been no notice whatsoever from Public Works prior to their being told by the purchasers that they weren't allowed to deal with them anymore and that they were going to this new master standing offer system. They had to go through several contacts in Public Works until they finally found the person who was responsible for the tender. They found that they were completely cut out of this round for the next year or so because the MERX process had already happened.

But when this master standing offer was posted on MERX, which in the usual way was done region by region, the local suppliers looked for their region, because they might be supplying a hub of a 100-mile radius, not all of Ontario, as they just don't have that distribution to supply all of Ontario, and they didn't see their regions listed. In this case, it just said “all of Ontario”, and they didn't tune in that they had to apply there, so they were completely cut out of competing for their existing contracts.

The businesses were out of the tendering process there. It turned out that a company located in Concord won the tender. Before a year had passed, they got to the point where they could not fulfill the obligations, so there were some purchases being made at a local level.

What this demonstrates is that the bundling or the master contract system does not necessarily serve our government departments well, nor does it support our small and medium-sized businesses, which supply 95% of the jobs in Canada and are our incubators for the businesses of the future. Especially in this economic climate, when we see giant companies folding, if we put all our purchasing into just a few companies or one company, we stand to lose our entire supply chain. As Mr. Chairman mentioned, that's deadlier than any attack on supply chains during World War II. We've just set ourselves up for failure.

It wasn't just the furniture or the hardware. This also applies to auto parts. It applies to oil, looking at the same contract, and you can't convince anyone that to buy a doorknob from 500 miles away is more economical or timely--heaven forbid there has to be a return with buying it 500 miles away--as opposed to buying it from five kilometres down the road.

We want you to take this into consideration, that as a consequence of having to administer and adjudicate fewer tenders, one would think that the whole process was streamlined and that Public Works would start moving faster on tenders and needs. But we're finding out that there's not necessarily an increased movement.

[The Chair, Liberal, Derek Lee]

Ms. Gallant, could we allow Public Works to respond?

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

How much more time do I—

[The Chair, Liberal, Derek Lee]

Regrettably, none. We've done the five minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay.

[Liliane saint pierre]

I'll start, and I think Shereen would like to make a few points.

First of all, there are more than 8,000 standing offers that have been issued by Public Works and Government Services. This is quite a large number. One of the objectives is to allow quick access by having firms already qualified so that when a government department has a need, it can have access very quickly. So that is the speed part. At the same time, for the firms that are qualified on those standing offers, it gives them an opportunity, a direct access, to business when there is a requirement coming up. So the standing offer in itself is really a tool to provide quick access.

Shereen, did you want to comment on MERX?

[Shereen Miller]

First of all, thank you so much, Mr. Chair, for giving me the floor.

Thank you so much for the comment that the seminar was well received by your constituencies. Obviously that's good for us to know. It's also good for us to know what improvements we could make.

One of the improvements we've made with respect to MERX and the way in which people can access the information they need—I obviously don't know the exact case you're referring to—is that when you register for MERX, it is possible to request bid-matching services for a category, and that's without fees.

So it is distressing to me that people would not have been able to find the request for proposal that might have gone up on MERX for the area that they were particularly interested in, because we go to great lengths, actually, to try to ensure.... Obviously we want to encourage suppliers to participate in the bidding process, and MERX is a vehicle through which we're doing it. So if there are improvements that could be made, we would certainly want to hear about them. Or if we could train people to use the tool better, that's also something, obviously, that would be of great interest to us, so that we'd have that give and take when things are posted as opportunities on MERX.

[The Chair, Liberal, Derek Lee]

Thank you.

Ms. Hall Findlay, for five minutes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chairman.

This question is for Mr. Rath-Wilson, and it relates to the other gorilla in the room, to use the chairman's expression. That is the contradiction that we are hearing about between the effort to encourage openness to SMEs and, in the ISIT area, in particular yours, the ITSB, the recurring concerns about the bundling, about a predisposition to bundling that would in fact exclude SMEs. I will just comment on the wonderful-sounding concept of equal treatment, but when the predisposition in a department or the conditions of an RFP lead to having large contracts, that treats equally only those who are capable of fulfilling the requirements of such a large contract.

I understand you've had your consultations, and we will be seeing the results. But a repeated concern in all of this has been that we need to understand the business case for this. We want to understand, if there is going to be a predisposition, what the business case is for it. Can you speak to that?

Is there in fact a predisposition in your department for large contracts, for bundling? Is there a recognition that in doing that we will be excluding SMEs? Can you comment on that generally, please?

[John Rath-Wilson]

Certainly. Chair, thank you for the question.

In the shared services world, which is where this initiative for government electronic networks comes from, it's our desire, I think, in order to deliver good value to taxpayers, to consolidate some of the infrastructure we have that delivers electronic networks, for example. There is only a handful of large companies that can provide the kind of infrastructure that we need across the country to deliver the networks, the telephone services, the Internet protocol, and the video conferencing at a reasonable cost. So to the extent that we are looking for the best value we can get through the consolidation of some of our infrastructure, we are looking at that through the proposal that we have on the table at the moment, called GENS.

From the services perspective, we have over the years reached out to industry and to small and medium-sized enterprises to provide us those professional services that we need to support the telecom side of our business, and we expect that, with or without GENS, we will continue to use the services of small and medium-sized enterprises to support us.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you.

I would just note your comment, even on the GENS side, that it's only large companies that can fulfill the requirements. Having a background in telecom, I understand where that might be coming from. But to say there is only a small number of large companies that can do it at a reasonable cost, does that not assume before the process is undertaken fully to establish whether in fact there are SMEs who can participate in that?

[John Rath-Wilson]

Not at all. In fact, when we go through the process of inviting companies to qualify for this initiative, organizations of any kind can of course apply through that process. There could be a combination of small and medium-sized enterprises. The problem is that the footprint for telecommunication services, as you know, is not even in the hands of any one large supplier in Canada. It's a combination of suppliers already.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Yes.

[John Rath-Wilson]

Where I think we focus the SME discussion is that, in supporting that initiative, SMEs have access to the professional services to help us maintain and run those networks. That's what we intend to do with GENS.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I expect my time is running out, but we very much look forward to seeing the results of the consultations and the proposals. I would just reinforce that we've heard many around the table emphasizing the need to see a really solid business case in light of the effort of parts of the department that are encouraging SMEs, not just because we want to be nice to SMEs but because of the view that in many cases it is in fact those smaller companies that can provide the best value to the taxpayer and to the government.

So we very much look forward to seeing the results and continuing the discussion when you're ready.

[John Rath-Wilson]

Thank you.

If I could just clarify, we will be bringing forward a business rationale, as I mentioned, at the end of March or the beginning of April. This will be a rationale that is based on the services we've provided over years through our tendering processes. Individual departments will look at specific business cases to acquire those services once they are available. It would be a business rationale that will explain why we've taken the direction we're taking.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I understand.

Thank you very much.

[The Chair, Liberal, Derek Lee]

Mr. Gourde, you have five minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you very much.

I would like to take advantage of the presence of our witnesses to ask a general question about MERX, that useful tool that the department uses to advertise its requests for goods and services. MERX operates internationally. In fact, when you look at its website, you see that a number of companies use the service, some of them American. So I would like to know if companies other than American ones submit bids for furniture. Let us use furniture for our discussion, given that we have a representative from the industry here today.

If American companies get PWGSC contracts, is there a mechanism to ensure that there are some economic benefits for Canada? Do our furniture companies benefit? I do not know if the Americans have an equivalent tool to MERX that allows small and medium Canadian businesses to submit bids for furnishing their public facilities. I would also like to know if MERX makes it possible for the furniture industry as a whole to make a significant contribution to the economy.

[Liliane saint pierre]

Thank you for your question, Mr. Gourde. I will answer your first question on MERX. I will let Mr. Rapier answer your question about the impact on the furniture industry.

Yes, companies in America and elsewhere have access to MERX and the opportunities its system provides. We mentioned that there are over 11,000 per year, which is a huge number. Their companies are very active in that regard.

Second, as to the industrial impact within major proposals, they are part of the request for proposal. For example, in a military contract to provide equipment to the Canadian army worth $30, $40 or $50 million, we will work with the Department of Industry to stipulate our need, our requirement for industrial impact, within the request for proposal. Most of the time, we require the impact to be 100%, the total value of the contract. This is subject to detailed review when companies submit their bids or their proposals to the federal government. The Department of Industry looks at that in detail.

[Gilles Gauthier]

Let me add one piece of information. The United States also has an electronic tendering service and it is open to Canadian suppliers.

When a particular purchase is subject to trade agreements, you cannot require local impact because that goes against the objective of opening the market to suppliers in countries that are party to the accord. When a purchase is not subject to international agreements, you can ask for conditions like industrial impact.

[Greg Rapier]

Specific to the office furniture, there are definitely a number of U.S.-headquartered companies that benefit from the various contracts over and above just the free-standing one we've discussed this morning. A high percentage of those U.S.-headquartered companies have significant manufacturing operations in Canada and employ thousands of Canadians in their Canadian operations.

When it comes to access of Canadian-based companies, in particular, to U.S. government contracts under the General Services Administration, there are no restrictions placed on Canadian companies. So long as they can meet the contracting requirements of GSA, they are eligible for contracts. A very large number of Canadian small and medium manufacturers hold contracts with the U.S. government, and there are no caps or limitations on the number of companies that can hold contracts with GSA.