Finance Committee on Oct. 8th, 2009

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's an interesting response.

Mr. Stothart.

[Paul Stothart]

On the point of accelerated capital cost allowance, I'm not sure that governments have given the industry what they've asked for on that front. As my colleague mentioned earlier, it takes a long time for companies to get approvals, do the engineering, order the equipment, prepare the site, do foundation work, do mechanical construction, get the equipment delivered, get it installed, and get it commissioned, at which point the ACCA starts to kick in. That takes much, much longer, in general, than two years. It's more like five years. It's those kinds of activities that I think we want to encourage in this country. I think it's those kinds of activities, those major modernizations, that improve productivity, that improve the environment—

[John McKay, Liberal, Scarborough—Guildwood, ON]

Why would Mr. Podruzny's industry be able to make the investments and do the research and buy better equipment, and so on, and others not?

[David Podruzny]

I think it's fair if I answer that question.

Those investments were made in the late 1990s and up to the end of 2002. They were made based on certain kinds of access to raw materials that no longer exists. We're now moving that product south. We're pipelining bitumen south. So there's a different circumstance. If we want to win back those investments, if we want to win the next round of investments, it will take the value of the accelerated capital cost allowance.

This isn't something that's going to cost. This is only deferring the tax collected. The same taxes will be collected over the life of the asset, and because you've already had the accelerated capital cost allowance in place for a few years, the investments that happened three years ago or two years ago or last year will start paying more tax now. It comes back to the government. It's just deferred taxes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Yes. Thank you.

I would love to carry on the conversation, but I'm running out of time.

Just to direct it to the research folks, I, like my colleague Mr. McCallum, consider your request quite modest and very acceptable. What disturbs me, though, is that we do wonderful basic research in this country, and it doesn't seem to translate. The Canadian taxpayer, in effect, pays for other people to eat our lunch. It seems that after the basic research is done, we get into a patent squabble between the researcher and the facility and the university or the institution, and it gets lost.

Can you give me your observations on that particular area?

[The Chair, Conservative, James Rajotte]

Be brief, if you can, Mr. Jones.

[Paul Jones]

I think one issue in Canada, compared to OECD members generally, is that a disproportionately large amount of the research is done in public institutions--in universities and research institutes. So while those institutions have the capacity to produce the knowledge to make the breakthrough, there aren't necessarily the same private sector receptors other countries have to pick it up.

But if my colleague has....

[Paul Vincett]

I think part of the problem is that there's what people call the valley of death. It's the stage in our product or services development when the technical capability has been developed but you are not quite at the point at which you can take it to market. The U.S., for example, does a much better job with its SBIR program. NRC's IRAP is good but doesn't go quite enough downstream. I think we need to look, perhaps, at some of the things the U.S. does.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

Madame Faille, s'il vous plaît. Bienvenue.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Mr. Rajotte.

I am new to this committee. Normally, I sit on the Standing Committee on Public Accounts, and I was on the Standing Committee on Government Operations and Estimates. So I am familiar with the contract selection method that the engineers described. In fact, as far as its investment projects go, the federal government has a strong tendency not to distinguish between investment in equipment and investment in professional services.

Earlier you mentioned a measure in Quebec that specifies the duties performed by professional services. I also think we need to make a distinction between purchasing equipment and purchasing professional services. Could you comment on that, Mr. Gamble?

[John Gamble]

Absolutely.

By the way, we were very satisfied with the report of the Standing Committee on Government Operations. Hopefully this committee will throw its weight behind it.

A professional service is not the same thing as purchasing equipment. It's not the same thing as straight-out contracting. Engineering, architecture, and so on are intellectually based professional services where, properly remunerated, we act as agents on behalf of our owner to leverage the proper value.

We've heard a lot of talk about innovation. Engineers love to innovate. Our biggest challenge is often public procurement.

What happens is that there's a big price factor, which basically says that if you come up with something creative or novel, you're going to price yourself right out of competition. Second, if you happen to stumble through and win the job, the government wants to transfer all the risk to you. That's a big disincentive to innovate. Finally, if you get through that and you actually come up with a great idea, the government wants to own all your intellectual property. Those are three disincentives in a row for us to innovate when we're doing work on behalf of government clients.

But I take your point, and I'm very grateful for your distinction. The Quebec legislation was very welcomed by our industry. It actually was the subject of a lot of discussion at the International Federation of Consulting Engineers in London, England, last month. Similar methodology is used rather thoroughly through the United States to great success, and has been used quite successfully in Alberta. About two years ago, the City of London, Ontario, also adopted it. It does provide good results.

As I mentioned earlier, the U.S. looked at 200 projects and at a variety of procurement methodologies. By far and away the best results were when they used the qualifications-based selection method.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you.

I hope that Public Works Canada is watching us right now.

I also have a question for the Canadian Consortium for Research. I live in a riding near Montreal, which is home to the pharmaceutical industry, but there are also labs nearby. Scientists tell me that research often requires long-term investment. The fact that indirect costs are not always refunded at a level that reflects what the research process actually costs may stop the industry from making innovative choices that could benefit it.

Could you explain your second recommendation?

[Paul Vincett]

Recommendation two is specifically aimed at the situation that universities face, or the higher education sector generally, where the research funding that flows from the granting councils is for direct costs only. That would be things like salaries of graduate students, materials, and so on and so forth.

On the indirect costs that are associated with research, such as the provision of space, libraries, and all these other many good things, in fact studies have shown that the magnitude of that is about 40% to 60% of the direct costs.

They used not to be refunded at all in Canada. They're now refunded through the indirect program, up to around 23% or so. That is still far short of the numbers I mentioned, and far short of what happens in the U.S., where it's about 50% or 60%, and in the EU.

I think what we're suggesting is that, at the very minimum, we go to 40%. Otherwise you have a disincentive, frankly, for universities to even want the research.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

But, when universities experience financial trouble, often the first place they make cuts is in indirect cost sectors. So you are at a double disadvantage, where the sector is not funded and you cannot access those services.

[Paul Vincett]

Oh, yes, quite so. It's not appropriate that the university should have to fund a very significant portion of the true costs of research out of its general operating funds, which come to it from the provinces principally for education.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I want to thank our guests for coming here today. Being here at the end of the day, I want to wish you a happy Thanksgiving, which is coming up this weekend.

I only have a few questions.

Mr. Gamble, you're president of the association. Are you an owner or a consulting engineer yourself?

[John Gamble]

I did practise for ten years, but I'm the chief staff officer at the moment.

[Mike Wallace, Conservative, Burlington, ON]

Okay. Because taking a “Gamble” with your consulting firm would be....

I had to use his name there.

Here's my issue. In your presentation you talked about the one-time spending aspects of the infrastructure program. We agree 100% it's one-time, because we don't want to have structural deficits.

You also mentioned that in our business it's in and out, cash in and cash out. That means, under your scenario, if we had a longer-term plan and we continued the same long-term process of spending on infrastructure at the same level, we'd have to raise taxes.

Do your members want to pay more in taxes to be able to pay for an infrastructure program?

[John Gamble]

I'm going to answer this carefully.

I think our members are quite happy to pay taxes when they feel they're getting value out of those taxes. They don't want to pay too much, and they don't want taxes going to things that don't benefit our quality of life here in Canada. However, they are also businesses and they have overhead operating to think about.

We're saying that infrastructure is one of the things government does at all three levels. Government is involved in education and health care. These are some of the core businesses of government. The problem we face with these one-time programs is that, time and again, the funding cap comes on and then it goes off. It makes it difficult to plan assets that have 100-year design life. It's hard to leverage long-term strategic investment to get the best return on investment.

I take your point—you have a real problem. But the Province of Ontario allowed the Ministry of Transportation to amortize costs of similar capital projects so they could get done. For those of us who run a business, that's a perfectly responsible way to deal with your finances.

[Mike Wallace, Conservative, Burlington, ON]

I appreciate the answer.

To our friends from the Canadian Consortium for Research, I'm with my colleagues on the other side. I appreciate that the ask is not particularly significant. We had somebody at an earlier panel today wanting us to double the research money. It got me a little uptight, so I went back and looked. In the report from the CIHR granting council it says that in 2004-05 it was $757 million, and it's gone to $974 million. That's a significant increase over the last five years—over $216 million. Then they talked about Genome Canada. It's true they didn't have any new money in the past budget. But in the budget before that they got $148 million of new money. The budget before that, they got another $100 million of new money.

I want to be on the record with you folks that I appreciate it was a more realistic ask than what we've had from others. If you'd like to comment on that, I'd be happy to hear your comments.

[Paul Vincett]

I assume that the numbers you gave were from the Natural Sciences and Engineering Research Council, NSERC.

[Mike Wallace, Conservative, Burlington, ON]

No, this one is from health research.

[Paul Vincett]

I think comparable numbers would apply to NSERC, which I happen to be more familiar with.

There have been significant increases, but they are virtually all targeted research. Our point is that it's essential. Economists everywhere agree that for a country to be successful in the world these days it has to have balanced support for both basic research, which ultimately gives rise to the biggest impact, and targeted research. I think the big concern is that we're tending to move away from that. We were not asking for a huge amount of money. Still, the signal that would be sent by an increase at the basic end would be extremely important.