Government Operations Committee on May 17th, 2007

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

I call this meeting to order.

Good afternoon. Before I welcome our guests I would like to make a quick announcement. Our chair, Diane Marleau, is not here today due to a death in her immediate family. I'll be chairing the meeting in her absence. Our thoughts are with her at this moment.

Today's meeting will be a little different, with the concurrence of the balance of the committee. Generally our witnesses give us ten minutes and then we get into a long question-and-answer session. My understanding is that with the depth of the presentations necessary today and the volume of witnesses we have--with both this presentation on behalf of Public Works, and the International Trade Tribunal following--they've asked for longer presentation periods.

With the concurrence of the committee I would ask for consideration so we can allow that, with the thought that when questions come before the committee afterwards we won't have our regular allotted time.

Can I get general agreement in the committee to limit the questions of all members to five minutes? We'll be hard-pressed to get very many of them in, quite frankly. I ask for your consideration and thoughts.

Are you all in agreement, or would you like a discussion on this matter?

Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I think this is a complicated subject. I'm interested in hearing what the witnesses have to say, but I would very much like to get in as many questions as possible. Perhaps I can ask the chair that when we get to the questions and answers we try to get in as many questions as possible. Maybe in some cases we can ask for documents instead of lengthy answers.

[The Vice-Chair, Conservative, Daryl Kramp]

I totally concur. So once we get to the questions we'll try to move them along. Of course, the cooperation of all members will help us along in that fashion, and maybe keeping directly to the point.

Without further comment, I'd like to welcome our first set of witnesses. From the Department of Public Works and Government Services we have Liliane Saint Pierre, assistant deputy minister of acquisitions; George Butts, director general of the services and specialized acquisitions management sector, acquisitions; and Marshall Moffat, director general of the small and medium enterprises sector.

The floor is now yours. Welcome.

[Liliane Saint Pierre, Assistant Deputy Minister, Acquisitions, Department of Public Works and Government Services]

Thank you, Mr. Chairman, and good afternoon, everyone.

First I would like to thank committee members for this opportunity to share with you information about PWGSC's procurement activities.

George Butts will provide an overview of procurement activities, the constraints involved, and the impact of trade agreements.

Marshall Moffat will describe his group's role in reaching out to the 99.9% of Canadian companies that are not large corporations, the group's successes to date, and its prospects for the future.

I'd like to add that in the audience there are also some members of the acquisition team who can, upon request, answer your questions.

First I'll give you an overview of our activities.

As the federal government's central purchasing agent, PWGSC is Canada's largest buyer of goods and services. It alone represents 85% of government procurement by value. We manage more than 60,000 transactions a year totalling some $12 billion.

Our goal in procurement is simple: it is to fulfil government's operational requirements - everything from uniforms and equipment for the Canadian Forces to office supplies.

We work, however, in a complex environment, influenced by trade agreements, Treasury Board policy, various statutes, and oversight bodies such as the Canadian International Trade Tribunal, as well as the Auditor General.

In addition, under the Federal Accountability Act, PWGSC is putting in place a code of conduct for procurement. The FAA also creates the position of procurement ombudsman. Under Government of Canada contracting policy, we must ensure an open, fair, and transparent procurement process while working to remove barriers to competition.

Implicit in all of our activities is a commitment to obtaining the best value possible for Canadian taxpayers. It comes as no surprise that this has a significant impact on the economy, and you will be hearing more about this later in our presentation.

While we occasionally find ourselves in the spotlight, it must be said that the vast majority of our contracts are trouble-free.

Fewer than 1% of contracts are challenged through the Canadian International Trade Tribunal, and only one in five of those challenges are validated.

That said, Mr. Chairman, we are always striving to improve.

As the committee knows, we are in the midst of a transformation effort. Ours is focused on changing our procurement role from one based on transactions to one based on the provision of strategic management of supply, and the creation of a whole-of-government approach to procurement.

Our approach to procurement is collaborative, and we are working hard to build partnerships with Canadian businesses. Over the past several months, we have set up consultation committees with key industries to allow us to hear first-hand their challenges and concerns prior to finalizing our procurement strategies. The committee on temporary help, for example, has met 16 times since last November. These meetings are instructive both to us and to suppliers, and they underscore our commitment to fairness and transparency, as well as good value for taxpayers.

ln addition, we set up the Office of Small and Medium Enterprises to break down barriers to doing business with the Government of Canada in all regions of the country. You will be hearing about this from Mr. Moffat, but first I would like to turn the floor over to George Butts.

[George Butts, Director General, Services and Specialized Acquisitions Management Sector, Acquisitions, Department of Public Works and Government Services]

Thank you, Madam Saint Pierre.

Mr. Chairman, I too appreciate the opportunity to address the committee and to share with you some specifics of public procurement from the perspective of PWGSC that I have realized over my 20-plus years in public procurement.

This will be a fairly quick overview, starting with the contracting principles and objectives and leading up to a typical contracting process. We've provided a number of slides that really only introduce a number of the issues and topics related to public procurement. My focus will be on the process and the management control framework that supports that process.

Public procurement is not just about buying something at the lowest possible cost. We are committed to doing the best possible job for taxpayers on behalf of our clients. Each procurement file that goes through our offices is handled in a manner that respects the principles and objectives as shown on this slide.

We often illustrate public procurement as a balancing act, wherein we endeavour to supply multiple needs—client operational requirements, socio-economic objectives, industry demands, cost to taxpayers—and all with considerable oversight and review by both public and private interests.

The legislative and regulatory framework in which public procurement operates is at times daunting, making the task of the procurement officer one that is effectively managed by trained professionals within PWGSC and client departments.

Public procurement is a job. It's a career within PWGSC, not simply an added function carried out by a program or project manager. Our procurement officers are trained to carry out their roles. They fully appreciate that they represent the Government of Canada when they solicit bids or undertake contract negotiations, often involving millions of taxpayer dollars.

Madam Saint Pierre, in her opening remarks, stated that PWGSC, on behalf of the government, spends approximately $12 billion annually through procurement. Now, this total of course varies each year and is reported in two databases, one via the Treasury Board Secretariat, as required by our trade agreements, by calendar year, and the second within PWGSC's database, where we report on fiscal year or the budgetary year. Thus, when you take a look at procurement numbers, a bit of a cautionary note: you may see figures that sometimes do not always reconcile. Make sure you're looking at calendar year versus the fiscal year.

Now, slide 5 is provided really to illustrate that the contracting is carried out by many entities within the government. You will see here that government departments issue a significant number of low-dollar-value contracts. When I refer to “low dollar value”, I'm referring to less than $25,000.

PWGSC, in fact, only issues about 10% of the number of contracts, but this represents between 80% and 90% of the dollar value spent on procurement each year. So again on this slide, you can see the less-than-$25,000 contracts, awarded mainly by client departments, the 109, 110 client departments, comprise in the order of 368,000 or 370,000 documents, for just under $1 billion.

Slide 6 is provided to illustrate how we buy things. The government contract regulations require that we solicit bids, except in some excluded situations. “Electronic tendering”—as I go down the left-hand column—refers to our posting a notice of opportunity on the government electronic tendering service, commonly known as MERX. “Traditional competitive” is inviting tenders through source lists. An ACAN, or advanced contract award notice, is posted when we think there is only one supplier who is capable of meeting our needs. It signals our intention to negotiate with that supplier and invites others who think they can satisfy the requirement to challenge it. You will see on this slide, “non-competitive row”, almost the bottom right-hand corner, that the majority of our contracting is awarded as a result of competitive processes.

On slide 7, I've attempted to show what we buy, and that everything is classified via a goods and services identification number, GSIN, some 17,000 categories of goods and services that we buy. They're all classified into various groupings, again down the left-hand column: goods, services, construction, telecommunications, and architectural and engineering services.

The numbers on the chart represent the authority limits for entry into contract. You will note they are highest when we follow an electronic tendering process. Why? That's because it is the most open process. Again, this is when we post the opportunity on MERX, the government electronic tendering service. For any contract above the high values you see on these charts, we are required to seek the authority of Treasury Board to enter into the contract.

I'll spend one more moment on this chart. Look at goods, electronic tendering, you'll see two figures on the top, $30 million and $40 million. The department or the minister has $40 million worth of authority as assigned by Treasury Board Secretariat to enter into a competitive contract whereby we have solicited bids electronically. If we use source lists, next column, that authority drops to $10 million. If we go non-competitive or sole-sourced, the authority drops to $2 million. So sole-sourced, anything above $2 million, goods, contracts, we're required to go to Treasury Board submissions.

The number just to the left of those three that I pointed out, $30 million, $7.5 million, and $1.5 million, those are the numbers that are delegated within the department to officials, to bureaucrats. So between $30 million and $40 million for electronic tendering, we have to go to the minister; again, above $40 million we go to Treasury Board. Below $30 million, the ADM has a matrix that delegates it throughout the entire department to all levels of the organization.

The figures below that, the $400,000 across the board, are authorities that can be delegated to client departments to enter into contract. Of note, for goods that authority must be delegated by the Minister of Public Works and Government Services to other departments. All departments have been delegated $5,000, not $400,000, and there are only in the order of 16 that have accepted $25,000 delegations, a few more in the pipeline right now.

I'll move on to the final slide. This was really one that could take me a long time to go through, but I've tried to summarize it as well. I first used this slide to describe the process to the public accounts committee when they were reviewing the 2003 reports of the Auditor General on sponsorship and advertising.

The slide attempts to summarize a typical--and I must stress this, typical--process for contracting within Public Works and Government Services. It shows the various key stages of a contract, from inception, defining the requirement, to paying for the services received.

A couple of key points on the slide: First of all, responsibilities are segregated. You'll see at the top of the slide, outside the boxes, I've indicated project and payment authority in the customer department and contract authority within PWGSC. Our responsibilities are segregated, and the authorities are well articulated in the contract. Where there are joint responsibilities, these are generally well defined and understood by both the client department and Public Works and Government Services.

Secondly, contracts are not awarded in a factory. There is no one-size-fits-all approach to every requirement. Where this may be possible in areas of recurring needs, for example, standing offers or supply arrangements are put in place. Many people are involved, and a series of checks and balances are employed, depending on the risks associated with each procurement, whether those risks be determined by dollar value or other sensitivities.

As you go through those nine boxes on this chart, you will see checkpoints of approval authorities, legal risk reviews by our colleagues in the Department of Justice, contract quality control reviews, Treasury Board reviews, etc. There's a series of them.

The next point I'd like to make is that procurements are planned and advertised, bids are received and evaluated, and contracts are approved and awarded and managed with professional quality and care. Each step respects the principles of open, fair, and transparent procurement.

With that, I'd like to hand off to my colleague, Marshall Moffat, to deal with the OSME.

[Marshall Moffat, Director General, Small and Medium Enterprises Sector, Department of Public Works and Government Services]

Thanks a lot, George.

What I'd like to do is take you through this deck and give you a bit of insight into what we're doing in the Office of Small and Medium Enterprises and how we're helping smaller companies do business with the Government of Canada.

On slide number ten there's an outline of the four areas I'd like to cover. The first one is the role small and medium enterprises play in the economy. Second are the kinds of concerns and challenges smaller companies face in doing business with the Government of Canada. Third is our mandate and how we help small and medium enterprises do business with the government. Finally are some recent examples of the impact the office is having in helping smaller companies increase business opportunities with the government.

I have to point out that the Office of Small and Medium Enterprises was established in September 2005. Then last spring the government made a decision to add six new regional offices to what was, at that time, only our headquarters office so we could reach out to smaller companies right across the country. Those six offices were established this past fiscal year. So the last fiscal year was kind of a phase-in period in which those offices were getting up and going and getting staffed with people. This fiscal year that we're just starting now is our first fully operational, fully staffed year as an office.

Slide number 11 speaks a bit to the importance of small enterprise in Canada. Of the roughly 2.4 million companies in Canada, 2.33 million are small and medium. So there are very few large companies in Canada. Smaller companies account for 45% of GDP and 66% of employment. And they're ubiquitous right across the country.

The bottom half of the slide shows how smaller companies have interacted with government procurement over about two years, from January 2004 to September 2006. So that's two and three-quarter years. Almost 80% of the total number of contracts that George Butts was talking about earlier are with small and medium enterprises. About one-third of the value of the contracts are won by small and medium enterprises.

Slide 12 gives an overview of the concerns of smaller companies, which they have expressed to us. We interact with small companies right across the country on a daily basis. These five issues, or challenge areas, for smaller companies were identified in the first few months of our existence and have been maintained since then. There's a clear consensus among companies as to what their challenges are.

First is access.

Second is accountability, in the sense of transparency. They're always telling us that there are improvements that can be made in transparency and in ease of accessing information.

Renewal means procurement renewal--the approach we take to that--and being mindful of ensuring that smaller companies continue to have access.

Complexity is a problem. Smaller companies don't have a lot of time to pore over complex documents. What can we do to improve that?

Finally is the socio-economic challenge. This is the aboriginal set-aside program, access of regional firms to opportunities, green procurement, environmental impacts, and innovation--that is, buying innovative products from companies.

I'd like to mention just one quick overview point on this to indicate the nature of how we have responded to these challenges. First of all, on the complexity issue, the department has been simplifying the language and templates and standardizing the language and templates in all the requests for proposals that go out from the department, from the smaller, simpler proposals all the way up to the very large and complex ones. We have templates now for all these different types, including standing offers, and we're using them now. It makes it a lot easier for a company.

We've front-end loaded the crucial information that a company would have to see about a particular request for proposal to know whether it's something they need to get involved in. So on the first two to three pages, all of the key information of what we're looking for, how big the order is going to be, and who you have to contact about, all that is right at the front so that a company can make a decision fast and doesn't have to search through the document to find the information it needs. That's just one example of what we're doing in making things simpler for them.

What we're doing on access is a couple of things. The key problem that smaller companies have is scale. Because they're small, it's difficult to respond to a large-scale requirement, whether the large scale is just the size of an order, or whether it is the breadth of product line that you have to supply, or whether it's the geographic scope you have to deliver to. What we've been doing in designing new requests for proposals is we've been trying to design them in such a way that smaller companies aren't inhibited from being able to bid by those three constraints.

First, in terms of just the size of the order, we're developing tiers, so that for smaller-scale orders you can bid solely on them if you want, and the requirements for those are leaner requirements than for the very big ones, so that smaller companies have access and can move up a ladder. Secondly, on product breadth, we're often taking the full product breadth of what we need and dividing it into vertical components and allowing companies to bid on one or more of those subclasses of product. Thirdly, on geography, we're continuing to use regional master standing offers so that regional firms have the choice of bidding only in their regional area of operation and capacity of delivery. They don't have to bid, necessarily, nationally. I just want to give you a conceptual understanding of the ways we're responding to these issues.

On slide 13, this describes the mandate of the office. We basically do two things. First, we reach out to smaller companies to understand their issues and to equip them with the information, through our regional offices, that they need to understand the procurement system and identify their business opportunities better. Secondly, we work within the procurement system to try to identify with our colleagues, like George Butts, ways that we can design our procurement plans so that smaller companies have an opportunity to bid. So these are the detailed things we do, but basically those are the two big functions.

On slide 14 and the following slides after that, I just want to give you a brief overview of some of the impacts that we've measured in recent months. First, on engaging smaller companies and trying to interest them in doing business with the government, we've had 3.3 million visits on our Business Access Canada website. We'd seen that over 8,000 new suppliers have registered this past year to do business with the Government of Canada.

On slide 15, on assisting and informing smaller companies on procurement opportunities and how the procurement system works, we responded to over 7,000 inquiries from smaller companies, asking for help about “How do I do business with the Government of Canada?” We've staged over 300 events, often cooperatively, with the provinces to inform groups of small and medium companies on how to do business with the government. That has had roughly 6,200 participants. These numbers represent the phase-in year. We're going to try to increase these numbers significantly in this coming fiscal year.

On slide 16, on procurement policies that the department has modified to ensure access, we have two examples I want to show you. First of all, for office supplies, the number of smaller companies has increased from 24 to 68 across the country. In the case of servers, and these are the computer servers that your desktop goes to when it needs to be connected elsewhere in the system, the SME involvement as qualified companies has increased from 21 to 42. From 2004 to 2006, the percentage value of contracts that have been won of the total by small companies has increased from 24% to over 30% last year. The trend is upward.

On slide 17, the last slide, we're also improving our ability to analyze the participation of smaller companies in procurement and also what the impact of procurement is on the economy, regionally and nationally.

I want to share a couple of pieces of information with you. First, when we buy goods and services, the labour costs imbedded in all of those products to the companies we're buying from is equivalent to approximately 140,000 full-time jobs in the economy. Second, we buy $12 billion in Public Works, and after you use the multipliers and Statistics Canada's input-output model, the CANSIM model, the total impact on the economy is $19.5 billion a year from our $12 billion in procurement.

We're working diligently now with Statistics Canada and Industry Canada to deepen the specificity of this information. We're looking at different industry sectors and different provinces as to what the impacts are there. We will have the capacity soon to go all the way down to individual cities.

Thanks very much.

[The Vice-Chair, Conservative, Daryl Kramp]

Thank you to all of our witnesses for making a wonderful attempt at shortening and simplifying a most complex and extensive subject.

For the couple of members who came a bit late, we've modified the rules a little today. We're reducing the speaking time down to five minutes or less, if possible, due to the volume of presentations that are being made here today.

We'll start our questions with Mr. Simard. Of course we'll finish with our set of witnesses here at 4:30 and then we'll get on to the next delegation.

Mr. Simard.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much, Mr. Chair.

Welcome to our witnesses today.

My first question would be with regard to the non-competitive procurements. If I'm not mistaken, it's about 12%, or $1.15 billion. What kinds of products would that be? What percentage of that would be military products, for instance?

[George Butts]

I'd have to make an educated guess here, but we can certainly provide the numbers.

[Raymond Simard, Liberal, Saint Boniface, MB]

I'd like that.

[George Butts]

It might be more appropriate if we actually gave you the breakdown of the number of contracts and what they are. You have to appreciate, again, that the number goes up and down every year.

The table I provided you is titled “Greater than $25,000”. Let me be very clear about this. One of the exceptions under the government contract regulations is that for less than $25,000, you do not need to compete, so I've simply taken that out of the equation. This is the greater than $25,000. In addition, if you look at our total number, there are amendments in our total number. Amendments are in effect sole-sourced. They're already with a company, so you're only amending their contract. That's out of there as well. That chart you're looking at refers to the line on the previous chart of the “Greater than $25,000”, and the numbers equate to $11.4 billion, etc.

There's no doubt that there are military procurements there. There are issues where there are intellectual property rights, only one source, which is one of the reasons we can go sole-source. If it is the black box and we have no choice but to go to that firm to either upgrade a piece of code or to upgrade a system, then it is sole-sourced and that's what we do.

[Raymond Simard, Liberal, Saint Boniface, MB]

Can you give me an idea of what kinds of products would be sole-sourced, besides military equipment? I can understand if you're looking for a certain airplane, but in the private sector, for instance, what would you be looking for?

[George Butts]

Architectural and engineering-type work. An architect who designs a building has moral rights to the design of that building. We are obliged to go back to that architect if we wish to make modifications to the look and feel of that building. That's one particular area.

There's a lot of software. If you try to change Microsoft's code, you're not going to do it unless you go back to Microsoft. There are a lot of issues in the telecom industry, in the software industry, and things that we're doing in space right now with our colleagues south of the border through the Canadian Space Agency. So there are a number of areas where we have a sole-source requirement.

[Raymond Simard, Liberal, Saint Boniface, MB]

Well, with regard to space, it's interesting, we have a company in Winnipeg that produces satellites. One of their concerns—and this may be a question for the next group coming up, I'm not sure—was that the U.K. protects its industry, for instance, and our government is buying products from the U.K., as opposed to buying them from our local source here. Do we have anything in place here to protect our industry? Or would that be a question for the next group coming up?

[George Butts]

I read the trade agreements very clearly as an attempt to be non-discriminatory. We are not to discriminate against suppliers of signatories to the trade agreements any more than they are against our companies.

When we are looking at procurements, however, there are a number of things we look at first of all. What is it we're buying? Some trade agreements list things that are included and others list things that are excluded. So we need to do a proper review and see which agreement is applicable in the particular case of what it is we're buying. It may not be.

We need to look at who we're buying for. Some government entities are excluded. The Canadian Space Agency, for example, is not covered by NAFTA, by the international trade agreements. It is covered by the national ones, the AIT, the agreement on internal trade, but not the international.

We also have to look at the dollar value of what it is we're purchasing, because each of the trade agreements has different thresholds at which they apply for both goods and services.

So we look at all three elements. And then in addition to that, we have to look at whether there are any other considerations we need to take into account, like land claims.

[Raymond Simard, Liberal, Saint Boniface, MB]

But as a rule you would go for the cheapest price, no matter where the product comes from?

[George Butts]

As a rule we would go for the best value product for Canadian taxpayers, not the cheapest price.

[Raymond Simard, Liberal, Saint Boniface, MB]

Okay, not necessarily the cheapest price.

[George Butts]

And I think I tried to be very clear in my remarks about that. It's not about buying at the cheapest price.

[Raymond Simard, Liberal, Saint Boniface, MB]

And what consideration does the product being Canadian have? Do you attribute a certain number of points for that?

[George Butts]

We do not. If it is trade-covered we do not attribute a certain number of points. If it is not trade-covered we can apply what is a Canadian content policy, and at that time we'll look at—

[The Vice-Chair, Conservative, Daryl Kramp]

Thank you for your response.

Thank you for your questions, Mr. Simard.

Madame Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you very much, Mr. Chairman.

Good afternoon, ladies and gentlemen.

I'd like to go back to this notion of “best value” because I had a little trouble understanding. Ms. Saint Pierre, according to the document you presented to us, or perhaps it was in notes I read somewhere, you reserve the right to make a choice in the products you buy, without considering whether it's really a Canadian product or one that comes from elsewhere.

Did I understand correctly?

[Liliane Saint Pierre]

Thank you for the question.

One of our first considerations, when we plan a purchase, is to identify needs. There is a major difference between the goods that we can buy and services. Once we've established needs, we manage to determine whether it is a product that we can buy at the lowest price, thus at the lowest cost, or whether we need a product of this quality, but at that price. In some cases, we are open to the possibility, in assessing a request for proposal, of combining the two and going after the best value, that is to say what will represent quality and price.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I want to put that into practice. Let's say I have a Canadian business located in Nova Scotia that manufactures pumps and that you need pumps for the Department of National Defence, but there's also a subsidiary of an American business in Toronto manufacturing pumps. On the basis of the plans and estimates, there's no possible disparity between the bids of the two businesses: they are identical.

Which one are you going to choose, if you're putting up a building for National Defence in Quebec and you need a pump? If the two products are identical, will you choose the one from Nova Scotia, which is typically Canadian, or the one from Toronto, which comes from a subsidiary of an American business?