Government Operations Committee on Feb. 26th, 2009

[The Chair, Liberal, Derek Lee]

I'll call the meeting to order, colleagues.

We're pursuing a line of inquiry today on the subject of the federal government's procurement process, but in fact, although that wording is quite general on the order of reference today, the focus of today is on small and medium-sized enterprises, and there is some focus on the information technology procurement area as well.

In addition to that, we're in an envelope of time where the current and upcoming stimulus spending by the federal government may bear some reference to small and medium-sized enterprises and information technology being considered as part of infrastructure. You may consider that a slight refocusing of our general order of reference for today, just in terms of relevance and where we're going with this.

I'm going to introduce our witnesses now, and we have a very good group of witnesses.

From the Canadian Federation of Independent Business, we have Corinne Pohlmann, who is vice-president, national affairs.

We have three individuals from the Department of Public Works: Tim McGrath, assistant deputy minister, real property branch; Shereen Miller, director general, small and medium enterprises sector, acquisitions branch; and Mike Hawkes, special advisor, accelerated infrastructure program.

From the Canadian Business Information Technology Network we have Jeff Lynt and Jean Thivierge.

I understand that the CFIB can be with us for the first hour only, so they'll be presenting. I would like the questioning that follows all of the presentations to be focused first on CFIB, because they do have to leave. The other witnesses, happily, can be with us longer.

The opening statements and presentations should be about five minutes, and if that fits with your agendas, that's great. We can get started, and I will follow the order of reference, with the CFIB to start first.

Ms. Pohlmann, welcome.

[Corinne Pohlmann, Vice-President, National Affairs, Canadian Federation of Independent Business]

Thank you very much.

Thank you for accommodating me so I could have the opportunity to present to you today on small and medium-sized businesses' access to procurement at the federal government level. You should each have a copy of a slide deck, which I will walk through as we go through the presentation.

Starting out, the CFIB is a not-for-profit, non-partisan organization that represents the interests of Canada's independent businesses. We have 105,000 small and medium-sized companies as members, in every part of Canada and in every sector of the economy. We develop our policy positions through survey research. In addition to our political advocacy role, we also produce research that's used by various government departments, the Bank of Canada, and the media, among others.

I'm sure you're aware, and it goes without saying, that the importance of small and medium-sized companies cannot be understated. The fact is that 98% of all businesses in Canada have fewer than 50 employees. SMEs employ 60% of all Canadians, and they represent almost half of Canada's GDP today. They are significant contributors to job creation. They become even more critical during times of economic difficulties because they're the ones who will hold on to their staff as long as possible.

I'd like to point out before I get started that we're not procurement experts at CFIB, but we have a pretty good idea, knowledge, and understanding of SMEs. I'm here to provide you with some feedback on their perspectives on this issue, which comes from a survey we did in May 2008 that resulted in more than 8,000 responses from small and medium-sized companies across Canada. This information has not yet been published, so you are the first to see it.

Starting on slide 4 in the presentation, you'll see that about 29% of SMEs typically sell to all levels of government. They see the government as a key market for their product or service. However, many more, almost half, have actually sold a product or service in the last three years to all levels of government. There are 21% who said they sold a product or service to the federal government.

The next three charts I'm going to let you look over at your own leisure. Basically they provide a bit of a profile of the types of companies in Canada that sell to the federal government. The first looks at it by province, the second looks at it by sector, and the third is by size of firm. It's the third one, on slide eight, that clearly shows that the larger the firm, the more likely they are to be selling to the federal government.

The survey then asked about how businesses typically learn about a government contract. Almost half hear about contracts through business associates, about 40% hear through other means, and the remainder hear through cold-calling the government, the government calling them directly, or they see it in a newspaper, for example. The most important factor here is that only 14% are using MERX. In fact if you look on the next chart, there's a clear correlation between the size of the firm and the likelihood that they're using MERX.

In more than 50 pages of the comments associated with this survey, complaints about the difficulty in finding contracts overall and about navigating MERX were quite plentiful. Ultimately, small businesses like the concept of a central repository they can go to where they can find every government tender. They found MERX difficult to navigate and expensive to use.

Finally, on the next slide, slide 11, we asked businesses about their main obstacles in selling to government . This outlines the results from all respondents in blue, and those that specifically sell to the federal government in red. Among those who sell to the federal government, there's an even greater concern with such issues as the amount of paperwork, difficulty contacting the purchaser, and not being able to determine why their bid was unsuccessful. From the many pages of comments in the survey, it became quite clear that many SMEs have little trust in the procurement process.

I'll give you examples of why that might be. Not being able to get in touch with the purchaser to ask questions or provide ideas and alternative approaches is a significant obstacle for them. Many commented that the official assigned to the tender often has little understanding of the technical aspects of the bid, and they cannot answer simple questions as a result. Furthermore, if the business has an alternative approach that might be effective, they cannot talk to anyone about that approach. If they try to incorporate the alternative approach into the bid, it will be rejected, as it does not follow the exact process outlined in the RFP.

This is a huge problem. It effectively stifles any attempts at innovation and creativity that SMEs can bring to the table, and it may prevent the federal government from getting the best goods or services for their needs. Unfortunately, there seems to be a growing sentiment among SMEs that it's not worth the effort and investment to bid on federal government contracts. The frustration involved in getting together a bid has become so onerous that many have simply given up. Many have said that contracts are difficult to find, and when they do find one, they can involve so much paperwork. In fact we had one member tell us that it cost between $3,000 and $6,000 to put together a federal government bid, and that it's difficult to get answers to questions when you're going through the process.

If you don't win the bid, you're usually not told why you lost it. If you do win a contract, you may not get paid for some time. Government doesn't pay any interest on overdue accounts either. This causes cashflow issues for small businesses, which can be very stressful. It can have a serious impact on them.

Finally, I want to leave you with an additional document, which you should have in front of you. This is a document we produced in 2005, when the previous Liberal government conducted a federal procurement review. It's a set of procurement principles that remain, for the most part, just as relevant today.

Other than principle number four, which talks about a dispute resolution process and has been addressed in the establishment of the Office of the Procurement Ombudsman, which we do support, the other principles remain a challenge that we feel have not been well addressed from the perspective of SMEs. Recent attempts by Public Works to amalgamate federal contracts into fewer very large contracts have made it even more difficult for smaller companies to access the federal government contracts.

All SMEs really want is fair and open access to government contracts, a simplified procurement process, a proper measurement of SME involvement in outcomes, and recognition that they are an important source of innovation and a reliable supplier of goods and services to the Government of Canada.

Thank you.

[The Chair, Liberal, Derek Lee]

Thank you very much.

You raise a lot of questions. And I noticed that officials from Public Works and Government Services were listening intently.

Now, from Public Works, who's going to be presenting? Mr. McGrath?

Please go ahead.

[Tim McGrath, Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services]

Thank you, Mr. Chair.

I am Tim McGrath, Assistant Deputy Minister, Real Property Branch at the Department of Public Works and Government Services. With me from PWGSC are Shereen Miller, Director General of the Office of Small and Medium Enterprises and Mike Hawkes, Special Advisor, Accelerated Infrastructure Program.

Thank you for this opportunity to discuss the impact of the stimulus funding on federal procurement, and specifically small and medium enterprises.

As we all know, small and medium enterprises are critical to Canada's prosperity. They're also critical to the work of our department.

In fiscal year 2007-2008, PWGSC purchased more than $4.8 billion worth of goods and services from Canadian small and medium enterprises, which constituted 49% of the total value of goods and services purchased by the department, an increase of 43% in 2005-2006, and a further 46% in 2006-2007.

In an effort to develop a closer relationship with small and medium enterprises, an official Office of Small and Medium Enterprises, which we call OSME, was created in 2005 within the department's acquisitions branch. It has a network of six regional offices located in Halifax, Montreal, Toronto, Edmonton, and Vancouver, as well as one located here in the national capital area.

OSME provides information and training services to small and medium enterprises wishing to do business with the government, and helps them navigate the procurement process. OSME also studies the impact of government buying patterns and other factors related to small and medium enterprises, and works with these companies to identify the key barriers for them in procurement. Since its inception, OSME has assisted more than 40,000 businesses and individuals across Canada, an average of 16,000 a year.

Now let me turn to Budget 2009, in which Public Works has been directed to expend more than $400 million in additional funding over the next two years. To ensure the funding is used in a cost-effective manner and achieve the government's goals, the department has developed an accelerated infrastructure plan for speeding up and intensifying existing plans to repair and restore federal buildings and bridges.

Under this plan, PWGSC projects subject to the stimulus funding have been divided into four main streams. More than $40 million will go toward the repair of four federal bridges. Earlier this month, a contract was awarded for the rehabilitation of the Alexandra Bridge, located here in the national capital area; $175 million will be spent on work, which will be divided up under a construction management approach, meaning projects will be grouped together for reasons of efficiency according to type of work and location; $20 million a year, over the next two years, is being allocated to make federal buildings more accessible to people with disabilities; and $100 million per year, over the next two years, will be spent on building and repair projects that we have managed through our service provider, SNC-Lavalin ProFac, which provides property management services on PWGSC's behalf for 344 federally owned buildings.

For the majority of the services that SNC-Lavalin provides, things such as heating, ventilation and air conditioning, and cleaning, ProFac relies on more than 3,700 SMEs across the country. In addition, ProFac uses another 1,200 subcontractors, predominantly small and medium enterprises, for construction projects such as roof and window replacement, carpets, painting, and a number of fit-ups.

In 2007-2008, ProFac's use of small and medium enterprises was in the amount of $104 million. The $200 million in stimulus funding allocated for building and repair projects represents a 50% increase over our current funding level and on our spending on property management services. We expect this to have a significant positive impact on the Canadian construction industry, a sector of the economy in which the small and medium enterprises form a very large part. This funding means that much-needed work on federal assets that for many years was deferred for budgetary reasons can now move forward. We have the mechanisms in place to hit the ground running, and we expect the funds to start flowing on April 1. In addition, PWGSC will provide procurement and real property support to other departments that are receiving stimulus funding. We are working closely with them to plan and coordinate the needs.

Our deputy minister has put in place a task force to ensure that all projects are delivered on time and on budget, while meeting the objectives of the stimulus spending, and PWGSC is exploring measures to streamline some of its processes to ensure the requirements of colleague departments are met in a timely way.

In all our work we'll continue to be guided by our principles of transparency, fairness, openness, and value for money.

This concludes my opening remarks. My colleague and I would be pleased to answer your questions.

[The Chair, Liberal, Derek Lee]

Thank you very much.

I noticed the CFIB was listening intently to your presentation.

And now we'll go to Mr. Jeff Lynt, from the Canadian Business Information Technology Network.

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

Good morning, ladies and gentlemen. My name is Jeff Lynt and with me is Jean Thivierge.

After seven months of delays, companies and/or industry associations were able to make corporate presentations to a PWGSC panel in February. PWGSC called this an industry consultation process. The consultations should have been about shared service procurement models and bundling of contracts. Instead they were about how to better award a mega-contract to a large company. We were obviously thrilled.

We submitted our concerns to PWGSC's SME office. We were told by its director--a very nice and articulate lady, I'll add--that she had no power and only an advisory role. While we appreciate her openness, she can't force changes, and as she told us, in the end she is a PWGSC employee.

Despite the committee's motion adopted last June, we were told in a meeting with several senior PWGSC bureaucrats that in view of the election and the prorogation, the department did not consider it necessary to come back to the committee with a plan.

[Jean Thivierge, Vice-Chair, Canadian Business Information Technology Network]

It is clear to us that certain senior officials at Public Works will continue in the direction they have started in. There are four projects worth over $1 billion each over a period of eight to 20 years, which amounts to over $80 billion. This is twice the amount of the economic stimulus plan.

The Department of Public Works has told us several times that it did not have any specific numbers for us. It kept on repeating that it had neither a business plan nor any case studies regarding the project. That is absolutely incredible.

Last week, after the department told us for months that it had no intention of developing a business plan because it did not have the necessary data, we received an e-mail telling us that the business plan will be completed by March. So are we to believe that the department will put a business plan together in a month and a half?

If Public Works implements its plan, your committee will not be studying anymore why it is hard for SMEs to access government contracts, but rather why the vast majority of SMEs have disappeared despite growth in the sector and what role the Canadian government played in their disappearance.

Of course, the multinationals will immediately say that they are more than willing to sign subcontracts with the SMEs in order to reassure the government. But the reality is quite different. Why would the multinationals even think about entering into long-term contracts with SMEs, when it would be much more profitable for them to simply hire employees to do the same work, and even to outsource some of the jobs abroad?

The government cannot force multinationals to do business with SMEs, and that is not what we want either. We want to be able to put forward innovative solutions at competitive prices, which would be in the best interest of Canadian taxpayers.

[Jeff Lynt]

So why are PWGSC and Treasury Board keen on proceeding this way? The answer is complex, but quickly explainable. First, they are trying to rationalize and consolidate some of their processes, and we actually agree it should be done. We could provide them with real solutions if they provided us with real information on which to base our solutions. Regardless, we have provided PWGSC with some proposed solutions and have received verbal support from several of their senior bureaucrats.

Second, on a regular basis, large IT projects have failed and bureaucrats have been held responsible. This time--

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

Mr. Chair, the interpretation has been cut off.

[The Chair, Liberal, Derek Lee]

Could we pause here just for a moment?

There was just a bit of slippage in the translation, so I appreciate your effort to compress your remarks into the time. I think all we need is for you to slow down a bit.

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

I would ask you to repeat the previous paragraph.

[The Chair, Liberal, Derek Lee]

Well, if you could back up and start from there and each time you get to a new number, you could pause and take a breath and let the translator finish.

[Jeff Lynt]

Okay.

On a regular basis, large IT projects have failed and bureaucrats have been held responsible. This time they want to build an even larger project. They want to transfer the responsibility and control to a large company as a managed service and wash their hands of it. Who is looking out for the Canadian taxpayer here?

Third, cabinet believes that they shouldn't be allowed to pass on the operational management of multi-billion-dollar projects to private multinational companies with pre-established product lines, business partners, and offshore capabilities. So far the process has experienced a lack of transparency and fairness for SMEs. Coinciding with our transparency concerns is the fear that there will be no accountability within these shared service pillars.

The Government of Canada needs to maintain operational control of large IT projects. The project management, risk management, and delivery of services to Canadians is a responsibility that must remain within the Government of Canada. This is what accountability is all about. We do not want this committee to ask PWGSC to provide us special access to government contracts just because we're SMEs. We ask the committee to make several recommendations in a report.

In summary, our recommendations are for you to direct PWGSC not to proceed with large IT projects such as shared services without a properly completed and independently reviewed business plan; not to bundle contracts without a properly developed and independently reviewed business case to support this decision; to structure its RFPs in a way that will allow SMEs to bid in a reasonable manner; and to dissect large IT projects into smaller, more manageable pieces--chewable chunks--that will provide Canadian taxpayers with maximum accountability and ultimately tax savings.

Thank you.

[The Chair, Liberal, Derek Lee]

Thank you, Mr. Lynt and Monsieur Thivierge.

I'd like to put you all in a room now, buy you lunch, and let you work on this and then come back to the committee. You could probably make some progress. But that's not the format we use here, so I'm going to go to MPs now.

First on the opening round is Ms. Hall Findlay, for eight minutes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much to all of you.

Good morning, everybody, and thank you very much for your time.

As I was putting together my thoughts, I have to admit there was an element of thinking maybe I'll just ask you to respond to each other.

I do have some specific questions. First, for Madam Pohlmann--

[The Chair, Liberal, Derek Lee]

I'm very sorry, I should have reminded members that the CFIB will be here for only another 20 minutes or so. Members should stand advised of that. When you're finished your first round, I'll just go to the other parties and see if there is a question for the CFIB.

Please go ahead.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I was just going to say I'm happy to have some flexibility, if we have specifics. I can shorten my time and then we can revise if you want.

My first question is in fact for CFIB. Your description is not particularly encouraging. I have two questions, and I'll try to make them quick. Has it gotten worse, or has it always been this bad?

[Corinne Pohlmann]

It's difficult to say. The last time we did survey research on procurement was in 1995. I tried to compare the two, and they're not directly comparable; however, in 1995 we found around 40% of SMEs at that point--though it was a more targeted survey--were actually selling to the federal government. In this one we're finding only 21% are. But I'd take that at face value for now. We have to do a little more digging to see if those numbers have actually gone down that dramatically or if it's more just because of the data sets we were using.

[Martha Hall Findlay, Liberal, Willowdale, ON]

It's not just the numbers. Even anecdotally, are you finding that your members are saying it's proving to be difficult to do business with the federal government? Are they saying it's now worse? Is it harder to do business with the federal government?

[Corinne Pohlmann]

Yes, absolutely, and I think the most valuable part of the information that we collect is the comments. We actually go back to our members and ask them more details about them.

There's no doubt about it, when you go through the comments, there seems to be frustration, and I think there are a lot of businesses out there that have just given up. They've just decided it's not worth it, it's too expensive. They're more likely to try provincial or even municipal governments than the federal government, because it's just too complex.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Right.

I understand that with the OSME--and this is still directed to the CFIB--there is an obligation in that part of the department to help SMEs in selling abroad as well; there's a foreign component there. Are you finding that SMEs have the ability to sell abroad, and if so, are they getting the help that the OSME people are supposed to be giving in terms of those foreign sales?

[Corinne Pohlmann]

I couldn't answer on the foreign sales. We do know that our members are certainly involved much more in exporting, and that includes to other governments. We know that this is a growing part of the business. I couldn't tell you whether or not they're using OSME for that particular aspect of learning about it. We do direct members to OSME when they have very specific issues, but generally speaking OSME can help on very specific things—for example, late payment—but they can't necessarily help, as CABiNET pointed out, on the broader policy issues they may confront.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you.

Mr. Chair, I don't know how you want to proceed. I have questions for others, but they're non-CFIB questions.

[The Chair, Liberal, Derek Lee]

I'll just take note of the fact that you've used only three minutes of your time, and we'll go to Madame Bourgeois if she'd like to address questions to the CFIB.

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

Thank you, Mr. Chair.

Ms. Pohlmann, there might be some overlap between my questions and those of my colleagues, but I want to make sure I understand the situation.

You talked about two studies. One is very recent, if I understood correctly, and the other one was conducted about five or six years ago. It is that correct?