Government Operations Committee on March 3rd, 2009

[Greg Rapier]

No, the standing offers initially must be awarded to the manufacturers of the goods, and only if a manufacturer's product qualifies can the aboriginal entity receive a standing offer, which must contain the same terms and conditions as the manufacturers'.

[Chris Warkentin, Conservative, Peace River, AB]

I'm still not clear on this process, but let's move on and maybe some clarity will come.

I'm now questioning whether any of my numbers are correct. There were 36 standing offers in existence prior to this process. Is that correct?

[Liliane saint pierre]

The information I have is that there were 27.

[Chris Warkentin, Conservative, Peace River, AB]

Okay, then, it was 27. We'll take your numbers because I don't know where I got my numbers from.

Let's say there were 26, and only five were successful in actually moving through this 200-plus-page application process. Then the aboriginal group was successful in a different way from moving through this application process. Is that correct information?

[Liliane saint pierre]

Part of the competitive process and the rules of this RFSO is that for manufacturers that qualified, because we did include an aboriginal set-aside as part of the rules, the aboriginal firms that were tied to those manufacturers also received a standing offer.

[Chris Warkentin, Conservative, Peace River, AB]

Within Public Works, is there a sense that moving from 26 suppliers to 10 presents a problem in assuring that the supply of these products will be available? That's the first question.

Also, is there a sense that significantly limiting the number of standing offers available to these businesses through this process is a problem, and if so, are there efforts being made to rectify that problem?

I look at what's been brought forward today, and my sense is that there seems to be a problem. We may have a problem today in that we're not going to have sufficient capacity within the businesses that have been supplied standing offers to supply the federal government in a timely manner, especially when you consider the testimony, which we all know to be true, that so much of the purchasing of the federal government happens only in the fourth quarter. That's another issue that I think many people around this table have problems with.

We're also concerned about the long-term effects of this. Essentially mini-monopolies for government procurement for certain companies are being created, and possibilities for other companies to ever be competitive in that process are being limited. It's just the nature of the business that if you're not supplying, you get out of the process of even competing for these contracts. The government then essentially creates a situation in which there are not nearly as many people who can move into this competitive process, thereby driving up the cost of procurement for the federal government.

Is that a concern for Public Works?

[Liliane saint pierre]

Mr. Chair, I'd like to make two points.

First of all, we are committed to a fair, open, and transparent process, and as such we have to also live with the results of that competitive process. If you look at both the cabinets and free-standing furniture, we did not limit the number of standing offers. That fair and open competitive process had the following results. First, for the cabinets, when we received 20 bids, the outcome was 18. Regarding the free-standing furniture, again we did not limit, and the outcome was 10, or five and five, as Greg explained.

The second point is that, as mentioned by Mr. Rapier, the last quarter is normally the busiest of the year. So far we haven't had any problems and we haven't heard of any problems related to complying with the demand.

[Chris Warkentin, Conservative, Peace River, AB]

In terms of supply, that addresses one concern. How many applications were submitted for standing offers? How many companies were actually successful in completing the paperwork and submitting applications?

[Liliane saint pierre]

Based on memory, there were 33.

[Chris Warkentin, Conservative, Peace River, AB]

My time has probably elapsed.

[The Chair, Liberal, Derek Lee]

You still have time. I happen to like your line of inquiry, so go ahead.

[Chris Warkentin, Conservative, Peace River, AB]

I'd be the first one to congratulate Public Works for engaging in a transparent and open process. It was absolutely necessary for Public Works to move into this process. But the concern I think I share with the members around the table is that we're limiting the ability of small businesses to access these government contracts. In the long term it's going to be a problem for the federal government, in terms of driving up the cost of supplying its needs and demands.

I credit you for engaging in a process that I think elevates the transparency of the process, but somewhere along the way we've limited the number of suppliers. That obviously causes problems for the suppliers, but if we look at it in even a self-serving way, it's going to limit the ability of the government to get things in a cost-effective matter down the line. So I think we're setting ourselves up for a problem, and maybe if we can make changes today we can alleviate those stresses down the way.

[Liliane saint pierre]

Thanks for your comments.

One of our objectives is always to improve. Related to the latest competitive process for free-standing furniture, we will review. We have offered debriefings to all the firms that did not qualify. So far we have had only one request, but we are quite open to doing so. We'll do lessons-learned, and that will be shared within GOFAC and other industry associations.

I want to give you two statistics. First, there's been growth related to the percentage of business volume awarded to Canadian SMEs. We mentioned 49%, and what is interesting is that in the last three years it has always moved up. Last year it was 46% and now it's 49%. The second point is that when you look at all the contracts we issue, the percentage of the number of contracts awarded to SMEs is growing.

[The Chair, Liberal, Derek Lee]

Thank you, Mr. Warkentin.

Before I recognize Mr. Martin, I want to try to identify the gorilla in the room. Everyone is being fairly polite, but somebody in Public Works, a very well-meaning public servant, managed a process that reduced the number of suppliers of furniture from around 30-something to five, and then there were some piggyback add-ons. Not even the Japanese Imperial Army in the Second World War could have hoped to destroy a government supply chain to that extent.

There are all these furniture companies, with hundreds of employees in Canada and the U.S., and I couldn't imagine on my worst day that all these businesses could fail these little competency tests--200 pages. Out of 30-something, five of them passed the test. That comes from somebody's desk in Public Works. Public Works essentially took a wrecking ball to that supply chain.

I'm very unhappy with it, if for no other reason than that one of those suppliers is in my own riding. But there are probably furniture suppliers in a lot of ridings around this table. And we're only talking here about furniture supply, office furniture. There are hundreds of other categories of supply.

I am signalling, as one MP, that we have a problem. I don't like the look of it. I don't like the impact. There may be a very good explanation as to why Public Works is moving in a certain direction, but I don't like the look of this one.

I know you can't answer what I just said. I've identified the gorilla in the room, and I'm asking Public Works to deal with it. Other members may have similar lines of questioning.

I'll stop here and go to the person I should have recognized five minutes ago.

Mr. Martin.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Mr. Chair. That is exactly the point I want to raise. I don't understand how we've improved access for anyone. My numbers say 41 down to five.

But the numbers aren't important. There used to be a massive amount of people with these national master standing offers in this furniture supply chain, and one of the big ones has written to me. They're devastated. It's inconceivable that their government would do this to them at this point in time, in the middle of the worst economic downturn in decades. They say, “We are stunned that our own Federal Government would deliver such a devastating blow in the midst of this worst economic downturn”, etc. And they say this sudden and unanticipated announcement has caught dealerships off guard. This company is the largest Canadian manufacturer of this type of free-standing furniture, with 2,000 employees in Quebec, Ontario, Alberta--right across the country. If our own government won't buy the Canadian products we make, who will?

You've marginally improved Canadian content, I believe to 49%. I guess that's okay, but I want to use every dollar we can to buy Canadian. Put everything we do through a “buy Canadian” lens, within the limitations of our trade deals. I don't see how we're doing that.

Beyond furniture, I'd like to give one example and ask what could possibly have happened. It's relevant to my own riding.

DND needed troop carrier buses for the mission overseas. We make the best buses in the world in Winnipeg--Motor Coach Industries. We've been providing our military with troop carrier buses for decades. Yet they took the low bidder, which was the German product, at less than the cost of a set of tires per bus. We're saying to our NATO allies all over the world that if you want to buy a good troop carrier, buy German, because that's what we did. As our Canadian troops are ferried from the front line to their tents, they're in these German troop buses.

How could things like this, which make Canadians pull their hair out, slip through the cracks--the “buy Canadian” lens we expect from our own Canadian government?

[Liliane saint pierre]

Mr. Chair, as explained by my colleague from DFAIT, procurement is subject to trade agreements. There are some exclusions--

[Pat Martin, NDP, Winnipeg Centre, MB]

Isn't there 7.5%?

[Liliane saint pierre]

--but most of our procurements are subject to trade agreements, and there are different trade agreements. Of course, today we are not also talking about the AIT, which is the Canadian trade agreement. A requirement such as buses is subject to that, so therefore we have to open the competition to other countries, and the result could be that a firm outside of Canada wins the process.

[Pat Martin, NDP, Winnipeg Centre, MB]

Can I ask one question, then. Do you take into account the whole cost of the purchase? In this case the bus was $5,000 cheaper on a $500,000 bus, but now we have to set up a whole new parts system within the military because we have 200 buses of this kind and now 50 new German ones. Now we need mechanics trained, we need new diagnostic materials, we need new parts supplied. Do you factor in the whole cost of this kind of fundamental shift when you're buying a new product line?

[Liliane saint pierre]

When we look at the requirement, of course we do look--with the department in this case--at all the implications and what has to be included as part of the requirements. As example--

[Pat Martin, NDP, Winnipeg Centre, MB]

The difference in cost was $60,000 on a $30 million purchase. Just having DND's officials fly over to Germany a couple of times to look at the product being made would have put the Canadian bidder above.

[Liliane saint pierre]

I cannot comment on that specific requirement because I do not have the details--

[Pat Martin, NDP, Winnipeg Centre, MB]

No, I don't expect you to.

[Liliane saint pierre]

--but I can assure you that when the requirements are being defined, all aspects are being looked at. In this case when you buy trucks, you also have to take into consideration the servicing, the maintenance of those.

[Pat Martin, NDP, Winnipeg Centre, MB]

Yes.