Government Operations Committee on Oct. 20th, 2011

[Petr Hanel]

In my view, one of the problems is that the government cannot effectively replace the private sector in every area of activity where the private sector should be taking the lead. The problem lies much more with the private sector rather than with any attempt on the part of the government to support it.

The report I mentioned, the Jenkins report which came out earlier this week, contained recommendations that call for a significantly different approach with regard to federal support for research and development.

Among other things, the report recommends not only that the program we are talking about be maintained, but also—

[The Vice-Chair, Liberal, John McCallum]

Thank you. I apologize, but you have run out of time.

We will now move to Jacques Gourde.

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

Thank you very much, Mr. Chairman.

I would like to thank the witnesses for having travelled to be here with us. We are always pleased to hear from small and medium enterprise owners, who are key actors in our country. You are the economic engine of Canada, and we are very aware that, without all of your work and all of your efforts, we would not be one of the best countries in the world.

Our government created the Office of Small and Medium Enterprises to help you and to support you. We also have the Canadian Innovation Commercialization Program. Further, we have just created a new tax credit to help small and medium enterprises hire employees.

My question is for all five witnesses, for those of you who have had the opportunity to use the services of the Office of Small and Medium Enterprises, and of the new Canadian Innovation Commercialization Program. Can you explain to us how the office and the program helped you grow your business?

[Dr. Sue Abu-Hakima]

Certainly, we've used both OSME and CICP, and for OSME, it was just to get educated on the programs of PWGSC. You have to remember that I started my first company in 1998. I did the exit to Entrust in 2004. In those six years, there was no help in terms of understanding the procurement process of the government. We tried again and again to respond to these RFPs and got nowhere. OSME certainly helped us understand what a standing offer is, how to get a supply arrangement, and how to do these task-based services and processes. We had no idea about any of these programs. That's where the OSME role was very important.

CICP was a different role for us. To us, CICP is part of OSME and is really trying to get Canadian innovation into the government. They had such a flood of applications for the CIC program, so that tells you that there is demand and there is a requirement.

SMEs are not considered to be very innovative; however, they are innovative, and the CIC program demonstrates that SMEs are innovative. From that perspective, I think you do need an overseer for CICP. I don't necessarily agree that you should be moving it off to a different department altogether, but I think you should absolutely strengthen and better fund the CIC program so that you have the right calibre of people who are going through these reviews, evaluating innovation and so on, and then bringing it to the federal government.

[John Rivenell]

We've been in business for 20 years. Probably half our business is with the federal government and half with the private sector. We've learned from the university of hard knocks how to deal with the federal government.

We first had contact with OSME around 18 months ago and we've had a couple of sessions where we've had questions that were addressed to them. But the CIC program is the first time we've had any real interaction, so there's not a lot that we've had before, in answer to your question.

We were also involved with SR and ED, which ran for many years, and IRAP, which we only recently became involved with.

One general point I would make is that dealing with these programs with the federal government is extremely complex. We looked at IRAP some years ago, got some incorrect information, and concluded that there was nothing in IRAP for us. So we probably missed out on seven to ten years of IRAP support on the basis of that first incorrect information. There are a lot of good programs out there. It is very difficult, from our point of view, to go digging.

To put it in a different sense, if I have a potential client over here with $25,000 in his hand, and over here there is someone in the government with whom, if I spend time, I may be able to get something from, my natural instinct as a businessman is to go for the business client and take the money there.

So it would be good if we had a better means of getting information out, and OSME is probably going to do that.

[Jeff Lynt]

From CABiNET's perspective, I think the vast majority of our members have a lot of experience in selling to the federal government, our issues haven't been, until this point, what we feel OSME's mandate has been: to attract new companies and teach them.

I, too, remember trying to learn the ways of selling to the federal government, about 10 years ago, and it was very, very difficult, so I commend that. I think it's fantastic. It doesn't help me anymore. It would have helped me 10 years ago.

What we're interested in right now is having a louder voice for SMEs, specifically in making sure that SMEs are not looked at as a negative to purchase products from. As the old saying goes, nobody ever got fired for hiring IBM, and we'd like to have the same thing said about SMEs--

[The Vice-Chair, Liberal, John McCallum]

Thank you. Excuse me. We've run out of time.

We'll proceed with Monsieur Boulerice.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you very much, Mr. Chairman.

I would also like to thank the witnesses who travelled to be with us today.

My first question is for you, Professor Hanel. You indicated earlier that Canada now ranks 20^th with regard to investment in research and development. I was surprised to hear this. I feel that this ranking does not reflect the standing a G7 country should have in the world.

Notwithstanding the fact that I find it unfortunate that we are trailing in research and development, I would like you to take a few moments to explain the consequences of this situation on the Canadian economy and for our SMEs.

[Petr Hanel]

I have to point out that we ranked 20^th for spending on research and development by the private sector. This is an important distinction, since Canada is one of the countries where the public sector spends more than average. The problem is that the way it spends is not necessarily always effective.

The consequences of this situation are already serious today, but they might become even more serious in the future.

When we compare overall investment of countries in research and development as a proportion of GDP, China, for instance—I am referring to greater China, that is, the Popular Republic of China—is not too far from Canada. Korea probably invests more than we do, not to mention smaller countries like Israel and Singapore.

Not only are we in a weaker situation compared to other G7 countries, but it is becoming increasingly weaker compared to countries which have become fierce competitors in the area of international trade.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

My next question is for the representative of CABiNET.

Your written presentation was more forceful than your verbal one. In it, you compare the Office of Small and Medium Enterprises to a public relations agency which does not really protect the interests of SMEs. I would like to hear more from you on that.

It also says that "some governments have, on occasion, used procurement vehicles to stop SMEs from bidding on even smaller projects."

What exactly do you mean?

[Cathy McCallion]

Unfortunately, some procurement officers see SMEs as difficult to work with. They like to work with one organization. In our experience--Jeff and our colleagues at CABiNET--we often come up against references that basically forbid us from going forward to respond to these RFPs. It makes it very difficult for us to compete.

What we would like to see happen at OSME is for us to have a voice to represent the small organizations. It would bring our concerns forward and fight on our behalf. When you're dealing with procurement, we want a voice. It's not to say that we need special treatment from procurement. All we want is to be able to compete against these larger organizations.

We keep our overhead low. We are very effective in keeping our costs low, and we are very, very competitive and innovative, and we want to be able to present our ideas going forward.

[The Vice-Chair, Liberal, John McCallum]

Mr. Boulerice, you have 15 seconds left.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Would you like to add something, in a couple of words?

[Jeff Lynt]

It is just that if the bar is set too high, we won't have an opportunity to bid, and we are seeing that more and more. Again, I refer back to the lobbying effort to convince senior bureaucrats that it's better to go with one throat to choke than it is to have a distributed model, and that is coming through in procurement.

Just yesterday they talked about this fed cloud; I guess what's old is new again. They called that managed services when I started in this business. I recall a--

[The Vice-Chair, Liberal, John McCallum]

Thank you, Mr. Lynt. Sorry, but we're out of time again.

We'll go to Kelly Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

I thank our witnesses for being with us here today. I want to join my colleague in recognizing that this is Small Business Week. I want to take the opportunity to acknowledge the hard work and dedication, as Ms. McCallion pointed out, of small business owners and entrepreneurs.

As we have been doing this study, we've learned that OSME was created with the main purpose of giving small and medium-sized enterprises access to government procurement in a number of ways: by reducing procurement barriers; by simplifying the contracting process; by providing training and education--I think that was mentioned; by collaborating to improve procurement policies; and by working to ensure that the concerns of small and medium-sized enterprises were brought forward and heard.

My questions are for Mr. Rivenell and Ms. Abu-Hakima. I am wondering, judging from your opening remarks and keeping these objectives in mind, if you think OSME is fulfilling its mandate.

[Dr. Sue Abu-Hakima]

I think on one side they are, but I must admit that I didn't know about OSME. I started my second company in 2007. We only met up with OSME at about the same time as the CICP hit, or maybe a month before, in October 2010, and I think we went to the course in November 2010.

The landscape in Canada has not really changed. The markets essentially were topsy-turvy in 2008 and 2009. In 2010, we said that maybe we should do some services work for the government as our products catch fire in the market with customers. That's when we started looking at the whole procurement thing.

My experience with government now is as an entrepreneur for 13 years, and I still think it's very difficult for SMEs to sell products to the government. I think a lot more could be done to help SMEs navigate and understand how to win some of these contracts, but that would be my....

I'm sorry. It's a mixed answer and a little bit political.

[John Rivenell]

Okay. I have a lot to say and not much time to say it in.

I love OSME. They're very helpful, but they are guides. There's a jungle out there, terrible stuff is going on, and they will help to guide us through, but they can't do anything about the bad stuff that goes on.

I'm here and I don't wish to sound impolite about the federal government, but the procurement is a total mess. I mean, we have a DISO program, and for most of our clients, we, as a private sector company, are explaining to them how the DISO program works. We actually had a situation yesterday where we had a DISO in and it was filled out all wrong. We go back to the clients and say that they didn't fill it out right, and they go, “Oh, yes, we did, we have authority for $500,000”. I go, “Yes, but not for DISO”. Well, I don't do that, but I got one of my people to say it.

OSME are very sympathetic. They're a bit like the therapist who sits down and goes, “Yes, it's awful, isn't it?” I go, “Yes, it is awful”.

[Voices]

Oh, oh!

[John Rivenell]

But there's not much they can do, because they don't have the power to change stuff.

Don't get me started, but when HST came in, I took a pay cut. Why? Because my clients will not buy anything for $26,000. They will buy up to $25,000 and above $100,000.

Above $26,000, we have NAFTA. We have to do all this paperwork. It will take two years. The first thing we have to do is get an expert in to help us write the RFP, and that's going to cost us $23,000. It always does, because he has this magic $25,000 thing.

So I got a client a little while ago. I said: “You've got a problem, I've got the solution, it's $40,000, and you can't buy it. You cannot buy it.” I've had a DISO for 10 years. I've only once got it through, and it took me three years. I don't even try to sell stuff for $40,000. I just say, “You can only spend $25,000, this is all I'm going to sell you, and don't waste your time”.

Now OSME is great, and I go, “Maybe you can do it on a service contract”. I meet a typical client who has a problem. They explain the problem to me. I have the solution and I say, “Here's the solution”. That takes 10% of the time. They have a problem, I have a solution, we're going to do it. Now, 90% of the time, it's how the heck do we get this through PWGSC? Because it ain't going to fly. Let me just give you one example in the brief time I have.

[The Vice-Chair, Liberal, John McCallum]

One quick example.

[John Rivenell]

I sell asset management systems. We're into hand-held computers: software, hardware, one bundle, DISO. Some years ago, PWGSC said that it was going to improve efficiency and split software and hardware. So now people can't buy my solution on a DISO. They can buy the software on the DISO, but they have to buy the hardware on a local purchase order, and half the clients say, “Oh, I'll lose my pension because I'm contract-splitting”.

So there are a lot of problems. OSME is very sympathetic. They don't have any muscle to deal with this. It's a horror story out there for us to try to sell to business. I have a great product, they want it--

[The Vice-Chair, Liberal, John McCallum]

Thank you very much. Now it's my turn.

I really appreciate your honest, direct comments about the problems with these agencies, but I want to ask you a more general question. It doesn't mean that I haven't absorbed your more specific points.

As you know, earlier this week, the report of the expert panel on federal support for R and D came out and made a number of recommendations.

Just today--and this relates to the earlier discussion about Canada's poor level of R and D--one of my colleagues proposed that we have a goal for business expenditure on R and D that the government adopt, and then it could use these expert panel recommendations to help figure out how to achieve that goal. Right now, Canada's business expenditure on R and D is extremely poor. It's 1.0% of GDP, whereas the average for the OECD is 1.6% of GDP.

My colleague suggests that Canada should have a goal to get to the average of the OECD by 2015. It's extremely ambitious to go from 1.0% to 1.6% of GDP in four years, so never mind the exact goal, but I have two questions I'd like to ask each of you.

Do you think it's a good idea to have a stretch target goal on increasing business expenditure on R and D? Second, if so, partly in light of this expert panel, what tools or mechanisms do you think would be best for the government to use to try to achieve such a goal?

Who wants to go first?

[Dr. Sue Abu-Hakima]

I'll start; I have the letters a and b in my name.

Certainly, I think stretch goals are always excellent. In business, the way you incent salespeople to make sales is usually to dangle carrots in front of them, right? So from the point of view of trying to get a small business or an SME to spend more on R and D, there have to be incentives.

I think programs like IRAP--unfortunately, John had early bad experiences--have been tremendous. I think IRAP understands how to get SMEs to spend on R and D and do innovative stuff. Kudos to the government for giving them the $200 million two years ago. The problem with IRAP is that their funding is cyclical. It's never reliable. So that's where there should be a fix.

The other one is SR and ED. The more people who leverage that, hopefully, the more innovation you will get. As for whether or not you need to create another program, I read the Jenkins report. I read the recommendations of the Jenkins report. I spent 11 years at the NRC before deciding to become a crazy entrepreneur, and I can tell you, I have lived research, and I don't think it's a good idea to cancel NRC, start a new institute, and move IRAP somewhere else. Keep IRAP where it is and just change your spending in terms of what you're doing: move that budget over.

[The Vice-Chair, Liberal, John McCallum]

Actually, the expert panel suggested somewhat less money for SR and ED and putting that into direct investments through BDC.