Government Operations Committee on Oct. 25th, 2011

[Annick Papillon, NDP, Québec, QC]

I want to know whether there are other examples of requirements on the part of the OSME that cause problems for the SMEs when they are bidding. Are there other unreasonable requirements putting obstacles in the way of the SMEs? Do you have any examples you could share with us?

[Louis-Martin Parent]

I can mention the case of a requirement having to do with a translation contract. They wanted the company selected to offer a better IT service than the one that is currently offered to public servants at this time. They wanted this service to have more components to it and more functionalities than the one that is offered by the government. Several of our members were interested in bidding on that contract but found that requirement somewhat ridiculous. This was a translation service. They could offer the service, but the other requirements went too far.

[Annick Papillon, NDP, Québec, QC]

Do you think that this disqualifies...

[Louis-Martin Parent]

At the very least, that discouraged some competitors. I don't know if they bid on the contract, that's another question.

[Annick Papillon, NDP, Québec, QC]

In a certain way, perhaps.

I also read in the recommendations, that you raised the possibility of reviewing mega-contracts. We saw that some other people had quite plainly proposed the elimination of mega-contracts since they do not advantage SMEs. The idea was to break down the contracts so as to give SMEs a better opportunity. Do you agree with that? Would it be a good idea to break up the mega-contracts?

[Corinne Pohlmann]

Yes, we would. We believe, as one of our recommendations and as we have actually been saying for years, that there should be a role—and this could be OSME's—for another group to look at those large contracts and decide whether they really need to be as large as they are.

As I mentioned earlier, in the United States the Small Business Administration does that exact same thing: they look at federal government contracts in the United States to determine whether or not they really need to be as large as they are, and if they don't, it forces them to be broken into smaller components so that there are opportunities for small and medium-sized firms to bid on those contracts. We don't have that kind of oversight here, and we believe it perhaps needs to be established within the Canadian policy as well.

[The Chair, NDP, Pat Martin]

Thank you, Ms. Pohlmann.

And thank you, Annick. Your time is up.

Scott Armstrong.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you for your presentation.

First, addressing the Canadian Federation of Independent Business, we have heard from several witnesses complaints about late payments by the Government of Canada. I understand how that would affect a small business and a medium business more than it would a large conglomerate. But how prevalent is it? Is it an ongoing problem, or is it just something people bring up as one of the reasons not to deal with the federal government?

[Corinne Pohlmann]

In our survey from 2009, 80% told us that they got payments past 30 days. It was only when we got into the 60- to 90-day category that it dropped to 15% who waited more than 60 days to get payment from government.

It has gotten a little bit better. This is one of the services OSME does: they try to speed up the process of late payments. However, it's still an issue, and it seems unbelievable to us that in this day and age the federal government is still delaying payments to small and medium-sized companies that are dependent on that kind of money coming in, especially after they have delivered the service.

We continue to believe that this is an area that could be cleaned up fairly easily, but for whatever reason it continues to be a factor. It is an issue; it has come down on the list. Back in 1996 I think it was the second or third issue from our membership. Now it's down to about eighth or ninth. But it is still something that many of them are facing.

[Louis-Martin Parent]

Can I add something to that?

To Corinne's point, it has gone down quite a bit, and to OSME's credit they have worked on it.

We attended a round table last week hosted by OSME on promoting discussions between the supplier community and the government. Let me just give an anecdote. There was a lot of discussion on strategic-level stuff as to different issues and what not, but there was one business owner who stopped the conversation cold, saying, “Late payment is a serious issue for me as a business owner, and for people in my industry as well.”

So it may have gone down, according to our numbers, but it still is a serious issue when it happens to our members.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Right.

So if OSME were to disappear, as the member across the table suggested, a result could be that the late-payment issue might actually grow and go back in the wrong direction?

[Corinne Pohlmann]

Yes, that could be, because it is one of the services they provide and it is one of the areas that we send our members to them to help resolve.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you.

I'm going to switch gears.

Ms. Scarborough, I'm struggling with understanding exactly how your operation works. Could you give me a specific example of the process of one company—you don't need the name of the company—to get funding from the angel network, a success story, if you would?

[Michelle Scarborough]

Okay.

The way a company approaches angels is at the local level. Our organization, as the National Angel Capital Organization, brings the network together. But when a company is outsourcing angel capital, they are doing it in their home town first. Then they would come to the National Angel Capital Organization if they needed either of two things: one, the angel who has made an investment in them wants to co-invest with others or they are looking for an increased amount of capital; or two, they want to spread the word about their business and want angel co-investment from across the country or from specific angel groups that have expertise in their area.

Just to differentiate, those are the two reasons why a company would come seeking angel investment. That company would seek angel investment at the start-up or early stage of their business, when they're typically looking for $150,000, $250,000, $500,000, $1 million. That's how the angel investment process works.

A success story for an angel investor would then be.... I'll give you an example, my own example. I made an investment of $150,000 into a company. That company was in a very competitive space. I and the angel investors I was working with identified some key customer targets for that company; we drove the entrepreneur to achieve on the sales results. That company achieved about $25 million of sales and subsequently was sold. The founder of that company has become an angel investor, and a serial entrepreneur is now doing it the second time.

So if you want it to come full circle, that would be the success.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Great. Thank you.

You talked about how a lot of these companies, even if they have a very successful product, or will have a successful product, have trouble getting that first client, that first high-profile client. Can you tell us how pivotal it is for these companies to get the Government of Canada procurement contract as their first? Does that really give them a leg up on the whole industry?

[Michelle Scarborough]

Let's talk about it in the context of a company that is going to be making a product or has services specific for the government, such as a software enterprise solution. Let's use that as an example.

If a company has the Canadian government or an agency of the Canadian government as its first or second customer, that pays huge dividends to that company's then being able to go out and use that reference client to secure further clients, particularly in the international marketplace as opposed to a very small firm looking in their backyard.

Think about it in terms of the ability to scale. If I'm a company and I have a large contract with a large customer, and I can prove that my technology works, is secure, and is meeting the needs of that customer, then I can secure larger customers on a global scale. I can grow faster and actually scale my business faster as a result.

[The Chair, NDP, Pat Martin]

Thank you, Ms. Scarborough.

[Michelle Scarborough]

[Inaudible--Editor]

[The Chair, NDP, Pat Martin]

We're well over time. That's very interesting. Maybe you can add to that in answers to subsequent questions.

The next questioner for the NDP is Mathieu Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Mr. Chairman, if possible, Alexandre Boulerice and myself are going to share our time. Alexandre would like to begin.

[The Chair, NDP, Pat Martin]

Certainly, you can use your five minutes however you like.

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

My question is for Ms. Scarborough.

I'd like to understand your business's activities better, to better understand your investment fund. When an entrepreneur tries to go into business by creating an SME, he is using his own funds, his savings, he calls on his family and his friends. He may also go to a chartered bank. I am talking here about the big banks that everyone knows. He may also go to the Business Development Bank of Canada, a parapublic organization whose mandate is to support SMEs and grant them loans. I think that there is a graduated approach to risk. The BDC takes more risks, of course, than a chartered bank.

Would you say that you take more risks than the BDC when it comes to SMEs and small investors? If that is the case, do you ask for a better return on the capital you invest?

[Michelle Scarborough]

I think we're talking about apples and oranges here. Let me reiterate what the organization does.

If we're talking about the National Angel Capital Organization, it's an organization that represents angels across the country. That doesn't mean the organization makes investments. The angel investors make investments. We have nothing to do with that. That is not the role of the organization. We will help those angels identify ways to develop best practices around how to make those investments, but we do not get in the way of their making investments. That's an individual and/or angel group decision that is totally independent of the National Angel Capital Organization specifically. I hope I'm clear with respect to that.

As it relates to BDC, BDC's role is to be the bank for entrepreneurs and to facilitate that through its lines of business. Angels work complementarily with BDC. We have a very good working relationship with the BDC at the National Angel Capital Organization level. And BDC is forging great relationships with angels across the country through a variety of mechanisms they are employing. So I would suggest we are becoming very good partners—BDC, the National Angel Capital Organization, and the angel members of the organization.

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

Thank you.

[Michelle Scarborough]

I hope that answers your question.