Government Operations Committee on Nov. 3rd, 2011

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Hayward.

That concludes our first round of questioning, and we'll go right into our second round.

For the NDP, Ève Péclet.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Thank you, Mr. Chair.

I thank the witnesses for being here today.

Mr. Patterson, in your presentation, you said it was difficult to get federal government contracts.

As to you, Mr. Hayword, you talked about a

struggle to commercialize that technology, finding the resources to do it.

The federal government website promotes a service that helps SMEs bid for federal requests for proposals.

I would like both witnesses to deal with impacts. It is a known fact that Canada will soon sign a free trade agreement with the European Union. European companies will be allowed to bid on requests for proposals of the Canadian government.

What is it the Office of Small and Medium Enterprises can do to help SMEs compensate the impact of this opportunity that will be awarded to European companies to bid on federal contracts? What will be the impact of this competition between Canadian and European companies on SMEs?

[Capt Anthony Patterson]

I can speak to that from our oil and gas experience, because our main competitors are all Europeans and we beat them. If they want to come to Canada, we'll beat them here.

The issue, though, is a small company against a big company in a procurement system that I think heavily favours a bigger company because of the lower risk factors. I think if you're going to let the smaller companies flourish in bringing new technologies to market in Canada, there has to be a way, like the CICP program, or some other mechanism, where you can offset some of the risks that some of these departments will take, in taking a risk in dealing with a smaller company.

But head to head, technology to technology, person to person, we can beat the Europeans.

[Dr. Geoff Hayward]

I'd almost want to echo every single word the captain just said.

I'm not so worried about the Europeans, but it is a challenge competing against some of these enormous companies that have many representatives already embedded within the federal government that have established relationships. I take it as a given that my technology or product not only has to be better, it has to be drastically better than the products that are available from these large companies, or we have absolutely no chance at all. We must prove that we're vastly better than the products available from the large companies.

These companies are all multinational, whether they're European or...it doesn't really matter.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

My question was on SMEs.

Last Tuesday, a witness told us 43% of SMEs were bidders and were getting government contracts.

Do you think SMEs will be able to maintain this 43%?

With free trade with the European Union, the government will be bound to give the contract to the lowest bidder. Do you think SMEs will be able to keep their current share of 43%?

[Capt Anthony Patterson]

I think it still comes down to economies of scale for big companies versus small companies.

Where the larger companies can have an advantage is if there are layers upon layers of due diligence, risk, bonds, or whatever, just added on top of contracts, or you bundle a bunch of smaller contracts into one super contract. That is a huge disadvantage for smaller players. They just can't get in there. Even if their technology for a piece of it is better, just to address all of the issues...they just can't do it.

[Dr. Geoff Hayward]

I think the challenge is that a lot of the RFPs are designed with the capabilities of larger companies in mind. Again, yes, it's very challenging for a little company to break in.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Do I have a little more time?

[The Chair, NDP, Pat Martin]

You have about 30 seconds, Ève.

It's about 10 seconds now.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Okay. So much time....

[The Chair, NDP, Pat Martin]

I'm afraid you're out of time.

Thank you very much, Ève. I appreciate that.

Bernard Trottier, five minutes, please.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for coming in.

Recently there was a report that came out, which you may or may not have had the opportunity to read, called “Innovation Canada: A Call to Action”, otherwise known as the Jenkins report. It talks about innovation and research in Canada, and one of the things they talk about is the CICP program, kind of echoing some of the things you talked about, where I think you both had very positive things to say about CICP. It's an effective way to improve commercialization and it helps get Canadian SMEs to the next level.

I guess you concur with the general statement in the report--and maybe you could affirm that--that you'd like to see the CICP continued and perhaps expanded. Is that correct?

[Dr. Geoff Hayward]

Absolutely.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Absolutely. I didn't want to put words in your mouth.

In terms of the demand-pull measures, can you talk about the parts of CICP that need to be expanded more and the parts of CICP that maybe don't need to be expanded as much, if you thought about the program holistically? I know you've had some limited exposure to it, but could you give us some feedback on CICP and where you would like to see it expanded?

[Capt Anthony Patterson]

In the CICP program itself, this idea of being able to do follow-on contracts for successful demonstrations I think would be a very good expansion to put in.

The second one is not really related to CICP; it's related to export. On our side we're going to make the money on the export to other countries. You have the Canadian Commercial Corporation as an excellent vehicle to do that sort of thing. So it may not be exactly a CICP-like thing, but maybe there's what you could call an insurance policy for CCC that they could draw upon and take a risk with smaller companies with new technologies, and then they can help us, bring us to the foreign markets.

I think those two things would be the things I would vote for.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Thank you.

Mr. Hayward.

[Dr. Geoff Hayward]

I'm at a little bit of a loss, because, to be honest, we're at a critical stage. We have completed successfully the phase one and phase two testing. We're about to start a commercial deployment, or you would say a production deployment, of our product with Shared Services Canada. If that goes well we believe there will be follow-on business. So it may be that we have managed to traverse that very difficult chasm that separates a small business from opportunities within the federal government. We don't know yet.

At this point I would say that CICP has given us an enormously important helping hand, and we hope that no further helping hands are necessary.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Thank you.

Just expanding a bit, you have products, but usually in the wake of products that you've developed comes a variety of services. Could you describe your companies in terms of how much of your revenue is services versus product? In your case, software is considered a product.

[Capt Anthony Patterson]

Sure. The company survived from our starting days until the middle of this year on services. That was 99% of our revenue; it is for services. We were in an intense R and D phase to take our IP and productize it. This year has been the crossover year, primarily through sales to the offshore oil and gas industry, where now product sales are surpassing our services sales. But in our early history it was absolutely services.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

What about you, Mr. Hayward?

[Dr. Geoff Hayward]

Primarily product; I would say 80% to 90% product.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Captain Patterson, you mentioned how St. John's, where your company is based, is becoming this fountainhead of talent, and you're able to export your talent around the world and then go into other markets and provide that service and expertise.

Are there certain elements of CICP that allow you to export that talent, on that services basis, to go out there and conquer those markets?

[Capt Anthony Patterson]

I'll be honest with you. St. John's is at a crossroads because of the oil and gas industry. The oil and gas industry is more likely to take a chance with new technologies and new products, and they're a global industry. That is the launch pad where most Newfoundland companies are moving. They prove themselves in oil and gas, and then they cross over into the harder market, which is the government market. You have to have a lot of intestinal fortitude to go into government procurement.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

And deep pockets.

[The Chair, NDP, Pat Martin]

Mr. Hayward, did you have anything to add to that?