Government Operations Committee on Dec. 10th, 2013

[The Chair, NDP, Pierre-Luc Dusseault]

Good afternoon, everyone. Welcome to the committee's ninth meeting.

As our agenda indicates, we will first hear from Mr. Sobrino and Mr. Gray, from the Department of Public Works and Government Services. They will speak to the mandate and activities of the Build in Canada Innovation Program.

You have 10 minutes to make your presentation. The committee members will then ask you questions.

Thank you for joining us today. Without further ado, I give you the floor.

[Pablo Sobrino, Associate Assistant Deputy Minister, Acquisitions Branch, Department of Public Works and Government Services]

Thank you, Mr. Chair.

Good afternoon.

I'm very pleased to reappear before you today to discuss the Build in Canada innovation program, which was known as the Canadian innovation commercialization program the last time I appeared.

I am Pablo Sobrino, the associate assistant deputy minister for the acquisitions branch at Public Works and Government Services. I am accompanied by Mr. Desmond Gray, the acting director general who's overseeing both the office of small and medium enterprises and strategic engagement, as well as the services and specialized acquisitions management sector of the acquisitions branch.

The Canadian innovation commercialization program, or CICP, was launched as a pilot program in Budget 2010. It was created to bolster innovation in Canada's business sector. The program helps companies to bridge the precommercialization gap by procuring and testing late-stage innovative goods and services within federal departments and agencies. The feedback they receive during testing helps businesses to move their innovations to the marketplace.

For a small pilot, the CICP was well received, with 967 proposals from businesses across Canada and 84 innovations prequalified for testing.

The program has also seen support from other parties, including this committee. An Office of Greening Government Operations report released in November 2011, entitled “Effectiveness of the Office of Small and Medium Enterprises and the Canadian Innovation Commercialization Program”, recommended that Public Works and Government Services Canada consider making the program permanent.

In addition, an expert panel on research and development, chaired by Tom Jenkins, also recommended making this program permanent as part of their October 2011 report entitled “Innovation Canada: A Call to Action”. The report, which examined how to strengthen the impact of federal investments in support of a more innovative economy, further noted that programs such as the CICP could be used to develop capabilities essential to Canada's emerging defence and security needs.

Following these recommendations, and to build on the early success of the pilot program, budget 2012 committed to making the program permanent and to adding a military procurement component, which will be phased in gradually. By 2016, the program will be allocated $40 million annually, with funding split evenly between the standard and military components.

The permanent program was renamed the Build in Canada innovation program, or BCIP, to better market the program to Canadian businesses and government departments. The BCIP will continue to work with Canadian businesses to match their innovative goods and services, with federal departments and agencies to provide testing and feedback.

I would now like to take a moment to briefly outline some of the details of the program.

The program employs an open approach to its calls for proposals, referred to as a “supply push” approach, with broad priority areas allowing Canadian businesses to propose an innovation without specifically knowing where it will be tested. This approach is effective because businesses are able to propose an innovation based on its features and benefits rather than strictly in response to a pre-identified need. This is particularly beneficial to small and medium enterprises as well as to businesses in regions where government does not have a large presence, because they do not need to possess extensive knowledge of government and its needs in order to participate in the program.

The four broad priority areas of the standard component of the program are the following: environment, health, safety and security, and enabling technologies. The newly added military component, which was introduced in the fourth call for proposals that launched on November 21, includes a single priority area—protecting the soldier. As the military component is phased in over time, and its budget expands, future calls for proposals will introduce additional priority areas.

The competitive call for proposals process requires Canadian businesses to submit information on their innovations, their business plan, and their testing requirements. The evaluation process is completed in three stages.

The first stage of the evaluation is completed by Public Works and Government Services Canada and serves to verify whether each proposal is in compliance with the mandatory criteria. These include whether the business is Canadian; whether the proposed innovation includes 80% Canadian content and is at the appropriate stage of development for the program; and lastly, whether the proposal is under $500,000 for a standard component, and under $1 million for the military component.

Compliant proposals move forward to the second stage of the evaluation, which involves reviewing the following: the technology's level of innovation; the company's business plan; the innovation's marketing plan, and the benefits of the innovation to Canada.

This stage of the evaluation is carried out by the experts of the National Research Council's Industrial Research Assistance Programs—IRAP. Upon completing their evaluations, the IRAP experts provide Public Works and Government Services Canada with a ranking of proposals from the highest scoring to the lowest.

The third stage of the evaluation is completed by an innovation selection committee, comprising mostly private sector experts with relevant experience in innovation and commercialization. The selection committee reviews the top-ranked proposals to validate the conclusions of the second stage of evaluation.

This committee's 2011 report noted a concern with the membership of the committee and the level of access it has to businesses' information.

In response, our department has introduced a number of measures to ensure the integrity of this committee.

First, we have integrated entrepreneurs-in-residence from universities across Canada into the committee's membership to provide a balance of academic and private sector expertise. Entrepreneurs-in-residence are executives that bring real world business expertise to academic programs. They bring a unique perspective that balances private and public interests.

Second, to protect bidders' information, members of the selection committee are required to sign non-disclosure and conflict of interests agreements.

Third, members are required to recuse themselves from reviewing a proposal should they feel there is a real or perceived conflict.

Following validation by the selection committee, PWGSC selects the highest-ranked proposals based on available funding for that call for proposals. These bidders are notified of their pre-qualification and then we begin to search for a federal department or agency to test, evaluate, and provide feedback on their innovation.

To support this search the program works with pre-qualified businesses to identify potential test departments and to facilitate communications.

For innovations submitted under the military component of the program there will be a defence validation committee of personnel from the Department of National Defence, who will help to identify the most suitable organizations within their department to carry out testing.

Once a pre-qualified innovation and a test department are matched the contract negotiations begin and the specific details of testing are worked out between the business and the applicable department. In some cases negotiations will take into account the size and scope of the proposed test and the capability or capacity of the department to accommodate it.

The final step is issuing a contract that defines the final cost, the timelines, and expected testing outcomes. It is important to note that not every pre-qualified innovation is guaranteed a contract. Contracts are only issued when a test department is identified and terms of the contract can be agreed to.

To date we've awarded 67 contracts to Canadian businesses.

That concludes my presentation. We'd be happy to answer any of your questions.

[The Chair, NDP, Pierre-Luc Dusseault]

Thank you for your presentation.

We will now move on to questions from committee members.

Mr. Martin, you have five minutes.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Mr. Chair.

I'll take the first round. I may not use my entire five minutes. I'm interested in the development or the progress of what was the Canadian innovation commercialization program and what seems to be a creep or drifting, if you will, of its focus towards the military.

There's one comment I'd like you to flesh out a bit. You say the funding will be split equally between the military and the other priorities. Does that mean 50% for the military and 16% for each of the other three, or 25% each in your four categories of priority?

[Pablo Sobrino]

From the total program, 50% will go to the military and the other 50% across the standard components.

[Pat Martin, NDP, Winnipeg Centre, MB]

They get to divvy up what's left.

[Pablo Sobrino]

Yes. That program will be fully funded in 2016-17.

[Pat Martin, NDP, Winnipeg Centre, MB]

I guess I'm wondering about the rationale and how this develops. The last thing the world needs is more people building weapons.

The military industrial complex is pretty well served by some big actors. I'm just wondering how throwing $1 million at a start-up arms builder in Canada is going to be able to compete with Raytheon. I had to look up a phone number at Raytheon one time, and there's 80 pages in their phone book of people and departments, etc.

So my first question is, what is the rationale behind trying to jump into the arms race?

Second, what obligation is there to buy Canadian afterwards? My experience with the Canadian military buying Canadian has been appalling.

Let me give you an example to help you answer this question. The Canadian military needed some troop carriers, and Winnipeg arguably makes the best buses in the world. They needed 32 new buses and they ended up buying Mercedes-Benz ones, even though they were was less than half a percent cheaper. This was a big contract—a $15 million or $20 million contract. For less than the price of a set of tires, they decided to buy German and send a message to all of our NATO allies that if you want a good troop carrier, don't buy Canadian, buy German; that's what we do.

There's no buy Canadian component. Aren't we setting these companies up for failure in trying to convince them to build guns and arms here, when we take the lowest bid at all costs? Has that apparent contradiction been thought through?

[Pablo Sobrino]

I really can't comment on that contribution to the military industrial complex. What I can speak to is the rationale behind having a military component.

When the Tom Jenkins' report on innovation came out, and given our experience with the CICP...there have been a number of components under the security component that were really military-type applications, and it was a military testing department.

One of the issues that comes up is that—

[Pat Martin, NDP, Winnipeg Centre, MB]

Can you give me an example, Mr. Sobrino, of the type of applications you are getting that are more military than security?

[Pablo Sobrino]

One of them was a paint coating that was more environmentally friendly. A company out of Montreal had an innovation or had the view that they could use that paint coating for fighter aircraft. That was one example; we could pull out some other examples.

However, the idea is that the innovation had a military application. The opportunity provides these small companies, who really have not commercialized their products, to test their innovations and make a first sale—which is the main driver of this program—to the Canadian military. That's very useful for them as they develop their market. That is one piece.

The reason the value of it is up to $1 million instead of $500,000 is that most of the innovations that have a military application require quite a bit more development work to fit military specifications.

[Pat Martin, NDP, Winnipeg Centre, MB]

I would argue that health innovation is necessarily expensive too and needs a lot of support.

I guess what I'm getting at, without being critical, is my concern about the emphasis. Some 50% of the whole program going into a new upstart military section, and the other four categories have to argue amongst themselves for what's left. That includes the environment, health, and enabling technologies. These are important areas of research as well.

[Pablo Sobrino]

The value of the program is not diminished in any of those areas; it's the same program we had before. The government has added to the approach, up to an additional $20 million a year, which will be used to focus on military innovations.

[The Chair, NDP, Pierre-Luc Dusseault]

Thank you.

Mr. Martin, your time is up.

Mr. Trottier, you now have five minutes.

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

Thank you, Mr. Chair.

Thank you, Mr. Sobrino and Mr. Gray.

Mr. Sobrino, welcome back to the committee. It's good to see some progress in this program. We looked at the CICP two years ago, and there was some very positive feedback from some of the Canadian enterprises. Some of them were very small businesses that didn't even have cashflow, and yet they were talking about how this program was really effective. It gave them that springboard. It gave them that endorsement from the federal government to allow them to sell to other customers within Canada and even internationally. There was truly some success.

I think we have a lot of programs to foster innovation. We all know that's the future for our economy. It's not based on competing on the lowest prices, necessarily, but on being innovative and on being differentiated. If you look at things like research grants, and research chairs in universities, and tax credits, and the new venture capital fund, these end up adding up to billions of dollars. This Build in Canada innovation program is actually a very small program as compared with those other ones.

Could you talk about how this is different from those other things? How is this different from putting money into venture capital or putting money into research grants?

[Pablo Sobrino]

This is a program that works at the pre-commercialization phase. This is not a program to help a company access those kinds of funds. It is to take a company, when you divide the development of the technology or development of innovation, to kind of the final stages of that development.

Really, one of the reasons we changed the name of the program is that this commercialization piece is not what the program does. It is a pre-commercialization piece.

The program is there to take an innovation, an invention that is now functioning, and see whether it is suitable for testing within government. The reason we have that request from small and medium enterprises that do this kind of work is that a government buy, as your first buy, is the best tool to get you to venture capital commercialization and investment by interested investors, as well as sales abroad.

For many of these companies, they're interested in developing an export market. This is where they really want to push their innovations, some of which, of course, are things that can be delivered in Canada. Many are looking for export markets.

For example, we have one company back east that was working on a sensor for detecting oil droplets in water. Based on the work they did with, I believe, the Department of Fisheries and Oceans, and the testing they did and the successful use of the technology—they adjusted the technology based on those tests—they were able to develop a market in the oil business in the Gulf of Mexico to help with the detection of oil in the environment. Their business has increased. They're actually out there now, delivering.

So what we're doing is providing a place, a venue, where you can actually sell your first product, test it, maybe improve on it, and make it more available. That sale helps you in terms of marketing your innovation abroad.

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

Thank you very much.

The whole process is different from traditional government procurement, where a department would identify certain needs, put together an RFP, go out to the market, get different bidders to compete, and then eventually get to a contract. Here we're looking at some products that actually exist, and the question being asked of the government is whether they can use it, or whether there's an application for it in their area of need.

What kind of screens do you have in place to ensure that the government isn't buying things it doesn't actually need? You know, somebody might be enchanted by some new and innovative technology, but they might not actually need it. How do you ensure that?

[Pablo Sobrino]

This is one of the issues that has been raised about the program. We're there to make that one sale, to assist a company that has an innovative idea; whether we actually end up wanting to buy it is a decision the government will have to make.

The interesting piece is that once you have sold it and it now commercializes, you enter into the normal procurement world. You're not designated particularly. Certain rules might apply in the future, but generally that product's available on the market.

When you first get that, you do the testing. The testing department has to have some interest in the piece. They participate in developing that test to assess the equipment.

The next thing they have to do is to decide whether they could actually use that application in the future. In a number of cases, they have said, “Thank you very much. That's not something we will use in the future. We're glad to have tested it”. That is part of the process of introducing innovations; either you can use it or you can't.

We've had some surprising success in that some of those innovations have actually moved on to regular procurements for government, but in a lot of cases that innovation is then marketed commercially as opposed to within government. It's not that we're testing something useless. The program is about buying something and helping that innovator assess whether it's a useful thing. It's very much in the R and D world and not in the commercial procurement world.

[Desmond Gray, Acting Director General, Services and Specialized Acquisitions Management Sector, Department of Public Works and Government Services]

If I could just add one comment, I think it is very instructive to look at some examples. It's very interesting how this program has such a profound impact.

I can give you an example. We had a company that had offices in St. John's and Victoria. They had a product that was called a marine training simulator, which allows them to do a high-speed rescue craft simulation, just as you would do for aircraft, but for boats. Of course, the Canadian Coast Guard and Fisheries and Oceans were very interested in this, because in and of itself it's a very cost-effective way to test the functionality of these crafts.

What was very interesting is that this company was prequalified into the program before we had actually evaluated their product, before it had even come in, because of the fact that other companies had heard that the Canadian Government was putting them into this program and in a sense was purchasing this and giving this opportunity. They had four additional international contracts almost immediately. This is the leveraging power of the confidence of the Government of Canada in buying these products and services. It's instructive, not just to the businesses here, but also to companies, to leverage this internationally. This was very effective.

[The Chair, NDP, Pierre-Luc Dusseault]

Thank you. I have to stop you there and yield the floor to Mrs. Day for five minutes.

[Anne-Marie Day, NDP, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Thank you for joining us. I want to take this opportunity to wish happy holidays to you and your family, as well as to all public service employees who are working extremely hard, be it for us or for Canadians.

I will continue in the vein of the questions asked by my colleague Pat Martin, the NDP critic for this committee. He talked about the military component. You said that $20 million was added to the military component and that this accounted for 50% of the total. We can assume that a $20-million amount was allocated to the standard component, for a total of $40 million.

Research, development and innovation in the military field have helped develop tools that are just as practical in everyday life—such as the laser used in surgery. That is a very innovative field.

Besides that $20-million amount, was any other funding allocated to the military, or was that amount simply transferred from another department to this one, which our committee is responsible for studying?

[Pablo Sobrino]

The request for the $20-million amount was set out in the budget.

[Anne-Marie Day, NDP, Charlesbourg—Haute-Saint-Charles, QC]

Is this an additional amount?

[Pablo Sobrino]

It is an additional amount that comes from the finance minister's budget. The $20-million amount is an addition.

This request does not come from the research team of the Department of National Defence. This amount is set aside to allow private sector innovators to present their innovations to the military. The military is not asking for that money. The money is intended for private sector innovators who have ideas to present to the military for testing.

[Anne-Marie Day, NDP, Charlesbourg—Haute-Saint-Charles, QC]

Are you telling me that this was not being done in the past?