Government Operations Committee on Nov. 2nd, 2017

[The Chair, Conservative, Tom Lukiwski]

Colleagues, even though we do not have a full complement of committee members, we do have a quorum, and it being 11 o'clock, I'll call the meeting to order.

I want to welcome all of our guests with us here today. They are, from Public Services and Procurement Canada, Matthew Sreter, and from Global Affairs Canada, Ana Renart and Pierre Marier. Also, from the Canadian International Trade Tribunal, we have Peter Burn and Eric Wildhaber.

Thank you all for being here. I think you're all aware of how this committee works and committees that you've appeared at before have worked. We'll start with opening statements from all of our guests. We'll then go into questions from the committee members, starting with a seven-minute round and subsequent questions until the two hours has expired. My understanding is that all of you are available for the full two hours, and we thank you for that.

With no further ado, we will start with Public Services and Procurement Canada.

Mr. Sreter, go ahead, please.

[Matthew Sreter, Executive Director, Strategic Policy Development and Integration, Department of Public Works and Government Services]

Good morning. Thank you, Mr. Chair and committee members.

My name is Matthew Sreter. I'm the executive director of the strategic policy development and integration directorate for the acquisitions program at Public Services and Procurement Canada, PSPC. Thank you for the opportunity to appear today to discuss public procurement obligations under Canada's trade agreements.

PSPC is committed to fair, open, and transparent procurement that delivers the best value to Canada and, whenever possible, does so in a manner that promotes competition. To maximize benefits for Canada and to provide more opportunities for Canadian suppliers, Canada has negotiated access to foreign government procurement markets through rules-based international trade agreements. These agreements greatly expand the marketplace for Canadian goods and services.

Several of Canada's trade agreements include commitments regarding government procurement. These trade agreements contain obligations for federal procurement activities conducted by PSPC, making compliance with these trade agreement obligations necessarily complex and technical.

Canada and its partners agree to abide by substantive obligations and procedural rules, including obligations to ensure non-discrimination and national treatment, as well as market access commitments. Non-discrimination and national treatment principles essentially require PSPC to treat the goods, services and the suppliers of a party no less favourably than the treatment it provides Canadian goods, services and suppliers. Likewise, other parties must do the same in respect of Canadian suppliers.

The agreements also contain a variety of principles that require a certain level of fairness. Most of our trade agreements contain transparency provisions that call upon governments to make information concerning domestic law, regulations, policies, and administrative procedures readily available to domestic and foreign businesses. These include the requirement for notices and trade documentation regarding individual procurement transactions, the requirement for award information for participating suppliers, with explanations supporting the award, and the obligation that the procurement was conducted fairly, impartially, and in accordance with the agreements.

PSPC ensures that its policies and standard contract clauses, including information related to procurements themselves and procurement awards and statistics, are available and accessible to the public on its website.

While other core obligations do apply, ensuring that regulations and measures taken are transparent and not discriminatory is the simplest way to reduce the risk of trade issues arising.

Other procedural rules designed to enhance transparency and fairness include conditions for participation by suppliers; rules for notices; the content of tender documentation; rules on qualification of suppliers and participation; procedures for treatment of tender documents, contract evaluation, and the awarding of contracts; the circumstances for the use of limited tendering, applicable time periods, and the publication of contract award information, among other things.

For example, under the trade agreements, procuring entities may award a contract without soliciting bids only if one or more of the limited tendering reasons stated in each applicable trade agreement can be applied (e.g. in the absence of tenders in response to an open or selective tender, or when the tenders submitted have been collusive), provided that limited tendering is not used to avoid maximum possible competition or in a manner which would constitute a means of discrimination.

Technical specifications ensure that procuring entities publish information on their procurement opportunities and provide prospective suppliers with all the information necessary to prepare and submit bids. This includes a description of the good or service, conditions for participation, evaluation criteria, performance requirements, etc. PSPC does this via its Buyandsell website.

PSPC must also notify participating suppliers of contract award decisions and, upon request, provide an explanation to an unsuccessful supplier for the reasons it was not selected. Provisions pertaining to the qualification of suppliers permit parties to maintain supplier registration systems for use during procurement processes in order to reduce time needed to complete the procurement process. There are also provisions requiring us to provide suppliers with sufficient time to prepare and submit requests for participation and responsive tenders. Usually this is no less than 40 days, with some exceptions provided in the agreements.

While these obligations are rigorous, they also ensure procedural fairness by providing a clear set of rules to which parties need to comply, and reinforce PSPC's core values of openness, fairness and transparency.

However, the rules do not automatically apply to all procurement activities of each party. Rather, coverage schedules play a critical role in determining whether a procurement activity is covered by an agreement or not. Coverage schedules vary by agreement.

For all trade agreements, PSPC is required to comply with the specific procedures of each applicable trade agreement when completing certain procurements. Therefore, a decision must be made as to whether or not the procurement is subject to a particular agreement or to a combination of agreements.

To determine whether a particular agreement is applicable, the agreement must be consulted. When the procurement is covered by more than one agreement, all agreements must be complied with. Compliance with these obligations is ensured by provisions for recourse and dispute settlement between parties and domestically. At the federal level, the Canadian International Trade Tribunal acts as the main bid challenge authority for Canada. Canadian suppliers can also take any of their challenges to federal or superior courts.

As you can see, the rules and market access commitments of trade agreements place limitations on how government procurement can be used. For instance, international trade agreements limit the ability to use government procurement to promote Canadian industries and also prohibit domestic content requirements to procurements when the trade agreements apply.

However, trade agreements do provide opportunities for parties to leverage procurement spending to pursue government priorities and encourage social and economic development opportunities. As long as procurement requirements comply with non-discrimination and national treatment as well as other obligations of the agreements, procurement spending can be leveraged for social and economic development opportunities.

For procurements covered by trade agreements, it is possible, under certain circumstances, to remove them from coverage, such as use of the National Security Exception, and set-asides. As well, there are many procurements under threshold or relating to goods or services not covered by the agreements, which would therefore also not be subject to the procedural obligations.

I will briefly explain how PSPC uses these provisions.

The national security exception, which I understand this committee has previously reviewed, allows Canada to exclude a procurement from some or all of the obligations of the applicable trade agreements. The invocation of an NSE, or national security exception, is not intended to restrict competition—quite the opposite. For PSPC, over the past three fiscal years, 65% of contracts awarded under a national security exception were competitive. This represents 86% of the total value of all contracts awarded under the national security exception.

Another provision of trade agreements is the set-asides. Currently all trade agreements, with the exception of Canada-European Union Comprehensive Economic and Trade Agreement, allow set-asides for small or minority businesses, including indigenous businesses. However, the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA, allows for set-asides for indigenous businesses. If a set-aside provision is invoked, the procurement is removed, i.e. set aside, and therefore is not subject to the obligations of the trade agreement.

With the introduction of the Canadian Free Trade Agreement, which entered into force this summer on July 1, 2017, small business set-asides are now permitted, provided that they are part of a small business set-aside program and that they are fair, open, and transparent. All Canada's trade agreements allow set-asides for aboriginal businesses. Therefore, procurements that are set aside for aboriginal businesses under the procurement strategy for aboriginal business, PSAB, are excluded from trade agreements, making the obligations non-applicable.

Canada can also leverage procurement spending to pursue government priorities and encourage economic development opportunities when goods and services are not covered by trade agreements or when procurements fall under the monetary applicable thresholds. In these instances, Canada is able to apply criteria that would not be allowed under the trade agreements, such as domestic preference criteria.

Some initiatives that give preference to Canadian businesses include the Canadian Content Policy and the Build in Canada Innovation Program. The Canadian Content Policy encourages industrial development by requiring domestic content in procurements not covered by trade agreements, for example, defence-related procurement or procurements under threshold.

PSPC's Build in Canada innovation program helps Canadian businesses bring their innovative products and services to market. As BCIP relates to research and development services, it is not subject to the obligations of trade agreements.

[The Chair, Conservative, Tom Lukiwski]

Mr. Sreter, I'm sorry to interrupt, but we're considerably over the time now. Could I get you to wrap it up as quickly as possible, please?

[Matthew Sreter]

It's fortuitous, Mr. Chair.

In closing, I hope—

[Voices]

Oh, oh!

[Matthew Sreter]

—I've been able to clearly outline PSPC's obligations vis-à-vis the complex web of international trade rules.

Thank you for the opportunity to speak to this matter. I look forward to your questions.

[The Chair, Conservative, Tom Lukiwski]

It's all about timing.

[Matthew Sreter]

It is. Well said.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Go ahead, Madam Renart, please.

[Ana Renart, Director General, Market Access, Department of Foreign Affairs, Trade and Development]

Good morning.

My name is Ana Renart. I'm the director general of the market access bureau in the trade policy and negotiations branch of Global Affairs Canada. I am joined today by Pierre Marier, who is the director of the government procurement, trade, and environment division of Global Affairs Canada.

The trade policy and negotiations branch is responsible for negotiating international trade agreements both in a multilateral context, such as at the World Trade Organization, the WTO, and in a bilateral or regional context, such as NAFTA or the Canada-European Union Comprehensive Economic and Trade Agreement, the CETA. We do this with the help of experts in other government departments.

As part of Canada's international trade agreements, we seek to secure new market access opportunities for Canadian businesses in a broad range of areas, one of which is government procurement.

As mentioned, we work very closely with other departments when negotiating trade agreements. With regard to GP—government procurement—we work closely with our colleagues at Public Services and Procurement Canada, for example, as well as the Treasury Board Secretariat.

Today, I will provide an overview of Canada's government procurement commitments in its international trade agreements highlighting in particular those obligations of relevance to small and minority-owned businesses.

Canada is a founding party to the WTO agreement on government procurement, the GPA, which first entered into force in 1981 and was revised several times since. The most recent revision took effect in 2014. Today, the GPA includes 47 WTO members, including major economies such as the United States, the European Union, Japan and Korea. The rules set forth in the GPA serve as the basis of Canada's government procurement obligations in regional and bilateral free trade agreements.

Most of Canada's regional and bilateral trade agreements include commitments on government procurement. Such commitments are included in Canada's agreements with the United States and Mexico, Chile, Peru, Colombia, Panama, Honduras, Korea, Ukraine and the European Union.

The primary objective of negotiating free trade agreements, including government procurement commitments, is to provide Canadian businesses, including small and medium-sized enterprises, with increased opportunities, including access to government procurement in foreign markets.

Canada's approach to government procurement in trade agreements is based on four key principles: non-discrimination, transparency, impartiality, and accountability. These principles are reflected in the procedural rules in all of Canada's international trade agreements with government procurement obligations.

Provisions on non-discrimination ensure that the treatment granted by a procuring entity towards foreign suppliers is no less favourable than the treatment granted towards domestic suppliers. Transparency provisions require the publication of certain laws, regulations, and policies, as well as information on contracting notices, tender documentation, and award notices. Impartiality-related requirements stipulate that all participants in the procurement process must be treated fairly, and accountability provisions ensure that participants have access to bid challenge mechanisms in the event of a dispute.

The opportunities created by government procurement commitments in FTAs are significant. Under the WTO's Agreement on Government Procurement, for example, Canadian suppliers have preferential access to procurement activities worth an estimated $2.2 trillion annually. Under CETA, Canada has secured access to over $450 billion worth of procurement activities. Under Canada's agreements with the U.S., Canada has preferential access to an estimated $1.1 trillion worth of procurement activity. In other words, FTAs with GP commitments, general procurement commitments, allow Canadian companies the ability to compete for many more opportunities than just those available in Canada, and they allow this in a fair and predictable way.

While seeking increased market access for Canadian suppliers into foreign government procurement markets, these trade agreements are also subject to a number of exceptions that provide flexibility for Canada to carry out certain domestic policies or achieve socio-economic objectives. For example, Canada is not prevented from undertaking procurement policies that it considers necessary for the protection of its essential security interests, even if these would otherwise contravene the trade agreements. Also, Canada's international procurement obligations do not prevent Canada from applying specifications related to the good or service being procured that promote the conservation of natural resources or the protection of the environment, or socio-economic development opportunities for socially or economically disadvantaged people, so long as this is not done in a discriminatory fashion or as a disguised restriction on international trade.

In addition, certain sectors are excluded from Canada's international government procurement obligations, including health and other public services, research and development, shipbuilding, and culture. Furthermore, essentially all of Canada's international trade agreements include provisions that allow procurements to be set aside, as described by my friend Matthew, for small and minority-owned businesses.

Without exception, all of Canada's international trade agreements with procurement obligations include provisions that would allow domestic procurements to be set aside for aboriginal businesses. These provisions allow Canada the flexibility to carry out the procurement strategy for aboriginal business, which was launched in 1996 and aims to foster aboriginal business development through the use of federal procurement contracts, while remaining consistent with international trade obligations.

With respect to exceptions that are specific to SMEs, only the Canada-EU CETA does not include an exception for set-asides for Canadian SMEs. However, at over $200,000, the CETA thresholds for goods and services are the highest that Canada has in any of its international trade agreements.

Contracts that fall below this threshold are not subject to CETA procurement obligations, so procuring entities have full flexibility to carry out procurements in a manner that helps to achieve domestic policy objectives, including facilitating SME participation in procurement, should they desire.

In the context of current trade negotiations, Canada is pursuing progressive provisions that recognize the importance of international trade's contribution to broader economic, social and environmental policy priorities. This includes progressive provisions in the area of government procurement.

Thank you for your time, and we would be happy to answer any questions you may have regarding Canada's government procurement obligations in its international free trade agreements.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Burn, go ahead.

[Peter Burn, Member, Canadian International Trade Tribunal]

Thank you, Mr. Chairman.

I have prepared remarks, but I will attempt to avoid repetition as I go through, so I will go a bit more slowly.

Thank you for this opportunity to appear before the committee today.

My name is Peter Burn. I am one of the seven members of the Canadian International Trade Tribunal. We are supported by a secretariat of approximately 50 professionals: lawyers, economists, financial analysts, registry and editing officials, and the like. One of them is here with me today. Joining me from the CITT secretariat is Mr. Eric Wildhaber. That's Swiss French, not Swiss German, I believe. If you're from the north, it would be pronounced differently. Eric is senior counsel in the administrative tribunals support service of Canada. He is one of Canada's foremost experts in the field of procurement review law.

We are available to answer questions in both languages, but I will ask Eric to be the lead in French, because he is fluently bilingual.

I am pleased to provide the committee with some context for its deliberations on small and indigenous business set-asides.

First, let me describe who we are and describe our mandate. The CITT is an independent, quasi-judicial body with the powers of a superior court, which reports to Parliament through the Minister of Finance. We are mandated to act in five areas.

First, we are mandated to inquire into and decide whether dumped and/or subsidized imports have caused, or are threatening to cause, material injury to a domestic industry. The CITT conducts the injury inquiry, and the CBSA—the Canada Border Services Agency—determines the existence and level of dumping and/or subsidization. Our American counterpart for this mandate is the International Trade Commission, the ITC.

The second concerns safeguard inquiries, which is, again, an ITC function in the States. Here, we inquire to determine if goods are being imported into Canada in such increased quantities and under such conditions as to be a principal cause of serious injury or threat to the domestic producers of like goods.

The third mandate concerns inquiries into economic and tariff matters as referred to us by the GIC or the Minister of Finance.

The fourth involves customs and excise appeals. We hear and decide appeals of decisions of the CBSA made under the Customs Act and SIMA, the Special Import Measures Act, and of the Minister of National Revenue made under the Excise Tax Act. Here, our American counterpart is the Court of International Trade in New York City.

Finally, we come to our fifth mandate, which is why we are here today—our role as the designated reviewing authority for certain federal procurements pursuant to the various trade agreements that were named earlier. For this mandate, our U.S. counterpart is the Government Accountability Office, or GAO.

You'll note I said “certain procurements”. That's because our review power covers only those federal government contracts that qualify as “designated contracts”—that is, contracts above a certain value, issued by a listed entity of the federal government, and involving a listed good or service. In other words, there are many lower-value federal contracts outside of CITT's jurisdiction and beyond the disciplines of trade agreements. The Office of the Procurement Ombudsman has certain responsibilities for those under the CFTA, formerly known as the AIT, the Agreement on Internal Trade.

Beyond our jurisdiction as well are procurements by subnational governments. You will know that the provinces have taken on procurement obligations in both CETA and the CFTA. As a party to CETA, Canada has committed to ensuring that our subnational governments respect their CETA commitments and has agreed to create one or more procurement review authorities. We'll have to see how that develops, whether we have one or 11, or how that goes.

Under CITT's procurement mandate, we receive complaints from companies and individuals dealing with the federal government who feel that they have been improperly or unfairly treated during the course of a procurement process. We receive about 70 procurement complaints annually, and we endeavour to provide a fast, cost-effective, fair, and transparent review. It's a file hearing; nobody has to come to Ottawa. Those are reviewed for both domestic and foreign suppliers, many of whom are small and medium-sized businesses.

When we determine that a complaint is valid, we recommend to the government one of a range of remedies as we consider appropriate, and we can also provide the deputy head with comments and observations on the process. By legislation, recommendations are to be implemented to the greatest extent possible.

On the issue today, small and indigenous businesses, an annex in NAFTA explicitly states that the procurement chapter does not apply to procurements in respect of “set-asides for small and minority businesses”. Those are practices that began in the United States well before NAFTA, the small business set-aside back in the 1950s and the minority program for businesses owned by African Americans and Native Americans in the amended statute in the 1970s.

The Small Business Act in the U.S. states that small businesses should receive a “fair proportion” of federal contracts, and that small businesses and small minority-owned businesses should have the “maximum practicable opportunity”, so there is lots of scope. The small business set-aside provides that opportunity by requiring most contracts with an estimated value of more than $25,000 and less than $150,000 to be awarded to small businesses, with “small” defined in relative terms within each sector. I don't know what a small oil company is.

[Kelly McCauley, Conservative, Edmonton West, AB]

It's what used to be a big oil company.

[Voices]

Oh, oh!

[Peter Burn]

Exactly. Well put.

In addition, contracts of larger size can be set aside if the contract officer thinks there are at least two small businesses that can do the job, so the discussion is down at the contracting authority, and I don't know how that happens. Furthermore, larger contracts awarded to larger businesses must have small business subcontracting plans.

Those are the three ways in which the small businesses are scaled up in the U.S.

In Canada, there is no sweeping federal procurement program in place that's similar to that. I cannot speak for today and I don't want to, but I was involved way back in the Canada-U.S. Free Trade Agreement days. I think it's safe to say that our objective was to help more firms develop competitive scale and capacity. We were looking to blow open markets in the United States, and we weren't looking to show the Americans in any way that we were undermining Canadian firms' access at the time. We were never really looking to actually implement the small business set-aside; we were trying to get into their market. However, we're a much bigger economy today, so things could be different.

We also realized way back that a large Canadian business was actually equal to a small American business, so we didn't know what a small Canadian business was for purposes of procurement. That was back then.

To date, successive governments have chosen to implement a wide range of other measures and not a small business set-aside. In the NAFTA procurement chapter, there was the creation of a committee on small business with the United States, which was intended to promote government procurement opportunities for small businesses in a variety of ways. I would recommend reading that.

Small business set-asides have been attempted at the provincial level. As was noted earlier, article 504.13 of the CFTA allows for small business set-aside programs, provided the program is fair, open, transparent, and does not discriminate on the basis of the origin or location within Canada from where the goods or services are supplied. In other words, small versus large is okay, but not local versus others.

There is also a very interesting CETA annex that I recommend to the committee. It lays out the acceptable limits on local preferences supporting development in the non-urban areas of certain have-not provinces. It essentially says that—not Ontario, because I think Ontario has left that category again—the normal, the other have-not provinces, are allowed 10 procurements a year to develop outside the urban areas—that is, outside Halifax, Moncton, etc.—of less than $1 million. This is one to watch. I don't understand how that works in to the others. We'll have to wait and see.

We have much more explicit indigenous set-asides. In all, it's moved from “minority” set-asides, when we said that's what “minority” meant for Canada. Now there are quite clear, quite broad indigenous set-asides. Suffice it to say that because of those, the tribunal has ruled that when such provisions are invoked, the tribunal does not have jurisdiction and will not conduct an inquiry. Instead, as stated in the Government of Canada's supply manual, “Bid challenges [by suppliers for the procurement strategy for aboriginal businesses] should be dealt with according to established internal supplier complaint response procedures for procurements not subject to trade agreements”, so on the indigenous side, it's quite clear.

That concludes my remarks. I hope I caught everything without being too duplicative.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much to all of you.

We'll start with our seven-minute round of questioning, with Mr. Whalen first.

[Nick Whalen, Liberal, St. John's East, NL]

Thank you very much, Mr. Chair, and thank you all for coming in to educate us on the implications of the trade agreements that Canada has and how they affect its domestic supply arrangements with small and medium-sized enterprises and aboriginal groups.

I have many questions, and so I imagine we'll have a long and interesting conversation here today.

In terms of the transparency piece, Canada presumably reports not only on the thresholds but also on what percentage of federal government contracts are earned by foreign companies. Then, do foreign countries provide the same in terms of transparency on how often Canada is able to access foreign procurements so that we can compare and see whether or not we've been successful?

Ms. Renart, is that the case? Is this information publicly available? How are we doing with foreign purchases in our government procurement opportunities versus Canadian supply to foreign purchases?

[Ana Renart]

I think I'll let the first part of the question be answered by Matthew, my colleague from PSPC, about domestic procurement.

With respect to tracking foreign procurement, it is a very good question. Unfortunately, most governments don't necessarily report on that, and we don't track our exports. We can tell you anecdotally about a number of types of procurement that we compete with abroad. With regard to anything to do with engineering services, environmental services, clean tech, or public transit companies, we compete very well in the U.S., the EU, and in Asia, but it is anecdotal. It's not something that we can track easily. Again, it's not something that other companies widely report on.

[Nick Whalen, Liberal, St. John's East, NL]

I guess we're looking at the global trade balance, and somewhere in the mix is government procurement. At least that aspect is not transparent. I guess if it was, it might drive protectionism a little bit. It would be nice to know, just so you can make good decisions.

Mr. Sreter or Mr. Marier, I'm not sure who's going to answer the other question, the internal Canadian part that we report internally for our own purposes.

[Matthew Sreter]

We do have a number of means by which we report. The first is on our public-facing website. We do have some statistics available under the PSPC public-facing website. We also have statistics available through Treasury Board Secretariat as part of their open data initiative.

In terms of the reporting requirements internationally, we're reporting value, but we don't identify origin within that reporting framework.

Within domestic reporting mechanisms, you would be able to see and do some analysis on who was awarded what contract and try to look at the country of origin. However, those are not required internationally at this point in time.

[Nick Whalen, Liberal, St. John's East, NL]

I just think it would be helpful to understand the scope, the ability, and the success of this. I guess there might be political reasons, but it would be nice to know what the answers are.

[Peter Burn]

Could I just add something from a quasi-judicial point of view?

The word “transparency” more relates to a due process question than to information afterwards. It's to the parties in the contracting dispute. They know there's procurement that is fair and open to all parties, so I think transparency mainly relates more to the question of the fairness of the actual procurement process.

[Nick Whalen, Liberal, St. John's East, NL]

Okay. You're saying it's not after reporting.

In terms of the different programs we have, it's pretty clear from Mr. Burn's comments that there's a real difference, of course, in what “small” means in Canada versus the U.S. You see it on the patent file side. They have a micro that would be our small, and a small that would be our medium, and the large, and up to 500. They've got some very good metrics there to determine those things. It's very open and transparent, but it's also nine times the size of our market.

When we're looking at programs that drive innovation purchasing, particularly on BCIP, how does the American program...? My understanding is that each federal government department in the U.S. is required to do a certain amount of innovation purchasing, as opposed to BCIP, which is a dollar value set aside for government to engage. Do we have a comparison on those two programs? This is open to all of you. Which one works better? Is one more or less trade compliant than the other? How does the American version of BCIP, their innovation purchasing program, compare to ours? Can ours can be expanded within the scope of our trade arrangements? Is it already as broad as it can be?

I want to get a sense of where the scope is for us to improve or grow programs that Canadian businesses feel are working.

[Matthew Sreter]

Perhaps I'll take the lead.

Up until July of this year, we were restricted as government from exploring the use of set-asides for small and medium-sized enterprises to further Canadian programs, because the agreement on internal trade simply did not allow for set-asides for small and medium enterprises. Now that we have in place the CFTA—the Canadian Free Trade Agreement—you have government looking at the options to utilize a small business set-aside, including BCIP and Innovative Solutions Canada under ISED. We're looking at what options exist that allow us to more fully explore the use of that set-aside to promote Canadian business, not only for R and D—research and development—but also for the follow-on sales you are alluding to.

In terms of what the U.S. does versus what we do, the U.S. does not have that type of internal restriction, so they employ small and medium-sized enterprise set-asides in two general ways. One is under their simplified acquisition thresholds. Federal department procurements that are under $150,000 are set aside to small businesses at large. Another mechanism they employ is the SBIR program, their small business innovation program. Under that program, they have identified that innovation for purposes of small business set-asides is not only the research and development but also the follow-on sales—the first sales, if you will, or the commercial sales, that are then given to U.S. government departments and agencies.

You referred to quotas. I understand that there are quotas in existence that also vary by department and agency. I understand that those quotas are not always attained, however, but the small business set-aside is being used by the U.S. quite frequently.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. McCauley, you have seven minutes, please.