Good morning from Saskatoon. It's my pleasure to be here with you this morning over video to provide you with my words around how Canada needs to adjust and improve the current federal procurement tools for indigenous peoples.
First, let me introduce myself. My name is Sean Willy. I am president and CEO of Des Nedhe Development, English River First Nation's economic development corporation. I'm also co-chair of the Canadian Council for Aboriginal Business, but today I'm speaking from the perspective as a leader of one of Canada's tier one indigenous economic development corporations.
Just as a bit of context, I was born and raised throughout Canada's north. I was born in Inuvik and lived in Fort McPherson, Rankin Inlet, Nunavut, Yellowknife, and Saskatoon. I'm a proud member the North Slave Métis Alliance, with strong connections to my Métis and Denesuline roots. I grew up in a family with a Dene mother and a mining executive father. I'm proud to say that I started in the gold mines of the Northwest Territories as a local indigenous hire. So began a long and healthy career in the mining industry. I was last at Cameco Corporation, where I was the director of corporate responsibility. At Cameco I led all indigenous community engagement activities in Canada, the United States, and Australia for all their worldwide projects. This led to innovative approaches to indigenous engagement strategies and plans, and included negotiating six community-based agreements in Canada and Australia. One of the most successful community agreements was signed with the Denesuline community of English River, for whom I now work. I lead their economic development arm.
English River First Nation has had a long history of working with the mining industry in northern Saskatchewan. As in any relationship, it has its an ongoing partnerships, but what English River saw was opportunity. The community leaders saw that the world wanted and needed the world-class uranium deposits found on their traditional lands. They knew they could support this development and better their communities through the creation of a business geared toward the uranium mining companies. Over the past 25 years, this has evolved into Des Nedhe Developments, one of the most progressive tier one indigenous-owned and -driven entities in the country.
Des Nedhe is comprised of four distinct business drivers. One is a retail and property division that works across Saskatchewan, including a 150-acre urban reserve bordering Saskatoon that contains gas stations, convenience stores, and commercial buildings. The heart of Des Nedhe is an industrial division, which includes one of Saskatchewan's largest construction and mining companies, Tron. We work with Cameco, the potash industry, and SaskPower. In addition to this, Des Nedhe has built a local consortium composed of local first nations and Métis communities in northern Saskatchewan to secure all developmental mining for Cameco's mining operations.
To mitigate against the risk of putting all Des Nedhe's revenue into the resource industry, Des Nedhe has pursued a strategy to invest in some of Saskatchewan's blue-chip companies. In 2014 Des Nedhe purchased a majority interest in Creative Fire, whose 20-year experience in corporate services essentially raises the bar in Canada for indigenous service firms. In addition to Creative Fire, in 2015 Des Nedhe, in partnership with Peter Ballantyne Cree Nation, purchased 60% of JNE Welding, a large, well-respected fabrication and welding firm in Saskatoon. The last business segment of Des Nedhe is the recently created Sage Power, a 100% renewable power company that when partnered with our other Des Nedhe companies becomes one of Canada's only vertically integrated, indigenous-owned renewable power plays.
Des Nedhe is a leading example that we are proud to represent. It highlights what can be achieved through progressive and leading-edge procurement initiatives driven from targets placed upon resource companies by the federal and provincial governments. The goal was to create sustainable local development from these mining operations. This model has since been emulated across the country.
One of the questions posed within this standing committee should be how to spur further indigenous economic opportunities through the federal procurement system. The bottom line is that PSAB, the procurement strategy for aboriginal business, is broken. Des Nedhe was asked, because of our past experience in the resource industry, to create a white paper on how to modernize the indigenous procurement system. To begin this process, we filed an access to information request to obtain some additional information. What we found was staggering. Over the last 10 years, the percentage amount of total federal procurement allocated to indigenous business was 0.46%. Let me repeat that: 0.46%. Less than half a percent of all federal procurement goes to indigenous business.
Let's compare that with the near 40% of total services spend that goes to the Northwest Territories indigenous groups from the Diavik diamond mine operation or the 70% of the operations services spend that Cameco targets to its local indigenous communities.
How are these large multinational firms, which have to deliver shareholder value and ensure their projects get built and operated, able to engage in indigenous business at these levels, and how can we use some of these lessons to better the federal procurement system? Our suggestion is that we start with four key fixes: number one, impose departmental incentives and compliance; number two, create mechanisms and processes to ensure success; number three, prevent and halt corporate fronts; and number four, remove barriers and provide a mechanism for the defence industry to work with indigenous business.
Due to time constraints this morning, I cannot dive into each of these four suggestions as much as I'd like, but let's just touch base on each of them.
Data from the previous decade indicates that 71% of federal departments have not procured any product or service through an indigenous supplier. This is a clear indication that the policy only reaches far enough to encourage departments into setting targets but does not create any incentive or mandate compliance. Without consequences for not setting or missing PSAB targets and with no mandated formula to arrive at spending targets, procurement agents within federal departments face an uphill climb to reach these targets. Federal departments have an obligation to procure goods and services at the lowest possible cost while maintaining quality, delivery, and service and acting in a responsible manner. The omission of a mandate within the PSAB and the lack of any hard commitments to targets create an adverse effect for procurement departments, as they are not compelled to spend any additional time or resources to ensure they are meeting their targets. These barriers indicate that to be effective, PSAB needs to mandate a minimum departmental spend on indigenous suppliers, with consequences for not reaching targets.
There is evidence to show that this works, not only in the private sector with resource companies but also in the public sector. In 2015 the Australian government introduced the indigenous procurement policy to leverage annual multi-billion procurement spending to drive demand for indigenous goods and services and stimulate indigenous economic development. This policy included targets for purchase from indigenous business, mandatory set-aside contract obligations, and a minimum indigenous spending requirement based on a set percentage of all spending.
In the first year, the new policy surpassed all targets, as spending on indigenous business increased nearly 46 times—from $6.2 million to $284 million—and proved to be such a success that a new target of 3% of contracts to indigenous businesses was set.
Similarly SaskPower, a Saskatchewan crown corporation, introduced an aboriginal procurement policy with mandated targets. The introduction of a mandate to reach targets has been successful, not only exceeding targets but also annually increasing them. In 2015 the target of 1.5% launched the new policy and saw an execution of 2.9%. The rise in targets, backed by compliance mechanisms, saw 2016 targets of 5.9% exceeded with an actual indigenous procurement spend of 7.9%.
It is recommended that PSAB adopt mechanisms of incentive and compliance through a mandatory requirement of set-asides that is increased annually to reach a target reflective of the growing indigenous population in Canada. We feel this target should be set at 10% of all government procurement.
Next is mechanism and process. Many indigenous businesses can and do compete with all businesses. In fact, statistics within PSAB indicate that 60% of total business awarded to indigenous entities is from open, not restricted, competition under the incidental category. Although a positive indication, this should should not be taken to mean that indigenous companies are successfully developing the capacity and the capability to compete in an open market, and not that set-asides are not required. On the contrary, the PSAB must continue to help indigenous business grow and provide opportunities for the majority of indigenous groups in Canada.
The next fix is with regard to preventing and halting corporate fronts. Many indigenous businesses are thriving across sectors of the economy. Some of this growth can be attributed to initiatives aimed at maximizing inclusion of indigenous business and individuals. In many cases, indigenous economic development issues in both government and private sectors greatly benefit from strategic alliances between indigenous and non-indigenous companies. Partnerships, joint ventures, and strategic alliances have resulted in many successful ventures. Subcontracting opportunities have been a good way for smaller and less experienced indigenous enterprises to enter supply chains.
To ensure that benefits of PSAB flow to indigenous businesses, Consulting and Audit Canada conducts compliance audits of indigenous-owned firms to verify that proponents meet PSAB eligibility requirements for entering into a contract and meet requirements throughout the life of the contract. When the audit for compliance is completed, the audit results are communicated to the contracting authority where and to the audited businesses. If the audited business is compliant with the PSAB, it will continue to be eligible to bid on set-aside requirements.
On paper, the indigenous partnership or alliance may appear to meet the ownership, control, and employment criteria. However, in many cases non-indigenous businesses are partnering with an indigenous business to create a company for a specific government contract, which then dissolves upon completion of that contract. This is evidenced by the large number of indigenous entities not existing after the completion of a project, once they have served their purpose. Many of these arrangements are able to pass audits, as they are compliant to the audits, but have very little benefit to the indigenous entity. The creation of these corporate fronts takes advantage of set-aside opportunities, yet does not build any substantial capacity, training, or sustainable business for the indigenous proponent.
Last, with regard to industrial technical benefits, the industrial and technological benefits program is designed to ensure that Canadian businesses are benefiting from government defence and security procurement. Through this policy, companies winning contracts are required to spend the same value of contracts in Canada. Within this policy, there are incentives and multipliers created to target spending in key areas, resulting in billions of dollars procured to Canadian companies.
However, the same issues that federal departments face with PSAB are created for prime military contractors. A lack of mandate, incentives, and compliance mechanisms to work with indigenous firms has prevented a large segment of the indigenous population from participating in and taking advantage of these opportunities.
Between 2007 and 2016, the Department of National Defence was the highest-spending department, with procurement spending of over $66 billion. Governments around the world recognize the importance of a strong defence sector, not only for national security but to fuel economic growth. Through defence spending, the Canadian government's investments in defence-related goods and services have generated economic benefits through policies that have encouraged prime contractors to invest in and grow the private sector. Multipliers have been used to target investments in research institutions, small and medium-sized enterprises, technological development, and firms with the potential for exports. This has resulted in billions of dollars of procurement and investment in the private sector.
However, the policy has not incentivized or targeted spending to indigenous suppliers. This is clearly evident, as the Department of National Defence has spent only $37 million of the $66 billion, 0.06%, over the last decade on indigenous suppliers. If Canada's commitment to rebuilding the relationship with indigenous people and advancing economic development is genuine, the establishment of incentives for the highest-spending department must not be overlooked.
The industrial and technological benefits policy has been used as a successful tool for targeting spending and investment. To ensure that the procurement policies provide a clear and consistent incentive to prime contractors to enhance the participation of indigenous suppliers in their supply chain, an indigenous multiplier within the policy will support long-term sustainability and growth of indigenous suppliers within Canada's defence sector and fuel economic growth across the country.
Today one of the biggest and most successful economic development initiatives in Canada is excluding the indigenous population of the country. This investment and retooling of Canada's federal procurement system has a tremendous upside for Canada and indigenous peoples if done correctly. It is key that we get this right, as it will add value to Canadians from coast to coast to coast.
Thank you.
