Government Operations Committee on Dec. 12th, 2017

[Erin Weir, NDP, Regina—Lewvan, SK]

Yes, for sure. In terms of engaging more SMEs, one issue that's come up before our committee is the question of standing offers. The concern that the procurement ombudsman expressed or reflected was that it is difficult for smaller enterprises to comply with standing offers and also to maintain an inventory of goods when they don't know whether or not the government will purchase a certain volume based on the standing offer. Do you share those criticisms?

[Dr. Barbara Orser]

I think they're fair in that dealing with the private sector you have an element of loyalty to a supplier base. With the federal government, the contracts are always up for new renewal. You lose the asset of the relationship, the social capital, that is built between a supplier and a client. So yes, that's problematic.

[Erin Weir, NDP, Regina—Lewvan, SK]

On the flip side, I guess, I've also heard that a standing offer can be good for smaller or medium-sized businesses, because at least it provides a framework in which they can engage. If the federal government were instead to have a process to pick certain preferred suppliers, they would tend to be larger enterprises, and going through the whole RFP process could certainly be challenging for small businesses as well.

[Dr. Allan Riding]

One recurring theme is the question of scale. It actually takes us back to the gender question. I forget the exact number—it's in our report—but a really high proportion of small firms are really quite small, fewer than five employees. To be able to repeatedly qualify for procurement tenders and even to qualify for a standing offer is problematic. It consumes a lot of the businesses' resources that may be better deployed elsewhere. In particular, there's a really excellent 2016 study by Rosa and Sylla at StatsCan. One thing it showed is that women-owned firms are systematically smaller. We interpret from this that there's less scale available to apply.

These are some of the issues that are before us.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

In terms of building a relationship between the federal government and certain suppliers, one idea proposed before our committee was to develop a rating system where, rather than just looking at all prospective suppliers freshly each time, the Government of Canada would assign a performance rating based on past service and take that into account in the procurement process. What do you think of that idea?

[Dr. Barbara Orser]

I would suggest that it makes good business sense. It rewards your loyal supplier base, with the provision that there's the opportunity for fresh suppliers into the pipeline and the opportunity to turn over suppliers to enhance competitiveness and the quality of the deliverables. However, I think the loss of that relationship costs the government by not having some sustainability in their supplier base.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

Something that is sometimes required in government procurement is that the supplier has some history of already having sold to governments, or perhaps even that the supplier already sells a certain volume to governments. I suppose that could be consistent with the idea of building a relationship or making sure that the supplier is capable of meeting government contracts, but it could also have the effect of excluding smaller enterprises.

I'm just wondering how you would assess that type of a rule.

[Dr. Barbara Orser]

It really speaks to the examination of scorecards and what that scorecard might look like. Does that include some experiential evidence, and that would be scored, some diversity evidence, and that would be scored and weighted? Then overall, ensure there is a component that says, “Well, we're new suppliers and with little experience”, and maybe they become VIP, in that you have a procurement officer who works with them in a proactive way to usher their bona fide contracts through the process.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay, so this would be one thing to score it in a points system, but what would you say about an outright requirement that in order to bid or to be part of a process, a prospective supplier needs to have sold a certain amount to the government before?

[Dr. Barbara Orser]

Well, I would discourage that initially if we're talking about supporting a diversity of SMEs, given the low propensity of SMEs to supply to the government at this point—not contract volume but the numbers. The numbers bring innovation and representation, and I think that that closed-shop perspective would limit innovation and value for our government.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

You mentioned the difficulty in defining women-owned businesses, or confirming that a business that presented itself as being women-owned actually was. This is something that came up at a previous meeting.

Is there a solution?

[Dr. Barbara Orser]

I think there is.

I think we see evidence with organizations like WEConnect International that are doing this globally that it's a deep dive into the organization. It's not a superficial website that you tick the box. WBE Canada knows its client base.

However, that's only two organizations. If this were to be deployed nationally, I think that the need would be substantial—whether it's through the chamber or through another sort of network of agencies—because there is a lot of businesses that may want to do business with the Canadian government.

The other thing about gender—

[The Chair, Conservative, Tom Lukiwski]

Unfortunately, we're going to have to stop you there, but Mr. Peterson may want to continue along that line.

Mr. Peterson, you have seven minutes.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thanks, Mr. Chair.

Thank you for being here.

Professor, I will let you finish your thought, if you would like to finish it off.

[Dr. Barbara Orser]

Thank you.

Back to the metric question, when we're looking at just 51% women-owned, that becomes problematic when the owner dilutes some of the ownership and brings equity capital into the firm. Do we punish growth-oriented women who may no longer own 51%? I think the idea of multiple metrics makes sense.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Right. Even on that, some of the investors may be women themselves, and do we measure that when it comes to the equity side? It opens a whole bunch of questions, of course, that make it administratively burdensome I think at some point.

I want to take it a step back. Part of the reason we're doing this study is that in the minister's mandate letter, the minister has been mandated to develop initiatives to increase the diversity of bidders on government contracts, among other things.

I think the assumption we're all making—and I just want to know if the assumption is based on any analysis of the data—is that to do so, engaging SMEs is probably an effective way because they tend to be either women-owned or minority-owned, or a more diverse supplier. Is that an accurate assumption?

[Dr. Barbara Orser]

Yes, there is an argument which says that by increasing the diversity of suppliers, it enhances competitiveness and a more robust look at diversity amongst that pool.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Okay, I just wanted to make sure we're on the same page. It's nice to get some academic support for the assumptions we're making here around this committee. I appreciate that.

I think the number in your report, and it's the number we've heard around, is that 9.8% of Canadian SMEs were contract suppliers to the federal government.

Is there an ideal number? Is there a target or a sweet spot that we should be aiming for, to say now we are fully and effectively and efficiently leveraging federal procurement to help SMEs and create innovation by doing so? Is there a sweet spot, in your opinion?

[Dr. Barbara Orser]

Perhaps we should both throw out a number, but...and it is just that. But I think we could learn from the experience of the U.S., which has a commitment to 25%. We know that 98% of businesses in this country are small. We know they're Canadian-owned and we know that they contribute to the tax base on a regional basis, so that's one exemplar.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Okay.

[Dr. Allan Riding]

I think we need to remember that the reason for thinking about this is that small firms create a disproportionate share of jobs in Canada and they are increasingly being involved in innovation and exporting.

Yes, it is more burdensome for government to let contracts to a whole bunch of small firms instead of one big firm. It's less efficient. I think the idea is that that's more than made up for by the growth that's generated by the small firms and the impetus to growth that the contracting provides.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Okay, thank you.

When I read your report, it seems to me that there are almost two classes of small SMEs, when you profile them. It seems there are those that are able to successfully contract with the government and maybe those that aren't. The ones that are able to seem to share some characteristics. They are older and larger, concentrated within the knowledge-based and technology-based industries, and more likely to be male-owned than female-owned.

By the same token, the SME suppliers are more likely to anticipate growth, more than twice as likely to export, more likely to engage in interprovincial trade, more likely to anticipate future exports, and more likely to innovate.

My statistics professor always told me that correlation isn't causation, so which comes first? Is there a causation here or is it simply a correlation that you're drawing out for the reader?

[Dr. Barbara Orser]

It's simply an association. However, working with PSPC, we will be able to begin that kind of more robust analysis, and that work is under way.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

I think it's important. I wonder how much, generally speaking, of the non-participation of SMEs and diverse SMEs has to do with the high cost of contracting. We've heard that from many of our witnesses. By high costs, we mean not just money, of course, but resources. A lot of SMEs, obviously, have limited human resources and limited capital, and they're just not able to participate competitively in the process, and it becomes an almost self-fulfilling circle here. They figure they'll never get the bid, so they don't want to waste their time. They go about their business, quite happily, and a lot of them quite successfully deal with just the private sector.

How can we overcome that obstacle? Is it a question of education? Could that be a component of overcoming it, or is there more to it?

[Dr. Barbara Orser]

I think that is the driver here. The percentage of businesses that do not think of the federal government as a contracting opportunity is far more significant than is that of those that are concerned about the actual procurement process.