Government Operations Committee on Feb. 1st, 2018

[André Leduc]

I think what goes on more often than not is that a procurement officer will dust off a similar procurement that happened a year or two ago and cut and paste 80% or 90% of that into this procurement. They'll bring all the terms and conditions from that one into this one.

If we try to eliminate all potential legal risk and all potential security risk for the government, it makes it very difficult for the industry to engage in a conversation about sharing the risk. Through that lens, the government is just trying to off-load all potential legal and security risk onto the private sector entity, rather than having a discussion about how to share risk and drive a product forward.

I could give you hundreds of examples and name a bunch of RFPs—

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Give one or two, please.

[André Leduc]

We'll use the example the government likes to tout the most, which was the open-by-default procurement. It's challenge-based. Great. It took three months, A to Z. That's great, but they migrated into it some of these old contractual terms and conditions. The SME that won the contract—probably unbeknownst to them, because they may not have hired a lawyer to look through the contract—signed up for unlimited liability. Essentially, you're putting up the entirety of your company. If you're a small business with 10 employees, and the company might be evaluated at $400,000, $500,000, $600,000, $700,000, you're putting up that $600,000 or $700,000 company against the government, from a legal perspective, for a $75,000 contract.

In the private sector, when they deal with each other or when they deal with other municipal governments or provincial governments or state-based governments, liability doesn't usually exceed the value of the contract. How can I be unlimited in my liability to you when the contract's only worth $75,000?

That's just one example of the old migrating into what was an attempt at a new type of agile procurement.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Mr. Akrouche, would you like to...?

[Andy Akrouche]

I can name many, but is this confidential? Is it recorded?

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

This is public record.

[Andy Akrouche]

Would the vendors hear me say this?

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Yes.

[Andy Akrouche]

I'm going to only, then, talk about—

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

We have unlimited liability.

[Andy Akrouche]

I'm only going to talk about RFPs.

We participated in it. Just as an example, there was a PPP RFP. Our organization does public-private partnerships. We have a new model. I've written a book about that model. We have an alliance with KPMG. We are a small company, but we are very good at doing what we call adaptive procurements or adaptive relationships, the outcome-based procurements he's talking about. We've done it in many different areas in Ontario and here with the federal government, but then there was this PPP RFP. To get on this PPP, you only have the big guys: KPMG, Pricewaterhouse, EY, and Deloitte.

The way the gates are set up, only these guys can make it, because they're looking for a global firm, somebody who must have done it before somewhere else, and they don't restrict it to Canadians, so it has to be somewhere else. A lot of these guys have done something maybe in Australia or in the Middle East, and they bring that experience. They went through that experience, but their local capacity or ability to do anything is zero.

They refer to something called “reach back to bench”, meaning that when you have tools, you reach back to get a tool from the bench to do something. This reach-back mechanism most of the time doesn't work, so they bring in somebody from the U.K., from Australia, to provide some high-end advisory stuff, but we know how to do this right here. That's one example.

[The Chair, Conservative, Tom Lukiwski]

Thank you for that.

Mr. Ayoub, you have five minutes.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

It's extremely interesting to see the relationships that exist between goals.

You represent an association, SMEs or a particular sector.

The purpose of a business is of course to generate profit. There are major advantages to dealing with government, since you are sure to recover the money you spent, you are sure to get paid, and you establish a relationship. There is without a doubt something to be gained. So businesses incur less risk when they engage with government. As you mentioned, what is difficult is to initiate that business relationship with a government.

Since I have worked at the municipal level in the past, I can say this: the responsibility for contracts and decisions—whether at the municipal, provincial or federal level—is entirely shouldered by that government. Consequently, where decision making is concerned, the risk is not financial, but involves relationships and reputation.

There is one obvious current example. Indeed, dear colleagues, the elephant is in the room; it's the Phoenix pay system. We talk about it every day, and who is accountable? It is the government. Members in every party in the House in fact make it their business to point that out.

How can we integrate small and medium businesses into procurement? The government's social mission is to try to help enterprises. It has to do business with small and medium enterprises to ensure that wealth is distributed throughout Canada, and that enterprises can do business with the government.

Should the bids be smaller? Perhaps. Should we ask that one contract stratum be allocated to those small businesses? We would need to set a goal of a certain percentage of contracts, and ensure that we reach the objectives. Unfortunately, I think it is an illusion to think that we will never again see 200-page bids, but they could be divided up.

As I already mentioned, when I worked in municipal government, we asked people to not divide up a contract, because that was against the law. All of these things are interconnected, and you have to protect everybody.

How can we find solutions and make sure everyone is happy? My preamble was long, but I'm asking you to try to answer it. There are two minutes left.

[André Leduc]

With regard to the risks, I think you have to ask yourself what objective the government is seeking to attain. Is its purpose to minimize risk as much as possible and acquire technology? Is it to have the best innovations and the best solutions? Or is it to ensure that procurement causes beneficial socioeconomic ripples throughout the country?

At this time, the procurement environment limits the government's ability to generate that socioeconomic effect. We don't have the data showing how many SMEs are awarded government contracts, what type of contracts are awarded, or to what extent the businesses in question are culturally diversified. We don't know.

What is the government's objective? If you change procurement methods and specify the technology you need to meet the needs, you will obtain a larger number of bids. The participation of SMEs in complex procurement is limited because of the investment involved. If it takes two years to obtain a project, I can't have three people working on it, especially since I might not get it. There are no guarantees, basically. For about 20 companies that take part in the process, only one or two will win.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

What if a certain percentage of bids were allocated to small and medium businesses? Could that be a solution?

[The Chair, Conservative, Tom Lukiwski]

Unfortunately, we'll have to leave it at that.

Mr. McCauley, you have five minutes, please.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, gentlemen.

I just want to get back to the unlimited risk and liability. Can you give me an example of when you think that would be valid?

[André Leduc]

I don't know that it's ever valid. The industry standard—

[Kelly McCauley, Conservative, Edmonton West, AB]

Let me just follow up, and Mr. Akrouche can answer this as well.

In the industry standard in the real world, as they call it, the private sector, what would be typical on a large project or a small project for liability?

[André Leduc]

It's the value of the contract. If you contract me for a project that's worth $10 million, the liability clause will be for a maximum of $10 million.

[Kelly McCauley, Conservative, Edmonton West, AB]

In your opinion, we should just get rid of it entirely.

[André Leduc]

The other thing that's interesting about it is—

[Kelly McCauley, Conservative, Edmonton West, AB]

It doesn't sound like there's a reason to keep it.

[André Leduc]

It is a mechanism that scares away a multitude of firms in our sector. They simply will not bid on the contract. Often they get really upset when they participate in the first couple of phases of an RFP, the invitation to qualify, and they're going through the triple R phase, which is refining the requirements. Then, when it gets to the RFP, they find out that there's unlimited liability, and they have to walk away. Well, they've just invested nine months taking part in this.

[Kelly McCauley, Conservative, Edmonton West, AB]

Has unlimited liability been used in the private sector?