Thank you very much for the opportunity to be here.
I'd like to give you a practical view of SMEs in action. I'd first like to talk a bit in terms of general feedback about the challenges that SMEs are facing when it comes to federal procurement, some of which have been mentioned. I'd also like to delve much deeper into large and complex procurements and how SMEs actually play into that vis-à-vis ITB policies from ISED.
The most important thing to remember is that we're talking about SMEs, which represent 98% of the enterprises in Canada. The challenge, based on our research, is that 80% of these SMEs do not engage. A study done by the Canadian Federation of Independent Business showed that only 20% of SMEs actually engage with the government or try to do business with it.
The reasons are really simple. The first is that it's too long a process. It requires a long-term commitment to do anything. Even a small procurement takes too long.
The second reason is that it's complex and it's geared towards the medium or large enterprises. You have all these standing offers and supply arrangements. If you're an SME, to get on these supply arrangements is going to take you a while. You need to be in business for three to four years. You need to have a certain amount of revenue, and so on. These are artificial barriers that prevent small and medium enterprises from actually bidding on government business. If you're a small business, you can't just go bid on government business, because you have to be on a supply arrangement, and to be on that supply arrangement takes you a lot of time and effort. Sometimes there are qualifications, such as being $10 million in size and so on.
The other thing is that the process itself is complex—the requirements, the mandatories, the ratings, and so on. Even medium and large enterprises hire outside consultants to help them navigate and decipher this code. Small and medium-sized enterprises don't have this ability. They don't have the money or resources to decipher this code, and they can't even hire people like us or somebody else to help them win government business by getting through the complexity of the process.
A lot of research done by the Government of New York that showed that over 90% of procurement outcomes are determined before the RFP is issued. We'll talk a little bit about that. It's not a bad thing—it's a good thing, actually.
When an RFP is issued, most of the time the government doesn't know exactly how they want to issue the RFP. They don't know what and how, so they need to gain some insight into the proposed solutions out there. They need to gain what I call a practical, legitimate, and transparent way of having a buyer preference. They're saying, “I want to do something but I don't really know how to do it. I don't even know what to write in an SOW. I need input from the private sector.” That long process is really where the buyer gains insight and intelligence about what should be in that RFP.
However, that's only influenced by the people who are engaged. If you're engaged in that process, you will see a good result. I'm not saying a procurement outcome only means winning. Even the eventual delivery of the project is determined way earlier in the process. If you engage the right people and you're talking to the right people who really know how to do their stuff, you're going to end up with a vendor who's going to do the work and is able to deliver that work. However, if you're engaged superficially with people you know, when you issue an RFP, you're going to get a vendor who's not going to be able to do the job and you're going to end up with a lot of problems. It's a really important point to say that SMEs don't have the mechanisms to participate in this very long process and to try to influence it.
When I think of SMEs, I think of specialties. I don't think of a big conglomerate that has all kinds of stuff. SMEs are there, and they're the core engine of the economy, but they are specialized. You are an SME because you do something very well, and what we find is that in most procurements they generalize that specialty, so you're going to lose your competitive advantage as part of the overall procurement.
The second thing I would like to talk about is the ITB policy in complex business arrangements. We have these billion-dollar projects, and we have a set-aside of maybe 15% that needs to go to SMEs. You're aware of that, right? Okay.
I was part of the initial team in 2007 that argued we should set up an SME office—which actually took place at PSPC—but this 15% is becoming counterproductive for the very same reason that we started it. We wanted to create innovation. We wanted the small and medium-sized enterprises to partner with the big firms so that the big firms could give them support and nourishment in the process of being innovative and providing what they are really good at. However, what's really happening with that 15% is that the big vendors in the big procurements are giving it lip service. They are trying to check the boxes: “Yes, I do have 15%, and here is my value proposition, and here is the ITB policy.” After they win the contract, they get into a lot of battles with these SMEs about how to deliver this thing, how much they should have, what type of work they should have, and they tend to keep all of the intellectual property and the research within the big firm.
It's really acting as a counterproductive mechanism in terms of innovation, and the worst part is that we don't have industrial strategies for many of the sectors we have procurement in. For example, in the aerospace sector we don't have an industrial strategy, so the small and medium-sized enterprises don't know where to focus. We don't know where we want to be from a strategic perspective, where Canada needs to be, which areas of the sector we need to excel in so that we can drive the SMEs to go in that direction.
The other big thing is we seem to have this rear-view mirror model. The first thing we do is we build these artificial gates. Let's say we have a billion-dollar project that was recently awarded, let's say, to a company from France. We say that to qualify, they must have done this before, somewhere else in the world. Part of the qualification is that they must have done this before.
We usually get references from 10 years ago. We're qualifying people who get into these big deals based on something they did 10 years ago somewhere else in the world where the conditions are different. They can never do the same thing here, but we qualify them to play in the game based on 10 years of past information and old technology. When you look at the Canadian component, you see it's usually a satellite office, medium-sized.
What I'm recommending in that space is to relax these regulations. For the small and medium-sized enterprises that want to do business with government in a direct way, relax these SAs, these supply arrangements, and all this other stuff. You don't need those to bid on something. You can just bid on something.
On complex and large procurements, we should allow medium-sized companies in Canada to aggregate and form a super-enterprise. That's in the last slide over there, the last box on the bottom. Right now the model is we have a prime and we have all kinds of SMEs working for that prime. Why don't we allow a bunch of SMEs to create a super-enterprise and bid on those complex and large procurements? All you need to do is change the selection process, change the evaluation process. Evaluate these bids based on whether they can do the job, whether they have the capacity and the ability, not on some fictitious thing that was done in Australia or New Zealand 20 years ago.
Also, I suggest we start doing something about industrial strategy in key sectors of the economy.
I'm done. Thank you very much.