Government Operations Committee on Feb. 1st, 2018

[The Chair, Conservative, Tom Lukiwski]

I call the meeting to order.

The committee in front of us took a little bit more time than we had anticipated, so if we can get going, I would appreciate it. We are continuing, of course, with our examination of small and medium enterprises with respect to federal procurement.

With us today we have a couple of organizations. We have, representing the Information Technology Association of Canada, Mr. Nevin French and Mr. André Leduc. From Strategic Relationships Solutions Inc., we have Andy Akrouche.

Thank you all, gentlemen, for being here.

Without further ado—I think you all know how the committee operates—we'll have opening statements from at least two of you, followed by a series of questions from all of our committee members.

Mr. Leduc, you're first up, for 10 minutes or less, please.

[André Leduc, Vice-President, Government Relations and Policy, Information Technology Association of Canada]

Thank you, Mr. Chair.

Honourable members of the committee, it's a privilege to be here today to discuss the engagement of small and medium enterprises within federal procurement on behalf of the Information Technology Association of Canada, also known as ITAC.

ITAC is the national voice of Canada's ICT industry, an industry that includes over 37,000 companies, most of which are SMEs. This sector generates over 1.5 million jobs and contributes more than $76 billion to the economy.

Beyond the economic contributions, the ICT industry creates and provides the goods and services that contribute to a more productive, competitive and innovative economy and society.

Over two-thirds of ITAC members are SMEs. It is in this spirit that we welcome the opportunity to support your review.

In recent years ITAC has been partnering with the Government of Canada in various fora to work on modernizing their IT procurement processes and contracting terms and conditions to enable the government to successfully leverage information technologies to execute on their digital transformation agenda, which is ultimately to improve the delivery of public services to citizens in a more cost-effective manner.

ITAC has engaged in this manner in the hopes of mitigating the risk of unsuccessful IT projects and wasted taxpayer money and to remove barriers for SMEs and diversity-led businesses in Canada's ICT sector to do more business with the government.

ITAC supports the socio-economic goals of the government with respect to SMEs; indigenous, minority, and women-led organizations; and the leveraging of procurement across a geographically diverse group of companies. There is a need to help grow and scale up our SMEs, and federal procurement is a vehicle that can be leveraged to support this growth.

As the government seeks to improve procurement frameworks, it must also realize its role as the largest customer of ICT in Canada. In doing so, the government can build a platform that fuels digitization and innovation, supports single-window mandates, and successfully delivers simple and secure citizen- and business-centric services.

There is no one-size-fits-all procurement methodology. Many different models exist, but at the end of the day, the common goal needs to refocus on open, fair, and transparent procurements that result in the best product at an acceptable cost. What is sometimes lost in the discussion is how being highly prescriptive about what the government seeks while attempting to drive down costs can have a longer-term negative downstream impact on the supply chain, which lessens the potential for positive socio-economic impacts and stifles access to innovation.

Better tracking data is needed to understand where government procurement currently sits. What is the current proportion of procurements awarded to SMEs and to indigenous, minority, and women-led organizations? What is the value of those contracts, and are these detailed by sector and subsector? Were the procurements the SMEs engaged in simple or commodity-based, or were they complex procurements? It would be nearly impossible to set new requirements, policies, or quotas without first understanding where things are at.

ITAC has also been calling on the government to better engage the ICT community earlier in the procurement process, at the outset of procurement discussions, not further down the line when the decisions on what to procure and what IT to procure have already been taken. We would do this so the industry might provide and share industry knowledge and expertise, which is expanding at an ever-increasing rate as new technologies and solutions are being frequently developed and deployed.

Last fall, we hosted a conference for federal government executives and managers so they might better understand the principles of agile procurement.

ITAC supports agile procurement processes in the government, ones that focus on business outcomes and solutions, rather than the procurement of a specific technology, where industry may not understand what the ultimate goals or usage will be.

A new focus on the goals and outcomes of projects, rather than current overly- prescribed technical specifications, would allow industry to provide intelligence that leads to innovative solutions, rather than the baseline supply of an IT product.

We have called on government to enter into partnerships with industry and to negotiate contracts rather than to continue to leverage take-it-or-leave-it contracting. Contract negotiations are required at a minimum in complex situations. Unbalanced contracts result in poor outcomes for the government, the taxpayer, and the private sector, creating a lose-lose environment. ITAC members are seeking reasonable risk-sharing as a priority, rather than off-loading and transferring all risk to the private sector via unlimited liabilities, over-prescribed terms and conditions, and strict security requirements.

I also wanted to note that in many regards the attempts of the government to mitigate legal and security risks in contracting discourages many SMEs from submitting bids. Impediments range from requiring multiple corporate references to proven case studies to security requirements to the length of time federal procurement cycles take. Setting quotas for SMEs means diversity-led and indigenous firms will not have the socio-economic impacts they seek unless we address some of these current impediments to SME procurement.

These issues, teamed with the length of time it takes for more complex procurements—in certain circumstances, well over a year—limit how many SMEs can afford to dedicate resources to procurements that take this long. As a result of these issues, we have SME members who choose not to take part in any federal procurement due to the complexity and the investments required. This limits the Canadian government's capacity to acquire the best possible or most innovative solution and leverage its procurement to support its socio-economic goals.

Other jurisdictions, including the U.K. and the United States, have operationalized procurements that enable supply of commodity products and services under the vendor's standard contract with a wrapper of government terms and conditions. They have set platforms that allow the engagement of SMEs to explore innovations, business solutions, and applications.

ITAC believes there's a need for risk officers in government, a need to have someone evaluate how the inclusion of strict government terms and prescribed requirements are impacting the number of bidders on procurement.

How is the current procurement environment supporting industry growth, the expansion of the Canadian supply chain, the scaling up of SMEs, or industry partnerships and collaborative innovation? In short, setting a procurement environment that supports ecosystem partnerships, simplifies the procurement process, allows for the continuous refreshing of participants, seeks experimentation and pilots, and permits small, quick failures rather than longer-term significant failures will allow the government not only to access innovation but also to become a catalyst for innovation.

We believe some global best practices can easily be applied to the federal government. Government procurement is an avenue that can enable SMEs to grow, possibly moving from small to medium size and outgrowing the SME category altogether.

Fortunately, the government has been listening. We've begun a dialogue and we're discussing options to address many of these issues. The next step is action.

We'll be happy to take your questions.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Next up we have Mr. Akrouche.

You have 10 minutes or less, sir.

[Andy Akrouche, Managing Partner, Strategic Relationships Solutions Inc.]

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.

[The Chair, Conservative, Tom Lukiwski]

You're very quick.

Colleagues, just as a reminder, at roughly 12:30 p.m. we will be suspending and then going into the subcommittee meeting on agenda planning for future committee meetings.

With that, we will start our seven-minute round of questioning with Monsieur Drouin.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

I want to thank the witnesses for being here. It's really good testimony.

Mr. Leduc, you have mentioned that the Government of Canada has to adapt various procurement models. We've heard a lot about outcome-based procurements versus prescribed.

I would like your thoughts on that, and whether outcome-based procurement should be applied as a whole or only in certain situations.

[André Leduc]

As you've started to see—and the government likes to tout this fact—they've done one of them. They did the open-by-default procurement, and I guess it was about three months, tip to toe.

You bring the business unit that's actually going to use the technology, team them with the IT unit, team them with the procurement unit, team them with the legal unit, and put them all in a room together. That's as opposed to the business unit sending something to the IT unit, which sends something to procurement, which sends something to legal, which then says, “Oh, no, this part you can't do.” Then they have to send the paperwork back and forth. That is what disrupts the time frame.

You get everybody working in a room. It's essentially the agile principle of go lean, get everybody in the room, and focus on what the outcome or the output is supposed to be. Don't focus so much on what you think the right technology is to provide the service, but on the outcome: “We want this to be able to do that”. Then you're going to open up the door to more and more bidders.

There's no reason we should continue to see 200-page RFPs, and I've heard ministers declare it already: “No more 200-page RFPs.” We should continue to see 200-page RFPs. We continue to see 300 and 400 IT specifications and requirements built into RFPs. The SMEs can't survive the amount of time required to invest into a procurement, to go through what all the requirements are and to review those requirements. It's taking them from what should be a three- to four-month window into something that goes well over a year, sometimes two years or even three years.

You need to focus on the outcome and say, “We need this product to be able to do this. It must meet these eight or nine requirements.” You get out of saying, “The technological specifications are such and such,” because these go on forever. What ends up happening when you specify the types of technology and say it must be this, that, and the other is that you cut away half the marketplace. Rather than inviting more bids and more innovation to the table, by being prescriptive and saying, “We want this type of solution, this way,” you're going to cut out half of the marketplace, so you're cutting down. We're seeing procurements that we feel should attract 15 to 20 bidders going down to one, two, or three bidders.

Right now, it's almost a game of survival of the fittest, as opposed to an open, fair, and competitive marketplace that the government puts out by saying “We need this type of solution.” Then you'd get multiple bidders on it.

If Amazon can go out and say, “We're going to spend”—I don't know how many—“billions of dollars and employ 50,000 to 55,000 new people,” and do that in an eight-page RFP, which they sent out to cities, there's no reason we can't have 10- or even 15-page RFPs, as opposed to 200 pages.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Obviously there's an issue with the culture. Is legal getting involved and saying, “Well, if you don't put out prescriptive procurements, we're going to have a harder time defending it if there's a CITT challenge”?

[André Leduc]

Part of the issue is that everybody is trying to play a role. The legal unit will step up and say that we must eliminate all potential legal risk. They'll lay out all of the requirements, including something like unlimited liability, which, for a company that signs a $75,000 contract, means you have to put up unlimited liability versus the government. That means that my entire company is up for grabs from the government if they decide to pursue me over a $75,000 contract.

It's off-loading. What the government's attempting to do—and that's just one example of legal risk—is to off-load all of the potential risk onto that private sector entity. Nobody likes it, neither SMEs nor large companies. Nobody in the marketplace thinks that things like unlimited liability and prescriptive Ts and Cs are the best way to go, but legal is trying to do their best job, so they want to eliminate all potential risk for the government.

As well, procurement is trying to eliminate all potential risk for the government, so they're putting in the procedures and principles that have been in place for a long time to limit the amount of risk.

Well, when you do that—when you limit legal risk and you limit the risk from a security perspective and you limit the procurement risk and the potential for it to be challenged at a trade tribunal—what you end up doing is limiting over and over again the number of bidders who are going to be willing to take part in that procurement, because you're off-loading all of those requirements onto the private sector.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Do you believe that having shorter RFPs would shorten the procurement cycle? I'm talking about the procurement cycle because right now in some IT projects it seems a little long, and by the time the whole thing is done, the technology that they're asking for is already outdated. Are you having those conversations with government right now?

[André Leduc]

We have started to have those conversations. Mr. MacKinnon appeared when we had our “Going Agile” conference in Ottawa and we were speaking to this. The dialogue about moving to more simplified procurement, more agile procurement, has started to occur in Ottawa.

The idea is that if you have a 280-page RFP and you have 20 bidders, it's going to take the government nine, 10, or 11 months just to be able to evaluate those bids. The bids coming in are going to be hundreds of pages long. The incentive for the procurement officers is that they don't want to have to go through 20 bids of 200 pages. They don't have the resources to take that on, so what do they do? They create an environment that gets it down to one, two, or three bidders. Now it becomes more manageable for them in their process. If you move to a capped 10- or 15-page RFP process, the bids coming in will be 20 to 25 pages, and now you can review 20 to 30 bids.

Now we're comparing and contrasting the bids based on parameters other than just being able to meet all the technical requirements we've laid out in the RFP. It will enable the government to access innovation a little more readily. Oftentimes with the procurement cycles that we're going through now, you're cutting out the potential to access innovation because you're prescribing what technology you want.

[The Chair, Conservative, Tom Lukiwski]

I'm sorry, but we've run out of time on that intervention. Thank you for that, and I'm sure we'll continue with this discussion as we go around the table.

Mr. McCauley, you're up.

[Kelly McCauley, Conservative, Edmonton West, AB]

Great.

Mr. Leduc, if you have a bit more to add to that, you can go ahead.

[André Leduc]

The principle is that if you prescribe exactly what you want and how you want it, that is the only thing you're going to get. You might not know that six weeks ago, or even six months ago, a Canadian start-up in Cape Breton had a wonderful application that they'd built on a cloud platform that would satisfy all your needs and wants, but they'll look at it and say, “Oh, we can't meet the technical requirements, so we're not going to bid.” They're self-restricting the capacity to engage.

Beyond that, you have SMEs who say, “Look, we don't even look at federal procurement, just because we know it takes this long to engage.” Francis points out that if a procurement is going to go on an 18-month or 24-month cycle or almost three-year cycle, only the very largest vendors can invest.

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm sure those are the shorter ones, as well.

You were talking about best practices. I'm sure you chat with people dealing with provincial governments. In your experience, is anyone in the country doing it provincially, setting a gold standard that we should look at?

I asked a procurement ombudsman and he gave me a couple of ideas, but I'd like to hear from you whether anyone is doing it.

[André Leduc]

We're beginning to see movement, especially in the agile procurement space. We're seeing some in British Columbia, where they've started to modify the way they're going about business. Ontario is at the initial stages of doing it. You're starting to see examples of—

[Kelly McCauley, Conservative, Edmonton West, AB]

Is no one really far ahead yet?

[André Leduc]

Nobody has jumped far ahead.

Surprisingly, the municipalities are doing a pretty bang-up job of this, but they're smaller and more nimble and they're ready to engage directly with industry. A lot of it is around the smart city solutions. The vendors are going straight to the city and saying, “Hey, we could do this.” It's moving quickly and it's a little more nimble because they're not looking to drag out tech specs; it's just, “Oh, you have this type of solution that will better reference and integrate the signals at intersections.” They're leveraging that data.

One of the things we didn't point is—

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm sorry, but I'm going to interrupt.

In a lot of the meetings we've had with a lot of the other sectors we've dealt with and when we've done town halls, we've heard issues similar to the tech issues, but on different scales and different issues.

I'm just curious. From your association members, when you talk about SMEs bidding on government business, what dollar value is it generally at? Again, we've had meetings where we've heard that a lot of them are $50,000 and below. What are the dollar values that you're dealing with from your members?

[André Leduc]

It will depend on whether it's a simple or commodity-based procurement as opposed to a more complex procurement. If you're looking at a broader IT platform for a department or multiple departments, you get into the longer, more prescribed tech specifications. On the smaller end, you'll see simply, “We're going to pilot this type of solution”, and it would be just a business solution.

[Kelly McCauley, Conservative, Edmonton West, AB]

Do you have a ballpark figure in terms of dollar value?

[André Leduc]

Most of them would be under $50,000.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay.

You mentioned risk officers. It's a wonderful idea. Can you give me an example of who's doing that right now? Is it mostly in large corporations, or have you heard of it in the U.S. or if anyone else is using that?

[André Leduc]

Most corporations are engaging in hiring chief risk officers to be able to evaluate both sides. You could shut off the Internet and have 100% security; however, at the end of the day, you're only going to get to 97% or 98% security on the Internet. What do you do with the other 2%?

[Kelly McCauley, Conservative, Edmonton West, AB]

We could turn off 100%, and the Chinese would still hack us, I'm sure.