Good morning, and thank you for the opportunity to be here with you.
The Association of Consulting Engineering Companies is a business association representing about 400 engineering companies across Canada. We are a federation of 12 provincial and territorial associations. Our members collectively have about 2,000 offices and employ about 60,000 Canadians, including engineers, architects, natural scientists, and land-use planners. It's very multidisciplinary.
About 80% of our firms have 50 or fewer employees, but Canada also boasts the largest engineering consulting company in the world.
We obviously welcome the opportunity to participate in public contracts. Public procurement fulfills government mandates and commitments. It allows access to expertise and experience and provides the government with flexibility and savings. It creates jobs and opportunities for Canadians and grows businesses and tax revenue. It encourages innovation, and done properly, has a fair and equitable sharing of risk and reward.
Our recommendation for public procurement of not just SMEs but all professional service firms, particularly those in the design sector, would be to adopt an existing document called, “Selecting a Professional Consultant”, which was a best practice guide that was developed by the National Guide to Sustainable Municipal Infrastructure, also known as InfraGuide.
The InfraGuide is a series of documents that were developed in collaboration with the Federation of Canadian Municipalities, the National Research Council, Infrastructure Canada, and the Canadian Public Works Association. It was based on extensive research, and of the 50 best practices they developed over its lifetime, one of them specifically addresses the procurement of professional services, with engineering and architecture specifically in mind.
When they were presented with the challenge that all public sectors have of trying to achieve value in a fair and transparent process, they came to the conclusion that the public agency should be using qualifications-based selection. It attempts to address that long challenge that we've all had together. We're trying to do timely, fiscally responsible delivery and to encourage quality and innovation. At the centre of this is the public interest and the taxpayers' dollars.
It's important to know that engineering and architectural-related services only make up less than 1% of the entire life cycle of most assets we get involved in. Whether it's a building, a port, harbour, or airport, 80% to 90% of the cost ends up being the operation and maintenance. Even the capital construction is rarely more than 10% and is typically around 5%, yet that 1% that you invest in engineering and architecture has a cascading effect throughout the design life of that entire project. It's at this rather modest investment at the front that you have the opportunity to innovate, to look at new materials, new methods, and different ways of doing things.
I would therefore suggest to you that the engineering fees, the architectural fees you pay at the beginning of a project, should not be viewed as an expense to be minimized but rather an investment to be leveraged. It's at the beginning of a project when you have, figuratively speaking, a blank page. The opportunity for innovation and change is easy and inexpensive, but once you start pouring concrete, once steel goes into place, once you start writing code, the new ideas, changes, and alterations become almost exponentially more expensive until you're finally in the operational phase, which can sometimes be decades, and then you're pretty much stuck with what you've decided on. You'll end up living with engineering decisions for decades.
Procurement is the key to leveraging this. It's all about establishing common objectives and outcomes and making sure there's a mutual understanding. It's about making sure there's a clear understanding of cost-benefit relationships and clarifying the roles and responsibilities. At the end of the day, you want to make sure you have the right team for the right job and that they have adequate resources to deliver on what you have committed to the Canadian taxpayer. I would suggest that the lowest price is not the best price. The right price is the best price.
We have common challenges in public procurement. Often it will become a process unto itself rather than a means to an end. It discourages innovation, it often takes an extended period to award, and it sometimes confuses value with low price, whereas a good procurement system will clearly define scope, outcomes, and objectives. It evaluates what actually distinguishes the proponents from each other, as opposed to pages and pages of boilerplate. It fairly shares risk and reward. It rewards proposals that add value and that propose innovation.
It uses a short list where necessary because writing proposals is very expensive for the industry, particularly SMEs, and it considers the life cycle of the project and focuses on the best value rather than the lowest price.
We find that when the lowest price is assumed to be the best price, proponents will minimally interpret the scope of work in order to be competitive. That means they are not looking at alternatives, they are not looking at the value-adds. It will actually penalize you if you propose innovation. It will actually penalize you if you anticipate difficulties that might arise in subsequent construction phases or even in the operations. Consequently, significant life-cycle savings are sacrificed in favour of short-term savings. There's a saying in our industry that sometimes if you know too much about your clients' needs, it's the kiss of death if you want to win the job.
Many public agencies say we only use 20% price, or 40% price, or 10% price. In the handout I have provided to the clerk, you will see that sometimes if the 20% is scored from zero to 20, and the qualifications are all scored in a narrow band, the price will still dominate. Your proponents interpret that as “I have to minimally interpret the scope of work.” Consequently, surprises during construction downstream should really not be surprises.
The best practice known as qualifications-based selection is very much like the job interview process. You request the qualifications, you evaluate and rank your proponents, and you ask for proposals from the front-runners. Then you sit down and interview in most cases, and you select the highest-ranked consultant. At this point, you have not yet asked for a fee submission. You take your top-ranked proponent, you sit down with that person, and you make sure you have a mutual understanding of the project's scope and outcomes. It allows the owner to say, “You know what? We would like to do more of this and less of this.” It actually allows the owner more fidelity with the outcome, and you can make sure the fees correspond to the outcome, to the risk, and to your consultant's level of effort. Then you can award the assignment.
If you can't come to terms, just like a job interview, then perhaps you agree to split company. Just like anyone else, we prefer not to get jobs because we were the low bidder. We prefer to showcase what we can bring to the table. We want to show that we can add value to the organization. If we're liked by the potential employer, then we discuss terms. If we can't agree to those terms, then perhaps they go to someone else. No one says you have to blow your budget. You can work within your budget, just like we do as employers.
Qualifications-based selection is supported not only by the ACEC but also by the Royal Architectural Institute of Canada, Engineers Canada, the International Federation of Consulting Engineers, the American Public Works Association, and organizations worldwide.
I provided you with a number of studies that have been done. This has been done for 40 years in the States. In fact, it's legislated that if the federal government is going to buy engineering or architectural services, it must use qualifications-based selection. Furthermore, if you are receiving funding from the federal government to do projects, you must also use qualifications-based selection. After 40 years there was an extensive study of 200 projects. They found that using qualifications-based selection with a post-negotiated fee with engineers and architects reduced construction overruns by 70%. Schedule overruns were reduced by 20%. Most owners said they received better service and had a greater ability to deal with societal issues.
In summary, you get the right outcomes, the right team, realistic schedules and budgets, fewer change orders and disputes, a better business relationship, and at the end of the day, better service, better quality, and better value for taxpayers.
The good news is that we are in discussions with PSPC about a pilot project. We hope this will take place over the course of 2018, with ROIs to go out. I want to congratulate PSPC and assistant deputy minister Reza for taking on this challenge. There is a lot of evidence out there. As I say, this is not a new and crazy idea. It was validated 10 years ago by InfraGuide, a publication written by the public sector for the public sector.
In conclusion, while putting price aside at the beginning might be counterintuitive to public procurement, the physicist Albert Einstein said that “not everything that counts can be counted and not everything that can be counted counts.”
I believe that our industry, SMEs, and large firms could provide better service and better outcomes for the government if it were to adopt qualifications-based selection as recommended by InfraGuide 10 years ago, as has been commonly carried out by the United States, has been used by the City of Calgary for many years, and we have upcoming pilots from Transportation Alberta and Metrolinks as well as PSPC.
Thank you for your time and your attention.