Government Operations Committee on Jan. 31st, 2024

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair.

One of the contracts with GC Strategies identified in the report and valued at $13.9 million was awarded under the national security exemption, requiring the company to have what's called “Designated Organization Screening...with approved Document Safeguarding at the level of Protected B.” Now, I don't know what all of that means, but it sounds like it's a level of security clearance that's required for them to have the contract.

Now, in your report, you say that GC Strategies “did not meet [this] requirement when it was awarded the contract.” Then, 14 months later, the requirements of the contract were changed, and all of a sudden GC Strategies did meet the requirements.

There were 14 months that went by where you had a contractor that didn't meet the security requirements of a contract. What kind of documentation did they have access to during those 14 months? What level of risk did it place our country in, having a contractor that was not properly screened working on an IT project that, obviously, is an important one and involves all sorts of classified information? What's the level of risk there?

[Alexander Jeglic]

Again, I have to confess that I am also not a security expert, but I would suggest that it would seem that they would have access to documentation up to the protected B level.

That being said, Derek, I don't know if you saw any specific documentation on exactly what type of documentation they may have had access to.

[Derek Mersereau]

This may be one of the very few instances where you have GC Strategies as being just two individuals who never did any of the work. They weren't doing any of the IT work themselves. When they're operating the business out of their home.... We don't know specifically what documents—

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

There's no risk to security because they actually didn't do anything. Is that what I'm taking from your answer—that the safest contractor is one who doesn't do any of the actual work?

[Voices]

Oh, oh!

[Derek Mersereau]

Presumably, they would have been handling invoicing documents and that sort of thing, administratively. However, because they didn't do any of the work, they wouldn't have any—

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

They were processing the payments and putting them in their bank accounts, but they weren't actually accessing documents that were of a national security nature, if I can paraphrase.

[Derek Mersereau]

As I understand it, the two individuals who run GC Strategies are not IT experts.

[The Chair, Conservative, Kelly McCauley]

I'm sorry, but that is our time. Thanks very much.

Mr. Genuis, go ahead, please.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Chair. I'm so grateful that we have here today the watchdog responsible for government contracting.

Thank you for producing an excellent report on the ArriveCAN scandal. I'm a father of five children, and I've changed a lot of diapers over the years. None of them stink as much as the contracting system you're describing in this report.

I want to start with the issue of minimum prices. When Canadians are trying to buy things, they try to find the best price they can without compromising quality. Right now, so many Canadians are struggling and working overtime to hunt for those low prices.

Paragraphs 24 to 28 of your report describe a system for government purchasing that, incredibly, is intentionally designed to reward more costly bids and cut out lower bids. We have a procurement system that is designed to penalize the businesses that offer government lower prices. It's not by accident. It's how the system is designed. You say, “This methodology disincentivized bidders from proposing competitive rates.”

To create a process that directly punishes suppliers for offering low prices suggests that the person designing the system is either completely insane, or is intentionally looking for opportunities to funnel as much money to a preferred supplier as possible.

Is there any possible justification for this system being designed this way?

[Alexander Jeglic]

It's a fair question. Perhaps, it was an attempt to address another known failing. There are examples where there are low bidders who bid so low that they can't actually perform the work, but they need to ultimately have an opportunity to provide government services so that they can build up their resume and ultimately have experiences in subsequent opportunities. They bid below profit margins.

As a result, what's happened to the government in many instances is that suppliers are not able to ultimately fulfill the services, because it's no longer profitable for them, or, alternatively, they decline the work. They are awarded the contract based on the price, but when it comes time to deliver on the work, they don't do the work, so there's a significant amount of time loss.

To address your question in terms of the price bands, though, I think what happened here is that there was a deviation in the price band. As a result of the deviation, a clause that should have affected the ability to justify a low price wasn't available.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Can I just dig in on that? The system you're describing, though, is based on something in relation to median price. It's not based on any objective evaluation. In some cases you could say this is obviously a price that's suspiciously low for whatever reason. You can imagine if that happens.

However, if it's based on median price, and if I'm bidding, I have to worry—and it's within the narrow band that you described—that if I offer the best price, and it happens to be just a little bit lower than what everybody else is offering, I'm going to be penalized for being able to provide the best product at the lowest price.

I have to be increasing my price in order to ensure that I don't fall below. I have no awareness of what prices the other suppliers are putting in. That creates a system, since it's based on median price, in which everybody is going to be bidding higher than they would otherwise, because they're afraid of falling below. If you have five people bidding, and you want to make sure you're not too far below where everybody else is, you're going to bid higher. The basic economics tells us that everybody is then going to be driving up the price.

That's just going to exert significant continuous upward pressure on the price, given how this is designed. It seems so obviously crazy, and it seems like it's an excuse, not a reason. It seems there would be plenty of other ways of solving the problem that you suggest.

[Alexander Jeglic]

I won't disagree with your characterization, because, fundamentally, that's also how we saw this issue. To be fair, if the price support clause works effectively, it does allow low bidders to ultimately be accepted. What it requires them to do is to provide invoices on previous contracts to other clients, demonstrating that they've been able to fulfill the work at that lower price point. That price would then be accepted, but I would agree with your characterization that it's still risky.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Who are the people who designed this crazy system? We've asked who made the decision to award the contract, but who was responsible for creating this system?

[The Chair, Conservative, Kelly McCauley]

Answer very briefly, please.

[Alexander Jeglic]

I have no direct knowledge as to who would have designed this median bands process.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Which department?

[Alexander Jeglic]

Probably Public Services and Procurement Canada is likely the originator.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Okay. Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you very much.

Mr. Kusmierczyk, go ahead, please.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you, Mr. Chair.

Thank you very much, Mr. Jeglic, for being here today, and Mr. Mersereau as well.

As I understand it, this was a year-long analysis of ArriveCAN. Can you tell us how often you do these sorts of deep dives into one procurement project? I'm just curious.

[Alexander Jeglic]

Over the last five years, we've done 19 systemic reviews—now with this one, it's 20—to give you a sense.

We had a pretty static five-year program where we were looking at the top 17 departments in terms of value and volume and looking at three static lines of inquiry to be able to assess...to almost create baseline data. Now that we've created that baseline data, it's a really important launch pad for us to know where to look next.

ArriveCAN was a bit of an anomaly. It was brought to us by the committee, but ultimately we were able to find reasonable grounds to launch. As a result, we were able to do this review. There's another review also coming as a result of this committee's action on McKinsey.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

You said 19 over the course of how much time?

[Alexander Jeglic]

It was five years.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

It's over five years.

When you do those reviews, do you look at departments or management teams, for example, or do you look at specific procurements, where it's one file, one procurement? I'm just curious what you look at when you do these audits.