Government Operations Committee on Jan. 30th, 2023

[The Chair, Conservative, Kelly McCauley]

Good afternoon, everyone. I call this meeting to order.

Welcome to meeting number 48 of the House of Commons Standing Committee on Government Operations and Estimates, a.k.a. the mighty OGGO.

Pursuant to the motion adopted by the committee on Wednesday, January 18, 2023, the committee is meeting on the study of federal government consulting contracts awarded to McKinsey & Company.

One of our witnesses is running late because of traffic and the snow not getting cleared in Ottawa, so we're going to our first witness for his opening statement. Hopefully, Ms. Clarke will be here in time for her statement.

We welcome back Mr. Sean Boots. You have five minutes for your opening statement, please.

Before you start, committee, I'm letting everyone know that I'll need about 15 or 20 minutes in the second hour to do some housekeeping work.

Please, go ahead.

[Sean Boots, Senior Policy Adviser, Canadian Digital Service, Treasury Board Secretariat]

Thanks so much, Mr. Chair.

Thanks to all of you for having me here.

It's nice to be back. Professor Clarke and I were here in November as part of—

[The Chair, Conservative, Kelly McCauley]

Mr. Boots, I apologize. I have to interrupt you for a moment. I have another housekeeping item.

So that everyone is aware, all of the witnesses have completed the required connection tests in advance of the meeting. That's to make sure our valued interpreters are looked after.

I'm sorry about that, Mr. Boots. You can start from the top, please.

[Sean Boots]

It's all good. Thanks so much. I really appreciate it.

Yes, it's nice to be back. Professor Clarke and I, as you mentioned, were here in November as part of the committee's study on ArriveCAN. I think it's safe to say that, when we started this research last spring, we didn't expect it to attract this level of attention.

Last year, Professor Clarke and I worked together on a research project on federal government contract spending. For today's discussion on this, there are two angles that stand out. The first, on a micro level, goes to transparency and data quality in government contract disclosures. The second, on a macro level, is what this means for public sector capacity and patterns of dependency on large consulting firms.

In terms of transparency and data quality, the main theme is that it's hard to understand, on a government-wide scale, where money is being spent and which vendors are the most prominent. Our research focused on the government's proactive disclosure of contracts dataset, which is all publicly available open data.

It's a very valuable dataset, but there are a few reasons why it's hard to interpret at a glance. The names of vendors aren't consistent, and there aren't any business numbers or other unique identifiers. Amendments to contracts aren't always associated consistently with their original contracts. For multi-year contracts, there isn't any data on how much money is spent per year. For many of the contract entries, there aren't descriptions that would allow us to clearly associate the contract with a specific project or initiative, or to easily differentiate different kinds of professional services work.

Our research team spent several months cleaning and analyzing this data, and we published our results and methodology online at govcanadacontracts.ca.

There are two things to note—and this is more for the researchers in the room. If you're looking at the numbers on the website, for government-wide totals, you can use the “All departments and agencies” tab near the top of the page. If you're comparing numbers from year to year, I'd recommend using inflation-adjusted totals. You can find those in the associated CSV files when you click the “View source data” link below each table.

Even after the data cleaning we did, it's hard to tell, from the publicly available data, what a given contract was for. That's especially true for management consulting firms, which provide a very wide range of services to government departments. In the data, a contract might simply be described as “management consulting”. That could be strategic advice work, IT implementation or subcontracting a different, more specialized vendor. It's hard to tell what work was involved, let alone how successfully the project turned out.

There's a lot that other countries have done to improve the quality of their public contract disclosures. The biggest would be adopting the open contracting data standard, which lets the public follow spending in detail, from initial RFPs all the way to the conclusion of the contract.

That's the micro level.

At the macro level, a lot of this is a reflection of public service capacity—or a perceived lack of it—and the ways management consulting firms fill that gap. Looking at the data year by year, what stood out, very early on, was how significantly spending on management consulting firms has increased over time. Management consulting firms feature prominently in both the professional services and information technology categories of our analysis.

Deloitte, PricewaterhouseCoopers and Accenture are the largest of these by total dollars spent. In the 2021-22 fiscal year, these companies received an estimated $172 million, $115 million and $94 million, respectively. That's much more per year than four or five years ago, which you can see from the data tables on the website.

From the descriptions available, many contracts with these firms focused on IT or IT-adjacent work. That could be implementing a large IT or service delivery project, process automation, digital transformation advice, project oversight and so on.

The large growth in spending on these firms, in many cases, is the result of an increased recognition that departments have fallen behind in IT capacity compared with public and political expectations. Instead of being able to build capacity in-house, they have expanded the amount of work done externally by management consultants and large IT firms.

There are two tendencies you can observe from this.

The first is that management consulting firms will often be hired to prepare project management and procurement plans for major projects. Even if the same firms aren't bidding on the subsequent projects, you can reasonably assume that it gives them detailed insights into how departments assess and evaluate bids.

The second is that—especially for large IT projects—one management consulting firm might be hired to oversee the work of another management consulting firm or major IT firm, such as IBM or CGI. That can lead to a set of dynamics in which each firm isn't necessarily motivated to hold the other to account, given that their positions will likely be reversed on other, future projects.

Looking at the literature, we see a worldwide trend of management consulting firms dramatically expanding their IT implementation divisions, given how profitable this work is. Their existing relationships through audit and strategic advice work give them a competitive advantage in winning IT and digital services contracts.

This reliance on management consultants becomes a self-reinforcing cycle—there are a few reasons why that happens—and the capacity of the public service degrades over time, as a result. Other countries are having important conversations about state capacity or the effectiveness of their public institutions, often in response to similar situations.

In my experience, departments depending heavily on management consultants is a reflection of structural challenges within the public service, such as a lack of effective feedback loops, a rigid adherence to existing processes and a lack of in-house technical capacity and expertise.

I hope this can spark more discussions on public service reform and improving how we work. It's a conversation that's really worth having.

I'll leave it to Professor Clarke—once she arrives, hopefully—to discuss some of these trends in more detail.

Thank you for having me here. I'm happy to answer your questions.

[The Chair, Conservative, Kelly McCauley]

Thank you, Mr. Boots.

Yes, Professor Clarke is here.

Welcome back to OGGO. You have five minutes, please.

[Professor Amanda Clarke, Associate Professor, School of Public Policy and Administration, Carleton University, As an Individual]

It's great to be here. Thank you very much for inviting back. I'm really excited to see that you are continuing to look at this issue.

I'm an associate professor at Carleton University's school of public policy and administration. By way of context, I've been researching public administration in Canada and internationally since about 2010.

My perspective on the issue of management consultants in the federal government is a product of the data tool Mr. Boots just presented, which I helped launch, but also research interviews with public servants, where I have them explain to me in their language what it looks like on the ground when you're working in government. This happens at all levels of authority across all departments, central agencies and line agencies. I'll say that they're pretty illuminating when you hear directly from public servants how they see this particular issue playing out. I think it's good that you're spending time on it, because it's definitely something that concerns a lot of public servants.

Looking through the transcripts of your first meeting, there are obviously a lot of questions before you. The one I want to focus on is the one that I think is the most important, which is whether the federal government’s contracts with management consulting firms betray principles of responsible public administration, and if so, what should be done to prevent this going forward.

On the first part, yes, absolutely. My research suggests that in a number of ways the federal public service breaches acceptable best practices in responsible public administration when it contracts with large management consulting firms.

There are three main issues that come up generally. First is questionable value for money. Second is clear breaches of reasonably expected standards of public accountability. Third is the hollowing of state capacity. I can elaborate more on each of those in the questions, but I think the media—and, frankly, the long-standing literature on this topic—does a really good job of diagnosing that problem. There's really no debate about whether that problem exists.

What I think I want to focus on in my opening remarks is what I think the solutions are. I think there's a lot this committee could do that would help solve this problem. There are also routes you could go in the recommendations that would actually make the problem worse, so I've tried to flag those as well.

In terms of what we need to do to fix this, the first—and this speaks to the comments Mr. Boots just gave—is really focusing on the data. It's really impossible to do your jobs, frankly, given the low quality of the data we have to describe management consulting firms—what they're actually working on, what they produce, whether it has value—and to track the contracts over time. You got a little bit of a taste of that in your study of the ArriveCAN app in trying to follow the paper trail there.

There are lots of models we can look to internationally and as long as there's some money on the table. By that I mean that we actually have to hire people in government and say that their job is to make this data good, to release it and to work with the stakeholders, as opposed to it just being an add-on. That often happens with these kinds of data projects. There's a demand for more data and then there are no resources for public servants to actually generate, produce and share it. That's the first thing.

Second, as I'd say for IT projects specifically—which is a huge chunk of the amount of money that the federal spends on management consultants—there are some best practices around capping contract size and recruiting more IT talent in order to be smarter and more skeptical shoppers of some of these products and services. We actually elaborated on that in the report we tabled to you the last time, when we spoke on ArriveCAN, so I won't get too much into that but I'm happy to discuss it more as well.

Then third—and I think this is the most important thing—is that this issue of spending a lot of money on management consultants and seeing a lot of core public service work being done by management consultants is not an accident. It's an inevitable dynamic of a public service that has suffered from a lack of investment in talent and recruitment and in reforming HR practices to make it easier to bring people in.

Also, I think over the years it has suffered from unhelpful oversight and reporting burdens and a kind of error-free “gotcha” mentality in a lot of scrutiny, and the demands for error-free government make it very difficult to be creative and innovative in the public service. I think also, in tandem with that, when you see a lot of the important work you care about being outsourced to management consultants, it's clearly bad for morale and doesn't motivate the workforce.

Saying we need to reform the civil service perhaps sounds large, daunting and not specific enough, but I think it's actually not as hard as we think. There are many jurisdictions globally that are facing the exact same problems the federal government is, and they're taking action. They've already experimented with different solutions. We can turn to those countries for examples of what needs to be done.

We don't need to spend a lot of time diagnosing the problem either, because there's pretty much consensus from anyone who's ever studied Canadian public administration, and from most public servants, regarding what the issues are. It's that the organization is too siloed and there are too many unhelpful rules and processes.

I think that if you want a nice testimony of it, one document I really like is the 2016 internal red tape reduction report that a group of public servants prepared.

I invite you to look, in particular, at some of the snapshots of internal red tape that they described. When you read about what it takes to try to do anything in the federal government today, you can understand why it's hard to be creative and innovative and why it might be that an incoming government quickly turns to a management consultant who promises a fast solution. However, those fast solutions don't tend to be good value for money. They also happen in secret. That's what we should be worried about.

The last thing I'll say is that in proposing solutions, the committee and the government really need to avoid adding too many new rules, processes or onerous reporting requirements in the name of accountability. This is what we've seen historically. It actually has this effect of further eroding public servants' abilities to do the work that you want them to do, because they spend a lot more time filling out those forms and running complex procurement processes. It also has the effect of making it difficult for smaller and perhaps more innovative...or at least a broader range of firms to bid for government work because really complicated procurement processes take teams of people to bid for. Small firms just don't have that.

I'll leave it there. I look forward to your questions.

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you, Ms. Clarke.

We'll start with Mrs. Kusie for six minutes.

Before we do, I want to welcome in person our brand new clerk, Aimée Belmore.

Welcome Madam Clerk.

[Voices]

Hear, hear!

[The Chair, Conservative, Kelly McCauley]

Mrs. Kusie, go ahead for six minutes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Chair.

Welcome, Clerk.

Thank you to Ms. Clarke and Mr. Boots for being here today.

Ms. Clarke, through the data you've collected, what do you think is the main reason we've seen such large increases in contracts with one consulting firm in particular, which is McKinsey & Company?

[Prof. Amanda Clarke]

You're right. The data that we present—which I think you have available to you but I can share as well—shows that McKinsey has the highest rate of growth by far between 2017 and 2021. The overall total amount spent on McKinsey is much smaller than a number of other firms.

Why has it grown so much? I can't speculate. I really don't know.

It's possible that the data is not actually that strong from the baseline point that we have. Something we've mused about is why it was such a small amount in 2017. There may be data entry errors or it could just be that year they didn't happen to get a lot of contracts, so it looks like a lot but it's actually not a huge change.

It's interesting that, when I speak to public servants about the firms they are worried about, they very rarely say McKinsey. More often—it depends on the case—it's Deloitte. PricewaterhouseCoopers comes up a lot, as does Accenture. Some of the big IT firms basically act like management consultant firms now, like IBM, which is another one that comes up a lot.

As for the growth for McKinsey, I haven't seen any reliable evidence to suggest why that's the case.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Ms. Clarke.

Of the $101.4 million awarded to McKinsey under the Liberal government—and that is the amount that we know today, since the Prime Minister would not give us an amount in question period—20 out of 23 were sole-source contracts. A journalist did challenge me on that, but when 18 out of the 23 are pulled from a national standing list, this means that they were selected without a competitive bid. Those 20 out of 23 were sole-source contracts.

What procurement reforms, in your opinion, need to happen to ensure that government isn't handing out sole-source contracts to friends, contacts and insiders?

[Prof. Amanda Clarke]

On sole-source contracts, definitely there are very few people who would recommend that as a best practice for the responsible stewardship of public funds. It doesn't tend to come up as the go-to model for how to issue these contracts.

I think that, in any given case, the process that you follow, whether it's a full and open process or whether you have standing offers ready to go, is always a balancing act between the need for resilience, responsiveness and being able to contract quickly and also having processes in place to make sure that it's competitive, accountable and transparent.

Of some of the specific reforms that I can speak to around procurement that I'd love to see, one comes back to the data question. If we followed something like the open contracting data standard that Mr. Boots mentioned, we'd be able to follow these contracts through each stage and really scrutinize what gets delivered. That's a huge issue. Never mind how competitive it was in the beginning. With a lot of these firms, the reports they produce, the analysis that's provided and the products never see the light of day for us as outsiders. It's really hard to know, call it out and then hopefully institute better practices to not contract with those firms again.

That's one thing. It's a big emphasis on better data and better disclosure of contract outputs. That would be a big one to help resolve some of these issues.

Another procurement reform that I'd like to see is looking at the size of contracts. This applies especially to software projects. I think in general, if you have smaller contracts, you're not as locked in and you can better keep firms to account. That would be another big one.

I think there should be more of an investigation and possibly rules introduced around the fluidity between senior leadership roles in the federal government and positions within these firms. It's pretty common, especially in the IT space, to see someone from a senior digital or IT role, especially in a CIO function, sashay into a second career at Deloitte or Accenture. That's a pretty common pattern that I've seen to the point that it almost becomes laughable. You're like, “Oh, there goes another one.”

What are they doing there? Obviously they're rallying their contacts. They understand how the processes work in government. On one level, there's nothing wrong with that. We should encourage more interchange between the private and public sectors. I'm not against that in principle, but there's something concerning to me as a citizen and as a researcher of public administration to see people with that kind of influence then being able to drum up this business.

The other thing that happens is the other way, where you'll get people from these firms seconded in to help lead a project in government, and they're given government email addresses and security clearances. Some of those are just practicalities. They need to be able to access the system and that's how we've set it up, but it's not obvious.

I've had a number of public servants tell me that sometimes they're sitting in a room developing a new service, launching some kind of transformation strategy or developing advice for the minister, and it's not always obvious who's a consultant and who's a public servant. I mean, we should be concerned about that, because public servants have as their mission creating public value. We also subject them to a lot of rules around values and ethics, bilingualism, loyalty to the Crown and all of these things.

A management consultant's job is to produce profit. We should know who they are when they're in the room with public servants. It should be really obvious that they have a different set of values and drivers, justifiably. Corporations are going to act as corporations. I don't think we want them to pretend to be public servants. That's another reform.

What would that look like in practice? We'd have to have some rules about how we second these people into government and balance that with the risk of making it so hard that you never see that fluid interchange, which we also want to avoid.

[The Chair, Conservative, Kelly McCauley]

I'm afraid I have to cut you off there, because we're out of time.

[Prof. Amanda Clarke]

Yes, I'm sorry; that was a long answer.

[The Chair, Conservative, Kelly McCauley]

Thanks very much.

Mr. Housefather, go ahead, please.

[Anthony Housefather, Liberal, Mount Royal, QC]

Thank you very much to Ms. Clarke and Mr. Boots for being here again. It's always a pleasure to see you.

I think that, just like the last time, you've offered a lot of very compelling testimony related to the larger question of outsourcing. We have a different study that we already had in place dealing with outsourcing, whether or not we're outsourcing too much—for example, to management consultants—whether or not we should be improving our Treasury Board guidelines and procurement practices and how we can have better data available to everybody. All of your testimony is perfect for that other study.

As you know, this study, which we were called back urgently to a meeting the past couple of weeks ago during the Christmas break, is about McKinsey. Let me just ask you about McKinsey.

Ms. Clarke, do you have any non-public information you'd like to share with the committee about McKinsey or about contracts with McKinsey today?

[Prof. Amanda Clarke]

No.

[Anthony Housefather, Liberal, Mount Royal, QC]

Fair enough.

Mr. Boots, do you have any non-public information you'd like to share with the committee about McKinsey today?

[Sean Boots]

Also no.

[Anthony Housefather, Liberal, Mount Royal, QC]

Ms. Clarke, were you involved in the negotiation of any of the contracts between the Government of Canada and McKinsey?

[Prof. Amanda Clarke]

No.

[Anthony Housefather, Liberal, Mount Royal, QC]

Mr. Boots, were you involved in those negotiations?

[Sean Boots]

No.

[Anthony Housefather, Liberal, Mount Royal, QC]

Ms. Clarke, were you involved in administering any of the contracts between McKinsey and the government, or do you have any non-public information regarding how they were administered?