Government Operations Committee on Jan. 30th, 2023

[Prof. Amanda Clarke]

Most of this kind of rampant outsourcing, coupled with systematic neglect or underinvestment in the state, really gets going in the eighties in most jurisdictions and in Canada as well. That was the kind of age of outsourcing, and it has continued since. Management consultants have always been around across different administrations. I think it's pretty politically neutral in that sense.

[Gord Johns, NDP, Courtenay—Alberni, BC]

What I meant was, for example, McKinsey. They went from $2 million under the Conservative government. We're up to $100 million plus.

Is there any other company that has been outsourcing and in favour with the government that should be examined as well as McKinsey?

[Prof. Amanda Clarke]

I appreciate that there are particular dynamics that have led to this specific focus on McKinsey, but in my opinion, it doesn't make sense to focus on McKinsey.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Should this committee be studying Deloitte and contracts with Deloitte?

[Prof. Amanda Clarke]

I think the focus on outsourcing and contracting in the federal government is a broad enough umbrella to get at these issues. Any given firm....

It's not going to lead to a useful outcome, because if we solve McKinsey by creating a bunch of rules, you're still going to have a position where management consultants are largely doing the work of government in ways that are unaccountable and have very little value for money. I don't think it's going to solve that problem.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Do you think that, if there were strong whistle-blowing laws in Canada, that would help curb some of this outsourcing? Would public servants be able to come forward and raise alarms when they see contracts explode like this, and when they have concerns about them within the public service?

[Prof. Amanda Clarke]

I think the focus on whistle-blowing would imply that, in each of these cases, it's a really obvious, sensationalist breach of good governance. It's actually more of a slow burn, and sometimes it's more subtle. I think public servants whistle-blowing.... They're not going to whistle-blow about the fact that one of their colleagues has a government email address and works for Deloitte and it's not really obvious. It's not a really great story. It doesn't sell.

However, I think that over time, this bigger erosion of state capacity is what this committee has the opportunity to address. That's what the focus should be.

I think McKinsey is a bit of a distraction, if I'm being honest, from the real issue.

[Gord Johns, NDP, Courtenay—Alberni, BC]

In 2016, you wrote an article about the paradox that the federal government is caught in around the fear of failure and the need to innovate. I'm wondering if you can reflect on the role that institutional knowledge has in the ability of a federal government to innovate, and whether or not it's beneficial for certain jobs or tasks to be carried out by a third party outside of government. It seems to me that a government can't innovate when the role of innovation is being outsourced, or it can't learn from failure when that failure is burdened by a private company.

Do you have any thoughts on this paradox and how it relates to McKinsey and the contracts it receives?

[Prof. Amanda Clarke]

In the research around sclerosis and barriers to innovation in the federal government, almost universally, when you ask public servants why this is something that the federal government complains about a lot.... It's pretty common. You can find quotes, through the clerk, going back decades, commenting on this specific issue: that we have a federal public service that is riddled with risk aversion and that undercuts innovation.

Where I think it plays into the consulting piece is, as I said earlier, when you're stuck in that environment, it's hard to be responsive and innovative and to encourage and enable your team. That's sometimes why management consultants get turned to. It's this vicious cycle. Because as you rely on these management consultants, you don't do the hard work of investigating why our public service is not capable of delivering this.

On the point around risk aversion and explosions of accountability that actually undermine accountability, that's a key one to address. I think parliamentarians played a big role in that, because in many cases, public servants will say the reason they act this way and are so risk averse is that they don't have an enabling environment to try new things, make mistakes and learn along the way. It's impossible to be innovative in that context.

Media, academics, parliamentarians and all outside scrutineers of government have a role to play in being critical and investigating failure in government, but also maybe creating a bit more space for public servants to experiment. That's not something we really tolerate in our political culture. It's not true in other cases. I've spoken to public servants in other jurisdictions who do not feel the same way.

[Gord Johns, NDP, Courtenay—Alberni, BC]

I'll lean into the ownership piece, because the outsourcing of risk and innovation comes with the outsourcing of ownership and development too. It seems to me that the same stagnation would also apply to the development of the resources of our public service.

Can you speak about the intellectual property rights and the ability for departments to share resources as these relate to outsourcing contracts like McKinsey's?

[The Chair, Conservative, Kelly McCauley]

I'm afraid you have only about 10 seconds.

[Prof. Amanda Clarke]

I'll basically say that, yes, the issue of IP and data ownership whenever you contract out is a really important one. In a number of cases, governments are finding themselves buying back data from firms they contract with, especially for service delivery. It's like a twofer for the firm.

That's a good point to raise, and I'm happy to discuss it more when I have more minutes.

[Gord Johns, NDP, Courtenay—Alberni, BC]

I'll come back to you.

[The Chair, Conservative, Kelly McCauley]

Thanks very much.

We have Mr. Barrett for five minutes, please.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

Thanks, Chair.

Thanks to both of the witnesses for being here today.

Professor Clarke, in your research, have you found an example of a company receiving a 50-fold increase in contracts received from a government—specifically, the Government of Canada—over a term of less than eight years, while the principal of that organization is a close friend of the head of government? In this case, it's the Prime Minister.

[Prof. Amanda Clarke]

No, I've never seen that before. I haven't really been looking for it, to be fair, but no, I've never seen that before.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

It's interesting that you point out that you haven't seen it, but you haven't been looking for it. This issue came to light through reports in the media. There have also been efforts undertaken by journalists around the world with respect to McKinsey specifically.

Do you know of, or have you read reports of, some of the other firms you mentioned—PricewaterhouseCoopers, IBM, KPMG—holding corporate retreats within a couple of thousand metres of a concentration camp? Are you familiar with examples of that?

[Prof. Amanda Clarke]

No. To your point, when I was going through the focus of this study, there is a....

I said earlier that McKinsey was a distraction, but I should clarify. On the issue of how to make the public service more resilient and to better manage procurement, I think the focus on McKinsey can be distracting. But there is an interesting policy question around this: At what point does a firm's broader ethical behaviour and values mean that they're just, like, a no-go zone? Do we want to start developing rules around that?

I mean, I'm not an expert on McKinsey's particular history, but I read the news like everybody, and yes, there are some really problematic lines on their CV. Yes, it's a legitimate question to ask if that's something the federal government would want to examine. To me, that's a distinct issue, though, from reform in procurement as a larger issue and what I think are the more immediate problems with how we run procurement in Canada.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

Do you think incidents like that or, for example, McKinsey and the work they were documented as having done for Purdue Pharma, specifically in helping to supercharge opioid sales in the sale of OxyContin...? That has ultimately led to the fire that's burning across North America, which is the deadly opioid epidemic. Do you think something like that, that kind of work, being done by a company that is now a $100 million-plus supplier or contractor for the federal government...? Do you think that association undermines, or risks undermining, public confidence in the public service?

[Prof. Amanda Clarke]

I can't say. I think that's an eminently studiable question. You could do some public opinion research to see how the McKinsey contracts are changing public opinion toward the state. Yes—but I would just be offering opinion, at that point. I don't know the extent to which Canadians are paying attention or that it's eroding trust.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

Right. With respect to that, to the extent that Canadians are paying attention, there seems to be quite a bit of public interest, as has been evidenced by the amount of ink spilled by the press.

Though you haven't likely been looking for it, in your research have you found any examples of any other management company that saw a 50-fold increase in the amount of money they were receiving from the federal government in contracts after driving the immigration policy for the Trump administration in the United States? Is that something you've observed over the last eight years?

[Prof. Amanda Clarke]

No.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

No. I guess the concern I have specifically with Mr. Housefather's line of questioning is that we have an opportunity here to get some analysis on the impacts of these types of contracts on the federal government. You're certainly an expert in that. These observations that I'm discussing with you are so important, because the type of company that McKinsey is is exactly the type of company that Canadians wouldn't choose to do business with in their personal lives. I've listed a couple of examples, including McKinsey's work in helping the Saudi government track people who are political opponents of theirs, to then target their families and exact punishments on them.

My concern, Chair, and the reason we're talking about McKinsey today, is the type of company they are, the type of country we are and the risk of damage to brand Canada that they could do.

[The Chair, Conservative, Kelly McCauley]

Great. Thank you, Mr. Barrett.

We have Ms. Thompson for five minutes, please.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you, Mr. Chair.

Welcome back to committee, Dr. Clarke and Mr. Boots.

I want to start with a couple of articles that go back a number of years. One is from November 2013. I'll begin in the middle of the article. It says:

Over the past three years, Deloitte...has received almost $53 million in federal government contracts that are worth $100,000 or more, and in excess of $135 million in major contracts since the Harper government came to power, shows a review of recently tabled public accounts conducted by Postmedia News. Contracts valued at less than $100,000 are not individually broken down in the annual public accounts.

Another article is from September 2011. It says:

The Harper government defended paying almost $90,000 a day to a big consulting firm for advice on how to save money, saying it can't do the job properly by itself.

“The fact is that we feel we need to have outside advice,” Finance Minister Jim Flaherty said Tuesday.

“It isn't good, quite frankly, for a government to just look at itself. There's a lot of expertise in Canada on the subject of public-sector productivity, for example, and we [need to] look forward to having the advice of, in this case, Deloitte's.”

The Canadian Press earlier reported that Deloitte Inc. was hired on Aug.15 on a $19.8-million contract to advise the federal cabinet and senior officials on finding enough savings to balance the books by 2014.

I realize that we have an outsourcing study under way, so I really feel that information sits there in light of the McKinsey study today. Federal spending consultant contracts awarded to McKinsey rose in 2020-21 relative to other years, and the increase is likely related, at least in part, to pandemic-related services relative to McKinsey in this study, rather than the outsourcing, which I believe is very important for us to look at.

Could you provide information around the McKinsey contracts of 2020-21?