[Recorded by Electronic Apparatus]
Wednesday, November 8, 1995
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[English]
The Chairman: Order, please.
Good afternoon, colleagues, and welcome to the Standing Committee on Government Operations. Today, as you know, we are beginning a most interesting study pursuant to Standing Order 108(2). A briefing session is going to occur on the government contracting process, procedures and systems, including an evaluation or discussion of open bidding and the open bidding service.
As you know, this standing committee has examined various aspects of contracting for goods and services by the federal government. One area that has caused concern and interest is the perceived growth of non-competitive contracting over the last three years. I think all members of Parliament want to be assured that government contracting is competitive, that government contracting is particularly accessible to small and medium-sized businesses in all regions of Canada, and that it is managed and operated by officials with due regard for economy, efficiency, and effectiveness.
The government operations committee noted in an earlier Treasury Board report that $9 billion is spent annually by the Government of Canada on contracting activity. Of that amount, about $3.5 billion for the fiscal year was for sole-source or non-competitive contracts. In other words, according to the latest figures that were available to your committee, a total of 107,000 contracts out of 186,000 contracts were awarded to single suppliers without being subjected to a competitive bidding process. This has been part of what we suspect is an upward trend, but it is certainly a trend, and during the last three months our estimation is that the situation has not improved.
I think members of Parliament accept the view that competition is best. It also means that public access and transparency must be attained through a competitive process. We believe there is a clear need to improve this accountability issue for the people of Canada. The situation is serious, and there has been unanimous agreement by our committee that this subject should be examined. So today begins the examination of the current contracting process, procedure, and systems, including the OBS, the open bidding service system, that has given rise to the situation. We want to be assured that small and medium-sized businesses have equal opportunity to compete for government contracts.
Colleagues, with that brief opening statement, on your behalf I am very happy to welcome to the committee Mssrs. Neville, Campbell, and Kelly, from the Treasury Board of Canada. I understand the deputy minister has a previous commitment but will possibly try to join in towards the end of this presentation.
As a preliminary matter, colleagues, I want to draw your attention to the fact that although next week we're on a recess, the following week you will receive a schedule and we may have more than the two scheduled meetings. I'd be looking for your input on that, because we're embarking on this particular study.
We have issued a letter, which you all received prior to this meeting. I understand the letter has also gone to seven to nine deputy ministers. Is that right, Mr. Clerk?
The Clerk of the Committee: Eight.
The Chairman: It has gone to eight deputy ministers. We felt those deputy ministers were the largest - I don't like to use the word ``offenders'' because it sounds like they've done something wrong - users of non-competitive contracts, so we will be hearing from those deputy ministers or their departments.
We have also received some information that the Canadian Federation of Independent Business and at least one other organization, the Canadian Manufacturers' Association, and possibly the Canadian Chamber of Commerce, were interested in the subject.
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Colleagues, we have ample time to consider other witnesses that any of our colleagues wish to put forward. I'd ask that you contact the clerk or the researcher and they'll extend invitations.
There are also a couple of academics in the area who may make presentations to give us some suggestions as to how we, as the government operations committee, in our report might want to consider some changes in the process so that government, through Treasury Board and through to other departments, can consider some changes.
Those are my opening comments. I know this is the first opportunity we've all had to get together, and I'll take some preliminary interventions if there are any. If not, I'll hear from the witnesses.
Mr. Bellemare.
Mr. Bellemare (Carleton - Gloucester): I appreciate your personal comments, Mr. Chair, on what is about to happen, but before we get inundated with information from Treasury Board, I think we should establish the ground rules of definitions.
I often heard in the last year all kinds of figures on contracts. What I would like to hear - and this would save a lot of time - is the difference between services, goods, and construction and maintenance, which are three different areas. When you throw -
The Chairman: I'm just going to interrupt as your chair. I will put you on the list. I'm not trying to rule you out of order, but they have a presentation to make on a specific subject that they've been asked to make by virtue of a letter I issued on your behalf. So colleagues, I'd ask you to save those kinds of questions for the time being.
We'll give you the first round of questioning, Mr. Bellemare, if that's the nature of your inquiry. I didn't mean to cut you off, but would that be acceptable to you? They have a presentation to make to us now.
Mr. Bellemare: I'm aware of that. Are they in a hurry or are you in a hurry?
The Chairman: No. You're in a hurry because you have a vote at 5:15 p.m., Mr. Bellemare.
Mr. Bellemare: Touché.
The Chairman: Okay. Please proceed.
Mr. R. Neville (Assistant Secretary, Financial and Information Management Branch, Treasury Board of Canada): Thank you, Mr. Chairman. I appreciate the opportunity of being here.
I'd like to begin by introducing two of my colleagues. With me today is Ron Campbell, who is the director of the contract, project and risk management division; and Bob Kelly, the group chief, contracting management. These two individuals can be considered as expert witnesses if the need be.
I'd also like to take this opportunity to congratulate the committee on taking the initiative to look at contracting. It's a very important issue, specifically in these times with reduced resources. The approach we take to contracting could help the government's overall financial position. I think it's a step in the right direction. We're going to be talking today about open bidding, and I believe that's one of the best tools available to make contracting as competitive as possible.
What we would like to cover in detail is basically the open bidding service, at least as much information as we have, being the Treasury Board Secretariat and responsible for the overall financial contracting procedures.
I'd also like to mention to all members that the OBS was developed by Public Works and Government Services Canada, and all credit obviously should go to that department. They are in fact the owners of the system on behalf of government, and I'd like to make sure all members understand that.
That being said, there is a deck that I'd like to go through if I could. If you could turn to the deck, we'll flip the page and talk about the policy overview.
We're talking today about the open bidding service. It is in fact an electronic bulletin board, and by that we mean it's an electronic database that allows Canadian business fast and equal access to information on government contracting opportunities.
In effect, if you're in a department and you wish to acquire, let's say, some goods, you would prepare a request for acquisition of those goods. It would go through a contracting process and if it's deemed to be required to go to a department such as Public Works and Government Services for contracting, then there's a possibility that it could be included on the open bidding service. If it is done, then it would be through what we call an electronic bulletin board and would be available to all suppliers across the country.
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Bearing in mind that the government owns and controls the database, it is operated by a private company, Information Systems Management Corporation, ISM, which is based in Regina. It then has the responsibility to advertise the government procurement opportunities and provide bid documents upon request of suppliers. So if you're looking at that particular electronic bulletin board and you notice that there is a request that interests you, you would then be able to acquire the bid documentation through ISM. That is provided to suppliers by way of a personal computer with a modem. It doesn't take a very sophisticated PC. A 286 with a modem will suffice to access the network.
At present there are approximately 27,000 subscribers, and it is growing daily. They pay basically to review government opportunities and buy the bid documents related to the good or service they would like to supply. So it is optional. They can browse through the bulletin board and decide not to request any additional bids, in which case there is no further charge or cost. If they do wish to receive a bid in order to pursue that particular interest, there is a cost associated with it.
Government contracting policy today encourages competition, as you can appreciate. We have found that the competition process decreases the price paid for goods and services to be received.
OBS is to us the ultimate in open and transparent competition. It is by far the fairest approach to competition today. There are 26 federal departments and agencies that use it, and that list is growing as we speak. There are also four provinces that have decided to use it: Alberta, very aggressively I might add; Saskatchewan; Manitoba; and Ontario. With respect to Ontario, I would like to put a caveat, though. Ontario has not at this point agreed to use it for construction requirements. But for all other purposes, Ontario is using OBS. In addition, there are some 30 regional governments that are now considering using it. Regional governments such as Thunder Bay and even organizations such as Grant MacEwan Community College in Alberta are using it.
There are approximately 80 to 100 new notices posted daily. Every evening the database is updated for the requests that have come in for that particular day, and we're looking at, as I said, close to 80 to 100 notices added every day. At any given time there are approximately 1,000 notices on line that suppliers have access to. Also, approximately 600 plus bid documents are ordered daily, so obviously there is a strong interest on the part of suppliers to acquire the bid set.
I'll just mention that the open bidding service was developed by Public Works and Government Services Canada in 1991, and all proprietary rights belong to the government. The Treasury Board endorsed the concept in 1992 as an optional alternative to traditional competition. Basically, we were previously using a source list and newspaper advertising, and we have now obviously turned our attention to using the OBS.
To encourage the use of open bidding, the Treasury Board raised the competitive contract entry authority from $400,000 to $1 million for most departments. What that in fact means is that if a department was previously required to come to the Treasury Board prior to entering into a contract that exceeded $400,000, we have now allowed that particular department to go up to $1 million prior to coming to Treasury Board if they have in fact put that request through the OBS. So that's a strong incentive on our part to facilitate departments using OBS and to encourage them to do so accordingly.
At this point Treasury Board continues to recommend the use of OBS as an open, fair, and equitable way to compete for our requirements. The agreement on internal trade, which came into effect on July 1, 1995, requires goods procurement over $25,000 and service and construction procurement over $100,000 to be advertised through what is referred to in the actual legislation as the use of an electronic tendering system that is equally accessible to all Canadian suppliers. We have deemed within Canada for the Canadian government to designate the OBS as its system to meet that requirement.
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For those who are interested in costs, if you are a supplier and you wish to have that on-line option to view all the potential requirements, the cost is $130 per year, plus 40¢ per minute usage. So if you go in for two or three minutes every day to scan the bulletin board, it would cost you 40¢ per minute for that particular day, bearing in mind you've already paid the $130 at the beginning of the year.
If there's a particular request that interests you and you would like to obtain a bid set, there's a cost of $37 per year, plus $1.05 surcharge per document to do so.
If you wish to have what is called a bid-matching service.... And in effect in a bid-matching service you would provide ISM with the four or five key words that basically represent your business. So if you're in the janitorial business, obviously janitorial services would be of interest to you, whereas airplane manufacturing would not. If you give them the four or five key words, they would do a bid matching on your behalf and see what came out that particular day that is relevant to your business. They would fax you those bids in terms of the information about those bids the next day.
That being available, it would you cost you $395 per year, including the bid request line. It would be $488 per year including on-line access. It's $195 per year if you wish to have only the construction opportunities identified. For companies in general we are under the impression it would cost about $340 to $350 a year per use of OBS. That's generally speaking.
At this point, approximately 83% of subscribers have rated OBS as good or very good. That's a very high percentage in terms of signifying it's a success. Approximately 76% of subscribers would recommend OBS to business colleagues. Again, that's very encouraging. The next statistic is important to note. Approximately 75% of subscribers have 50 or fewer employees. Hence a significant number of small businesses are advocating the use of OBS.
In terms of savings to the government, there is approximately a $3.5 million annual operating saving. Basically that's broken out into two components: savings of $2 million on advertising that's no longer required, which we were paying previously; plus savings of $1.5 million on printing, which again we were paying previously. In addition to that $3.5 million annual operating saving, there's approximately $1 million cost avoidance, which was the $1 million it would have cost the government to set up and run such a system. As you can see, there are significant savings for the government as a whole.
The last page of the deck is a sample that was pulled off the system as late as this morning. As you can see, right below document 25 you have the date. This went up on the board back on October 25 and the closing date for the competition is December 7. It's a cleaning contract for the ANSO building and associated sites in Gander. If you look at the paragraph in terms of some background, it says: ``To provide cleaning services at the Gander Air Navigational Services Operations Building and associated sites, Gander, Newfoundland''. If you are interested, you could request a bid set to find out more about it and determine if you actually wish to prepare a submission. This is very much typical of what you would get. Some of them are obviously a little longer in terms of information, but it gives you a sample of what's on the OBS.
I should add that as well the U.S. Commerce Business Daily, which is a U.S. publication with their bid requirements, is also available on the open bidding service. So it is open to Canadian, U.S., and as of recent date Mexican suppliers, because the Mexican NAFTA opportunities are also on the OBS. So suppliers can choose from a wide range of opportunities. This is across the country, open to all suppliers.
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On that note, I'll close and open it up to questions, Mr. Chairman.
[Translation]
Mr. Marchand (Québec-Est): I would like to begin by thanking you for sending those letters to the eight departments. The letters are very interesting and basically deal with issues we raised during our meetings on contracting out. They highlight relevant points and I congratulate you on your initiative.
Mr. Neville, welcome to the meeting. It's not the first time you've been here. Dare I say you've been here too often?
Some hon. members: Oh, oh!
Mr. Marchand: In the past, you have provided us with much information. However, based on the description you gave us today of the OBS, it seems that you did not read the letter we sent to your deputy minister. You described the OBS as if we were business people interested in becoming subscribers. You did not say a word about the fundamental matter of competition in the bidding process whereby government contracts are attributed to private companies.
I don't know if you read the letter that Mr. Zed sent to your deputy minister, but it says that nearly half of government contracts are not subject to a competitive bidding process and that there even is a trend towards... As it says on the second page, based on the most recent figures the committee could get its hands on, 107,000 contracts out of 187,000 were given to exclusive providers, without a call for tenders. In short, it seems the government gives out contracts without respecting the basic rules of access.
What can you say about the fact that Treasury Board decided to increase competition for government contracts?
Mr. Neville: Mr. Chairman, I want to make sure that everyone understands that the Open Bidding Service is a very important tool which allows departments to compete with suppliers. Many measures have been implemented. However, we believe that this system helps departments receive a greater percentage of competitive contracts.
But don't forget that it is up to the department to determine whether it wants to put in a lower, more competitive, bid.
We want to do everything we can to help departments. They ask for more flexibility, so we even gave them the power to award contracts of up to one million dollars, as oppose to the former threshold of $400,000. We basically want to encourage them to become more competitive.
Mr. Marchand: Do you have data indicating that since the implementation of the OBS the awarding of contracts has become more competitive since 1991? Do you have any statistics to that effect?
Mr. Neville: The contracts are not broken down by whether they are in the system or not. So I can't specifically answer your question. But I can say that 27,000 suppliers have subscribed to the system, whereas their original number was quite small. It shows that suppliers want to participate.
And increasingly, in some departments like Public Works and Government Services, all goods and services contracts worth more than $25,000, with a few exceptions, must be entered into the new system.
These departments have shown a willingness to be part of the system, and more and more are coming on board every day. As I said before, there are now 27 departments or agencies which subscribe to the service.
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It's happening slowly, but we perceive willingness on the part of departments and agencies to subscribe to the system.
Mr. Marchand: Do you have any idea how many government contracts are awarded outside the OBS? Are most contracts entered into the service or only a small percentage?
Do you have any idea how much money is involved in OBS contracts? Are most contracts entered in the system?
Mr. Neville: I don't have those figures with me, so I can't tell you how many contracts fall under the OBS and how many don't but we could provide you with that information. I just don't have it with me this afternoon.
Mr. Marchand: Mr. Bellemare, do you mind if I continue? I have other questions. I still have four minutes? Good.
Why the $25,000 threshold for OBS contracts? Thousands of smaller contracts are awarded by various departments, but they add up to huge amounts. Is the only reason they are not entered into the open biding service to give departments more flexibility?
Mr. Neville: First, it's not a mandatory threshold. Contracts worth less than $25,000 may be entered. It's up to each department.
Mr. Marchand: So it's not mandatory.
Mr. Neville: That's right. But some agreements, including the new provincial-federal agreement, stipulate that all contracts worth more than $25,000 must be submitted to a competitive bidding process. It just happens to be same amount.
Mr. Marchand: That's fine. But why not $10,000 or $5,000?
Mr. Neville: Between us, it's a matter of profitability and efficiency. It costs to subscribe to the system and we want to ensure that departments have a bit of flexibility. For now, we decided that $25,000 is reasonable.
But I want to be clear. Nothing prevents a department from entering a $20,000 or $15,000 contract into the system. It happens every day. Contracts worth less than $25,000 have been put through the service.
Mr. Marchand: I don't see how including contracts worth less than $25,000 would increase costs. In your presentation, you said that the government is saving money thanks to the OBS. So why wouldn't the government save money with contracts worth less than $25,000?
Mr. Neville: I already said that nothing prevents a department from doing so. We are doing our best to encourage the departments to use the system, but they don't all have the same level of flexibility and they have to have some room to move. In many cases, they believe that it would take too long to award the contract through the service. Generally speaking, it takes two weeks for all suppliers to access a call for tenders. So in some cases, it's more efficient for a department to go the traditional route. We want to respect their decision.
Again, if a department wants to enter a contract worth less than $25,000 into the system, it can do so.
Mr. Marchand: But we know that based on other testimony, all the small contracts worth $25,000 add up to several hundred million dollars and even to billions of dollars. The public obviously thinks that the system is not competitive and may involve favoritism. There are also many questions regarding waste and so on.
There have to be very good reasons for letting officials award valuable contracts on the pretext that they need more flexibility. Perhaps they have too much flexibility. Perhaps this is how huge amounts of money are wasted.
I know you don't know how many contracts worth less than $25,000 are awarded by the government or what their total value is.
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However, we know that a lot of money is involved. Did Treasury Board set the mandatory $25 000 threshold? Couldn't Treasury Board reduce it to $5,000 or $10,000?
Mr. Neville: I'll begin by answering your first question. When contracts are worth less than $25,000, there are other controls which ensure that government procedure has been followed. There are internal audits. Sometimes the private sector even gets involved to make sure that everything is above board. So there are other controls which ensure that departments follow proper procedure.
Mr. Marchand: Mr. Neville, you are slightly mistaken, because officials from Treasury Board and from other departments have admitted that there were no controls. That's the problem: Treasury Board does not have any control. Based on our studies, we concluded that there were no controls. I don't think a single member or witness could assert that there are, indeed, controls. You can't tell us that they exist, when it has often been repeated to us that they don't. That's the problem.
Mr. Neville: I said there are government controls. Each department regularly submits to an internal audit to see if the department is following government and Treasury Board policy. Based on these audits - I think there were 60 or so over the last few years - we concluded that there are no major problems in a system that monitors the awarding of contracts.
But there are also other ways of seeing the issue.
[English]
The Chairman: That's your time. Thank you, Mr. Neville.
Mr. Bellemare.
[Translation]
Mr. Bellemare: Mr. Neville, I would like to congratulate you for you appointment to your new position. It is a gain for Treasury Board and the government. But I must add that the current staff is extremely competent.
We often hear that government contracts are a huge mass worth 5 billion dollars, or 10 billion dollars, etc. Everyone has their own numbers but they often differ. I don't quite understand the numbers. I challenge any member to find better information than I have.
Do you know how many government contracts were awarded in one year, and how many by sector? For instance,
[English]
I would be addressing services such as translation services, psychiatric services, or policing services. There are also the areas of goods, for example, purchasing of material, equipment, and furniture; construction contracts; and maintenance and repair contracts. I have already named four sectors.
In the contracts you have bids, and we get into the very complicated system of figures that for some MPs change with the times. There are ceilings. I have heard of a $30,000 ceiling and then you have to go to a certain level. A manager cannot bid out for more than $30,000.
You bantered about $25,000, which provokes me to ask why you don't break them into the different areas so I'll understand, when they're talking about $25,000 or $30,000, which areas they're talking about.
Then there are standing offers, and very few MPs and even fewer people in the public would even know what I'm talking about. With standing orders a contractor in the city of Ottawa puts in his bid standing orders to do repair work, replace doors, or whatever. He may be a bigger contractor and do more than replace a few doors or a toilet. He may do a whole floor or part of a building.
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Then you get into the problem - like my colleague just mentioned - of accountability. You say there are controls in place and he seemed to disagree with you. I tend to agree with you, but I think you meant there are systems in place. Controls are very difficult. I've gone through a few experiences where you really need to have effective controls, whistle-blowing systems, finger-pointing scenarios, or an outright accusation by someone in the public or a contractor that something is not going well.
Some people say in their part of the country they are not getting enough contracts. They are contracts for $8 million, $25 million, and they think they should have contracts out of that. Of course if there is going to be a repair on the Wellington Building someone in Flin Flon can't come here to fix it. I suppose they could fly over, but it wouldn't be very practical to come here to fix that door in the Wellington Building, to leave Flin Flon for a $500 contract. So we have to say what is regional.
There are contracts that should be given to everyone across Canada, but there are also regions where you really have to be there to do the work. I think all these definitions in these areas have to be addressed; otherwise, when you start to give all your information I'm afraid it will be quite a salad. We cannot really put our fingers as MPs on a specific. Could you perhaps comment?
Mr. Neville: That was quite a lengthy list. Let me try to deal with some of them anyway, and if I miss anything please feel free to question me further.
Mr. Bellemare: There is one bunch of contracts I forgot: the contractuel fonctionnaire is another. There is the secret public service. You lay off public servants at $15,000 and rehire your buddies in private business for $20,000. I don't know a better term, but I would be using contractuel fonctionnaire.
Mr. Neville: I'll try to answer the questions. I may have to rely on my colleagues here to help me out along the way or at the end.
First of all, in dealing with contract statistics, if my memory serves me right, we put forward to the committee a report that deals with the 1993-94 fiscal year as well as the 1992-93 fiscal year, and that's an add-on to the 1991-92 fiscal year report that had been provided earlier. Those contract statistics gave us basically the total amount of contracting for the government as a whole for those years broken out between competitive and non-competitive, and then broken out again by department.
We have provided you with some contract statistics. If you wish to refer to the fact they aren't broken down by sectors or groupings, you're correct. We have not been collecting the information - at least within the Treasury Board Secretariat - by groupings the way you've identified them.
Mr. Bellemare: [Inaudible - Editor].
Mr. Neville: I understand that, but you've asked the question and I'm saying we've provided you strictly with totals at this point. You have the total amount of contracts that were issued based on the information that was provided to us because, as you know, we don't do the contracting. We are the contract policy group, so we are responsible for issuing contract policies and doing the monitoring. We have to go to all the departments to get that information and prepare a consolidated report. We've provided you with that. Based on that, if there is more information required we would have to consider that.
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You talked about definitions. You're correct, there are a lot of definitions. We'd be pleased to spend time with anyone who may be interested in clarifying the definition as to whether we're talking about contracting for services or whether we're talking about goods or whether we're talking about services proper or construction, because to us they have a distinct meaning.
Mr. Bellemare: Excuse me, Mr. Neville. Your answer begs a question from me. Are you suggesting that if we need information it's not through committee work that we could get the information but rather we should go in a hallway and have a chit-chat with you?
Mr. Neville: No, I'm offering it to the chairman. If there's information required, we'd be more than pleased to supply that.
Mr. Bellemare: To the whole committee?
Mr. Neville: To the chairman. We'd be more than pleased to do this, because for us the distinction between goods and services is different. Goods are tangible, whereas services are something one provides for someone else.
Mr. Bellemare: May I again interrupt? I hate to appear impolite, but I want to be informed.
I know the public service language and what is happening now. You're saying we can do this, we could do that. If I'm asking for it, Mr. Chair, I think it's not that they can, they could, but rather that they should send us the information, since the question was asked. Otherwise, two years from now, when I'm still on the committee and there's a whole new bunch and the same questions come up, they will say we could, we can, we may, depending on if you're interested.
The Chairman: In fairness to the witness, I think he's saying it's available and if there's some interest in specific pieces of information he'd be happy to provide it. That's what I took from his comments.
Mr. Neville: In our contracting manual we have -
Mr. Bellemare: Then we have to ask.
Mr. Neville: - the definitions, and we'd be more than pleased to share that with you.
You talked about different levels of authority. We have contracting authority levels. We have Treasury Board authorization levels. Those are different terms that mean different things to us. We could also provide that information, which I remind members is available in the contracting manual. But we will take the extracts and provide them to the chair.
The Chairman: That would be great. I would appreciate receiving this. I'll distribute it to all members.
Mr. Neville: In terms of regional allocation, as you can appreciate, internal trade removes regional preferences. We try always to go with the best value for our contracts, regardless of where that particular supplier resides within Canada. The bottom line is best value, which may include the best price, but not necessarily only the price. But we're looking for best value at the end of the day.
There are specific rules and regulations to deal with former public servants. As you are probably aware, we tightened that particular section up in the last couple of months with Treasury Board decisions that now make it very difficult for former public servants to get additional work with the public service, and there are maximums in place.
Mr. White (Fraser Valley West): I had questions about your presentation, Mr. Neville, in that OBS is really a procurement system, and the concern, at least what I got out of these letters, is that there's a lot of sole-sourcing, and that doesn't pertain to OBS. OBS is really the competitive aspect of it.
Mr. Chairman, I think witnesses should be brought here who are undertaking sole-sourcing to find out why and how and for what reasons.
The Chairman: The researcher advises me we are doing that.
Mr. White: Okay.
Mr. Neville, would you just give us some information on your authority as far as the financial and information management branch is concerned with regard to contracts? You said there are limitations. Departments can do their own thing if they wish. Do you have any jurisdiction whatsoever over departments?
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The Chairman: I'm sorry, Mr. Neville and Mr. White, but I just wanted to inform colleagues that Mr. Little has joined the table. He's the deputy secretary at Treasury Board and I just wanted to welcome him.
Mr. W.E.R. Little (Deputy Secretary, Deputy Comptroller General, Treasury Board of Canada): I was hoping I could watch you perform, Richard, because you're doing such a good job.
The Treasury Board has authority over departments in terms of contracting regulations, the contracting policy, and the contracting limits. But at this stage, Mr. Chairman, we believe we have provided departments with the appropriate framework, the appropriate controls are in place, and we now believe that departments are performing, in the main, according to the way the policy is expected. So until we have cases where we believe there is a reason to intervene, we would not do so, given that the accountabilities are clear and that we expect the performance standards to be to the highest level.
Mr. White: So am I to understand that all of these sole-sourced contracts comply with your guidelines?
Mr. Little: Based on the information provided to us by the departments and according to audits we've conducted and looked at, in the main these are following the guidelines we've set out.
Mr. White: Do you have any jurisdiction over Canada Post?
Mr. Little: No, sir.
Mr. White: That's one organization that doesn't follow it, among others I've found in my research.
Apparently, there was a list tabled with this committee before. Can we get a list of those contracts that are not competitive bid contracts and so forth, or is the list about eight feet high?
Mr. Little: There are 127,000 contracts in the database, sir, so I would suspect that, yes, it would be eight feet high if we produced it in that way.
Mr. White: How many government employees are solely dedicated, direct cost to this OBS system?
Mr. Little: I think you'd have to ask Public Works and Government Services officials for that. It's not a statistic we have ourselves.
I would remind you, Mr. Chairman, that we have in fact contracted out the operation of the OBS system to a private company, but that is not what you're asking. Directly, it would be a very small number of people in PWGSC who would have direct responsibility for this.
In terms of departmental loading up of the information, if you like, it would not be a full PY or FTE in each department, so it would be a portion of their time that is used in doing this. Approximately 27 departments are using it. A quarter of a PY might be fairly high, but five or six in total in terms of the departmental input, and perhaps another five or six in total in PWGSC. It's not very many.
Mr. White: What is the contract-out cost of this?
Mr. Neville: There's no cost to the government for this particular contract. It's a zero contract. In effect, ISM recover their costs by charging the suppliers, based on the information I provided earlier. So by actually charging the suppliers for the annual fee plus the cost of individual bid sets and the bid-matching, they recover all of their costs; therefore, there is no specific charge to the crown.
Mr. White: Who makes the decisions on the bids? Is it your department?
Mr. Little: No, we don't do the contracting within the Treasury Board Secretariat in this context.
Mr. White: It goes back to the department itself?
Mr. Little: Yes, that's correct. If they decided to go through Public Works and Government Services Canada as the contracting agent, then obviously there's an involvement of PWGSC in the client department, but that's a departmental-specific responsibility.
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Mr. White: So often we hear of contracts being let that are based on.... You get the bids in, then the contract is let on circumstances beyond best value, low price, and so on and so forth. That's out of your hands?
Mr. Little: I think it's fair to say that we're very interested in any situations that do not follow the laid-down procedures that we would like to see in a well-managed department. Each bid that goes out is expected to have with it a statement of work or a specification and a list of criteria against which that particular bid is going to be assessed and evaluated. We also expect the departments to maintain a record of the assessment and the outcome. In the case of contracts going to Treasury Board, we insist on having those specifications and details in the submission made to ministers.
Inside a well-run department, they would have kept a record of each one of those bids, the manner in which they were assessed, the outcomes and the basis of the decision that was taken.
Mr. White: Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. White. Mr. Duhamel, please.
Mr. Duhamel (St. Boniface): Thank you, gentlemen, for your presentation.
I have two questions. The first is as follows. There is a requirement that competitive bids be sought for all contracts except where the need is a pressing emergency; where the estimated cost does not exceed $30,000, or $100,000 for architectural, engineering or CIDA aid contracts; where the nature of the work is such that it would not be in the public interest to call bids; or where only one person or firm can do the job. I understand from previous discussions that there are mechanisms in place in each department to make sure that those particular criteria are respected.
That's my first question. Perhaps you'll let me ask my second one, then you can answer that at the same time.
There are statistics you shared with us today that indicate there are a fair number of small businesses, defined as 50 or fewer employees, who are involved in 27,000-plus subscribers. As I look at the figures for cost, it seems to me that they might be substantial for some small businesses. Do we have a lot of confidence that this is so? Can small Canadian businesses in fact participate with relative ease?
Mr. Little: The answer to the first question, Mr. Chairman, is yes. I'll ask Mr. Neville to deal with the issue of cost to small businesses.
Mr. Neville: With respect to the cost to small business, obviously the stats indicate that there is an interest, because the list is growing as we speak. I did say that we anticipate the annual cost, again based on statistics and information provided to us as recently as today, is about $340 to $350. I don't think that is excessive, bearing in mind the possibilities small businesses would have as a result of the significant number of contract opportunities this represents. That is a cost of doing business, I would think.
As well, I might add something I'm not sure all of you are aware of. If you are subscribed to OBS - maybe I should have pointed this out earlier - it does allow you as a supplier to know who else has bid on that particular contract. You have that access capability. If you know who else is bidding on that particular contract, then you may want to do some subcontracting work for them or form an alliance at some point in time. The opportunity is not only to get that particular contract, but to get some follow-on work or position yourself for future work.
So there's a potential there upon which you can't put a dollar value. To come back to the average of $340 per year, I don't think it's significant.
Mr. Duhamel: Okay, thank you. I'd like to go back to the first point just briefly. I'm delighted to hear there's a significant degree of confidence that these criteria are being respected and that there are mechanisms in place to ensure that is so.
I guess if one wanted to reduce the number of bids that are given without competition, is there a particular area that should be looked at more closely than others? It's not because we think there's something necessarily wrong, but there are a number of categories there that I've identified. Is there one that would merit more attention than others?
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Mr. Little: The reason for my pausing is that it very much depends on the mandate and business lines of the individual departments to be able to give you a general answer. I would want to qualify by saying that National Defence's requirements in terms of sole source are different from those of the Canadian Centre for Management Development, simply because it's looking for different requirements and it has different needs.
We have looked at attempting to move more radically to putting mandatory requirements in place for the use of OBS in terms of trying to increase the openness and transparency. We have asked deputy ministers to review this situation and comment to us on this particular requirement. Generally, what we're getting back by way of response is that while they understand the need for open and transparent contracting, which competition provides the best guarantee that this is so, it has to be balanced with the time requirement, it has to be balanced with the cost of doing this, and it has to be balanced with the administration, the paper burden, and whatever goes into this. It also has to be compared to what is in the best interests of small business.
Mr. Duhamel: I appreciate that, and I'll just ask a final question related to that. That's very useful.
A chap called me and said his competitor often got a contract that was split into slices - the last one was $70,000, so it was $25,000, $25,000, and $20,000 - in order to avoid, he claimed.... He wasn't in confession when he talked to me, either. I don't know whether the same kind of thing happened to him.
The Chairman: I didn't know you were a priest.
Some hon. members: Oh, oh!
Mr. Duhamel: I am, part-time.
Does that happen often? Do we know? Do we have any statistics? I would suspect it's fairly tempting. I am a former deputy minister. I have some favorites too, because they did good work. I could count on them.
Mr. Little: Sir, I wouldn't for a moment suggest that there isn't contract splitting that goes on, nor do I suggest that there isn't a temptation to put out a bid under the $30,000 mark and then put an amendment in that takes it up to $50,000. This is a temptation on the part of people who are motivated not by some malfeasance but more by getting the job done and getting on with life.
We're not happy with that as an explanation, however. The framework we put in place says ``Thou shalt not contract-split and thou shalt not put in a contract with the intention of putting an amendment to take it over that particular limit.''
We've used a series of reviews, if you like, with deputy ministers very recently - since I was last in front of this committee - to in fact reinforce the point that this is very time-consuming, therefore not often done. But deputies were called in, and deputies were given an opportunity to go through this problem area.
We expect to see, as a result of that, things like the return to contract review committees within departments, whereby it is no longer solely in the hands of the contract staff or of the manager. It would in fact be reviewed by an objective effort, but at the cost of more time and more administration in terms of trying to produce this balance.
If you have examples, of course, of situations that you know existed, we'd be happy to take the details from you and we'd happy to investigate and either come back and explain what we found out or have the individual department that's responsible explain to you what the situation is.
Mr. Duhamel: Thank you.
The Chairman: Just before I ask Mr. Bryden to take the mike, colleagues, I'd like to put a question to the witnesses, following from you, Dr. Duhamel.
If I were to suggest to you that contract awards under $30,000 in 1993-94 were in the magnitude of $1.2 billion and that additional amendments occurred in the magnitude of $550 million, would that surprise you?
Mr. Little: No, Mr. Chairman.
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The Chairman: So what Dr. Duhamel had suggested, which is that contract splitting is going on, I think is quite prevalent. In fact I think statistics would show that not only is it going on but it's increased over the last three years. In fact the contract is awarded but what happens is that just in this one area of $30,000 and under the contract gets awarded and then almost half of the total amount is used up in amendments. Is that true?
Mr. Little: Partly, sir. I qualify it because first of all in the case of under $30,000 we have said we don't require you to be competitive, but that doesn't mean there are not many contracts under $30,000 that are in fact competitive.
What we have undertaken to do as a result of the review I mentioned is that in the next report we're able to put together from new information, which will be the year 1996, under-$30,000 contracts that were competitive and those contracts that were non-competitive, we will go one step further. We will ensure that if this system is used we will distinguish between the under-$30,000 distinction we're making and the problem we have, which I think was explained, with NAFTA and internal trade not recognizing this as a competitive alternative, if you like.
When the contract is awarded competitively under $30,000 and then there is a contract amendment that is put in place for legitimate reasons, which often has to do with extension of contract time, with an extension of the same type of work but for increased depth or whatever the case may be, those are perfectly legitimate contracting arrangements and contracting amendment arrangements.
What I'm qualifying for you is that under the circumstances you described, there may very well be too much contract splitting or contract amending activity. I'm not denying that, but I'm saying the basis of it should also be that some of that, maybe most of it - unfortunately, we don't have the figures to be able to prove it this time, but we will the next time - is legitimate activity.
The Chairman: To conclude - and, Mr. Bryden, you may want to take this up or you may have your own line of questioning - you have recognized at Treasury Board that there has to be some improvement in a number of departments and you laid down the law. So our activities or the work we're beginning might help improve your hand with some of your colleague departments.
Mr. Little: Yes, Mr. Chairman.
Mr. Neville: In the opening remarks I said we really are pleased you've taken this initiative. It's going in the right direction and we expect some positive results.
I'd like to go back on the point of the contracts below $30,000. At this point we have treated statistically all contracts below $30,000 as being non-competitive. In fact there may very well be a significant portion that are competitive, but we don't know that.
The Chairman: One of the problems we found in our industry committee was statistics and the definition of small business. We couldn't access the information or numbers. As I said to you, one of the things we want to be able to develop as a committee is a good set of statistics. You need to have a good set of statistics. As Mr. Bellemare says, everybody's using different definitions. Even Mr. White mentioned that crown corporations appear to be different.
Mr. Bryden, I'm sorry, I'm using some of your time.
Mr. Bryden (Hamilton - Wentworth): I hope not.
I was going to say I very much support the OBS concept. I think that's the direction we should be going in. But let me ask some very specific questions that pertain to it, dealing first with what Mr. Duhamel has said.
Does your database enable a person with a modem and a computer to enter it and pull out the number of contracts awarded to particular companies on a per-company basis? In other words, one way of attacking contract splitting is to be able to call up that data, to call up a company, such-and-such window cleaning company, and see how many contracts it was awarded in a particular year. Are we capable of doing that? Is it on the program now? Can it be put on the program?
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Mr. Neville: I'm not certain it's on the program, the way it's structured. I stand to be corrected on that - I want to make sure it's clear - but I don't think so.
Mr. Bryden: May I submit that as a suggestion, then, because that's one way of tracking it. No matter how big your department, you need the help of the public to keep the process honest.
I presume that currently, though, contracts of under $30,000 are not put on the database. Is that correct? I just didn't understand that.
Mr. Neville: The cut-off for $30,000...it's not required the department go competitive, whereas if it's over $30,000 there is a requirement for them to go competitive. There are exceptions if you wanted to -
Mr. Bryden: But what I'm asking is will it show up in OBS even if it's not a competitive contract?
Mr. Neville: OBS is, by definition, competitive.
Mr. Bryden: Again, may I make the suggestion that if you can put that kind of data, the under-$30,000 awards, on your database so that the public can call it up...? If I'm in competition with some guy, some other firm, and he's getting four or five contracts a year that are non-competitive, he will be the first one who can bow out, or be the first one who comes to you -
Mr. Neville: Let me answer that very precisely. There is no government-wide database, as you're referring to it, where we would keep track of the contacts below $30,000. So there's not a database you can go to today. The way in which we gather the information is that we go to each department and ask for the information from that department. We consolidate that into a report.
There isn't a ongoing database today where we can press a button and ask for the contracts under $30,000 for the government as a whole. There isn't a running database.
Mr. Bryden: On a per-company basis.
Mr. Neville: We'd have to go to each department to find out.
Mr. Bryden: At any rate, I'll leave that thought with you. That is one way to track -
Mr. Neville: But if I may, sir, in a department, depending of their degree of sophistication, we are now putting in place material management systems, or contracting systems, that would enable us to produce that information, as you describe it, at the departmental level. Because of the way the databases get managed, you can do it by price, you can do it by location, you can do it by company and you can do it by activity. It's very easy to do at that level.
That's where we see that information being most successfully used with the Treasury Board, and then, based on the trends we're able to get at gross levels, which are relatively cheap to produce, using other techniques to go down and look at individual situations in individual departments as opposed to the idea that we would manage a huge database at the centre to try to keep all this information. That's all I'm trying to put in.
Mr. Bryden: And all I'm after is that I'm not sure it has to be necessarily OBS that does it. I'd like to see a system whereby I, a small firm, can find out what's happening locally with other firms and whether they're getting a whole bunch of contracts without tender. Then I have an opportunity to complain to the department. It's a matter of availability of information.
Mr. Neville: If my recollection is correct, if the contracts are on OBS I believe you can find out who won that particular contract.
Mr. Bryden: I understand that.
Mr. Neville: It does not include the contracts that are not on OBS. So you don't have the total picture if you just look at the OBS information.
Mr. Bryden: Fine. Let's move along. I have a couple of other questions.
With OBS in place, how are contracts advertised regionally? For instance, at the Hamilton airport there may be a cleaning contract because it's a federal government building. How are the various cleaning companies in the Hamilton and Burlington and Dundas and Oakville areas to know that a contract is being let?
Mr. Neville: If it has been put on OBS the onus is on the suppliers to be on the system, obviously, for them to have access to it. It would be across the country. The example we have, janitorial services for Gander, is exactly in that vein. The onus is on the suppliers.
Mr. Bryden: Have any studies been done to determine whether or not the dropping of regional media advertising for contracts has had a negative effect on the number of businesses that have come in for a particular contract?
I see in my material here that newspaper advertising was cut off as a cost-saving measure. My question is, does that mean someone who is a small contractor and who isn't normally thinking of the Hamilton airport has no other way of knowing that a contract is opening there other than OBS? Are you sure there hasn't been a negative effect on the number of competitors coming into a contract as a result of not advertising?
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Mr. Neville: There is a hard copy of the contracts issued, called Government Business Opportunities. It's issued three times a week. Suppliers who do not wish to be on OBS have access to that particular document. So there is another vehicle, although obviously we are advocating the OBS.
Mr. Bryden: Are you sure that's adequate, though? Are all small firms in line for that, either OBS or this type of documentation? I'm not sure my laundry firm in Dundas, a small town not too far away from Hamilton, is on OBS. I'm not sure they are plugged into the system. How do they know if a contract is occurring? They're a small business.
Mr. Neville: With departments such as Public Works and Government Services Canada, which is a large contracting department on behalf of government, for contracts below $25,000 they do have a computerized system. It allows departments to register with PWGSC and to have their names on a source list. Based on the source list, the computer then will generate their names.
If the contract is going to be below $25,000, and it's regionally based, suppliers in that particular area would be -
The Chairman: I'm sorry -
Mr. Bryden: Mr. Chairman, I'm anxious to ask two more questions.
The Chairman: The problem is, we have a vote.
Mr. Bryden: The bell's not ringing yet.
The Chairman: I also have an in camera item on the agenda.
Mr. Bryden: That's all right. You stole my thoughts, Mr. Chairman -
The Chairman: I'm sorry, Mr. Bryden -
Mr. White: Mr. Chairman, he has an absolutely great question. I think we should hear it.
The Chairman: All right, go ahead.
Mr. Bryden: Do I have unanimous consent to continue in my questioning for a couple of minutes?
The Chairman: Keep going, keep going.
Mr. Bryden: You've completely thrown me, Mr. Chairman, because my mind works on these lines.
Anyway.... Oh, I don't know; you've thrown my questioning. I'm going to go off to one more question here.
I understand the government owns the database -
Mr. Neville: Correct.
Mr. Bryden: - and a private firm manages the distribution.
Mr. Neville: Operates it.
Mr. Bryden: Do you have controls in place that make sure the private firm actually manages and distributes that information in a fair, honest and equitable fashion? In other words, what's to stop a private firm that is managing your data from in some way handling it falsely? Have you looked into the security of the private operation?
Mr. Little: Sir, with respect, the reason you're getting so much good information on the OBS from Mr. Neville is that he recently came from that department, but I don't want him to answer this question. It's really up to PWGSC to provide you with that detail. So if you don't mind, I'm going to cut -
Mr. Neville: That would be my answer in any case.
Mr. Bryden: Then just one last quick yes or no question. Have you or have you not done a study that examines the negative or positive impacts of eliminating media advertising from competitive -
Mr. Neville: I really think that question should be asked to Public Works and Government Services Canada, which is the contracting arm of the government.
Mr. Bryden: Thank you.
The Chairman: I'm sorry, Mr. Bryden, but the problem is I'm losing quorum here.
Colleagues, I should tell you that it was my intention that today would be just a bit of a briefing session, that we were going to bring in about seven or eight departments and we would at that time bring back Treasury Board officials.
Mr. Duhamel: They like it.
Some hon. members: Oh, oh.
The Chairman: As colleagues know, they're the ones who issue these rules, guidelines and policies. We're all trying to work together to help them prepare some suggestions that might in fact impact on the report we would give to the government.
Thank you for coming.
We have a few other procedural matters I need to address.
[Proceedings continue in camera]