[Recorded by Electronic Apparatus]
Thursday, November 23, 1995
.1110 
[English]
The Chairman: Good morning, ladies and gentlemen. Welcome to the Standing Committee on Government Operations. As you know, pursuant to Standing Order 108(2), we're studying the government contracting process, procedures, and systems, including the open bidding system.
Today I'm pleased to welcome from the Treasury Board of Canada, again - in fact, I think you now have been here as many times as I have, so you perhaps could become chair - Mr. Little,Mr. Neville, and Mr. Campbell. I want to thank you again for coming. I understand you have a short presentation on some of the statistical issues. The presentation is going to take about 10 minutes, and after that I'll have Mr. Marchand begin our questioning.
Please proceed.
Mr. W.E.R. Little (Deputy Secretary, Financial and Information Management Branch, Treasury Board of Canada): Thank you very much, sir. It's with great pleasure that we return to provide additional information based on previous meetings, and of course we're always available to provide additional information as you require.
If I could turn to the deck and to the first page of it, which constitutes a form of a Venn diagram, we wanted to be able to provide a very simple explanation that the role of the Treasury Board, Treasury Board ministers, and Treasury Board Secretariat is in fact to set the policy on contracting. They also approve contracts for amounts above the delegated authorities that are provided either to PWGSC, the common procurement agency for the government, or to individual departments, and they involve themselves in -
The Chairman: Sorry. Excuse me. Yes, Mr. Bellemare?
Mr. Bellemare (Carleton - Gloucester): [Inaudible - Editor] approved contracting over delegated authorities. Before we get too far into it, if Mr. Little will give us the amount, we could jot these down as we're going along.
The Chairman: I think that's coming in the deck, isn't it?
Mr. Little: The very next page, sir, tries to provide you with an overview of that.
The Chairman: Please proceed.
Mr. Little: Public Works and Government Services Canada, PWGSC, is the contracting arm for the government and contracts about 50% of all contracts that are undertaken on an annual basis. It monitors contract awards, monitors results, and operates the open bidding system, which I understand was presented to you at your last session. Departments then are responsible for issuing contracts within their delegated authority. They request authority for contracts either to PWGSC or to the Treasury Board, depending on the circumstances. They certify the value for money on every contract that is put forward, whether by themselves or by PWGSC, and they of course conduct audit practices.
The final point I'd like to make, on overview slides, if I may, Mr. Chairman, is that there are a number of international and national agreements that are safeguards, if you like, for the competitive process that I know is a focus of this committee. The Canadian International Trade Tribunal, CITT, is an organization that exists to hear appeals on concerns raised by individuals on arrangements under either the North American Free Trade Agreement or the internal trade agreement and subsequently will be for the World Trade Organization. There's a series of information I could provide if you want further details on that.
Turning to the second page of the deck, we have listed here the various overview authorities that the Treasury Board has delegated, either to PWGSC or to departments, showing what happens with competitive situations in the middle columns - in other words, the opening contract and then the amendment authority.
For example, in goods, departments have the right to enter into a contract up to $400,000 if authorized by the Minister of Public Works and Government Services. At the moment, in most instances that authority is restricted to $5,000 and, on the other hand, Public Works and Government Services is authorized to open a contract to the value of $10 million, but only if it is competitively bid.
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If you just follow that same area under ``Goods'' over to the extreme right-hand side, you'll see that under ``Non-Competitive'' there's a much restricted level of authority that's provided to all departments. In this case it's $40,000, although again the delegation from the PWGSC minister is only $5,000 and Public Works has only a $2 million entry authority as opposed to $10 million on the competitive side.
The point made throughout all of this is that we're much more interested in competitive bidding as witnessed by the amount of authority ministers have delegated. In the case of non-competitive bidding, it is restricted to what is considered to be the practical extent.
However, there is a whole series of amendments to that, and we've simply listed here a page out of the contracting manual, which I point out to you is quite voluminous. This contains, for each department, a lot of exceptions to the contracting authority levels, which have individually been approved by ministers over the years.
In terms of where we see our perspective on contracting, the objectives of the government are best value and an optimal balance between benefits and costs. We want a system that has complete, open access, is fair, is transparent, and survives the rigorous test of public scrutiny in terms of prudence and probity.
We believe the collective solicitation is self-justifying in that form. It is transparent. It's easy to explain. It prevents unnecessary problems on perceptions about ethical situations, and we just make the conclusion, and always have, that competition is best.
On slide 5, we've indicated why there are some difficulties from time to time. I will just point out again, sir, that there are four rational reasons for not going competitive in the contracting world.
The first is under $30,000. It is viewed that the cost of running a competitive system, both to the supplier and to the contractor in the government, is tolerable at $30,000 and above, but below it really becomes a question of value.
Second is in the cases in which there is a single supplier, and that is more frequent than you think. I'll shortly explain very quickly why that is so.
Third is in the case of an emergency, which is very rarely used. There are fewer than a dozen contracts a year, all of which have to be reported to the board after the fact.
Finally, there is the question of public interest. Public interest sounds like a very wide opening, but in fact it's used on the basis of certain security issues. It's also on a national security basis, and it's for those instances in which the cost or time for the public is not warranted. It's very carefully prescribed by the policy and guidelines that we've provided to departments in this contracting manual.
However, having said that, departments have difficulty in staying on the competitive side for a number of reasons. First, they find that the time constraints of following the competitive process are quite demanding. For example, in terms of NAFTA, we have to leave 40 days open for a bid to be responded to. By the time you put it together and get it out, that's almost two months from the time the contract requirement is on you and the time you might be able to begin the process of evaluating bids.
There are costs associated with running a competitive process in terms of staff and in terms of putting bids out and running the process, and there is an administrative burden that occasionally finds itself intolerable in certain circumstances. Nevertheless, we still insist that competitiveness is the best approach, and you have to justify why you do not follow it as opposed to taking an easy way out.
There are, however, some mutually exclusive sub-objectives that make it very difficult to balance public interest and best value, and because it is as complicated as we've made it to try to make it work properly, there is a knowledge base and an expertise that's needed in the contracting organizations in terms of limited human resources and the need to constantly keep trained a whole series of managers. It's obviously a problem to keep them abreast with the requirement. In addition, it's quite a rigid contracting process.
We have regulations that are based on the Financial Administration Act and are not open to question. They have to be followed. Common law, contracting law - and many solicitors here in this room would understand how complex that can become. We have restricted delegations deliberately in order to be sure the system is operating, and many departments find it difficult to have to go through a common service procurement organization, in terms of time and cost and their view of how things should go.
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We now have a considerable number of obligations under new trade agreements. NAFTA and the Agreement on Internal Trade have only come in in the last year or two years. They are mandatory. They do have an appeal process, and if you lose the appeal, it's a very expensive proposition for the government, so this has become quite complex and important, and increasingly so. Although there are exceptions, they are quite limited in terms of the mandatory requirement for competitive contracting.
Furthermore, there are issue concerning aboriginal procurement obligations under land claims. There are always interests to try to increase business set-asides, whether it is on small business or aboriginal or for environmental purposes. All of these can be quite important in their individual right, but when you look at the collective system, it makes it even more difficult to follow the competitive principle.
We think we have a reasonable reporting requirement, at least at the level that provides us with the trends and what ministers have asked us for, but we expect departments to provide more detail than that. I'll come back to that.
I quickly summarize for you on slide number 8 the situation in the last three years. This is total contracting within the Government of Canada. It was 191,000 in 1991-92 and 183,000 in 1993-94, so there are roughly 180,000 contracts per year. Of that, roughly 50% are competitive and roughly 50% are non-competitive.
From my experience in the last fifteen years, this is about the level we followed year after year. It hasn't changed dramatically, although we are not happy with the fact that the trend in the last couple of years has started to go up as opposed to staying even or even going down.
If you look at the right-hand column, you'll see the value of the contracting has been roughly around $9 billion a year. I should point out that this is when a contract is awarded. It may be for ten years, and there's a series of payments. This is when the total amount of that contract is actually let, so it looks higher than it would be if you went to Public Accounts and looked at an annual payment, which is different from the actual contract award value.
The Chairman: You put the award value in the year of award, so if it's $1 billion, it might show up as inordinately high one year.
Mr. Little: That's correct.
You'll also notice the percentage has been between 37% and 47% - now it's 39% - but it is very much affected by what you've just said, Mr. Chairman, which is the problem of lumpy contract awards taking quite a significant jump from one year to the next.
If you turn to the next one, we've provided there an indication of contract amendments, because at the last session you asked a very important question about this issue. If you look at the left-hand side - and this is again total number of contracts in a given year - you'll see by using the legend at the bottom that in 1991-92, of some 40,000 contract amendments, 65% were for contracts below $30,000 and 35% were for contracts above $30,000.
In the following year, again there are roughly 40,000 contract amendments, and this time there's quite a significant change. A large percentage was below $30,000 and quite a small of percentage of contract amendments was above $30,000. You see that in the final year it's at 85% and 15%.
If you turn to the value side, it's quite different. It's $602 million of contracting moving to $900 million to $1.8 billion, which is a significant increase. That's the question you asked me the last time I was here.
We've looked at this in relation to, first of all, the number of contracts over $30,000, and you can see that largely the money is in the over-$30,000 contracts.
If you turn to the next slide, I've tried to break this down for you to give you an indication of what's happening here and what's causing it. In 1991, of the some 40,000 contract amendments I talked about in this slide, 18,000 were distributed among those five agencies.
.1125
I just want to - because you've changed now the shape of the charts and I'm beginning to lose track of where we're going here. Can you just give me 15 seconds and then begin again where you were just so I can get this chart and see where we are.
Mr. Harris (Prince George - Bulkley Valley): On page 9, slide 9, on the right-hand side, the lined area, amendments below $30,000, is that amendments to contracts below $30,000?
Mr. R. Neville (Assistant Secretary, Financial and Information Management Branch, Treasury Board of Canada): That's correct, sir.
Mr. Harris: And the 70% is amendments to contracts that were above - original contracts above $30,000.
A witness: No, no, it's just the amendments themselves.
Mr. R. Campbell (Director, Financial and Information Management Branch, Treasury Board of Canada): We do not have a breakdown on what the original contract was. This is the value of the amendment. If the value of the amendment is under $30,000, then it is shown as such, and if it is over -
Mr. Harris: Oh, okay.
Mr. Campbell: It has no reflection on the original contract. We do not have that data.
Mr. Harris: So this represents the value of the actual amendment.
Mr. Little: Yes, I am sorry.
Mr. Harris: Thank you very much.
Mr. Little: What we've tried to indicate in slide 9(a) is, if you look at the number of contracts that are over $30,000, which is a significant amount of dollar value, $602 million, $949 million or $1.8 billion -
The Chairman: You're losing me here now. You're on 9(a)?
Mr. Little: Yes. When I look at 9(a) -
The Chairman: It's that. Right?
Mr. Little: - I am saying of the $602 million of contract amendments in 1991-92 that were reflected on this slide here, slide 9 -
The Chairman: Yes.
Mr. Little: - $350 million of it was caused by four departments.
The Chairman: Okay.
Mr. Little: In the following year of the $949 million of contract amendment that I show on slide 9, $696 million of that was amendments put in place by four departments. In the final year, of $1.8 billion shown on slide 9, a value of millions of dollars that were put into contract amendments, $1.4 billion of that was caused by four departments. The most significant department throughout all of this is the Department of National Defence.
To explain why this happens, let me quickly refer to those contracts that have caused this. Let me turn to 1994, because it is the most significant amount, $1.4 billion of the $1.8 billion of contract amendments.
The significant number was $700 million that the national defence department put as a contract amendment for the supply of light-armoured vehicles and systems. Because there's only a single supplier in Canada and there was an existing contract, they decided to buy more light-armoured vehicles so they put an contract amendment in to the first contract, which was maybe three or four years before, that was $700 million.
The second-highest number is $119 million, which was put in to purchase one additional A310 Airbus aircraft from the same company that the previous contracts had gone to. I think it was four. So it was a single supplier, and there's a contract amendment and that causes $100 million to show up in our figures.
There was another contract for $90 million, which was for a supply of Canadian land forces radio systems, a contract amendment that increased the number, I presume, and exercised earlier options that were in the first contract. In those cases, the contract originally was competitive. Now you have a non-competitive amendment showing up against a contract that was originally competitive.
The final two numbers in that year that are important, perhaps, as illustrators were from the National Space Agency. One was for a contract amendment for a cost overrun and for new additional work on radar satellite, which is the satellite that went up about four weeks ago. The other was for a Canadian Space Agency project to increase the limitation of government obligations around that particular negotiation, which was for $33 million.
The point I'm trying to make, sir, is that it's quite easy for us to demonstrate that departments have made these contract amendments and in most instances, it's quite justifiable for that to have happened.
In the case where the contract is over the value that we showed as authorized, the contract amendment has to come through PWGSC to the Treasury Board for approval so each one of those contracts is over the value and therefore the Treasury Board ministers would have vetted that particular amendment in order to ensure that the appropriate action was being taken.
That still leaves $300 million or $400 million of unexplained dollars, and that is why we have become concerned enough to do the actions that we have -
.1130
The Chairman: That's over $30,000. It still doesn't talk about the $500 million in the trends that have occurred under $30,000. You haven't explained that yet.
Mr. Bryden (Hamilton - Wentworth): No, but he's getting warm there.
Mr. Little: No, that's correct. What I was working on here was contract demands.
The Chairman: So am I. So you're only talking about over $30,000, right?
Mr. Little: I'm talking about amendments, in this particular instance, over $30,000.
The Chairman: That's right. There are still, as you suggest, several hundred million dollars that are not explained at the moment, and you'll offer a situation. But we still have contract amendment numbers under $30,000 that haven't been explained. Is that right?
Mr. Little: I have not explained them, that's correct, although at the last meeting I tried to point out that in many instances those contract amendments under $30,000 would have been to contracts that were originally competitively let.
The Chairman: But they're still under $30,000.
Mr. Little: That is correct. There is an increase, the trend is wrong, and we're trying to determine how we can get that trend to reverse.
The Chairman: Okay, I'll come back to that if no one else covers it. Go ahead.
Mr. Little: What we have done in this situation, in terms of both large contract amendments and small contract amendments, is ask departments to ensure that they have undertaken certain actions. We've done this in the last three months.
First, we asked them to please ensure the right structures are in place to support departmental contracting initiatives. By that we mean there is a check and balance. a contract review committee. a series of delegations that are appropriately handled. and the rationale and reasons for non-competitive contracting are understood by all who are involved.
Second, we asked that they establish a contract review mechanism if there isn't one already, which is essentially forming a contract review committee.
Third, we asked them to review their sign-offs to ensure that non-competitive contracting is at a high enough level that the accountability is clear.
Fourth, we took a specific set of actions around contracts for personal services for people who had been recently involved in a separation using the early departure incentive or early retirement incentive.
We asked them to ensure there's an appropriate internal audit, particularly on the basis of risk on a frequent basis, and an extensive continuation of training of managers as well as specialist procurement staff on the situation.
We now turn to the statistical base, and I'll go through this quickly, if I may. It's clear, I hope, from my brief explanation that departmental statutes and Treasury Board policies provide all departments and agencies with contracting authorities. Each minister is then responsible for the observance of the policy, including the use of competition as appropriate.
The Treasury Board ministers have asked us to put in place a summary of contracts issued. They don't want to see detail such as 187,000 contracts at $9 billion. They want to know what's happening and what the trends are. The reports we've given you have been based on finding that out.
We now have new situations around NAFTA and internal trade that require annual reporting, and we've taken action to move toward a single contract report that will provide the information everybody requires. But we expect and hope you will determine accurately that departments and agencies have been keeping detailed records.
If you want to get further into why this is happening, you could call department officials and they would give you a song and dance as to what happened on each and every contract, because that's what we expect them to be able to do, not only for audit purposes but for appearances in front of committees such as this. They would also be able to put together the necessary reports that are required.
The Chairman: We're going to hear their song and dance next week.
Mr. Little: If you're unhappy I know you will bring me back, so I hope it goes well.
The point is, we've set the policy and demonstrated how it works. Now the departments are accountable to explain what they've done within that context, and I hope you will agree to that. If not, I know you will let me know.
We turn now to a question that was asked by Mr. Bryden, who is concerned about breaking down the detail into more useful information in terms of service contracts, for example. We said we would look at a situation. What we really need to do is provide a separate briefing on the public accounts and how you can use that to acquire information on expenditures, as opposed to contract awards, which gives you a much better breakdown by department.
.1135
We could ask Public Works and Government Services Canada to provide you with details, for example, on any and every contract over $100,000, which can be made available. It's reams of detail, but it can be made available to you. They hold that in their public accounts division.
The data we provide to Treasury Board ministers under the trade agreements are sufficient, we believe, for the purposes for which they were designed, which is to look at overviews and trends. We're also able to provide ratios, of course, in global terms between competitive and non-competitive contracting.
Yes, we could provide more details, sir, but the fact is that we think the cost in terms of personnel and dollar resources that would be necessary may be beyond what would be required with a total. It may be more important to go to particular areas to look at snapshots. We would suggest that departments could provide you with that by way of confirmation of what I'm saying.
We've taken specific action to resolve issues about which we know this committee is concerned, as are we. Every deputy minister has been given an opportunity to come to a meeting, at which time this was thoroughly discussed. Requests were made for particular actions to be taken to significantly improve the situation in the future. Deputy ministers undertook to review contracting practices in their respective departments to ensure optimal competition and to strengthen the justification process for entering into non-competitive contracts.
We're not happy with the fact that the snapshot we took of total government contracting activity is appropriately detailed, and we're looking for changes to go into the 1996 contract report. I remind distinguished members that this is intended to be an annual report to cover internal trade agreements as well as requirements for Treasury Board ministers.
For example, we want to look under the $30,000 area and see what's truly competitive and non-competitive, remembering that up to now we've said that the $30,000 limit can be either. Now we want to know just what is happening, because this increase you're seeing is of interest to us, and we'd like to be sure that it is all competitive contracting that's causing the increase. But we're not sure, and we want to find out.
Also, we'd like to point out that this long list of exceptions that we provided does include areas in which we deliberately have permitted non-competitive contracting to take place.
Let me give you an example. In the training institutions, if they're hiring an individual to provide a lecture or run a seminar on a particular subject, we believe it's probably appropriate that they would select the world expert or class expert. They would then ask for a particular professor or somebody to come. That's a non-competitive contract, but it's one that we would understand and justify as being important.
Here's a second classic example. Consider when there is a private sector or non-government advisory board put together for a minister or a department. Because you're actually selecting those individuals for other reasons, you put out a particular contract arrangement to pay expenses, or even a per diem. That, in fact, shows up as a non-competitive contract, but I think most members would agree that's it's probably an appropriate action to take.
We would like to try to pinpoint some of this, so there's a better understanding of what's happening in under-$30,000 contracting.
Having said that, we understand, of course, that not all of this is perfect and that there are reasons for this happening that now have to be checked, And if it's inappropriate, it has to be corrected.
So I'm not saying everything is perfect, but I'm saying that we're taking, I think, the appropriate action to identify the areas that need to be fixed.
On page 14, you asked for a series of publications on what we're providing to departments by way of information and detail. There is a series of things we do. We have a new costing guide under production. As a matter of fact, the committee is meeting as I speak. We're going to develop that to help departments get a better understanding of when to contract, as well as what to contract, than they may have now.
We also have done a year-end audit, which we are affirming at the moment with the minister in terms of ensuring that year-end expenditures were appropriate in this contracting area, among others.
We've verified the training courses available through Training and Development Canada relating to contract performance. We've confirmed that departments are auditing. There have been 57 audits of contracting policies conducted by 24 departments over the last few years. We have an annual report that tells us what's happening. So it isn't that we hope it's happening; we actually verify it.
We are about to put together the 1994-95 report. It's taken some time, for a variety of reasons, but when we see what that is - I'm sure you'll want to see it here - we'll bring it back to identify how that trend is going.
My problem, sir, is that I don't think it's going to show a significant difference, because all this action we're taking has only been in the last three months.
.1140
The next report after that is the one in which there had better be a big change, as opposed to me coming to say I'm sorry that nothing's happened because it's all on activity that was allowed to go on without verification.
Finally, sir, if I may, I'd like to say that a lot of this is based on the fact that much of the information is contained in a costing and accounting system that is, quite frankly, not adequate to the need.
We have commenced now, with the minister's authority, a complete revision of the financial management system of the Government of Canada, which will go to an accounting practice. This will make it much easier to identify why particular costs are incurred. Therefore, we'll have a better understanding of what is good for the contracting process that we cannot identify at the moment.
I'd be happy to provide details of that separately, but I would suggest that's another issue altogether.
The Chairman: Just as a clarification, are you telling me that we presently don't have an adequate accounting practice, at the level of the Government of Canada, to get this information?
Mr. Little: We have an adequate accounting practice, sir, which is attested each year by the auditor general. I assure you that in the last five years, he's attested that we're doing the proper thing all of our financial statements. As you know, in his quarterly annual reports, he's now constantly verifying the situation.
In fact, if I may, you should be aware that the auditor general intends to do a review of the contracting process in the government before, I believe, midsummer of next year.
The Chairman: We asked him to do that, but it was already under way.
Mr. Little: I'm sorry. I'm sure you did.
My point is that the accounting practices are adequate to the need, but we think the need is now different from what it was for the last 35 years. We want to go to generally accepted accounting practices. It really is quite different.
We're going to a general ledger. In many places in the private sector they are surprised we don't do this. We're going to double-entry bookkeeping. We're going to a situation of capitalization of assets. We're going to go to depreciation, subject to Parliament's approval and changes to the Financial Administration Act. From there, you then go into a costing arrangement that will be much more accurate in terms of what's happening than what we now have.
I believe members have probably understood from poring over part IIIs for a number of years that this has been probably not exactly -
The Chairman: Let's look at a target date. Our hearing will end on December 15. When do you expect to have your statistics available? We're just looking to add that piece of information. Would that be available in the next couple of weeks?
Mr. Neville: No. We're working closely with Public Works and Government Services Canada to obtain that information for the 1994-95 report.
Of course, they get that information from all the various departments. They've only received the last piece of information, if my memory serves me right, in the last couple of weeks. They have to consolidate that as an analysis, so we don't expect that until early in the new year. Then they can forward it to the Treasury Board Secretariat.
The Chairman: How long before you get it can we get it?
Mr. Neville: Probably a month or two at the most, I would think.
Mr. Little: But we have to take it to ministers, because the report is put together for them. So it's really subject to minister's timing.
But if I may, sir, one of the reasons for the delay is that we've paid enough attention to this in the last three months that the departments are really concerned. They're really making sure their numbers are accurate and ring true. In the past, they might have thrown them together because who cares? But they understand now that this is for real.
The Chairman: Okay, thank you very much for your presentation.
Mr. Marchand, do you want to begin?
[Translation]
Mr. Marchand (Quebec-East): Thank you, Mr. Little. I appreciated your presentation despite the fact that it was rather fast. You have provided us with much information and many details. In fact, perhaps we should spend a few days studying the information you presented this morning.
I have several questions, but we won't have time to address them all.
You talked about Treasury Board guidelines, and I'll come back to that issue a little later. First, I'd like you to confirm something you said.
For instance, on page 12, if I understand correctly, you say that if we wanted to obtain more detailed information regarding payments made to one individual in excess of $100,000, we should make a request to the public accounts division of PWGSC. Is that correct?
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[English]
Mr. Little: Yes, sir. In order to get the information it would be with PWGSC. That's because we can provide it to you centrally. You can also get the information from individual departments.
Mr. Marchand: Okay.
[Translation]
Moving on to table 9a. Could you provide me with details concerning the Department of National Defence expenditures? A little earlier, you quoted several figures. You said that 700 million dollars were spent on light armoured vehicles and you also said that GM of London, Ontario, was the sole source for this contract.
Is it possible to get detailed information contained in these contracts, including names and so on?
[English]
The Chairman: I'll jump in.
Mr. Marchand, you may not be aware, Defence is coming here on Tuesday, the Defence deputy minister.
Mr. Marchand: Okay.
The Chairman: So you might want to ask them directly for that information. Is that right, gentlemen?
Mr. Little: We've informed them of this presentation, sir.
The Chairman: Okay, so they're no doubt now aware of it. But it's a valid point.
Mr. Marchand: Okay.
[Translation]
Mr. Zed, haven't you cut into my time with your intervention?
[English]
The Chairman: No, don't worry about it.
Mr. Marchand: Okay.
The Chairman: I'll give it back to you.
[Translation]
Mr. Marchand: When amendments are made to a contract, do they apply to all contracts, whatever amount is involved? These amendments are at the sole discretion of the department involved. Is that correct?
Mr. Neville: If an amendment resulted in an amount in excess of the department's financial limit, Treasury Board approval would be required.
Mr. Marchand: Are you referring to contracts worth more than $100,000?
Mr. Neville: That depends.
Mr. Marchand: On what?
Mr. Neville: It depends on the financial limits of the department. Let me give you an example by referring to page 2.
Mr. Marchand: I was just coming to that. Page 2 is extremely difficult to understand. I wish I had more time to study it. I'd like to take the time to do so.
I'd like to come back to page 1, because it is basically your prerogative to issue directives and to establish policy. I believe Mr. Neville was... No, you were not with Treasury Board at that time.
In any case, when we studied contracting out, Treasury Board officials explained the government's contracting out policy to us. They said contracting out was a good thing and that they had established a policy to that effect for several reasons.
We learned that Treasury Board did not conduct a specific study which may have justified such a policy. Do you understand? There was no study. There was only one example, an isolated case - I forget in which sector - and the study confirmed that it was better for the government to contract out than to do the job internally.
My question deals with your procurement policy. We might examine it more closely, since you explained it very fast. Are there any studies, any specific examples, any tangible analyses, on paper, in black and white, which unequivocally prove that your policies are efficient?
I will give you the specific example of the $30,000 threshold. You told us why the limit was set at $30,000. Can you provide a study, an analysis or a specific case which proves you are right?
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[English]
Mr. Little: Mr. Chairman, I've brought with me a copy of a report we did this year that examines a particular contracting-out arrangement for administrative services. We examined that and produced a report that we submitted to this committee in June, I believe it was. I'd be happy to submit a new copy as an example of the periodic - and I'll admit not particularly comprehensive - studies that we do on particular areas. Temporary help needs in the national capital region were a concern to us, so we did a study on that.
It's called Stretching the Tax Dollar: Meeting Temporary Administrative Support Needs: a Cost Comparison. This report was put out in March of this year.
We are trying to examine whether it is better value for money for the taxpayer for us to hire on a temporary needs basis or to staff. We examined six particular areas and concluded that, with one exception, it was being appropriately handled.
However, we weren't satisfied with that because a February PWGSC audit report called Assessment of Temporary Help Suppliers indicated that even though the policy was accurate and useful, it wasn't being applied properly. We looked at that to see what we could do to encourage managers to make appropriate decisions around this particular area. You asked me for a specific example.
[Translation]
Mr. Marchand: Indeed, that's one case, and according to you there were many contracts worth less than $30,000. I haven't seen that study, but I will take a close look at it once I get my hands on it.
[English]
The Chairman: Do you want to make that copy available?
Mr. Little: Yes, sir.
The Chairman: Mr. Marchand, I wasn't the chair then, but I'm advised that's an old study that's been updated. Is that correct?
Mr. Little: In the case of the audit, I'm sure it's an update, but the study is original work that we undertook in 1995.
The Chairman: The researcher says that he has not seen it.
Mr. Little: I'd be happy to provide it.
[Translation]
Mr. Marchand: I can't wait to see that study. You obviously know of its content. According to you, does this study provide enough data or is it sufficiently in depth to justify the $30,000 limit? I find that less than $30,000 isn't competitive and more than that is. Can you give me other examples?
I repeat. According to you, does this study justify the policy of setting the limit at $30,000?
[English]
Mr. Little: I do not think this study is adequate to provide you with the linkages you're looking for across the whole piece. It's too small a sample, but we've done something else. In the last three months we asked deputy ministers to evaluate whether it would be useful or sensible for us to reduce the level from below $30,000 to say, $25,000, which is in keeping with an internal trade delegation that is at $25,000.
I've had replies from four or five major departments. Not one is happy with the idea of reducing the level, and they cite three reasons. The first is the issue of time and the fact that if you go competitive - I presume you mean lower it for competitive purposes. In terms of the time that you then take to get the particular piece of work done for that value....
Second is the question of supplier interests. Many aren't interested in a full competitive process for a contract. Remember that this could be for $2,000, and because of their costs and administrative burden, they may not want to go into a competitive process for something of such a low dollar value. A dollar is important, but in terms of their business practices....
Third, it's a question of trying to move toward the open bidding system or the ACAN arrangement, which I think you were briefed on, as a means of dealing with it rather than simply suppressing it. You can slow the process to the point where you won't get the services delivered that departments are trying to make to the citizens. You can press it to the point that you have low-value activity that takes huge resources to manage. In fact, we're moving the other way and we don't have the resources to deal with it. We're trying to deal with high-value areas.
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[Translation]
Mr. Marchand: I respect that viewpoint, Mr. Little. You're aware of the fact that this kind of argument, coming from public servants, administrators and even senior civil servants, is not to my liking. Public servants don't necessarily want to change this level because it gives them a lot of freedom and power and it may open the door to a type of patronage that we would like to get rid of in the public service.
For instance, is there a study or data showing clearly that if the limit was lowered, not to $25,000 but to $10,000, the government's operating costs would increase? Are there data and studies to support your arguments?
[English]
Mr. Little: We don't know of any specific study done on the basis of the cost to the government of reducing it from $30,000 to say $10,000. Our cost accounting system wouldn't enable us to accurately measure that information. That's why we want to change the financial management system to be able to get to that kind of accurate costing arrangement.
[Translation]
Mr. Marchand: I would think it's a serious problem. I'm not talking about page 2, which is complicated enough, but when you look at charts 8 and 9, amongst others, you notice that contracts of less than $30,000 make up significant amounts, given the total. I would think that opens the door to a lot of abuse and waste, to a lot of things that are only justified by a certain vision not based on studies.
I've shared my comments with you. I don't know the details well enough, but it seems to me that we've dealt with the same problem as far as contracting out is concerned.
[English]
Is that clear enough?
The Chairman: I understand and I'm sympathetic to the view that Mr. Marchand is expressing. I think that's one of the questions that we as a committee will have to wrestle with.
Mr. Little: I have to interject. I cannot accept the assumption that this system is full of patronage, waste and inefficiency. I can't stand before you and say that is the case.
The Chairman: I don't think he said that.
Mr. Marchand: No, I didn't say that. I said it opens the door to abuse and patronage. I didn't say there was abuse or patronage, I said that it could - and you'll have to agree with me on this - open the door quite wide considering the sums and the number of contracts involved.
Mr. Little: One historical fact is that the government last changed the contracting level in 1982, when it went from $15,000 to $30,000. That figure is not keeping up with inflation, from what has been an historical use for many years in the government.
Second, in addition to the contracting process, we have a number of other mechanisms to control the possibility of patronage or waste. Standard audits and what have you, of course, reveal certain things.
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Every case brought to us at the departmental level or to the Treasury Board about alleged abuse or alleged patronage is fully investigated. We have all sorts of things coming in. PWGSC particularly gets it. With every particular loser of a contract, it's assumed it's because it's done for reasons other than best value and they will now ask for a full investigation. So other methods are used to try to ensure that the integrity of the system is solid and acceptable to citizens.
The Chairman: Unfortunately we have some time conflicts today.
Mr. Harris, you're actually next. What I'm going to ask you to do is put a couple of questions. Then we'll go to the Liberals to put a couple of questions, and we'll mix it up a little bit. At least that way everybody can get a little bit of a crack before some colleagues have time conflicts. Could you try to work with us to do that?
Mr. Marchand, you used more than your fair share.
Mr. Marchand: Thank you very much.
An hon. member: At least three weeks.
Some hon. members: Oh, oh!
Mr. Marchand: I won't come back.
The Chairman: No, no, we want you back. Your interventions were very valuable.
Go ahead, Mr. Harris.
Mr. Harris: Thank you, Mr. Chairman.
Mr. Little, one of the things that has continually confounded average Canadians is the fact that they have the complete belief that the government is incapable of running like a business.
In looking at some of the things that have been presented today, let's be clear. I love this terminology, ``the amendment activity''. This simply means the government is spending more than it originally planned on spending. I'd suggest that if we ran our personal households that way we'd soon be broke. Fortunately the government has the option to go out and raise taxes, fees or whatever to make up the money, or just simply show a deficit.
But I want to get back to an area Mr. Marchand was in. It concerns departmental contracts under $30,000 and the increase of the value of the amendments to those contracts and also the increase in the number of amendments. There seems to be a pattern here that might be explained.
In 1991-92 the amendment value to contracts under $30,000 was about $37 million, and in 1993-94 it rose to $549 million. I would imagine the greater part of these were non-competitive contracts where a bid was put in and accepted, and then, for one reason or another, there was an amendment that raised the value of that contract after the contract was given.
It seems to me it wouldn't take rocket science to figure it out if I were a contractor. If I knew a job was going to cost $50,000 but I wanted to have the availability of an amendment to be made under a lower level of authority, I would simply bid that contract under $30,000 to keep that authority down there. Then, once I got the contract, I would seek an amendment to take the contract price back up to where I knew it would cost me to do the job or provide the service anyway.
Mr. Marchand talked about the possible open door to patronage or some fooling around going on at the lower levels. If there ever was an open door that could allow that, it's down in this level of contracting.
As I say, it wouldn't take someone wanting to sell something to government very long to figure out how to work the system.
The Chairman: That's right.
Mr. Little: There are two things I can provide by way of additional information.
First, if it's goods, the limit is $5,000; it's not $30,000. It's only for services that there would be a $30,000 limit. For goods it's $5,000. That's for an individual department.
Second, amendment ability from a service contract of $30,000 that is on a non-competitive basis is $20,000, meaning the maximum you can possibly put in place for a single contract and one amendment is $30,000 plus $20,000, for a total of $50,000. That's another ceiling beyond which you are not allowed to go at the departmental level.
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Mr. Harris: That's fine; however, a $20,000 increase in a $30,000 contract is quite a percentage from the bid. It's almost 80%. So I could bid a contract, knowing that I can get an amendment up to 80%, and specifically put my bidding under the threshold level so that I could get a local authority on a contract price increase.
Mr. Little: It's possible, sir, but we've put in place a number of safeguards to ensure that the experience and the knowledge necessary to know when and when not to do this is there. We have established in most instances in departments what are called ``contract review committees'', where a contract amendment on a sole-source contract has to be reviewed by somebody other than the person putting it in place.
We always have a situation where the person paying for the contract is separate from the person who is making the contract. So you're now talking about not one but at least two people being engaged in some kind of an activity that is inappropriate.
We also have audits deliberately put in place to go through and examine, as we did totally through government last year, the end-year spending - that's the area in which you would expect to find a lot of this - to determine whether the contracting practices were adequate to the integrity we expect and demand from our employees.
Mr. Harris: I'll close this off and let someone else take over, but I just want to make one point. Somewhere in this whole system there must be some area that appears to be fairly lucrative in the way this thing is working. Since 1991 the contract amendments have increased by around $512 million on contracts under $30,000. That's a $512 million increase.
Now, in the grand scale of things that might seem like small change, but when you're dealing with a specific level of contracting it appears either a lot of contractors have figured out the system and are using it...that would account for that $550 million. We can see by the increase of the number of amendments.
There's a hiccup in the system that can allow that kind of increase. It looks as though the contractors have figured it out. I'm just wondering, after all these years that the government has been around, why we continue to have justification for overspending instead of spending within our budgets. Every time we have overspending, there is always justification of some sort, but there doesn't seem to be, after all these years, any lessons learned from this constant overspending that are going to forbid us to overspend or allow us to keep within our budget.
You say now we're going to use general ledgers and double entries or dual entries, things like that. This is not rocket science stuff. Accountants have been using it for decades. I'm surprised that your department is just starting to get serious about this type of accounting to try to get things working within the normal business practices.
The Chairman: Do you want to respond to that?
Mr. Little: Well, I'd like to thank the member for the support he's obviously going to provide us when we come back with the request for changes to the Financial Administration Act, a parliamentary document that prevents us at this point in time from being able to do the accounting practices we'd like to do.
Some hon. members: Oh, oh!
The Chairman: Touché.
Mr. Little: I don't mean to be facetious, sir. If I was, I apologize.
Secondly, I'd like to be able to provide you assurances that the relationship to spending and contracting needs to be, I think, adjusted. Because you put an amendment to a contract in place does not mean you're overspending. Overspending is related to the budget you have. You're not permitted to make a change in a contract arrangement that would exceed a budget limit you have.
So if you have $1 million that you're using to deliver a service to Canadians in that year, and you use it in a variety of ways.... You may put a contract in place. You then may make an amendment, but you're not allowed to exceed that budget limit. It's very rigidly controlled. Trust me. It would not allow this contract amendment to cause overspending.
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Mr. Harris: But wouldn't it be nice if some of the departments would come in under budget for a change?
Mr. Little: They all do, sir, quite frankly, they all do. We now have an opportunity in operating budgets areas of a roll-over to an amount of 5%. We're now in very difficult circumstances, because we have everybody doing it. In other words, people are deliberately making sure their expenditures, particularly towards the end of the year, are appropriate. They now have an authority to roll it over. They're grateful for the opportunity to be able to do that.
The Chairman: Thank you.
Dr. Duhamel, and then Mr. Bryden.
[Translation]
Mr. Duhamel (Saint-Boniface): Gentlemen, thank you for your presentation.
[English]
I'm going to ask three questions. I hope to limit the whole exchange to five minutes to give my colleagues an opportunity. All I want are really brief responses.
The first one is, how good is our policy? Do we know how it compares with perhaps other countries and other provinces? I'd like to know something about that.
Chart 10 here says ``best practices for quality contracting management''. Later on it's the Treasury Board's statistical base. With respect particularly to best practices for quality contract management, I'm assuming that this is now being done, that these are guidelines departments have, and that we do in fact monitor this. I just need some clarification.
Finally, to me the basic issue is, what do we need to do to ensure that there are (1) more competitive bids - I think that's a concern that's been expressed - and (2) fewer contract amendments with regard to numbers of contracts and overall amounts? What is it we need to do? It's not necessarily a question of patronage or possibility. It's just that obviously some people are very uncomfortable about this. What do we need to do?
Those are my three questions.
The Chairman: Very good questions.
Mr. Little: Thank you, sir. I'll answer the first, I'll ask Mr. Neville to take the second, and then I'll answer the third.
The first question is what our contracting procedures, arrangements, policies and guidelines are like in relation to international comparisons and/or provincial governments.
I think we have every reason to believe our system, compared with anybody's, is absolutely first class in terms of control, value for money, and obtaining service in terms of time and cost. I particularly point to our friends in the south, who have a series of very difficult issues they try to manage. They try to set aside for small business and for particular regional areas. They really have a system that's far more non-competitive than what we're trying to offer here.
Secondly, in terms of provincial comparisons I'm not prepared to say any individual province has a problem, but I would say we're quite prepared to be compared with - benchmarked against - any of the provincial contracting arrangements.
Mr. Neville: With respect to your point about best practices, I can assure you that departments have taken this seriously, as mentioned previously. We asked a number of deputy ministers to attend a special meeting with the secretary of the Treasury Board, where we discussed this at length. They all have gotten back to us with preliminary responses at this point - they've asked for more time in some instances - to state that they have taken the initiatives, such as setting up contract review boards within their own departments. They've also increased the levels of sign-off within their own internal organizations.
So I can assure you there have been some positive steps taken by departments to improve the situation.
Mr. Little: In relation to your third question, sir, what I would suggest be done in order to increase the amount of competitive contracting, I first of all would suggest - and this is in order of priority - that people be held accountable for the actions they take. In other words, we have a policy, we have a guideline, we have a system in place. A percentage up to 99% works, and works well. Services are being provided with best value in mind and quality service to Canadians. Where there are instances that it's not, then the individual who does not do it properly should be held accountable for it, and where appropriate, action taken to correct the situation. That's my first priority.
The second priority I'd make is that we should try as much as possible now to fully use enabling technology to streamline the ability to get information out and bids back in again. We've started down the road with OBS and ACAN. We now want to do what's called ``electronic commerce'' internally, where much of this is passed electronically, thereby getting rid of the paper burden, getting rid of the administrative overheads. Managers will be much more willing to make use of competitive practices when they can get rid of this time and administrative burden constraint. That's my second priority in terms of where we should go.
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The third priority is a question of more training and education in relation to managers. The contracting staffs that were adequate to the need are now diminishing because of downsizing. More and more strain is being placed on line managers to conduct a lot of activity that previously you got some specialist to do. They're not particularly well trained to handle this kind of issue, and thereby mistakes are made. Rather than just cut their heads off, we should try to make sure they have an understanding of how the system works.
Finally, if none of those things are working, then it's an issue of turning to levels of delegation. It doesn't have to be that we reduce it to below a particular level. It may be that we want to move individual departments. We're having difficulty in a new type of regime for a period of time until the situation corrects.
What I beg you is not to put in place a ``one size fits all'' solution where everybody is hurt on the basis that suddenly there are zero contract amendments permitted, or something similar, because we'll clog the system to the point where you'll not be happy with the outcome and then you'll ask me why that happened. I'm sorry if I sound emotional - because I know how easy it is to simply say ``cut it off''.
Mr. Duhamel: No, no. I'm old enough to know that those solutions don't work.
An hon. member: Mike Harris thinks they do.
An hon. member: Which one? Be careful.
The Chairman: Mike's cousin.
Mr. Bryden.
Mr. Bryden: Thank you, Mr. Chairman. I just want to put on the record that this committee does appreciate the alacrity with which the officials present here and the department they represent acted upon problems that were identified by this committee in the spring. I think it's a great credit to the standing committee system and it reflects on the fact that there can be confidence between the bureaucracy and politicians. I think very good work is being done and I hope our report in the end does reflect both the problems identified by this committee and the responses that were taken immediately, or as immediately as possible, by these gentlemen here.
I have two questions, and I'm going to go off on a little bit of a tangent here, about the light-armoured vehicles, which were originally a non-competitive contract by Defence, which you mentioned. Is it within your mandate to probe something like that and ask why this particular contract was non-competitive? Does it come back to you automatically?
Mr. Little: Yes, sir. If it's over a particular threshold - in this case, for non-competitive, it would be $2 million - it would come back to Treasury Board by way of a submission from the contract authority, which in this case would be PWGSC. It would then be analysed and a précis provided to advise ministers of the Treasury Board of the situation.
Mr. Bryden: So can I ask you for that précis, or do I ask Defence when it comes before the committee?
Mr. Little: I'm sorry, but you won't get the précis I'm talking about. I'm sorry, sir; I shouldn't have said that to you, I suppose. Unfortunately it's ``Queen's confidence'' because it's advice to ministers and therefore it is not a public document. The submission that is put in from the department is also advice to Privy Council and therefore it's not a document that becomes public. However, the Auditor General does have access to the Treasury Board decisions and, where necessary, to the Treasury Board submissions.
Mr. Bryden: The reason I focus on that is that the light-armoured vehicle was the subject of considerable controversy at one time. This is sort of an example where one could examine why this is a non-competitive contract and want to look at it in considerable detail.
Mr. Little: If you wish to pursue it further, sir, my suggestion would be to ask the Department of National Defence to provide you with details, which they would be able to do in, I think, fairly clear detail.
Mr. Bryden: All right. I have just one other question, Mr. Chairman, because I don't want to hold up other people.
The employment equity bill is now before the senate. Does that legislation impact upon competitive bidding?
A witness: Not that I know of.
Mr. Bryden: It's not relevant?
Mr. Campbell: Just a short statement on that. There is a provision in the contracting policy, called the federal contractors program. It was introduced a number of years ago by the then Department of Employment and Immigration. It does require all contractors with more than 100 people on their staff who are looking for a contract in excess of $200,000 to have an employment equity program acceptable to Human Resources Development. So any change in this new legislation would be reflected in our policy.
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Mr. Bryden: Is this actually in operation, then, that somebody competing for a bid has to demonstrate they have an employment equity program in place?
Mr. Campbell: That's correct, if they have more than 100 employees and the contract value is in excess of $200,000.
Mr. Bryden: Finally, do you have any sense or studies on how this impacts on competitive bidding? In other words, are some contractors unable to apply because they did not meet the employment equity...?
Mr. Neville: This question would probably be more appropriately directed to that particular department, but occasions have presented themselves where suppliers have not complied with the regulations and that has resulted in non-award of a contract. So it has been exercised since its inception.
Mr. Bryden: Thank you.
[Translation]
Mr. Bellemare: First of all, I would like to congratulate the Treasury Board for the new accounting and monitoring systems it has set up concerning contracting.
Having been a member of the Standing Committee on Public Accounts for five years and of the Standing Committee on Government Operations for two years, I must say that I have a lot of respect for the work carried out by the Treasury Board, unlike the representatives of the Reform Party who think that the work done there is haphazard.
It is unfortunate that such comments are made concerning the Canadian government, no matter who is in power, and, particularly, that they are being made by comparing the government's system to the small and medium-sized businesses of the country. We come from businesses ourselves and we all know that there is uneasiness and problems everywhere. I have a lot of respect for Mr. Harris, who is a very reasonable person, but, what can I say, his party's philosophy is to believe that here in Ottawa, everything is done wrong. That isn't the case, the Assistant Deputy Minister's presentation was very good and very impressive.
Concerning contracting, significant numbers are involved. At a certain point, maybe a year or two ago, it was a matter of five or six billion dollars of contracts that were awarded, whereas today, contracting out accounts for perhaps 8 or 9 billion dollars. Might we see, at Public Accounts Canada, headings... I must speak in English so as to be able to us the terms commonly used here.
[English]
On the definition of contracts.... When you say government contracts a great deal, depending on who you speak to - a grocer, an armaments dealer or a language expert - they immediately think of their area of expertise or interest. I think we use the word ``contract'' generically, and that may give us the wrong impression. Do we have a definition of what a contract is in procurement, for example?
The Chairman: You asked that question before, and we circulated a definition to your office this week. I'm assured by the clerk that all members received it.
Mr. Bellemare: I haven't received it yet.
The Chairman: A number of members got it. Anyway, it is a two-pager from Treasury Board pursuant to the question you asked the last time Treasury Board was here.
Mr. Bellemare: I haven't received it.
The Chairman: I'll give you mine, if you want.
Mr. Bellemare: Thank you.
In the public accounts book, when we talk about contracts in general, could we find listings under the headings of goods, supplies, material and equipment? In equipment you have civil or military, and then construction, for example, and then services.
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Mr. Neville: Yes, I understand the question. They're not provided as such under the public accounts as we know them. We have agreed that we would look at that, but there's a cost associated with providing that kind of detail. If there's an area that interests any particular member of Parliament, then there's means to try to obtain the information. Rather than have it all disclosed, which of course has a cost associated with it, we like to think that where there's a specific request, it can be dealt with.
Mr. Bellemare: Notwithstanding the costs - I think the same could be said of auditing. There's a cost in auditing and we're all honest, so let's not audit and I'll tell you what it is off the cuff. I would prefer to see it done so that some MPs' misconceptions or interpretation of what a contract is - can you imagine when they go out and start chit-chatting with the guys at the bar? It's awful, so we need to do it properly here so that the information can be dealt with properly.
Second, and I think everyone has touched on it although no one has mentioned it, standing offers come under contracts, and it is a very fluid area. If the wall falls in and you have to get it repaired, who do you call? Do you call your buddy or the guys who have a standing offer? That has to be addressed.
You say you've installed systems, and I appreciate that, and you've mentioned that you do auditing. Is it internal auditing or do you go externally to get your auditing done by other people? I understand that all business organizations have a controller. I was astounded when you got rid of the controller general at Treasury Board four years ago. Maybe Treasury Board has given itself the title of controller general over all things that have dollar signs in front of them, but I thought a controller general was the internal person who controls everything, even expenditures and entries. He would be responsible for having an internal auditor, but on occasion you would call on external auditors, whether commercial auditors in the sense of being out in the business field, or a consulting and audit group at Public Works.
The Chairman: Did you want to comment on Mr. Bellemare's questions?
Mr. Little: I'll start back and then come to the standing offer. First of all, you're correct, the controller general is now double-hatted. The secretary of the Treasury Board is the controller general, and I have the proud office of deputy controller general. Yes, I do own an audit review and evaluation group whose responsibilities from time to time include organizing horizontal reviews outside of internal audits to look at various issues.
We are also the main contact point in government with the auditor general. In order to organize a series of mutually supportive activities, he reports to you, but we're interested in making sure his work matches our work.
The President of the Treasury Board tabled in the House last week a report on annual audit review and evaluation, which was very favourably received. It is an indication of the work the controller general has been doing for the government.
I'll ask Mr. Neville to give you a quick update on how the question of standing offers is going.
Mr. Neville: Standing offers are let where there's a significant amount of repetitive work. To avoid going out in each and every instance with a separate contract, you initiate what are called standing offers. They're usually competitively sourced, so they follow the guidelines. Once they've issued, it facilitates departments to just go to that particular standing offer and within the rates that have been struck, within the terms and conditions of that particular standing offer, to choose the service that's required.
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That being said, in a number of instances we have different standing offers with suppliers for the same service so that there's even a choice. I'll give you an example with respect to PCs, personal computers, and as well with temporary services. There are a number of options.
Mr. Bellemare: It's very good that you did that, because in our definition, a ``PC'' is a Progressive Conservative.
Some hon. members: Oh, oh!
Mr. Neville: This allows departments to select the supplier of choice based on the terms and conditions and the prices. It saves them going out with a new request each and every time if they can just prepare the documentation, call up the supplier and get the goods on a very timely basis.
The Chairman: I know our time is pretty well gone here, but I would like you to focus on a couple of questions.
First, I haven't necessarily gotten an answer from you about the alarming increase in numbers of contracts, the trend of 102,000 in 1991-92; 147,000 in 1992-93; and 155,000 in 1993-94 in contracts under $30,000. Not only have the values increased over the last few years but also the amendments have increased significantly from $37 million in 1991-92 - and my colleagueMr. Harris hit on it - to $549 million.
Do you have a reason for that? Has someone justified it to Treasury Board yet?
Mr. Little: I have two answers, sir, if I may. First of all, this is exactly why we had all deputy ministers to a series of meetings that said we must deal with this issue. Why is this trend increasing? What are you doing to ensure that there is full justification for the activity that's under way?
The Chairman: So you're not happy about this.
Mr. Little: We're not happy about it.
The Chairman: Do you suspect that 1994-95 is about another half-billion dollars in amendments?
Mr. Little: I doubt it, sir. It's certainly not going to be less, I know that, just because -
The Chairman: So it could very well be more?
Mr. Little: I doubt it, sir, because there's not enough money any more to be able to say this is a continual increase, in a sense. But the reason I can't be sure is that we did not take the kind of actions we've been taking, as we've described to you today, until halfway through this fiscal year. Therefore, for the first half it was sort of continuing the way it was.
I'm not suspicious that this is all wrong. My guess is that a lot of it is very legitimate and very key to the delivery of services to Canadians, but I do believe it's increasing at too rapid a pace to be simply that. Therefore, there probably are too many instances of contract amendments taking place, which could be described as contract splitting. There are too many instances where people may very well be -
The Chairman: Splitting is not acceptable?
Mr. Little: Not acceptable.
The Chairman: It's not illegal. What is it? Give me the bureaucratic term for splitting of contracts they ought not to split: Thou shall not split?
Mr. Little: Thou shall not split, sir. It's illegally legal. It's against the policy of the Treasury Board that you put a contract split in place.
The Chairman: So that's against Treasury Board policy.
Mr. Little: That's correct.
The Chairman: No exceptions?
Mr. Little: No exceptions.
The Chairman: The other question I had is the small business side of this.
Mr. Little: Could I just finish that?
The Chairman: I apologize.
Mr. Little: No, I apologize, sir.
The second part of this is that, yes, we've identified the problem and, no, I haven't provided you with an appropriate answer. Why? Because I don't have the statistical information I need to determine what is good and what is bad of that increase under $30,000.
What we've undertaken to do in our 1996 report is to put in requirements our colleagues in PWGSC will be collecting under the guidance of the Treasury Board policy. What is the difference between competitive and non-competitive contracting going on under $30,000? Please report.
When we see what that is, we'll know whether in fact there is more action required than what we've already taken to ensure that practice is appropriately curtailed.
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The Chairman: Can I just quickly shift into small business? All members of Parliament are hearing that small business people do not feel they are accessing the billions of dollars in government contracts that are out there to be consumed. I guess one wonders how you, as a central agency - and I know it's a policy decision - would respond to 50% of all government contracts going to small businesses, in other words, a set-aside.
You talked about an aboriginal set-aside. What about a set-aside for businesses owned by women entrepreneurs? What about small business? How would you respond to that?
Mr. Little: I would respond on the basis that anything you do that turns the procurement system into a tool for achieving other national objectives generally puts you in conflict with the value of competitive contracting as the means of ensuring best value and fairness and transparency.
What you're basically doing is moving to a world that says 25% of all contracting will be done with small business. You immediately then remove from the competitive process a whole series of activities that you're otherwise trying to foster.
I would also say, if I may, that this whole area recently was examined in detail by the Department of Industry and by the Department of Public Works and Government Services. There was a very serious examination of this small business set-aside arrangement, patterned to a certain degree on what happens in the United States. To my knowledge, it was determined after extensive consultation that the supplier community, both small and large businesses, did not favour the government using the procurement dollar for this particular purpose.
The Chairman: That is yet to be decided. I think we would want to look at those reports. There's a view that those questions were skewed. In other words, they introduced the ceiling as being so high that when they asked the question to small business, in fact they were really asking the question to big business.
For example, the universe of people they surveyed were people with businesses with 500 employees and less. Doesn't that cover everybody in Canada? In other words, let's use the definition of 50 employees or less and ask the same questions in a procurement way.
I don't argue that there may be some other objectives that we would want to achieve, but I still think you would find - this is just a guess - that competition would be well served with small business as well.
Mr. Little: It's not for me to do anything other than what you would obviously take through as a policy decision. My advice, sir, if I may be permitted, is to recognize that there is no way you can sever off the procurement practice in any directed way that doesn't reduce somewhat the competitive process we are here today to try to portray as being -
The Chairman: That's fair. But I guess when I, as a member of Parliament - and I think this is the point made by both Mr. Harris and Mr. Marchand - see bureaucrats spending a half-billion dollars on amendments, and it's a trend that's increased...and this is under $30,000. You explained some of the over-$30,000. We're still missing an explanation for the $400 or $500 million. Let's call it $1 billion. I'm not trying to be irresponsible in the numbers I'm using here, but I think it's safe to say $1 billion is going out. Why not look at another process? Why not look at another mechanism or method?
Mr. Little: Sir, my recommendation is that as you're proceeding, as I know you are, into detailed examination of individual departmental situations, I know you would find it very, very useful to get from them detailed explanations of why they've done particular things.
The Chairman: I'm just asking questions.
Mr. Little: I realize that, sir. My point is that the premise is that somehow this is going out inappropriately. I would submit to you that the premise is it is happening appropriately except for certain situations that need to be corrected.
The Chairman: Let me correct it. I'm not making a suggestion that there's anything untoward or inappropriate happening. My question is going back to what you obviously have addressed as a central agency of Treasury Board, that, hey, something's not right here. As you've just conceded, you're ``not happy'' about this information. You're not happy about these trends. You've called in all these deputy ministers and said, look, something's not working here; what's going on? As a committee I think that's what we're trying to do.
Mr. Harris, we'll let you have a short last question and then we'll conclude.
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Mr. Harris: I have one last question in conjunction with what the chairman just asked. Concerning this issue of amendments and this increase on contracts under $30,000, is there a way that we, as committee members, would have random access to some of those contracts that were amended so we could make some determination as to why these are being amended? Do we talk to the different departments to provide us with this information?
A witness: Yes, sir. They would have it.
Mr. Harris: I don't know the rule quite yet. Are they bound to provide that information for us on an individual contract information basis? For example, they have the original, they had to amend it for whatever reason, and there it is. Do they have to provide us with that?
Mr. Little: I'm sure that if the committee requested information of that nature, the department would be happy to provide it.
The Chairman: I don't think there's a problem.
Mr. Little: There may be some commercial confidentiality or something. That's the only reason I would see it. You might blank out the name and just deal with company A or something. Other than that, there's no....
The Chairman: Thank you, gentlemen, very much. On behalf of the committee, we appreciate, as always, your cooperation.
We're adjourned.