EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, December 12, 1995

[English]

.1005

The Chairman: Order, please.

[Translation]

Mr. Bellemare (Carleton - Gloucester): Mr.Chairman...

[English]

The Chairman: Yes?

Mr. Bellemare: I would like to make a request before we begin the meeting.

The Chairman: Go ahead.

Mr. Bellemare: Two things: the report that I am supervising for the committee - the second draft is not finished yet. It will be done, we hope, during the Christmas holidays. I promised our researcher that I would come in and sit with him and we would go through it together. Hopefully we'll have it ready for the return of Parliament.

The second point is, with one group that came in on your initiative, which was an excellent initiative, it was very profitable, very revealing. The word I used was ``revelatory'', I think. I've checked the dictionary since then and I meant ``revealing''. We've learned a great deal from the user, the client. There are more people out there who would have liked to have had the opportunity to come in. There are certain people who use it and have no animosity or problems with the government and are doing well. But they would like to point out the follies, the difficulties, the problems and the weaknesses of the system of the OBS, for example. Since we're trying to improve or ameliorate the system, these are the kinds of people who don't have an axe to grind, but who have a lot of experience and could be assisting us very much.

I will be meeting next week with one of those companies and I'll be experiencing what a user goes through using the OBS; they will walk me through it. If the researcher would like to come along and join me - it will be about half an hour to an hour, I'm told - I'd be very pleased to bring him along and we could go through it.

The Chairman: He's nodding ``yes'', so that would be great.

.1010

Mr. Bellemare: On the topic of these user witnesses we've had in, as opposed to les hauts fonctionnaires that came in, I think we should have another session.... We've had literally over100 sessions, if not many more, on the topic of contracting. I think we should have another session with users, maybe a second group that have only heard of it after the fact, because of good public relations -

The Chairman: Mr. Bellemare, the clerk advises me that we have a very full day on Tuesday. I'll go through the members' schedules and you can...look, I'm at your command here.

On Tuesday, as a result of the intervention of Mrs. Chamberlain, we have the Department of Natural Resources coming in. Also, at the tail end of that, we are bringing in Mr. Bryden's Bill C-224 to complete Revenue Canada's replies to the committee. Then we go in camera from 11:30 a.m. to 1 p.m. for lunch, when we will review some of the recommendations we're going to come out with on Thursday, which, as Mr. Bryden carefully pointed out to me at the beginning, are preliminary findings, or an interim report that would indicate to Treasury Board some of the preliminary findings.

Could I suggest that maybe Wednesday we have CIDA at 3:30 p.m., and if you could offer a witness to the clerk or to the researcher before the end of today, we would schedule them for Wednesday.

As well, it's interesting that you mentioned it, because a company called Partnering and Procurement Incorporated, who set up procurement operations for municipalities and organizations, have approached me and said they thought we were onto something very interesting from the government's point of view. They are a high-tech company out of Ottawa. They are called Image and Integration. They indicated an interest in coming as well. So maybe we would turn Wednesday into another session like we've already had. I know we're into that last week.

Mr. Bellemare: I'm very amenable to waiting until we return from the Christmas holidays.

The Chairman: The clerk advises me that Wednesday may be a crazy day due to votes. We don't know yet.

Mr. Bellemare: I'm very amenable to waiting until we return from the break.

The Chairman: Okay, I think that might make more sense.

Mr. Bryden.

Mr. Bryden (Hamilton - Wentworth): I'd like to support Mr. Bellemare on that and simply to add that I would like to see even more witnesses. I think we're onto something that needs a little bit more exploration.

I would suggest that all of us here look to the respective regions we come from and maybe see if we can find some more witnesses that might like to come before this committee and describe what it's like to be a small business trying to compete for government contracts against insiders.

I've already been getting feedback from my fellow MPs, who have some pretty ghastly stories to tell. It's a very difficult problem that I really don't see solutions to at this stage, but we need to know the problem better.

The Chairman: Okay. I'd like to hear from somebody in the opposition so I can get a consensus here.

Mr. Marchand (Québec-Est): Yes, sure, I have more witnesses from companies after Christmas. I agree.

The Chairman: Okay.

Mr. White, do you have any response?

Mr. White (North Vancouver): I think it makes good sense to continue after we return.

The Chairman: The only caution I would throw out to you is that - oh, actually, we haven't used up the full budget on witnesses, have we? No.

We might have some room in the schedule in the first week of February. What you're telling me is you want a schedule; you want a meeting scheduled. I will instruct the clerk to organize something for early February.

Is that agreeable? We're agreed? Okay.

On another matter, I want to re-remind all members - and Mr. Marchand, I know you've been in and out, so I'll repeat this again - that what we're hoping to do is by Tuesday have a preliminary go at some of the.... Probably by the end of today we'll have, in English only, some work that's being prepared, and it will go to translation by the end of today. So by the end of tomorrow we should have for distribution to the committee a couple of dozen options or policy thrusts of things we've already observed.

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They may very well be corroborated further, Mr. Bryden and colleagues, by evidence that comes out in February. But I thought, in keeping with what we said we would do as a committee in terms of giving a rapid response to the Minister of Treasury Board, by Thursday we would deliver a series of policy initiatives to say, well, these are at first blush our dozen observations, that government payments are slow, for example, or the kinds of things that came out of that day and other things we've observed.

So I want to remind colleagues that if you have any ideas between now and the end of tomorrow, either the clerk or the researcher would very much appreciate getting them so they can be distributed for our working session on Tuesday.

Are there any comments or questions?

Mr. Marchand: Why so quickly? We're waiting for the report on contracting out.

The Chairman: No. That's an unrelated one.

Mr. Marchand: Totally unrelated.

The Chairman: Yes. This is specifically on this very focused issue we've been dealing with.

Mr. Bryden: I think, Jean-Paul, the thrust of -

The Chairman: Non-competitive bidding, Jean-Paul.

Mr. Bryden: The incentive here from Treasury Board is that the budget is coming up and planning is in the works, and they want to get at least some feel for what we're discovering here so that they can at least have the option of acting on it.

The Chairman: Nothing is definitive, but it's an indication that at first blush our committee has listened to these departments, we've listened to some small businesses, and these are some preliminary findings as of Thursday, and then we'll have the opportunity to do some research.

For example, one thing that was raised last week was the ISO 9000, the ACAN system, which we really haven't touched. Everybody flirted with it. It was talked about, but it really wasn't discussed in a substantive way.

So there are a number of these little bidding systems out there that we haven't really had an opportunity to delve into. I don't want to expand this further, but I think that's what a parliamentary hearing is about, to find out some information. I think those two systems, for example, are something we would also want to know a little bit about before we issue a final report.

The report of the committee work pre-September is, as Mr. Bellemare indicated, in second draft now. That's an unrelated report to this. This is a shorter issue.

Are there questions or comments? Is the schedule agreeable to everybody? I know it's a very tight week next week, but it guarantees....

Okay. Thank you.

I apologize to our witnesses.

Colleagues, on your behalf, I want to welcome today from the Correctional Service of Canada, Gerry Hooper and Ted Pender.

Welcome to our committee, and thank you for your patience. I understand you have a short opening statement.

Mr. Gerry Hooper (Assistant Commissioner, Technical and Information Management Services, Correctional Service of Canada): Mr. Chairman, I believe you have it with you. I've tried to attach some additional information, primarily based on fiscal year 1993-94. It will give you an overview of the kinds of contracts we've awarded competitively and non-competitively, and, in response to some questions you've asked of other departments, listings of those of high dollar-value that we have sole-sourced.

[Translation]

First, we would like to say a few words about our practices and process. We have had bitter experiences with inappropriate contracting and so, have put processes in place that are intended to keep us out of trouble.

We have had Contract Review Boards in place since 1986. These boards, which are chaired by senior staff, review all contracts above a given dollar value. Furthermore, all contracts over $5,000 in the case of goods, and $10,000, in the case of services, are awarded by our procurement officers or by PWGSC.

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We have set up a contract administration system that allows us to keep track of contracts issued and individual contractors' histories. This is currently being rewritten to better fit into our national procurement system and therefore, become more useful.

[English]

This integrated procurement system will also allow us to monitor all goods procurement across the country. It's currently being implemented, and we hope to have it finished next year.

We've had regular internal audits of the contracting functions. Since 1987 there have been five: in 1987, 1989, 1990, 1991, and 1993. Of course, these can be made available to you if you wish.

[Translation]

Finally, since we have increased delegations to managers, we have developed a contracting course that they have to take before they can benefit from higher delegations.

So much for the process.

[English]

What could I say, then, about contracts in CSC? First of all, I must confess to an error we made in reporting to Public Works. In a simple transcription error, we recorded $28 million as non-competitively awarded, but it was in fact competitively awarded. I do apologize for that. Fortunately for us it wasn't in the other direction, but it does change our figures for the better and it does mean that while the number of sole-source contracts may have risen, at least a greater percentage of dollars spent was awarded competitively.

What I'd like to do is give an overview of the kinds of patterns of contracting within the Correctional Service, because somewhat like Defence when you spoke to them, we do have a wide array of items that we purchase.

[Translation]

One of the most striking elements is the range of goods and services we procure. In the area of goods, CSC buys everything from buses to snowmobiles, foodstuff, clothing, toiletries, weapons, security technology and industrial equipment, not to mention the huge inventory needed for the maintenance of our facilities.

[English]

As is often said, prisons are like small towns. So everything that goes in them we buy or we make.

I think two points are worth mentioning. First, the range of products we require and the geographic distribution of our operations means that the work is broadly allocated across the economy. I don't wish to suggest it's across all segments or sizes of companies in the economy, but it is broadly allocated. Indeed, we estimate that the average value of a goods transaction is some $3,000, and about 100,000 transactions of all types take place within the Correctional Service in a year. That, of course, is not just formal contracts; that includes local acquisitions of less than $5,000.

Secondly, some of the products we buy are so specialized that there is only one source of supply. Firearms and security technologies would be good examples.

We find a similar pattern when we contract for services. We require such things as chaplains of all denominations, halfway houses, teachers, computer systems, electronic security maintenance, therapeutic programs, native elders and health care professionals - a wide array of services, not all of which we can acquire very easily or competitively.

Let me give you a few more details. In 1993-94, as you know, CSC issued some 8,300 contracts, in addition to the tens of thousands of local purchases. As with most departments, the vast majority is awarded on our behalf by PWGSC. Like other departments, we have $5,000 delegations for goods and $30,000 delegations for services. But we also have some special delegations: $400,000 for the provision of educational services, health care services, halfway houses, and community programs for offenders. This was granted by the Treasury Board in recognition of the difficulty in acquiring such services through competitive tender, though we do tender for some.

[Translation]

Our policy, which is also PWGSC's policy, is to procure competitively when possible and practical. Even where we can award non-competitive contracts, we expect managers to check for best price by more informal means such giving a few phone calls, even though the resulting contract is non-competitive. Not only is this good practice, it is also in our best interest.

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Most of our facilities are in smaller communities where we are a major economic force and, as such, are closely watched by local businesses which are quick to point out perceived unfairness.

[English]

If this is our policy, why then do we see significant numbers of non-competitive contracts? As with others, we've been closing warehouses, which has increased the number of single purchases. We've also increased delegations to managers to reduce overhead, which has led to fewer large bulk contracts and more smaller, geographically separated ones.

We've contracted, as I mentioned earlier, for services for which little competition exists, such as in chaplaincy services, halfway houses, medical services, and services delivered by aboriginal people to our aboriginal offenders.

[Translation]

We find similar problems with some of our equipment where either there is only one supplier, or some complex systems are custom-designed and built for each site. When buying spare parts or repairing such equipment, there is only one supplier, the original builder.

[English]

The final product group that causes us to sole source more than in the past is computer technology for the large network computers, not the personal computers. Once the initial contract has been awarded competitively, any expansion of and upgrade to that goes to the same supplier for purposes of technical compatibility, and because of their size and complexity this isn't a retail market. One typically buys straight from the manufacturer.

Mr. Chairman, we've estimated that the reasons I've mentioned here account for in excess of $55 million of the $131 million that we sole source, and I would stress to the committee that's a very modest estimate. I could, without any particular difficulty, give an indication of where that could climb to in excess of $70 million.

On top of this, we must also consider that formal - and I stress the word ``formal'' - competitive bids are not always most cost-effective for small procurements. Even in the service area for low dollar bids, and that would be in the $30,000 to $50,000 range, we've had companies tell us that they would rather not bid in a formal way. They prefer sole source, so they won't respond to the tender because of the cost of preparing the bid. How representative that is, I don't know, but in the recent past we've had two or three such examples.

As well as sole-source contracts, we also know of questions the committee has posed about amendments to contracts, especially to contracts under $30,000, for which no tenders are required. I can give you a little more information, at least with regard to 1993-94, on our letting 3,800 goods contracts under $30,000. None of them were amended. Of them, 1,196 were non-competitive, with an average value of $7,000, and 2,600 were awarded competitively, with an average value of $9,000.

In the service area 2,600 contracts under $30,000 were awarded, of which 242 were amended; the average value of each amendment was $7,000. Of the 2,600 contracts, 452 were issued competitively; their average value was $13,000. As well, 2,200 contracts were non-competitive, with an average value of $8,000.

We're continuing to collect data for the previous years the committee is investigating, but we see no reason that pattern should change significantly, given the majority of our sole sourcing.

In the interest of time, Mr. Chairman, I'll cease my comments and leave myself open to questions. You'll see that I'm usually used to talking to the Commissioner of Corrections, not to chairmen of committees. I apologize.

The Chairman: Some of us may end up in your correctional facility, but I don't think we'll become commissioner.

Thank you, Mr. Hooper.

Mr. White.

Mr. White: Thank you, Mr. Chairman.

Mr. Hooper, in the first part of your presentation you mentioned you have this contract administration system that allows you to keep track of contracts issued and the individual contractor histories. Can you tell me whether that has resulted in your expelling certain contractors or taking them off your approved list?

Mr. Hooper: Never in taking them off the list. This is a system that is used typically in support of the contract review boards. If we recognize a contractor who's coming up regularly, we will ask for a contract history to see whether that person seems to have been getting a disproportionate number of contracts or whether there is the potential for contract splitting. We see them every week, so we see a pattern.

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We don't use that system to say no to any supplier. That would be done only on the basis of a default of significant magnitude in contract performance prior to this particular one. Even then it would have to be a default of significant magnitude, probably repeated over time. But this system would not do that.

Mr. White: Okay.

You've given some examples here of where you're not able to go out competitively for some contracts; they're non-competitive. Do you have a set of parameters or guidelines that are used to determine whether or not something should go to tender or whether it should be sourced non-competitively?

Mr. Hooper: Typically, it's based on experience. If things are proprietorial, only the builder of the system, because of patent or licensing rights, can touch it, so we don't bother. From experience we know that is a given.

Similarly in the acquisition of drugs, members are much more aware of the ownership, if you will, of certain products by drug companies. That constitutes millions of dollars a year, but we don't bother to tender for those that are proprietorially owned.

After that it becomes much more experiential. We, in the area of halfway houses, as I mentioned, know that we can't get as many beds as we would like, so we tend to approach everyone we know and issue sole-source contracts to them. If competition were available, we would take it, but we can't find it.

Once you get beyond the legal limitations, it becomes experience and knowledge of the market. Then there's the judgment call about the dollar value. If it's relatively low, and experience in the past has said you don't get much response or you get a lot of complaints, we say maybe we'll rotate them a little, which we do informally.

Mr. White: I would like to pursue a little more this disincentive for some companies to tender.

You mentioned that they're reluctant to incur the cost of bidding. I think back to my own business experience, and I personally refused to supply to government from time to time. Figures of $30,000 and $40,000 aren't tiny; they're small in the overall scheme of things, but they're not tiny for small business. I refused to supply simply because of slow payments.

This has been raised at previous meetings by previous witnesses. Maybe you're not directly in contact with this area, but I would ask you whether you are aware of any reluctance to supply based on the fact that it's slow payment and whether a percentage of suppliers complain to you about the slowness of payment.

Mr. Hooper: We do hear complaints. We don't keep data on it because it tends to be the sore thumb phenomenon - you get the angry person. There is the government policy of when payments are due, which you're well aware of. Typically the complaints we get from suppliers are more general, such as you've stated: doing business with the government is slow, it's cumbersome, the bidding process is slow, the amendment process is painful, the documentation is enormous, and the bills are slow. So it comes as part of the package. Suppliers say if they're going to do business with the government, it had better be a good job.

Mr. White: Do you have a feel for on average how long it might take for somebody to actually get paid if they're successfully supplying?

Mr. Hooper: It takes six weeks. The policy is less than that. I think they hold bills for 30 days, but I'm aware from complaints that it can take significantly longer.

Mr. White: My final question relates to one of the examples you gave in the sample sole-source contracts.

One I see mentioned here, for Native Counselling Services of Alberta, in Edmonton, is quite a large sum, $1.115 million. Have they been a regular supplier and has that figure been increasing over the years?

Mr. Hooper: If memory serves, from work I've done in Alberta, they have been a supplier for a significant period of time. It is not an expanding field for them. If I've labelled them correctly, they were one of the early entrants into the field many, many years ago. Some ten or fifteen years ago they were one of the first groups that recognized the special needs of natives. Others have moved up, which means that there are more players in that field in western Canada now.

Mr. White: Thank you. That's all I have now.

Mr. Bryden: I'm pleased with the amount of data you brought for this committee.

Mr. Hooper: Thank you, sir.

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Mr. Bryden: It's going to take me a while to analyse it all, but you certainly have given me something to get my teeth into. I appreciate that.

Let me ask you a couple of questions, though. You were commenting that halfway houses, medical services, and services delivered by aboriginal people are areas in which there is quite a bit of non-competitive, sole-source contracting.

Have you given me with this material a list of all instances of organizations that are sole sourced in this category?

Mr. Hooper: The listing I've given you in those general categories is of the halfway houses. That is not an exhaustive list. It is the largest list. It is the list of those who exceed our delegation of $400,000. So it's every halfway house or community supervision agency we have contracted with. This is the biggest list we have.

Mr. Bryden: The highest -

Mr. Hooper: The highest value of contracts that we have, yes.

Mr. Bryden: Are there more instances of aboriginal service groups, medical services? Can you do parallel lists of that?

Mr. Hooper: We could. I wouldn't promise that it will be as complete as this list, because it will be based on a series of urgent phone calls, but we could give you such a list if you would like a breakdown.

Mr. Bryden: I would, if you wouldn't mind.

Mr. Hooper: Yes, we can.

Mr. Bryden: This is very helpful material, but I'd like to see this paragraph that talks about medical services and services delivered by aboriginal people elaborated on.

A question related to that is, when you supply me with that complete list, can I, as an ordinary citizen, get financial statements from every one of those organizations about how they use the money you delegate to them and what salaries they pay their staff?

Mr. Hooper: That information we typically require - I'm sure you know what I'm going to say next - as part of their submission to us. They make us an offer, and we want to know how the money is being disbursed. We do not want money going to overhead and overly large salaries.

I recall, as an observer at this committee, a discussion of access to information issues. So if I could take the fifth on committing myself to something that puts me in violation of the law, I'm frankly not sure of the answer as to what detail I can give you. It is available, subject to....

Mr. Bryden: Let me pursue it a little bit then. I have in fact had complaints in my riding with respect to halfway houses where they have been the beneficiaries of a government contract and yet their actual financial statements have been withheld. So I would be very, very interested in hearing a more complete response from you about whether or not you can make it a condition of a contract that a financial statement of these organizations be available to the public. After all, it is public money -

Mr. Hooper: Absolutely.

Mr. Bryden: - and the public has a right to know.

I guess the question is, can you require these organizations to publish their financial statements if they get a contract?

Mr. Hooper: As I mentioned, it's new information for me that it was withheld. I was under the impression, based on limited experience, that we did require that. My colleague has dealt with them in previous lives, and that was the practice, I think.

Mr. Ted Pender (Manager, Materiel Services, Correctional Service of Canada): We have the right to go in and look at their books. I guess the question is whether we can then reveal that information or whether it's privileged information. We'll have to confirm. I'm not certain we can do that given the -

Mr. Bryden: The question is, can you make it a condition of letting a contract -

Mr. Hooper: I thought it was.

Mr. Bryden: - that their financial statements be made public? When you deal with a public company, you know, you do require a disclosure. I can see that this is not an area that you've explored very thoroughly.

Mr. Pender: No. As you're suggesting, Hydro has to publish its books and make them public, and there's no reason why they shouldn't. We'll find out whether we can make it a condition -

Mr. Bryden: And whether we do.

Those are all my questions, Mr. Chairman.

The Chairman: Thank you very much, Mr. Bryden.

Mr. Bellemare, please.

Mr. Bellemare: The hiring of personnel or staff on contract would fall under ``purchase of services''. In the purchase of services there is an area for outside help - a psychiatrist, a doctor, and so on. But you may have some people working in-house, and some are permanent or long-term employees and others are just there on a short-term contract. Do you have a lot of these?

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Mr. Hooper: Contractors? No, they tend to be project-specific. There's one major exception I would make to that: the provision of maintenance services to our perimeter electronics system, which is contracted out. The last contract was issued for five years.

What happened last time was that the previous supplier of that service lost the contract through competitive bid, and the new contractor promptly hired many of the employees of the old one. Some of the same faces have been around, but it was through a nationally tendered contract.

In terms of in-house employees who were contracted for by us, no. We will have contract teachers, but we contract competitively with a school board or a private school. The same faces may appear, but they're not contracted for by us, if that's not too obscure for you.

Mr. Bellemare: In other words, you are not one of those agencies or organizations in the government that have a shadow public service.

Mr. Hooper: Depending on how you would like to define that, I certainly -

Mr. Bellemare: It's a concern of mine, as a member of Parliament for the national capital region.

Mr. Hooper: Within the national capital region I can tell you no, we do not have many at all.

Mr. Bellemare: We're contracting out so much in the government -

Mr. Hooper: Exactly.

Mr. Bellemare: - that we're building a shadow public service. We're losing the culture of providing services for the benefit of the bottom-liners.

Mr. Hooper: I would -

Mr. Bellemare: I'm happy with the answer.

You were saying you purchase a great deal of goods, but your variety of goods is specialized so you just can't go out and hunt all the time. You know the obvious answers, that for specific firearms there are not many companies producing them and so on. This would be the most poignant example, but there are other items you want to buy nationally. Do you do that?

Mr. Hooper: We buy some things nationally. We buy clothing on national contracts because it's standard across the country and we can show savings. Other contracts we will buy regionally.

Mr. Bellemare: Why?

Mr. Hooper: The cost of administration of the contract, typically.

Mr. Bellemare: This might be a good answer administratively, for me. I would have difficulty explaining this.

I am concerned, sir, with the Wal-Mart syndrome in all departments. We're maybe heading for purchasing everything for the lowest price and ruining local or regional economies because of that. Because of NAFTA, we may end up purchasing everything from Mexico or the United States, out of the country, and no one will be left to pay taxes to purchase these materials.

Mr. Hooper: In our experience, we do not buy a great deal south of the border - very, very little from Mexico. Remember it's huge dollar -

Mr. Bellemare: But you do purchase.

Mr. Hooper: We do buy -

Mr. Bellemare: Why?

Mr. Hooper: Under the free trade agreement, we replaced closed-circuit television cameras on our perimeter detection systems. It was the largest single purchase of such cameras in North America in the year it was placed, and it was won in California.

Mr. Bellemare: Isn't that the tip of the iceberg? It's showing us that we are going in that direction, the one I'm worried about. You're picking on items right now that are the most explicable for rationalization of purchasing these items. Then there will be another item and the first thing you know, we'll be purchasing out of country to the point of ruining or not helping our local economy, which is in dire need at the moment.

Mr. Hooper: That has not been our experience. If I could refer you to the -

Mr. Bellemare: Is it a concern of yours?

Mr. Hooper: We're sensitive to it, but we also know that the average procurement transaction is $3,000.

Mr. Bellemare: Would you go the extra step, that you're sensitive but are now heading into the concerned category?

Mr. Hooper: Not in our experience, sir. I could not say that. For instance, there is no Canadian supplier of the firearm we buy. There is not one. So we buy from a U.S.-based company.

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Mr. Bellemare: In sole sourcing, do you keep statistics to the point where we could find out if the same preferred people are always rehired or you purchase at the same place all the time and the competitors are starting to wonder? Are you transparent in that?

Mr. Hooper: We do anecdotally have such information. I apologize. I don't wish to sound vague, but this is a new area of concern. We're accumulating information year by year. For instance, so far this year in the national capital region we have awarded 214 service contracts to 200 separate vendors.

In one of our larger regions last year, we made 16,000 purchases from approximately 3,000 suppliers. We took a national snapshot - I won't say it was a representative one - of goods purchased, of 9,000 purchases of all kinds and all sizes, and that came from 2,700 suppliers. So I can give you those kinds of statistics if you would accept the limitations of the data, if you will, that I cannot claim this is covering coast to coast. It's based on the limitations I could describe for you, but I could give you more of that.

Mr. Bellemare: Thank you, Mr. Chairman.

Mr. Murray (Lanark - Carleton): Mr. Hooper, I'd like to ask you about education. I noticed in your remarks you say you contract for teachers. What do you do when somebody wants to take a university course, for example? Does that fall under the contracting area? How does that work?

Mr. Hooper: No. From memory - so, please, don't take this to the bank - the offender now pays. In an earlier life, when I ran that program many years ago, I was the one who made the first transition from our paying to the offender paying. So I recall it with some scars, shall we say.

Mr. Murray: Congratulations, that was really what I was leading to, this idea that somebody could get an education in prison while others graduate and have student loans to pay off afterwards.

Mr. Hooper: It is my belief.... I'll send confirmation of our policy to you, but that is my recollection. As I say, I moved away from that side of the house.

Mr. Murray: Very early on in your comments and your remarks you mentioned you had bitter experiences with the contracting process. I thought somebody would have picked up on that earlier. What sort of bitter experiences have you been able to avoid now with the new process?

Mr. Hooper: I could summarize what happened. In two instances, we managed to occupy Question Period and The Globe and Mail for periods of ten days to two weeks. I'm sure members know that's the worst hell there is for bureaucrats, professionally speaking.

In the first instance there was a suggestion that a contract had been awarded on a sole-source basis - this was ten years ago, I might add - to someone known to a new senior manager of the department, and repeatedly extended, much as earlier questions to other departments have suggested. That occupied a considerable time. It did lead, some speculate, to the early departure of some public servants and to the establishment of our contract review boards and the annual audits, because we were not to be found wanting again.

The second, I believe, led to a special inquiry by the Treasury Board. There was a suggestion that we had somehow directed a contract inappropriately to a project management firm for an urgent major construction project.

Mr. Murray: Thank you. This is the last question. Do you find there are companies, say, in a town like Kingston, where you have an awful lot going on, that exist primarily to service the Correctional Service, and they would be terribly affected if you were to shift your procurement? Has that happened over time?

Mr. Hooper: Some very specialized ones might. That would be maintenance of some highly specialized equipment that attempted to move to that area because we were there. What you find more often, as a mundane example, would be with a food wholesaler. If we switch our bread contract to Toronto from Kingston, the Kingston wholesaler would sure notice. But we're not his only reason for being in business; we're just a major player in that segment of the market.

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Mr. Murray: That's what I was getting at. If you realize a firm could be in serious trouble if you quit buying from them, that would affect your purchasing plans.

Mr. Hooper: Yes. It's a debate that occurs quite often, particularly when we're looking at things we might do internally, using offenders to work for themselves, so to speak. It's a very sensitive issue, what the impact of that is going to be on either the local economy, geographically, or on a niche in the economy anywhere in Canada.

Mr. Murray: Thank you, Mr. Hooper.

[Translation]

Mr. Marchand: Mr. Hooper, Mr. Pender, thank you. I very much appreciated your presentation and the documents you provided were very interesting.

I would like to ask you a question regarding sole sourcing: are these contracts basically awarded by Ottawa, by the region or by the correctional facility itself?

[English]

Mr. Hooper: It would vary, sir. Electronic security is awarded from Ottawa. Education contracts are typically awarded locally. In Quebec it's tendered locally and the province also receives a contract from us for the certification of that education program as bona fide.

In the area of major computer acquisitions, because there's only one supplier and the head office is either here or Toronto, we in Ottawa will typically take care of that. Another example is after-care, which is coordinated nationally. We make sure we've got enough of what we want distributed, but the negotiations will take place in the region of the Correctional Service of Canada where the service will be provided.

[Translation]

Mr. Marchand: In your comments, you appeared to be quite broad-minded on the subject of access to information. Do you think it would be possible to get the list of sole-source contracts awarded by a given correctional facility?

[English]

Mr. Hooper: Yes. If you would like to indicate an institution, we will indicate to you the sole-source suppliers to that institution.

Mr. Marchand: Merci.

Mr. Bélair (Cochrane - Superior): I have two questions and I ask them for a very practical purpose. I would like to have some comments from our two witnesses, first, on the complexity of the tenders once they are issued because it is becoming more and more apparent as we deliberate on this contracting issue that this seems to be the number one problem. My second question will be on the advanced contract award notice.

Could the witnesses enlighten the committee as to how their sources react to the complexity of the tenders that are issued, because many of the other witnesses have complained about that, and if so, why?

Mr. Hooper: From experience, and I'll invite my colleague to share his, our tenders are very complex for, without sounding facetious, very complex items. Without boasting, we are the world leader in security technologies in the corrections field. Our tender document is that thick, but the people who receive that document understand it and expect it because that's the nature of the market they're in.

The areas we've had complaints about have typically been when we write performance-based specifications. The last one was an acquisition of a computer database system. One of the competing companies said the way we had written the specification their product could do the job as well as anybody else's could do the job but it would just not be as easy. They'd have to do some modifications, some work-arounds on it.

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We have that kind of complaint. But we met with them because we prefer to settle the problems at the beginning rather than the end. They accepted our explanation that it might suit them in terms of bidding but we would live with long-term problems and long-term costs if we did not change that.

Mr. Bélair: So you're saying there is not that much flexibility then. Assuming the tender has been issued, it is a somewhat rigid process, a rigid assessment.

Mr. Hooper: It somewhat has to be because of the reaction of other potential suppliers. If I issue a tender document or requests for bids around a set of specifications, you or company X might phone me and tell me I'm excluding you the way I've written it and ask me to change it. If I do that, I'd have to reissue it to everyone.

There may be others who've passively said if that's the case, then they're sorry but they won't be bothered. Because one is being assertive, to be fair, I have to go back to all the others and tell them we've got representations and we're changing it. I know you've had comments about the scale of OBS, the scale of national tenders, but in fairness you'd end up having to do that repeatedly.

Mr. Bélair: My second question, Mr. Chairman, is on the advanced contract award notice along with the OBS system. In the opinion of the witnesses, does this system work? At Public Works, those sole-source contracts are very seldom challenged. In our view it is an excellent indication that the system does work. For the benefit of the committee, and coming from another department, would the witnesses comment?

Mr. Hooper: Do you want my personal opinion on ACANs?

Mr. Bélair: You're familiar with it.

Mr. Hooper: Yes, based on my view of how we would like to manage the procurement function. We have not been big users, but we have done more lately. We like it as an option because it allows us to demonstrate, even though we've never been challenged, when there might be some question as to whether we made it available.

Most recently, we had a case this committee might sympathize with. Our contract review board questioned the award of another contract to the same company because we had asked whether we could satisfy ourselves there was no one else available. The reply was that because of previous work this company knows so much more and it's clearly going to be cheaper to use them.

We did not want to be in front of you or reading articles in the Citizen that asked why we did that - and I'm being facetious when I say that. We just did not want criticism. We said we'll put it on the advanced contract notice system. Then should anyone ask why we gave it to them and suggest we just kind of got in bed with them, we can say no, we did disclose even though our experience would say there would not be many challenges.

Mr. Bélair: Mr. Chairman, the witness has just said something here that is somewhat shocking. I was always under the impression the Treasury Board guidelines required that any contract over $30,000 should - there's no choice - go on the advanced....

Mr. Hooper: Excuse me, sir. I'd like to clarify that this was not a contract over $30,000. It was in fact a contract for somewhere in the low $20,000s.

Mr. Bélair: But you do agree that anything over $30,000 has to be posted on the advanced contract award notice and it can be challenged for a period from 15 day to 45 days?

Mr. Hooper: Yes, I believe that to be correct. But our concern in that instance was that we'd issued a series of contracts - $15,000, $20,000. This was the third one. We said that potentially this might not look good. So we'll put it up and anyone can question it.

Mr. Bélair: I thank you for the clarification. So does the system work?

Mr. Hooper: One should ask what one wants to accomplish.

Mr. Bélair: That's what we need to know because we are preparing a report here.

Mr. Hooper: The answer is yes, it works, if one wants to demonstrate public availability of information on transparency. Does it lead to challenges? Seldom. Does it open up the market to more companies because of no challenges? Seldom. But does it meet that other important criterion of visibility? Yes, it could.

Mr. Bélair: Thank you.

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Mr. Duhamel (St. Boniface): I have one observation that I'd like to share with you, and I'd like your reaction. There appear to be two principles at play here. One is a desire of this committee and many members to ensure that businesses throughout Canada get their fair share of work from government. I think most of us agree that this is a good idea and that we need to do that.

Within the system there appear to be certain features that strongly encourage some type of closure in order to realize certain benefits. In other words, it would be very expensive if it were opened up totally.

So there appears to be a conflict here between two important principles. Have I read that correctly? Can anything be done to correct that?

Mr. Hooper: In our experience with service contracts, that's particularly true with services that require an upfront investment before one can bid. If you're buying off-the-shelf goods, that's seldom a contradiction. It's not expensive. You know your purchase or manufacture price, your selling price and your margins.

If I were to put out a bid to build a computer system, there's a significant investment of time and thousands of dollars and many days of work to understand my requirement and bid on it, and that's when you run into the kind of contradiction you refer to.

We've had some conversations about that. My colleagues at PWGSC might roll over in their graves, but with OBS, for example, which in theory has great potential but in practice runs into that kind of problem, because so many people could bid at such an expense to the corporation.... Perhaps it could be modified somewhat along the lines of the system administered by the old Public Works Canada for architects and engineers, where you prequalified. For any given job, to avoid the problem of many companies investing huge amounts of money to respond to a bid, you'd rotate it.

So on a prequalified list within a given market segment, only four or six would be invited, depending on the size of the job. That would help shrink some of the overhead risk to companies, but that's just our speculation.

Mr. Duhamel: Perhaps we'll talk about that with others at some time, but I think we have to come to grips with these two sets of seemingly contradictory principles and see whether something can be done to reach the former. Unless businesses throughout Canada can feel they have access on a level playing field, you and others are going to be pushed harder and harder to provide that. At the same time I guess we could introduce some inefficiencies or higher costs into the system so that you save at one end but end up spending more at the other end.

Mr. Hooper: Yes, we could share some of the results.

Mr. Duhamel: Mr. Chairman, I think that's satisfactory for the time being.

Mr. Murray: One of your examples of contract sole sourcing is chaplaincy services. It jumps out as a big ticket item. I know that a lot of high-profile inmates claim to be born again when they leave, but $4.3 million for chaplaincy expenses? Does this go beyond providing the regular services of ministers, priests and rabbis?

Mr. Hooper: It covers all faiths. It is not simply the Sunday service or the formal religious observances of whatever faith. They are available for individual counselling. Depending on their particular skills and the kind of training they've received through their religious orders or faiths, they will offer therapeutic programs.

Mr. Murray: It looks like good business for the churches, with all due respect.

Mr. Hooper: Actually, I can remember when we had our own chaplains, and it's been of great benefit to us. What we observed was that our chaplains working with this population for twenty years rapidly burned out, yet had become isolated from their own professional faith. This way we can rotate people through. It becomes part of professional development for them, and we benefit from that by having a consistently upgraded and enthusiastic chaplaincy service.

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Mr. Murray: Okay, thank you.

Mr. Bryden: I want to make sure you're clear on the direction of my earlier questioning. In these examples of sole-sourced contracts that Mr. Murray just mentioned, I notice that multiple after-care contracts total $33 million. I presume that for the most part these are non-profit organizations.

Mr. Hooper: Yes.

Mr. Bryden: As you might know, non-profit organizations are not required to disclose any financial information whatsoever. That is why I'm interested in this particular area.

Mr. Hooper: We will see what we can find for you.

The Chairman: Thank you.

One question that comes to mind under contract amendments is that in one of your explanations for contract amendments, where you indicate that you would be a little concerned, some are for the exercise of option years that were included in the original contracts.

Mr. Hooper: Yes.

The Chairman: Would that occur in a specific area? For example, I would have a worry in the field of electronics. You might be locked into a contract, and electronics is a good example of an area where prices drop. Do you review to make sure you're not locking into a price that could be much lower?

Mr. Hooper: We will not buy electronics goods with multiple-year contracts. Our examples are multiple contracts for clothing and relatively stable market segments like boots and shirts. The area that I think I give as an example is the long-term maintenance of our perimeter electronics. We do not do multiple-year contracts for the highly volatile areas of personal computers or software.

The Chairman: So you're assuring us that you do review contracts where you're going for an amendment to make sure the price is fairly stable or competitive within an area.

Mr. Hooper: Yes, if we were in that situation. Normally, we build a costing clause into the option years around rate of inflation and that kind of thing.

The Chairman: One of the witnesses from earlier this week suggested that if under contract amendments you said there shall not be any contract amendments.... In other words, if Treasury Board issued a rule that there should not be contract amendments beyond 10% - we'll say a percentage rather than arbitrary dollar terms - how would you as a department respond to that?

Mr. Hooper: With horror in certain areas. In some areas that would be reasonable and in others quite dreadful.

The Chairman: Which areas?

Mr. Hooper: Some of our facilities are very old. There are no as-built drawings, and if there are, they have historical rather than technical value. For example, we were running cable to put in some electronic equipment, and we starting drilling through what we thought was a brick wall. Behind the brick wall we found a stone wall that somebody over the previous 100 years had put a face on, so we amended the contract. We then went further and found asbestos, so we amended the contract. In the area of maintenance and construction -

The Chairman: That is a good example.

Colleagues, on your behalf I want to thank our witnesses, Mr. Pender and Mr. Hooper. We will appreciate their getting back with the information they've undertaken to provide to the committee.

Colleagues, we'll suspend for two minutes and bring in the next witnesses.

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The Chairman: I call the meeting to order.

Good morning, ladies and gentlemen. I apologize for yesterday. Colleagues, you should know that the Transport officials were here, but unfortunately we were unable to be here due to the vote.

I want to welcome you. I invite Mr. Gauvin and Mr. Morency to make some opening comments.

Mr. Paul Gauvin (Assistant Deputy Minister, Finance and Administration, Department of Transport): Thank you, Mr. Chairman and members of the committee, and good morning. I appreciate the opportunity to provide you with a brief overview of the management of contracting activities within the Department of Transport.

Joining me is André Morency, our director general of corporate services administration. He is also our expert in contracting in Transport Canada.

In my remarks today I would like to address the committee's concern regarding the decrease in volume of competition and the shift to lower-value contracts, as well as the increase in Transport Canada's non-competitive contracting identified for fiscal year 1992-93 and 1993-94.

Transport Canada relies on contracting for goods and services as a means to meeting its needs and operational requirements. I would like to emphasize that it is Transport Canada's policy that all contracting is conducted in a manner that will stand the test of public scrutiny, encourage competition and reflect fairness in the spending of public funds.

The majority of Transport Canada's service requirements are carried out by Transport Canada's own contracting authorities. I draw your attention to appendix A as a summary outlining departmental contracting delegations. With the exception of goods contracts under $5,000, the majority of goods contracts are carried out by Public Works and Government Services Canada on Transport Canada's behalf. In addition to goods contracts, PWGSC also carried out a significant amount of construction, architectural and engineering contracts for Transport. I draw your attention to appendix B for a breakdown of contracting activities conducted by PWGSC and those conducted by TC under its own authority.

When we conducted a comparison of the Treasury Board report with our own statistics, it was determined that the report was an accurate reflection of contracting activity conducted by Transport Canada's own contracting authorities. However, we did note some anomalies and a possible error in the statistics coming from PWGSC, which may cause an inappropriate interpretation of these statistics.

Treasury Board notified Transport Canada that an increase had been identified in the value of non-competitive contracts awarded by Transport, from $141.5 million in 1992-93 to $331.4 million in 1993-94. In fact, these figures are a combination of contracts awarded by Transport Canada and PWGSC on its behalf.

A breakdown of our analysis shows that where Transport Canada was the contracting authority, there was a reduction in the value of non-competitive contracts awarded in 1993-94, from $45 million in 1992-93 to $30 million in 1993-94. That's in reference to appendix B.

A further analysis of the figures in the Treasury Board report also reveals that several large contracts in any given year can distort the figures. This is also true of multi-year contracts. As an example, there was one Treasury Board-approved non-competitive contract awarded by PWGSC on behalf of Transport Canada in 1993-94 for a total value of $139 million. This was a contract related to the microwave landing system awarded to Micronav in Cape Breton as a result of a cabinet directive. If this contract is not included in the figures, the overall increase is much less significant, from $141.5 million in 1992-93 to $192.4 million, as opposed to $331 million. It also brings the average contract value down from $41.7 million to $24.1 million.

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Other areas in the reporting of Transport Canada statistics have also been noted by us and reported to Treasury Board. However, they do not substantially change the trend over those observed by your committee.

The Treasury Board report indicated that for contracts awarded over $30,000 in value, where competitive bidding is policy, competition across government averaged 60% in 1992-93 and 1993-94, down from 86% in 1991-92. We conducted an analysis of the contracts over $30,000 that were to be awarded by Transport Canada contracting authorities over the period in question and determined that when we factor out the statistics from PWGSC on behalf of Transport Canada, Transport Canada was consistently in the 69% to 70% range over this period.

Treasury Board has also identified an increase in the number of government contracts awarded less than $30,000. We do recognize that the number of non-competitive contracts awarded by Transport Canada is high in relation to the number of competitive contracts. This is consistent throughout the period in question and is also a reflection of the nature of a large, decentralized operational department such as Transport.

Transport is an operational department with offices across Canada. Operational activities in support of its operations take place at airports, coast guard bases, air traffic control centres, and any number of facilities owned and operated by Transport Canada. Activities related to the operations of these facilities, or assets...do not always allow for the planning and lead times required to competitively contract for these requirements. These activities would account, at least in part, for the increase in the number of contracts awarded under $30,000.

The average value of contracts awarded that were less than $30,000 was consistently below $10,000. In addition, with our shift to ``just in time'' procurement and delegation of low-dollar-value procurement to operational managers, more procurement is done as small buys and locally, where the operations are supported. I may add that this also supports small businesses in those local communities across Canada.

In that Transport Canada has historically been a large contracting department in support of its expansive operations, we did institute a monitoring and challenge function for contracting activities conducted by Transport. A contract review committee, chaired by me, was instituted in the early 1980s. The principal mandate of the contract review committee was to review and challenge all sole-source contract procurement over $30,000 to ensure compliance with government policy and regulations.

Most recently, again to encourage competition in our contracting activities, we reduced the threshold for advertising all of our requirements on the open bidding service from $100,000 to $50,000. For requirements up to $50,000 we will continue to use a variety of practices, including the use of sole-source lists, OBS, and advertising in newspapers and trade journals - whichever is the most effective to reach the business community concerned.

Transport Canada has also introduced a new integrated departmental financial, materiel and management system, which we refer to as IDFS. It integrates financial and materiel processes and will allow us to more effectively monitor all contracting activities conducted by Transport Canada to an extent not capable before. This is an on-line procurement and financial system that will assist us in reviewing contracting activities and expenditures, and when necessary, will quickly implement corrective action.

Before closing my opening statement, and understanding the objectives of your committee in terms of giving access to procurement opportunities for small and medium-sized businesses, I would like to suggest that one option to consider would be an increased delegation by PWGSC for low-dollar-value procurement to departments, from the current threshold of $5,000 to possibly $25,000. This would allow departments to do more of their own procurement locally across the country, rather than centralizing in major urban centres where PWGSC offices are now located. The use of current competitive processes would continue to be a normal practice.

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Mr. Chairman, that concludes my opening statement. I would be pleased to try to answer any questions the committee may have on contracting activities in Transport Canada.

The Chairman: Thank you very much, Mr. Gauvin.

Mr. Marchand.

[Translation]

Mr. Marchand: I very much appreciated your presentation, Mr. Gauvin. I have only one question to ask you. Is it possible to get a list of sole-source contracts awarded by one of Transport Canada facilities or another, for instance, an airport or any other type of service facility? Could I get the list of all sole-source contracts?

Mr. Gauvin: Yes, but we don't have such a list today.

Mr. Marchand: I know, but if I ask for it, could you give it to me?

Mr. Gauvin: Certainly.

Mr. Marchand: Thank you.

[English]

The Chairman: Thank you, Mr. Marchand.

Mr. Duhamel, please.

[Translation]

Mr. Duhamel: Mr. Gauvin, thank you for your presentation.

I would like to ask you to clarify part of your statement. At the end of page 10, you say:

...may I suggest that one option to consider would be an increased delegation by PWGSC for low dollar value procurement to departments from the current threshold of $5,000 to possibly $25,000. This would allow departments to do more of their own procurement locally rather than centralizing in major urban centres where PWGSC offices are now located.

Could you tell me how would that work? I did not quite understand.

Mr. Gauvin: If you don't mind, I'm going to answer in English.

[English]

We have offices across the country from one end to the other, a lot of that in small communities. My previous experience was with Employment and Immigration Canada before it became HRD, Human Resources Development.

We had CECs also in all the small communities across Canada. It used to be that for any manager to do any purchasing, the limit was $25. For anything over $25, you had to go to Public Works. Then the limit was raised to $50, eventually to $100, then eventually to $2,500, and now it has just been raised to $5,000.

My experience all through that period is that we used to get a lot of complaints: why did purchasing all have to be done in urban centres by a very large department?

The fact that we could decentralize this to managers in various communities across the country, from one end to the other, was the best thing we could possibly do, as far as these managers were concerned. It meant they could go to local businesses that they understood, they knew, in the local community. They could follow the sales and get good prices.

Distributing the purchasing across the country in all these small communities was probably one of the best things we did. Right now we're up to $2,500. We thought we'd go higher - we had recommended at least $10,000 - but $25,000 is the threshold under the trade agreement.

Doing that has forced a lot of purchasing where it should be, in the community, where the activity really takes place.

Mr. Duhamel: At competitive prices?

Mr. Gauvin: A lot of it is small. A Canada Employment Centre basically buys its office supplies and that sort of thing.

Mr. Duhamel: I suppose you have to define competition in its global sense. I'm not saying you would necessarily pay more for products and services locally, but even if you did, if in order to get that order, the process incurs certain additional costs, then the total cost may be as much or more. Is that correct? Have I seized that correctly?

Mr. Gauvin: We want to make sure that we don't make the process too complicated. Then the people in the local communities can't participate.

Maybe what we could do is go up to, say, $10,000, and that would be non-competitive. Basically the manager in that community knows what's going on, he knows where the sales are, and he actually would buy the supplies or what he requires during those times.

Anything over that and he'd go competitive. He'd get the three best tenders in that local community and set the price accordingly.

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I think the key here is not to make it so complicated that the very small entrepreneur who has a lot of problems with the complexity of government purchasing, its forms, its OBS and all of those things -

Mr. Duhamel: So you're suggesting -

Mr. Gauvin: - to make it more available to them.

Mr. Duhamel: I'm sorry for interrupting you. You're suggesting competitiveness, but at the local level?

Mr. Gauvin: Yes.

Mr. Duhamel: Another point is when I -

Mr. Gauvin: I'm sorry, may I add one more point to that?

Mr. Duhamel: Yes.

Mr. Gauvin: It used to be - and it seems to me it wasn't that long ago - that even if you wanted to buy a desk, you really had to go to PWC. They had a very large contract to buy government desks, and everybody ended up with the same desk. It was bought in one place and shipped across the country.

The more you can decentralize that, the more it is for the small entrepreneur.

Mr. Duhamel: Does that department, PWC, still have a role to play in purchasing? If I look at your presentation, one could conclude - it's not necessarily the point you wanted to make - that when you look at your contacts and you look at theirs, under certain criteria you could be seen more favourably.

Does the department still have a role to play? What's that role?

Mr. Gauvin: No, I think it has a very important role. They have some real expertise you couldn't duplicate in every department, and you should not try. It would be a lot more expensive.

For small transactions - whether you go to $10,000 or $25,000 - you could have that expertise in the large departments as well as in Public Works Canada.

On large transactions - over $25,000, $50,000 and certainly over $100,000 - personally we like Public Works. They're there, they do an excellent job, and they have some expertise to do this every day. We think that's the way it should be.

All I'm preaching is that for small transactions, it doesn't need to be there.

Mr. Duhamel: What you're really saying is that perhaps it has an important role to play. You've acknowledged that it does a good job, but perhaps where it becomes involved needs to be re-examined.

Mr. Gauvin: Yes, very much.

Mr. Duhamel: As well - and I don't want to put words in your mouth; if I'm incorrect, please tell me - your feeling is that if we could go towards local competition, overall we would still be getting as much value for our dollar, if one takes all costs into consideration. Is that the point you were making?

Mr. Gauvin: I'm convinced of that, yes.

Mr. Duhamel: Thank you.

The Chairman: Thank you, Mr. Duhamel.

Mr. Bellemare, please.

[Translation]

Mr. Bellemare: Mr. Gauvin, judging by your name, one could think you are a francophone, but I realize you prefer to speak English.

Mr. Gauvin: I can speak both languages. I come from the Atlantic provinces and I have been in Ottawa for a while already. So, I would rather speak English than French.

Mr. Bellemare: Then, I'm going to ask my question in English.

[English]

How many indeterminate employees does Transport Canada have, approximately if you don't have the exact figure?

Mr. Gauvin: Right now we have 20,000 people, and most of those are indeterminate employees. As you know, Transport is also going through a transition, from an operational department to a regulatory department.

The coast guard, as an example, is being transferred to Fisheries and Oceans with a view to integrating the fleets and making some economies. At the same time we're also commercializing some entities, including airports and the air navigation system, which is 6,400 people right there.

As these things are happening, the number of people in the department is coming down quite substantially, quite quickly.

Mr. Bellemare: To use round figures, when I think of Transport Canada, I could think of 20,000 employees, more or less?

Mr. Gauvin: As of today, yes.

Mr. Bellemare: More or less could be 1,000.

These are permanent employees. You have determinate employees, people on contract for a specific term? I would presume they're not counted in the 20,000. How many would you have in determinate, temporary or term contracts?

Mr. Gauvin: I don't have the figures, so I'm guessing, but I would say that of the 20,000, most of them are permanent employees. At any one time there are probably between 700 and 800 term employees, and then probably 500 or so contract employees.

Mr. Bellemare: Are we talking about 10% of your workforce on contract?

Mr. Gauvin: Including terms, casuals and contracts, probably yes.

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Mr. Bellemare: You are about to commercialize Transport Canada. It's not like downsizing where...gone. It's going to become a commercial enterprise in all of its activities in different areas.

If I'm thinking in terms of employment - the employment aspect is where I'm coming from - and if I'm thinking in terms of my own region, as I should, then when I hear about Transport Canada all of sudden becoming commercialized, I don't have to be afraid of x number of employees losing their jobs? All that is happening is that the colour of the pay cheque changes from the public domain to the private domain?

Mr. Gauvin: Well, there's a combination of both.

Mr. Bellemare: Okay. My worry is that when you do transfer any area of your department to commercialization, are you going to keep all your permanent employees, or is there going to be a downsizing of some sort?

Are the people on contract the ones who could end up being favoured because there is a saving in hiring someone on a term contract. You save maybe 30% of costs. Some people say it goes much higher because of the avantages sociaux, fringe benefits.

Mr. Gauvin: There's a combination of all those things. First, as we said, Transport has about 20,000 employees right now. When all this privatization and shifting is done, it will be down to about 3,000 employees.

Now, the majority of the people who are gone will have jobs in other areas. As you mentioned, they'll get a different pay cheque, but it will still be a pay cheque, basically with the same benefits and the same salary ranges the government had.

However, in addition to that, there is also some downsizing going on. Basically the downsizing in Transport is about 20% to 25%, as we are commercializing these entities.

Mr. Bellemare: In the downsizing, Monsieur Gauvin, are you developing a phantom public service? I'll explain.

A phantom public service is where we have a certain number of people working, let's say, in a department and they're the professionals. They have the culture of the public service - serving the communities - and in order to save money we supposedly downsize.

We don't actually downsize if we really had to audit it carefully, but what we're doing is getting people on contract, term contract, and they are becoming the bottom-liner syndrome. They're creating a phantom public service and ruining the culture of the public service, but developing a business, a private sector culture of bottom-liners.

Mr. Gauvin: No, I don't think we're doing that. We're certainly not creating a phantom public service. But with all the plans we have in Transport in terms of what we have to do -

Mr. Bellemare: But, sir, may I...? I apologize for interrupting, but the topic is interesting.

If I asked you, can you provide me with the list of all the people on term if you hired them for a specific term - whether it's a month, six months or whatever - how many are hired repetitively? These are the people, the ones you keep on rehiring all the time, that I call the phantom public service.

Mr. Gauvin: Yes, we can provide those lists, but I did want to make a point in there.

The Chairman: That's the last question.

Mr. Gauvin: If you're a department as large as we are, and we know that we are going to transfer these entities and at the same time we have to downsize, we're not hiring very much permanent staff right now, because we know these entities are going to go. So we're trying to keep our hiring to the minimal amounts possible.

At the same time we have to keep our operations going. So we probably have a bit of a jump in terms of casuals and terms - a bit more than we used to have - but that's because we don't want to saddle these new entities.

Basically when they take them over, they may want to operate them slightly differently. Maybe they want to have less overhead than the government had, or other things.

Therefore we are hiring the smallest possible number of people we absolutely have to right now. At the same time our budgets keep getting smaller.

So we try to do it in the best way we can with what we have to work with.

Mr. Bellemare: Thank you.

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Mr. Bryden: I just have a point of clarification for myself. When the contracts are put out to tender, are they covered by the free trade agreement? That is, do we have to offer them to Americans as well as Canadians? These are significant contracts.

Mr. André Morency (Acting Director General, Corporate Services, Department of Transport): There are certain exemptions under the free trade agreement for Transport Canada.

Mr. Bryden: Oh.

Mr. Morency: There are certain departments that have a series of exemptions that are common to all departments. Because it owns and operates its own facilities, Transport Canada in particular has certain exemptions under the free trade agreement.

So with regard to those requirements where Transport does not have to go to the free trade agreement, we look at the value of doing it outside the free trade agreement. But this does not mean that those requirements are not done competitively within the OBS or other competitive processes. It just means it's not necessarily opened up to those parties of the free trade agreement.

Mr. Bryden: What do these exemptions have to do with technology or air navigation? Just give me a sense of what those exemptions might have to do with Transport Canada.

Mr. Morency: The exemptions for Transport Canada specifically are in quality control, testing and inspection of technical equipment, as well as maintenance, repair, modification and rebuilding of equipment. This is very high-tech equipment of the Air Navigation Services and others.

They also have to do with the operation of government-owned facilities. As you know, we operate and manage our airports, our control towers, our flight service stations. In addition, the lease and rental of certain equipment are outside the free trade agreement, and those were negotiated by all parties.

Mr. Bryden: You mentioned a company called Micronav. The microwave landing system wouldn't be subject to this exemption then? I take it it would be open to a contract bidding from the United States?

Mr. Gauvin: No, that was a very large contract, and it was non-tendered. It was directive. It was all tied into regional development and some other government objectives.

Mr. Bryden: Yes, but what I'm driving at here is that if it hadn't been directed, it would have been open to competition from the United States. Am I right?

Mr. Gauvin: Yes, I think that's right.

Mr. Bryden: Or anywhere else?

I have a final question in that regard. Is the company that got that particular contract...? Were there other companies elsewhere in the country perhaps that could have supplied that service as well had they been given the opportunity to bid on it?

Mr. Gauvin: That's true, yes.

The Chairman: Mr. Murray, please.

Mr. Murray: Quite briefly, I just have one question, Mr. Gauvin.

I notice that you chair a contract review committee that goes back to the early 1980s. Obviously there was concern some time ago, at least a decade ago, that there could be some inconsistencies, at the very least, in contracting out.

Were there some horror stories that led to this back in the early 1980s, or do you recall? You may not even have been with the department at the time.

Mr. Gauvin: Well, I haven't been there all that long - maybe long enough, almost four years now.

They're not horror stories, but there were things that weren't done in the way we thought they should have been done.

We still have the odd one. We still have a manager in the odd place who doesn't obey the rules. Where he doesn't....

As an example, if we had a contract under $30,000, and he wanted to make an amendment, we'd force it to come to the contract review committee. As a result, if a manager would do it too often, we would take some sort of sanction against him, such as maybe withdrawing the contracting authority completely. We have done that in a couple of instances.

Mr. Murray: I see. My real question was how it was going to be.... The next question was, how rigorous is that review? In other words, are you faced with a long list of contracts when you chair that committee every once in a while, and you just kind of rubber-stamp them, or do you go through a fairly rigorous process when you're...?

Mr. Gauvin: No, we have about 70 to 80 cases a year. We write to each of them. If he or she hasn't done the proper documentation, we make sure they do. We force them to do it. If there was somebody who was continually repeating it, as I said, we would withdraw the contracting authority from them. We have done that in a couple of places.

The Chairman: Thank you.

Colleagues, I have a couple of questions.

When he came before us, Mr. Little from Treasury Board indicated that Treasury Board has been less than happy with these trends. You've given us some explanation of your trends.

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In fact, it seems everyone coming to our committee is giving us not apologies but certainly less than clear information on the information that went to Treasury Board. You're not the only department that has come forward and said, look, we made a mistake, or we characterized something as one issue under non-competitive when it was competitive.

Is this process valuable? Internally, the fact that you've had to now.... Our committee has focused this issue very specifically on your department. Would you share with us the kinds of changes that now are occurring because our committee is making this inquiry and because Treasury Board has been very open and said they're not happy with these trends?

Mr. Gauvin: Two things. First, we said we had some difficulties with the figures because the figures were mixed. They included Transport Canada contracting as well as PWGSC contracting. We added the two of them together and called them Transport. So we had a problem with that.

The Chairman: We understand that.

Mr. Gauvin: I think it's a very good idea that the committee is doing this. In all my days in the government, it's the first time. I think the more accountability there is, the better, and the more visibility there is, I think the more positive actions result.

Basically we have pretty tight contracting procedures within the government. There are some non-tender contracts, but particularly in Transport, because of the nature of the place, the size of those contracts is fairly small. So if you're up to something under $7,000 or $8,000 in the local community somewhere, basically the work has to get done, and it's done. I think a lot of the non-tendered contracts are actually those. It skews the averages.

The Chairman: Mr. Duhamel, you wanted a clarification.

Mr. Duhamel: Yes. Mr. Chairman, I just wanted to alert you to a couple of things. First, it may be useful for us to start thinking as a group what is the cost for awarding contracts, because there comes a point in time - assuming there might be changes to the threshold - when this will be extremely valuable information. As we've been discussing - and ``we'' includes not only myself but also my colleagues - during the last few sessions, there are costs in the process right now. If we changed those levels we have to make sure that even though...and I'm not suggesting we cannot be necessarily competitive locally. If somehow we do have to pay more locally we have to take into consideration the fact that we've saved money, perhaps.

So I guess the point I want to make is we need to know the costs involved in the process for administration. I think that might be very useful to help us make some additional decisions.

The other point I wanted to raise, Mr. Chairman, is perhaps just a very brief question.

I take it you've been working for some time on the clarification of the data and the statistics; this just did not happen. It may have been precipitated even more by the committee activity. Have you not been doing this for the last couple of months, when Treasury Board said, hey, we have to take a look at this?

Mr. Gauvin: We started looking at it as soon as we got the report.

Mr. Duhamel: Roughly how long ago was that?

Mr. Gauvin: That was about two months ago.

Mr. Duhamel: Thank you.

The Vice-Chairman (Mr. Bellemare): Thank you, Mr. Duhamel.

How can we improve the reporting of contracts to Treasury Board so that we, the MPs, can get better information?

Mr. Gauvin: I know how we can improve it in Transport. We can certainly furnish the information to anybody who wants it - and we did. In the past we had a number of systems. Not all of them were integrated. It was difficult to get information like this. What we have done now is implemented an on-line system. We can tell you what everybody bought at any one place at any one time on a daily or weekly or monthly basis, whatever you may have want to have. We now have all this information.

So I guess my recommendation is that somewhere Treasury Board or the government has to revise its systems and make them more on-line so that this information is indeed a lot better accessible than it was in the past. I think we're there at Transport, but I'm not sure where everybody else is.

The Vice-Chairman (Mr. Bellemare): Can you share this information with us?

Mr. Gauvin: Sure.

The Vice-Chairman (Mr. Bellemare): Possibly the clerk could make a note that we should bring up with Treasury Board this on-line system you're suggesting.

Are there any more questions from the members?

[Translation]

Are there any other questions?

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[English]

Mr. Gauvin: Mr. Chairman, if you would allow me, I have two other small suggestions I would make, since you are looking at contracts and local entrepreneurs.

A couple of other areas that have come across to us in the past - and I was sitting there when the other department was here - is that the government contracting procedures are fairly complex. It's difficult for small firms to really understand all this stuff. It's also very difficult for them to compete against very large firms.

So again, a suggestion we would make for you to perhaps consider is that for larger contracts you might want to look at the government contracting rules and maybe recommend some sort of consortia where small firms could participate with large ones. Maybe those bids would be treated a bit more favourably than others.

As an example, if you wanted to put in a large computer system and they would need a lot of software development and there were two or three small firms that could actually work with a larger firm, it would be a way to get those small firms involved in the large contract. Right now they just throw up their hands and say, look, we can't compete with very large organizations such as Systemhouse or Oracle or whatever else.

So that might be one suggestion. Another is that the government maybe wants to revise or look at its policy on generally protecting itself against losses, including third-party claims, arising from government contracting. Again, this is a large cost for very small and medium-sized business. Maybe for smaller contracts we could drop some of those provisions.

The Vice-Chairman (Mr. Bellemare): Mr. Gauvin, I very strongly commend and congratulate you for taking the initiative of suggesting ways to improve the system. We so far haven't had much of that in the last two years in this committee.

I get the feeling - I can't speak for the others - that often les hauts fonctionnaires come here almost on the defensive. In your case - and others have done that - it was exceptional that you gave suggestions and recommendations. We appreciate that.

Mr. Bryden had a question.

Mr. Bryden: I don't know whether you can answer this. It's fairly subjective, I suppose. Governments for many years have had various regional incentive programs in place. Do these programs, which involve moneys being available to local industries in those regions, in your view sometimes reduce the competitiveness of companies bidding for government contracts? Do you have situations where there is regional favouritism occurring, which doesn't necessarily produce the best supplier?

Mr. Gauvin: I guess you could almost argue on both sides of the question. I also spent time with ACOA.

Mr. Bryden: Oh, good. Okay.

Mr. Gauvin: In ACOA we helped a lot of small firms. We really got them to a point where they could actually participate in some of these biddings and also participate in larger contracts. We helped them acquire and develop that expertise.

On the other hand, you also always get the argument that if you help this individual, he's then in competition with somebody else who's been there for years, and maybe he now gets an advantage. So it's a very tricky balance between the two.

I think the common message is that a lot of small entrepreneurs out there are having a difficult time getting started. If they can just get that push, a lot of them become very competitive and very good, actually.

Mr. Bryden: So you're saying one oughtn't to be too inflexible about the rules. There has to be a certain amount of flexibility.

Mr. Gauvin: Certainly for small contracts, yes.

Mr. Bryden: And for large contracts?

Mr. Gauvin: For large contracts it's more difficult. As I said, maybe the answer to that one is in the government bidding procedures, to look more at consortia to bring in some of those small firms that could get the experience from working with large ones on large projects.

The Vice-Chairman (Mr. Bellemare): Are there any more questions?

[Translation]

Mr. Gauvin, Mr. Morency, thank you for an excellent presentation.

The meeting is adjourned.