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National Finance


THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE

EVIDENCE


Ottawa, Tuesday, November 26, 2024

The Standing Senate Committee on National Finance met this day at 9:04 a.m. [ET] to study matters relating to federal estimates generally and other financial matters, and to examine Supplementary Estimates (B) for the fiscal year ending March 31, 2025.

Senator Claude Carignan (Chair) in the chair.

[Translation]

The Chair: Before we begin, I would like to ask all senators and in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents. Please make sure to keep your earpiece away from all microphones at all times. When you are not using your earpiece, place it face down, on the sticker on the table for this purpose.

Thank you all for your cooperation.

Welcome to all the senators, as well as the viewers across the country who are watching us on sencanada.ca. My name is Claude Carignan. I am a senator from Quebec and the chair of the Standing Senate Committee of National Finance.

I will now ask my fellow senators to introduce themselves, starting on my left.

Senator Galvez: I am Rosa Galvez from Quebec.

[English]

Senator Loffreda: Welcome. Senator Tony Loffreda, from Montreal, Quebec.

Senator Ross: Krista Ross, from New Brunswick.

Senator MacAdam: Jane MacAdam, Prince Edward Island.

Senator Smith: Larry Smith, Quebec.

[Translation]

The Chair: We will spend the first half of our meeting today hearing from officials from the Office of the Procurement Ombud, who will provide an overview of federal procurement practices and address the concerns raised in the Auditor General’s report 5 on professional services contracts.

We welcome Alexander Jeglic, Procurement Ombud, and Derek Mersereau, Director, Inquiries, Quality Assurance and Risk Management.

Welcome to both of you. You may go ahead with a brief opening statement, after which, we will move into questions and answers.

[English]

Alexander Jeglic, Procurement Ombud, Office of the Procurement Ombud: I would like to begin by acknowledging that the land on which we gather is the traditional unceded territory of the Algonquin Anishinaabeg People.

[Translation]

Thank you, chair and members of the committee, for inviting me here today to shed light on the findings of my office’s report on procurement practices relating to contracts awarded to McKinsey & Company.

[English]

With me today is Derek Mersereau, Director of Quality Assurance and Risk Management. Mr. Mersereau was the lead reviewer on the McKinsey report.

[Translation]

Because this is my first time appearing before your committee, I would like to give you a quick overview of my office and its mandate.

[English]

My office operates independently from other federal organizations, including Public Services and Procurement Canada. I submit an annual report to the Minister of Public Services and Procurement, which he is required to table in Parliament, but the minister has no influence over the content of my reports, and all our activities are conducted at arm’s length from PSPC and other federal organizations.

[Translation]

I head a neutral and independent organization, so my legislative mandate includes the review of procurement practices of federal departments to assess fairness, openness and transparency; and consistency with laws, policies and guidelines. This is what guided our review of McKinsey.

[English]

Before delving into my office’s findings on McKinsey, I would like to take this opportunity to share my frustrations regarding the current state of federal procurement. To put it plainly, the federal procurement system requires urgent reform in several key areas. My annual report, tabled in October 2024 and titled Time for Action, underscores this sentiment.

I genuinely appreciate the time and interest your committee is dedicating to examining McKinsey. However, I must stress that what transpired with McKinsey is a symptom of a broken system, and my office has been identifying many of the same issues year after year, report after report. Nonetheless, I remain hopeful that the timing is right to drive meaningful change from this point forward.

[Translation]

Now, let’s turn our attention to McKinsey. On February 3, 2023, the Minister of Public Services and Procurement requested that I conduct a review looking into contracts awarded to McKinsey & Company. Once my office was able to establish reasonable grounds, as per our regulatory requirements, I launched the review on March 16, 2023, and it was completed on March 15, 2024 as per our regulatory deadline.

[English]

My office examined the procurement files of 32 McKinsey contracts and 1 National Master Standing Offer, or NMSO, issued through competitive and non-competitive procurement processes, to assess their fairness, openness and transparency, and their compliance with legislative, regulatory, policy and procedural requirements.

PSPC was the contracting department for 23 contracts and the National Master Standing Offer. The remaining nine contracts were awarded by other departments under their own contracting authorities.

The review excluded contracts outside my mandate, such as those awarded by Crown corporations. I want to emphasize this distinction because, unlike my mandate, the Auditor General’s mandate does include Crown corporations.

With regard to competitive procurement practices leading to the award of contracts, my office identified instances where procurement strategies were changed to allow for McKinsey’s participation in the procurement process, creating a perception of favouritism toward McKinsey.

We also observed deficiencies related to bid evaluations in multiple files, including missing or incomplete file documentation, failure to conduct evaluations as per the planned approach and the inappropriate re-evaluation of bids leading to McKinsey being deemed the only compliant bid.

My office also identified shortfalls related to personnel security clearances, including lack of documentation to show that security clearances of proposed resources were verified before they were authorized to work, or to confirm that contracts were sent to PSPC’s Contract Security Program.

With regard to contracts issued through non-competitive procurement practices, we found that the sole-source justification used by PSPC to establish the McKinsey benchmarking NMSO did not contain the required information needed to justify this sole-source standing offer. Nineteen contracts, known as call‑ups, with a total value of almost $49 million, were issued to McKinsey without competition against this standing offer.

We also found that the vast majority of call-ups issued against the McKinsey benchmarking services NMSO were void of any description of the specific work to be carried out by McKinsey and, by extension, proper PSPC oversight. In these files, there was no evidence on file that a statement of work had been developed in advance of determining the procurement strategy or contacting McKinsey with the requirement. In these cases, it was impossible for my office to determine the extent to which McKinsey defined the requirement for these departments, which is a serious threat to the fairness of the procurement practice.

All call-ups issued against the McKinsey benchmarking services NMSO were non-competitive, but the majority of these call-ups lacked sole-source justifications. Sole-source justifications were not sought from client departments by PSPC in its capacity as the contracting department, and in total, 18 of the 19 non-competitive call-ups were awarded by PSPC in the absence of justification on file.

We also noted conflicting information regarding the use of McKinsey’s benchmarking services NMSO for call-ups with security requirements.

My office also examined practices for issuing contract amendments and task authorizations to McKinsey.

Overall, contract amendments were appropriate and in line with policy and guidelines, but several issues were noted, including an instance where the contract amendment was not on file.

We also examined practices related to the disclosure of contract. In most cases, necessary disclosures were made in proactive disclosure. However, we noted issues with respect to the accuracy of information disclosed. In over 70% of the instances, there were inaccuracies with the information provided.

[Translation]

In total, I made five recommendations, which were all accepted by the implicated departments. It should also be noted that Public Services and Procurement Canada, or PSPC, accepted most of the findings in the report, but took issue with some observations. PSPC agreed that files should include documentation that outline decisions, but took issue with what it felt were observations made based on assumptions and interpretations that differ from those made by PSPC. We disagree with PSPC’s characterization.

[English]

Thank you for your interest in this report. I am hopeful that by highlighting these specific issues, we can drive the necessary reforms to fix federal procurement. The time for action is now.

I would be pleased to answer your questions. Thank you.

[Translation]

The Chair: Thank you. We will now start the question and answer portion.

[English]

Senator Smith: Gentlemen, thank you for being with us this morning, and thank you for your introductory remarks.

Given the systematic issues raised in your prior audits, such as incomplete documentation, do you feel reassured that the measures outlined in your report will effectively restore trust and integrity in the federal procurement system? I’m asking the question: When you put recommendations forward, where does the file stand?

Mr. Jeglic: I’ll answer it in two ways. One, I think the recommendations are a good first step in addressing the problems. As I mentioned in the opening remarks, there are broader systemic issues which go beyond McKinsey. That being said, when we do these systemic reports we never walk away, so two years after issuing the recommendations, we go into the same departments that were subject to the review and assess whether the recommendations were successfully implemented.

Senator Smith: Having said that, have you had a chance to come up with your first position on how the recommendations have fallen into place or not fallen into place?

Mr. Jeglic: We don’t do that assessment outside of that reporting process. We know that PSPC, has been implementing certain actions, which, at times, they highlight to us directly, but we don’t comment on them until we do the follow-up report.

Senator Smith: Where was your head space at during this time?

Mr. Jeglic: My head space was very much focused on the foundational changes that are required. In conjunction with this same review, we actually are trying to develop five foundational changes that are necessary, two of which were highlighted in our annual report.

I know that PSPC was before the committee last week and mentioned something that is actually near and dear to my heart, which is the vendor-performance management framework. If they successfully implement, not just within the department — and this is one point of distinction. What they were talking about was the implementation within the department, which is very important and a great first step. However, what we need is a government-wide system. It is like the back end of the system is kind of unadministered currently. There is no adjudication of whether there is good, bad or otherwise performance by the suppliers, and as a result, poor performers can continue to gain federal government contracts.

[Translation]

Senator Dalphond: Thank you for being here this morning.

In your 2023-24 annual report, you asked for more resources. You said that your office’s funding had not changed in 15 years. Can you tell us how big your team is? How many employees do you have, and do you have trouble fulfilling your mandate with the funding you have?

[English]

Mr. Jeglic: Thank you very much for the question. I will gladly speak about a resource issue. At the time of the annual report, we had 31 employees and a budget of approximately $4.1 million. That has been static over the course of our organization’s history, so 15 plus years with no increases. What we have had to do in circumstances of being requested to do systemic reviews like the McKinsey report is to ask for one-time funding, which has been provided.

Now, the difficulty there — the caveat — is we cannot hire full-time employees as a result of that one-time funding. So to assemble a team of people who ultimately have the skill set to deliver is almost impossible. While we appreciate the one-time funding, it creates a significant burden on individuals in the system in our organization currently.

That being said, I think there has never been a greater need for our organization. I think we are seeing practical results. At the end of the day, what we are trying to achieve is practical resolutions to the issues and to make the system work better. When someone contacts our office, what we are trying to do is, in the most efficient way possible, solve their problems. We see many examples of where we have successfully done that.

I think more and more if you look at the annual report, you’ll see how many cases have increased over the last five to six years. We went from 200-odd cases in 2017-18 to 580 cases in 2023-24. We’re projecting potentially exceeding that this year, so a doubling in cases. We want to see that because we know we don’t have the opportunity to actually interact with all the people who need our services because no one knows we exist.

Part of our problem is making sure people know our office exists so we can provide them the services. One of the services that we provide is alternative dispute resolution, or ADR, so when you have a conflict in an existing federal contract, you can use our services and help resolve that dispute at almost no cost to the parties, and it is highly successful. More and more departments are starting to realize they can use this to their advantage and resolve issues at low cost.

We don’t have the resources to do that. We want to encourage people to use our ADR services, but at the same time, we need to have internal mediators to provide those services. That’s when it becomes a financial struggle. I never want to be in a position to appear before a committee and say I cannot provide mediation services when requested as a result of finances.

Senator Dalphond: But I think the main role of an ombudsperson is to do those kinds of things like mediation, helping people check the files and making sure problems are solved and that they can proceed. What you did for the McKinsey file is more an internal audit of the system. Is that something you are fully equipped to do? Because it is different from being an ombudsperson who is the fixer. Here, you didn’t get the complaint from a supplier that was not selected.

Mr. Jeglic: That’s a fair assessment. However, our mandate does come from legislation, so it’s from the Department of Public Works and Government Services Act and the ombud’s regulations. Both of those contemplate systemic reviews that are audit-like in nature. So absolutely, the McKinsey review is part of our mandate, and that’s the challenge. There are different prongs of our mandate, and each one requires a different expertise. We’re trying our best with our existing resources to make sure everyone is cross-trained to be able to deliver on each aspect of our mandate.

I will say our office is excellent. The 31 people we have are exceptional, and they have worked tirelessly. This is the third time we have made a request for financial resources. I’m hopeful it is taken seriously and we do see success in this iteration. Thank you for the question.

Senator Galvez: Thank you so much. I think the subject we’re touching on today is extremely important. Whoever is following what’s happening in the U.S. with McKinsey knows that conflict of interest is at the centre of very deep influence, and it is not good for the people.

I’m interested in the systemic aspects that you are mentioning. I know you have asked for more funds, and I think that’s just simple. It is well argued because of what you just said about the number of cases. But I want to understand how much is the extent of the McKinsey situation compared to the American situation? We know that McKinsey was consulting with pharmaceutical industry, at the same time as consulting the drug administration. Do we have the same thing here?

Mr. Jeglic: While it is a fair question, we didn’t do a comparative analysis with what happened in the United States versus Canada. I’d gladly reference anything within our report, but I would not want to speculate on areas that we have not conducted a fulsome review on.

Senator Galvez: You are talking about systemic situations. I think we are still treating many of our problems in silos. You are the auditor, and you look at the money, and that’s all you do. Is somebody looking at the ethics?

Mr. Jeglic: We are not technically the auditor. We do a broad review. We are looking at the procurement practices when we do the systemic reviews. It is really important to distinguish our role from that of the Auditor General. What we are looking for are practices that need to be improved or corrected as a result of these systemic reviews. We highlighted several. We ultimately found a perceived favouritism toward a specific supplier, and part of what you are highlighted is a conflict of interest. That was something that the OAG highlighted in her report. It is also something that we saw. In four instances, it was a general lack of conflict of interest declarations on the part of evaluators. That is a systemic problem that goes beyond McKinsey.

We see that issue as a significant one, and it is something that I take very seriously and which aligns with your ethics question. When given the opportunity, I do speak about ethics component, and I do speak about the importance of the integrity of the process. As one of your colleagues mentioned, if we lose integrity in the system, then what we are doing is we are also losing participants. That’s what our office is designed to do. To make sure that we ensure fairness in the system.

One of the troubling findings that we had on a systemic notion is the lack of competition. When competitions are run, in between 32% and 36% of the time, only one bidder participates. You go through all of the technical process of running a competition and you have a sole bidder. You lose all of the flavour of competitive pricing and of the flavours of different proposals because you are just getting one bidder. There are many reasons for that. One is the complexity of the system, and that’s why I’m really advocating that this is a time for action.

This is the part where the frustration comes from. You can look at reports going as far back as 10, 15 or 20 years, read them and put today’s date on them, and they are still relevant. That’s when the frustration comes to a boiling point. That is why I refuse to leave my role knowing that the system has not improved during my tenure. That’s why I’m in my sixth year going into my seventh. I have done significant volumes of reviews, and I am very confident in saying that it is time to replace the car. I use the car analogy often. Our office is designed to do repair work, our office is designed to do tune-ups, but we cannot replace the vehicle.

The volume of business that is transacted at the federal level — PSPC alone does $25 billion worth of transactions at the federal level per year. If you are using the wrong tools to drive that volume of work, the inefficiency is significant. Again, my colleagues at PSPC are certainly working diligently to try to address the shortcomings, but I do think what is necessary is the foundational changes, which I believe is what you are going after.

Senator Loffreda: Welcome, Mr. Jeglic, thank you for being with us. I would like to shift our focus to another matter. Last month, I asked the Government Representative in the Senate about its pilot project for a vendor performance management, or VPM, policy. Earlier this summer in your annual report, you called for the implementation of a vendor performance management program to track information on supplier performance. Like you, I believe such a program could offer significant benefits for all federal departments. We talked a lot about McKinsey, but they are a supplier.

I wonder if you could expand on this recommendation. I know, for instance, that you also think that a new position of chief procurement officer could help lead the creation and implementation of the VPM. I would love for you to further elaborate on those two ideas.

Mr. Jeglic: Thank you for the question. Thank you for the opportunity to talk about this because, again, this one, I think, is a fundamental aspect of the system that is currently ineffective. You have the award process, which is under significant scrutiny. It is part of the McKinsey review. Almost all of that — the process — is focused on the award up until identifying which supplier is selected, but after the supplier is selected, it changes. It is a dynamic where there are only a limited number of parties — the ultimate supplier who was awarded the contract and the government buyer, and there is confidentiality around those discussions.

What vendor performance will do is add an evaluation tool to determine whether, in fact, the government actually got the goods and services or construction as intended. A poor supplier should not be allowed to re-engage with the system without repercussion. Currently, there are no repercussions for poor performers. You can go from department to department having poor performance. Not to the point where you’re debarred from the process, I’m talking about under-delivering on specific federal contracts. When that is happening, it causes a perverse effect on the award process because people are then notionally aware of poor performers, but it’s by word of mouth. That’s also inappropriate. What is happening is that people are drafting technical restrictions into the requirements themselves to avoid a specific supplier. As a result, it means that the competition is limited. You are trying to avoid, perhaps, working with a singular vendor, but as a result you are also invalidating the possibility of other vendors participating in the process.

Equally so, there are excellent vendors in the supply chain who want to be rewarded for their excellent service, and we should be incentivizing it. As a result, vendor performance can also incentivize good behaviour, reward them and give them an advantage in subsequent opportunities. That way, everyone is incentivized to behave.

On top of that, there is a communication required. In order to have successful vendor performance management, the parties need to communicate. All of a sudden you are aware of issues as they are happening, as opposed to when it is too late and you are in a default situation, and then you can’t default the supplier because you ultimately need that good or service, and then you are continuously trying to make a broken relationship work. Vendor performance helps address that. Again, I think this is the most seminal aspect of what is important and necessary.

You also mentioned the chief procurement officer and why I think that is important. I know it is the traditional government approach to create a new office or position when there is a problem. This is different because you need someone to manage the vendor performance management framework across government. Currently, PSPC is piloting a vendor performance management framework within the department, which we celebrate and are happy to see that progressing. However, that is one piece of the puzzle, because there are over 90 departments and agencies that are also doing procurement that will not be part of that vendor performance framework. How do we bring that universe in? Who will be responsible for adjudicating parity across all of those departments and agencies? Because if one is evaluating extremely harshly and another extremely favourably, you are going to get competing ratings.

In full disclosure, we have also been asked to be a dispute resolution authority in the vendor performance management framework put forward by PSPC. That is something we would very much like to do because we see it as a seminal tool involved in improving the administrative system at the time when fiscal efficiency is important. This will add fiscal efficiency into the process. Suppliers are for this; no one is pushing against this. It is a critical tool that’s missing.

Senator Loffreda: Thank you.

Senator MacAdam: You mentioned in your opening remarks that all the problems, be it in your report, the Auditor General’s report — I’m going to assume all the internal audit reports — all those recommendations and problems are symptoms of a broken system. I just want to touch on the work that you do and the recommendations that you make.

My understanding is that you follow up two years later. I want to get at the tools that you have at your disposal for those follow‑ups, which you talked about briefly. Also, given all these recommendations, I feel like the procurement issues are just going on for years and years in the federal government. I know with the Auditor General that there is a way to close that accountability loop with the recommendations because they have the Standing Committee on Public Accounts and all the recommendations go there. The dialogue continues and departments’ feet are held to the fire. With your recommendations — you have been making them over and over — is there a standing committee in the House, or a mechanism so that these things don’t just fall off the table?

Mr. Jeglic: Thank you for the question. We frequently go before the House of Commons Standing Committee on Government Operations and Estimates, or OGGO, and there is certainly accountability associated with the recommendations we make. The frustration is not that the recommendations are being avoided but the recommendations have to be made in the context of the systemic review. For McKinsey, the mandate was limited to McKinsey. What we are saying is that some of the things we saw in McKinsey are systemic and we have seen them in other reviews. We don’t want to say this is unique to McKinsey.

And I think, while departments are certainly implementing processes to improve to allow for them to meet the recommendations, it’s still not fixing the larger problem. These are Band-Aid solutions, and that’s why the work of our office is primed to simultaneously transition to what we describe as foundational changes, because the car needs to be replaced. We’re asking it to do things it can no longer do, but we still continue to apply a Band-Aid to the existing vehicle and ask it to do more and different.

One last thing I’ll say is also on the rules. One of the things that is incredibly difficult is the rules are not straight forward, and there are many sets of rules. You’re asking people to understand what is a fairly complex web of rules in order to do their jobs, and we’re talking from entry level to senior levels.

If you look at a solicitation document — and I have worked in procurement for 20-plus years — there are times where you can read things, and you have no idea what you’re being asked to do. You can imagine on the supply side, you’re trying to access federal government contracting for the first time, and this is the system that is told it is a necessary evil to ultimately be a recipient of a federal contract. Then you have a financial decision point: Do I want to engage in this system or not?

I think that part of my role is to make sure that that answer is always, “yes.” Again, the PSPC does have a very interesting organization called PAC, which is Procure Assistance Canada. They do a fantastic job. They help suppliers navigate the system, but who is working to make the system better?

It’s important for PAC to continue performing their role, but it’s also important to simultaneously make the system work for everyone.

That’s a very long-winded way of answering your question. But I will say, there is great respect for our recommendations. Our recommendations are often brought before the OGGO Committee. We do hold people accountable through our annual report which is tabled in Parliament, and we are given many platforms to hold departments accountable, and we’re very pleased with the level of engagement we see from departments.

Senator Kingston: Welcome. I thought I was going to be switching gears, but I will build on what Senator MacAdam talked about.

I would like to congratulate you on the summit that you held that is talked about in your annual report 2023-24, where you say that you are raising awareness of the public and private sector programs that can help Indigenous and diverse-owned businesses, including Black and racialized Canadians, women, 2SLGBTQI+ Canadians, persons with disabilities and other under-represented groups, win federal contracts.

Then I look at another part of your annual report where one of your mandate change recommendations is to review complaints related to the procurement strategy for Indigenous businesses set-aside programs to ensure all suppliers have access to the Office of the Procurement Ombud, or OPO, and redress mechanisms. Presently, such complaints remain outside the jurisdiction of your office and of the Canadian International Trade Tribunal, or CITT. In the footnote, it says that in OPO’s outreach activities, it was noted that some Indigenous suppliers have said they would prefer an Indigenous-led recourse mechanism rather than a Government of Canada one.

This seems to me to fit well into a pan-government reconciliation effort. I would like you to talk about that. I hope that whatever funds you receive help to fund some such initiative. Could you talk more about what you heard and what your thinking is in terms of this?

Mr. Jeglic: Thank you, Mr. Chair. The first part of the question was in relation to the summit. This is something we have been doing for six-plus years. The goal is to diversify the federal supply chain, particularly with Indigenous and diverse suppliers. There is tremendous work that needs to be done in that and area, and that needs to continue.

One of our first entry points was looking for data sets to ask if individuals are under-represented in the federal supply chain. The answer we received is that we don’t know. There was no strong data to be able to connect. As a result, we had to make a decision. Do we get involved in this space not knowing factually whether, in fact, there is an issue? I think we could see that there was a lack of representation across the supply chain.

The first iteration of the summit was simply an attempt to bring together those departments and agencies that had programs that were specifically designed to help diverse suppliers and bring diverse suppliers together so that they could hear that information first-hand in one form. It was highly successful. We did it in person here in Ottawa.

We did a second iteration in Toronto. It was even more successful. More suppliers were coming. Now there was a buzz, and there was more activity.

From that first year, we conducted a survey to ask departments and agencies: What type of programs do you have to help these types of suppliers? The answer was: Often just the Set-Aside Program for Indigenous Business. That was something that was required of all departments and agencies, which was kind of telling. It meant very little programming was available. Fast forward to where we are now, and most departments and agencies specifically have programs available now for diverse and Indigenous suppliers.

I know there is a lot of information about Indigenous suppliers in the news, and it tends to be predominantly negative currently. We have been asked to do a review of Indigenous procurement. It’s something that we’re working to establish reasonable grounds, which is a precursor in order to determine whether we can launch a systemic review or not. If we have reasonable grounds, then we must launch. So on Indigenous procurement, there may be a systemic review.

Specifically on the regulatory change that you were describing, the issue there is the Indigenous program is a set‑aside program. It sits outside of free trade obligations. As a result, it means that the Canadian International Trade Tribunal and my office don’t have jurisdiction to conduct reviews of contracts awarded pursuant to the set-aside program. There was meant to be a dispute resolution system set up for these contracts, but it never was. As a result, both the CITT and ourselves have highlighted this issue. At a minimum, Indigenous suppliers should be treated equally.

Now, as you rightly pointed out in our footnote, we also note that Indigenous suppliers want their own Indigenous-led forum. We are not against that. We are for that. But at a minimum, what the federal government should provide to them is the opportunity to bring their complaint to our office. If they choose not to because there is another Indigenous-led forum, they should be given that right too. What we’re asking for is a level playing field.

Again, I don’t want to speak on behalf of the CITT, but that is certainly something that I know that they support strongly as well.

Senator Ross: Thank you very much for being with us here today. One of the things I’ve been reading about is that you identified many cases where tender requirements were closely aligned with specific vendor offerings, suggesting favouritism. Do you believe that this is because those preparing the request for proposals, or RFPs, wanted a certain supplier or do you think they were actually engaged with the suppliers to create those RFPs to align with their products and service offerings?

Mr. Jeglic: Thank you, Mr. Chair, for the question. Your question goes to the intention of the individuals involved in the process. We never had specific evidence to demonstrate there was a specific intent. However, when you take a series of circumstantial evidence, which is what we have in our review, we have a whole slew of different file examples where there are different processes put in place that ultimately either favoured McKinsey or allowed McKinsey to participate when they wouldn’t have been able to if the initial process had been undertaken.

When we saw that occurrence happening not just within one department but across multiple departments, it then created questions for us internally.

But to answer your question whether I can answer the intent component, I cannot answer definitively the intention. I do think it’s symptomatic, though, of the broken system because people don’t trust the fact that they will get a good result. Perhaps the starting point is I want to work with a good supplier. I want to work with this supplier. As a result, you can’t work backwards from them and have the system work fairly for everyone. I suspect there is a little bit of that.

Mr. Mersereau was lead. I don’t know, Mr. Mersereau, if you wanted to offer any additional file-specific insight.

Derek Mersereau, Director, Inquiries, Quality Assurance and Risk Management, Office of the Procurement Ombud: Thanks, Alex.

I have a couple of points on that. We did identify through the correspondence between the departments and McKinsey that there was some back and forth either through questions to McKinsey of whether they would be able to participate in a process, or a question from the technical authority to the contracting official who was surprised when McKinsey was not one of the eligible vendors who were going to be able to participate.

Once it was determined that McKinsey would not be able to participate, that’s when the specifications changed, and they adjusted the process to enable McKinsey to be able to participate in the process. It doesn’t mean they changed it so much that McKinsey was guaranteed to win, but they did adjust the process so they could be involved in the process.

Senator Ross: Given the attention given to these particular issues and challenges and reports that you have given, do you think it discourages Canadian businesses and service providers from even applying for federal contracts and trying to participate in the procurement process?

Mr. Jeglic: I don’t want to be cheeky with how I answer this, but I think the answer is yes and no. The statistic that we have seen in our five-year review is that because of the lack of competition and competitive process, I think it’s difficult not to answer that with a “yes.” They are getting discouraged.

However, I do think the repeat players are used to the system and understand how the system works. That’s the problem — the system isn’t working effectively for everyone. The repeat players understand the system and have grown used to the system, but I don’t think that’s the methodology we should invoke to encourage others to participate as well.

Mr. Mersereau: If I could just add one point, there is a section of the report where we talk about mostly smaller-dollar contracts being awarded outside of mandatory procurement tools. There are what is referred to as standing offers and supply arrangements set up where firms become prequalified, and for certain commodities, departments are using those to acquire those goods and services.

We often hear from suppliers who say, I went to the trouble, I went through the process, I became prequalified, and now I’m not seeing any business out of that. Why is that? We saw in the McKinsey review that we had certain procurements that fit within one of those vehicles, and the departments chose not to use them. They went out on their own. Putting on the supplier hat, I would be discouraged to hear that I went through the time and effort to become prequalified on one of these instruments on the expectation that there would be opportunities coming my way, only to find out that some departments are working around those and avoiding them. In that respect, I support your question that there would be some disappointment on the part of Canadian suppliers.

Senator Pate: Thank you to our witnesses. In your last annual report in 2023-24, your office called for a change in mandate, which would allow it to review complaints related to the procurement strategy for Indigenous businesses set-aside program. Can you explain why you would like to see this change in mandate, specifically how you believe adding this to your office’s mandate will improve the process of winning federal contracts for Indigenous businesses?

Mr. Jeglic: Thank you for the question. As I mentioned, I think the difficulty for Indigenous businesses is the fact that they don’t have the same recourse mechanisms when contracts are set aside pursuant to this process. It’s outside of a free trade agreement, and as a result, the normal dispute resolution mechanisms, such as the Canadian International Trade Tribunal and our office aren’t available as options to them.

Indigenous suppliers are looking for an Indigenous-led organization to perhaps be that dispute resolution mechanism, but that doesn’t exist yet. What we’re looking for is to create an equal footing for all suppliers and ensure that Indigenous suppliers who are bringing forward issues associated with contracts that are being awarded pursuant to the set-aside have a recourse mechanism.

Senator Pate: Thank you. Have you any data as to how many concerns have been raised by Indigenous businesses? If you could share that.

Mr. Jeglic: We do have data collection. On an annualized basis, we amalgamate all the data into a top-10 list. As you can imagine, this is a rather unique concern. We don’t hear a lot about it, but we have heard from Indigenous suppliers asking why there is no recourse mechanism. If you’re looking for specific data, we could certainly provide that to the committee.

Senator Pate: That would be great. Thank you very much.

[Translation]

The Chair: I was the mayor of a municipality, so I saw things on a smaller scale. You see things on a broader level, but the problems are the same. Some people want to choose who they work with, but they have to put out a call for tenders, so they frame certain requirements in a way that achieves the outcome they’re looking for. Various comparisons are possible.

You likened the system to a car. You can fix it, you can do a tune-up, but eventually, you have to replace the car. I’ll stick with your car analogy. If we replace the car, which one should we go with? Which system should we use as a model? A German car, a French car or an American car?

Which countries have the best procurement systems? Have you done a car comparison, so to speak?

[English]

Mr. Jeglic: Thank you for the question. It’s a very good question in terms of what other jurisdictions — when looking comparatively — we should aspire to emulate. I will point back to the work our office is currently undergoing, which asks what foundational changes are necessary in order to have a better federal procurement system. I have spoken to some of them, and the vendor performance management framework is a missing piece.

I’m not answering your question in terms of which jurisdictions because we have not looked at jurisdictions in their totality. We have looked at specific jurisdictions for specific purposes, such as the chief procurement officer. The U.K. established a federal chief procurement officer successfully at a time of transition where they were looking to make fundamental changes and they appointed the position. To date, it has been perceived as quite successful. In that circumstance, we did look at international models.

That being said, I think the work needs to be undertaken now. I don’t think there was a perfect system, but I know that there are jurisdictions that do have systems that work more effectively than ours. I think there are procurement practitioners within Canada who have said for many years that the Canadian system is kind of near the bottom tier in terms of federal procurement.

[Translation]

The Chair: Yesterday, I did a radio interview in Montreal about the fact that Canada does not allocate 2% of GDP to military spending. This is the question the reporter asked me:

What does it matter anyway? Even if we did put that much into the military, it wouldn’t be able to spend the money because the procurement process is so slow. Don’t you think?

My answer was that other organizations within the Canadian government deal with procurement. I’m sure you’re familiar with a little Crown corporation called the Canadian Commercial Corporation, or CCC. It handles government-to-government acquisitions and procurement.

It is the agency that’s used to provide assistance to Ukraine. The organization has been around since the Second World War. The committee met with CCC officials. They haven’t appeared before the Standing Senate Committee on National Finance often. It’s a small organization, but it seems to be quite useful and nimble.

Have you looked at how it operates? Are there things it does that we could apply to make the system more nimble and effective?

[English]

Mr. Jeglic: Thank you for the question. I did not ask for this question to be asked. I worked at the Canadian Commercial Corporation, or CCC, so I am quite familiar with it.

It’s a government-to-government platform. It’s a very interesting tool, particularly during this interesting time in international procurement. Everyone is doing things differently, and I think the CCC provides a different vehicle for contracting, particularly as you mentioned on the defence side. It is something that should be looked at quite closely in terms of whether there are additional tools that should be given to Crown corporations like the Canadian Commercial Corporation which have existing processes, platforms and existing relationships with foreign governments to ensure these types of transactions can happen on a more expedited basis.

Certainly, there are additional tools that need to be investigated. I understand we need to look for economic efficiency, but some of the tools already exist, we just haven’t utilized them effectively. I would argue that the CCC is one of those tools.

[Translation]

The Chair: Thank you. The new car could end up being Canadian, then.

[English]

Senator Smith: The PSPC officials who were here last week acknowledged barriers that small- and medium-sized enterprises, or SMEs, face in the procurement process. These include the complex nature of the process, as well as the vagueness of the language used in solicitation documents. You have highlighted this to be a persistent issue in the process. What additional measures would you recommend that PSPC implement to ensure that SMEs participate meaningfully in the process?

Mr. Jeglic: Thank you for the question. My colleagues from PSPC who appeared rightfully pointed to Procurement Assistance Canada as a group of individuals who are there to support small- and medium-sized businesses to help them navigate the complex web that is federal procurement and ultimately be successful.

As I mentioned, that is a core component of the work that needs to be done, but it doesn’t address the structural component you identified in your question, which is the solicitation documents themselves, the language and the number of mandatory criteria one must meet to participate. We are making recommendations in that regard. We’re actively encouraging people to really limit the number of mandatory criteria to its bare minimum because that is the entry point. If you don’t meet a mandatory criterion, you cannot participate in the process. The more mandatory criteria you create, the more difficult and narrow the pool of participants. That’s certainly a starting point. An easy one is to eliminate the number of mandatory criteria to the essential only. It’s easy to say, but hard to do, and I understand that. But it really is important to take a step back and say, “Do we really need all of these mandatory criteria?”

The second is just the structure of solicitations. Again, PSPC has been working diligently in trying to make these documents more user-friendly, but there is still a long way to go. This is where I am thankful that we have to undergo procurement ourselves as an organization and feel the frustration of what that process feels like because if you’re just an abstract viewer, then it’s pretty easy to come in with recommendations. When you’re a participant and you feel those pains directly — I mean, as the chair mentioned, he probably experienced them as the mayor. The pain of actually procuring things in a timely manner and getting a successful outcome is not easy.

I’m not suggesting I have all of the answers, but I do think it’s incredibly important to stop applying Band-Aids to the existing system and start looking at a new frame of reference outside of where we are today.

Senator Smith: Thank you.

Senator Dalphond: The McKinsey file has generated substantial comments and changes, I understand. One was the appointment of a new office of supplier integrity and compliance with the program. The Treasury Board has issued new master guidelines about getting professional services, and you’re also looking at that and you made suggestions. So are we getting close to everybody talking to each other at least, or do we have many centres competing to change things?

Mr. Jeglic: Thank you. I’ll answer the question as honestly as I possibly can. I think there is still room for improvement on the communication side. We are independent and neutral, so it’s incredibly important in all our engagements that we maintain that independence. Typically, there is a certain level of formality associated with how we deliver recommendations and how we follow up. Sometimes, it leaves one wanting for additional communications to ensure that everything is well understood and that the left hand knows what the right hand is doing.

That’s not always the case. Certainly, I will bear a certain level of blame associated with the lack of informal communication, but our independence is paramount. When on balance I have to make that decision, I balance with independence. That being said, you have pointed out good work that is happening across government, so it is important to understand the cohesive impacts. That goes back to the Chief Procurement Officer role. Who ultimately is accountable for everything? And I think that that is what is missing in the federal system.

People have individual accountabilities, for example, PSPC has significant accountabilities and the Treasury Board Secretariat, or TBS, has significant accountabilities, but who has ultimate accountability? That’s where I think having a Chief Procurement Officer at the federal level helps address some of these communication issues to ensure there is cohesion. Because the worst thing you could have are sets of rules that are not consistent with one another. I’m not suggesting that is what is happening. I’m just saying that is a risk of the lack of communication.

Senator Dalphond: Thank you.

Senator Galvez: In listening to what you have been saying, I hear there is a big difference between procurement for material, for weapons, for Indigenous labour and work where the performance can be measured. Yet, the McKinsey issue, if I understand it, is on the study, on the same rules that will change the system that, according to you, we need to change because the system didn’t work.

Can you walk me through the new policy on green procurement? What are the obstacles going to be? Who designed it? How do we make it better now before it starts green washing, for example?

Mr. Jeglic: Thank you for the question. I wish I was an expert in the green procurement policy. I’m not. However, I will say on the social procurement policy side, what has happened is these important social initiatives are being embedded as part of the federal procurement system. It’s an acknowledgment of the power of procurement because you can actually enact change while purchasing. Green procurement is part of that process.

There are certainly significant pros associated with it. Many benefits come from having social design in the procurement processes with social design outcomes. We have to make sure that when we design the process that the outcomes are measured in contract performance. There are two components. There is the contract award when you’re identifying which supplier is ultimately successful, but then, there is also the accountability in the contract administration. For all the promises that are made in the award phase, the supplier has to be held accountable in the actual contract administration phase. I would encourage you to interact with PSPC who would be the holder of the green procurement knowledge, and they would be better placed to directly answer your question.

Senator Loffreda: Just quickly, I have some key words on the insightful and thorough response you previously gave me on the vendor-performance management policy program we’d like to put in place. The key words there were of “lack of repercussion” that you would like to correct for under delivering and the distortion of the award process currently.

My question is: Why hasn’t that been put forward previously? We are a country that has done many things right. Why has there been a lack of rigour with respect to procurement? How could we assert going forward that we will do that? That we will put it in process and we will correct the issues that are so important to correct at this point in time. We have mentioned so many.

Mr. Jeglic: Thank you for the question. I think a great way to shine a spotlight on the issue is to have it appear in the minister’s mandate letter. It had previously appeared in the minister’s mandate letter. Unfortunately, that happened during the time of COVID. Then, it was something that was not carried forward in the mandate letter.

It’s why I speak about it so often because I feel a responsibility for accountability. I know this to be an issue that if successfully implemented, would resolve many of the issues that we’re experiencing. I’m not suggesting that this is the only solution necessary, but I think it certainly a missing part of the puzzle. By giving it the spotlight of appearing in a minister’s mandate letter, I think that will certainly go a long way in terms of making transparency around accountability present.

Senator Loffreda: Excellent. Thank you.

[Translation]

The Chair: Thank you very much, gentlemen. This was a very informative discussion, and we appreciate your time. We wish you much success in your search for a better car. I think all Canadians would really benefit from that. The work you do is extremely important, so thank you.

Today, we are beginning our study on Supplementary Estimates (B) for the fiscal year ending March 31, 2025, which were referred to the committee on November 20, 2024. Here to help us with that is Yves Giroux, Parliamentary Budget Officer, and Mark Creighton, Senior Analyst.

Welcome. During the break, I was saying that you were our favourite witness, and the most frequent. We are always happy to see you. As usual, you will have a few minutes to give your opening remarks, after which, we will move into questions and answers.

Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you, Mr. Chair. I am always happy to see the committee as well.

[English]

Honourable senators, thank you for the invitation to appear before you today. We are pleased to be here to discuss our report on the Supplementary Estimates (B) 2024-25, which was published on November 20, 2024.

With me today is one of our lead analysts on the report, Mark Creighton.

The government’s Supplementary Estimates (B) for 2024-25 outline an additional $24.8 billion in budgetary authorities. Voted authorities, which require approval by Parliament, total $21.6 billion. Statutory authorities, for which the government already has Parliament’s permission to spend, are forecasted to increase by a total of $3.2 billion. The forecasted increase in statutory authorities is largely driven by the Canada Carbon Rebate, including $2.6 billion for small businesses and $307 million for individuals.

Roughly one quarter of the proposed budgetary authorities, or $6.4 billion, is related to 143 Budget 2024 measures. To support parliamentarians in their scrutiny of Budget 2024 implementation, we have updated our tracking tables, which list all budget initiatives with planned spending in fiscal year 2024-25, the planned spending amounts and the corresponding legislative funding authority.

[Translation]

Nearly one-quarter of proposed spending, or $5.9 billion, falls under the Indigenous portfolio, primarily for Indigenous-related programs and claims. A notable amount of planned spending in these supplementary estimates relates to military procurement and support, including support for Ukraine. Planned spending on personnel accounts for approximately $2.9 billion of proposed authorities, with more than half, or $1.6 billion, going to the Treasury Board of Canada Secretariat for negotiated salary adjustments and the public service insurance plans and programs.

Supplementary Estimates (B) often follow the tabling of the public accounts. However, the public accounts for the previous fiscal year, so 2023-24, have yet to be released. The delayed publication of the public accounts prevents parliamentarians from having more time to conduct ex-post financial scrutiny, and obtain better information to assess the government’s budget plans and estimates, including these supplementary estimates. Parliamentarians have approximately three weeks from tabling, or two weeks from today, to approve the government’s financial request. Should the Supplementary Estimates (B) not receive parliamentary approval by that time, departments may be required to cash manage their operations.

Mark and I would be pleased to respond to any questions you may have regarding our estimates analysis or other work by the Parliamentary Budget Officer, or PBO.

Thank you.

The Chair: Thank you very much, Mr. Giroux.

[English]

Senator Smith: Welcome, gentlemen. It is great to see you again. Your report highlights a 216% increase in Indigenous‑related spending since 2017-18 with $5.9 billion allocated in this supplementary estimates cycle. You also noted that the delayed tabling of the public accounts meant that your office was unable to determine how much of the proposed funding was spent last fiscal year. Could you talk a little about this issue, and is this something that has been a long-standing problem in your view or is it a more recent one?

Mr. Giroux: I assume, senator, you are referring to the delay in tabling the public accounts specifically. It is an issue that we have flagged for several years that you, as parliamentarians, have been asked to approve dozens of billions of dollars in spending while still having no clue as to how the government achieved its results and how much it spent and how much it lapsed for the year that ended now more than eight months ago. So it is an issue. I think there would be a solution to that. It would be to table the public accounts sooner.

Currently, the legislation specifies that the government has to table the public accounts no later than December 31. I think a more reasonable approach would be to require the tabling to be no later than the end of September, which is achievable and doable because the public accounts — the government’s financial statements — are usually finalized in August and September, and approved by the Auditor General in September, generally speaking, at the latest.

So there is no obvious reason why the public accounts could not be tabled at the latest in September. In fact, some provinces achieve that much sooner, for example, in June, so there is no reason that the federal government could not allocate the resources and the attention to this issue so that you as parliamentarians and Canadians know how the government fared and how much it spent for the year that ended March 31.

Senator Smith: Do you have a sense of optimism that the positioning of the public accounts work is actually going to get done on a timely basis?

Mr. Giroux: I think it could easily be done. It is a matter of the government choosing when it wants to table the public accounts. So they have a lot of flexibility. I think the tabling of the public accounts could already be done by the end of September.

Senator Smith: Thank you.

[Translation]

Senator Dalphond: It’s a pleasure to have you and your team with us, Mr. Giroux. I see that a significant portion of the spending goes towards military support. In your report, you list the following figures: $659 million for the aircrew training program; $561 million for the multi-mission aircraft project; $315 million for the joint support ship, which appears to be a ship; and $299 million for the sustainment of the Halifax-class frigates.

In your opinion, why wasn’t this spending included in the Main Estimates? The frigates were suddenly found to be taking on water and supplementary estimates were requested? It seems that the army plans for the long term. Why is this spending included in the supplementary estimates?

Mr. Giroux: Good question. I also find this surprising because military spending is usually predictable. The Department of National Defence should provide the reason, of course.

There are two possible explanations for this. Perhaps more is being asked of the Department of National Defence and the Canadian Armed Forces, which wasn’t anticipated earlier in the year. Perhaps there was insufficient planning during the preparation of the Main Estimates or Supplementary Estimates (A) that took place much earlier in the year. I don’t have any explanation other than these two main hypotheses.

Senator Dalphond: In terms of spending on support for Indigenous people, figure 2.2 shows a significant increase over the years. You said in a note that the significant increase in planned spending in 2023-24 was due to the $23.3 billion increase in claims and settlements. It’s like a one-time expense. The settlements have just been made, procurement must be done and $23 million has been added. The following year, the year in progress, the amount will be $45 billion.

Five years ago, the amount was $19 billion and now it’s $45 billion. Is there any justification provided for this exponential increase?

Mr. Giroux: There are a few factors, such as the growth of the Indigenous population covered by the services and programs. In general, this growth is a bit faster than the growth of the Canadian population. Inflation is also a factor. However, there are also a good many government choices to increase services for Indigenous people.These choices are discretionary.

This explains much of the growth. There are also, as you said, Indigenous claims. There are court decisions. There’s also a decision or some discretion to pick up the pace or recognize more claims and settle them in favour of Indigenous groups. These are basically government decisions to increase services and assistance for Indigenous people.

Senator Dalphond: When I look at your table, I get the impression that one department is slipping into another. If we look at Crown-Indigenous Relations and Northern Affairs Canada, or CIRNAC, as opposed to Indigenous Services Canada, or ISC, we see that the budget was non-existent at Indigenous Services Canada for years. All of a sudden, it’s now bigger than the budget given to the other department.

Is there an explanation for this? Is there a gradual transfer of responsibilities or a reorganization of the approach?

Mr. Giroux: Yes, there has been a transfer of responsibilities. In the past, basically two departments provided services to Indigenous people. One was Indian Affairs and Northern Development, which provided most of the services to Indigenous people. The other was Health Canada, through the non-insured health benefits service.

In 2016, I believe, a decision was made to transfer all service responsibilities to the Department of Indigenous Services. The former Department of Indian Affairs and Northern Development became Crown-Indigenous Relations and Northern Affairs Canada.

There have been changes in the machinery of government. At the same time, this has reflected a public policy decision to significantly increase services for Indigenous people. Two things happened at roughly the same time.

Senator Dalphond: Thank you.

[English]

Senator Ross: Good morning. Last week in Question Period, I echoed some of your concerns about not receiving the public accounts yet. I asked Senator Gold if he had a sense of whether the documents had actually been signed, and if not, when. He indicated that he did not have information that would help us to understand what the timeline would be, but he reiterated the December date that you mentioned.

What advice could you give us in terms of looking at the Supplementary Estimates (B) without having those documents to compare? How do you think we should manage this challenging situation?

Mr. Giroux: It is a delicate one because you have to do your best without having an essential piece of information, which is what the deficit last year was and how the government performed — individual departments are asking you for billions of dollars. They are asking for significant additional funding without any of us knowing whether they had more than enough last year, whether they were very close to spending their maximum authorities or whether they lapsed billions of dollars. You are faced with the decision where you have to approve or not billions of dollars spending, but you do not know whether these funds are necessary because the departments are asking for billions may have lapsed an equivalent amount of money last year. Usually, when there is a lapse one year that is not abnormal, the lapse is repeated year after year. In the absence of something extraordinary or a significant change in management or approach, a lapse from one year is usually repeated from one year to the other.

In the absence of that information, departments are asking you for yet more money, but you don’t know if it is really necessary. An amendment to the Financial Administration Act requiring the tabling of public accounts sooner would be one way to solve that. In the current state of affairs, the government still has a lot of flexibility to table the public accounts at the time it suits the government.

Senator Ross: That is perhaps good advice for us for the future and we might push for that. What do you think we should do this time?

Mr. Giroux: Ask departments questions when they testify in your study of the supplementary estimates. If senior public servants or ministers are testifying before the committee, ask them what their lapse last year was, whether they really need all these funds and to what extent these funds are absolutely necessary, or whether some of it could be cash managed. If they are asking you for $22 billion and they are going to lapse 40, then it is not all needed. Some of it might in specific cases, but in many cases — for example, the Department of National Defence has a budget of tens of billions of dollars. Maybe they can cash manage at least a portion of their request in these supplementary estimates.

Senator Pate: Thank you very much, and welcome, Mr. Giroux and Mr. Creighton. The supplementary estimates contain funding for Jordan’s Principle. Last week, the Canadian Human Rights Tribunal ordered the government to address a backlog of requests under Jordan’s Principle, which is “meant to ensure First Nations children don’t wait to receive assistance because of jurisdictional battles.” According to the First Nations Child and Family Caring Society, some urgent requests meant to be processed within 24 hours are instead taking months.

Do you have any recommendations about what questions this committee should ask about this situation, as well as future funding requests relating to Jordan’s Principle in light of these concerns? Do you have any insights you can share regarding how the significant delays that have been reported affect the overall cost of meeting Jordan’s Principle requests, including as a result of health and other needs of First Nations children becoming more acute as a result of passing time or of requiring First Nations families to go to court to obtain essential services?

Mr. Giroux: That’s a delicate question because it involves not only money, but it also involves resources on the ground.

I think a good question to ask officials and the minister is not only how much they need, but what is it that they are actually doing to improve services.

Very often senior public servants will talk about funding as an end in and of itself rather than tangible outcomes. For example, “We spent that many hundreds of millions,” is not an outcome. But, “We have hired that many social workers and child care service providers, depending on the case, depending on the specific situation, and have ensured that service standards are met. For example, when there is a call for help, we respond within 24 hours in 95% of the cases.” That is a much better outcome than saying, “We spent that many hundreds of millions,” because spending can be done at headquarters as opposed to where the communities are and where the services are needed.

I think questions about details as opposed to communication lines and how much is spent; how much is spent is one indication, but, by far, it’s clearly not the best.

Senator Pate: Thank you.

Senator Galvez: Good morning, Mr. Giroux and Mr. Creighton. I was recently in Baku for COP 29, where I learned we have are already at 1.49 degrees hotter by the end of 2023. I also learned that the Global North owes $192 trillion to the Global South. In fact, representatives of the Global South walked out of conversations at a point.

Over the weekend, I was at the NATO parliamentarians, where we learned that there is a whole new growing threat in the Arctic due to climate change. We are being pressured to expend the 2% that other countries do in NATO.

I see that in this budget there is $276 million that will be invested in the World Bank to expand the bank’s capacity to help developing countries advance the United Nations Sustainable Development Goals. As you clearly will know, this is less than a drop in the ocean.

I have a specific question and a general question. My specific question is: Do we expect to make money out of the $276 million? Is it an investment, and we expect to make money out of it?

My general question is: Does Canada have the financial capacity to provide the additional funding that will be required as we get into more extreme weather events here and around the world?

Mr. Giroux: I’m not an expert in providing funding to multilateral institutions. Generally speaking, we don’t expect to make money. It depends on the type of vehicle. If it is a loan, usually it is on very favourable terms. We can break even, but over time, what we find is that, generally speaking, many of these loans end up being written off. Some of them can get repaid, but it varies depending on the type of loans and the type of recipients. Some are in better positions than others.

Senator Galvez: Who would be in a better position?

Mr. Giroux: Usually it is the Department of Finance. They keep track of Canada’s lending and contributions to multilateral institutions. The minister and senior officials would be in a good position to assess whether we expect to make money or not on this type of assistance.

Your second question: Do we have the capacity to pay more? I think we do. For example, if you look at Canada’s debt in comparison to GDP, we are in a relatively good financial situation. Not as good as some would like it to be but certainly better than most G7 counterparts.

Could we increase our contributions? Yes. It is a policy choice. Does that mean that we should? It is obviously not for me to say, but if that were the decision, we could. By how much? It depends on other competing priorities. At that point, it becomes a big question of trade-offs.

Senator Galvez: We received here Defence, and we heard about all the extra activities that they are doing with respect to extreme weather events that are happening. Do you have more details? As Senator Dalphond said, the Department of Defence is expanding. Do we have details on what they are asking for?

Mr. Giroux: No. I don’t think we have specific line items. We have some details but nothing beyond what is in the report. It is not something that we have. We don’t have all the details.

Senator Galvez: Okay. Thank you.

[Translation]

Senator Loffreda: Thank you, Mr. Giroux, for joining us. It’s always helpful.

[English]

In your report, you note the supplementary estimates include $0.7 billion in non-budgetary authorities, with $400 million in loans to Ukraine and $276 million in investments to the World Bank. I would like to ask you about the latter.

You just said you’re not an expert in multilateral institutions and loans thereto, but your thoughts are always useful and insightful. I have never raised this issue with you.

As you might know, I am the chair of the Canadian chapter of the Parliamentary Network on the World Bank and International Monetary Fund, and I was in Washington last month for our biannual global parliamentary forum. Canada is an important partner in these multinational financial institutions, and we play a key role in making the IMF and World Bank more effective, efficient and relevant.

Based on my interactions with senior officials and parliamentarians from other nations, Canada is being asked to be more active and provide additional financial support. As I’ve mentioned, we already have $276 million in investments to the World Bank.

As the PBO, have you ever looked into the investments we’ve made to these multilateral development banks? Are there any troubling trends or issues of concern?

I’m always worried about tracking these transfers and ensuring they meet their intended objectives. It is a lot of money. It is a significant investment. Essentially, are we getting good value for our money?

I know you are not an expert. Neither am I, being the chair of the Canadian parliamentary group, but it is always good to exchange insightful thoughts with yourself.

Mr. Giroux: I’ll take that as a compliment. Thank you, senator.

It is not something we have looked at. We have contributions, as you pointed out and, as you know, probably much better than me. We regularly contribute. We have a managing director, and we have representatives on the boards of both institutions, the World Bank and the IMF.

Even though we haven’t looked at our loans and contributions to both multilateral institutions, usually the persons appointed to the board and Canada’s representatives are senior public servants who are highly regarded and are known experts in financial management, and that’s in good part why we don’t tend to consider and look at the World Bank and the IMF and whether we or other contributor countries get good value for money. We tend to rely on the board of directors, the board of governors — whatever the exact name of the governing bodies are — and the auditing that is done at the bank.

That’s a long answer to say no, we haven’t looked at that.

Do I know whether we get good value for money? I don’t. I assume, like many people in this country, we do, but I don’t know that for sure.

Senator Loffreda: Maybe off the cuff a little — I never do that to you, and I don’t want to put you on the spot — with the change in government in the U.S., do you feel that the viability and sustainability of some of these institutions will be jeopardized or do you feel that many of our institutions that we have built for decades will remain and are still useful?

Mr. Giroux: Whether they will remain, I think so, but the U.S. is if not the biggest contributor, certainly in the top three. I think they are the biggest contributor to both the IMF and the World Bank.

If there were a decision by the U.S. administration to withdraw support from the IMF and the World Bank, it would mean the scope of their action would have to decrease significantly, or other supporting countries would have to make up for the lack of funding that the U.S. withdrawal would mean.

Would they still exist? I think so, even though their HQ is in Washington. That might mean disruption to their activities. They will continue to exist. With a decreased contribution from the U.S., that would have a significant impact on their operations.

Senator Loffreda: With significantly fewer resources.

Mr. Giroux: Yes.

Senator Loffreda: You see the usefulness. You are aware of the usefulness of these institutions.

Mr. Giroux: Yes.

Senator Loffreda: You did mention we in Canada, although could do better — and with respect to debt to GDP, we are the lowest among the G7 — could probably step up the investments; we have the capacity to do so.

Mr. Giroux: Yes.

Senator Loffreda: Although, you can’t tell people how they must feel, right? Lowest debt to GDP, but the carton of eggs still costs more when they go to the grocery store, unfortunately.

Thank you.

Senator MacAdam: Thank you for being here.

I had similar questions as my colleagues regarding the tabling of the public accounts. I too am concerned about the fact that the public accounts have not yet been tabled.

I will ask a question regarding the deficit. The government stated earlier they were projecting a deficit of $40 billion. You publicly stated that you forecast the deficit to be $46.8 billion. Can you elaborate on what major factors or financial items make up the difference between what the government had projected and what you estimated?

Mr. Giroux: Sure. We are talking about the fiscal year that ended March 31.

Senator MacAdam: Yes.

Mr. Giroux: We based our forecast or projection of the past, which sounds a bit bizarre, but we based our assessment on a couple of factors. One, there were strong tax revenues due to an economy that is doing relatively well. We keep being surprised on the upside by corporate income tax revenues. We think that continued into 2023-24.

That was, however, more than offset by increased spending on many fronts to deliver on government priorities, including additional debt-servicing costs due to the increase in interest rates. Overall, we estimate the increase in expenditures more than offset the increase in revenues.

However, what we don’t know is the end of year, or the thirteenth month as we call it, end-of-year transactions. For example, there is a surplus in the public service superannuation plan. There is a surplus that could have been booked in the previous fiscal year, which would reduce the surplus, or it could be booked this or next fiscal year. That’s the kind of thing we don’t know because we don’t have the public accounts yet.

Senator MacAdam: You’re talking year-end adjustments really.

Mr. Giroux: Yes.

Senator MacAdam: Your report talked about planned spending for Veterans Affairs Canada. The Supplementary Estimates (B) include a $943 million increase in planned spending for demand-driven services that provide support to eligible veterans and their families.

Your report mentions some of the Veterans Affairs planned expenditures may fall under the NATO 2% definition for military expenditures.

Mr. Giroux: Yes.

Senator MacAdam: Can you elaborate on this? What expenditures qualify under NATO’s definition of military expenditures?

Mr. Giroux: Generally speaking, NATO has a broad or broader definition of military expenditures than what we typically consider military expenditures. They include, of course, military expenditures, but also spending from the Coast Guard because, in many countries, these are paramilitary forces, part of the military in some countries with some offensive or defensive capacity in many countries. They consider the Coast Guard to be part of military expenditures.

There are some police forces expenditures for assistance to other countries that can be a part, but these are usually minor.

The biggest chunk, aside from military and Coast Guard, is usually veterans’ pensions. These are considered to be military expenditures. Pensions and services to veterans are usually also military expenditures that fall under the NATO definition and count toward the 2%.

In many countries, veterans’ pensions and services are under the Department of National Defence, or whatever the equivalent is in many countries. To ensure consistency of treatment, we can count our contributions to veterans under the NATO 2% definition.

Senator MacAdam: Your report says these expenditures “may” fall under. The way you’re describing it is they would.

Mr. Giroux: Yes, the way I describe it. We say “may” because there could be some small segments that are not considered, so we don’t want to say “all” of it in case there are a few million here and there that doesn’t fall within the definition.

Senator MacAdam: Broadly speaking, does Veterans Affairs come under the definition of military spending?

Mr. Giroux: Yes.

Senator Kingston: Thanks for being here, always a pleasure.

I’m curious about something. I’ll start out with a quote from your overview about the supplementary estimates, that they:

. . . reflect additional spending requirements which were either not sufficiently developed in time for inclusion in the Main Estimates or have subsequently been refined to account for developments in particular programs and services.

Then I flip back to the first page in a backgrounder we received, and it talks about the statutory budgetary expenditures, which I am told are paid no matter what. They have already been given the authority they need.

Then they talk about the fact that the increase being asked for this time is related to the Canada Carbon Rebate for Small Businesses, $2.6 billion, and for individuals $307 million. I have two thoughts or questions about that: One, why would they have not been anticipated, since they have been happening every few months for a while now? Do you have thoughts on that particular thing? I have one other question.

Mr. Giroux: Sure. The carbon rebate is reimbursed or paid back to individuals. It’s paid back at the rhythm with which it is collected, with a small lag. It probably is a factor or the result of the fuel charge, also known as the carbon tax, that is higher than anticipated at the beginning of the year. A greater portion has to be transferred back to households.

When it comes to the rebate for small businesses, there was a government decision to rebate it back to small businesses. It had been held back for a number of months, if not years.

The government was initially envisaging measures supporting businesses to transition or decarbonize the economy. It decided instead to send rebates back to small businesses. There was a change in approach, which probably is the reason behind the increase or transfer to small businesses.

On the household side, the factor is an increase in the fuel charge collected.

Senator Kingston: In this case, there is an amount of revenue that comes in that, in my mind, offsets this. I know I’m wrong in that. I want you to tell me again how this works, because it seems like you’re not looking at both sides of the equation.

Mr. Giroux: The supplementary estimates ask for authority to spend. For legislated programs, like the carbon rebate, it’s for information because the government already has the authority through distinct legislation to send this back to households and small businesses.

On the one hand, authority to collect money comes from pieces of legislation, the Income Tax Act, the fuel charge legislation. I don’t know its name off the top of my head. There is legislation in place allowing the government to collect money. On the other hand, they have to seek permission to spend it. That’s what they are doing with the supplementary estimates even though for programs that have their own legislation, they don’t need to ask parliamentarians their permission. They include this for information to give you a more complete picture. I don’t know if that answers your question.

Senator Kingston: Yes, to some extent it does. Just another quick question. What are the key factors that have contributed to the nearly seven-fold increase in Indigenous-related spending from 2015-16 to 2023-24?

Mr. Giroux: Mostly government decisions to increase the services and resources to Indigenous populations. It’s essentially government policy decisions to allocate more resources.

There are also natural population increases, so demographic factors, and inflation as well as decisions to accelerate the pace of resolutions for First Nations claims. So there is a conscious decision to accelerate the settlement of these claims, but by and large, it’s policy decisions to increase child and family services, for example, and all the services that are available to Indigenous populations.

Senator Kingston: On top or related to that, in the main document, it talks about housing as part of the outcomes they are hoping for, for children. Now children live in families, so it’s going to obviously benefit everyone. But has money actually been spent? Has it actually moved the needle in terms of Indigenous housing?

Mr. Giroux: That’s something that we would be able to determine when Indigenous Services Canada releases its departmental results report, or the CHMC releases its achievements on housing. It depends on who is responsible for Indigenous housing programs. Departmental results reports are the equivalent of annual reports for departments.

So we don’t know that yet, we have to rely on old reports that were tabled a year, a year and a half or two years ago.

Senator Kingston: Thank you.

[Translation]

The Chair: I have a few questions. The first concerns veterans. It seems that the additional funding is needed to respond to the higher-than-expected number of benefit applications as well as a higher-than-expected number of veterans opting for a lump-sum payment instead of monthly payments.

Is there an order of magnitude for these requests? I’ve already seen situations where people asked for a lump-sum payment. However, they were in a bad position, so they ended up in a precarious situation afterwards. That worries me a bit.

Mr. Giroux: Unfortunately, I don’t have the data on this specific program and this specific issue. I do know, from my experience in other positions, that the Department of Veterans Affairs has teams to advise veterans when they must decide on either a lump sum or a monthly payment. We have no reason to believe that this advice is no longer being provided. It’s probably up to the veterans themselves. It means that the money may run out quickly, whereas a much lower monthly payment can be provided over a longer period.

The Chair: I hope that these people won’t make any bad decisions. My other question concerns the deficit. Where are we headed this year and next? I don’t anticipate an economic update. Spending is being announced. Money designated for collection isn’t being collected. The Canada Revenue Agency was supposed to collect the 66% capital gains inclusion amount. However, it doesn’t seem to be doing so, based on my information and what we’ve heard from the Canada Revenue Agency. They had anticipated a large amount of revenue from this inclusion for June 25.

Do you have any idea where we’re headed? Perhaps an update would be in order.

Mr. Giroux: For the year ending on March 31, a deficit of nearly $47 billion is still expected. However, we don’t have any insider information on whether the government had any pleasant surprises regarding these obligations, amounts that could have been booked or decreased, for example, if the government had resolved certain claims against the Crown or had lowered their value. A portion of the public service pension plan surplus may have been allocated to the previous fiscal year. We don’t know everything about the previous year. Our deficit estimate of $47 billion is higher than the government had forecast and it will be higher than $40 billion.

In terms of this year, last week’s announcements regarding the GST and HST break could cost several billion dollars. The government said $1.6 billion. We’re currently assessing the likely costs of this break, especially if it includes the provincial portion of the HST, which could add a bit to the cost, and the $250 cheques that will apparently be issued in the spring, presumably in the following fiscal year, meaning 2025-26. These factors suggest that the deficit will likely be higher than what the government announced. In October, it was reported that the deficit for the current year would be around $46 billion. However, with last week’s announcement, we believe that it will amount to at least $46 billion unless the public service pension plan surplus offsets much of this additional spending. However, a failure to approve the increased capital gains inclusion rate would mean several billion dollars less in revenue for the tax authorities. This would drive up the deficit quite significantly.

The Chair: Thank you.

[English]

Senator Smith: I wanted to take a look at personnel spending. It continues to account for a large portion of the estimates as well as the previous years. This is a reality of growing public service with increasing compensation costs, more cost-effective collective bargaining agreements.

Based on your analysis, does the government appear to have any effective mechanisms in place to control this growth and/or is there a risk that personnel spending is becoming unsustainable without structural changes?

Mr. Giroux: Are there mechanisms in place to control the growth? Yes, there have been announcements regarding expenditure restraints, numerous exercises over the last couple of years. Most of them have not been finalized or have been put on hold or cancelled in one case. There is also the Treasury Board of Canada, the group of ministers, that is in charge of reviewing spending and approving the cheques being made to departments even though they have been approved in budgets or in supplementary estimates, there is a group of ministers that is tasked with scrutinizing government expenditures, including personnel expenditures.

Do I think that things will take a turn? That’s not what history suggests. We have seen multiple times over the last several years that the government intends to reduce the size of the public service next year, regardless of the year in which you ask that question. It’s always next year. This time will it be different? Compared to the same point last year, there is an increase of 8% in personnel spending. Will this year be different? I don’t think so, even though we’re hearing anecdotes that some casual and term contracts have not been renewed, but we haven’t seen an across-the-board stabilization or reduction in the size of the public service, certainly not when it comes to permanent employees or, in Ottawa language, indeterminate.

So I don’t think it’s taking a turn, but I may be wrong. Maybe there is something that is going on that is just making its way into the system. But that’s not what the numbers suggest at this point.

[Translation]

Senator Dalphond: Did I understand correctly, when you appeared before us earlier — I’m not sure whether it was you, so let me know if I’m putting words in your mouth — that the capital gains tax rate increase was forecast to bring in as much as $9 billion or $19 billion this year? I no longer remember the amounts.

Mr. Giroux: A total of $19 billion over five years. I think that the figure was six or seven the first year, so this year, but my memory is faulty too.

Senator Dalphond: There was talk of a $52 billion deficit had the rate increase not been adopted. Doesn’t the $46 billion deficit that you anticipated take into account the measures announced recently?

Mr. Giroux: We didn’t know. We didn’t know about these measures, so no.

Senator Dalphond: The Department of Finance has done a good job of forecasting in the past. The GST break has just been added. It will amount to $1.6 billion?

Mr. Giroux: It isn’t clear whether the $1.6 billion is for the GST alone or whether it includes the provincial portion of the HST. According to Minister Duclos and certain comments made in the media, it seems that the provinces won’t be compensated, so they must absorb this loss of revenue.

Senator Dalphond: It will be in the provincial deficit or in the surplus reduction. This would mean $46 billion, in addition to at least $1.6 billion, and possibly more, if the capital gains bill doesn’t get passed. Thank you.

[English]

Senator Kingston: No.

Senator Ross: Recently, New Brunswick author Donald Savoie, who is a prolific Canadian author and the Canada Research Chair in Public Administration and Governance, and also clearly an expert because he sits on the Independent Advisory Board for Senate Appointments for New Brunswick, he wrote a book called Speaking Truth to Canadians about Their Public Service. One of the themes of the book was the failure to control the growth of the federal civil service. He talks about the hard-working and dedicated federal civil servants, but he also talks about the uncontrolled growth.

I’m looking at the $2.9 billion in new spending on personnel, and following up on Senator Smith’s question, half of that is going to the Treasury Board Secretariat. What do you predict is going to happen? There were plans to reduce the public service by 5,000 over four years. What is going to happen?

Mr. Giroux: If the government follows through on attrition, 5,000 over four or five years, it’s nothing. It can probably be done very easily in six months or a year, without anybody noticing. When you have a workforce of 400,000, it doesn’t take a lot of retirements. So what is going to happen? That’s a good question.

The size of the public service, I personally think, is not a problem in and of itself. It can become a problem when we increase the size of the public service and we don’t see a corresponding improvement in services.

As Senator Pate mentioned, we increased funding for First Nations. The question is, do they and do we see an improvement in the outcomes and the services that they receive? I don’t have the answer to that question. But having looked in the past at performance indicators of departments and agencies, the targets that they identify and set for themselves, they do not achieve a significant portion of them.

As I said many times, it’s like asking the students what will be the topic of the test and what will be the pass mark, and close to half of them fail. So it’s not very ambitious, and that’s probably where it hurts. It hurts the reputation of the public service frankly.

Senator Ross: What would be an ambitious target?

Mr. Giroux: An ambitious target would be having targets and performance indicators that are meaningful for Canadians. On that, the vast majority of departments and agencies do well. It’s the targets, so plural, that tend to be not very ambitious, and I think there would be scope to make the public service much better. For the size and the capacity of the individuals in the public service, I think the performance could be significantly better.

Senator MacAdam: Your report on Sups B mentions in Budget 2024, mentions that the PBO identified 241 budget initiatives excluding off-cycle measures. Can you elaborate on off-cycle measures?

Mr. Giroux: What we refer to as off-cycle measures are measures that are announced, like last week, the GST holiday on certain goods and services — goods mostly — this is a typical example of an off-cycle measure. It’s not included in a budget or a fall update. That’s what we refer to as off-cycle measure — or the 200-dollar cheques or funds to individuals, that will be in the spring. It’s outside of the budget or a fall update, that’s what we say is off cycle.

Senator Loffreda: I had some questions on the public service and you did answer it, increase in improvement of the services. It was a question. You raised some important concerns, which I also have.

I’ll go up to my next question. I was happy to read just yesterday that businesses have started to receive cheques, and I have raised the issue before. I’m talking about the Canada Carbon Rebate. The question is, in your previous work on the federal fuel charge, has your office conducted any specific research on the impact of the fuel charge to Canadian SMEs, the small- and medium-sized businesses? If not, are there any direct or indirect findings related to businesses as part of your review of the impact of the fuel charge to not only the businesses but to individuals? Can you elaborate further on this issue?

Mr. Giroux: We haven’t conducted any analysis of the impact of the fuel charge specifically on small businesses. We have done such an analysis regarding the impact of the fuel charge on the economy as a whole, but not on small businesses.

Small businesses are usually not covered by the output-based pricing system on large emitters, but they, like those in backstop provinces I should specify, have to pay the fuel charge, like every individual or household that buys fossil fuels or needs to buy services that have a high-energy component.

Because the carbon rebate is provided to households to the tune of 93%, it tends to fall on businesses to pay a significant portion of the rebate, more than what they receive less than what they pay. There is an estimate, I think it’s by the government, which indicates that households pay about 68% of the fuel charge, but they get 93% of the proceeds. That’s why households get more than they pay. It’s the opposite for businesses.

Senator Loffreda: I have a note here that your office released a report last month concerning the fiscal impact on the federal fuel charge on the average household of each backstop provinces, and they will see a net gain by 2030-31. So we do have a note of that report. Thank you for that.

Mr. Giroux: Sure.

Senator Pate: You just alluded to recently announced programs. I’m curious as to how soon you anticipate you would be able to look at the impact of the Working Canadians Rebate as well as the GST holiday measure, and whether you would be doing a costing of that in the foreseeable future?

Mr. Giroux: The moment it was announced we started doing some very rough calculations, which is not really useful because anybody can do a back-of-the-envelope calculation. We are in the process of gathering the data and the specific details as to which goods will be exempt from the GST.

An important aspect was also whether the government, when it said that the provincial HST component would also be waived whether the government was compensating provinces or not. It seems to have been decided and cleared. So it’s a matter of getting sufficient detail and data. I cannot give you a timeline right now because we are in the process of estimating how long it will take. It is still early stages for us. But it is something we plan on doing as soon as possible.

Senator Pate: There have been complaints that certain groups are left out. Will there be an examination of how much will be recovered, for instance, from higher-income individuals?

Mr. Giroux: Not specifically, because there is no clawback. It is yes or no. You get it if you made, in 2023, less than $150,000. There is no clawback to speak of.

Senator Pate: Thank you.

[Translation]

The Chair: We could see that the Canada Revenue Agency had about $10 billion in overpaid benefits during the pandemic and that it was trying to recover this amount. Given the experience outlined in your 2022 report on the Canada Revenue Agency’s recovery success rate, which was rather low compared to other countries, how optimistic do you feel about recovering the $10 billion?

In addition, how is this amount broken down in the accounts? Is it considered revenue, or is it already on the books as a bad debt whereby if the amount isn’t recovered, it doesn’t affect the deficit? We’re looking at $10 billion here.

Mr. Giroux: In terms of my optimism, or lack thereof, about the possibility of recovering these amounts, lost money is a bit like lost people. The sooner you start looking for them, the more likely you are to find them. The same applies to bad debts. When bad debts have been outstanding for a number of years already, the possibility of recovering the amounts declines quite quickly as the time passes since their registration. So I’m not too optimistic.

In terms of how the issue is handled, a portion may be booked on the balance sheet as accounts receivable. A portion is written off if, in the Canada Revenue Agency’s opinion, these amounts are unlikely to be recovered. Some fairly rigorous processes are carried out by accountants, who are governed by a professional association. In general, their assessment of a recoverable amount and a write-off amount is quite good, especially if taken as a whole. The agency generally doesn’t abandon its desire to recover amounts, even when these amounts have been written off. If a person reappears with a tax refund on their books, it’s usually quite efficient.

In general, for a company, the case involves bankruptcy, so there are few opportunities to recover the amounts. In bankruptcy cases, it’s quite a challenge. However, if people have simply forgotten, or have kept a low profile in the hope that it would be forgotten, as soon as they reappear, the agency is generally able to recover the amounts. In bankruptcy cases, this isn’t the case.

The Chair: I want to thank the witnesses. It’s always a pleasure. Thank you for being available, especially on such short notice.

Our next meeting will be held on Wednesday, November 27, at 6:45 p.m., to continue our study of Supplementary Estimates (B). Thank you, everyone. Have a good day.

(The committee adjourned.)

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