Proceedings of the Standing Senate Committee on
National Finance
Issue 2 - Evidence - Morning Sitting
OTTAWA, Thursday, June 16, 2011
The Standing Senate Committee on National Finance met this day at 9:16 a.m. to review the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2012. Topic: Procurement
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable Senators, we are going to proceed with the study of the 2011-12 estimates, which was referred to our committee.
[English]
Through our committee's work, we have often been confronted with issues related to procurement. This is a complex area that has frequently left members with more questions and, at times, some level of frustration.
In an attempt to pacify that frustration and to clarify some of these issues, today we will hear from the Procurement Ombudsman, newly appointed, who will advise us as to the mandate and operations of his office, as well as officials from Public Works and Government Services Canada, who will advise us on the procurement process of the government.
There is also an area concerning National Defence. We will deal with that at another time because we were unable to put that together on short notice.
We are pleased to welcome Mr. Frank Brunetta, Procurement Ombudsman. We are also pleased to welcome, from Public Works and Government Services Canada, Mr. Normand Masse.
[Translation]
Mr. Masse is the Director General of the Services and Technology Acquisition Management Sector, Acquisitions Branch. Alain Vauclair is the Director General of the Policy Risk, Integrity and Strategic Management Sector, Acquisitions Branch.
We are going to start with Mr. Masse, followed by Mr. Vauclair and Mr. Brunetta. Mr. Masse, you have the floor.
[English]
Normand Masse, Director General, Services and Technology Acquisition Management Sector, Public Works and Government Services Canada: Mr. Chair and honourable senators, I am pleased to be here today. I thank you for the opportunity to appear before this committee to provide an overview of the procurement processes and practices of Public Works and Government Services Canada.
[Translation]
My name is Normand Masse and I am the Director General of the Services and Technology Acquisition Management Sector, Acquisitions Branch, at the Department of Public Works and Government Services. With me today is my colleague Alain Vauclair, Director General, Policy Risk, Integrity and Strategic Management Sector, also with Acquisitions Branch.
[English]
Each year the Government of Canada spends approximately $19 billion on goods and services in support of the program activities of its federal departments. Public Works procures $14 billion per year on behalf of 100 departments and agencies across the country. Expenditures of this magnitude must be managed with expertise, not only to ensure that they are carried out in a manner that complies with the applicable rules but also to ensure the core government values of openness, fairness and transparency are respected.
The Acquisitions Branch of Public Works fulfils this role. We are the common service provider for procurement for the Government of Canada. Our activities are directed toward providing service and support to the programs of departments and agencies.
[Translation]
I will now present the deck in front of you, which will provide an overview of how PWGSC fulfils its role as the government's main procurement arm.
[English]
I will go very rapidly through the deck and we will probably have opportunities to discuss further after.
Slide 3 covers the mandate of Public Works. We are managers and stewards of common office space. We are the central purchasing agents, so that is the acquisitions branch. That is mostly what I will discuss today. We are the banker and the accountant. We provide payroll pension services, information technology, translation, audit, communication and consulting. The role is to optimize value by enabling government departments and agencies to provide their programs.
The central purchasing agency ensures that government contracting is fair, open and transparent, provides value for money, provides a checks-and-balances function, adds value and ensures integrity of the process.
On slide 4, you will see contracting principles and objectives: integrity, client service, national objectives, competition, equal treatment. You can see what all of those mean.
On the next slide are procurement key facts and figures. As an overview of the next two slides, the acquisition branch procures $14 billion a year, which equates to 60,000 contracts and amendments per year for 100 departments and agencies.
The Government of Canada total, with its departments, makes purchases through 435,000 contractual documents a year, so we cover roughly 13 per cent, 14 per cent of that volume, but we cover 84 per cent of the value.
The top five commodities by value are IT equipment and software, IT and telecom services, ground and motor vehicles, fixed and rotary wing aircraft, and construction. The Department of National Defence represents about 50 per cent of the volume that Public Works is doing. Approximately 75 per cent of contracts are awarded competitively.
The next slide continues with the key facts and figures. We deal with roughly 14,000 suppliers per year, which include over 10,000 small- and medium-sized enterprises. Small and medium enterprises receive more than one third of the contracts in value and we awarded, for example, roughly $5.33 billion to SMEs.
We also establish "pre-competed instruments." You will probably hear that term today. This refers to a standing offer and supply arrangement, whereas we negotiate on behalf of all departments the kind of instruments they can use to place orders directly with the suppliers. We have enhanced all of those procurement instruments in the last five years by establishing a solid commodity management framework.
Slide 7 shows you the key players. Treasury Board, in the middle, sets government-wide procurement policies and oversight. We have the departments that define their requirements. We have Public Works ensuring the contracting integrity. The suppliers provide the goods and services but also a lot of good feedback to improve the system.
There is a balancing act between competing interests. We have trade agreements, but we also have to balance between the procurement principles, which I explained, and socio-economic considerations such as the small and medium enterprises, industrial and regional benefits, the "green," the Aboriginal set-aside and innovation. We need to balance these and we need to do that within the legislation, the regulations and the policies. This is the role of the acquisitions branch of Public Works.
The next slide, page 9, outlines all the steps that we go through in the procurement process. We can come back to this during questions, but as you can see, there are nine steps from the "Requirement Definition" to the "Contract Close-Out." All steps, such as solicitations and one-stage, multi-stage, are covered on that page.
The next slide is entitled "Opportunities for Improvement." This is something that Public Works and Government Services Canada has done in the last five to six years. We are really working at improving the procurement process. We consulted with the suppliers and our clients, and this is a summary of what we are hearing from them and what we are targeting in terms of making the process faster and easier.
On the last slide, page 11, is the strategy to improve the procurement function. Again, this is making procurement more effective. We identified all the stakeholders in this diagram. We basically are trying to enhance the efficiency of our procurement function to allow departments to acquire their requirements in a timelier manner. We can again discuss that further, but this is something that we are working on a great deal.
The Chair: Thank you very much, Mr. Masse.
When a government department wants to buy a good or a service, are they required by legislation to involve you at the very front end? What is the structure for ensuring that you get involved?
Mr. Masse: As I mentioned, those departments have some delegation. For example, on the goods side, they have up to $25,000. They have two choices for any procurement above $25,000. They can use our pre-negotiated instruments, as I mentioned, or they can come to us. That is on the goods side.
The Chair: What requires them to go to you?
Alain Vauclair, Director General, Policy Risk, Integrity and Strategic Management Sector, Public Works and Government Services Canada: All ministers have the inherent right to procure for goods and services. However, the Department of Public Works and Government Services Act gives full authority to our minister to procure for goods. In turn, our minister will delegate to her colleagues. Currently the standard delegation, as Mr. Masse was explaining, is up to $25,000. Also, for the limits of the standing offers and supply arrangements and pre-competed instruments and emergency contracting, that is kind of the standard delegation.
For services they have full authority, although the Treasury Board gives them a lower limit to procure before they have to go to the board. Our minister has a higher limit to procure for services.
The Chair: You say for services all the government departments are not required to go to Public Works.
Mr. Vauclair: They are not required; they have the authority.
The Chair: They can go to you if they want.
Mr. Vauclair: Yes, it is an advantage based on the value we add to the process and the expertise we have. As Mr. Masse was explaining, we do have quite an extensive range of pre-competed instruments. Once these are set up the process is much quicker and relevant to departments, so there is an advantage to come to us.
The Chair: To complete this picture, is the Department of National Defence a separate model or does it just fit in generally?
Mr. Vauclair: The Department of National Defence has the same authorities as other departments for services. However, they are a different case because for goods the actual term is "defence supplies." That authority is given to our minister under the Defence Production Act. It is similar, but it is a distinct regime. Our minister has some special powers under that act. Under that legislation our minister then delegates or gives power to the Minister of National Defence similar to the other additional instruments that we have with other ministers.
The Chair: That gives a general view.
Mr. Vauclair: That is the legislative framework, if you will.
The Chair: Thank you.
[Translation]
Frank Brunetta, Procurement Ombudsman, Office of the Procurement Ombudsman: Mr. Chair, thank you for this invitation. I am pleased to discuss the role and mandate of the Office of the Procurement Ombudsman with you this morning.
[English]
Since being appointed in January 2011, I have benefited from the work in establishing the office undertaken by my predecessor, Shahid Minto, who retired in June 2010. My office is made up of quality people who believe what they are doing makes a difference to the fairness, openness and transparency of federal procurement and, ultimately, to the Canadian taxpayer. I am proud to have been chosen to lead this valued and trusted organization.
My remarks this morning will focus on three areas: the office's mandate, the work we do, and our direction and challenges. Let me begin with the office's mandate.
In April 2006, the government announced the Federal Accountability Act providing, among other things, the appointment of a Procurement Ombudsman. The office was created through an amendment of the Department of Public Works and Government Services Act and became fully operational in May 2008 with the coming into effect of the enabling regulations.
There are four main components to the office's mandate. I will give a brief description of each. The first is to review complaints respecting the award of a contract for the acquisition of goods below the value of $25,000 and services below the value of $100,000. The second is to review any complaints respecting the administration of a contract for the acquisition of materials or services by a department regardless of the dollar value. The third is to review the practices of departments for acquiring materiel and services to assess their fairness, openness and transparency. The fourth is to ensure that an alternative dispute resolution process is provided. In addition, I may be called by the Minister of Public Works and Government Services to perform a review of a particular practice of a department.
My office operates at arm's length from government departments. My position reports to the Minister of Public Works and Government Services. In this regard, as ombudsman, I am required to submit an annual report to the minister, who, in turn, is required to table that report in Parliament.
My office has approximately 25 full-time positions with a budget of roughly $4 million. The office receives its funding through Public Works and Government Services Canada appropriation approved by the Treasury Board.
The Deputy Minister of Public Works and Government Services Canada has accountability for the management of public funds, property, human resources, as well as his role as chief accounting officer extant to my office. Having said that, my office operates independently, and I have control over the execution of our mandate and day-to-day operations.
Let me give you a brief overview of the type of work we do. Prior to the creation of my office, the procurement system was limited in providing a recourse mechanism for suppliers dealing with issues related to award of low dollar value contracts. By "low dollar value," I mean under $25,000 for goods and $100,000 for services.
At the time there was no dedicated body examining systemic procurement issues from a fairness, openness and transparency perspective. While suppliers with issues related to the award of larger dollar value contracts could go do the Canadian International Trade Tribunal, suppliers with issues concerning low dollar value contracts had three choices, none of which are very practical if you are a small businessman or woman. They could attempt to have their issue addressed by the department; they could simply swallow hard and accept the issue; or they could take legal action, which is often costly for small business. In creating the Office of the Procurement Ombudsman, the government filled the gap for these low dollar value contractors.
Since we opened our doors in 2008, we have received well over 1,500 calls, some of which are not procurement related. When it comes to the complaints that are embedded in those 1,500 calls, our role in fielding complaints is prescribed by our regulations. In order to ensure adherence to the regulations, each procurement inquiry is assessed by a team of federal procurement experts and a commercial law legal adviser. As prescribed by the regulations, I, as the ombudsman, must make a determination as to whether to review the complaint within 10 working days of the receipt of that complaint.
During those 10 working days, my office attempts to facilitate a resolution. If dialogue is unsuccessful and does not result in a withdrawal of the complaint or cancellation of the award of the contract, then I will, as the ombudsman, initiate a formal investigation and produce a report with my findings and any recommendations to the minister of the affected department, the Minister of Public Works and the complainant.
In those cases where the complaint does not meet the criteria of my regulations, with the complainant's permission, I may bring the matter to the attention of the appropriate deputy head. I do that because our interest in the process is to find a solution before the issue escalates and becomes a long, costly dispute.
I believe a testament to the success of our business model is that we have only had to initiate nine investigations since we became operational in 2008.
Another aspect of our legislation is that we have to ensure that alternative dispute resolution is made available for parties, either government or suppliers. Either party can request this process. However, they must, as prescribed by regulations, be a party to the contract at issue. In this area, my office has received a total of 21 requests for a dispute resolution process since opening our doors. We have conducted three formal processes, reached agreement using this approach on seven other requests. Seven requests were declined by either the supplier or the department, one was withdrawn and three were outside of our jurisdiction as prescribed by the regulations.
The last area of our work is practice reviews and studies. Responding to inquiries and facilitating disputes provides us an insight to the systemic issues that may be considered for detailed review. In this area, the office works independently in reviewing procurement practices of federal departments and agencies. We try to assess their fairness, openness and transparency and recommend improvements.
We have completed 12 reviews and studies since our inception, and we currently have four under way that will be published this year. We are in the process of finalizing a follow up to recommendations that were made in our 2009 reviews. I feel this is an important review since it will allow us to gauge the level of uptake of our suggested improvements by departments and agencies.
Our reviews follow the same type of process as performance audits. We use a systematic evidence-based approach, but one area where we differ from audits is that we try to identify best practices. We feel part of our role is to disseminate best practices to departments.
For the sake of brevity, I will now give you an indication of some of the challenges that I have identified since I have been in the job. One area that I am focusing on is outreach. I believe it is an undisputable fact that the office can only be effective if it is in tune with the community it was created to serve. This means that the development and execution of a concerted and sustained outreach program is instrumental. For me, 2011-12 will be a year where the office begins an ongoing process of listening to and understanding our stakeholders.
The second challenge is something I consider to be course correction. The office has been in place for three years, so our ability to make the necessary adjustments to the nature of our work in the organization will be heavily influenced by our ability to obtain a better understanding of how well the office is executing its responsibilities. In this area, we have launched a formative evaluation to assess the first three years of our operation, and we will make adjustments based on the results.
Our overarching objective during the next year is to structure and tool ourselves to meet the expectations and to fill the mandate envisioned by parliamentarians, while recognizing and respecting that the office is neither a lobbyist for suppliers nor an apologist for government.
The Chair: There may well be questions that arise from your presentation. We thank you for that.
I remind honourable senators that we are dealing with Main Estimates. On page 309 of our Main Estimates you can see the listing for Public Works and the Procurement Ombudsman. A $4,315,000 total operating budget for the coming year is what is anticipated, Mr. Brunetta. How many employees?
Mr. Brunetta: Twenty-five.
The Chair: That is basically the same budget as last year. It is almost precisely the same. Has that changed in terms of the number of employees?
Mr. Brunetta: It fluctuates between 20 and 25. As with any other organization, we have separations and promotions.
The Chair: You are going through a review now to determine whether you are able to meet the mandate and the expectations with this budget and that number of employees?
Mr. Brunetta: That is correct.
The Chair: When do you anticipate that review will be done and made available?
Mr. Brunetta: The evaluation is just being initiated, so I would expect to have that information prior to the end of the fiscal year.
I should point out that part of the Treasury Board submission that created the office has a provision for going back to the Treasury Board for additional funding for up to 40 employees if the volume coming into the office warrants it. The evaluation will help us assess that as well.
The Chair: Is that an internal review, or do you have someone from outside doing that?
Mr. Brunetta: No. My approach on the review is to have an outside firm conduct it.
Senator Nancy Ruth: I want to turn to page 8 of your deck. I am always interested in the Aboriginal set-aside. Could you tell us what that is?
Mr. Masse: I will invite my colleague Mr. Vauclair to address that question.
Mr. Vauclair: Under the trade agreements, be it NAFTA or the World Trade Organization and so on, we have an allowance for set-asides. Another agreement that you may be aware of is the Agreement on Internal Trade that allows for only Aboriginal set-asides to be established in procurements.
There are some policies, mainly with the Department of Indian Affairs, that set the guidelines in terms of how these are to be approached for particular procurements. There are committees that review procurements, say, over $2 million, to see what the opportunities are to have those set-asides established in some procurements.
Senator Nancy Ruth: Is it correct to assume that up to 10 per cent of all the contracts let by Public Works are available to Aboriginal suppliers?
Mr. Vauclair: I could not comment on that. I do not have the numbers with me.
Senator Nancy Ruth: There may be a percentage?
Mr. Vauclair: I am not sure whether it is percentage based or quota based.
Mr. Masse, would you know?
Mr. Masse: There is no quota established. For example, in our pre-negotiated instrument, we always ensure that we have some Aboriginal set-aside business available for departments to use.
Senator Nancy Ruth: Is the Agreement on Internal Trade done within Canada, or is it part of an international negotiation?
Mr. Vauclair: It is with the provinces, yes. It is led by Industry Canada.
Senator Nancy Ruth: To the ombudsman: Are there disputes from Aboriginal communities regarding this set-aside?
Mr. Brunetta: We often hear of suppliers calling the office with regard to set-asides. Unfortunately, it is outside of our mandate to pursue those disputes, so the process we use there is to bring them to the attention of the Department of Indian and Northern Affairs. I actually met with the deputy minister last week and outlined some of the issues with set-asides that we are hearing.
Senator Nancy Ruth: Are there set-asides for any other group, such as businesswomen or any other suppliers?
Mr. Masse: No. This is the only program in the set-aside business.
Mr. Vauclair: Because of the Agreement on Internal Trade, it is the only set-aside allowable, if you will.
Senator Nancy Ruth: To the ombudsman again: In the review you will be doing, how will you deal with the Auditor General's report on the helicopters?
Mr. Brunetta: The review we are doing is an internally focused review to determine whether, in the first three years of operation, we are meeting our mandate, whether there are shortcomings, and whether there are areas I should raise with the minister that need to be adjusted. It is an internally focused assessment to determine whether the mandate that was laid out for the office is actually being achieved.
Senator Nancy Ruth: That might include the report of the Auditor General in the fall of 2010. It is only a few months ago, so I am sure the department has not had much time to deal with it.
Mr. Brunetta: I expect that any firm that does the evaluation will take into consideration other issues that impact the office, yes.
The Chair: Senator Nancy Ruth raised the issue, Mr. Brunetta, of the Aboriginal set-asides, and you have indicated that unfortunately it is not within your mandate. Have you made a recommendation to the minister or to the deputy minister that your mandate might be expanded to allow you to deal with those issues?
Mr. Brunetta: Thank you for the question. At this stage it is too early in the process. I would want to have the results of the evaluation. As I mentioned in my opening remarks, I am also in the process of doing an outreach. I would like to speak to stakeholders in the supplier community. We have had cases where our office, because of the regulations, has not been able to assist suppliers. I want to speak to those suppliers to see whether there is an opportunity or a need to review the parameters that govern the office.
To answer your question, I have not done that yet. I do not believe I have the necessary information to approach the minister. You also mentioned the deputy minister. I would not approach the deputy minister. I would perhaps consult the deputy minister for advice, but I would be dealing directly with the minister. However, it is far too early to do that.
Senator Neufeld: I want to turn to page 10 of the deck, "Opportunities for Improvement." When I read those headings, it says to me that there is not much left; everything needs improvement and I guess we can always strive to be better on everything.
One of the headings says, "Government is too risk averse." Can you explain what you mean by that and how that affects the procurement process to make it cumbersome?
Mr. Masse: We are very cautious in preparing our statement of requirements or statement of work. We work with the departments to prepare those, and we basically manage the process. In managing the process, we always ensure that we are open to all suppliers.
You can appreciate that some suppliers would like us to open the statement of work in different areas, but we have to ensure we offer equal opportunity for everyone. Even though a group of suppliers would like to have flexibility in bidding, we have to ensure the integrity. It is always seen as protecting the taxpayer, and that is our role. Our role is to ensure the integrity of the process. Therefore, before changing anything in the requirement, we just want to ensure we respect those procurement principles. This is the business we are in. The mandate of the acquisitions branch is to ensure the three main principles of openness, fairness and transparency.
Senator Neufeld: Thank you for that, but it says, "Opportunities for Improvement." That is what the page says to me. It says that government is too risk averse. Tell me, what do they have to do to be less risk averse to meet that goal you set out here — not us — for your department to meet? I assume that is a goal.
Mr. Masse: We are trying to link some of our processes to the level of procurement risk. For example, in the approval of authority within the department, we have pilot projects running, which are part of the improvement. We want to link the approval to the level of risk. That will be an improvement in terms of being faster and more timely. Instead of applying the same process based on the value, it will be based on the risk. That will be a major shift in the approach. Obviously, that will lower the level of approval within the department.
That is an example. Instead of applying the same fixed system to all procurement regardless of the level of risk, we will be working on that. This is one pilot project we are proceeding with currently.
Senator Neufeld: That is great.
Tell me how long you have had these goals. I assume all of those items are goals, opportunities for improvement. How long has any one of those been a goal of your department?
Mr. Masse: We accelerated our consultation, I would say, in the last two years, but this is ongoing. We created governance for all departments, so we have committees on which people are working. You can appreciate that we can always get better, so we have had a lot of progress in the last two years.
Senator Neufeld: There has been a lot of progress made on these goals within the last couple of years.
Mr. Masse: Yes.
Senator Neufeld: I would like to take an example from the deck. For instance, you do Public Works and Government Services Canada and roads. When doing roads, there will be a contract in the Far North. I assume that will be a procurement process through your department. Someone else in Public Works will be carrying out the work on the ground, right? You just procure the equipment to do it.
When I look at page 9, box 7 says that you monitor contract progress and contractors' performance. Does that mean that the Department of Public Works, in managing this within their operation, are out there monitoring the process and the contractors' performance? Are you saying that you come along and do that as well in the procurement process? I am confused.
Mr. Masse: You will see two colours on this slide, yellow and blue. The yellow is an area where the client department requiring the goods or services is responsible. The blue is where Public Works is responsible.
When you have a mix, like box 7, a mix of blue and yellow, it is a shared responsibility. Therefore, on the ground with respect to roads, depending on the client, they could assume that responsibility. We will administer the contract, per se, but that would be a client responsibility on the ground.
In terms of real property or roads, for example, Public Works has a real property branch that will act on behalf of the client. We have cases where real property will be the technical authority on behalf of a department. That is another service we offer, but I am with the acquisition branch.
In terms of procurement and box 7, I will ensure contract administration. If someone on the ground comes back and says they need to amend the contract because in digging down they found something else, we then get involved.
Senator Neufeld: Mr. Brunetta, your office employs 25 people, and contracts are let out in the range of $14 billion a year. How do complaints come to you? Do they come from suppliers who are unhappy that they have not successfully won a contract, or do contractors who have a contract come to you if they have a disagreement with Mr. Masse and his department?
I would ask that you expand a bit on how contracts are spread across the country. I come from British Columbia, and I hear — I do not know whether it is true or not — that almost all the money is spent in Central Canada and very little in the Western provinces. That could apply to the Eastern provinces as well, but I do not live there.
Mr. Brunetta: I will start with your last question regarding the distribution of contracts across the country. Unfortunately, I am not in a position to answer that question. I think my colleagues might have a better idea of the distribution of contracts.
In terms of your first question, the types of issues that come to our attention, you are absolutely right; there are two types that we hear about consistently, and the split is roughly 75 per cent to 25 per cent. Of the calls we receive regarding contract complaints, 75 per cent have to do with contract award — the way the contract was awarded. Essentially, I will categorize them into four areas.
There are people concerned about how their particular bids were evaluated. They feel the bid they submitted was not properly evaluated or there was some issue around the evaluation and how the criteria were applied.
The second is the evaluation and selection plan, people complaining that the evaluation is too restrictive or too excessive, or the mandatory requirements are too restrictive or excessive.
The third is the procurement strategy itself, departments deciding to compete or not compete.
Finally, Mr. Masse mentioned the statement of work. That seems to be an area of particular difficulty for suppliers. This is when departments put in vague or ambiguous requirements that they cannot address through a bid.
The second area, which is roughly 25 per cent of the calls we get, is contract administration. The vast majority of these have been late payments — although they have not been as prominent as when our office first opened. As you can appreciate, our main clientele is small business, with very thin margins for profit. A 30-day payment makes a tremendous difference, versus the 90 or 120 days that it may take. We have been getting calls from businessmen saying they are not getting their money fast enough.
Senator Neufeld: Since the formation of your office, do you think there have been significant improvements in all aspects of procurement?
Mr. Brunetta: That is difficult to say. I have only been in place since January. However, when I look at the statistics that we collect as an office, one area there has been improvement is in late payments. When we first opened our doors, from what I can see from the statistics, that seemed to be one area of particular concern for business people. That seems to have slowed down considerably.
The Chair: Gentlemen, we are trying to understand the relationship between your different departments. Senator Neufeld's question raises that issue again.
Mr. Brunetta, I am looking at page 9 of Mr. Masse's document, and we were talking about block 7, which is contract administration. There is an area entitled "Resolve disputes." Is that you, or is there is a dispute resolution mechanism with the department and its supplier, and then you are the person of last resort if it cannot be worked out with the department and the supplier?
Mr. Brunetta: That is precisely the way it should operate, and I say "should" because it varies from department to department.
When we get a call regarding a dispute, our regulations require us to consider if it is a dispute regarding the terms and conditions of a contract. Our first approach is to try to ensure that the department has taken whatever steps were necessary to resolve the dispute. Our view is that disputes are best resolved between the two parties.
If, for one reason or another, the supplier is reluctant to approach the department or has attempted to resolve the issue with the department and has been unsuccessful, he can request our intervention. Our regulations require us to then put our process in place, and our process is to approach and alert the department that there is an issue that requires resolution. Our regulations require us to have both parties' agreement to the ADR process, the alternative dispute resolution process. Once we have that agreement, we are then required to present a proposal to both sides and initiate the process.
To answer your question directly, the departments are typically encouraged to try to resolve the issue internally. Not all departments have that capability. That is where our office often comes in.
Mr. Masse: I would like to touch on dispute resolution. The majority of disputes are contractual issues that are resolved at the lower end of the department. It may be simple. Sometimes it is interpreting the contract, where the supplier thinks it means a certain thing, and we have to become involved and resolve that. We also have a mechanism within Public Works to assist in dispute resolution if need be. Again, it is progressive and incremental. It always starts with the contracting officer responsible for the contract, and we have some mechanisms before it goes to OPO, for example.
Senator Gerstein: Mr. Brunetta, I believe you indicated you have been in your position since January 1 of this year.
Mr. Masse, how long you have been director general of the Services and Technology Acquisition Management Sector?
Mr. Masse: This is a recent appointment, but I have been a director general within Public Works for five years now.
Senator Gerstein: May I ask the same question of you, Mr. Vauclair?
Mr. Vauclair: Since January 2009.
Senator Gerstein: You talked about continuous improvements. There are continuous improvements; it is never ending. Let us jump forward and assume that we are about three or four years out, and we will be having a testimonial dinner for you two gentlemen. The dinner is to recognize the service that you have given to procurement and the Canadian government. Perhaps I would have the great honour of making the presentation to you, so I would come to you and say: "You have been there now for four or five years. What would you specifically want me to say about you as to what your two or three major specific improvements were in the area that you are now responsible for?" It could not just be, "We would like to recognize these gentlemen because there are have been continuous improvements."
The Chair: Mind you, we only have a half hour.
Senator Gerstein: I have only asked for two or three. I am sure there would be many more.
Mr. Vauclair: I will give an example. It is on slide 10.
Senator Gerstein: You are taking absolute ownership for yourself.
Mr. Vauclair: It is a collective.
Senator Gerstein: I understand, but you will be spearheading this. What are you looking to accomplish?
Mr. Vauclair: One of the important aspects of client services and supplier relationships in the 20th and 21st centuries is e-enabled, electronic, e-based, web-based tools. This is an area where we are doing a lot of work to improve the interface with suppliers and clients to gain efficiencies and relevance to them in procuring for their goods and services. That is an area we are working very hard at.
Senator Gerstein: Will you be able to tick that off after three years as being a substantial change from today?
Mr. Vauclair: Much of it, yes. As always, bringing these initiatives forward is dependent on resources and funding. That would be one area.
Mr. Masse: I will raise another area. I mentioned commodity management and pre-negotiated instruments. This is something that we have done for years, but in the last five years it has been enhanced drastically. I have been instrumental in this. That would be a good example. We can say that what we see in terms of instruments right now is broader in application. All departments can access them. All departments understand the business rules behind them. There has been a major shift in those instruments compared to five years ago, when clients had difficulty finding them and were saying the business rules are all different and complicated. We have made many improvements. We brought the suppliers into the picture in developing them. Consultation is something else that we have improved in this department, and we will continue to do that. We are getting into developing new supply improvements that will utilize the participation of suppliers even more in the years to come.
Senator Gerstein: Is the majority of procurement done through contracts? Do you enter into a contract with the supplier? Is that the majority of the purchasing that takes place?
Mr. Vauclair: As opposed to what?
Senator Gerstein: As opposed to an arrangement for where people are to purchase things or where you buy things. Are bids put out?
Mr. Vauclair: Do you mean whether they are solicited or directed contracts?
Senator Gerstein: Yes.
Mr. Vauclair: I believe the statistics are that 75 per cent are "competed" contracts, and the rest are "directed" contracts, for acquisitions branch and government wide.
Senator Gerstein: In the areas of integrity and openness, when something is bid, after the contract is awarded, are all the bids made public so that everyone can see that I was successful and my colleague was not?
Mr. Masse: The winner's bid is subject to access to information.
Senator Gerstein: It is subject to access to information?
Mr. Masse: Yes, and is available.
Senator Gerstein: Do the people who do not win the bid have the opportunity of see the winning bid?
Mr. Masse: Correct.
Mr. Brunetta: To clarify, I am not sure they see the winning bid. They see the winner of the process. I do not know that they see the complete bid. There is confidential information that a supplier would not want to disclose, such as his hourly rates.
Mr. Masse: Let me clarify. The bid is subject to access to information; third party information and suppliers' information. If they describe pricing or strategy in their bid that they consider confidential to the company, that company is approached before releasing any of that information. If they give the authorization to release their information, it will become public.
This is in the domain of access to information, but I know they can obtain the bid subject to the confidentiality information.
The Chair: Thank you for that clarification. I think we understand that now.
Senator Callbeck: Mr. Brunetta, you talked about your mandate, and you mentioned reviewing departments. I believe you said that you have already done 12 and no doubt you make recommendations.
Mr. Brunetta: Yes.
Senator Callbeck: Are you satisfied that departments are following through on your recommendations? Do you have any power over this, or do you just submit a report to them and if they choose to do nothing then nothing happens?
Mr. Brunetta: This is an area that the office was also curious in finding out about. The office launched a review of the acceptance of the recommendations made in the 2009 reports. That is in the process of being finalized now. While the report has not yet been finalized or published, I am required to submit that to the minister. I can tell you that early indications of our analysis are that there has been very good reception to our recommendations.
In terms of the strong-arm element of the mandate, I do not have the same powers as the Auditor General. It is not a requirement for departments to accept the recommendations.
Having said that, from what I have seen and experienced, deputy ministers take these reports very seriously. The results of our review of the 2009 recommendations support that. I have not yet seen — and I have to caution you the analysis is not quite finished — a department that has not accepted those recommendations and is either doing something about it or has done something about what we have said.
From that perspective, as a new ombudsman, it is very encouraging. It is an area that I think does not appear to have issues.
Senator Callbeck: However, the fact is that if a department chooses to ignore your recommendations they can. I suppose that is the same with all ombudsmen.
Mr. Brunetta: I cannot speak on behalf of the other ombudsmen, but that is certainly the case with our office.
Senator Callbeck: Your brief states that your office will "review any complaint respecting the award of a contract for the acquisition of goods below the value of $25,000 and services below the value of $100,000." I think you said that 75 per cent of your complaints were within that. If there is a complaint where the value is $30,000, who would review that?
Mr. Brunetta: There are avenues for suppliers; the Canadian International Trade Tribunal, for example. As I mentioned in my opening remarks, the reason for the office being created is that there was no mechanism or avenue for suppliers of contracts below those thresholds. There are avenues such as the CITT that look at complaints above that threshold.
Senator Callbeck: Living on Prince Edward Island, if I have a complaint, who do I contact?
Mr. Brunetta: I would encourage you, your constituents, to contact our office. As I mentioned in my opening remarks, we try to resolve an issue whether it is within our mandate or not. If it is above that threshold and the supplier is not aware that we are not the proper authority, we will direct them to the proper authority. I see that as our role.
Senator Callbeck: Another thing you mentioned in your mandate was the alternative dispute resolution mechanism. What role do you play in that?
Mr. Brunetta: I am not sure how to answer that question. As I mentioned earlier, if we are approached by either a supplier or a department because an issue has been raised around the administration of a contract, my regulations require me to approach the other party and suggest the ADR process be implemented. If one of the parties declines, then I have no recourse other than to try to resolve the issue through shuttle diplomacy, and we have been successful at doing that as well. However, if I am approached by either party, my regulations require me to inform the other party and try to get the parties across the table to resolve the issue.
Senator Callbeck: In your opening remarks you referred to the fact that the minister can ask you to perform other duties or functions respecting the practices of the departments. Have you been requested to do anything?
Mr. Brunetta: No. To date the reviews we have performed are all reviews of areas that my predecessor had interest or concerns in reviewing.
Senator Callbeck: How do you ensure that Public Works and Government Services is fulfilling its mandate by providing high-quality goods and services at a low cost and in a fair manner? Is that done through the reviews or are there other ways?
Mr. Brunetta: If you consider the mandate as I expressed it in my opening remarks, the only way that I could do that is through a practice review, but I have to caution you that practice reviews that I am required to perform are to focus on the fairness, openness and transparency of the process. When it comes to value and whether Public Works is achieving its objectives, that is outside of our mandate.
Senator Callbeck: Mr. Masse, a few years ago I was involved with the Prime Minister's Task Force on Women Entrepreneurs, and we went across the country from coast to coast to coast. We heard a lot of concerns from small business — because women generally operate small businesses — about the procurement process. We made many recommendations in that report. I do not want to take the time today to go through them, but could the committee have a written response to the recommendations we made? If you need a copy of that report, I would be happy to supply one.
Mr. Masse: Yes, we will look into it. As you probably know, there is an Office of Small and Medium Enterprises within Public Works. One of my colleagues was probably involved with those consultations, so I will pass along the request.
Senator Callbeck: As I remember, we found it to be very costly, complex and time consuming. Many of them were frustrated to death with the system. Therefore, I would be happy to know what has happened to the recommendations.
Mr. Masse: Very well.
Senator Marshall: Mr. Brunetta, are there restrictions on your mandate? Is your mandate restricted to purchases under a certain dollar amount or just within certain departments?
Mr. Brunetta: There are very few departments that I am not mandated to review. It is government wide.
The parameters of my mandate, as I mentioned earlier, apply to any contract award under $25,000 for goods and under $100,000 for services.
Senator Marshall: Why is there a restriction? Why are those ceilings put on the contracts? Do you know the history?
Mr. Brunetta: I do not know the history of them. I cannot answer as to why there would be ceilings on the contracts.
Senator Marshall: Your office resides in the Department of Public Works and Government Services, or are you outside of the department? I know you report to the minister.
Mr. Brunetta: The office is part of the minister's portfolio, but we are a separate entity from the Department of Public Works.
Senator Marshall: I am interested in contracts that are awarded without competition. There is a provision under the regulations — I think it might be section 6 — that if certain criteria are met, a department or organization does not have to go through a competitive process. Could I have your comments on that?
Your predecessor was concerned about the adequacy of supporting documentation in the files to support decisions. Could you elaborate on the downside of this permitted exemption? Do you know the total dollar value of those exemptions?
Mr. Brunetta: I cannot say, senator, that I know the total dollar value. Perhaps one of my colleagues has that figure.
In terms of the downside, I believe that when you run a government operation there are certain cases where a sole-source contract is warranted. With national security, for example, I think the exemptions are appropriate. There are cases where soliciting bids does not make sense for one reason or another. Having said that, as my predecessor indicated, the robustness of the justification is often an issue.
Based on what I have seen, I would not put any particular emphasis on sole-source contracts. I think the reviews that were done by the office demonstrate that the thoroughness and the adequacy of documentation of any contract can be improved.
File documentation is an issue and departments have recognized that. It appears to happen in cases where there is urgency to get the contract in place and getting the files in order is almost an afterthought. Part of it is human nature, I think. You want to get the contract in place and get the work done so that the mandate of the department is executed. Sometimes, cleaning up the files is not a priority. I am not sure that there is any untoward issue there; it is just a discipline that has to be instilled in people.
Senator Marshall: The issue with regard to the files lacking documentation is no more severe in those acquisitions that have not gone to public tender. Is that what you are saying? Mr. Masse talked earlier about the standing offer agreement. The issue with regard to inadequate documentation would be the same for standing offer agreements. Is that what you are saying?
Mr. Brunetta: Senator, you would be asking me to speculate. Unless I have done a review, I would not want to give a definitive answer. Intuitively I would say that there is probably not a lot of difference, but that is a visceral reaction to your question, not an informed one.
Senator Marshall: Based on your six months there, do you have any special concerns with regard to contracts that are awarded without going through the competitive process?
Mr. Brunetta: No, I have not seen areas of concern in that area. I want to add the word "yet," but I cannot do so because it would allude to the fact that there might be an issue.
Senator Marshall: It is still too early.
Mr. Brunetta: Yes.
Senator Marshall: What about the standing offer agreements? Have you had much exposure to those yet?
Mr. Brunetta: When you say "exposure," yes, we do get calls on standing offer agreements. There seems to be a malaise within certain communities. They restrict small companies. In both the furniture and the professional services areas, we do get calls.
Senator Marshall: Perhaps Mr. Masse can give me some idea as to the dollar value for acquisitions that have not gone through the competitive process. What percentage would that be?
Mr. Masse: In my deck, at page 4, we mention the four areas where competition may not be required: for emergency situations; where there is only one capable supplier — this is probably the most frequent one because of intellectual property: for procurement under $25,000; and where it is not in the public interest.
Senator Marshall: Would it have to meet one of those four areas?
Mr. Masse: Yes, and 75 per cent in dollar value falls under competition. We mentioned earlier that the Government of Canada procures about $19 billion each year, so about 25 per cent of that would be in one of those four categories.
Senator Marshall: What about standing offer agreements? How much of the $20 billion is a result of standing offer agreements?
Mr. Masse: Last year, $2 billion worth of our clients' procurement was done through standing offers and supply arrangements. I included pre-negotiated instruments because we have different types.
Senator Marshall: Mr. Brunetta spoke about restrictions as to what areas he could review. Are there any restrictions? For example, in the area for which you are responsible, do you work with all departments? Are there certain types of contracts that you have no involvement with or contracts over a certain dollar amount?
Mr. Masse: Not contracts over a certain dollar amount. The acquisition branch covers the whole spectrum; I do not. I am responsible for services and informatics.
Senator Marshall: Would the mandate be for all government departments? What about government agencies?
Mr. Vauclair: Under the Financial Administration Act, it is up to Schedule II — so Schedule I, Schedule I.1 and Schedule II. I do not have the exact listing in my head, but some are covered and some are not.
Senator Marshall: Why would some be covered and some not?
Mr. Vauclair: That is pursuant to legislation.
Senator Marshall: That is government policy.
Mr. Vauclair: It is the legislative framework and our mandate.
Senator Moore: Mr. Masse, on page 5 of your brief, you mentioned 14 per cent and another 80-some per cent. I do not know to what they were applied. What were those?
Mr. Masse: As I mentioned, the Government of Canada procures a total is $19 billion in goods and services. Public Works does roughly $14 billion a year of this $19 billion, which represents 84 per cent in value.
In terms of the total number of contractual documents for the Government of Canada, there are 435,000. Of those, Public Works, the acquisition branch, does roughly 60,000, which corresponds to 13 per cent. We do the bulk of the value of the contracting for the Government of Canada but not the bulk of the documents.
Senator Moore: The government spends $19 billion, and you procure $14 billion. Who expenses the other $5 billion?
Mr. Masse: Each department and agency has its own delegation. As we mentioned, the services have delegation, so they can do their own procurement. On goods, our minister delegates a certain portion, and they do their own as well.
Senator Moore: Twenty-five per cent are not competitively awarded. I think that comes to $4.75 billion. Of that portion, where do the exceptions lie? You spoke about almost $5 billion in exceptions. Where are they?
Mr. Masse: I will touch on two of them. For procurement under $25,000, a lot of the procurement is done in departments other than Public Works. According to the government contract regulations, that is an allowed exemption to competition. Much of their business under $25,000 could be done through a directed contract.
Senator Moore: What percentage would that be of the $4.75 billion?
Mr. Masse: Unfortunately, I do not have the breakdown for all four. I am sorry. I am just going by what I see of those four.
The second one is only one capable supplier. In this case, it is mostly due to intellectual property. Many examples come to mind, such as Canadarm. Once you establish a contract competitively, you have one firm that develops the technology and owns the intellectual property. Therefore, it is difficult for any follow-on contract to go to anyone else. I would say that is the bulk of the 25 per cent.
Senator Moore: There was recently a story about the government requiring that intellectual property be given up by suppliers and that that requirement is increasing. Is it a policy of your department in its procurement activities that the creator gives up his or her intellectual property?
Mr. Masse: No, the default policy of the Government of Canada is to leave the intellectual property with the contractor. In some cases, we may acquire the intellectual property. It is hard for me to say whether it has increased over the last few years, but it is something that departments can request. It is actually known at the beginning of the process; we let the industry know.
As I mentioned, we consult a lot with industry. If we consult and then say, "The intention for this one is for the government to own the intellectual property," it is up front. If suppliers have concerns, they can talk to us and we reassess. However, whenever possible, the default position is that we leave it with the industry.
Senator Moore: Why would you do that? Why would you not let the individual who creates something or has a patent maybe someday enter into contracts with other parties, governments other agencies? Why would the Government of Canada be administering the intellectual property?
Mr. Vauclair: It depends on the specific item or rights at hand. No example comes to mind, unfortunately.
Senator Moore: Mr. Brunetta, does your mandate extend to Crown corporations, federal-provincial boards, authorities or other agencies of the Crown?
Mr. Brunetta: It does for agencies but not for Crown corporations. I do not have a mandate for these intelligence type of groups because of the nature of their work.
Senator Moore: Do you have a mandate for federal-provincial authorities?
Mr. Brunetta: I do not have one for provincial authorities.
Senator Moore: Do you cover federal-provincial entities, such as the petroleum offshore boards?
Mr. Brunetta: I would have to look at the list. As my colleague mentioned, I would have to look up a schedule to answer that question directly.
Senator Moore: A situation will be coming before our Joint Committee for the Scrutiny of Regulations in which one or more of those boards are using intellectual property of the supplier without authority. Does that person go to you? To whom does he or she go? I would like to know. In this digital age, intellectual property is becoming more prevalent and more valuable to the creator. I am for the creator, so I would like to know whether you have the authority over those. Could you let us know about that?
Your mandate is up to $25,000 for what you call low value goods and up to $100,000 for services. What is the volume? I do not know whether you have a little or a lot to look at in terms of percentages and dollar values. I would like to know what that is.
The Chair: If the witness could let us know in writing, we can circulate that to all our members.
Senator Runciman: Mr. Brunetta, you talked about roughly 1,500 complaints since the formation of the office.
Mr. Brunetta: That is right.
Senator Runciman: Then you talked about only nine investigations that have been launched. What is the distinction with respect to all those other complaints that you have received? What precipitates an investigation and what is an investigation? What does that encompass?
Mr. Brunetta: The 1,500 are inquiries. It varies. It can be people calling our office because they see the word "ombudsman" and they want to know where their unemployment cheque is. Those are in that 1,500.
Of the calls that came into our office last year that were within our general mandate, 329 were contacts made with our office.
Senator Runciman: Those are legitimate.
Mr. Brunetta: That is right. Within those 329, 246 fell directly within our mandate, things that we could do something about. Of those 246, 110 were actual complaints, the balance being people wanting to know who to contact to get on a standing offer or why this process is done the way it is. Our business model is to try to assist those people. The last thing we want is for a frustrated supplier to call us and be told to go somewhere else. We try to facilitate as best we can.
Out of the 110 complaints, 81 are award contract issues and 23 are contract administration issues. When we receive those types of complaints, as I mentioned in my opening remarks, we have a team of experts and a legal adviser who look at them. Our regulations are very prescriptive, to the point where we have to get the complaint in writing, so we encourage the individual to lay out the allegations.
The complaint is then assessed by the team I mentioned. Criteria are laid out in our regulations that allow us to do the assessment and decide whether there is something we can do about this or not.
If it falls into a legitimate complaint that needs to be investigated, I have 10 days to make this happen. Within those 10 days, my office still tries to resolve the issue between the complainant and the department.
Senator Runciman: This is 10 days from receipt of complaint?
Mr. Brunetta: That is right.
If that is not successful or if the complaint, for example, is not withdrawn or dropped, then I am required to do a formal investigation. We use recognized methodology to do that investigation. We provide the allegation or allegations to the department and allow them time to respond. We then take that information and do our own assessment. Then, if it takes the formal process, I am required to submit my report to the Minister of Public Works, the minister of the affected department and the complainant.
That is the process in a nutshell. I could get into more detail, but I can see the chair giving me the eye.
Senator Runciman: I have one more question for Mr. Masse.
You provide real estate services, as you mentioned in your opening statement. For example, the DND Nortel building, would that acquisition go through you? DND gives you their requirements and then you look after acquisitions and all the other arrangements; is that the way it works?
Mr. Masse: As I mentioned, our real estate or Real Property Branch would act on behalf of the department in this case. The Department of National Defence may do their own, so they do not necessarily need to come through the real property branch. If they come through the real property branch, the acquisition branch will do the procurement for them.
Senator Runciman: I am not sure if you are familiar with this. In the real estate acquisition element, is consideration given to provincial or municipal policies? I am thinking of downtown revitalization, those kinds of issues. Is there any weighting given to that when you are making these decisions?
Mr. Masse: Unfortunately, I am not able to answer that question.
The Chair: If you could provide us with an answer in writing, that would be helpful.
Senator Runciman: If there is a disagreement with respect to real property, whether it is a lease agreement or a purchase, what is the appeal mechanism? It does not strike me as something where internal trade agreements would have a role. What is the process there if you are unhappy with a decision that has been taken?
As well, what role, if any, does a member of Parliament have or, for that matter, a senator? If an MP or senator contacts you with respect to a concern that a municipality that he or she represents may have, I would like to know if there is a policy or protocol. How do you deal with that?
The Chair: If you could let us know that in writing, it would be appreciated. At the same time, could you let us know how many employees there are in the acquisition department of Public Works and Government Services? To round out our report, it is good to know the total revenue you use each year and the total number of employees.
At page 309 of the Main Estimates, your operating budget is $300 million, but you also have a significant amount of revenue. Could you explain to us in writing the sources of that revenue, which is $153 million? We would like to know where that revenue comes from, and also an explanation as to why your net budget is going up 23 per cent this year from last year. If you could help us with that, that would round out our session.
On behalf of the Standing Senate Committee on National Finance, I would like to thank you, Mr. Brunetta, for having been with us. We wish you well in your new responsibilities as the Procurement Ombudsman, and we look forward to hearing from you with respect to the review you are conducting. Perhaps you could provide us with a copy as well.
Thank you, Mr. Masse and Mr. Vauclair, for your attendance and assistance today.
(The committee adjourned.)