INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 13, 1999

• 0904

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): Order. Pursuant to Standing Order 108(2), we are doing a study on information technology preparedness for the year 2000.

We're very pleased to welcome this morning the Canadian Federation of Independent Business, Mr. Garth Whyte, senior vice-president of national affairs. We're handing out some documentation that everyone should be receiving in a couple of moments. What I would propose, Mr. Whyte, is that you provide us with your opening statement and then we'll move to questions.

Mr. Garth Whyte (Senior Vice-President, National Affairs, Canadian Federation of Independent Business): Thank you, Madam Chair, and thank you for inviting us again to speak to you. It's a pleasure to be here.

• 0905

CFIB's president, Catherine Swift, appeared before the committee a year ago to discuss the Y2K issue and the small business preparedness for the year 2000. At that time we presented the results of CFIB's survey on year 2000 preparedness. The survey found that 97% of the 9,500 respondents said they knew about the Y2K issue. However, the concern shared by the committee members and CFIB was that only 56% of them a year ago said they had taken any formal or informal steps to ensure their firm's technology would function correctly. We also found the smaller the firm, the less action was taken.

When we asked those firms why, about 24% at that time said they didn't know enough about the issue and another 8% said they couldn't afford the cost to solve the problem. That 8% could be rolled into a 17% response who said they didn't have the time or the resources to look at the issue.

On the plus side of that survey—and I'm just setting the context—36% said they planned to look into the issue in the near future; 30% said they had new systems and therefore thought they were Y2K ready; 27% said they had no IT systems and therefore it was not an issue for them. Therefore, of those firms who had not taken steps a year ago, about 25%—about 30% for firms with zero to four employees—said they had no IT systems. Over 30% to 40% said they had new systems or were going to do something in the near future. But the problem was that about another 30% of that 43% who said they had done nothing still had no intention of doing anything, either because they did not know enough about the issue or didn't have the time or resources to look at the issue. That's about 15% of the sample population about a year ago saying they really were not going to be Y2K ready.

The committee made some recommendations to deal primarily with two issues: one, the lack of awareness among small businesses, and two, helping small businesses with the cost of upgrading their computer systems. The government responded by acting on some of those recommendations. For example, Finance Minister Martin introduced tax relief for SMEs by allowing small firms to accelerate their capital cost allowances for their computer hardware and software costs to upgrade them for Y2K readiness. This tax initiative basically stops on June 30, 1999.

I've put forward a letter that we have sent to Mr. Dhaliwal, with a copy to Minister Martin and Ministers Manley and Massé, where we recommend that they extend the tax initiative to the year 2000 to continue to encourage those firms that have not taken advantage of this incentive to take advantage of it and to keep encouraging those firms. I would suggest this is one recommendation that the committee can make. At the same time, we need a deadline to give a sense of urgency, so we appreciate that. But when the time comes, I don't think anybody wants to stand up and say there is no longer an incentive for those firms after June 30.

A lot has been done on the awareness side by business groups, by governments, and by the media. As you know, we're members of the Y2K task force. We also did a Y2K survey that was sent out, at that time, to 88,000 business members. You have before you a checklist for small business, which has been widely distributed. It's on our website. It was also used by Revenue Canada and was sent to every taxpaying business in Canada. Once the announcement was made, we did a tax relief handout that went out to all our members. Again, it's on our website and we want people to be made aware of it.

We do 3,000 small business visits a week. During every visit we bring up Y2K; we mention it, we give the checklist, and we tell them about the relief. Every time we meet with business we still run into some that don't know about the relief initiative. They know about Y2K, but it's like the Winnipeg flood; they know there's going to be a flood some day, but they're still not doing anything about it.

• 0910

We also have a very detailed Internet site, cfib.ca, where we have a list and link into the Strategis website, all the government initiatives, and other business initiatives on Y2K.

So that's where we are today and what we have done.

I believe more SMEs are prepared. Some have been pulled or pushed by their customers or suppliers and some have done it on their own. Others have bought new equipment.

I know you were presented with the Statistics Canada March 1999 survey in which they found that 87% of small businesses and 98% of medium-sized businesses have taken steps to ensure their systems will work. Now, we have to qualify it because this survey looked at firms with six or more employees, but of the 13% that haven't, 50% said it wasn't a problem for them because they don't have the technology. So now we're looking at the remaining 7% that said they plan to take steps in the future but still haven't.

I looked at our previous survey. I went through the statistics we had a year ago and compared firms with zero to four employees with firms with more than four. They're a bit slower, but they're pretty close to the six range. If 7% of those with six or more employees say they haven't done it, I would hazard a guess that it has to be in the 10% range or low teens of very small firms that haven't done it. A much higher proportion of the very small firms say it doesn't relate to them because they have no high-tech or technology, but they still have fax machines and some other things that could be looked into.

The other concern that was identified—and I'm sure the committee sees this concern—is that in some sectors, such as the primary sector, one out of five said they still have not taken steps. We've taken note of that, and we're starting now to focus on our agriculture members and our members in the primary sector, where we have quite a few members, to get the message out.

I think there's another message, and I know you also feel this way, but right now many of us are feeling Y2K burnout. When we're talking Y2K, after a while people look at you with glazed eyes and say, yes, we know about the issue. You're trying to shake people and say look, get ready. So you tend to say, oh no, not again.

But now is not the time to slow down. Now is the time to step up our campaigns, and we have. We have done a couple of things. I know each member gets this, and all of our members get it. We recently sent this out in French and English to all our members, and included in that is a year 2000 bullet telling them about the tax tip, getting the relief, accelerating, etc. We've also included our checklist. This has gone out to 94,000 business owners across the country to let them know and to tell them again.

We're also surveying every member. Unfortunately, I think the committee will have wrapped up by then, but we'll keep pushing. We're sending surveys out now. This is a draft. We're asking about the status of their Y2K compliance. We'll be able to tell by the size of firm, sector, and geographic region who's ready and who is not. Then we'll try to make another concerted effort.

We really appreciate what the committee is doing. We also appreciate what has been happening in the government. But I think now is the time to speed up our campaigns, not slow them down. I also know that the majority of businesses now feel they are ready or will be ready.

Thank you very much, Madam Chair.

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

Now we'll turn to questions

[Translation]

Mrs. Lalonde, please go ahead.

Mrs. Francine Lalonde (Mercier, BQ): Good morning, Mr. Whyte, and thank you for being here.

I read the pamphlet you handed out, and I don't see any date on it. Is it the latest one you've done?

[English]

Mr. Garth Whyte: Yes.

[Translation]

Mrs. Francine Lalonde: I read it, and I didn't see anything about the problems that could be caused by chips, particularly imbedded chips.

• 0915

According to the definitions, small and medium-sized businesses can be businesses of 50 or 100 employees or even more. Some of them are manufacturing companies, and the ones that are automated could find themselves having trouble with their production system. I don't think you mentioned that in your report. Am I mistaken, or have you covered this problem in some other way?

[English]

Mr. Garth Whyte: In the checklist we ask, do you have a Y2K problem? Then they go down the list. I don't know which handout we're looking at. Is it this one here, the checklist used by Revenue Canada? Is that the one you're referring to? At the very beginning—

[Translation]

Mrs. Francine Lalonde: I'm talking about taking stock of the technological problems of small businesses.

[English]

The Chair: It just looks different because it's the French one and so it's longer.

Mr. Garth Whyte: There are so many different problems we couldn't anticipate, so we just said, do you have a computer, fax machine, telephone, cell phone, register, or time clocks; do you have computer networks; do you use computerized production equipment or machinery; do you have automated burglar or fire alarms, sprinkler systems, or lighting systems; do you have computerized building access control? If yes, then you may have a problem. So we try to cover it off that way without being too specific.

I should mention that we have a phone service for members, and we get about 10,000 calls per year and our research centre gets about another 10,000. Some of them have been on Y2K. We refer them to more detailed articles on our website. I've listed some, and I'll give you a copy. Of course, we link into Strategis, which again has a whole bunch of issues and a chat centre on specific problems. Then it links into consultants. So as each sector or business gets into their specific problems, they should look at it.

As far as mid-sized firms are concerned, we're fairly confident that virtually all of them will be ready by the year 2000. Many have already taken steps and have been developing formal plans. It's the smaller ones we're still concerned about.

[Translation]

Mrs. Francine Lalonde: I see. I should know this figure, but what percentage of small businesses are manufacturers?

[English]

Mr. Garth Whyte: I would have a hard time. I don't have it off the top of my head either. Sorry.

[Translation]

Mrs. Francine Lalonde: I see. So, you don't know whether they are more—

[English]

Mr. Garth Whyte: I would say 10% to 15%.

[Translation]

Mrs. Francine Lalonde: —or less prepared than the others. Thank you.

You suggest that the committee recommend to the Minister of Finance that he extend the accelerated capital cost allowance for replacing equipment until next year. You must understand that we had made that recommendation for June because we wanted to encourage companies to move quickly. I now think that logic tells us not to penalize those companies that do so on time. The committee certainly will agree, following that same logic, to make the same recommendation in the hope that the recommendation made previously did help companies adapt. Have you received any feedback on that assistance?

[English]

Mr. Garth Whyte: That is a very good comment. We agreed with the June deadline because you want to have a sense of urgency and get people moving quicker. But, as you know, inevitably there will be some who don't, and there are others who have been making changes but who did not realize that there's some sort of relief out there. We found that whether it's the simplified input tax credit, the new hires program, or some of the other initiatives governments have put forward, even when it puts money into people's pockets it takes them up to two years to understand that there's something out there, as incredible as that sounds. So we're trying to inform as many people as possible.

I don't think anybody wants to stand up on July 1 and say, we no longer have an initiative for firms to get ready for the year 2000. So I think that's what our recommendation is. I think we should keep pushing that. I think politically it would be a problem too.

[Translation]

The Chair: Thank you, Mrs. Lalonde.

[English]

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

• 0920

Mr. Whyte, I appreciate your straightforwardness. I have a problem with businesses not getting the message. I work very hard in my region with small business. We had two small business seminars strictly on Y2K and 400 businesses attended. We've sent letters to every SME, we've mentioned it in every householder, and we've mentioned there's an expiry date. My concern in delaying that or extending it is it will be extended until the end of October, extended to the end of December, extended to the year 2000, because there will be many businesses that didn't do their work, went to their manual systems or back-up systems, and then want to start doing it in the following year. So I could see you coming back and saying, now extend it to the mid-year 2000.

If we're going to try to get people to hit deadline dates, when we issue an item like the Y2K...the deadline date is not moving. Are we doing a service to our small businesses by extending it? The future messages will be, well, we'll get it extended.

Mr. Garth Whyte: This is what we've done in the past. I agree that we want to have a sense of urgency and we agree there should have been a deadline. My concern is if the numbers are still showing there may be about 10% who aren't prepared, or still aren't even thinking about it, even though they know about it....

It's true, I think, after the year 2000 there shouldn't be, but if you upgraded your system before the year 2000, I think you should. There are lots of examples where you have. For example, there was a problem with your T4s. It wasn't small business's problem. There were a lot of concerns, but at the same time the revenue department didn't want to let people think they could have an extension on submitting their T4s because there was a shortage of T4s. They waited until the day and said, okay, now no one will be penalized because you don't have your T4. I think we have to look at the goal, not at the tool, and the goal is to get as many people Y2K ready as possible.

I think it's been a good initiative. Our experience has shown year after year after year, when there are excellent initiatives like this and then you do excellent town hall meetings.... And you've met with 800, you said, or whatever, a couple of thousand—we've gone out to 94,000. Even among our own membership there will be people who are saying it's a surprise; they don't know about it. Even among the professions they'll still say it. I know that's hard to believe, but it's what happens. We're just saying it's something you should seriously consider.

We think also it will be difficult for us collectively to stand up on July 1 and say, sorry, there's no initiative now for those who want to get ready. I'm just putting that on the table.

Mr. Walt Lastewka: I understand the catch-22 you're in and we're all in. In terms of the 7% or 10% of businesses, let's say, you're talking about, my concern is that those 10% are there all the time. We're now penalizing the people who took advantage of it, got down and did their work, got it over with, in order to be able to get our numbers up. I wanted to share that with you because I have a concern that when you as an association send information out to your businesses, first, you would hope they would read it, and second, if you gave them a sense of urgency on something, that they would apply it, rather than take the attitude, don't worry, the association will get it delayed.

Mr. Garth Whyte: As a matter of fact, this is the first time we've mentioned it. You haven't seen any press conference or anything from us on this. We've been trying to push that sense of urgency. You're looking for recommendations. I would tell you through experience on excellent things, on the ice storm relief, that there have been extensions. There will be a lot of people who have done it but haven't taken advantage of the relief, either because they didn't know about it...not because they have any intention of waiting things out. We think it's a mistake to wait. We think you should be working on it now.

• 0925

Mr. Walt Lastewka: Of the people who haven't got ready for Y2K or haven't taken advantage of the accelerated write-off, can you give us some information on what types of businesses those are? Are they businesses that are not sure whether they're going to be surviving in the future and therefore don't want to do investments? Do you have any sense of what type of businesses they are so we can focus on those businesses?

Mr. Garth Whyte: Our survey will give you better information. I don't have it. But a lot of firms are saying they're going to buy new equipment and they're waiting. There are a lot of firms that really still believe they're not going to be affected by Y2K. And I have to refer to the Stats Canada report if we're going to pull out sectors. They've identified the primary sector as one of those areas we have to get to. I would also say those firms that are less involved on the Internet, where maybe we can pull out some information, would be less in the loop on technology. There are also a lot of firms that are depending on their IT advisers. But again, being the optimist, I think by and large most firms have, and I think the concern now is for their own well-being rather than outside. I think a lot of them that impact on other people are ready. I think it's more the self-employed or people for whom if there's a problem it will be within their own firm...not outside.

Mr. Walt Lastewka: We've heard testimony in the last couple of days in regard to sectors even in large corporations or large associations, that those who decided, after their total investigation and so forth, and maybe procrastinated and then all of a sudden decided to replace, are the ones who are missing all the dates now by at least two or three months. The software resources aren't there and the hardware the way they want it is not there, and as a result they're now missing dates by two or three months.

Mr. Garth Whyte: That's correct. And it's going to get worse as time progresses. Also, there's been a little bit of a hit to the software industry by those who would normally, on a regular basis, upgrade their software. They're saying, okay, let's not worry about it until after the year 2000. There's going to be a rush then as well.

Mr. Walt Lastewka: Thank you.

The Chair: Thank you, Mr. Lastewka.

Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you, Madam Chairman.

Thank you, Mr. Whyte, for your presentation. I think the CFIB has earned congratulations just by the fact that you've been working so hard with these types of information outputs, ensuring that businesses have the ability to go on the Internet and hook into CFIB to get the information they need, etc.

I too am troubled with this business of the extension of the tax advantage, and I hear your bottom line when you say, sorry, there's no initiative. That's what you have to tell business if you take away the tax on June 30: sorry, there's no more initiative. But I suppose the only initiative that remains is the one that cuts to the very heart of what business is all about, and that's competition. So now the one business that is ready, that has taken steps, that has taken advantage of the program to June 30 and is there, can stand up and say, “You can trust us. We have supply. There will be no interruption. It's environmentally compliant. We are the safest business to do business with.” Those are pretty strong initiatives when it comes to a business deciding whether or not it's going to get tax relief or not.

I don't think tax relief is going to help put them on their feet. We set a deadline. The deadline I think should stay there. If they didn't take advantage of that deadline, with all the information the CFIB presented and provided, with the Internet information, with the information the ministers, this government, this committee have provided on this thing...let's face it, you can lead a horse to water, but you can't make it drink. If these businesses didn't want to drink, then we should just say, next. I think they have to fall back, and I think the messaging is important by the CFIB, by government, and by anyone else, that now we move to the initiative that says you are going to be better than the same guy next door who's in the same business as you are because you're ready and he or she is not.

Mr. Garth Whyte: Right.

Mr. Stan Keyes: I think that's the initiative we have to move to.

Mr. Garth Whyte: Can I comment on that?

Mr. Stan Keyes: Sure, please.

• 0930

Mr. Garth Whyte: First off, of those that were going to impact on other people, those with environmental concerns or suppliers' concerns, we're fairly confident they're ready. Our concern is those who are thinking internally and looking inward, and they don't really impact on a lot of people outside, but they do employ people.

I remember looking at the discussion of the committee a year ago, and one of the concerns was a rash of bankruptcies that could happen. So instead of worrying about just what's going to happen outside and whether I'm a good corporate citizen, or I'm a good citizen, what's going to happen to those firms? We think people know who we are. We pretty well think people know the CFIB now. There was a day when they didn't and we had to elbow our way to the table. But people now know who the Canadian Federation of Independent Business is.

We still do visits and people say, how come you didn't contact me sooner; I would have joined? We run into that every day. We have almost 200 sales people, and I call them, and they're in, day in, day out, doing these visits. If this initiative dries up—and, by the way, we're the ones who said put a deadline on it; we're the ones who said let's keep this thing going—are we collectively going to say on July 1 to our sales people not to even mention that any more, or not to mention the Y2K? We're going to dry up our awareness? We think we should increase the awareness. We think we should increase the incentives and inducements to get those firms to go, because there are a lot of firms that are still out there, saying, I didn't realize I should drink water. And we think there can be some more firms that will drink water leading up to the year 2000.

That's, again, the thinking that happened with the ice storm initiative, where there was an extension on the T4, where there was an extension on the new hires program, because we found that people had done it but they hadn't taken advantage of it. If it's seen in that light, if this isn't seen as a victory for CFIB or some way whereby we get the government moving ahead...I'm just trying to put forward here, how do we get that extra 10%?

Mr. Stan Keyes: Yes. I can appreciate that, but the fact of the matter is that—

Mr. Garth Whyte: That's what we're trying to say.

Mr. Stan Keyes: —in drawing the comparison to the ice storm or any other kind of natural disaster, any of that kind of thing, those things are not predicted. There was no advance warning. It happens. We work at helping people. We see how in terms of time, paperwork, bureaucracy, for whatever reasons, it can't be accomplished in time, so there's an extension.

But people knew this program was coming years in advance. The pressure was on two years in advance. The pressure was on a year in advance. The pressure was on right up until June 30, and still businesses say, I didn't know about it. You know what? I have a problem believing that, and I have a problem with extending a deadline for something on a business on the premise that if we don't do this and we don't extend it they might go bankrupt. I dare say that those same kinds of businesses that don't do this kind of work and do the prep time...if they're not bankrupt because of a tax break they get on Y2K, they're probably going to be bankrupt for some other reasons.

Mr. Garth Whyte: But that's not the point. It's not going to make or break a business; it's can we induce those...? I think everything should be done—

Mr. Stan Keyes: I think you've done a great job with—

Mr. Garth Whyte: —and maybe we shouldn't have a committee because they're all going to be ready June 30, but I don't think everybody's going to be. So how do we induce those others to do it? That's what this is about, this tax break.

Mr. Stan Keyes: We'll agree to disagree on that one, but—

The Chair: Thank you, Mr. Keyes.

Mr. Stan Keyes: I have one more quick one. In all the businesses you work with, many of which are involved in direct safety or in environmental issues, etc., do you have a breakdown of those businesses more specifically that are ready or not ready as opposed to the whole package, where the person with the fax machine's got to get their date right?

Mr. Garth Whyte: In a previous survey we did, but that was a year ago, and we're currently surveying to be able to break that out. However, we're fairly confident that those with public responsibility are much higher in preparedness than those that are looking internally. And I would say that with fair confidence.

Mr. Stan Keyes: If you get any numbers between now and then we'd sure like to see them.

Mr. Garth Whyte: Yes, we'll validate that.

Mr. Stan Keyes: Thank you very much, Mr. Whyte.

Thank you, Madam Chair.

The Chair: Thank you, Mr. Keyes.

Mr. Bellemare, please.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Merci madame.

Mr. Whyte, both your reports are excellent. You have done your work. You've done your job and done it very well.

In item number 7 in the year 2000 technology checklist that you've prepared, you point out suppliers and customers. I have a feeling that the 10% who are not prepared have become now the vulnerable, have become now the potential bankruptcies, have become the businesses that I would not want to do business with. If I know of a firm, for example, a plumbing shop or an electrical shop, that is in that 10%, I'm writing them off my list as a group I would call to fix anything in my home or business. I think that's the incentive you have to project to them.

• 0935

Extending dates on which government gives a handout or a break.... We're helping out in catastrophes. We're helping out people who are going to improve the economy and employment, not people who are playing Gulliver in Gulliver's Travels, who are sleeping for years on end and business comes their way practically by accident.

I don't know how many times you communicate with those who bothered to become members of your association, but are you going to write to them and tell them that this committee is concerned about those who are unprepared, that we feel they're going to go bankrupt? Their problems will be not just internal, but one of confidence that their suppliers will stop taking risks with them, and then the people who purchase items from them will really start to worry and, as my colleague Mr. Keyes said, you'll go elsewhere and buy and do business with a business group that is on the ball, that is swift and is ready. It impacts. There is a chain reaction—

The Chair: In the interests of time, I'll have to ask you to ask your question, please.

Mr. Eugène Bellemare: The question was already in my presentation.

Will you advise them that this committee is concerned about the supply chain vulnerability? As far as extension of government relief goes, that's out; they have to wake up.

Mr. Garth Whyte: First off, I see this committee as an ally, and so we won't be doing anything to pit ourselves against the committee. We'll work together on this Y2K.

Secondly, we will be communicating a sense of urgency and will tell them the implications. We've been doing that, and we're going to keep doing it right up until the year 2000. We won't stop on June 30; we're going to keep rolling on this thing.

But there's a point I want to make. I'm bringing this forward more on a policy issue. You've made an inherent assumption. The inherent assumption is that we're only dealing with businesses that were in existence a year ago when we surveyed them, that were in existence months ago.

In our research and our experience—and I have quite a bit of experience, 15 years in this business, living and breathing small business. Some people would say I should get a life, but anyway. In a five-year period, 50% of the new jobs come from firms that were not in existence five years before. How are we going to deal with the firms that started January 1, 1999, or were just created today? We haven't had time to get to these people, and there are thousands.

The whole idea in our job study, of which we should give the committee an example, is that there's a churning in the business. The very fact that you use the example, let them go bankrupt.... Look, we agree that one of the things about being an entrepreneur is the ability to fail—it's happening all the time, and it's going to happen—but when they fail, there are new firms that come forward. New firms have come forward this year. To those firms that haven't been thinking about Y2K but decided to start up a business, whether it's youth—we've had youth programs that you've put forward to try to help them start up business—or whether it's some other particular group that started up with the initiatives you're using, that started up this year and may not even have thought about Y2K, or that bought a business that maybe someone didn't get Y2K-ready, are you going to say, I'm sorry, you should have known about this before you bought your business? They don't even know they're supposed to register a business licence or a permit.

So there's a whole group out there. I'm just stating another option here. A lot don't; a lot are phoning us all the time asking, when I start a business, what do I need? How do I start it up? We're trying to tell them, but trust me, not everyone who starts a business has been calling the CFIB, nor have they been calling the government to ask about Y2K. If nothing else, that's another compelling reason why you should extend the deadline.

The Chair: Thank you, Mr. Bellemare.

I see three questioners on my list: Madame Lalonde, Ms. Jennings, and Mrs. Barnes.

Madame Lalonde.

• 0940

[Translation]

Mrs. Francine Lalonde: I'm going to continue this discussion, because I'm surprised by the harsh remarks made by my colleagues opposite. Initially, it was normal to offer the assistance until June so as to encourage all the companies that could to take action. Just as we tried previously to encourage companies, I think we have to realize that the companies that have not yet made the adjustments, according to your own remarks and the statistics we have, are not just the most difficult companies to reach, but also the companies with the greatest financing problems.

We mustn't forget that this measure is not a loan. It's a tax deduction, but you have to be able to incur the expenditure. It seems to me that the companies that have not yet spent the money will be to some extent the most vulnerable and the most in danger. Since this committee also is responsible for small business lending, once it considers all the difficulties of the smallest, newest and most vulnerable small businesses, the committee will understand that we mustn't leave them all alone in the dark after June 30th.

At present, a questionnaire has been sent to all your members. All the companies that you reach—let's assume that you don't reach all small businesses—are your members, and that's already a large number, but should an additional effort be made to reach all the other companies, the ones that do not belong to your federation?

[English]

Mr. Garth Whyte: As I said in my opening comments, I guess we all feel Y2K fatigue, because we've been in the front lines, especially this committee, pushing and pushing. For us—

[Translation]

Mrs. Francine Lalonde: But isn't that the problem? Haven't we gotten used to all that?

[English]

Mr. Garth Whyte: Yes, that's right. We hear it every day. Come on, you mean you're not watching CPAC today and you're not going to hear about this? What's wrong with you? Well, what's wrong is that a lot of people are trying to make a living.

I talked to someone yesterday. She has a thriving business. I said “Are you going to get Y2K ready?” She said “Oh, my husband is in the IT business. I know all about this. Yes, I am. It's no problem.” And so on. I said “Did you know about the tax relief?” She said “No, I didn't.” I said “How come?” She said “I just didn't know about it; I've been too busy.” I said “We sent it to you.” She said “Yes, I know; I guess I didn't read it.”

But, you know, there are things we send you that we think are very important and you may not read them.

Mr. Walt Lastewka: Not us.

The Chair: Order.

Mr. Garth Whyte: My point is, look, rather than again hit on this one thing, how do we collectively work together to get those other new businesses, young businesses, thriving new businesses that haven't been Y2K ready...? And shame on them, but how do we continue to encourage them to become Y2K-ready, right up to the last day, not just June 30?

[Translation]

The Chair: Thank you, Ms. Lalonde.

[English]

Madam Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): I'm going to continue the debate. I do agree with you that the June 30 deadline should be extended. At the same time, though, I think those firms that have taken advantage of the Y2K fiscal relief that has been offered by the government, the small and medium-sized businesses, should have that advantage in the sense that they took advantage of it.

For those who have been start-ups or whatever, I think perhaps the tax relief, the capital cost allowance between June 30 and December 31, may be reduced. The acceleration may be reduced. So rather than having 100% deductible in the year of acquisition, with the accelerated CCA, for July it drops a certain amount, for August it drops an amount—something like that. So by the end of the year, if you wait until December, your advantage may only be an additional 10% accelerated. I think that would allow your sales force to continue to raise the issue and to press upon the SMEs that have not as yet taken advantage of it, either because they didn't know about it, they didn't have time—like the friend you were talking about, even though she got the literature—or they're start-ups and they're not at that point yet. It'll impress upon them the urgency of taking advantage of it if they wish to have that fiscal benefit. That's one. What do you think of that?

• 0945

Mr. Garth Whyte: I think that's what we need to do. We have to look at creative ways to encourage those groups that haven't prepared. As you pointed out, we need to identify who they are, and then we have to target that area, whether it's new firms, young firms, or in the primary sector, and then we need to do a kind of blitz, not just on the relief but on awareness, to make that final link.

You're right, you can only do so much. You can only say “Quit living on the banks, the flood's coming, the flood's coming.” You can only say that so many times. But we need to come up with some creative, targeted approaches. We've done it in the past, and I guess we would be open to that.

The Chair: Thank you, Madam Jennings.

Mrs. Barnes.

Mrs. Sue Barnes (London West, Lib.): Thank you. And thank you for all your work. I think you've done great work.

I come from a small business background where there were less than 10 employees, and I know I spent all of my time making my business work and not very much time reading other mail that I didn't think was directly on target to me. So I really can understand the 10% that might be out there.

I like the idea of some penalty, but I'm not sure it has to be immediate. I could see taking Madam Jennings' idea and maybe making it start sometime around August.

I suggest this because one of the things you do as a small business, if you've got equipment that works and you know you have to replace it, recognizing that IT moves along so fast, you want to buy it closer to the date you actually need it. Six months is a long time in information technology and computer equipment, and you always want to move in that latest direction. I believe there could be businesses out there that think they can get a tax break, know they have to buy new equipment, but don't really want to do it a year in advance and might be waiting a little bit.

Is that something you think that part of that population could be doing?

Mr. Garth Whyte: Thanks very much for the interjection. You're absolutely right. It's a cashflow issue—yes, a cashflow issue. Also, there's another group that has upgraded who don't know about the initiative. They've gone ahead and done it anyway and they still don't know about it. I would say 50% of them don't know. I'd be interested to have the Department of Finance come forward and show us what the take-up is already. I think that's an important initiative to look at as well.

I think we need to look at this. At the same time, I don't think we need to—you're right—wave the flag and say there's going to be an extension. I think we have to keep pushing the urgency, but I don't think we should just drop it on June 30. Thank you.

Mrs. Sue Barnes: Just like everything else in life, it's the last part of any goal that is the hardest. But, quite frankly, they're certainly worthwhile trying to gather in and not just be let out to pasture. So I really appreciate everybody's comments here. Thank you.

Mr. Garth Whyte: Thank you.

The Chair: Mr. Whyte, I want to thank you on behalf of the committee for joining us today. We look forward to reading your survey results. Although we will be finished with our hearings, for this round anyhow, by the time they come in, we do look forward to seeing what they have to say. We hope you'll reach those small businesses that haven't taken action, and we'll grapple with the difficult decision of how to ensure that those businesses that have taken action are properly rewarded, and that we don't reward those that haven't.

I don't know what the answer's going to be, but we do definitely appreciate your comments and your discussion today. Thank you very much.

Mr. Garth Whyte. Thank you.

The Chair: We are now going to change witnesses, so we're going to suspend for about 60 seconds only.

• 0950

• 0953

The Chair: I call the meeting back to order.

I'm very pleased to welcome the next two groups. We have the Federation of Canadian Municipalities, Mr. James Knight, the executive director, and from the Canadian Water and Wastewater Association, Mr. Duncan Ellison, the executive director.

I want to warn members that there is a possibility of a vote at some time during this session. I therefore ask everyone to be as diligent and efficient as possible with their questions and try not to have long preambles, if that's possible. But first we're going to hear from our witnesses, and I propose we hear both of their opening statements first, then we'll move to questions.

Mr. Knight, are you ready?

Mr. James W. Knight (Executive Director, Federation of Canadian Municipalities): Thank you, Chair.

I'm pleased to be joined by Mr. Joseph Dion of our staff, our director of policy and public affairs, who has been heavily involved in this matter. We're pleased to be back before the committee. We were with you a few months ago, so this is our second appearance.

We will briefly note that FCM has been recognized since 1937 as the national voice of municipal governments in Canada. We are an association dedicated to improving the quality of life in Canadian communities, and members include the largest cities, small urban and rural communities, and all provincial and territorial municipal associations. Our municipal leaders from all parts of Canada meet quarterly at our board meetings and annually at a large annual conference, which is about to take place.

On December 8 we appeared before you to speak on the preparedness of communities in Canada and to made the following points. In general, we stressed that our individual members had already taken the appropriate measures to be prepared. Specifically, we noted that FCM had communicated the Y2K issue to our membership vigorously throughout 1997 and 1998, and we did not foresee enormous problems in our sector, from the information we had. All major cities in Canada, as responsible corporations, had allocated significant resources to the problem and were confident that the problem was well in hand.

• 0955

Small and rural municipalities had done less preparation but were not as dependent on complex systems as were large urban centres. Finally, we considered the issue to be a potential problem and will continue to monitor the matter, survey our membership further, and bring any problems to the attention of appropriate authorities.

We've been very active on this file since December 1998. Much has been done by FCM, by your committee, and by other groups. The work has been documented in the media and by Statistics Canada quite recently.

We would like to review very briefly what FCM has done and what Statistics Canada has recently reported in respect of our sector.

The confidence expressed by most of our members was well founded. FCM has been proactive in providing assistance to those members, mostly smaller municipalities, that did not feel prepared.

Specifically, we have participated in the Canadian Infrastructure Business Continuity Planning Symposium. This is an ongoing event of a group of eight national associations, including the banking, petroleum, gas, electricity, and telecom sectors, as well as government representatives, that has met regularly to exchange information on readiness and to coordinate our communications to reassure the population.

We have distributed Y2K information to our municipal membership and beyond, with support from a variety of partners, including the Government of Canada and the private sector, and we have surveyed not only our membership but the broader population of 4,200 municipalities in Canada on Y2K preparedness. That is every Canadian municipal corporation. Results have been received and tabulated and are currently being analysed.

We initially surveyed 990 municipalities comprising 90% of Canada's population. This represents primarily our membership group.

Preliminary analyses of our survey have highlighted the following points. Y2K action plans, including inventory and assessment of all systems, were reported in place in 83% of responding municipalities. Overall readiness for year 2000 by December 31, 1999 was indicated by 94% of respondents.

A small but substantial portion of each of the municipal mission-critical systems was ready by December 1998—that is last December. However, in answer to when key partners would be ready, there were two areas of slightly different results: 911 service stood out, with 81 of the respondents planning to be ready only by December of 1999, which is rather late; and a significant number of social housing, public health, buildings and planning services had their partners not ready until December 1999.

Testing of mission-critical systems was planned or had been completed by 78% of responding municipal governments. Contingency planning for Y2K-related incidents was relatively high, at 79% for Canada as a whole.

The survey itself raised the level of Y2K awareness in the municipal sector. Some municipal governments had not considered the need to ensure that their key suppliers and partners were Y2K compliant and became aware as a result of this work.

We are certain, of course, that you are aware of the results of the Statistics Canada national survey on preparedness released a few days ago. The following points touch upon municipal readiness. Critical systems for ambulance, fire, and police services in large municipalities with populations of over 25,000, collectively comprising 62% of the Canadian population, have been prepared. Critical systems for police services are expected to be completed in 92% of large communities no later than October. The figure for ambulance and fire is 94%.

• 1000

Systems critical to water systems are to be ready by the end of October in 92% of large municipalities, and in the case of sewage systems, the figure is 98%. You'll hear much more on this from the Canadian Water and Wastewater Association and Duncan Ellison.

Readiness appears to be at the lowest level in fire services. It is noted that the readiness of critical systems by the end of December is expected to be 88% for medium-sized municipalities and 74% for small municipalities of population 1,000 to 5,000. Indeed, I can state emphatically that it is in the very small communities that readiness in this sector is at the lowest level. It's still relatively high, but lower than other indicators.

The Statistics Canada survey confirmed what we have been hearing from our members individually and through our surveys.

So in conclusion, the message we bring today is largely the same as what we said last December. Our membership, comprising independent and often very large corporations, has worked diligently to prepare for Y2K, has committed significant resources to addressing the potential problems, and in general expresses confidence that they will be prepared. Our experience with the Canadian Infrastructure Business Continuity Planning Symposium gives us a similar degree of confidence.

We reiterate the areas of concern raised by our surveys and others. It has been noted above that some emergency services, particularly fire and 911, are reporting they may not be 100% prepared by the end of December in medium and particularly in very small municipalities. We will therefore focus on these areas in future communications with municipal governments.

FCM will be doing all it can to keep these areas of concern before our membership, especially those areas that are under their direct control and for which they are responsible. We continue our communications effort at our annual conference in a few weeks, when results of our comprehensive survey of all 4,200 municipal governments will be delivered. In addition, we will continue to raise concerns in our magazine and through members' advisories when appropriate.

We hope this update is useful for the committee.

I want to conclude by reading from your report:

Canadians can likely expect that essential services such as electrical power and communications will not be interrupted. Nor are there likely to be major problems with the financial services, transportation sectors, and most essential public services that make up the infrastructure on which society and the economy depend.

Thank you very much.

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

I'm now going to turn to Mr. Duncan Ellison from the Canadian Water and Wastewater Association.

Mr. T. Duncan Ellison (Executive Director, Canadian Water and Wastewater Association): Thank you, Madam Chair.

The Canadian Water and Wastewater Association represents, directly or indirectly, all municipal water and waste water systems in Canada and their private sector suppliers of products and services.

In December, we pointed out to you that several of our major members, the Ontario Clean Water Agency, for example, represent a vast array of different municipalities—sizes and state of the art—and that they represent a fair cross-section of what we were seeing.

The majority of municipalities in the water and waste water area are going through a five-stage assessment process of awareness, assessment, validation of systems, planning, and the implementation phase.

We were encouraged to conduct an awareness program, which we have done, and we have been aware that there have been other national surveys by Statistics Canada and FCM, for example, in determining what the state of readiness was. Rather than overlap these things, we have agreed to assist particularly the National Defence contingency planning group and Environment Canada, which is working with them, to identify the critical systems within water and waste water agencies that may cause problems.

I will not dwell upon the results of the Statistics Canada surveys, although they are included in the written report I have provided to you. I prefer instead to conclude commentary on that, which is that the Statistics Canada survey supports CWWA's own assessment that all large utilities have teams in place to identify and resolve Y2K problems and are confident that critical systems will be Y2K compliant before year-end. They also show that almost all municipalities have at least considered Y2K and have determined whether or not they have critical systems to be concerned with. Those that have not considered this in all probability have systems that are non-critical systems.

• 1005

To discuss some of the critical systems that exist, they fall into two categories: internal and external systems. By far the most critical internal system is the so-called supervisory control and data acquisition—SCADA—system, which is a computer with a graphical user interface designed to give the operators the ability to control, monitor, and collect data on machinery and processes.

SCADA system problems fall into three categories. One is hardware. Is the computer on which the system is mounted Y2K compliant? Another is software. Is the SCADA software itself Y2K compliant? The third is operating systems. Is the operating system—DOS, Windows, etc.—Y2K compliant? The first and the third problems are relatively easy to fix. It is the second that poses problems. Fortunately the majority of SCADA systems that are in use in Canada are produced by three software firms, and although there are unique elements in each SCADA installation, the core components of the systems are common, at least within the individual manufacturers. Incredibly, though, even SCADA systems purchased in early 1998 have been found to be non-compliant. However, the solutions for these systems are at hand and are expected to be implemented before the end of 1999, as the Statistics Canada survey indicates.

The Ontario Clean Water Agency, which operates more than 400 systems in Ontario, indicates that SCADA problems could individually require up to $5,000 for hardware and operating system fixes, and from $60,000 to $200,000 for SCADA system software fixes with full software installation and testing. It should not be forgotten, though, that there is also the opportunity to set the clock back on the systems, with full testing, of course, as an interim alternative solution.

Other internal system problems relate mainly to operator training and the primary contingency plan of returning the system to manual control. Many system operators have never been trained to operate under manual control conditions, since most systems have some degree of automatic operation with system backups and redundancies being in place. As part of the contingency planning process, where need be, system operators are being retrained to manual control conditions.

Other internal problems relate to system operation, making sure that water reserves and storage facilities are fully charged prior to midnight December 31 and that waste water systems have been discharged to the maximum degree possible. Most water utility systems have about two days of treated water supply in storage systems at all times, and many could have sufficient treated water on hand to meet as many as seven or more days of typical mid-winter demand if they fully charged their storage facilities and if provincial or backup power is available to operate the pumping systems. Any prolonged failure of the provincial power grid will result in a sharp decrease in demand for water and extend the use of such stored water.

Finally, it should be noted that all manned systems have planned and pre-approved authorities to go to full staffing during the critical millennium change period instead of following the skeleton staffing levels normally applied during the New Year's holiday period.

The primary external problem for any water or waste water system is the electrical power grid. The secondary external problem, especially for those operating SCADA systems, is the telephone grid.

• 1010

There is some variation in the availability of backup power generators. While most systems have backup power generators, this is not necessarily true even for some of the larger cities. In these cases the provincial power supply companies are providing priority to these customers. Where there are generators, they are mainly installed and used to keep water and waste water systems operating in the face of short-term electrical power outages and are not intended to function on a prolonged basis.

There are some exceptions to this. Some cities have continuous-use generators that are used daily to shave peak power demand to the provincial power group grid at considerable cost savings. In many cases, generators normally have only 24 hours of fuel supply on-site, a situation that can be remedied, and there are contingency plans to draw fuel from, for example, city bus service stocks.

While the generators are normally intended only for 12 to 24 hours of sustained use, they can run for longer periods if necessary, but probably not for seven or more days without some downtime for maintenance.

Another aspect of the power backup issue is that the generators were never intended, and cannot provide sufficient power, to operate the full plant. For example, while they may operate lights, controls, and process pumps, there is rarely sufficient power to operate back-flush systems, which may be operated once every 7 to 14 days. Nor are these generators intended to heat the buildings. In some extreme weather conditions or areas, prolonged loss of power from provincial power grids could result in unsustainable temperature drops in water and waste water system buildings.

It should be noted that this did not occur in any of the water treatment plants subjected to the January 1998 ice storm event, but remains a possibility.

The Chair: Mr. Ellison, can I just ask you to summarize in a couple of minutes. We're going to run out of time before we get to questions.

Mr. Duncan Ellison: Certainly. The view of the members of the board of directors of CWWA is that as long as the electrical power system is supplied from the provinces, there will be few problems that cannot be managed by the municipalities. If there are extended power outages through failure of the provincial power grids, then there is no point serving water service to houses that may well have been evacuated because of loss of heat. The problem then falls back to ensuring services to the evacuation centres.

Chemicals and parts and supplies are not a problem. A problem that has been identified for many municipalities is that there is a critical water demand within the city, and that is the hospital systems. Very few hospitals have any on-site water storage. This means that if there is a prolonged failure of water supply there may be problems with the evacuation or the failure of hospitals to continue to function. This is something that needs to be looked at.

The simple conclusion is that the major problem is a prolonged provincial power grid supply problem. As long as that can be assured, the water and waste water systems are and will be functioning through this millennium period.

The Chair: Thank you very much, Mr. Ellison. We're now going to turn to questions, and I'm going to begin with Madame Lalonde, please.

[Translation]

Mrs. Francine Lalonde: Thank you for coming.

Mr. Knight, you told us about an evaluation of major municipalities. Is that an internal or an external evaluation?

[English]

Mr. James Knight: It may be both. In some cases, I'm sure, and I know that municipal governments have engaged external consultants to help them with the process. In other cases they've set up internal task forces to manage the issue.

• 1015

I think certainly the survey was a self-assessment. But in some cases it certainly would be based on external advice.

[Translation]

Mrs. Francine Lalonde: “In some cases”, you say. I'm going to ask you a tough question. Do you think that municipal authorities—and I could talk about other authorities as well—can say that they will not be 95% or 97% ready to tackle the Y2K problems?

[English]

Mr. James Knight: I can say there is a great feeling of assurance in our sector. Let me make a general comment. It is that municipal governments exist to provide essential services, fundamentally. They provide them in a small area, relative to other governments, and they are subject to very close scrutiny by their ratepayers. It is an absolute imperative for municipal councils that essential services should continue, because if they don't the population will express itself clearly in municipal elections, which are quite frequent.

Equally, the personnel working for municipal governments have a very clear mission of delivering services reliably and consistently. And they do this with absolute and remarkable efficiency and success in our country. It is extremely rare that municipal services fail. There are catastrophes, and sometimes, as one year ago with the ice storm, there are overwhelming problems. However, that was an anomaly.

Municipal officials are itinerant. They move frequently from city to city because of the tremendous pressures on them by the council and by the local population. They are very attuned to meeting public demands. Because of these realities of municipal life, both political and administrative, I have a great deal of confidence that every effort will be made, and is being made, and that the confidence these officials have in their services is not misplaced.

[Translation]

Mrs. Francine Lalonde: Thank you. I'm very pleased that I asked you that question and that I heard your answer. You are concerned, or at least, you see that the major problem that arises from your surveys is 911 service. Could you tell us more about that?

[English]

Mr. James Knight: I'd be very happy to, because I don't want to create any alarm about this service. But I want to underline that when I commented on 911 service it was in the context of the preparedness of partners. The 911 service is typically very complex, involving many partners. It involves a telephone company; it involves a dispatch centre; it involves at least three public services—police, fire, and ambulance—and in some cases more. So the interface of partners is more complex than in other municipal services.

While I don't want to explain this issue away, because it is very important, and I want to assure you that we will be pursuing this question in greater depth, our sense of things today is that the problem arises from the complexity of a number of partnerships and the interfaces among them. And this is showing up, as I say, under the heading of “Are your partners ready?”, not “Are you ready?”

We have been dealing with the phone companies already on this matter and they are giving us assurance that from their end of things they are ready. So that is a useful start.

• 1020

I also want to underline that while we did report an anomaly of preparedness and a lesser level of preparedness in this area, it did represent only 20% of the universe of respondents. So 80% are reporting good news and 20% are concerned somewhat about the readiness of their partners. But I assure you that given the tremendous importance of this service, it will be the focus of our future efforts.

[Translation]

The Chair: Thank you, Ms. Lalonde.

[English]

Mr. Bellemare, please.

[Translation]

Mr. Eugène Bellemare: Thank you, Madam Chair.

[English]

Mr. Ellison, you state on page 6 that municipalities located on lower voltage lines had been warned that service to these lines may be interrupted. Who is warning them? Is it you or is it Ontario Hydro or Hydro-Québec or Manitoba Hydro?

Mr. Duncan Ellison: This information came to us from the City of Thunder Bay, that they had been advised that in an extensive power outage, priority would be given to the very high voltage lines. Thunder Bay is on the 115-kilovolt northern line, and if there were power fluctuations, it would likely be on the low voltage lines rather than the high voltage lines.

In the case of Thunder Bay, this is not a problem for them because they do have diesel backup generators to maintain their systems. Nevertheless, this was a comment made by the City of Thunder Bay, which happens to be on our board of directors.

Mr. Eugène Bellemare: Okay.

Mr. Knight, what percentage of Canada's population is living in municipalities that don't expect to be ready by December 31?

Mr. James Knight: It would be significantly less than 10%.

Mr. Eugène Bellemare: That's three or four million people.

Mr. James Knight: Significantly less than that, yes. Canada is one of the most urbanized countries in the world. Overwhelmingly, our population lives in large cities. The concern is about the very smallest municipalities. Perhaps my colleague can do better on specific numbers.

I want to tell you of some of the responses to our survey, which may give you a higher level of comfort. We have municipalities responding with a “not applicable” on the survey form. At first we were quite amused by this, but when we pursued it we found indeed that they were right. Their services were of such a modest nature that really there was no preoccupation. Of the 4,200 municipal governments in Canada, 3,000 have fewer than 500 people. So we're dealing with very, very small municipalities, which may do nothing more than maintain a road. They likely won't have a water system.

I think that helps to understand the situation.

Mr. Eugène Bellemare: I'd like to go back to water and waste water management. Mr. Ellison, if hydro breaks down anywhere for any period of time, given that January 1 is certainly not like July 1—it's cold; in some cities it's really cold—how long would it take for these services to break down because of ground frost?

Mr. Duncan Ellison: The majority of water and waste water distribution systems and collection systems are in fact below the frost line. Therefore there should not be a problem of freezing. The problem would occur particularly in the Northwest Territories, for example, where these lines are above ground because they cannot be built in the permafrost. We have been advised by our northern neighbours that if there were an interruption in the flow of water, then there could be freezing problems within a matter of several days.

They are equipped with backup generators to maintain the essential flow. But again there is the problem of how long do they have to maintain that and can the generators run for the necessary period of time.

• 1025

Mr. Eugène Bellemare: Water systems and waste water management require a great deal of chemicals. Have you noticed any stockpiling going on? If there were a breakdown in chemicals, could that not be a great danger for citizens of certain municipalities?

Mr. Duncan Ellison: There are many systems, perhaps 15% or so, that do not use chemicals. They draw ground water, which doesn't require disinfection. But for those that use chemicals, their traditional practice is to maintain somewhere between seven and fourteen days of chemicals on supply. Prior to Christmas is a traditional period to stock up because of normal interruptions in delivery through the Christmas holidays. It's not considered a problem.

Mr. Eugène Bellemare: My last question, Mr. Ellison, is very personal. Given the fact that you know a great deal about waste water management and water, are you going to fill up your bathtubs on Friday, December 31, just in case?

Mr. Duncan Ellison: No, I'm not, for the simple reason that I live in the country and I have my own system. My system, like most small systems, is not time dependent; it's on-off.

Mr. Eugène Bellemare: What would you recommend to your relatives living in the city?

Mr. Duncan Ellison: I would say do nothing. I am confident that the water will flow on January 1, 2000, and the waste water will be collected.

The Chair: Thank you, Mr. Bellemare.

Mr. Lastewka.

Mr. Walt Lastewka: I have one short question for Mr. Knight concerning the smaller communities. Is any initiative needed to help those small communities, or are you continuously working with them to make sure they are doing what they're supposed to be doing and have contingency plans? Is there any initiative we should be looking at to assist them?

Mr. James Knight: Not immediately. As indicated, we conducted an initial survey of 990 municipal governments and subsequently have surveyed the universe. Preliminary results are reassuring but they're not complete. We will monitor the overall results thoroughly, and if we sense a problem we will alert the appropriate authorities.

We have strong alliances with a number of federal departments; we are increasingly in communication with the provinces on this matter and of course directly with the municipal governments concerned. So I can assure you we will continue to monitor this matter and, if need be, provide a supplementary report to your committee, if you wish, if you're still engaged with the matter. But at present, indications are reasonably positive.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

I'd just let committee members know we're on a 30-minute bell. The vote's not until between 10 a.m. and 11 a.m., so we have a long way to go yet.

Mrs. Barnes.

Mrs. Sue Barnes: I was at your December meeting and because of that I felt quite alarmed, actually, about the state of preparedness and the information that was available to you. I visited my municipality and talked to them, so that was good.

When did you send out your survey material?

Mr. James Knight: It was early in the year—in January or February for the first round and in March for the second round.

Mrs. Sue Barnes: What were the cut-off dates for them to have the material back to you?

Mr. James Knight: We don't have a cut-off date. We're doing telephone follow-ups to get quick responses. We're continuing to collect all surveys. Our response rates are quite high, approaching 70% or 80%, so we have a good base to work from.

Mrs. Sue Barnes: In your June meeting with the municipalities, you identified the concern that some of the smallest communities might not have problems, but some still had problems they had not yet addressed. Do these representatives show up at the annual meeting?

Mr. James Knight: Many do, and where the individual municipal governments do not show up, their own associations do. The municipal world is organized into many associations at different levels—at sub-provincial and provincial levels. Those associations are always present, representing—

• 1030

Mrs. Sue Barnes: In that case, other than presenting the results of your survey, you have a targeted audience of people who could utilize some information. Have you planned, in your agenda, something specific to address the information targeted to the group your survey is showing you is less compliant to the issue?

Mr. James Knight: The sessions will be interactive. There will be an opportunity for exchange of information both ways. We will have some of our key national partners present at the event. They will be well equipped with information, documentation, advice—

Mrs. Sue Barnes: Being in the room is not what I'm asking.

Mr. James Knight: I'm sorry.

Mrs. Sue Barnes: You have a unique opportunity, six months in advance of a cut-off date, to target people. Talking to the converted and giving them information is one thing; if you're telling me you have a population that is not yet ready and will be at a location, I'm saying as part of your agenda you might want to consider setting up a special meeting with those people. You and I both know in a convention you sometimes don't even know the expertise of the person you've spent 15 minutes talking to in the hallway.

By then you will have analysed your survey. If you find a population that's deficient, you will have a unique opportunity to organize something around that area. I'm not going to tell you what that should be because I don't have your information. I'm just making you aware. Just as this committee made you aware in December there was more you could do, there may be more you can do now.

I'm really glad you have moved in that direction because it's important. It might have been useful to have had at least an outline of your survey data today because it would have given us another control mechanism with the Stats Canada survey, which we have great reliance on. But it would certainly have been useful to have seen how it compared to your data also.

Mr. James Knight: Your point is very well taken. I will leave with you detailed information about the survey. Also, if there are clear indications of sectoral issues, we will pursue them at the convention and after.

The event, however, will not be for the converted; it will be for those who are feeling uneasy about the issue. I have to tell you there's a certain weariness of the issue in the large centres that are ready. They do not want to hear about it any longer. Just a couple of weeks ago we mounted a seminar for the mayors of the major cities. They all yawned and several left the room because they know they have it under control.

Those present at the event in Halifax will be those who are uneasy. So we will have the benefit of having in the audience those who may need further help.

The Chair: Thank you, Ms. Barnes.

Madame Lalonde, do you have any more questions?

[Translation]

Mrs. Francine Lalonde: I have another one. Mr. Ellison, your brief is in English only, and it is entitled State of Readiness of Water and Waste Water in Ontario, Canada with Regards to Y2K. Should I conclude that you primarily represent Ontario?

Mr. Duncan Ellison: I must apologize, Ms. Lalonde. It's a graphical error.

Mrs. Francine Lalonde: Is it what you really think?

Mr. Duncan Ellison: I started preparing the brief at the last minute. It's just a mistake, and I apologize. I also apologize for the fact that the brief is not available in French, but if you have any specific questions, I can answer them.

Mrs. Francine Lalonde: Does Quebec belong to your association in some way?

Mr. Duncan Ellison: Yes, it certainly does. Our board of directors and the FCM have representatives of all the provinces and territories. We have two representatives from Quebec and two from Ontario, whereas the other provinces only have one. We are in touch with members everyday.

• 1035

For example, yesterday I received information from Montreal saying that they are sure that the City of Montreal and the Montreal Urban Community will have no problem on January 1, 2000.

Mrs. Francine Lalonde: I know that the Société québécoise d'assainissement des eaux has also been very active in this regard.

Mr. Duncan Ellison: An association that belongs to the CWWA represents all interests in the province of Quebec, and we are in the process of having discussions with that association and exchanging information so that it will always be able to contact us if there is any problem in a city or town. We are going to submit the problem to others to see if another town or city has already experienced it and found a solution. We are constantly exchanging information.

Mrs. Francine Lalonde: Here's my last question, Madam Chair. In a way, the terrible ice storm prepared the municipalities that were affected, for they were able to see the problems with water supply for themselves. Have you studied this case and drawn any conclusions?

Mr. Duncan Ellison: Yes, the ice storm highlighted the dependency on provincial power grids. Several municipalities decided to replace their sewage treatment systems. A few had good intentions, but they didn't have the money to do so. There are a number of very interesting solutions, such as using the gas generated by the sewage treatment system as an energy source in the sewage treatment plants.

Mrs. Francine Lalonde: So that could lead to a new technology or something in-house that would make it possible to recover the gas and use it to power...

Mr. Duncan Ellison: The important thing is to benefit from past experience.

[English]

The Chair: Thank you.

[Translation]

Thank you, Mrs. Lalonde.

[English]

Mr. Knight, your comments earlier about the conference taking place in Nova Scotia are probably fitting, in light of the magazine Government Computer that came around, if you saw it. It was published in March and talked about “Taking it to the Streets: Municipal Y2K roundup. It said:

When it comes to battling the Y2K bug, Canadian municipalities are just as busy as the federal government. Here's a snapshot look at how Canadian cities are preparing for the new millennium.

The major cities it identified are well on track, as you've already said. In the smaller towns—not the really small ones with populations under 500—with populations between 5,000 and 10,000, they found something different. Quite specifically, this article was about Kentville, Nova Scotia, where they brought in an IT specialist in October and found that their SCADA system—their water pump monitoring system—was not compliant at all. The field interface unit and the software and hardware it's running on are not compliant.

They seem to be having difficulty getting these things fixed. There seems to be an indifferent attitude that when they bring in an IT specialist, they'll fix the problem and it won't be anybody else's problem. So I hope your conference in Nova Scotia will bring together these small communities.

I still have that fear in my own area. I know the most recent meeting was April 13, and that was the first meeting about contingency planning for emergency preparedness. In January there was a round table discussion about what they need to do to get ready. I know I have a lot of new amalgamated municipalities and they have a lot to do.

I know the survey says “have taken some action”, and I'm just wondering if you can define or break down where you say 78% of testing of mission-critical systems was planned or had been completed. Can you break that down between how many are planned and how many have actually been completed?

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Mr. Joseph P. Dion (Director of Policy and Public Affairs, Federation of Canadian Municipalities): I'm sorry, is that in the Stats Canada or the FCM survey?

The Chair: It was in the FCM survey. It's on the third page of your brief. It says

testing of mission-critical systems was planned or had been completed by 78% of responding municipal governments.

So I'd like to know how that breaks down. How many were planned and how many have actually been done?

Mr. Joseph Dion: I can't give you that information today, but I can look into the survey and get back to you on that.

The Chair: Okay. I think that's a good percentage that are working on it, but just what are the stages they're at?

Also—I don't think we have this information, but maybe you do—can you show us whether there has been any slippage for municipalities?

We've heard from other groups that there has been some slippage in their timeliness. They had anticipated they'd be ready by April 30, and now they've pushed the date back to June 30. Do you have that information at all?

Mr. Joseph Dion: I think that was a point that came out in the Statistics Canada study. From the date that people were foreseeing last year, they noted that recently there had been some slippage. But since we've just done the one study, we have not seen that.

The Chair: Okay, but you're going to be doing a follow-up study, if I understand correctly.

Mr. Joseph Dion: They're done at almost the same time, because the first one was just our membership and the second one is the total population of municipalities, and they're just one month apart. One was in February and one was in March. So I don't think we'll see any difference in that regard.

The Chair: Okay, but there have been a couple of articles. One was in Maclean's magazine, and again it pointed out the concerns in smaller municipalities with water and fire and emergency services.

So I urge you—and we appreciate everything you're doing to bring the information out there. We're doing what we can as members of Parliament. Most of us are using our householders to remind them. I wrote again to all the municipalities in my riding about three or four weeks ago asking them for an update on their progress. We know they take these concerns very seriously, but they don't necessarily have the IT expertise that a larger municipality would have.

Mr. James Knight: You're absolutely right. If there is a focal point of need, it's perhaps not the very small ones, who would be self-sufficient in any case, and certainly not the large ones, but there's a grey area in there of mid-sized communities that do offer complex services, and they are the ones that are likely to be less prepared in general. Therefore, as we indicated clearly in the brief, our energies will target very much that intermediate area where attention is probably required.

The Chair: I really hope it does, and I really hope the conference in Nova Scotia addresses some of these concerns. Perhaps Kentville will be there and you can discuss their problems with them. She seems to be not able to get answers as well, through e-mails to different organizations that are supposed to be assisting them, according to the article.

Mr. James Knight: It was interesting that the issue identified in Kentville was also identified by Mr. Ellison quite explicitly.

Duncan, perhaps you'd like to follow up.

Mr. Duncan Ellison: There is a significant problem with the SCADA systems. There's no doubt about that. It focuses in on the SCADA software itself, not the hardware on which it's mounted or the operating system. Those are cheap fixes that could be done.

Nobody really knows how many of these SCADA systems are in place across the country. There is always the problem, and the recommendation is to set the clock ahead and see what happens. The fallback position is to set the clock back. I believe you can set it back to 1974, and in fact you will have exactly the same sequence of days and leap years and that sort of thing. So the system could work that way.

The information exchange mechanisms that are in place should be helping the actual water operators dealing with that. Most of them know the fellow in the community down the road. Most of them are going to the regional association meetings.

The Ontario Water Works Association, for example, will probably have 600 delegates to a meeting here in Ottawa next week. Y2K is inevitably going to be discussed. We can only do our best.

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Our president comes from Camrose, Alberta, a city of 10,000 people. He has specifically examined every system they have, and he has found none that are time dependent.

The Chair: That's great. We appreciate that, Mr. Ellison. We do appreciate the work that everyone is doing.

I apologize, but we are going to have to end this part of the meeting now. We have to vote in four minutes.

Mrs. Barnes.

Mrs. Sue Barnes: Madam Chair, could we ask that the results of this survey get sent to the clerk of the committee so that it can be distributed to us, specifically the breakdown on the slippage, the planned versus the completed?

The Chair: Certainly.

Mrs. Sue Barnes: Thank you.

The Chair: I want to thank you both for joining us.

We're going to suspend until after the vote.

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The Chair: I call the meeting back to order now, after the vote. I want to welcome our next groups of witnesses here. I know members will keep coming in, now that the times have changed slightly.

We have the Mining Association of Canada, Mr. Dan Paszkowski, vice-president, economic affairs. From the Canadian Federation of Agriculture, we have Mr. Jeff Atkinson, communications coordinator and parliamentary liaison; and from the Fisheries Council of Canada, Mr. Ronald Bulmer, president.

What I propose is that each of you present your opening statement first, then we'll move to questions. I would appreciate you trying to keep your opening statements to about five minutes, if that's possible. I'll go in the order as listed, I guess, unless you have a different arrangement. I'll start with the Mining Association of Canada, Mr. Dan Paszkowski.

Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada): Thank you, Madam Chair, and good morning. Thank you for inviting the Mining Association before your committee once again to provide an overview of our year 2000 state of preparedness.

By way of introduction, the Mining Association is the national association of the Canadian mining industry. It comprises companies engaged in metal exploration, mining, smelting, and refining across the country. As mentioned in our November 1998 appearance before the committee, the year 2000 challenge is a business issue that can't be delegated to technicians alone. The required substantive Y2K expenditures do little to boost the productivity of mining operations by comparison to other capital, labour, research, or other forms of capital investments. Nonetheless, taking the risk of doing nothing can cost significantly more to our industry.

The Canadian mining industry continues to work toward the implementation of programs aimed at managing year 2000 issues. Significant progress has been made since our November 1998 appearance. Although more work is still required to achieve a year 2000 ready state across the mining sector, we will continue to test our systems and contingency plans to ensure we remain in business in the new millennium and do not affect the other sectors of the Canadian economy that are dependent on the mining industry for their survival. Consequently, where year 2000 readiness requirements or deficiencies have not been met, remediation is carried out, followed by testing where feasible.

My presentation this morning is going to be brief. I provided an overview in November in terms of MAC's role in addressing the year 2000 program, so in the interest of time I will focus on the interest of this committee, which is the Canadian mining industry's state of Y2K preparedness.

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We have identified Y2K as a business risk. We have been diligent in addressing the potential failure of mining systems on January 1, 2000, and are approaching the completion of our preparedness plans.

MAC is also working with the federal government's national contingency planning group to deal with the potential threats posed by the Y2K problem to the health, security, and well-being of Canadians. We're actively involved in a bi-monthly survey to assist Environment Canada and National Defence in addressing issues related to Y2K awareness, inventory exposure to Y2K, etc. To date, the results of this work suggest that mining, in the view of the national contingency planning group, is at low to medium risk based on state of planning and readiness.

In preparation for today's presentation, MAC conducted a second survey on April 1, 1999, to assess the state of readiness of our membership. The conclusions are included in a table at the back of our submission and they're based on a representative sample that include various sized companies operating in most regions of Canada. By way of introduction, the mining industry represents basically the metal component of the mining world in Canada. In that regard we do not represent the coal mining industry or the potash mining industry nor the uranium mining industry in this country.

The overview of our results included...100% indicated a Y2K project team in place. Similarly, 100% had developed a written Y2K plan. We found out that 94% were reporting to a vice-president or higher. As well, 94% provided quarterly Y2K reports to their boards of directors.

As of April 1, 1999, completion of an organization-wide impact assessment of the inventory completion stage ranged between 55% and 100%, with an average completion rate of 94%. The average projected completion date of the inventory stage was May/June of this year.

As well, as of April 1, 1999, the completion of the implementation phase, the replacement of systems and equipment identified, ranged between 50% and 100%, with an average completion rate of 83%. The average current projected completion date of the implementation phase is July 1999.

The completion of the testing assessment phase ranged between 10% and 100%, with an average completion rate of 74%. The average current projected completion date of the testing assessment phase is July 1999 as well.

Some additional survey information that we identified found that 88% of respondents have a plan for Y2K staffing and training. Twelve percent have started planning, 44% have tested their plans, and 6% are still in the process of testing their plans.

Seventy-five percent of respondents have a Y2K plan for special operating procedures, while 19% have tested their plans, and another 19% are in the process of testing their plans.

Eighty-one percent of respondents have a plan to deal with the Y2K readiness of suppliers and customers; 19% have started planning. Furthermore, 19% have tested their plans and 27% are in the process of testing those plans.

We also did a little bit of a survey on contingency planning. What we found was that 50% of the respondents have a contingency plan to deal with unforeseen Y2K problems that can arise; 25% are in the process of developing a contingency plan; and 25% do not have a contingency plan as of this date. Sixty-nine percent of the respondents who have or are completing a contingency plan to deal with unforeseen Y2K problems will test their plan where and if possible. The average completion date for testing is July 1999.

Fifty-six percent of respondents have completed and 25% are in the process of completing their contingency plans to deal with failures of critical business or operations, while 19% still do not have a plan. Seventy-five percent of respondents who have or are completing a contingency plan to deal with the failure of critical business operations will test their plans where and if possible with an average completion date of July 1999.

Finally, 63% of respondents have a contingency plan and 19% are in the process of completing a plan to deal with failure of key suppliers or customers to have a compliant and compatible system in place. Nineteen percent do not have a plan, while 69% of respondents will test their contingency plans, with an average testing completion date of July 1999.

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Overall, for this mining survey, the average anticipated Y2K ready date for the representative sample was mid-July 1999, with Y2K readiness completion dates ranging between April 1999 and October 1999. This compares favourably with our November 1998 survey, which concluded an average Y2K ready date of March/April 1999. There has been a little bit of slippage, but as our members dig a little bit deeper you will find an embedded chip in places where you previously had not anticipated them to be. There is significant layering.

In conclusion, we believe this survey provides a reasonable representation of MAC member preparedness and identifies significant progress over our survey of November 1998, with further work still required for the remainder of this year, and testing will continue to be performed up until December 31, 1999.

Thank you very much.

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

We'll now turn to the Canadian Federation of Agriculture, Mr. Jeff Atkinson.

Mr. Jeff Atkinson (Communications Coordinator and Parliamentary Liaison, Canadian Federation of Agriculture): Thank you, Madam Chair. Again, I'd like to thank the committee for inviting the Canadian Federation of Agriculture to appear again.

We appeared before you in November at the committee's last hearings into the year 2000 computer bug issue. At that time our presentation resulted in agriculture being flagged as an area of concern in the committee's report. At that time I reported that there really wasn't information available on primary agricultural producers. That is no longer the case, as I will mention later, and I indicated that there really wasn't a great deal of information available about the agrifood sector of the food industry. That is also no longer the case.

I have provided committee members with a copy of a report prepared for Agriculture Canada by the Gartner Group. It's an assessment of the year 2000 preparations within the Canadian food supply industry. This report was released on March 19. Copies are available in both languages on the Agriculture Canada website.

As you will see from reading through the report, Canada's agriculture and agrifood industry is well on its way to being Y2K prepared, Y2K compliant. It is lagging behind other industries, but as the report does conclude, the industry is on its way to being prepared. There's a breakdown of the various sectors of the industry, dealing with everything from dairy, fluid milk, beverages, the biscuit industry, in terms of their preparedness. The gap within the agriculture and agrifood sector at this point in time appears to be contingency planning. Most people aren't at that stage yet. They're getting there, but that seems to be where there's a gap.

With respect to the group that the Canadian Federation of Agriculture represents, primary agricultural producers—approximately 25% of the agriculture and agrifood industry—as of last November there was no real data on their preparedness, as I indicated.

The Statistics Canada's survey, Preparedness for the Year 2000 the last part of which was released in March, again missed a large sector of the farming community. In order to be captured by this survey you had to be a business enterprise that employed more than five people. The majority of farmers in the country do not employ more than five people and were left off this survey, even if they were on the business register.

The farms that would have been captured by that survey would be large feedlot operations, where there is an extremely low level of Y2K risk, and the large horticultural operations. Again, depending on whether or not it's under glass, the risk seems to be relatively low.

In the meantime, the Canadian Federation of Agriculture has been working with Agriculture Canada. We've since hired Angus Reid and commissioned a survey of primary agricultural producers to assess their awareness and their level of preparedness for the year 2000 changeover. Phase one of that survey was completed the second to third week of April. The data was collected by phone. Although I've received some preliminary results by phone, the analysis of that survey has yet to be completed. We're expecting to have the results and to make them available for the first full week of June. Phase two of the survey will be conducted in August, again with a different sample group. We're going to be tracking the progress primary agricultural producers have made with regard to their year 2000 preparedness.

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Although this would be anecdotal because I haven't had a chance to actually analyse the data that have come out of the first round of the survey, the gap would appear to be the same as for the rest of the agrifood industry. Most farmers are well aware of the Y2K issue. They are getting around to getting themselves prepared. In the area of contingency planning, they need to sit down and ask themselves, even if I'm prepared, what if my neighbour or my supplier isn't prepared? That hasn't happened yet. The situation hasn't been analysed at that level in the community, but we're confident that it will be in that time.

In closing, I want to add one comment with regard to the agriculture industry, specifically with regard to farmers. I do realize that there's a high level of concern over the food supply, particularly in urban Canada. I just wanted to remind members of the committee that the agriculture industry does operate on a different cycle from the regular calendar. Whether or not a wheat farmer is Y2K compliant on January 1 isn't really that critical. They're not farming on January 1. The areas of concern are, of course, where environmental controls are key, such as livestock and storage. Most of the risks in the agriculture sector would appear to come from shipping and transport more than anything else. But that remains to be borne out by the results of the survey.

With that in mind, with regard to preparedness among farmers, many farmers are becoming prepared. They seem to be lagging behind. There are many out there who are probably thinking, if my operation isn't going to be up and running until April 1, why don't I just sit back and wait and see if this thing is really going to happen on January 1, and then I'll get around to doing it. There's the risk of that. We don't want that to happen, but I can understand that there would be a temptation to take that attitude, especially if there's a risk of having to spend hard-earned money on fixing something that in the end might not break.

So I'm just reminding the committee of that reality with regard to the agricultural sector. Most peach trees and apple trees aren't in production on January 1. It's just a matter of putting that into the context of the agricultural sector when you're looking at preparedness versus the actual impact of the year 2000 computer problem on an industry.

Thank you.

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

We're now going to turn to the Fisheries Council of Canada, Mr. Ron Bulmer, please.

Mr. Ronald W. Bulmer (President, Fisheries Council of Canada): Thank you, Madam Chairman.

Let me just state that the Fisheries Council of Canada is the representative group for over 120 seafood firms, which process the majority of seafood in Atlantic Canada and harvest a significant portion thereof.

I'm sure this committee has heard about the problem in many different ways. One of the statistics that brought it home to me was a statement by Agriculture Canada that said that in 1997 about 50 million Pentium chips and 50 million other technology chips were sold, but that in that same year 1.9 billion computer chips were sold for use in—you name it—machinery plants, answering machines, copiers, computers, etc. Really, the issue for industry is the embedded chip, more than information technology.

I would also note that in the research it stated that if you looked at something such as a modern transport vessel, they would probably have up to 1,000 automated and semi-automated functions onboard. In fact, in my discussions with the Canadian Coast Guard, they noted that while they are currently focused on commercial shipping, they really haven't even started to cover the issue of large fishing vessels and the systems and implications there.

Given that, what are some of the big issues our industry needs to ask questions on? Certainly, we're interested in whether or not disruptions in energy supply might hamper the ability to fish and process. We're interested in whether or not distribution channels can operate without risk of delays that might spoil food before it gets to market, and whether or not just-in-time inventory systems are going to function so that distributors and retailers will have ample supply on the shelves.

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From our own plants, we're interested in whether or not processors with automated systems, which handle everything from additives to freezing to thermal processing, will be able to ensure consumer health and safety. We're interested in marine safety systems in terms of the vessels that actually go out to harvest fish. We're interested in vessels that move in and out of port and the loading facilities thereof.

In third world countries, where suppliers may be even less prepared to handle Y2K, can Canada assist in filling market shortfalls should such occur? It is worth noting that it is the countries that are already plagued with financial woes, such as inflation and limited monetary reserves, that also seem to be the furthest behind in Y2K compliance.

A study that was done by the same group that was quoted by my predecessor here, the Gartner Group, provided a list of countries that are either seafood producers or key import markets for Canadian seafood broken out by their readiness. Obviously, countries such as Canada, Denmark, Sweden, the U.S.A., and the U.K. are the most prepared, and countries such as Bangladesh, China, Russia, and Thailand are the least prepared.

Looking at the Canadian seafood business itself, I do not have the level of research for the industry that my two colleagues here stated. I did review the Statistics Canada tracking study that did studies in both 1997 and 1998. Their most recent study noted that 99% of Canadian business was aware of Y2K; 70% of business was taking some action; in the primary industries—and, again, this is not fish specific—only 56% of firms were taking some action; and for small firms, which would represent the vast majority of my industry, only 50% were taking some action. It also noted that of those that said they were taking some action, only 11% reported having a formal planned approach to Y2K. Therefore, I can only conclude that even though these numbers probably would have improved since the last tracking study of Stats Canada, in my own industry we still have a lot of work to do.

Who in the food business in Canada needs to be concerned about Y2K? The answer is everybody.

Given all of that, I would conclude that food and fish harvesting and processing, particularly involving larger vessels, our suppliers, transportation, and the distribution of food are certainly heavily dependent on computerization, where the problem may exist. Any interruption in the boat-to-plate chain can result in direct economic loss to the industry, and supplier problems can become our problems. Because seafood processing is heavily dependent on trade, both as raw material for our plants on coming inside and transportation to end markets going out, it's an area that we in the seafood industry need to focus on. The Canadian fishing industry needs to focus on Y2K issues now while time remains for positive action.

However, even as I say that, I would like to quote from the conclusions of the food supply working group of the United States, which has looked at this issue. They have concluded that the possible interruption of the North American food supply being so severe as to threaten the well-being and basic comfort of the public is unlikely. The Fisheries Council of Canada would agree with that conclusion. Thank you.

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

I'm now going to turn to questions.

[Translation]

Mrs. Lalonde, please go ahead.

Mrs. Francine Lalonde: Thank you, Mr. Atkinson, for providing your brief in French. I think that's the normal thing to do.

I tried to read your brief and concentrate on listening to you at the same time. You mentioned your concerns about what you call the small categories. Some of them are vital for supply. I would point out that many of these industries are dealing with the problems of embedded chips. Mr. Bulmer also mentioned this problem with boats, but farmers have very automated operations, and so they are having problems with embedded chips too.

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For example, you mentioned fluid milk, saying that, “other problem sources could be embedded systems and business partners.” I am taking that example because milk is a vital commodity. The other industries are not as essential to our food supply, but if they themselves have serious problems and go bankrupt, people will lose their jobs. How can we encourage these companies in the minor categories to prepare seriously for the year 2000, because a rather significant number of them do not appear to be ready, according to your report?

[English]

Mr. Jeff Atkinson: In the small categories, again, it's just a matter of the analysis. Even in the Statistics Canada survey, which covered an incredibly broad range of industries, the same result was found: the smaller a firm got, the least likely they were to indicate they were prepared. They weren't as far along in the process as their larger counterparts within an industrial sector.

It's the same within agriculture. The smaller firms just don't have the resources necessary to do the kind of impact analysis that needs to be done. They don't have the same kinds of business relationships. Their business relationships may be more informal. They're not as heavily integrated in the industry and they don't have as many business partners who would be feeding them the information that there is a need to be prepared.

With respect to the dairy industry, I know that many dairy producers are well aware of the year 2000 computer problem. Many have been calling and asking the suppliers of their equipment whether or not that equipment is going to function. My understanding is that the majority of the equipment that's mission-critical for a dairy farm is compliant. I don't have off the top of my head...there's a particular model where the clocking system will need to be manually reset on January 1, but it will continue to extract the milk and get it in the tank, and the tank will continue to function. Most have been communicating with their dairies to ensure that the truck will arrive.

Further up in the system, the sector is making its way through, and as this survey indicates, they are planning to be compliant and prepared. But again, the gap is contingency planning. Even with the Statistics Canada information, contingency planning is the gap. Most people haven't got to the point where they ask themselves, what if this happens? What if I forget something? What if I'm completely prepared but the next person up in the supply chain isn't? It's just having that plan so that they can avoid the impact of that risk. Again, it's something that just comes with preparedness. The sector seems to be a couple of steps behind, but I'm confident it will be there.

[Translation]

Mrs. Francine Lalonde: Precisely, the storage and warehousing industries are also having problems with embedded systems. This is critical for the producers of perishable products as well as for consumers, because if we are not absolutely certain that products have been safely stored, it could even be dangerous.

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[English]

Mr. Jeff Atkinson: This is true, but again this is something the industry is addressing, particularly when you get to the issue of on-farm storage. That's something that has to be looked at on a sector-by-sector basis. It's really not a significant issue in terms of the volume of food. Industrial storage of food, whether it's being processed or has been processed, is something that's being addressed, because again, it's mission-critical. The firms are addressing this, and as the survey indicates, people are progressing along that process.

I agree, for some industries, such as the potato industry, storage is the single largest concern, because it involves environmental control. That's an area where the potato industry is focusing its concern. I don't think very many Canadians would accept any kind of disruption in potatoes; they're just so used to seeing so many of them available. The industry is addressing that, and they're motivated by the potential loss of market share if they don't do it. It's an incredibly powerful motivating factor.

From what I've read, I have every indication that it is being assessed, but I'll feel more comfortable once I see indications that the contingency planning to deal with any small failures or any glitches is going to be dealt with as well.

The Chair: Thank you.

[Translation]

Mrs. Francine Lalonde: In fact, is the major problem for companies that are not very large the fact that they have to deal with an expense that will not improve productivity, unless they change their entire system? In that case, the cost might be much higher. They are taking a big loss just to adapt.

[English]

Mr. Jeff Atkinson: For a lot of the smaller industries cashflow is an issue, as it is with any small business. You just don't have the financial flexibility a larger industry would have. So there's some stickiness in terms of making the commitment to do that across the small-business sector, and in farming as well. As I alluded to in my earlier statement, in farming you have people looking at their natural cycle, and if it's a matter of spending some money to do risk aversion, for some of them it may be worth the risk to wait and see. They may interpret the risk as being quite low. Getting farmers to spend money is never very easy. It's showing in the surveys.

I agree, there is a need to tell people that it is important to prepare for those expenses. That was another gap that the Gartner study indicated. There was contingency planning, and there was also the budgetary contingency planning to spend money if necessary, and to factor it into your spending for the year. They're treating it like any other kind of risk or natural disaster planning—they'll deal with it when it comes. If they know they need to replace something, they will find the money to do it, rather than actually setting it aside and planning for it, as they would for any other contingency, such as a large winter storm.

The Chair: Thank you, Madam Lalonde.

Mr. Lastewka, please.

Mr. Walt Lastewka: Thank you, Madam Chair.

I want to thank the witnesses for their presentations and some of the detail they've gone through to present to us.

I want to start off first with the mining area. I want to centre on the testing assessment phase, where you had the range of 10% to 100%, with the average at 74%. Is the testing part something that was slow in coming, or is it just a timing item?

Mr. Dan Paszkowski: I think it's a natural progression to go from the inventory stage to the testing stage—the implementation and testing. I think 74% is a relatively high percentage for being at that stage, having completed that stage. The range—between 10% and 100%—does open up some questions. Of the survey respondents, there was one that did respond as being 10% complete at this stage of its three-stage process. I just felt it was important to have it as part of the survey results, although the average number comes out to a high of 74%.

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Mr. Walt Lastewka: No, I appreciate that. From last fall until now this committee has been saying over and over again, test, test, and retest. Of course many witnesses have come forward and repeated it back to us. So I was just trying to get a better understanding there.

Do you have much slippage? You did mention a little bit of slippage. Could you put your finger on the reason for the slippage?

Mr. Dan Paszkowski: Sure. I've had discussions with the national contingency planning group as well. Overall they've rated the mining industry as a low risk. However, they have identified some areas as medium risk. That was basically due to slippage. Some of the slippage has taken place due to responses from vendors on some of the technology we had purchased that might not be Y2K compliant because they have fallen behind schedule.

As well, we've had slippage in terms of some of the embedded chips, because we found when we go into each operation, each operation is at a different degree of technological advancement. Everybody is very high-tech; however, some of their systems might be 1972 and others might be 1998. When you go in there and identify things, you find you have a piece of equipment that has an embedded chip to control the equipment. Then you have an embedded chip underneath that to monitor the equipment. Then you have an embedded chip below that to control the controlling of the equipment.

A lot of surprises have taken place in terms of what we found when we went into the operations. Each operation is slightly different because not all of them came into production in 1998. Some of them date back to the 1960s. So there have been a few surprises in that regard. Slippage that you can identify between November and April is the fact that we're probably more optimistic in terms of completion dates than is the reality right now. However, we feel we pretty much have a good handle on the majority of the things that need to be identified.

Mr. Walt Lastewka: Well, I thank you for your report and your explanation. It was excellent.

I want to switch over now to the agriculture and agrifood area, and I guess the fisheries at the same time because of the food content. Are some of the reasons why there is maybe slower implementation going on—and you did mention cashflow, Mr. Atkinson—because in the agriculture and agrifood area, and I'm talking about the smaller firms, they can easily switch to manual operations? Or do you see anything else in addition to the cashflow that could be holding things back?

Mr. Jeff Atkinson: Again, I think it would have more to do with the nature of the operation, as far as the small individual producers go. It's only the largest producers that have invested heavily in the last little while with the newest and nicest equipment that would have an embedded chip problem. The majority of farms are still operating at a level where the presence of the chip is in their business tracking systems, the computer in the office that keeps their books, or it's in measurement systems. These are things that can also be done manually quite readily. They could easily shift back.

Again, with one of the largest sectors in the country feedlots, a beef feedlot, about the only presence of a computer chip that you're likely to find would be if someone is using an identification system for their animals. With a dairy operation, the identity tag that a cow will have so she's identified when she goes into the milking parlour, and the tracking system within the milking machine that just keeps the time—those are the chips. If the chips fail throughout the dairy operation, the identification number is written on the outside of the tag and the machines will still function. So they know that mechanically they can get by. It's just that tracking system.

One dairy farmer I visited was at the final stages where he was going to advance the clock in his computer. He was testing his business software. His attitude was he did it on paper in a ledger book for 15 years, and he's quite capable of doing it now. He considered his computer tracking system rather cushy. He figured he could always go back to putting it on paper if he needed to, and he would be willing to put up with that for a period of time as opposed to shelling out the money to invest in a new computer system and new software. He did the risk assessment, and as far as he was concerned, it was worth reverting to paper if he needed to. But his understanding was that the risk of having to do that was relatively low.

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Mr. Walt Lastewka: Right. I want to go further on Ms. Lalonde's questioning concerning cold storage, and then adding on to that processing, bottling, packaging and certification, where there is a label required. What about implementation in that area?

Mr. Jeff Atkinson: That's an area I'm not as familiar with. I'm more familiar with the area of primary production. But from the reports I've read, those industries are on their way; they're tracking their way through the preparedness, through the different stages of being prepared and being compliant. And the timelines indicate that these industries will be ready by the end of the year.

Again, the gap is the contingency planning, where they have to address what they will do if they're not. I don't have the information at hand to answer that question, but I know it's available.

There's still a lot of survey work being done in the agriculture and the agrifood sector. I had mentioned the survey we're in the middle of doing with primary producers; this work is also being done throughout the rest of the agrifood sector—testing, asking individual firms what their level of preparedness is, asking them to assess the overall risk, the overall impact of the problem on their operations.

Mr. Walt Lastewka: Thank you, Madam Chair.

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

Mrs. Barnes, please.

Mrs. Sue Barnes: Thank you for your presentations. I think they're realistic presentations of what's out there.

One of the things you talked about this morning, Mr. Atkinson, was the fact that in your words farmers didn't want to shell out the money, they'll just go for contingencies. Earlier today we were having a discussion around this committee about the fact that the capital cost allowance on the computers expires on June 30. Now, it would strike me that a frugal farmer would want to take advantage of all the tax advantages that we can lay before him. Is this not something that you've been communicating? Or is it something they are taking into account and disregarding, that it doesn't matter that they can potentially lose out on this? Because this would be very important if we're having discussions about whether or not we should be doing some extension as a government.

Mr. Jeff Atkinson: That information has been.... We've communicated it to farmers. I didn't bring an example with me today, but last year the Canadian Federation of Agriculture produced a handbook for farmers to use. It explained the problem. It took them through the steps of addressing the issue—conducting their inventory, doing their testing, planning for replacement, and developing contingency plans.

At the time that was released.... No, it wasn't included in that literature, but at the time it was released people were told they had this capital cost, they had this opportunity available, and that equipment replacement should be done before July 1 in order to take full advantage of it.

I think it's just a matter of people not really thinking about the problem at that level of depth yet. Again, they're aware of the problem. They're in the middle of doing their inventories, but when it comes to the actual planning to replace a piece of equipment, I don't think a lot of them have got there yet, so that piece of information comes forward.

Mrs. Sue Barnes: Is part of the problem compounded maybe in certain segments of small business: like many other segments of small business, people don't think of these things; they think that's what they take to their accountant at the end of the year, and bingo, that's just going to be another surprise when it comes time to write next year's tax receipt? How fair is that? Because I think from our side we're doing this, and we've been preaching for years and years, but I really believe there's a large contingent of small and medium-sized businesses out there that still haven't got this message about when they should.... If I'm wrong I'd like you to tell me I'm wrong about that, and maybe all three of you address that.

Mr. Jeff Atkinson: You're absolutely right. I'm aware that it was there. I found out about a month and a half after it was announced by the Minister of Finance. I came across it in a document, actually in a news story; I hadn't been made aware of it before. And from my own experience I can equate it with the deductions I was able to claim based on the interest on my student loan payments this year. I discovered that while I was filling out my tax form this year; it was a pleasant surprise in this case.

• 1200

But most small businesses will be operating like that. They will realize at the time that they could have done this in July, and wonder why somebody didn't tell them. Especially if they're doing their own books, they just don't go out.... It's not their job to go out and seek that information, as far as they're concerned. They would expect their accountant to be aware of it, but if they're not going to go and talk to their accountant about financing equipment replacement before July 1, then they're not going to find out about it. I don't think it's a message that's being actively put forward.

Mr. Ronald Bulmer: I guess I'd reply a little bit differently.

From our industry's point of view, I don't have the level of confidence that everybody is aware, focused on, understands the embedded chip problem. I think even more than money, just really understanding the issue and having the expertise in a small company, family operated....

In a fish business, that same person is trying to buy the fish, trying to oversee a plant. He's trying to make sure that labour is there at 7 a.m. to pack it. If he's short of fish, he's trying to figure out where he can get some incremental supply, etc. I think a lot of people in those smaller firms really think Y2K is something that's involved with airplanes on January 1, and navigation systems, and really big issues. I don't think they've brought it down to the home plant kind of issue. So I think certainly understanding the issue, expertise inside the firm to even do something about the issue. And then third, in my industry, which is now right in the middle of a 20-week fishing season, I'll tell you time is the next issue.

If I told somebody in P.E.I., right now in the lobster season that opened two weeks ago, that he should pause and start testing all of his systems in the plant, I mean, he is going to throw me out the door. There is no way—I'm off the end of the dock.

People who haven't turned to this issue in my industry aren't even going to think about it until September or October, until things start to shut down and finish up. I guess maybe that isn't what I should be saying on behalf of a sophisticated seafood industry, but I personally think that is a reality in the hundreds of small firms that pack fish throughout Atlantic Canada.

The answer, of course, is that we have to continue to communicate the issue. We have to communicate to them that it's broader than just the big systems they've heard about on TV, or wherever they might be getting their information at this point, and we have to try to get them moved along on the issue.

I was very impressed at how much assistance had come from agriculture, in terms of the other industry, the fact that a study had been funded, pamphlets produced, etc. I can tell you, there has been no such activity that I've been aware of from the Department of Fisheries. They think once a fish is caught that's the end of it, as far as they're concerned, of their involvement in our industry. It's one of the things I plan to raise with Mr. Anderson after this meeting, to draw to his attention the comparison of the involvement of the agriculture department with the agrifood side of it, relative to the fisheries department in the fish industry, because as I say, most of my activity....

I've been talking to the coast guard, in terms of the safety issue on vessels, and even there, Mr. Gravel, at a broad meeting on this issue last week, admitted that they haven't even started, in terms of fishing vessels. They say they're going to as they inspect them between now and the year-end. They'll be asking all these questions—what systems do you have on board, etc.? But at this point, he felt there really had been very little done by the coast guard, as it related to the Canadian seafood industry and the harvesting of fish.

So I don't think I'm quite as far along as my other colleagues here.

The Chair: Mr. Paszkowski.

Mr. Dan Paszkowski: I just took a look at three mining companies in Canada—a small, a medium, and a large company. What I found was that in one year they purchased $1.6 billion worth of Canadian goods, services from mainly small and medium-sized enterprises, because the suppliers of equipment and services to the mining industry have basically evolved along with the mining industry in this country, and we are world leaders. Currently we're operating on about 3,400 projects in 100 countries. Our industry has made it very well known to those suppliers that they have to be compliant. We can't compete unless they are.

In response to your question, those small and medium-sized enterprises that have developed their existence because of the mining industry in this country and because of the Canadian mining industry internationally, if they're not prepared, if they haven't taken the steps to take advantage of some of the programs or auxiliary capital cost allowances that have been provided to them, have the message loud and clear that we will be moving to alternative suppliers.

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The Chair: Thank you.

Mrs. Barnes.

Mrs. Sue Barnes: I encourage you to get that message out about the programs that are available and taking advantage of any meetings—regional, national, whatever—to add this as a part of your agenda item, as I'm sure you're doing. But thank you very much for your testimony today.

The Chair: Thank you.

I want to let members know that we are running out of time. We didn't get a late start, but we are running out of time again. I'm going to go to Mr. Bellemare.

Mr. Eugène Bellemare: Yes, madame la présidente.

My question is addressed to the Canadian Federation of Agriculture. You have a report from the Gartner Group, which is certainly the world leader in Y2K consulting. In reading through their report, I see no mention of independent audits to any of the branches of agriculture. Going through section 3, they talk about eggs and poultry, no contingency planning; fruit and vegetables, no contingency planning; livestock, no contingency planning; and it goes on. For poultry, canned preserves, and on and on it goes, no contingency planning.

Then I read in the conclusion of the report that although they're behind in their contingency planning, and despite the fact that there are going to be some failures, “From the consumers' perspective, the severity of these failures is not likely to be overwhelmingly grave”. It says “overwhelmingly grave”.

As a francophone trying to translate this, that it's going to be grave but it's not going to be overwhelmingly grave, I'm starting to be concerned. Maybe there's something in my translation that I'm not getting. It doesn't say “grave”, but it's not going to be “overwhelmingly grave”. Then I have to conclude it's going to be grave.

It suggests consumers shouldn't be worried, because there's going to be some contingency planning. But throughout the report it says there is no contingency planning being done. So how can I as a consumer, or the Canadian consumers, be confident? When I go to the grocery stores come the weekend of December 31, what will be going through my mind will be contingency planning—should I start stocking up now?

Mr. Jeff Atkinson: That was the gap you can see from the report, which is that contingency planning isn't being done. Or if it's being done, it's at the initial stages. My interpretation from this is that most people are making their way through that process and they're not at that step yet. They're part-way through. They're doing their inventories, doing their testing, and once they're ready they'll start asking: now that I'm ready, am I safe? No.

The next logical step is to develop a contingency plan for those parts of the problem you're not responsible for and you can't control but you have to avoid. I would put forward that this is the reason the gap is there. It also identifies the area where some communicating needs to be done on the part—again looking at the Stats Canada study—of the federal government, on the part of provincial governments, and on the part, from our industry's perspective, of Agriculture and Agri-Food Canada to actually communicate to people the need to do contingency planning. This is because again that feedlot operator who has zero Y2K risk on his or her operation still has to have a contingency plan in place for the inevitability that their municipality, which they depend on for their supplies and services, may not be quite ready. They will have to pick an alternate gas station to go to in the event that theirs isn't ready and open that day.

That kind of simple messaging needs to be done. I think it's a message that needs to get to the entire small-business sector as well as to households. It's not disaster planning; it's contingency planning. I need a plan B in case there's a glitch here.

As far as going to the grocery store on December 31, I for one am not that concerned.

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Mr. Eugène Bellemare: Excuse me, but do you see the language you use? You say “I am not that concerned”. If I remove “that” then you're saying “I am concerned”.

Mr. Jeff Atkinson: I can't say I'm not concerned, but the source of the concern is how people are going to react to any disruptions that may be there. From my reading of issues, most of the disruptions that are going to occur at your local grocery store are going to come from the ability of that store to be open that day. And again, the services, that bedrock of services, on which the industry relies.... You might not be able to get our favourite kind of orange that day. There may be a delay in trucking. But you can certainly buy apples. Again, it's “overwhelmingly grave”, and I think you're saying a shallow grave is a grave nonetheless. But I wouldn't get that concerned.

There are people in most cities across the country who are focusing on the issue of food supply and food security in relation to Y2K. In talking with them, I've been asking them to flip it around and look at it from the way we've been telling people to deal with their own business situations. Look at yourself first; take charge of that little part of the universe you're personally responsible for. Make sure that's ready and then move on from there. Fold it out like a flower. Then eventually everybody will meet, and there will be gaps, but they'll be completely contained within that model.

That's what we've been telling people: take a logical step. What do you need? Who gives it to you? Go and ask them the question. If they can't give you an answer, make a plan to get it from someone else. And only if you can't get answers from anybody should you start stockpiling. But as other reports indicate, stockpiling in urban centres isn't a good idea. I live in a part of Ottawa where a large number of people would be impacted negatively by the stockpiling of food, particularly the poor and seniors.

The Chair: Thank you.

I'm really going to have to ask members and responders to keep their questions and answers as brief as possible. We are running out of time.

[Translation]

Mrs. Francine Lalonde, go ahead please.

Mrs. Francine Lalonde: Mr. Bulmer, I would very much have liked to read your document in French. Here's my first question. What is the Canadian Fisheries Council? You say at the end that you are a non-profit private sector organization. Are there any francophones in your association?

When you referred to the Coast Guard, you said that it did not know the readiness status of commercial ships. Have I understood correctly? In order to ensure the supplies for Quebec and Canadian businesses and for exports, our producers have to be able to rely on ships that are ready. You said a little bit before that that a modern ship had at least 1,000 systems or automated or semi- automated functions.

[English]

Mr. Ronald Bulmer: In terms of the first question, who the Fisheries Council of Canada are, we are a federation of provincial associations, firms in Nova Scotia who process and/or process and harvest seafood, who would belong to something like the Seafood Producers Association of Nova Scotia. Collectively, they fund an Ottawa office, which is the Fisheries Council of Canada. And sure we have francophones, New Brunswick Acadian, etc.

From the coast guard point of view, when I spoke to Mr. Gravel, he basically indicated that at this point their primary focus is more on transport vessels, ship safety, in terms of systems on board, etc. When I asked him specifically whether or not they had been reviewing fishing vessels, the answer was that he really didn't think they had done very many of those at this point, that they were spending more of their Y2K orientation in terms of the bigger issues of the St. Lawrence Seaway and getting in and out of ports safely and all of those sorts of programs. So while he was aware of a need, he didn't give me an indication that there was a fish-harvesting component of their program at this point. It's something I'll have to follow up on with them in more detail.

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[Translation]

The Chair: One final question, please.

Mrs. Francine Lalonde: When you speak of marine shipping, were you talking about passenger or cargo transport?

[English]

Mr. Ronald Bulmer: I'm more focused on shipment of goods. We are primarily a frozen industry, and therefore we export a great deal of our product, 80% of what we make. We export it as frozen container lots.

[Translation]

Mrs. Francine Lalonde: But some ships are not being monitored by the Coast Guard. Is that what you are saying?

[English]

Mr. Ronald Bulmer: No, I'm saying that is where they are focused; they are not as focused on the vessel that actually goes out and catches the primary fish out of the ocean.

The Chair: Madam Jennings, please.

Ms. Marlene Jennings: Thank you, Madam Chair. I have one question.

We've received the recommendation from the Canadian Federation of Independent Business that the accelerated capital cost allowance, which was announced in June 1998 and is effective from January 1, 1998, until June 30, 1999—that is in about six weeks—and which allows for an acceleration up to 100% of the capital cost allowance for purchase of materials, whether it be software or hardware, related to the Y2K bug, be extended to December 31, 1999, because there are significant sectors of small and medium-sized businesses that may be aware but do not have the resources in order to address that issue.

As one of you mentioned, if you're in the season of fishing, for instance, you simply can't stop and go and check to see whether your equipment is Y2K ready, and if it isn't then determine if you can remediate it or if you have to go out and buy new equipment. I would like a comment by all three of you as to whether you think that is a recommendation this committee should make.

The point has also been made that what may be needed is rather than simply extending the current accelerated capital cost allowance to December 31, it may be prolonged as it now stands to say the end of August. And then from the end of August or the first of September 1999 to December 31, 1999, it decreases, which means then you would not have 100% write-off. If you waited and purchased your equipment say in November, with the accelerated capital cost allowance it would be a lower percentage. I would like to have your comments on that.

And the second question is on the issue you've stated, that a lot of your members may not be aware and would rely on their accountants to provide them with that information. One, what have you done to contact the accountant associations, to ask them to do that? Secondly, do you think Revenue Canada could have a role? Because Revenue Canada receives tax declarations from individuals and from businesses across Canada, they would have the database with all of the companies. Do you think Revenue Canada would have a role in possibly sending out notices, whatever, in order to bring up that awareness?

Mr. Ronald Bulmer: I could go first on that. I think extension is an excellent idea. I would like to suggest that December 31, 1999, isn't the right date, because, as I said to you, people in my industry are going to turn to this issue in October, November. That's the first thing. But secondly, even for those who don't, and find out in January that they have a problem and therefore still have to replace equipment, why wouldn't they also have the benefit of the 100% write-off if they have to make that purchase in January or February of next year?

I think an extension beyond June is a good idea, but I would suggest that the extension probably should go sometime into at least the early portion of 2000 to allow people who do find out that there was a chip under a chip, as somebody here at the head of the table said, and they didn't know it until it malfunctioned. Why shouldn't they be able to have the same benefit?

In terms of using accountants to reach it, my industry doesn't want to hear from me, and they sure don't want to hear from their accountant. The only other person they'll talk to this summer is their banker if they're low on working capital.

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So I don't think that would improve communications on these sorts of accounting issues for small firms in the fish industry at this time. Well, Revenue Canada, sure, but as I say, really this is the committee that probably could carry that kind of message most effectively back to the Minister of Finance.

The Chair: Mr. Atkinson.

Mr. Jeff Atkinson: An extension would be ideal. Again, by the very nature of agriculture, if people are doing their testing over the course of the summer, they'll not have the money available until they sell their crop after harvest to actually make that purchase. They may have an idea of the equipment right now that needs to be replaced, but they can't do it. Extending it to December 31 would be ideal. However, making it available after December 31 would also be ideal.

Looking at those producers whose operations are down for the winter and who will suddenly realize that there is a problem after January 1 but who don't need to be compliant until they either begin seeding or begin preparing their crops for the following cycle, if they had access to that it would be ideal. Perhaps it should be at a decelerated rate, because I can understand the need for an incentive for them to be ready for December 31. But I would recommend an extension at least until the end of the year.

As far as who can communicate this to the agriculture industry, within the agrifood sector, going the accountant route is probably the best way if you're looking at large to medium-sized firms. For the smaller processing firms and the individual farmer, I don't know if contacting their accountants would be good. Again, they're not going to talk to their accountant about this until they actually have a need for it.

Telling them about it in advance through Revenue Canada.... Again, that may be something Revenue Canada could have accomplished this year as it was sending out the income tax returns. But it's too late for that. The best means would be to go through their bankers and simply full-court-press in terms of getting it into the media that this is an option that's available to them as well as the entire small-business sector and not just in agriculture and agrifood.

The Chair: Thank you.

Mr. Paszkowski, do you have any comments on that?

Mr. Dan Paszkowski: I think it would be a good idea to provide the extension of the capital cost allowance. To what point in time, I wouldn't say, but at least to December 31 would be my comment.

We've had good relationships with our suppliers. As I mentioned, if they aren't Y2K compliant we will find alternatives, but I don't think those relationships would die if somebody wasn't compliant over a short period of time. The loyalty would remain and the good business relationships would remain. Our industry purchases things in large scale. For inventory purposes, we don't purchase on a daily basis.

However, the supply industry in Canada is comprised of about 600 small and medium-sized businesses. They earn about 50% of their revenues from export. There'd be a significant loss to the Canadian economy in having these small and medium-sized companies go down when you're operating in Chile, for example, which doesn't have an established supply industry for the mining industry. Only time will tell in terms of how fast that will develop. If the Canadian industry loses that advantage there will be a significant loss in terms of revenue for Canada.

We have raised this issue with the Canadian association of mine equipment suppliers to get the message out to their membership in terms of being Y2K compliant. What the federal government is making available, I think, is a route. But as well, the bankers, the financiers of these establishments, could make this information known. We in the mining industry have definitely let them know that if they are not compliant then we will have to find alternative sources.

The Chair: Thank you very much, Madam Jennings.

I have to stop this session now. I want to thank our witnesses and apologize for the late start, but we do have another group of witnesses and we are very much behind schedule now.

This was obviously a very interesting discussion and could probably go on much longer. We thank the three of you for being here and for the very interesting and informative presentation. We wish all of your sectors well in reaching Y2K compliance. We hope we will be able to help in some small way.

I'm going to suspend now for about two minutes while we change witnesses and make time for those who want to grab a sandwich.

• 1225

• 1230

The Chair: I'd like to call this meeting back to order and welcome our next witnesses.

I'm very pleased to have with us now the Retail Council of Canada, Mr. Peter Woolford, senior vice-president, policy; and Mr. Jayson Myers, senior vice-president and chief economist with the Alliance of Manufacturers & Exporters Canada. Mr. Mathew Wilson is with you as well.

I would propose we have opening statements from both witnesses, and then move to questions after. We'll begin with Mr. Woolford, unless you have a different order.

Mr. Peter Woolford (Senior Vice-President, Policy, Retail Council of Canada): That's fine. Thank you, Madam Chair.

[Translation]

First I must say that we have provided the committee with only an English version of our presentation. We were working on our document until yesterday. We contacted our members to see whether our assessment of the problem was correct and fair, and we regret that we did not have the time to have our document translated.

Our presentation was divided into three parts to identify the various groups of retailers and their response to the Y2K challenge. First, we dealt with small independent merchants, secondly, with medium-sized businesses, and, thirdly, the large chains. We broke the small independent sector into two groups: the smallest, who may have one or two stores, and the others that have a certain number of stores.

[English]

Madam Chair, our largest members have invested a great deal of time and effort in resolving the Y2K problem. And it would appear they will be ready for next year. Our discussions with them indicate that effectively, all their mission-critical systems should be up and running on January 1.

Mid-sized firms by and large appear to be aware of the challenges they face and most of them seem to be working on the problem. As you heard earlier this morning, it ranges by size. As you get into the smaller mid-sized firms, they are relatively less far along and relatively less aware. Our judgment after talking with these members is that most of these firms also should be in fairly good shape on the beginning of the year, although we are worried about the amount of time remaining for them to complete their work. Time and again, the committee members referred this morning to the importance of testing. One of the concerns we have is that this category of firm will probably lack the time to do proper testing.

Many of our smallest retailers continue to be both unaware and inactive on this dossier—a concern raised by Mr. Lastewka this morning. Our concern here is that they are very rapidly running out of time. Fortunately for this category, while the cost to them will be substantial, the solution is relatively simple. Most of these small firms use independent, free-standing equipment; it's not networked. So the solution to their problem, while expensive, is simply one of buying either new equipment or new software. I don't want to minimize the impact on the firm, but the solution is reasonably clear.

The concern we have heard from these members and their suppliers is that there could well be a crunch in terms of hardware and software. And there will certainly be a serious limitation on advisory and service resources for them this fall.

The group we think may be the worst hit and the worst off are the relatively larger independent retailers. These are companies who have perhaps 10, 20, or 30 stores but still work with a small head-office capacity. Many of these firms have done little or nothing with respect to Y2K, and their needs are somewhat more sophisticated and may require some integration. They're badly underprepared.

[Translation]

In addition to that, in our presentation, we identify important points concerning the retail trade. A number of our merchants have indicated that they intend to increase their stock of goods before the new year. They feel that, in order to reassure their clients, they have to have enough goods for sales in the new year.

• 1235

Secondly, we have worries about suppliers, especially small- and medium-sized businesses from the Orient.

Thirdly, we do not expect there to be cash problems. We have discussed this issue with our members and with the Bank of Canada, and we estimate that there will be enough bank notes for the needs of the clients and the retailers.

We are dealing with the financial institutions to review the issue of credit cards. We believe that the systems will function quite well at the beginning of Y2K, but we will continue to develop back-up systems, in case there are any problems in this regard.

Finally, our members said that they were having difficulties because of the adjustments required for the year 2000. A number of companies have to allocate a major part of their resources to this problem and are neglecting other aspects related to software, changes, upgrades and maintenance.

We would like to make two recommendations to the committee. The individual who spoke just prior to us talked about extending the accelerated capital cost allowance period. Like the other witnesses here this morning, we would suggest that this period be extended to the middle of next year. Secondly, we would once again ask that the government refrain from introducing any policies requiring changes to computer systems within a year. These changes often require new resources, which takes away from the resources that we have earmarked for the year 2000.

[English]

Those are my opening remarks, Madam Chair. I'd be glad to answer any questions.

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

I'm now going to turn to Mr. Myers from the Alliance of Manufacturers & Exporters.

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Alliance of Manufacturers & Exporters Canada): Thank you, Madam Chair.

[Translation]

We are pleased to appear before you to provide you with an update on Canadian industry's readiness for the year 2000 challenge.

[English]

When we appeared before you several months ago, we highlighted many of the challenges Canadian manufacturers and exporters face in addressing issues of Y2K compliance. At that time we reported that many companies had begun to examine their critical information systems as well as systems with embedded chips.

Since then Statistics Canada has released its survey on the preparedness of Canadian industry, and that survey suggests that 99% of firms, regardless of size, will be ready to handle the challenges of the Y2K problem by the end of the year. I think that's wishful thinking.

There's a good news story and a bad news story. On the bad news side the amount of progress made by companies over the past several months has been fairly disappointing. We have not seen companies progress as rapidly as we had expected them to. It is an expensive process, particularly for smaller companies, to bring the resources to bear to deal with not only the upgrading and testing of their information systems but also the embedded chips in their processes, which in many cases, even for smaller companies, can be quite extensive, and it can cost a great deal of money to deal with that issue.

The good part of this story, though, is that from a number of testing services, we understand that approximately 5% of all of the equipment that has been tested actually needs to be replaced or upgraded in order to be Y2K ready. So although some companies are lagging behind and are probably not going to be quite as prepared as Stats Canada suggests they would be, the extent of the problem may be fairly limited.

• 1240

In fact, 77% of large organizations in the manufacturing sector report that they should be Y2K ready by the end of August, with 97% saying that they should be prepared by the end of October. For smaller companies, 78% of them are probably going to be prepared by the end of this year. They are not as far advanced. Over the entire sector only 44% have done a thorough examination of the embedded chips in their operations. So there is still quite a bit more work to be done across the manufacturing sector.

Many of the larger firms are looking beyond the technical aspects of Y2K. They're also looking at their business systems, their supply chain issues, issues surrounding risk management, financial liabilities, legal liabilities, contingency planning, and the environmental health and safety aspects of their business. Of course, they are also looking at their suppliers and customers and the infrastructure and transportation systems they depend on to keep in operation past the end of the year.

Larger companies, again, are fairly well advanced in this area. So far smaller companies have not made as much of an effort to look at these issues. In fact, when you look at the extent to which companies across manufacturing are making contingency plans, 62% of large and small companies seem to believe they have a back-up process to their existing production system. Approximately 65% are looking at some form of alternative staff arrangements during the transition from this year to next, and 50% are looking at or have selected alternative suppliers. More than that, 54% are expecting to build up inventory and to deal with the transition by doing that.

I should say that building up of inventory will also have an economic impact. What we are likely to see, at least in Canadian industry, is an increase in the inventory of stock and a decrease in the amount of investment in information technologies and information systems in the manufacturing sector in the second half of the year. So much of the business of our information technology sector is probably going to have been done by the end of the first half of this year.

The problems smaller companies in particular face are well known, I think, to this committee, and I echo what Mr. Woolford and the previous witnesses said. It's a matter of awareness. It's a problem of cost, particularly in dealing with not only the information systems, mainframe computers and so forth, but also the embedded chips, the embedded systems, the supply chain issues, the financial issues, and so forth.

The continuing challenges to industry are much greater than we've envisaged. They are challenges that are not only internal to Canada and to the information technology aspects of the business but also international issues. Certainly I don't think manufacturers across the board, particularly small companies, have really addressed supply chain management issues, risk management issues, liability issues, contingency planning issues, and environmental health and safety issues to the extent they should.

Many of these aspects of business are, of course, controlled and operated through either internal or external computer systems or chips. I think there are regulatory compliance issues and liability issues that companies will face during the latter part of this year and into the year 2000 around which especially smaller companies have not put a great deal of planning or contingency planning.

• 1245

We've outlined some of the key points in supply chain management, risk management, liability issues, contingency planning, and environmental health and safety issues that companies are facing. We have not yet undertaken a survey of our membership to see their degree of compliance with the specifics of these issues. But again, from what we can gather from the suppliers and the service companies we have been working with to encourage our members to become Y2K compliant, this is the area that is really lacking.

The international challenges are even more grave, particularly when we look at NAFTA and the degree of integration of Canadian industry with that of the United States, the Americas, and the world. Sixty percent of Canadian manufacturers export today. All of those companies are in some sense dependent on critical systems, whether those are transportation systems, communications systems, the capacity of their customers, the capacity of their international suppliers to supply them on time—to provide that on-time delivery that everybody counts on—or whether they're financial systems or the ability of customs to move their goods rapidly.

The customs systems today, of course, are extremely complex. The threat of border disruption has an impact on the ability of Canadian companies to secure or retain contracts, secure and retain investment. So the impact on customs will be a major impact on Canadian business.

The preliminary information we're seeing shows that approximately 40% of Canadian exporters are themselves in some way dependent on foreign suppliers, whether those are suppliers of materials, telecommunications, transportation, financial services, or energy. Of those companies that are dependent on foreign suppliers, approximately 25%—a quarter of them—are reporting that they have approached their foreign suppliers to see if they are Y2K compliant. And of those 25% that have approached their suppliers, only 15% of the total report that they have some degree of certainty their suppliers of these services, materials, or machinery are actually Y2K compliant.

As I said, 60% of manufacturers sell outside this country. But only 26% are reporting that they have actually contacted their clients, their customers, operating outside this country to see if they are Y2K compliant. And while 71% of manufacturers report that they are dependent today on a smoothly working customs system, only 16% are reporting that they have contacted Revenue Canada or customs authorities to ensure their goods will move freely across the border.

These are some of our concerns about the international aspects of Y2K. Some of this information I think is available. Certainly one thing we would suggest is that the Department of Foreign Affairs, through its embassies and consulates abroad, provide as much information as possible to Canadian industry with respect to their assessment of the Y2K preparedness of critical systems, whether they are infrastructure or transportation systems, or customs systems and so forth, of our major trading partners. I think this is essential contingency planning information for industry, and it would be very helpful if that information could be gathered and disseminated widely throughout Canadian industry.

• 1250

Let me conclude with some remarks with regard to the issue of the accelerated CCA. We very much support the extension of that. Again, we feel that many of the problems will arise at the beginning of next year. Even the best testing and contingency planning that's going forward will not avoid the problems that will arise. We would certainly support the extension of the accelerated CCA to at least March of next year.

The Chair: Thank you.

I will now turn to questions.

[Translation]

Mrs. Lalonde, please.

Mrs. Francine Lalonde: Good afternoon, Mr. Woolford and Mr. Wilson. Thank you, Mr. Myers, for submitting a document in French this time.

Mr. Jayson Myers: We were pleased to do so.

Mrs. Francine Lalonde: I took out your last presentation, which had really struck me because the figures reported there were so different from those we had obtained from Statistics Canada and the task force. The difference was really quite striking. I would remind you that you had sent out 7,000 questionnaires and that 542 firms had responded. I had asked you a question. You had arrived at a figure of only 36%.

[English]

of those companies surveyed said they have plans to upgrade or replace their embedded systems.

[Translation]

You have just referred to a series of figures that we don't have. I would really like to have them. I jotted a few down. You said that only 44% of the firms had looked at the problem of integrated systems. That means that there hasn't been very much significant progress made since the survey was conducted in July of last year. That's worrisome.

Moreover, you said that there was some good news. The technicians who reviewed the requirements to be met by industry stated that only 5% of the equipment needed to be replaced or modernized. I'd like you to give us a clear picture. Statistics can hide certain things. Putting your head in the fridge and your feet in the oven doesn't make you really comfortable. I'd like to know what this all means.

Finally, are you comfortable with the most recent report published by Statistics Canada, from which you quote, which states that nearly all Canadian businesses, namely about 99%, will be prepared to meet the challenge? I am confused by these three figures.

[English]

Mr. Jayson Myers: First of all, my apologies for not including the statistics I quoted in our submission. We are currently undertaking this year's survey of our membership. I'm afraid the preparation of the submission was more advanced than the survey itself.

The numbers I provided are largely the preliminary numbers we've gathered so far. They are fairly reflective of the membership of the manufacturing and exporting sector, although they probably do not have the statistical validity of Statistics Canada. But I think they are fairly sobering, in that they point out that while there has been some progress made in dealing with the problem of embedded systems, especially by small companies, that progress has been fairly slow.

From the results of the Statistics Canada survey I've seen, it is more a survey of expectations. It asks, “Do you think you will be ready by August? Do you think you will be ready by October or December?” I'm not so sure those questions are the most telling here. If I were a manufacturer or a company, or any business, I wouldn't say no, I'm not going to be ready by the end of the year, although I may not be because of a number of the problems we've discussed previously.

• 1255

I acknowledge that the progress has been slow. It is a concern. Certainly the large corporations have taken the furthest steps here, not only in embedded systems and critical information systems, but also in the evaluation of their supply chains.

For smaller companies, it's not so much a problem of awareness, although that is the case for some when it comes to the embedded systems problem. It's also a question of finding the technical support to do the testing—the analysis. Certainly there's an investment of a great deal of money involved here as well, and that has to be part of a larger capital planning process for any business. Upgrading information systems or production systems for any business has to be part of the overall review of their technology and where that is going.

We are concerned. From last summer, when our management issues survey was released with the last numbers I presented here, to the survey in which the data is now being gathered—and probably about half of the companies that have reported so far have provided the data we had last year—it looks like progress in the embedded systems area is very slow.

With respect to the number that 5% of equipment seems to be Y2K compatible, this is a number we hear from many of the technical services companies we're dealing with. It seems to be a rule of thumb, but it's a number they have been working with, as they have been surveying companies and working with companies.

Maybe, Mathew, you'd like to say a word about that.

Mr. Mathew Wilson (Policy Analyst, Alliance of Manufacturers and Exporters of Canada): That number came from not only our preferred Y2K specialist, who is working with our companies, but from other articles I've read. It's a number I was shocked at as well. It seems to be rather low for the commotion people are making.

I would imagine that the number refers to critical systems—things that could cause an entire assembly line to stop. There may be other problems that are not included in that number that would raise it up a little, but I have to say I was rather surprised at the low number as well. But that's what we're hearing from our experts.

Mr. Jayson Myers: Finally, with regard to the statistics about the international impact, these are also from our survey. But I also gather that Statistics Canada included an international review in their survey. We have not seen the results of that yet. It would be a very useful set of statistics to be made public to industry.

The Chair: Thank you.

Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair.

I want to continue with the alliance discussions. Of your 3,500 members, how many are SMEs?

Mr. Jayson Myers: Approximately 90%.

Mr. Walt Lastewka: When will you, as an alliance, be declaring that you're Y2K ready?

Mr. Jayson Myers: I think we did that last March.

Mr. Walt Lastewka: All of your members are Y2K ready?

Mr. Jayson Myers: Yes, our organization is Y2K ready.

Mr. Walt Lastewka: No, I mean your members.

Mr. Jayson Myers: I don't think we will be in a position to declare that until after the end of the year. I'm sure many of our members will not be Y2K compliant at the end of the year.

Mr. Walt Lastewka: If the foreign affairs department of the United States asked the question, “Canada, could you tell us the status of your manufacturers in Canada?”, what would you suggest we tell them?

Mr. Jayson Myers: It would be key to differentiate between those manufacturers that were suppliers to U.S. industry and those who were perhaps not as critical to U.S. manufacturing or U.S. industry.

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Among those who are direct suppliers into the supply chain, where the ultimate customer is a U.S. company or a direct supplier to a U.S. company, you could tell them that manufacturers in Canada are as compliant as their U.S. customers are.

Mr. Walt Lastewka: On page 3, where you're requesting that the government and the foreign affairs department provide Canadian companies with information, is that the information you want?

Mr. Jayson Myers: No. I think the foreign affairs department is in a very good position to collect information about the status of infrastructure or industry, since the U.S. embassy is here in Ottawa on the ground. The problem here is there's a lack of general information available to industry. They're looking at the preparedness of infrastructure, financial services, and a lack of really good analysis and statistics.

With respect to your previous question, about if the foreign affairs department asked about the preparedness of Canadian manufacturing, they would probably be able to find a fairly good analysis or a fairly good statistical base by reading the proceedings of this committee or by coming to us. We would be more than pleased to provide them with the statistics we have.

Mr. Walt Lastewka: We don't have the data and numbers you were repeating, and I didn't write them down. I'm being left with the impression you're not exactly sure where your 3,500 members are. Will your survey going out now give you a better handle on that?

Mr. Jayson Myers: That's right. The survey information we're collecting now will give us an update from last summer. We only publish this survey once a year, so we will get a bit more of a feeling about where our members stand here.

The process of becoming Y2K compliant is certainly an ongoing one and it has accelerated during the course of this year. So we'll get a good snapshot perhaps of where they stood in early May, when this comes in. We did not ask, as Stats Canada asked, whether they will be ready by August or October, because we thought it would be better to see where they stood in May.

Right now, I think we have a fairly good benchmark from our last survey last summer. As I said, the preliminary results of this show there has been some improvement.

Mr. Walt Lastewka: When will the report be available, so you can forward it to the committee?

Mr. Jayson Myers: We can forward the preliminary results to you right away. I apologize for not having that in writing today. But I imagine the entire survey itself will be made public during the course of the summer. The Y2K part of that could certainly be made available to this committee as soon as the results come it. It usually takes a month or two to get all our results in and then analyse them.

Mr. Walt Lastewka: I'm trying to get some confidence and understand, with your organization and the large number of firms you represent, exactly where your manufacturers are. In other areas, we've been able to receive information sector by sector. I would appreciate getting the Y2K portion as soon as possible.

Thank you.

The Chair: Thank you very much.

Mr. Jayson Myers: We'd be pleased to do that.

The Chair: Madam Jennings.

Ms. Marlene Jennings: Thank you, Madam Chair. I'll try to be brief.

If I understand you correctly, you are in favour of extending the accelerated capital cost allowance at least until December 31st, if not into a portion of 2000. Do you see a role for Revenue Canada?

I've heard customs mentioned by the alliance and that even though 60% of Canadian manufacturers export, only something like 17% have actually contacted customs to make sure their supplies going out or coming in will be able to do so without any problem.

• 1305

Do you see a role for customs in assisting your membership, the retailers, and Revenue Canada? There has been a suggestion, which was bounced with the previous witnesses, about possibly Revenue Canada sending out a notice—they've got the databases with all of the businesses—sending out some kind of a notice, brief but catchy, to get the eye on the issue of the capital cost allowance. I'd like your feedback on that.

Mr. Jayson Myers: I think that would be very useful. Of course Revenue Canada sends out notices on customs as well, and I think there it's the issue of alerting not only exporters and importers but shippers as well of the preparedness, especially of the Canadian-U.S. customs system, but also perhaps any other information they might have with regard to other customs systems. I think that would be very useful. With respect to the accelerated CCA notice, yes, and that could be put in a number of forms, including the GST bulletin that goes to most companies.

My feeling is that the accelerated CCA is being used particularly by small businesses, and therefore a notice in the GST bulletin would probably catch their interest very quickly.

The Chair: Mr. Woolford, did you have anything to add to that?

Mr. Peter Woolford: I would certainly agree with what Mr. Myers has said. I think at this point any means of communication we have to get the message out would be helpful. Even if it reaches only a relatively small number of companies, it would be useful for that reason.

It's a real challenge getting the attention of independent businesses. Anyone who's ever talked to an independent business operator for any length of time know just how stretched they are, just keeping the lights on, the customer satisfied, and the product moving. Something that is after Christmas for the retail trade doesn't even exist yet, and won't exist until January 1. So while I don't think it's a bad idea, I wouldn't have very high hopes for it being read avidly in the retail trade. I hate to say it.

Ms. Marlene Jennings: Even if it came from several sources? Because I understand some people may receive it and throw it in the garbage. Perhaps I'm moving in the wrong circles, but my brothers and sisters are all entrepreneurs and run businesses, and when they get an envelope that has Revenue Canada stamped on it and it's addressed personally to their company, it gets opened.

Mr. Peter Woolford: Yes. It will get opened. As soon as they realize it's not a tax bill—

Ms. Marlene Jennings: But if it says you could get money back. I mean, all of those envelopes.... The direct mail is really good—“You just won”, and then you read the small print and you have to spend $3,000 to get a $5 gift.

Mr. Peter Woolford: I think anything that can be done should be done. It's well worth while for the small independent operator.

The Chair: Thank you, Madam Jennings.

Mr. Myers, did you have something to add?

Mr. Jayson Myers: Let me just add that smaller companies are really stretched. Of course although it may threaten their business at the end of the year, this is one of many issues they're dealing with. Getting the payroll out on Friday is a pretty critical issue as well.

It is not just a matter of the cost of replacement of the equipment. It's also a matter of the cost of the analysis of the testing, and particularly when those are embedded on the shop floor. This is one reason why I think the small companies in particular respond very well to their larger customers who say they have to do this if they want their next order.

Maybe another way of encouraging at least some of the smaller suppliers in the manufacturing sector and some services in manufacturing is to work with some of the larger companies who are at the top of the supply chain or who depend on a number of suppliers. In fact this is what is being done and what we're encouraging these companies to do as well, to basically require their suppliers to be compliant, but it costs a lot of money.

The Chair: Thank you.

[Translation]

Mrs. Lalonde, please.

• 1310

Mrs. Francine Lalonde: Yes, it costs a lot of money. Although we were happy to obtain this accelerated capital cost allowance, the fact remains that businesses, in order to make these changes, must first invest money. Since they are also motivated to improve their productivity, they may hesitate to invest money without it resulting in increased productivity. Is this not quite a thorny problem for all of the Quebec and Canadian economy?

[English]

Mr. Jayson Myers: Yes, there is. Of course in business as a whole, but particularly manufacturing, so many of the production systems today are integrated through information technology. Where manufacturing is moving those integrated systems become more and more important in terms of integrating design, engineering, marketing, testing, all in one design system, an engineering and manufacturing system.

So the computer systems, the networks, the embedded systems on the shop floor are tremendously important, not in the realm of Y2K, but I think we've seen over the past two summers the effect that a labour problem in one plant in the automotive system has in shutting down the entire automotive production. Last year it was General Motors, and the year before that across a number of automotive plants in Canada and across North America. So it may be only one small problem somewhere in the system, but that is a very critical problem, and the impact could be much wider than that.

That's why I think, in a sense, perhaps the message to industry and to companies is certainly to build awareness that it's critical to upgrade, replace, to make sure you're Y2K compatible, but perhaps more of the message should be do you have contingency plans in place? Do you have alternative suppliers? Do you have an alternative transportation arrangement? Do you have some form of perhaps an inventory stock there that you can deal with some problems in your own company if those arise? That, I think, is an important message that should be appearing as well.

This is going to be, I think, a very, very serious economic problem. It's not a matter of whether or not we will have a problem; it's a matter of to what extent this will be a problem and to what extent that problem can be contained.

The Chair: Mr. Woolford.

[Translation]

Mr. Peter Woolford: Yes, we dealt with this issue in our presentation. We indicated that our biggest members, the big chains, were very concerned about the amount of resources, money and people they have had to devote, over the past few years, to this issue. They are concerned about two things.

First of all, there is the whole issue of productivity, an issue you raised. They are afraid that they will lose their competitive position because of the investments that they have had to make but which do nothing for their company.

Secondly, they are concerned about neglecting the maintenance and renewal process for the systems themselves. The systems naturally require small daily adjustments. Much of this system maintenance has been neglected because of the resources that have had to be earmarked for the Y2K problem. This is particularly true for the companies that have made the most progress. They have used computers as a way to improve their competitiveness and they risk losing this advantage because they have had to renew and adjust the very systems that helped build the capacity of the company. They are well aware of this problem and they have no choice.

Mrs. Francine Lalonde: But they're saying that every business throughout the world is in the same situation.

Mr. Peter Woolford: Yes, but what's curious is that companies who have done the least are affected the least.

• 1315

Mrs. Francine Lalonde: That's true.

Mr. Peter Woolford: The companies who have done the most, those who were the first to work on the problem, are the ones who will be affected the most. We discussed this matter with one of our most important members, one of the first companies in Canada to use computers in the 1950s. Representatives told us that when they looked into their systems, they found a small program right in the middle which had been written in the 1950s. Every other program was written around the first small one. For this company, the first challenge was to find a systems engineer who understood the language of this old program. They finally found one: a gentleman who was 67 years old.

This is the kind of problem which the most advanced companies face, and that's cause for concern.

The Chair: Thank you, Ms. Lalonde.

Mrs. Francine Lalonde: May I ask a final small question, Madam Chair? It's not hard for big companies to find money, but that's not necessarily true for smaller companies. Even if there is a financial guarantee, which is a good thing, companies have to spend an initial amount of money, and many small businesses might not have that kind of cash. If the problem is just with computers, it's less serious, but if you have to deal with integrated systems, that's a whole different ball of wax. That's why I want you to tell me exactly what that 5%, which you mentioned, represents.

Mr. Peter Woolford: If you know the details, you know that finding money is always a problem for a business. There are even some big corporations who have trouble financing this type of investment. It's not only a problem or a challenge for small- and medium-sized businesses. Making an investment without any guarantee of a return is hard for a company, and many of them don't have adequate funding or any kind of stability to begin with. According to Statistics Canada, approximately 40% of small- and medium-sized businesses, especially medium-sized businesses,

[English]

have a negative capital capacity, have negative capital in their company.

[Translation]

Many retail businesses have cashflow problems today. It's a fairly big investment to make for these businesses.

[English]

Mr. Jayson Myers: Yes, very much. It's a problem particularly for smaller companies, and in some of those sectors that are more advanced in the knowledge-based enterprises that are driving innovation it's going to be very much of a problem, because those are the companies that are finding it, in many cases, very difficult to get the financing anyway. For the companies that are doing research and development using information technology and automation systems, it's difficult already to find capital or financing to keep them in business, let alone replace the capital.

The Chair: Thank you.

I want to thank you for your presentations. I appreciate you both being here today. I also want to tell you that as a committee we're having some difficulty in looking at the extension, how far the extension goes. I sit here and I listen today about the CCA and I hear, “Oh, to the middle of the year”. Well, we just had witnesses prior where they won't use their equipment until the fall, so they're cut out. Yet the Retail Council, of all people, will be the first ones affected in January, so they need to be on the ball.

By the middle of the year, I would think, is way too late for them to be fixing problems. But the whole idea behind the tax deduction, or the rapid acceleration, was to encourage people to get ready. And if you are getting ready and there's a problem with something you've done to get ready, then somebody's responsible. I'm assuming you have a computer place, a technician, you have a contract. The whole idea behind it was to get ready for January 1, not to get ready for June 30 next year, or next fall. It was to get ready for January 1. As a committee we have to come to terms with this.

I just throw that out there because it's interesting to hear, you know, the different sectors and the different ideas they have on how far it should be extended. I'm assuming, you know, that if we had more witnesses coming we'd hear it should be extended to the end of next year pretty soon. I think the goal was to encourage people to get ready.

• 1320

One of the things that probably needs to be looked at with regard to technology and that kind of equipment is a faster CCA deduction anyway, because of the rapidly changing technology in the future. I mean, we've seen what's happened with the Y2K problem, and maybe that's the direction this committee should be recommending—that is, something that's a constant and something the Minister of Finance should take a look at.

I want to thank you all for being here.

We're going to suspend now until 3.30.

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• 1532

The Chair: I will now call the meeting back to order.

I'd like to welcome our witnesses this afternoon. We have with us, from Industry Canada, Mr. Edward Thompson, the assistant deputy minister, business law, and counsel to the department; Mr. Timothy Garrard, the chief information officer; and Ms. Connie Edlund, director general, Y2K task force secretariat. As well, from COMPAQ we have Mr. Harry Don, year 2000 services project manager.

I would propose that we begin with opening statements from each of the witnesses and then move to questions. I'd like to begin with Mr. Thompson, please.

Mr. J. Edward Thompson (Assistant Deputy Minister, Business Law, and Counsel to the Department, Industry Canada): Thank you, Madam Chair.

I understand the main purpose for my being here is that there is some interest in the committee in the good Samaritan legislation in the United States. I thought I'd comment briefly on what the nature of that legislation is and how Canada is addressing similar issues.

The legislation is known as the Year 2000 Information and Readiness Disclosure Act. It has a very narrow compass. Certain documents that are registered under the act are in tightly defined circumstances rendered inadmissible in any civil action in the United States.

The Chair: I'm sorry, Mr. Thompson, I was looking for a prepared statement. There isn't one.

Mr. Edward Thompson: I'm sorry, I do not have a prepared statement.

[Translation]

Mrs. Francine Lalonde: Madam Chair, it is extremely difficult to ask questions of these witnesses—Industry Canada witnesses—when we are not given any kind of documentation.

[English]

The Chair: Madame Lalonde, with all due respect, Mr. Thompson is coming here at the last minute. We decided last week that the Canadian Bar Association didn't have anything further to add to this presentation, and we asked Mr. Thompson to come and meet with us today, knowing he would not have a statement prepared.

Please proceed, Mr. Thompson.

Mr. Edward Thompson: Thank you. I apologize if it causes inconvenience.

I was saying that there's a very limited scope to the act. One of the limitations, for example, is that it only applies in domestic court. So a multinational company trying to take advantage of the protection of that statute could still have its documents used against it in another jurisdiction, such as Canada, Great Britain, or France. To date, very few companies are taking advantage of the limited protection the act provides and it's being widely criticized. In fact, the consensus among American lawyers who practise in the field is that it will not do much to assist in the provision of information.

• 1535

The premise of the act is that information is more likely to be shared if the fear of incurring an inordinate liability is taken away. Experience has shown that this fear is not a prime motivator in achieving Y2K compliance. There's a greater fear in the business community, and it's one of survival—that is, protecting their reputation, goodwill, shareholder confidence, and lines of credit. Litigation is very much a secondary consideration when faced with the spectre of bankruptcy and the loss of your client base. To date, there are approximately 50 lawsuits in the United States and none in Canada, and most people don't expect that there will be an avalanche of litigation flowing from this.

In Canada, jurisdiction over liability issues is a provincial responsibility under subsection 92(13) of the Constitution Act, 1867, property and civil rights. So the federal government and provincial and territorial governments have met on several occasions and discussed possible legislative responses. There is no support from any government for this action. It is seen as unnecessary to promote information sharing, and there is a concern that victims who suffer damages as a result of Y2K failures may be denied a remedy that would otherwise be available to them.

There was some opposition from some governments to the federal government legislating in this field using its emergency powers. If federal legislation was at risk of being declared invalid, it's unlikely that anybody would rely on it in any event, and we'd be well past the year 2000 by the time the courts resolved the issue.

To enact emergency legislation in a field of provincial jurisdiction requires, at a minimum, an apprehended emergency. All our information to date, which has recently been confirmed by the Statistics Canada survey, suggests our major infrastructure systems will be compliant. Even if a sound policy choice suggested legislation, the federal government doesn't have an unambiguous evidentiary basis to usurp provincial jurisdiction in this area, so we're not planning any legislation in response. We haven't identified a pressing need for it.

Those are my opening comments. I'd be happy to entertain any questions you may have at the end of the other commentary.

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

I'm now going to turn Ms. Connie Edlund, please.

Ms. Connie Edlund (Director General, Task Force Year 2000 Secretariat, Industry Canada): Thank you, Madam Chair.

It's my pleasure to be here today to provide an update on the activities and plans of the Industry Canada Task Force Year 2000 Secretariat.

I'm joined by my colleague Tim Garrard, chief information officer for Industry Canada and manager of our Year 2000 First Step program. I have some brief opening remarks to make on behalf of the department, and then Tim will speak to the Year 2000 First Step program and Industry Canada's internal state of readiness. Then we'd be happy to answer any questions you may have.

As members of the committee know, Industry Canada's mandate with respect to the year 2000 issue is to assist industry preparedness. We began addressing this mandate by supporting the work of the Monty task force year 2000 secretariat, and we have continued as a secretariat since the task force completed its work last July.

Having succeeded in raising business awareness to virtually 100%, our next challenge was to help provide the tools and information necessary for business to understand the problem, plan an approach to solving it, and execute those plans as quickly as possible.

I've taken the liberty of attaching to my opening remarks a statistical overview and chronology of the communications activities we have completed to date. I won't go into them in detail unless you have specific questions, but in summary, working with private sector partners and other government departments, to date we have distributed almost 20 million Y2K information brochures, including the distribution in February of the “Millennium Bug Home Check” to all Canadian households. I think you've seen that.

We've produced two task force year 2000 reports, managed and funded three national Statistics Canada surveys, executed two national print advertising campaigns, a national radio ad campaign, two Internet ad campaigns, and a national television public service campaign.

• 1540

We've serviced over 600,000 Internet inquiries and over 32,000 telephone calls to our 1-800 line. We've provided two comprehensive information kits to members of Parliament, and responded to one, and soon to be two, reports of your committee.

As well, we created and managed a national speakers bureau, and participated in hundreds of seminars, conferences, workshops and SME info fairs. In February of this year we coordinated a Y2K preparedness week and distributed the “Millennium Bug Home Check” to all Canadian households.

I want to stress the importance we place on the partnerships we have developed in order to achieve these results. The level of information sharing and cooperation within all levels of government and the private sector has been, in my view, extraordinary, and the single most important reason why Canada has maintained its position as clearly one of the most Y2K prepared countries in the world.

This committee has long recognized the importance of a cooperative approach and has formally recommended it in its report. In response, in support of these recommendations we established an industry outreach program within the secretariat designed to assist associations in reaching their membership, communicating best practices, and sharing intelligence on remediation and business continuity planning.

These efforts have complemented the small-business support programs that have been in place for some time now and are I believe well known to the committee. These programs are the year 2000 first step diagnostic service, the accelerated capital cost allowance for small-business Y2K upgrades, and the CAN2K workbook partnership with the State of Pennsylvania and the Business Development Bank of Canada year 2000 ready loan fund.

So this then is a summary of what we have undertaken to get us to where we are today. Where we are today is best described by the results of the latest Stats Can survey. Dr. Fellegi, the chief statistician, presented the data to you last week, and I can say that we share his perception of it both in terms of the positive picture it paints, but also in terms of some of the areas of concerns raised, both elements of which were recognized by this committee.

We know that despite the optimistic predictions made by large businesses regarding completion targets, more work still needs to be done. That work is ongoing. Its completion in early June will give us a clearer indication of what areas we will need to focus on and monitor.

I should add that in support of the Stats Can data, recognizing that the survey did not address small enterprises with fewer than six employees, we have undertaken a similar but smaller-scale survey of very small businesses with Decima Research. Those results will be available in a few weeks, and we will be happy to share the findings with the committee.

On the consumer side, we were extremely pleased with the impact of the “Millennium Bug Home Check”. It was well received by commentators, the media, and the general public. We are contemplating a follow-up document for the fall.

In conclusion, I can tell the committee that we intend to maintain our activities right through to the end of the year. We will focus our ongoing communications and any new incentives or initiatives on the remaining businesses that have yet to start their Y2K preparation. We will expand on the information available to consumers both on the state of industry preparedness and on the continuity of government services through our work with the Treasury Board Secretariat. We will also be working with the Department of Foreign Affairs to address the needs of exporters and importers. We will of course be responding shortly to the most recent report of the committee.

We look forward to continuing with what we feel has been an excellent relationship with the committee in its valuable contribution to addressing the year 2000 problem. We will continue to maintain our goal, as stated by Minister Manley, of trying to turn the millennium bug challenge into a competitive global advantage for Canada.

Thank you.

The Chair: Thank you.

Mr. Timothy Garrard, do you have some information to add as well?

Mr. Timothy Garrard (Chief Information Officer, Industry Canada): Yes, I do.

Thank you very much for giving me the opportunity to appear before you again to update the committee on the Year 2000 First Step program, and as well briefly on the industry department's general state of preparedness for Y2K. I'll begin by making a few brief comments, and then I'll be pleased to answer any questions you may have.

• 1545

Let me first speak about the Year 2000 First Step. The committee may remember I appeared before you last fall to discuss this program in depth. At that time I was accompanied by Mr. Rob Paterson of the Canadian Imperial Bank of Commerce, our partner, as well as a representative of Industry Canada's student connection program. CIBC has been an excellent partner for us in this initiative. The student connection program is responsible for delivering the Y2K First Step program across the country.

This initiative was introduced in June 1998 to provide Canadian small and medium-sized businesses with a better understanding of the issues surrounding the millennium bug and the potential for their business to be affected by it. Specially trained university and college students conduct audits and develop action plans to help companies take that first step in ensuring their critical business systems are year 2000 complaint. To date, 2,845 small and medium-sized businesses have been assessed. That's approximately 28,000 computers tested.

[Translation]

A typical Y2K audit includes a one-hour Y2K awareness session to help the business client understand potential problems, and encourage them to investigate the policies of their suppliers, bank, insurance company, etc..

Second, a complete inventory of their business systems including computers, fax machines, photocopiers and all other equipment that may be year 2000 sensitive.

Third, a diagnosis of their hardware and software on up to 10 computers, a review of business risks and, lastly, a detailed report and complete action plan with suggestions on the steps to take to ensure that their business becomes year 2000 compliant.

The price of a Y2K assessment is about $200 for up to 10 computers.

As the name implies, Year 2000 First Step does not provide the year 2000 fix, but rather, it suggests ways clients can take the necessary steps to ensure they are prepared for the turn of the clock. For example, businesses are encouraged to contact their suppliers in order to request, in writing, assurances that services will not be disrupted. Once the client has been evaluated, they can then decide whether to hire a private sector contractor to bring about compliance.

[English]

For your information, I have available with me today sample action plans that have been prepared by our students, as well as some detailed information about the student connection program. Many Canadian SMEs are already very familiar with the millennium bug and the potential impact it may have on their business systems. Our objective is now to reach the businesses who have not taken the appropriate steps to become year 2000 compliant and to provide them with the assistance they need.

Allow me to finish with a few words on the state of Industry Canada's readiness for Y2K in its own systems. I've testified to your committee on this before. We have nearly completed this project. Most of our systems have been assessed, if necessary repaired, and fully tested. While some work on a few systems remains to be finished, Treasury Board has determined that we are at a 98% state of completion, and the tasks that remain are free of major risk. Our main effort is now turned to developing contingency plans for the eventuality, for example, of an interruption in public services like electricity or transportation.

I'll be pleased to answer your questions.

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

I'm now going to turn to Mr. Harry Don, the year 2000 services project manager from COMPAQ. Mr. Don.

Mr. Harry Don (Year 2000 Services Project Manager, COMPAQ): Thank you, Madam Chair. Before I begin, I must also apologize for not having a prepared statement due to late notice.

I'll begin by introducing myself. I am the year 2000 services manager for one of two service organizations within COMPAQ Canada. Prior to joining the service organization, I was the applications support remediation manager for Digital Canada's internal applications. As you may or may not know, last June COMPAQ purchased Digital.

• 1550

COMPAQ provides a wide range of services in the year 2000 area. We perform services such as system inventory, appraisal of systems, and assessment and renovation of applications. The inventory has two aspects. We do an inventory of the hardware, primarily the COMPAQ/Digital hardware platform, UNIX, VMS, and the Microsoft platform. We perform inventories of the products and applications that are on those platforms and do an assessment of the Y2K readiness of those products.

We also provide services for any in-house applications, as opposed to products that are developed by customers, and renovate those applications as required. We have several products such as Check 2000, Piercom, Navig8, IST, and some internal value-added procedures in this work.

That's it for my statement.

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

Everyone should have a copy of COMPAQ Canada's year 2000 service offerings.

We're now going to begin with questions. Mr. Lowther.

Mr. Eric Lowther (Calgary Centre, Ref.): Thank you, Madam Chair. Thank you to the witnesses.

I have a couple of questions. First of all to Mr. Thompson, you seem to give the impression, as I heard you, that there isn't a need or a strong call for good Samaritan legislation here in Canada. I think that's basically what you're saying.

I'm thinking back to some of the vendors in my own area. Some of the utilities in my own area I talked to a year or so ago were somewhat reluctant to share information without a great amount of legal work being done, such as having non-disclosure things being signed, before they would actually sit down and talk with companies they interfaced with. Maybe these companies have sorted this out now, have covered themselves off, and there's no need for it any more.

I guess what I'm struggling with here is that they were saying there is a liability issue here. They were reluctant to share information for fear there would be some liability issue around what they shared if it got out or gave somebody a false sense of security. So they wanted to have non-disclosures there. I'm wondering now about this whole issue.

We don't know how big the problem's going to be afterward. There's the integrated chip issue. We have testing methodologies that we're not sure have actually examined all the permutations and combinations of things that could go wrong. We have systems that haven't been completed yet.

So after the year 2000, don't you think there's going to be a lot of litigation and liability there, a great exposure, when a lot of these things just don't work? What are we saying? Well, tough? I'm wondering why we're not looking at something that says if you can exhibit that you've applied the best practice you could, that you were diligent in every way you could be, that you had outside auditors—you did everything—there should be some limit on the liability.

It's hard to get insurance companies to insure you for this stuff. In fact, my insurance company's sending me letters saying they won't insure me. So what about this liability issue from your perspective?

Mr. Edward Thompson: I think there are a number of issues. But dealing with the substance of your question, legislation appears to be a poor substitute to provide this kind of protection to promote the sharing of information. Contractual obligations between parties with non-disclosure clauses are common ways in which people conduct business. To my understanding, that has proven to be effective, and we don't really have a problem evolving in Canada with people sharing information.

On the other hand, if people are making negligent misrepresentations and people are suffering losses as a result of it, there doesn't seem to be a lot of evidence that we would want to change the law and deny people a right of recovery, even in a limited fashion.

• 1555

In the United States they are looking at putting caps on punitive damages, but they operate in a different regime. For example, the other day somebody who overpaid $1,200 for a satellite dish was awarded $581 million by an Alabama jury. We don't have that kind of problem here. We have other laws in place that seem to restrict it.

The other issue, of course, is that liability is a matter of provincial jurisdiction. Provinces have negligence laws and the civil code deals with contractual relationships and negligence. That's where liability is controlled. And going on the results of three different meetings I've had with them specifically on this subject, none of the provinces or territories sees it as an appropriate response.

Mr. Eric Lowther: Well, I'm reading your title here: assistant deputy minister, business law, and counsel to the department. Do you think there will be a lot of litigation when this is all over?

Mr. Edward Thompson: No, I don't. There will be litigation, but I don't think there will be an avalanche of litigation that will clog the courts.

Mr. Eric Lowther: What are you basing that on, if I may ask?

Mr. Edward Thompson: I'm basing it on discussions with Canadian bar associations, and on an international meeting of lawyers I attended in Washington, where various experts in the field discussed the pros and cons, the types of actions that might be commenced, and the nature of the limitations on product warranties that have been put on computers and software packages.

Mr. Eric Lowther: Can you give the committee or me any sense of what kind of defence a person would have to make to be free from liability or to demonstrate he'd done everything possible but something went wrong? Or is it that if something goes wrong, you're liable, period? Is that basically it?

Mr. Edward Thompson: No. There needs to be negligence or some other breach of contract obligation. With software packages, for instance, it's recognized that you can't write software without some glitches and errors. Since the early eighties, the warranties that come with software packages are very limited and there's almost no hope of a successful lawsuit there.

Mr. Eric Lowther: But even apart from that, there are integrated chips and all kinds of other unknowns. Can you foresee a case? Let's take a hypothetical situation where a company has done everything. They've had the independent audit; they've tested; they've done it all. But something—an integrated chip somewhere in a process—blew up, didn't work. And now they're being sued for breach of contract. Should that company then, with this liability floating there, now be saying we've done all this work, but we're not giving any guarantees, because if we give you guarantees, you'll drag us into court later for breach of contract? How does a company cover themselves there?

Mr. Edward Thompson: Well, I think you've described how they do it. Due diligence is a defence. I can't give you guarantees and talk in hypotheticals—

Mr. Eric Lowther: Okay.

Mr. Edward Thompson: —but due diligence is a defence recognized in law. And if somebody has behaved appropriately and done everything available to them, including giving warnings in appropriate cases not to rely on the product for a period of time, courts would accept those defences.

The Chair: Thank you, Mr. Lowther.

Mrs. Barnes, please.

Mrs. Sue Barnes: I think we've done an excellent job on getting some information out there. But it concerns me when I look at my own local newspaper. For the last couple of months I've been seeing two lawyers writing a column about Y2K. I think just the fact that it exists in that context puts the thought in people's heads that if it all goes wrong, they can just sue somebody.

I think in your capacity, maybe part of the message we should be getting out there is about the duty to mitigate. Since this is televised, why don't you take this opportunity to explain what the duty to mitigate means in relationship to this exercise.

Mr. Edward Thompson: I'll try as briefly as I can.

Assuming I'm speaking to the public, the first thing I would suggest they do is go and seek private legal counsel. I'm not here to give legal advice that I expect people to rely on.

• 1600

Having said that, there is a duty of care that flows in these circumstances where you are operating equipment people rely on, such as elevators and escalators, and there's a body of law that exists separate and apart from year 2000 problems about negligent maintenance when people become injured as a result of equipment failing. If it's possible to demonstrate that an injury was caused for reasons other than negligence and it wasn't the fault of the owner-operator, then no liability will flow from that. But there are duties to ensure that your equipment will operate in the way it was intended and not pose a danger to the members of the public who are using it.

Without launching into a one-hour seminar on the—

Mrs. Sue Barnes: I think what I was trying to get at is that for the average person the duty to mitigate means that if they didn't do their part in trying to fix something that was foreseeable, such as a Y2K problem, it's going to affect any damages they could potentially collect because if they could have taken some action themselves, that would have had an impact.

Mr. Edward Thompson: You're speaking of the mitigation of damages. I think there are two issues. If you know you're exposed to a risk or damage and you don't take steps to protect your interests, then you could be said to have failed to mitigate the damages you're exposed to. If you know that a contract is going to be breached and you have a way of obtaining a product from another supplier so that you will not lose your business as a result, you'd be obliged to do that, rather than waiting for bankruptcy and collecting on that front.

Mrs. Sue Barnes: I think from an industry point of view, understanding that concept would be very important for businesses in Canada, and I think that so far we haven't touched on it enough. I'm not saying we haven't touched on it, but I don't think we've touched on it enough, especially since I see this litigious element coming out and being part of the message. I think people have looked at the courts as a safeguard mechanism for their business practices, and perhaps some of the safeguards won't be as readily available. It's feeding into what Mr. Lowther said. I think there are things we could do better in getting that message out.

Mr. Edward Thompson: The Canadian Bar Association has a Web site on the Internet, and they have a topic dealing with Y2K liabilities, including questions people should be asking themselves about the operation of business and the nature of their contractual obligations and potential negligence remedies. That is available to the public to tap into.

As representatives of the Department of Justice, we, of course, are here to give advice to the government and not provide private legal advice. So there are some limitations, but we can—

Mrs. Sue Barnes: Would you like to comment, Ms. Edlund?

Ms. Connie Edlund: I believe we're already hooked up with the Canadian Bar Association's website, but I'll certainly check as soon as I get back.

In terms of forums held by the legal community, a number of them are going on, and most of the ones we're seeing right now are quite extensively discussing what one can do to mitigate various things and what action businesses should be taking. It's part and parcel of the conferences or forums we see being held throughout the country. One of the biggest problems we're having right now is trying to attract people to these conferences, quite honestly. It seems as if there's a bit of an apathy we're running through. So that's going to be the big challenge ahead. We're certainly open to any suggestions on how to get the message out and how people should react or work with it.

Mrs. Sue Barnes: Seminars can start to have headings such as “What you don't know about Y2K”, because everybody seems to think they know everything right now, and I'm not sure that's correct. Thank you.

Ms. Connie Edlund: I couldn't agree more.

The Chair: Thank you.

[Translation]

Mrs. Lalonde, please.

• 1605

Mrs. Francine Lalonde: Madam Chair, after having listened to the Alliance of Manufacturers and the Retail Council of Canada, I expected officials from the Department of Industry to tell us which measures they intend to take to ensure that businesses, particularly those in the manufacturing sector, are better prepared. Frankly, your numbers give me the impression that the department is boasting it's doing something when in fact it hasn't.

Allow me to remind you, in case you were not there, that the Alliance of Manufacturers and Exporters did a survey last year: the response rate was 542 companies out of 7,000. Several worrying numbers emerged from that study, including this one: 36% of companies who received the questionnaire said they had planned to improve or replace their integrated systems. They gave us other recent figures: only 44% of manufacturers looked at or improved their systems or had any plans for integrated systems.

In today's submission, Statistics Canada said that in April it published a report stating that almost all Canadian companies, 90% in fact, irrespective of their size, were ready for the year 2000. But I don't quite understand. I expected at the very least that Industry Canada's officials could say something about this.

There was a ray of hope in their submission. It said that the technicians who had gone into companies to see whether they were compliant stated that only a relatively small percentage of the hardware, about 5%, needed to be replaced or upgraded. I asked for more details, but they could not provide me with them. They said that it might be 5% of critical systems which may halt all other production activities.

You hear that Canada is better prepared than any other country in the world. That would be nice, but if Canada is indeed better prepared than anybody else and if our manufacturers are better prepared than anyone else in the world, well, that's fairly worrying for the rest of the world, because jobs, production and the economy are at stake. Canada already has a productivity problem.

Let me explain. I've been told that students have helped 2,800 small businesses to adapt to the situation. But how many SMEs are there in Canada? Mr. Manley reminds us every time he makes a speech: there are 2.4 million of them!

I'd like you to begin by addressing that point. I don't think the problems we have heard of, and which the Department of Industry is supposed to settle, have much to do with what you have just told us.

[English]

Ms. Connie Edlund: If I can respond, I am aware that the alliance did do the survey last summer. It's quite a substantial difference between the time they had—

[Translation]

Mrs. Francine Lalonde: This year? A recent study? We were given preliminary results, and integrated systems alone increased from 36 to 44%.

[English]

Ms. Connie Edlund: To be quite honest, I'm not familiar with the survey you're speaking of or the figures that were given by the alliance.

After you met with them the last time, which I think was in the fall, we also met with the alliance. We were very concerned that not enough work was being done. We have had several meetings with them to try to advance work with manufacturers.

The best data we have are from the Statistics Canada survey. Statistics Canada is very reliable in terms of the data we collect. At this stage, though, they're still undergoing detailed analysis. The preliminary results were released on April 27. We expect to get a more detailed analysis early in June. What they're telling us right now is that we've made significant progress. We're unable to match what the alliance would have until such time as we can get the detailed statistics from Statistics Canada.

• 1610

The Chair: Mr. Keyes, please.

Mr. Stan Keyes: Thank you, Madam Chairman.

I was somewhat interested in the remarks made by one of my colleagues on the litigation, etc. Maybe there'd be a heightened interest in attending your conferences if the title of the conference was “Make the attempt at getting Y2K ready or get sued”. You might get a lot more people interested in getting out to your conferences.

Mr. Thompson, doesn't the legal community have its own ethics committee of some kind to monitor the situation, so at least there won't be anyone out there ambulance chasing when it comes to the Y2K problem?

Mr. Edward Thompson: Every law society in Canada has an oversight group to control conduct and ethical behaviour of lawyers, and this would fall within that. There are laws against what's known as champerty and maintenance in promoting lawsuits and those sorts of things.

Mr. Stan Keyes: You can see some of those lawyers out there just wringing their hands, saying “I can hardly wait until the year 2000 comes, because I'll be able to defend this guy against some company that didn't produce”. Unfortunately for the lawyer and the client, the company will be able to prove they tried to fix the problem, and part of the problem was out of their hands. The lawyer will say “Oh gee, we lost our case”. In the meantime, he'll make himself a whole bunch of billable hours from the client, who thinks they can get some money out of the company.

Mr. Edward Thompson: It's a fact that most law firms have been organizing themselves to help not only prosecute but defend litigation arising out of Y2K. They've been developing teams of lawyers to develop expertise, and that's perfectly proper and appropriate. In jurisdictions where lawyers can advertise, they've been advertising those services. One of the ways people can become aware of the need to protect their interests is by seeking legal advice. It doesn't have to descend to the level of ambulance chasing in order to provide appropriate advice.

Mr. Stan Keyes: I just hope the different ethics committees will keep an eye on this kind of thing. There has to be a limit to the almost scaremongering that might be developed by certain types or classes of lawyers.

Anyway, I'll move away from that. Thank you very much, by the way, for all your presentations.

We're talking about having served over 600,000 Internet inquiries and over 32,000 telephone calls on the 1-800 line. What types of problems have been typically found? Were there any common or repetitive inquiries coming to that line?

Ms. Connie Edlund: A lot of them were calls for information, obviously. We had some on the tax—the accelerated write-off of the capital cost allowance. A lot followed up from the millennium home check we sent out.

Mr. Stan Keyes: It's an unfair question maybe, because you don't have all the data in front of you, but maybe you could tell us in writing or something if there were any kinds of repetitive physical problems you saw continually being asked about.

Ms. Connie Edlund: Offhand, we've had a lot of media hits on our website. For example, if you go to the Harvard Business Review, their business school actually refers people in the U.S. to our website. We've had a lot of referrals to our website as being one of the better ones in North America, quite honestly. So we get a lot of hits that way.

On the 1-800 number, I could probably take a closer look, in terms of the types of questions we're getting. Again, most of them are just requests for information.

Mr. Stan Keyes: So they're not coming forward with any—

The Chair: Maybe Mr. Don could talk about specifics, because that's what he does in his business—he fixes problems.

Mr. Stan Keyes: Yes, we'll go to Mr. Don in a second. I just wanted to make sure we were addressing the concerns of the first-step program, which is what they're running. Is that right?

• 1615

The Chair: Right. But the First Step program and the website are not necessarily the same thing.

Mr. Stan Keyes: I thought they were intertwined.

Ms. Connie Edlund: The First Step program is one of the programs we helped market. Tim Garrard and his crew run the program. It's part of the Student Connection Program.

Mr. Stan Keyes: I guess what I'm most interested in, as the chairman suggests, Mr. Don, is whether there was any typical problem that kept being repeated for you.

Mr. Harry Don: Compaq Canada operates a hotline for year 2000, and of course the nature of the queries we get are probably somewhat different. They're usually along the lines of hardware compliance and product compliance for Compaq. I don't know what else I can say. We refer them to our website, which lists compliance information. This often leads to service where we go out and upgrade their systems.

Mr. Stan Keyes: Maybe I'm not making myself clear. If you're getting a bunch of callers, are they saying “I have a problem with my dooditsu on my clambake”? Is there a typical group of problems that are being asked of your organization specific to the computer or the computer problem? That's what I'm asking.

Mr. Harry Don: That's all we deal with—computers and computer problems. It ranges from PCs to our high-end servers. There is a very broad range.

Mr. Stan Keyes: No typical, repetitive or....

Mr. Harry Don: No. It ranges absolutely across the board.

Mr. Stan Keyes: Wow. Just one quick question, Madam Chair, and I know you'll find this of interest. You said you were distributing home checks to more than 11 million homes. What about farmers and other businesses in rural Canada that are obviously threatened as well? Have you reached out to them at all, or is there a response? Are you working with them as well?

Ms. Connie Edlund: We're working through Agriculture Canada, which has quite a few initiatives. I think the Farm Credit Corporation has distributed, through their outlets, a number of brochures. We're also working with their associations.

I mentioned in my opening remarks that we have an industry outreach program. It's a program we've basically put in place so that if there's a shortage of funding through associations that is wide-reaching, we can initiate communications, or if we see areas that are lagging, we can work with them. We have several agreements with associations—I have the list here—of Agriculture Canada that are going out and reaching out to communicate as much as possible.

That's one area. I will note that in the Stats Canada survey, as I mentioned, we only surveyed companies with six employees or more. So agriculture would be one area where you don't have a lot of employees. Often they're operated by the farmers themselves. So they wouldn't have been captured in that data, but we'll pick them up when we do the Decima Research survey.

We're also taking a look at what we have in Stats Canada to break it down between rural and urban, so we'll have a better idea there. But that detailed analysis is just being done now.

Mr. Stan Keyes: Thank you.

The Chair: Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair. Witnesses this week talked about the First Step program and how they used it and so forth. Is there a concluding date for the First Step program, or is it being left open until we get past January?

Mr. Timothy Garrard: The program will remain open until January.

Mr. Walt Lastewka: We've heard testimony that people will find out their problems in January and then they'll start looking at them, especially small businesses or businesses that are seasonal. So they're just letting things happen.

I'm coming from the situation where information overload is hitting. There's so much information out there and so much data. We're not concentrating on—for example, the Alliance of Manufacturers and Exporters, working with their 3,500 manufacturers—saying “No more excuses, let's get the work done”, rather than taking another survey and another survey and saying “Get more information out there”. There is information out there. Now we have to get the job done. I'd be interested in your comments.

• 1620

Ms. Connie Edlund: I think that's a very valid point. We don't fix computers. We get information out. We can't do everything. You can lead a horse to the trough, but you can't make them drink. We're doing everything, even creatively thinking in terms of what we can possibly do to get people to act. It goes back to the situation even with the manufacturers. We're working with the alliance; we're working with consumer associations; we're working with industrial associations—we're trying to move and push and do everything we can, but we're almost getting to the point where you can only push so far. I don't know what more we can do.

Mr. Walt Lastewka: My concern is about going back and looking at statistics from a year ago and now. The statistics aren't going to change anything. They're not going to change the end date. December 31 is coming, whether you like it or not. The work to be done is the only thing that is important at this time. You're either going to do it or not do it. What's the idea of getting more statistics?

Ms. Connie Edlund: We're not spending a lot of time getting more statistics. We did the big statistical survey. We have a fairly good picture of where we are now. The only thing we can now look at is targeting areas that we see either as being somewhat problematic or where we're concerned that the progress they expect to make, they may not make, and may in fact cause severe problems down the road—monitoring that. We're past the time, you're right, of doing a major survey. It can only be specifically targeted in those areas, that we have to be concerned and move toward the next phase, which is basically encouraging companies to put in contingency plans.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

Mr. Garrard, do you wish to respond to that?

Mr. Timothy Garrard: Perhaps I can add a comment. Much of what we do is not now focused on raising awareness of the problem, but on providing individuals and businesses with tools to deal with it. The major portion, for example, of this mailing that went to Canadians was to tell them, now that you've become aware of the problem, if only by reading the first part of this brochure, here are some things you can do.

Certainly, the Y2K First Step that I'm responsible for gives pointers to businesses on what they can do. Many of the hundreds of thousands of people who come to our website visit pages that give them information about where they can go for solutions. I think we're very much past the point of making people aware of the problem. We're now helping them find solutions.

The Chair: Thank you.

I'm going to go to Madam Lalonde, but before I do I want to clarify the statements that are being made about what the Alliance of Manufacturers' presentation was this morning. They said very clearly they had some preliminary early results; they didn't have all the results in yet, and they wouldn't have that tabulated until June. They were still waiting for responses. I just wanted to clarify that.

Madame Lalonde.

[Translation]

Mrs. Francine Lalonde: Yes, but the Alliance also said that they agreed with the 44% figure. Frankly, the Alliance said it was concerned, and I appreciate its saying so. You have to understand that integrated systems—I'm not explaining this to you but to the people who are listening to us—are made up of all the computer chips which are contained in production units, and sometimes we don't even know where they are, we don't even know they exist despite the fact that may temporarily or completely put a halt to production activities.

We received some documents stating that the most worrying issue concerns integrated systems, which is much more complicated than fixing computer programs, because they are relatively easy to upgrade. It may cost money, but it's easier. I expected you to address that issue. It's impossible that Industry Canada hasn't heard of that figure. In any case, you have it now. All we have seen is greatly consolidated results. We don't know all the questions and we don't have all the results, but if Statistics Canada did its job well, I would be surprised that there would not also be similar results elsewhere.

• 1625

The Department of Industry will have to tell us that it wants to assess the information with us. We have to make recommendations, but it must be said that these figures are a far cry from what we expected when we started this operation. That's not to say that we should not alert the public. It's better to talk about what must be done now rather than paying for it several months down the road.

[English]

The Chair: Madame Lalonde, do you have a question?

[Translation]

Mrs. Francine Lalonde: I want them to answer the question. These people work for Industry Canada and sit on the task force. You would think that this issue should be of great interest to them.

[English]

The Chair: Ms. Edlund, do you have any comments to that?

Ms. Connie Edlund: Well, I'll answer that yes, I am very interested in it. I would like to see the results of their survey. I think if in fact that's what they're getting at, the question has to be asked, what are they going to do about it? It's industry that has to resolve the problem.

In terms of that, it would indicate to me that they're going to have to take some very fast action to resolve it. With the Statistics Canada survey it's not specifically lined up to look at manufacturing industries separately. It looks at components. So you'll have, for example, the electricity, oil and gas, whatever, various sectors of the economy, whereas manufacturing and exporters covers a wide spectrum within all of those sectors. If those statistics they're quoting in fact are what they're getting, I would guess it's a real call for action for them to work with their companies, and also for their companies to push ahead very quickly to remedy the problem.

The Chair: Mr. Garrard, do you have anything to add to that?

Mr. Timothy Garrard: No.

The Chair: No other comments? I want to thank you all for joining us. There's still some concern out there about what some businesses have to do to become Y2K compliant. I think all committee members recognize what went out in February to all the households was good information. However, we heard from witnesses this week that some consumers still aren't aware, and some consumers may need to be reminded in the fall about contingency planning and what they should do.

Mr. Don, I apologize there weren't too many questions directed to you, but we do appreciate you joining us today. I thank all of you for joining us.

We're now going to suspend for 60 seconds while we change witnesses; we have more witnesses with us this afternoon.

• 1628

• 1630

The Chair: The committee will come back to order. I'm very pleased to welcome our next group of witnesses. We have with us today the Canadian National Institute for the Blind, Mr. Patrick Walsh, treasurer and vice-president of finance; and from the Coalition for National Voluntary Organizations, we have Penny Marrett, director of health issues. One Voice the Canadian Seniors Network was unable to be with us.

Mr. Walsh, I see you have another gentleman with you. Maybe you could introduce him.

Mr. Patrick Walsh (Treasurer and Vice President of Finance, Canadian National Institute for the Blind): Yes, if I could please, this is Mr. Angelo Nikias, who is our representative in Ottawa for the CNIB. He is here today to explain some of the issues we have with access devices and other things related to computers and Y2K.

The Chair: What I would propose is that we have the opening statements from both witnesses who are here today and then we'll move to questions.

Mr. Patrick Walsh: I just refer you to a package we did hand out. There is an overview of our position, and at this stage I'm prepared to report that CNIB will indeed be ready for the continuation of our business activities on January 1, and throughout the year 2000.

We have been at this business of preparing for whatever computer problems may exist since the middle of 1997. It has not been an easy process to date. We now know the questions we probably should have asked months ago, if not much earlier than this. We have gone through the easy process of buying patches, once we knew what patches there were to be bought.

We have dealt with issues that involve cost. We have gone from the very difficult issue of how much something was going to cost, whether it be hundreds of thousands of dollars, to later have that revised to something in the area of $165. Part of this reflects the fast-moving pace of the computer situation, the marketplace itself. It has also left us in some difficult positions as we have tried to determine what exactly were the Y2K problems in some of our software. We have in fact diverted much of our time from the normal management of the provision of services across the country, as we've had to deal with some very difficult-to-define issues.

At this stage we look at our preparedness. We have a plan that will resolve the issues by the end of August. We have identified everything at this stage that we think needs to be identified for change and for updating. We're now, though, concerned that some of the reports we've received from our business partners may not be as accurate, or their definition of preparedness may not be as complete, as what we would like it to be.

As a result, we have begun the process of looking at how we will recover from interruptions to our business caused by external sources, and to define the disaster recovery issues we will need to address in the year 2000, if indeed our own estimates are incorrect or those of our business partners prove to be so.

Madam Chairman, as an opening comment, I think that is where I will end.

The Chair: Thank you.

Is Mr. Nikias going to speak now or is he going to answer questions?

Mr. Patrick Walsh: I think he would like to have a comment himself, please.

Mr. Angelo Nikias (National Director, Government Relations and International Development, Canadian National Institute for the Blind): Thank you very much.

The issue, or one of the issues, for us is really our ability to continue to provide services to blind and visually impaired Canadians. At this point we serve 96,000 people across the country, and we serve them through seven core services. Through counsel and referral, we help individuals and families deal with the repercussions of vision loss.

• 1635

Our rehabilitation teaching helps individuals learn practical skills such as cooking and banking. Our orientation in mobility helps people learn how to use a white cane and other mobility devices and contributes to their independence.

We have vision rehabilitation specialists who help people who have some sight maximize the use of their remaining vision. Our technical aids services provide people with demonstrations and products, both low-tech and high-tech products.

The CNIB library services lend books in Braille and on cassette to people who are visually impaired, and our employment services help people obtain work. These are the seven core services.

One other concern we have is that a lot of visually impaired people use computers equipped with special adaptive devices—for example, voice synthesizers or Braille output devices—and we use them for all kinds of activities at home, at school, at work. The concern we have, and where we need to do more work as CNIB, and also businesses and universities and government as a whole, is that the adaptive devices that visually impaired Canadians use not be disrupted on January 1.

I think I'll stop here and perhaps we can deal with questions later. Thank you.

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

I now turn to Ms. Penny Marrett.

[Translation]

Ms. Penny Marrett (Director, Health Issues, Coalition for National Voluntary Organizations): Good afternoon, ladies and gentlemen.

[English]

Good afternoon, ladies and gentlemen.

On behalf of the Coalition of National Voluntary Organizations, I wish to thank you for inviting us here today to discuss Y2K challenges in the voluntary sector.

NVO is an umbrella non-profit organization with approximately 130 national organizations as members. These members work in a variety of areas, from health to children's issues, justice to the environment, social services, aboriginal, and international issues. NVO's members include organizations such as the Canadian Cancer Society, the Canadian Council for International Cooperation, the National Association of Friendship Centres, the Canadian National Institute for the Blind, and the John Howard Society.

NVO's mandate is to promote volunteerism and enhance the profile of Canada's voluntary and charitable sectors. It links its member organizations by acting as a forum for information exchange and consensus development, and plays a key advocacy role on matters of common interest. NVO's membership represents a wide spectrum of Canadian communities encompassing the breadth and scope of issues Canada faces today.

When addressing Y2K issues in the voluntary sector, it is important to get a sense of the size, nature, and scope of the sector. Many people don't realize that the non-profit sector in Canada consists of approximately 175,000 organizations, of which slightly over 78,000 are registered charities. This is at least 20,000 more charities than existed in 1980 and more than three times as many as in the 1960s. Thirty-six percent of registered charities are places of worship or other religious organizations. Five percent are hospitals or teaching institutions.

Income in the sector amounts to $90 billion in annual revenues and $109 billion in assets. That is comparable in size to the entire economy of the province of British Columbia. However, almost 50% of revenues in the sector are in teaching institutions and hospitals. Taken as a whole, the sector accounts for one-eighth of Canada's gross domestic product. You need to also be aware that two-thirds of charities have annual revenues of less than $100,000; half have revenues of less then $50,000.

Various surveys about the Y2K challenge have been conducted. Few, if any, have actually included the voluntary sector as a whole. VolNet, Industry Canada's program to connect the voluntary sector to the information highway, is to be credited for taking a leadership role in trying to find ways to assist the voluntary sector in dealing with the Y2K challenge.

• 1640

In 1998, VolNet, in cooperation with several other federal government departments, conducted a Y2K readiness survey of national voluntary organizations. The sample size for this survey was 326 national organizations. Other surveys have been carried out with respect to Internet readiness and computer use in the voluntary sector. Some of these have had larger samples, up to 7,000. It is clear, though, that none come near to capturing the information on the 78,000 registered charities, and they are still far removed from the broader non-profit sector, comprising an additional 100,000-plus non-profit organizations.

It is clear that Y2K compliance is critical if the voluntary sector is to sustain its capacity to function effectively, to contribute to serving the people of Canada and the Canadian economy. As far as we know, no one within the sector itself has implemented a large-scale survey on Y2K compliance.

Our knowledge and understanding of the sector, years of experience working within the sector, and informal conversations with some of our colleagues indicate the following.

Large organizations, such as the CNIB, are addressing the issue either on their own or in collaboration with other organizations or the private sector. Many organizations, though, are at risk, particularly those with revenues of less than $1 million, which comprise more than two-thirds of the sector. The net result is that we have a high risk of non-compliance here in Canada within the voluntary sector. This risk is not only to be measured in terms of the financial impact for these organizations, but we need to look at it in terms of social impact, the inability to serve the people of Canada who require the programs and services from these organizations.

At this time, organizations carry a significant responsibility for the provision of vital community services. Many of these organizations rely on equipment donations and an enormous amount of volunteer time and effort. Donated equipment is frequently handed over as the donor company upgrades their own equipment. This is particularly true with computers. While the donations are most welcome and have served the organizations well in the past, the risk with respect to Y2K is very real.

In its survey on Internet readiness and Y2K compliance, VolNet reported that out of the organizations that use IBM-compatible computers, 18% of the sector use 286s, 38% use 386s, 58% use 486s, and 48% use Pentiums. These organizations have come to rely on their computers for accounting, fundraising, correspondence, and other administrative functions. In addition, some are now on the Internet and have come to rely on this new communications avenue for promotion, networking, research fundraising, and volunteer recruitment.

Here is an example of where problems may occur. Volunteer Canada recently launched its Internet-based volunteer opportunity exchange. It will be a real challenge to small organizations to participate in this program without the requisite equipment, particularly after December 31 of this year.

There are currently a number of government programs directed at the private sector to assist businesses in becoming Y2K compliant. There is no doubt in our minds that the voluntary sector could benefit directly from these as the external infrastructure remains intact and suppliers of goods and services continue to function. However, increased sector-directed programs are needed to assist organizations to meet the demands of Y2K compliance. These demands are financial and human.

We are aware, for example, of some organizations, such as the United Way of Greater Toronto, that have organized sessions to educate agencies they fund about the Y2K challenge and how to prepare for it. These types of programs are to be commended; however, there do not seem to be enough such programs to serve the broader voluntary sector.

Other non-profits have developed materials on the Y2K challenge and have provided these to their members as a service. This is an excellent start, but we believe an increased effort needs to be made and must involve the federal government and the private sector working in collaboration to assist the voluntary sector in dealing with this challenge.

• 1645

The voluntary sector employs 1.3 million Canadians. Technical capacity is a challenge across the sector, particularly that of information technology.

The recent report of the Panel on Accountability and Governance in the Voluntary Sector, chaired by Ed Broadbent, notes that the work of the federal government's VolNet program is helping to develop the capacity in the sector; that in spite of the importance of information technology to the sector for communication as a tool in maintaining accountability and as a means of enhancing transparency, information technology is underdeveloped in most voluntary organizations and sadly lacking in small organizations. The panel urges all stakeholders to work together to improve the sector's information technology and to develop the expertise to use it effectively. To assist organizations in this area, consideration needs to be given to finding a way to facilitate the private sector in local communities across the country to work with the voluntary sector on the Y2K challenge. The federal government needs to take a leadership role in facilitating this process.

Quite apart from having the human resource capacity to address information technology needs, Y2K compliance demands material resource upgrades: software, hardware, and peripherals, other office equipment, facility systems. These are the material resources that require assessment and perhaps upgrading.

Organizations within the voluntary sector have benefited from the timely contribution in 1998 by both the Department of Human Resources Development Canada and Industry Canada. In cooperation, these departments hosted Y2K workshops in Ottawa and Toronto for several national voluntary organizations. The intent of these sessions was to provide national organizations with information concerning the Y2K challenge and to impress upon them the need to act on the information. However, to our knowledge, few new resources have been provided by the federal government or the private sector to respond in a practical, inexpensive manner. It would appear that there is a need for a follow-up session with these organizations to get feedback from them on the work they have done to date. This type of partnership program will help to emphasize the importance of organizations and communities from coast to coast.

In January of this year, VolNet mailed out the Survival Guide for the Year 2000 and the Year 2000 Workbook to some 162 national voluntary organizations. It is our understanding that they will also be sending out a diskette to enable organizations to test the performance of the computers for Y2K compliance. This diskette will go to an estimated 150,000 organizations. This is an excellent support system for the sector but does not seem to go far enough, as the upgrading and replacement of software programs will be costly.

VolNet is a program whose focus is to assist connecting up to 10,000 organizations onto the information highway. Our concern is that there will likely be a number of organizations, particularly the smaller ones, those with budgets under $1 million, that will not have the necessary resources to upgrade their present equipment to ensure Y2K compliance. This could have a dramatic effect on fundraising, such as the printing of receipts for income tax purposes, which many organizations do around that time, or accounting.

To assist the voluntary sector to become Y2K compliant, we would request that serious consideration be given to the following recommendations: that the program that is presently available through the federal government for small business and entrepreneurs be extended to the voluntary sector, and that the First Step program offered by the government to small businesses be increased to reach the voluntary sector.

It should be noted that given that some of the organizations may not have the financial capacity to pay the required fee, consideration should be given to substantially reducing this fee. This program will, at the very least, enable organizations to become more knowledgeable about what requirements are needed for them to become Y2K compliant.

We would also request that a meeting be hosted between the Canadian Advanced Technology Association and the voluntary sector, and that an information kit be developed for circulation to businesses, urging them to become involved in their communities by assisting voluntary organizations in their communities to become Y2K compliant.

The Chair: I'm sorry, but I'm going to have to ask you to wrap up. We're running out of time.

Ms. Penny Marrett: Right. Sorry. I have just one more sentence.

The Chair: Sure.

Ms. Penny Marrett: There is perhaps one other area, though, that should be considered, and that is the provision of information to organizations about the legal implications and responsibilities of the organizations' boards of directors to address Y2K issues.

Thank you again.

• 1650

The Chair: Thank you very much. We're going to move to questions. I'm going to remind members that the bells are going to go at 5:15 p.m. There's a vote tonight. We have to have a brief in camera discussion about the report.

So we can start with questions. Mr. Lowther.

Mr. Eric Lowther: Thank you.

Ms. Marrett, you mentioned sending out lots of information, sending out discs, and people getting up to speed. I was listening intently for “We now have this much done or we have now updated this many systems”. I didn't hear that. I heard you're sending out stuff and telling people about it, but not very much about what's done. Then your last sentence was an interesting one, on the whole liability issue. You're six months away and you're still sending out stuff. Are you comfortable, or are you thinking you're going to have some systems that don't work here come the new year?

Ms. Penny Marrett: We're actually not sending out material ourselves as an organization. VolNet has been involved in sending out material. What we are trying to do is ensure that the information gets out and that organizations are actually addressing it. But we aren't actually physically doing that. One of the things we believe is that the First Step program would have a benefit to the sector and that it should be extended to the sector as well.

Mr. Eric Lowther: Mr. Walsh, you're providing a number of services to 96,000 clients, I heard from Mr. Nikias. I'm wondering about your situation. I'm on a liability track today. If those services don't work, have you given consideration to liability? What liabilities do you carry if those things break down due to a Y2K problem? What are you going to do about those liabilities? Anything? Or are you just going to hope it works out? Do you have any strategy?

Mr. Patrick Walsh: Yes, indeed we do have a strategy for dealing with it if things don't work the way we expect them to. We have indeed discussed the liability strategy with our insurers through this latest renewal. Insurance to provide protection against a Y2K failure is either not readily available or available at such a high price as to make it prohibitive.

The response for us then is what can we do to maximize our own assurance that what we're going to do is going to continue to function properly? We have limited exposures in probably half a dozen areas. We have, with the help of our audit firm and some professional advisers they have in the computer services area, identified what needs to be done and how we can resolve those issues. As far as the impact on the actual direct service, there will not be any, simply because we will not allow for any impact on the direct service. We can make that statement simply because a great deal of what we do is face-to-face provision of service.

The one core service that may become a problem would be in our technical aids distribution. For blind and visually impaired people in this country, it's very difficult to have access to products they need to compete with fully sighted individuals. So we undertake to distribute at a fair price to blind and visually impaired people technical aid devices. We sell probably $2 million to $2.5 million a year worth of such devices.

Mr. Eric Lowther: Pardon me, but if one of those devices doesn't work in the new year, all of a sudden there's a glitch and the blind person who is dependent on it hurts himself and sues you, what are you going to do? Do you have any plans for that? It's a Y2K glitch.

Mr. Patrick Walsh: If indeed the devices don't work, they will not themselves cause any personal injury or issues of that nature. There may be a secondary situation as a result. I think perhaps Mr. Nikias would like to respond to this area of access devices, which is more directly his responsibility.

Mr. Angelo Nikias: First of all, thank you for the question. It's something we need to consider further. The devices we supply are not such that they would cause injury, but they might cause disruption of activities. As I said, I think we need to do more work on that, but we have already been doing work on the issue. Whether we have been totally successful, I don't think we'll know until the day.

• 1655

Mr. Eric Lowther: Thank you.

The Chair: Thank you, Mr. Lowther.

Madame Jennings, please.

Ms. Marlene Jennings: Thank you, Madam Chair, and thank you very much for your presentations.

I have to say, Ms. Marrett, that I'm very pleased with the recommendations you've made. While I was listening to the presentations, I wrote down three questions I was going to ask you and now I don't need to ask you. The first one is, are you receiving financial aid from any level of government in order to deal with the Y2K problem? The second one is, what is the estimation of the cost? If you have a possibility of giving us that, how much is it going to cost the voluntary sector to deal with the Y2K problem? And the third one is, do you think the accelerated capital cost allowance for computer hardware and software that is available to small and medium-sized businesses should be extended to the voluntary sector?

You've basically answered me on the first and the third questions. I'd like to hear if you have an estimation of the cost for the voluntary sector.

CNIB, you may have an estimate for your organization.

I'd like to ask whether, in addition to the issue of extending the First Step program to the voluntary sector at a reduced or no-fee basis, there are other measures you feel the federal government can undertake in order to assist the voluntary sector to meet the challenge of Y2K.

From what I understand, some organizations under $1 million worth of operations are the most vulnerable. In some cases a contingency plan may be at this time the best bet for them rather than trying to upgrade the machinery right away. So how can we help in that area? We've been hearing from the private sector that it's all very well and good to upgrade the embedded chips, upgrade the computer systems, the IT systems, but with all of that you still don't have a 100% guarantee that it's fail-proof, and therefore the best last measure is a good contingency plan. So how can we help the voluntary sector develop those contingency plans?

Even if the government comes out with one step, with the accelerated capital cost reduction, and extends that to the voluntary sector, we only have a few months left, which means that most of the voluntary sector will not be reached by that; it will be after the fact. So I think the contingency planning is really where we need to concentrate the efforts. How can we assist in that? Those are my questions.

The Chair: Mr. Walsh, do you have any comments?

Mr. Patrick Walsh: There are a couple of issues, perhaps one that's preliminary to the direct response, and it comes from our personal findings. It is that software versions are not properly labelled. We ran into a very serious problem with the fact that we upgraded our communications software and found that half of our Windows 95 operating systems were what was called version A, which are not separately identified on the packaging of the software, and half were what was called version B. The differences do pop up on the opening screen, but the difficulty is that there's a different protocol for implementing software depending on which version of that operating system you're running.

This caused us considerable problems simply because we weren't aware of that particular question to ask. If there's anything that could be done to make it much more clear.... I realize there are some limits here, but this was a major issue, not realizing that something that was called by a particular name actually was a different product in the end result.

As far as the cost to implement the Y2K remedies are concerned, if we wanted to take a band-aid approach to our current systems, we were in a situation where we were going to spend between $100,000 and $200,000. But that would have left us with a very significant hodgepodge of computer systems that were going to continually cause us issues.

• 1700

The route of upgrading to an appropriate level is going to cost us a minimum of $1 million, and that's going to provide us with a basis for future development and growth. That's not an insignificant sum of money. It's an expenditure we would not have made unless we were forced to do so because of this. We're in the fortunate position where for more than 80 years we have been very conservatively managed and have kept some money in the bank for a rainy day.

Rather than put the money into the provision of service and aid we would like to provide to the blind and visually impaired of Canada, we have had to commit this to infrastructure, which we hope we will put to greater use in the future. As we looked at the situation, we did not feel we really had a choice on what we were going to do here.

The Chair: Thank you, Madam Jennings.

[Translation]

Mrs. Lalonde, please.

Mrs. Francine Lalonde: Mr. Walsh or Mr. Nikias, at the end of your presentation, you talked about a problem which consists in choosing between upgrading your current system and investing in a newer, more powerful system. Based on your response to Ms. Jennings, I understand that you decided to buy a new system.

[English]

Mr. Patrick Walsh: We have had to delay the implementation of a much larger software project. CNIB is very much committed to being a flat organization. We have significantly reduced our administrative costs over the past number of years. The reference in the paper to the project is still accurate. There is a much larger project we are putting off because of the Y2K issues. We feel the larger project would allow us to be much more effective in our administration across the country and to ultimately provide better management of the service we provide, and putting it off is not something we wanted to do.

[Translation]

Mrs. Francine Lalonde: I understand. Since you don't pay any taxes, would you benefit from the accelerated write-off program? Could you be in a negative tax situation, or were you offered any funding?

[English]

Mr. Patrick Walsh: The accelerated capital cost allowance is certainly of benefit to small businesses to the extent of the $50,000 that was announced back in June 1998, but as a charity CNIB does not pay any taxes, and the accelerated write-off could only be used indirectly for us. There is the possibility, through a rather sophisticated sale and lease-back arrangement with a commercial organization such as a bank, that we could indeed achieve certain benefits through the development of capital leases. But that would probably be beyond the ability of most small charities to undertake.

[Translation]

Mrs. Francine Lalonde: In any case, I believe you first have to make an investment.

[English]

Mr. Patrick Walsh: There has to be either an investment or a commitment to a debt in either case, which needs to be funded from somewhere, yes.

[Translation]

Mrs. Francine Lalonde: I feel that's a question for the committee. If we try to help small businesses, it seems to me we should also try to help your institute and other community organizations, given the services they provide.

• 1705

Ms. Marrett, I'll ask you the same question. You are also ineligible for the accelerated write-off. Is there anything else that can help you?

[English]

Ms. Penny Marrett: For the sector, because I'm speaking generally for the sector, there isn't the assistance through a program like this. Some of the organizations will be assisted by virtue of the VolNet program that the federal government launched, but not a great deal of organizations will.

I think it's important for everyone to know that most voluntary organizations do not have staff. They are run by volunteers and oftentimes are given donations from businesses and individuals in their communities. A real concern may be that for those who walk in after January 1, if they are not prepared, they may not be able to do anything or may be able to do very little on the computer they have. That is a major concern.

The Chair: Thank you.

Mrs. Barnes, please.

Mrs. Sue Barnes: Thank you, Madam Chair.

I'm certainly glad we had you here today. Early on, I wanted the volunteer sector brought in under this umbrella of discussion.

I think one of the things you brought up in your presentation is really important. I know the CNIB operates on an advisory board capacity, because I've had the pleasure of serving on one of your advisory boards, but a lot of the small operations around the country, the volunteer operations, have a board of directors, and I'm sure most of them cannot afford directors' liability insurance.

You've touched upon directors' liability. I'd like you to expand on what the concerns are there, because I think this is incredibly important and may effect the functioning in the future if there is liability placed on these directors, as would be normal.

Ms. Penny Marrett: One of the things we are thinking of that could potentially be used to assist boards is the development of a checklist, for example, of what needs to be looked at in your organization to ensure that you are Y2K compliant.

In some ways, different from business, some organizations—I really need to stress that this is not for all—might not be sued because they can't provide the service or the program, but imagine, for example, if one of your children had been diagnosed with something that you knew nothing about and barely knew how to spell, whatever it was, and you phoned the organization and they couldn't supply you with very much because it was all on a computer that couldn't work any more. What happens there is not specifically a liability from the standpoint of being sued, but your reputation as an organization is at stake, and that's pretty serious.

Mrs. Sue Barnes: What discussions have gone on through your umbrella organizations about directors' liability?

Ms. Penny Marrett: There has not been that much, but there has been some discussion. Certainly, from some of the organizations, when the panel on accountability and governance was touring the country on consultations, some of the concerns that were expressed related to what kinds of board liability were available for non-profit and charitable organizations. More has to be done in that area.

Mrs. Sue Barnes: When you mentioned the low-fee registration, what type of fee are you talking about? A $50 fee or something you could easily...?

Ms. Penny Marrett: If it's not in their budgets today.... Most organizations struggle just to try to break even. So it would be something that wouldn't make a major dent.

For many organizations, $200 requires a major switch in what they're doing. It may not seem like a lot for some organizations, but for others it is a lot, and so it's to try to find a way to reduce the fee.

Mrs. Sue Barnes: I know you haven't had the ability to survey your membership, but how are you approximating the state of readiness? How accurate is that dire prediction you gave us earlier today? What are you basing it on?

Ms. Penny Marrett: We know the large organizations are certainly much better prepared and are working towards becoming totally prepared. We also know that some of the smaller ones are, and that is because on their boards or within the community they serve, people have volunteered their expertise for that express purpose.

• 1710

I was at a meeting about four months ago where it did come up. Outside of myself, only one other person around the table knew about it. What stunned everybody at that meeting was the fact that most people had thought the Y2K compliance was hardware, and then all of a sudden they learned it was software.

Some groups have customized software. Some of the smaller ones were able to do it because someone donated the time to develop a software program, let's say, to write receipts for income tax purposes. They didn't have the money to purchase a program off the shelf. That's an enormous issue for them, and many organizations don't realize that.

The Chair: Thank you, Ms. Barnes.

Lastly, we'll hear from Mr. Murray, very, very briefly.

Mr. Ian Murray (Lanark—Carleton, Lib.): I'll be very quick, Madam Chairman, because most of my questions have been answered.

I just wanted to ask the CNIB about the specialized equipment, the adaptive devices and other technical aids. You mentioned in your handout that some of them are low-tech devices, such as needle threaders, and you have other things, such as computers with voice output and printers that produce Braille text. There must be quite an increased cost for some of these compared with other mass produced pieces of technical equipment, whether they're computers or anything else that could be affected by the Y2K bug. I was wondering if the cost might be prohibitive for some people if some of this equipment is no longer usable and has to be replaced, if you have to find new sources of equipment, or if the cost of upgrading is just too much. Is that a potential problem for some of your clients?

Mr. Angelo Nikias: I think the answer to that question is that if that should turn out to be the case, yes, it would be a major expense for individuals.

There is another aspect to this, which I think I ought to bring to the attention of the committee, and that is that many of those devices are to some extent subsidized by various government programs in some provinces. In other provinces there aren't any programs that assist people in obtaining this equipment, and there the problem you referred to will be even greater. There is an inequity, an inconsistency, across the country in terms of assistance to visually impaired people in obtaining this type of equipment.

Mr. Ian Murray: So that's always a provincial responsibility, is it? Is there no federal responsibility there?

Mr. Angelo Nikias: The VRDP, the vocational rehabilitation of disabled persons program, has been replaced by the EAPD, the employability assistance for people with disabilities program, and that funds education. Where education is involved, there is a federal contribution, but it's usually provincially administered. There is another program under HRDC, the opportunities fund, which provides people with assistive devices for employment purposes. So there is federal involvement, but it's specifically for either education or employment. For general use, in some provinces there isn't any program.

Mr. Ian Murray: I think in the interest of time we'll have to stop there. Thanks very much.

The Chair: Thanks very much, Mr. Murray.

I want to thank the witnesses for being with us this afternoon. We do appreciate your input, and we do recognize the difficulties you're having as part of the volunteer non-profit sector in becoming Y2K compatible. We've heard of large businesses that have had some slippage in their plans, and we know they have many more resources available to them. We do appreciate this session, and we'll definitely be following up on your comments. Thank you very much for being with us.

I just want to let committee members know that we're going to go in camera now.

[Editor's Note: Proceedings continue in camera]