NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 13, 1999

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[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): At this time, I would call to order this meeting of the Standing Committee on National Defence and Veterans Affairs. I'm going to ask for the indulgence of our witnesses for a moment while we refer members to a motion that we would like to pass today, if we could get unanimous consent to do so. I believe all members have it, Mr. Clerk. The motion would be that the chair seek authority for a budget of $53,106 in relation to our travel to England on the study of procurement and the revolution in military affairs.

All members' offices have been polled by the clerk's office in making sure that we've.... If there's anyone who has not responded to that, it would be helpful to know that today, because the subcommittee on budget meets tomorrow. I'd like to seek approval for this amount tomorrow if the committee is agreeable to it right now. Is there any comment or question on that? Mr. Proud.

Mr. George Proud (Hillsborough, Lib.): The dates conflict with something I have on, but that's the only thing. Mr. Hanger also made a....

Mr. Art Hanger (Calgary Northeast, Ref.): It's the 16th to the 22nd, right?

Mr. George Proud: Yes, and I'm referring to Warsaw.

Mr. Art Hanger: Yes, but that's after this trip.

Mr. George Proud: Oh, is it?

The Chairman: We would fly to England on the 16th and come back on the 22nd. It's a military flight with DND, and that's being finalized. It's pretty low-cost for this many members to go for a trip that long. It basically just pays accommodation and per diem.

Mr. Art Hanger: Are you referring to the trip to London?

The Chairman: Yes, the trip to London and area. There are a couple of things in the London area that are well worth taking the time to see. The clerk has dealt with our people there, and the British High Commission staff have been quite helpful in suggesting places we might visit and people we might want to talk to.

Mr. Price, did you have a question?

Mr. David Price (Compton—Stanstead, PC): I think we answered it, but maybe you could just list who's on the list.

The Chairman: Could you read through who has responded positively, Mr. Clerk.

The Clerk of the Committee: I don't have the list with me, but I could tell you that we have Mr. Clouthier, yourself, Mr. Price, Mr. Earle, Mr. Laurin, Mr. Hart, Mr. O'Reilly, Mr. Hanger, and Mr. Richardson. That brings us to nine. I didn't get anything from David Pratt, but I basically budgeted for ten. There's room for one more person.

The Chair: Are you interested?

Mr. David Pratt (Nepean—Carleton, Lib.): Sure.

An hon. member: I think Hec was going to go in the cargo bay, wasn't he?

Some hon. members: Oh, oh!

The Chairman: Okay, then could I have a motion from someone to seek approval?

Mr. George Proud: I so move.

Mr. Art Hanger: I'll second it.

(Motion agreed to)

The Chairman: We will take this motion to the subcommittee tomorrow, and hopefully we'll get approval. With the pre-work that we did with all the parties, hopefully we'll get House approval and we'll be off on what should be a very busy but very useful trip for us in our study.

That's it for procedural matters, so now I'll welcome witnesses from Treasury Board Secretariat.

[Translation]

Mr. René Laurin (Joliette, BQ): Mr. Chairman?

The Chairman: Yes, Mr. Laurin.

[English]

Mr. René Laurin: Do you have news about Washington?

The Chairman: The Washington trip? It looks like that will be in the fall. That would be our earliest opportunity. We'll go on this one, and then we'll go back to our study on the merchant marine issue, as well as this procurement issue. Of course, if the House were to prorogue, that would obviously change things as well, but at this point in time it's tentatively the fall for the States.

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I want to welcome the witnesses today: Mr. Winberg, assistant secretary; Mr. Kelly, the director of the contract policy division; and Mr. Chilibeck, a manager in the risk procurement and asset management policy sector.

Gentlemen, welcome all. Who's going to begin today? Mr. Winberg? Okay, thank you.

Mr. Alan Winberg (Assistant Secretary, Risk, Procurement and Asset Management Policy Sector, Treasury Board of Canada Secretariat): Mr. Chairman, we've distributed copies of my remarks, as well as a copy of a deck of the issues we're going to be covering. I was thinking we would just proceed by having me take you through this brief deck.

The Chairman: If I may, I forgot one person I wanted to introduce, Mr. Winberg.

Wolf, would you like to introduce our new researcher?

Mr. Wolfgang Koerner (Committee Researcher): Yes. This is Virginia Potter, from DND. She's been assigned as our liaison person in order to help us with the study.

The Chairman: So she's on loan to us from DND, if you will. She's here to assist with this important study.

As chair, I also want to welcome back Ms. Longfield. You're looking in fine form and almost fully regained of your strength.

Some hon. members: Hear, hear!

The Chairman: For anyone who may not know, Ms. Longfield had a health setback on our trip to Germany. We were all obviously quite worried about you, Judi, but—

Mrs. Judi Longfield (Whitby—Ajax, Lib.): It's because I tried to charge Mr. Laurin for lunch.

Some hon. members: Oh, oh!

The Chairman: There you go. I think it was the night at the opera that must have set us back. Anyway, welcome back. It's good to see you in fine form.

Mrs. Judi Longfield: Thank you. It's good to be back.

The Chairman: Okay, Mr. Winberg, we'll proceed with your remarks.

Mr. Alan Winberg: Thank you, Mr. Chairman. It's a pleasure to be with you this afternoon to speak to you about the role of Treasury Board in the government's procurement activities.

Turning to the first slide in the deck that we've handed out, the Financial Administration Act authorizes Treasury Board to make procurement policy, and Treasury Board policies govern departmental procurement.

Page 2 of the deck explains the values and principles upon which these rules are based.

[Translation]

Contracts are an essential tool for program delivery. The government's procurement policies are based on the strong values and principles of competition, openness, equal access, transparency, fairness and best value for Canadians.

The objectives of government procurement are clear.

[English]

Mr. Art Hanger: On a point of order, Mr. Chairman, we're not getting a very good reception on the English channel.

The Chairman: Perhaps we have a problem with your mike, Mr. Winberg. The interpreters are saying they're not picking you up. I don't know if this room is jinxed or what. We've had other technological problems in here at other meetings, and sometimes it's fine.

We'll recess very briefly until we get some help with the technology.

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The Chairman: My colleagues have all promised to be as quiet as church mice. That would be rare, but we'll now be able to try proceeding.

Colleagues, if I might reconvene the meeting, I apologize for the interruption, Mr. Winberg, and I would ask you to begin your presentation anew.

Mr. Alan Winberg: I was talking about the four key objectives of government procurement, which are on slide 3 of the handout.

[Translation]

Procurement is to be conducted in a manner that will ensure the pre-eminence of operational requirements, stand the test of public scrutiny in matters of prudence and probity, facilitate access, encourage competition, and reflect fairness in the spending of public funds. Lastly, procurement must support long-term industrial and regional development and other national objectives.

[English]

A key factor of our rules is to comply with government objectives, and especially trade obligations. The Department of Foreign Affairs has already provided you with a briefing on our international obligations. We are working closely with that department and others to ensure that these agreements and future agreements provide a balance between the need for market access and the need to ensure that they are not overly burdensome on the government procurement process. We are committed to making improvements and are pursuing simplification over the time required to make these changes.

Slide 4 sets out the procurement steps. Procurement consists of three separate and distinct actions. The first is the make or buy analysis, in which a decision is made about the need for a contract. Treasury Board has published a make or buy guide to assist managers in this respect. For large dollar value procurements, Treasury Board's project management policy applies. This policy is designed to ensure that these projects are planned and implemented in a professional manner with a sound management framework.

The second distinct action is the call for bids. The third phase is the actual buy or contract entry. The government's contract regulations govern the bid-calling requirements. The contract entry authorities are covered by our policy.

At slide 5 we talk about the government contracts regulations.

[Translation]

The Government Contracts Regulations require that contracting authorities must solicit bids. The regulations further provide for practical flexibility in dealing with special situations; that is, when the contract is below $25K, in cases of pressing emergency, where it is not in the public interest to solicit bids, and where only one supplier is capable of performing the work.

[English]

Slide 6 talks about the government contracts policy directive. The actual buy or contract entry is covered by Treasury Board's contracts directive. The directive provides for dollar thresholds above which Treasury Board approval is required. If the competitive process has been followed, these authorities are higher. If a valid, non-competitive process is necessary, then these authorities are more restrictive. That is, Treasury Board approval on a case-by-case basis may be required. This graduated delegation of authority encourages departments to use the competitive process.

With regard to goods contracts at slide 7,

[Translation]

by law, that is the Public Works and Government Works and Government Services Act, only the Minister of that department may procure goods unless he has delegated all or part of his authority to other ministers. The basic delegated authority for goods purchases for all departments is now $5,000; two departments and two agencies have $25,000.

[English]

At slide 8, we point out that service contracts are treated differently. Departments may do their own service contracting or can use Public Works and Government Services Canada.

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The Chairman: On slide 7 you singled out that there are two departments that have $25,000. Can you indicate which ones they would be?

Mr. Alan Winberg: Yes, Indian Affairs and Correctional Services have $25,000 delegated authority.

The Chairman: Thank you.

Mr. Alan Winberg: There are two agencies, Statistics Canada and Atomic Energy of Canada. We're differentiating between a department and an agency.

The Chairman: Thank you.

Mr. Alan Winberg: At slide 9 we talk about the performance in terms of competition, transparency, and access. Canada's performance in terms of these three—competition, transparency, and access—compares favourably with our major trading partners. Furthermore, in the past several years we've had greater access and transparency through increased use of electronic tendering.

At slide 10 we have some bar graphs demonstrating our performance over the past five years. Mr. Chairman, competition is the cornerstone of our procurement activity, and in the past few years competition has increased. The chart at slide 10 represents the percentage of procurement above $25,000 awarded competitively for the last five years. The bars on the left-hand side of the chart of each year represent the competitive percentage by value and the bars on the right-hand side represent the competitive percentage by number of all contracts. As you can see, in 1997, for example, 89% of the total dollar value of our procurement was let competitively and 82% of the total number of procurements were let competitively.

[Translation]

In slide 11, if you look at the next chart, you will see how Canada's overall performance compares favourably with our major trading partners. If you look at the pie chart on the left-hand side, you will see that the European Union's level of competition is 51% for 1997. If you look at the right-hand side, you will see that the level of competition for the United States was 62.8% for 1997. In 1997, for contracts, including all contracts whether they are above $25,000 or below $25,000, the level of competition for Canada was 80.3%.

I have also tabled the aggregate government-wide contracting activity reports for 1996 and 1997, which we have placed on our Internet world-wide-web site.

[English]

Mr. Chairman, turning to slide number 12, I'd like to talk for a minute about our current initiatives to improve our procurement and our procurement policies. Mr. Chairman, our policies are among the best in the world. To ensure that the rules remain sound, we do recognize that some policies need adjustment to improve efficiency and effectiveness. This is why we're working on reforming and modernizing procurement.

We aim to modernize procurement addressing policies that cover the full procurement life cycle. The objective is to help departments better serve the public while maintaining opportunities for Canadian suppliers and the integrity of the system. We are currently advancing several key initiatives.

First, to assure sound implementation of these policies, we're committed to developing a program of training and certification for procurement specialists in departments and establishing mandatory orientation on procurement policy, principles, values, and best practices for responsibility-centred managers involved in procurement.

Second, we are building recognition of what we call transition costs into our contracting policy. Transition costs include all the costs associated with the change in supplier. We plan to make this a mandatory element of bids.

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Third, we've taken action to improve implementation of our advanced contract award notices policy.

Fourth, we are planning to improve accessibility of our contracting information through more publication of this information on government Internet web sites. Finally, we are doing more work to harmonize our policies with the provisions of the trade agreements.

In summary, we are working to ensure that our policies and their implementation remain world class.

[Translation]

Thank you for your attention. We will be pleased to respond to any questions.

[English]

The Chairman: Thank you very much, Mr. Winberg. That's the sum of your remarks? Thank you.

We'll go to a first round of 10-minute questioning, starting with the Reform, Mr. Hanger.

Mr. Art Hanger: Thank you, Mr. Chairman, and thank you, Mr. Winberg, for your presentation. I would like a point of clarification. When you made reference to slide 10, percentage of procurement awarded competitively, you made a statement that these percentages reflect the total numbers of contractors as opposed to dollars. Is that correct, or are you referring to dollars here?

Mr. Alan Winberg: Yes, this slide shows both the competitive percentage by value and the competitive percentage by number. If we take 1997, the last one to the far right, the bar on the left showing 89% represents the dollar value of procurement. So 89% of the dollar value of our procurement in 1997 over $25,000 was competitive. The bar on the right showing 82% means if you were to count each of the contracts you'd find that 82% of the number of contracts let were let in a competitive manner.

Mr. Art Hanger: When the Auditor General was before our committee back in February, a series of questions from myself was tabled in the committee and made reference to a procurement. I'd like to read to you question number 3, which was submitted, and there was a reply back from the Auditor General in this respect.

The question was:

You state that industry executives have suggested that duplication of effort among various federal departments be eliminated.

That's paragraph 4.33 in the Auditor General's report.

Can you explain how such duplication affects the cost of projects?

His reply was this:

We interpret industry comments to mean that the federal government's approach to major weapons systems acquisition, for example, is too complicated, marked by the involvement of several departments in an adversarial approach to industry and complicated paperwork and specifications. Overall they believe that the current federal approach adds overhead costs and slows project completion, adding again to the total cost.

Now, that was the Auditor General's reply to that question. How would you respond to that? You made reference that you feel our procurement system is world class. The Auditor General has some very substantive things to say in that very brief comment.

Mr. Alan Winberg: What we're saying is our procurement system is world class. I believe our policies are among the best in the world. We also recognize, though, that there is a need to streamline and simplify and move from the current approach in some areas to a much more results-oriented approach. I believe some of your other witnesses have talked about the procurement reform efforts that we are undertaking and the move to what's called benefits-driven procurement, which is more results focused than other ways.

Mr. Art Hanger: Would some of those reforms deal with...? Well, for instance, instead of having several departments involved in a procurement item or a contract or an endeavour, would it be narrowed down to less than several? Can it be?

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Mr. Alan Winberg: There may always be a number of departments involved. However, with the procurement reform efforts we're doing, we're pulling together people from the various departments that may be involved to ensure that there's good team work, that people do work well together, and that the policies are complementary, one with the other.

Mr. Art Hanger: On slide 3, you mentioned:

The objectives of government procurement are clear. Procurement is to be conducted in a manner that will:

(a) ensure the pre-eminence of operational requirements.

Can you tell me what study or analysis has been done by the Treasury Board on a particular procurement where there was analysis on increased cost due to regional development provisions laid out? In other words, what are the increases in costs due to regional development provisions? Is this an analysis...I assume it's an analysis that must be done on just about every procurement that is made.

Mr. Alan Winberg: Yes. I understood you were meeting with representatives from Industry Canada who have a lead role in the industrial and regional benefits policy. That policy is being evaluated.

Mr. Art Hanger: And there are in fact studies available?

Mr. Alan Winberg: Well, I think this has to be posed to Industry Canada, who has the lead on the review of that policy.

Mr. Art Hanger: Mr. Chairman, I guess I don't understand. If it's a concern about how tax dollars are being spent, would that not come from Treasury Board as opposed to Industry Canada?

Mr. Alan Winberg: The procurement rules are set out in Treasury Board policies. Industry Canada has the lead role with regard to the regional benefits aspects.

Mr. Art Hanger: Okay. Thank you.

The Chairman: We can pursue your question, if you want, Mr. Hanger, with Industry officials.

Mr. Art Hanger: Yes, certainly. I do want to pursue that.

Thank you.

The Chairman: Thank you, Mr. Hanger.

[Translation]

Mr. Laurin.

Mr. René Laurin: I would like to start with a clarification. On page 1 of the attachment, which deals with contracts below $25,000 and above $25,000, it says competitive on the first line, and ACANs on the second line. What does "ACAN" mean?

Mr. Alan Winberg: In English,

[English]

it's an advance contract award notice.

[Translation]

I am not sure of the exact wording in French. In English,

[English]

it's an advance contract award notice.

[Translation]

It is an advanced contract award notice.

Mr. René Laurin: It means advanced contracts?

Mr. Alan Winberg: Yes. It is one of the four reasons that makes it possible to award a contract without a call for bids. We have a policy that enables us to announce our intention to award a contract, the name of the contractor who will receive it, the description of the responsibilities and the amount of money earmarked for carrying out the project. It is posted on the electronic bulletin board. All contractors who feel that they can carry out the contract are invited to express their interest. If a valid interest is expressed, the department will open up a competition for the contract.

Mr. René Laurin: On slide 3, you say that you are working closely with the Department of Foreign Affairs and other departments to ensure that these agreements and future agreements protect market access. You add however that you plan to improve the process. What improvements do you intend to make and why?

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Mr. Alan Winberg: I think that you have already sat down with officials from Foreign Affairs and analyzed aspects of these international agreements, including the various thresholds for which the rules must be taken into account. There are all kinds of procedural rules for awarding a contract and issuing a call for bids. We feel that some of these agreements could be simplified.

Mr. René Laurin: For example?

Mr. Alan Winberg: There are different thresholds for different goods and different countries. It would be easier if a simpler threshold were established.

Mr. René Laurin: Such as?

Mr. Alan Winberg: At present, there are several thresholds. If everyone could agree to a given threshold, we could increase training within government and other bodies so that no one departs from the agreement.

Mr. René Laurin: When you talk about a threshold, are you talking about a monetary amount or standards?

Mr. Alan Winberg: A threshold is an amount of money above which procurement is covered by the agreement.

Mr. René Laurin: In slide 7, you say that the threshold has gone up to $25,000 for two departments and two agencies, Indian Affairs, Correctional Services, Atomic Energy of Canada and a fourth agency. I would like to know the name of that agency.

Mr. Alan Winberg: Statistics Canada.

Mr. René Laurin: Okay. On page 6 of your presentation, you say that you plan to ensure that all costs associated with the change in supplier are taken into account. I would like you to explain that objective. When you say that you want to take into account the costs associated with a change in supplier, is this with a view to changing suppliers less often or more often?

Mr. Alan Winberg: The objective is to ensure that there is healthy competition and that we do good business. For some time now, we have been taking into account all costs associated with the change in supplier, but in some cases, people have not yet become aware of it. For example, when we decide to award a contract, we may receive an offer from a new supplier whose bid is 2 or $3 lower. That supplier will win the tender call unless we take into account the cost of changing suppliers for the government. That has already happened in the past; the government changes suppliers and then spends thousands of dollars to change the systems. We want there to be healthy competition, but we also want to take into account the real costs associated with the change in supplier.

Mr. René Laurin: That implies that in some cases you would not want to change suppliers because the costs associated with the change, such as the bid documents, the paper work, the timeframes, etc., are higher than the difference in the price of the contract awarded to the new supplier. Is that what you're saying?

Mr. Alan Winberg: Yes. The idea is that the competition must take into account the real costs of changing suppliers. By granting a new contract, we would take into account what that would involve for us. I think that is good for competition. In doing so, suppliers will know what the costs of such a change are. It would be calculated systematically for all procurement and the system would be fairer for everyone.

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Mr. René Laurin: How can you save any money if you do not change suppliers? It isn't ever possible to know ahead of time what kind of a bid another supplier will put in. If you operate simply by anticipation and only conduct arbitrary assessments, you can determine the going rate for a given good or service and then say that there is no point in calling for bids, because the price currently being paid is not really that much higher. You could reach conclusions like that, but the system would remain arbitrary, because you can never know ahead of time what prices you will receive by going to tender.

Mr. Alan Winberg: That's why we will go to tender. We are not saying that, given the transition costs, we will not call for tenders; what we are saying is just the opposite. When we call for tenders, we will indicate the cost of changing suppliers. The suppliers will therefore have to get out their calculators before tendering. What we're aiming for is to get more tenders in order to increase competition.

Mr. René Laurin: Since the text is unclear, one might think that you sometimes preferred to keep the same supplier rather than go to public tender, for fear the tendering costs might lead to negative results. I understand now.

Mr. Alan Winberg: It's exactly the opposite.

Mr. René Laurin: I'm not sure whether you will be able to answer this question. The policy you are describing today applies to all departments, not just to the Department of Defence. Doesn't it?

Mr. Alan Winberg: Yes.

Mr. René Laurin: How many purchases of goods or services valued at over $100 million does the Department of Defence make in one year?

Mr. Alan Winberg: I don't have those figures. I thought that you had met with witnesses from this Department. I'm sure that they could give you those figures.

Mr. René Laurin: Transactions worth $100 million must nevertheless be fairly exceptional; we're not talking about $100,000 but $100 million.

Mr. Alan Winberg: We could provide you with this information, but we would get it from the Department of Defence.

Mr. René Laurin: This isn't a trick question, but could one confidently talk about hundreds of $100 million transactions or would it be more accurate to talk about dozens of transactions of this nature, or are we looking at only a few transactions?

[English]

The Chairman: Mr. Laurin, your time is up with that question. If we can't get an answer today from the witnesses, perhaps we could ask you to confer with Defence and forward the information to the committee when you have an opportunity. Would that be fair?

[Translation]

Mr. Alan Winberg: You would like to know the number of contracts worth a $100 million or more per year.

Mr. René Laurin: At the Defence Department.

Mr. Alan Winberg: We could provide these figures with the help of our colleagues at Defence and Public Works and Government Services.

Mr. René Laurin: I would like to know the figures for contracts related to the purchase of both goods and services.

Mr. Alan Winberg: Yes.

[English]

The Chairman: Thank you, Mr. Laurin. We will look forward to receiving that information.

We'll go now to the majority side, starting with Mrs. Longfield for 10 minutes.

Mrs. Judi Longfield: Thank you. I won't use all of the 10 minutes.

The Chairman: Okay.

Mrs. Judi Longfield: I want to pick up on slide 12 and the comments Mr. Laurin was making about the transition costs. One thing this committee heard a great deal about when we were travelling around was contracting out and alternate service delivery. I think if the cost of transition had been built in, in-house bidders who were trying to compete with a new company that was coming in may have had a more level playing field in which to put forward their proposals. We were finding out that those transition costs were being absorbed by the department and that the bids were just dealing with the cost of delivery after transition. Am I taking the right interpretation on this? In some cases where we're looking at ASD, would it level the playing field for the in-house bidders?

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Mr. Alan Winberg: Once this is in place we will be following a very business-like approach for all manner of contracting. Right now in some contracts we do recognize the transition costs and in others perhaps we don't. Once we have completed this work on recognizing transition costs, we would make it a mandatory element of all bids.

Mrs. Judi Longfield: I look at Trenton, for example, and the food service. The costs of renovating and getting ready for the new company coming in were never taken into consideration. When I was talking to members of the food service there, they said they felt they really were behind the eight ball. Not only were they not given the time to prepare the bids, but also those renovation costs, which they knew were extensive, were never really factored in. Overall maybe we're not saving. We'll maybe save on the delivery in each individual year, but with the overall cost factored in, it's very little. I take this as being a positive for members of the Canadian Armed Forces, and I just didn't want to be too excited about it before I knew that's actually the case.

Mr. Alan Winberg: I don't know the details of that specific case, but the concept is that the cost of moving from one supplier to the next would be calculated in a business-like way and made known to people at the beginning of the bidding process.

Mrs. Judi Longfield: Who would be responsible for making those assessments? Do Treasury Board officials come in? How do we know it is going to be consistent?

Mr. Alan Winberg: The way it works is that Treasury Board will work with a group of departments to develop what we call a guideline for the calculation of transition costs. We'll set out all the factors and elements one would normally expect the departments involved to consider. We would come up with a standard methodology for calculating those costs and how they would be amortized over the life of a contract, and departments would use that guideline in estimating their transition costs. Also, we would consult widely on the methods we would be using to calculate that and build it into bids.

Mrs. Judi Longfield: If all goes well, when do you expect these initiatives to be acted upon and when will we see that actually happening in our procurement policies?

Mr. Alan Winberg: We're preparing a work plan, which will be detailed and show the milestones and the deadlines on the specific projects that are being undertaken. Those will be posted to the Treasury Board web site. These will take place at different points in time. I believe you'll see progress steady and continuous for a period of years as we move to improve procurement.

Mrs. Judi Longfield: What about that first guideline?

Mr. Alan Winberg: For the ones you've listed here, there would be something to show for each of those over the next 12 months.

Mrs. Judi Longfield: Thank you.

The Chairman: Thank you, Mrs. Longfield.

Mr. Bertrand, did you have some questions? There are a little more than five minutes left.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): I would like to know who determines the costs associated with changing suppliers, but Ms. Longfield asked the question.

I have a few questions concerning pages 3 and 4 of the attachments. In the category of contracts worth $25,000 and above, I presume that this is because of NAFTA agreements. Contracts worth $25,000 and above are offered—

Mr. Alan Winberg: They may be awarded by public tender unless one of the four conditions mentioned earlier is met.

Mr. Robert Bertrand: In the case of goods, the total amount of $25,000 contracts is $1,976,030,000. How much of this was awarded to American companies? Do you have this figure?

Mr. Alan Winberg: We do not keep statistics on this at Treasury Board.

Mr. Robert Bertrand: You don't have that figure? If in 1997, for example, 4,946 contracts were awarded for goods, do you know whether they were awarded to Canadian, American or Mexican companies?

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Mr. Alan Winberg: If such contracts are governed by international trade agreements, no distinction is made. If they are not, you can obtain the—

Mr. Robert Bertrand: I understand, but—

Mr. Alan Winberg: It would be difficult to classify some purchases of goods as American or Canadian. It would be hard to classify certain goods, for example, in cases where large Canadian companies submit a tender for a product that originates both in Canada and the United States.

Mr. Robert Bertrand: Could you give me an example of a non- competitive contract for the Defence Department?

Mr. Alan Winberg: One example of a non-competitive contract would be a contract related to last year's ice storm. During this emergency, we had to get hold of certain equipment, generators for schools and hospitals, and so on. There wasn't enough time to call for tenders. The Defence Department went out and bought generators, among other things, without going to public tender. However, it paid market prices.

Mr. Robert Bertrand: I would like to come back to what Ms. Longfield spoke about earlier, that is, the costs associated with changing suppliers. This could make a huge difference in the amount of a tender, from a technical point of view. For instance, in the case of a $10 million computer contract, where it would be necessary to change all the incoming cables because of new computers at an additional cost of 4 or $5 million, this would represent a significant amount of money.

Mr. Alan Winberg: This is a very important concept. For example, when a different software program is brought in, a training course is sometimes required. It then becomes essential to calculate these costs very accurately and to make them known, so that they can be taken into account in evaluating bids.

Mr. Robert Bertrand: Mr. Winberg, is it possible that an element of discrimination enters into the selection process for some contracts?

Mr. Alan Winberg: Once our guide has been written and we have in place a systematic approach based on sound elements, there will be less possibility of discrimination if this framework is applied.

Currently, when various contracts are awarded, the transition costs are estimated but different methods are used to do this. Once the guide has been developed, we will have a single basis for all procurement activities.

We would also like the mandatory element to receive a certain priority in this guide. Currently, this element is present in some cases but not in others. There is a need for more fairness, more equity.

The Chairman: Thank you, Mr. Bertrand.

[English]

Mr. Earle, you have ten minutes.

Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chairman.

On slide 3 you list the objectives of government procurement. You have four particular objectives, the last one being “support long-term industrial and regional development and other national objectives”.

• 1625

Can you elaborate a bit on how you ensure that? You say procurement is to be conducted in a manner that will support that. Say, for example, there are some situations where perhaps the bids may be competing in terms of regional interests or regional development. How do you ensure fairness in terms of making sure a given section of the country receives or is dealt with fairly in that kind of process?

Mr. Alan Winberg: Again, if it's under the trade agreements, there's no discrimination. But if it falls within the projects between regions, if it falls within the policies we talked about regarding industrial and regional benefits, then those become a consideration of any bidder who is making a proposal.

Other national objectives might be to assist with economic development for aboriginal business. So there would be other policies. These are exceptions to the policy of running completely competitive procurement.

Mr. Gordon Earle: On slide 4 you talk about procurement consisting of three separate and distinct actions, the first being “the make or buy analysis”, in which a decision is made about the need for a contract. You mentioned that the trade report is published, a make or buy guide to assist managers in that respect. Can you give me an indication of what kinds of things would be in that guide that would help people in making that decision?

Mr. Alan Winberg: It's a guide that sets out a set of criteria and issues you would examine in order to determine whether you would be better off delivering that in-house or procuring that by contract, a range of factors and a way of assessing those, against which you could put a dollar value.

Mr. Gordon Earle: Then the Treasury Board has a role to play if, say, a department were not following that guide.

Let's say you issue that guide to a department and they go ahead and do their contracting, but perhaps those guidelines are not being followed. Does it come back through Treasury Board at some point? Is there a check and balance against that guide, or is it just a matter of passing it over to them?

Mr. Alan Winberg: The decision to enter into a contract for a given procurement is a departmental decision. The guide is there to provide assistance in making those calculations, but that's a departmental analysis that goes on.

Mr. Gordon Earle: So you don't really have any indications that departments are or are not following these guidelines—or do you? Does that enter into the picture at any stage?

Mr. Alan Winberg: These guidelines have been used very widely over the past several years in assisting with understanding the issues around decisions regarding doing work in-house or contracting for that work.

Mr. Gordon Earle: The last question is on slide 5. When you talk about reasons for sole sourcing, you give four reasons. Are these taken collectively, or can it be either or any of these that would be a reason for sole sourcing?

For example, if there were a situation where there was a pressing emergency, but the amount was, say, above $25,000, would that be something by itself that could...?

Mr. Alan Winberg: Any one of those conditions could be a valid reason for doing the sole source.

Mr. Gordon Earle: Would the public interest test facilitate or accommodate, say, Canadian content if you have a large contract and you want to include that?

Mr. Alan Winberg: No, that's not what's meant by that. Within DND, a public interest test could perhaps be, within DND, a military communications unit and you don't want to make the specifications known publicly. So it has to be a sole-source contract.

Mr. Gordon Earle: Thank you.

The Chairman: Thank you, Mr. Earle.

Now, for the Conservative Party, Mr. Price.

Mr. David Price: Thank you, Mr. Chairman. I probably should say we are dealing pretty well totally with National Defence today. I realize you cover the whole works as far as Treasury Board is concerned, but what I'll talk about may be strictly National Defence.

• 1630

From the briefings we've had in the last little while from National Defence, Public Works, the groups within National Defence and Public Works and yourselves, procurement seems to be a great big bucket of red tape. It seems to be very complicated, particularly to do with National Defence.

Maybe you could give us an idea of your part in, let's say, two different types of contracts: a very major one, like the search and rescue helicopter contract we've just gone through, and then maybe 1,000 pairs of boots, just to give us an idea of your part in that.

Mr. Robert Bertrand: About the same price.

Mr. David Price: That's why I'm looking at it—two totally different items.

Mr. Alan Winberg: Treasury Board sets the contracting policies for the government. As I say in the deck, the contract regulations say when bids are required. The government policy directive says when departments set the levels of authority for the various contracts, depending on whether they're competitive or not, or posted electronically.

Mr. David Price: At what point does that get involved?

Mr. Alan Winberg: The 1,000 pairs of boots is a goods contract. The Department of National Defence would decide whether they needed them. If so, they would then be in contact with the people at Public Works and Government Services to go about the best way of buying them and running the bids. Treasury Board would have nothing to do, other than that there is a Treasury Board policy that would govern the activity of those departments in procuring those goods.

Mr. David Price: But that would go to tender. I'm referring in both cases to a contract over $25,000.

Mr. Alan Winberg: Public Works would do that, and in general it would be done through a tendering process.

Mr. David Price: As far as your department is concerned, though, would you look at the contract?

Mr. Alan Winberg: No.

Mr. David Price: You wouldn't have any involvement at that stage at all.

Mr. Alan Winberg: Just on a government basis, we monitor the overall contracting of the government and produce a report, like the one you have in attachment 1, to look at the overall level of contracting in the government. We would not look at that individual contract.

Major crown projects are also determined by Treasury Board policies. We have a major crown project policy that sets out a much more rigorous management regime, with clear milestones and more rigorous planning and implementation. For a major crown project, there would be Treasury Board involvement in approving, at a preliminary stage, the work going on for the management of that project, and a second stage, once detailed budgets had been worked out, for the effective approval of that project.

If big contracts exceeded the authority National Defence and Public Works and Government Services had, then those contracts might come to Treasury Board, which would look at the process that was followed for the taking of bids and the letting of those contracts.

Perhaps Mr. Chilibeck would like to add to that.

Mr. David Price: Sort of tied into that, in a major contract for a helicopter, for instance, there could be cost overruns. Where would Treasury Board get involved in that situation?

Mr. Don Chilibeck (Director, Risk Procurement and Asset Management Policy Sector, Treasury Board of Canada Secretariat): As Mr. Winberg said, there are project approvals that establish the cost objective, for example, of the project. Contracts would be approved to a certain amount. The contract rules require amendment above certain amounts that come in.

You might have some contingency built into the project with the approval, but the cost objective is set. If the objective is exceeded, the department would be obliged to come to Treasury Board for approval of that increased amount.

• 1635

Mr. David Price: Okay. To follow up on the question Bob and Judi asked, you've reduced the number of contracts above $25,000 that don't go to tender by close to 20% over the past couple of years. What types of contracts have you been able to eliminate?

Mr. Alan Winberg: They've been all manner of contracts. Over the past several years we've made very major strides in using what we call electronic commerce, electronic bidding. Through a number of contracts—this is largely run by the Department of Public Works and Government Services—it's now possible to post opportunities electronically on this electronic bulletin board and run competitive processes we previously did not have.

Also, over the past decade we have introduced, through this electronic bidding, higher authorities when they use the competitive process and electronic bidding. This has led to more competitive contracting.

The advanced contract award notice policy we put up allows people who have a valid reason not to call bids, to put up that opportunity and invite others to challenge the issuance of that contract, if they feel they have a valid challenge. Then the process would be opened up to a competitive bidding process.

In 1995 we had a series of meetings where we worked with departments to talk about the advantages of competitive procurement, and it made a difference in our system. We've gone to a process where we compare very favourably with the European Union and the United States. We think this has been a real achievement over the past several years.

Mr. David Price: Would you say you've been able to reduce more services than goods?

Mr. Alan Winberg: In both of those areas we have increased the amount of competition.

Over the last four or five years, budgets have been severely restricted. People are looking at the competitive route in order to ensure best value for their procurement dollars. So this is another factor that has had an influence on increasing the use of competitive procurement.

Mr. David Price: In the Auditor General's report Mr. Hanger referred to, they were very negative on the risk management side of government operations, and your operation was also involved. Can you tell me what you've done since that report to start bringing things up to...?

Mr. Alan Winberg: Yes, with pleasure. My unit is a new sector within the Treasury Board Secretariat and it was created last summer.

One of the main areas we are working on is advancing a government-wide framework for improved risk management. This comes from a year-long study that took place earlier, before the establishment of my group, by a panel of experts who wrote a report on the modernization of comptrollership within government operations. Putting in place a government-wide framework for better risk management was seen as a needed initiative. Treasury Board responded by setting up my group. We are working now with a large number of departments to put in place the basics of a framework for improved risk management.

Mr. David Price: So the next auditor's report will have that taken right out.

Mr. Alan Winberg: I welcome the Auditor General looking at the work we're doing to improve risk management.

Mr. David Price: In the first slide, I see asset management is also included in the title, “Risk Procurement and Asset Management”. What assets are we talking about here? Are they buildings and that type of thing?

Mr. Alan Winberg: Yes. We have two classifications for our assets. One is real property assets. We have a group that is working on improving real property operations within the government, and DND is a big player in that. The other is our movable assets or materiel. We have initiatives under way there for the improvement of our materiel assets as well.

• 1640

Mr. David Price: Thank you.

The Chairman: We'll now go to a second round of five minutes, starting with Mr. Hanger.

Mr. Art Hanger: Thank you, Mr. Chairman. It's a follow-up to Mr. Price. I actually had a similar question to his, in reference to the purchase of a major capital good, for instance a helicopter, which I think was the item he brought forward, and I'd like to go through that process in a little more detail.

On slide 1, you state, “the Financial Administration Act authorizes the Treasury Board to make procurement policy.” You develop the policy and the departments are required to follow through on that policy, is what you were saying. How do you ensure that's done? We'll use the defence procurement as an example. The defence department finds there is a requirement for a search and rescue helicopter—the Cormorant was picked. Now, if they were to go down to—on slide 3, you have the government procurement policy as being clear. If point (a), pre-eminence of operational requirements, was all they had to look at, they could go out virtually and pick their helicopter and say that's the one we want. But there are also (b), (c), and (d) involved as the other procurement provisions, which make it more complicated, I would suggest.

Where the procurement, I understand, when it comes to the helicopter is concerned, where it really sort of gets entangled is that once that airframe is purchased there's a whole bunch of mission kit that has to go into it. That's where, I assume, everything gets a little more complicated. Who's going to provide it? If it's going to be Canada that provides that kit, then where is it going to be developed, who's going to make it, what region, and does everyone have their share? I suppose that's one of the things you oversee in your department.

Mr. Alan Winberg: Don, can you take that?

Mr. Don Chilibeck: Sure. On a large procurement it is complex. There are these various policy requirements and objectives, and it's a balance. But you do this competitively and you have a requirement and you can put in your socio-economic requirements just as well as the operational requirements in your request for bids. You would evaluate all those aspects of the bids.

So in a bid evaluation you would have price, you'd have the manner in which the operational objective is met, you'd have the socio-economic benefits that are offered or industrial regional benefits that are offered, and you'd have an interdepartmental team that evaluates the bid and the proposal.

Mr. Art Hanger: This team is going to evaluate every aspect of the contract. They're going to assist in setting a contract out so that all the players who are bidding will be on a level playing field. That's basically a fair thing to say?

Mr. Don Chilibeck: Yes.

Mr. Art Hanger: All right. The search and rescue helicopters were identified as a priority in 1994. The white paper was clear. The contract was awarded in 1999. There was a five-year span in between. There's obviously quite a process involved there. Who was involved in this process and why did it take five years?

Mr. Don Chilibeck: I don't know whether I could comment about the specific project, but normally the process involved is that you'd have a process of project approvals and then a contact approval, but even before that there's a planning process. You have to establish the operational requirements. The department has to agree on that, and then you start getting your project approvals.

So there are various stages the department would have to go through.

Mr. Art Hanger: Could you outline those stages? I'm curious. The frame is purchased. I see the frame being purchased and then this complicated process after the frame is purchased, because we don't make helicopters in this country.

An hon. member: Yes, we do.

• 1645

Mr. Art Hanger: Well, not the ones we need for this job. It has to be purchased outside the country. So that's pretty much clear-cut once the decision is made as to which one you're going to take. It's what's happening after it gets here. I would like to know what stages it goes through.

Mr. Don Chilibeck: Again we're getting into a bit of a departmental role, the DND role at the front end, in establishing that they have the operational need. They would have some communication I think with the private sector as to what's available in a general sense. I think they would approach it from a system point of view usually. They wouldn't sort of buy an airframe and then the rest of the pieces later. I think they would try to plan it on a system basis and a life cycle basis. So they would use that intelligence to try to establish a system requirement. That quite possibly could include industrial benefits requirements as well as the operational requirements. Then to ensure the integrity of the procurement they would put that out to bid. They would be governed by the trade agreements in doing that. Often defence procurement is not subject to the international trade agreements. They would seek competition for that, and the best proposal.

The proposal can include significant Canadian content, but often it might have to have foreign content in it as well, if that capability does not exist in Canada.

The Chairman: Thank you, Mr. Hanger. If I might assist, because two different colleagues have essentially asked the same question, I think we would like to get the clearest answer we could.

On page 2 you enumerate four criteria, and Mr. Hanger just referred to them. Then a couple of members have asked in essence, is there a monitoring of those criteria being carried out, and if so who does that monitoring?

Mr. Alan Winberg: With regard to the contracting policies of the Government of Canada, we have very frequent contact with departments that are involved in contracting activity and with the Department of Public Works and Government Services.

With regard to the reform of our policies and procedures to understand how they are being implemented, and to be aware of issues and areas where improvements are needed, we have a committee that has just recently been created, which is designed to look at procurement and address, understand and monitor how things are going, and understand what improvements are required for procurement. There's an ADM-level committee that is designed to monitor and look at this work. It includes myself, the ADM from Public Works and Government Services, the ADM from National Defence, the ADM from Industry Canada, and three others from other departments who are involved in various types of procurement activity.

The Chairman: Thank you. I think that helps, because we had the question posed a couple of times.

Now to Mr. Bertrand for five minutes.

Mr. Robert Bertrand: Mr. Winberg, I would like to go back to slide 6, if possible. I understand it, but I read on this sheet in your presentation under slide 6:

he actual buy or contract entry is covered by the Treasury Board Contracts Directive, which provides for dollar thresholds above which Treasury Board approval is required.

I thought it would be Public Works that would, once the bidding is out there, decide if we accept this bidder or this other bidder. From what I read here, depending on the dollar threshold, you would have your say. Am I correct?

Mr. Alan Winberg: Yes. The vast majority of contracts are carried out within departmental authorities, and the Department of Public Works and Government Services has very high authorities for the vast majority of contracts.

• 1650

However, they do have a limit above which, if the contract is bigger than that limit, they come to Treasury Board and ask for authority to enter into that contract. If they're entering into a competitive contract for goods, I believe their limit is $40 million. So everything $40 million and below, they do on their own. If it's above $40 million, they'll come to Treasury Board for authority to enter into that contract.

If it's not competitive, the authorities are lower. Sometimes they do have to enter into that type of contract for one of the valid reasons. They would come to Treasury Board for contract entry authority.

Mr. Robert Bertrand: Is this before or after the bidding is done?

Mr. Alan Winberg: After.

Mr. Robert Bertrand: Suppose we come back to the 1,000 pairs of boots, and National Defence thinks this is going to come up to $40 million. Expensive boots, I know, but I'm just using it as an example. I presume, with all the boots they've bought in the past, they would pretty well know what the amount is. So if they've got six or seven bidders and it comes in higher than $40 million, and they need those boots, they would have to go back to you and say, listen, this contract is $10 million above what we had projected; can we go ahead and buy them? Am I interpreting this right?

Mr. Alan Winberg: Well, for goods they would go to Public Works and Government Services. They would go out and try to buy those goods. If it was under $40,000, Public Works would enter into the contract—

Mr. Robert Bertrand: It's $40 million.

Mr. Alan Winberg: They would enter into the contract straight off. If, as a result of a procurement process, they got a cost higher than their authority, they would not enter into that contract. They would explain what happened in a Treasury Board submission and ask for authority to enter into their contract.

Mr. Robert Bertrand: When you say “enter into”, you mean to be able to buy the higher-priced boots.

Mr. Alan Winberg: Yes.

Mr. Robert Bertrand: Okay.

Mr. Alan Winberg: Departments have a level of authority to enter into contracts. When a contract they want to enter into is higher than that authority, they come to Treasury Board, and Treasury Board would authorize that higher-entry authority.

Mr. Robert Bertrand: So who has the final word in awarding a contract? Is it Public Works or is it you guys?

The Chairman: Mr. Kelly can help us all.

Mr. R.J. Kelly (Director, Contract Policy Division, Treasury Board of Canada Secretariat): Thank you. If, after the bids are called, the contract chosen is higher than what Treasury Board has given the department, they have to come to the Treasury Board ministers and say, “Can we enter into this contract? We called bids and here's what we got. We'd like to enter into this contract.” The board would probably say yes.

Our authority levels are relatively high these years. We at Treasury Board see 40 to 50 contracts a year, compared to 10 or 15 years ago when we saw thousands. So it's up to the departments to award these contracts, except where the value is in excess of what the Treasury Board has specified.

Mr. Robert Bertrand: So if your department says okay, go ahead, then Public Works would automatically accept? They would pay out—if I go back to my boots—that extra $10 million for the boots? Is that the way...? I'm just trying to make it clear.

Mr. R.J. Kelly: It's the Treasury Board ministers, Mr. Chairman. It's not us guys.

The Chairman: The Treasury Board minister has the ultimate responsibility—the minister, yes.

Mr. R.J. Kelly: All of them.

The Chairman: All five, yes, sorry.

Anyway, thank you, Mr. Bertrand. We're thinking for the price of those boots we'd get a helicopter with each. I understood your example, though.

Mrs. Judi Longfield: I have a point of clarification.

The Chairman: Sure.

• 1655

Mrs. Judi Longfield: Who set the $40 million as a ceiling?

Mr. Alan Winberg: Over time those levels are looked at by Treasury Board and they're set by Treasury Board.

Mrs. Judi Longfield: When was the $40 million set?

Mr. Alan Winberg: In 1998.

Mrs. Judi Longfield: And what had it been prior to that?

Mr. Alan Winberg: It was $20 million.

Mrs. Judi Longfield: So it went from $20 million to $40 million?

Mr. Alan Winberg: For competitive contracts.

Mr. R.J. Kelly: For electronic competitive contracts.

Mr. Alan Winberg: For electronic competitive contracts. The whole idea behind the delegation of authorities was to move the authorities to departments so they could efficiently and effectively carry out their operations.

Mrs. Judi Longfield: But still within their own departmental budgets?

Mr. Alan Winberg: Still within their budgets. They were living within budgets and there was a great deal of activity in terms of bringing the budgets in at a lower level than they had been in the past.

The Chairman: We have to go now. Sorry. It's Mr. Laurin's turn now.

[Translation]

I will give you five minutes, Mr. Laurin.

Mr. René Laurin: Thank you, Mr. Chairman. I would like you to explain to me why your slides 7 and 8 show that there is a difference between purchases of goods and purchases of services. If I understand correctly, according to slide 7, all departments have authority to purchase goods, for example paper, valued at $5,000. But if a department decides to hire a lawyer, it may spend $200,000 without having to request authority because this is a purchase of services. Is this correct, and if so, why is there a difference in the authorization process?

Mr. Alan Winberg: They are regulated by different legislative frameworks. By law, the Minister of Public Works and Government Services has the mandate to procure goods for the government. For the sake of efficiency, this Minister has delegated this authority to other departments, subject to the condition that the goods being procured are worth under $5,000.

The acquisition of services is regulated by the Financial Administration Act, which makes a distinction between goods and services. Goods are purchased in the most cost-effective manner possible by the Department of Public Works and Government Services, as required by law.

Mr. René Laurin: Does that mean that it is not possible to get the lowest possible prices in service contracts and that there are no savings to be realized when hiring lawyers?

Mr. Alan Winberg: Service contracts with lawyers are covered by other legislation, which is under the responsibility of the Justice Department. But for all other services, departments have the choice of dealing directly with suppliers or going through the Department of Public Works and Government Services. The Department of Public Works and Government Services has standing offers that enable departments to procure certain services very efficiently.

Mr. René Laurin: Let's take the example of the Department of Canadian Heritage which would like to hire an advertising consultant in advertising for $150,000, $200,000 or $300,000. Could it do so without requesting Treasury Board's authorization?

[English]

Mr. R.J. Kelly: Mr. Chairman, in the sense that advertising is one of those exclusive things also done by the Minister of Public Works. Let's pick something else we made—a consulting service. If a department wants—

[Translation]

Mr. René Laurin: Suppose that the Department of Canadian Heritage wishes to hire an advertising consultant to help it develop a heritage policy. It has not yet got to the stage of a promotional campaign, but it is proposing to hire a consultant for $200,000. Does it have the authority to do so?

• 1700

Mr. Alan Winberg: Since advertising is in a special category, it would have to go through the Department of Public Works and Government Services. My slide should have indicated that most contract services can be purchased directly or through the Department of Public Works and Government Services, except for legal services and advertising.

Mr. René Laurin: I was not lucky in selecting these two examples. What other types of services can be engaged?

Mr. Alan Winberg: It could be an accounting consultant who would carry out some type of verification.

Mr. René Laurin: An engineer?

Mr. Alan Winberg: Yes, you could hire an engineer directly or through the Department of Public Works and Government Services.

Mr. René Laurin: There must be a principle underlying this difference. Do you know what it is? What principle causes the Department to have two different attitudes towards goods and services?

[English]

Mr. Alan Winberg: I'll ask Mr. Kelly to take that question.

Mr. R.J. Kelly: Thank you, Mr. Chairman.

First I'll do the goods one. As Mr. Winberg indicated, that's enshrined in a separate act of Parliament that has been around since World War II. All materiel is bought by Public Works and Government Services.

Services are different—any kind of services, general services. All departments have a basic authority to buy their own services, or they can choose to ask Public Works to do it for them. If they do it on their own authority, they have $2 million contract entry if they've gone electronic competitive. They have $400,000 if they've gone what we call traditional competitive—that's anything but electronic—if they've put an ad in the paper or asked firms to come in.

If they've found one of those four reasons we spoke about earlier for not calling bids, they have $100,000 contract entry authority. If it's over that amount, they're obliged to come to the Treasury Board. So if I'm in the Department of Canadian Heritage and I see that this contract will cost about $5 million, that means I have to go to Treasury Board. However, I do have a choice. I can ask my colleagues in Public Works who are walking around with $20 million authority. So that's the option, and it's a historical reason.

[Translation]

Mr. René Laurin: You are explaining the technical aspect, and I already understand this very well. I know that there is a distinction, but I'm trying to understand the principle that has created this. When the Act was worded as it stands, there were reasons for it. The procurement of goods and services is handled differently, and I would like to understand the principle that underlies these two attitudes. Do you know the answer?

[English]

The Chairman: Can anyone assist with this principle that Mr. Laurin seeks?

[Translation]

Mr. Alan Winberg: The principle meant to give departments the greatest possible decision-making power, and the greatest possible authority, provided that this was economical and would give Canadians good value. Services are very different from goods, departments can therefore sign service contracts themselves, in the limits that my colleague mentioned, in order to improve our efficiency and create savings for the government and Canadian taxpayers.

[English]

The Chairman: Thank you, Mr. Laurin.

We have Mrs. Longfield, and then we're going to go to Mr. Earle and Mr. Hanger. We'll have some time for some additional questions if members have some. Mrs. Longfield.

Mrs. Judi Longfield: I apologize for trying to take advantage of the chair and continue on with this thing.

With regard to the raise from $20 million to $40 million, how many ministries would be affected by that upper limit?

Mr. Alan Winberg: There's only one department that moved from $20 million to $40 million, and that's the Department of Public Works and Government Services. This was because of their recognized expertise in contracting and because we felt you could streamline and be more economical and efficient by giving them that level of authority. It means that for contracts between $20 million and $40 million that have been let after a competitive process, which used to have to come to Treasury Board, they no longer have to come to Treasury Board.

• 1705

Mrs. Judi Longfield: So what you're saying is that it's only Public Works at this point.

Mr. Alan Winberg: Only Public Works has that level of authority, and the reason is because we recognize that department's expertise in procurement.

Mrs. Judi Longfield: I'm less concerned now. Thank you.

One of the things with National Defence that I find rather upsetting is that the acquisition of assets comes out of DND's budget, but frequently with the disposal of assets the department doesn't realize 100% of the revenue from this. It's disbursed and goes into the central pot. It's not your decision, but it's something that bothers me.

With regard to transition costs, I'm going to take something that happens at a municipal level—for example, firefighting or garbage collection. National Defence has firefighters and equipment on base, and we look at contracting out. Part of the appeal of contracting out is that the contractor supplies all the equipment and can do it on a different basis and it looks good. We can sell off our equipment. There are cost savings to us, and the contract is let. Four or five years down the road the contractor has a real advantage because to go back to the original supplier would mean the acquisition again of all of these assets. Where is that built into the system? Once you dispose of an asset, then you're pretty much down the slippery slope and there's no coming back to delivery from within the department. Am I making myself clear?

Mr. Alan Winberg: With regard to the first part of your question, there were changes to the regime regarding the receipt of revenue from the disposal of surplus assets. In the early 1990s Parliament made a change to the Surplus Crown Assets Act, and Treasury Board implemented those changes through policies. When departments sell a surplus asset, the value of that asset is deposited into the Consolidated Revenue Fund. The departments have the right to spend the amount of money that was deposited. So they do get that—

An hon. member: Is it 100%?

Mr. Alan Winberg: This is for the materiel assets.

Mrs. Judi Longfield: Oh, okay.

Mr. Alan Winberg: For real property assets, there's a different regime. I didn't realize you were talking about real property.

Mrs. Judi Longfield: I appreciate the clarification.

Mr. Alan Winberg: It's an important decision when a major asset, real property or materiel, is sold, and that has to be carefully assessed once that decision is made. As you say, there are long-term consequences.

Mrs. Judi Longfield: When we're looking at the policies or the criteria, will credit for that be built in? Having worked on a municipal council, I know there are times when, for example, contracting for garbage or other services, initially it looks like a good deal, and then long term you find out that they have you and there's no getting it back.

Mr. Alan Winberg: I don't think that issue will be covered by the guideline we're preparing on transition costs. The transition costs guideline we are working on assesses the cost of moving from an incumbent supplier to a new supplier for something that is already under contract.

Mrs. Judi Longfield: Would there be some flexibility in those special circumstances to make that case about trying to get a service back where there was an initial disposition of assets?

Mr. Alan Winberg: As I say, this is a different issue from what we're now scoping into this transition costs guideline.

The Chairman: Who would you recommend we could contact with regard to Ms. Longfield's question? What officials would you recommend? If you want to reflect on that and get back to us, we would appreciate that. I think that's a question we're probably going to want to pursue in this study. So could we look for a response after you've had a chance to reflect on it, maybe, if not later today, then at another time?

• 1710

Mr. Alan Winberg: Okay.

The Chairman: We'll keep that question alive.

Thank you, Mrs. Longfield. I have to go now to Mr. Earle. Mr. Earle, you have five minutes.

Mr. Gordon Earle: Thank you, Mr. Chairman.

One of the things that seems to be coming across as I listen to this discussion is that most of us seem to be seeking to have a good understanding of this procurement process and to know who has what responsibility and why, and so forth. I gather that even though various departments may be involved in different stages of the process, the ultimate authority and responsibility rests with Treasury Board for government procurement. Is that correct?

Mr. Alan Winberg: For government procurement policy—

Mr. Gordon Earle: Yes, policy.

Mr. Alan Winberg: —the rules, the regulations. Departments are accountable for the specific procurements they undertake.

Mr. Gordon Earle: Yes. Good.

Mr. Alan Winberg: They will do it in a manner that is consistent with these policies, but they will be accountable for those procurements, and if it's a goods procurement, they will certainly involve the Department of Public Works and Government Services to undertake that goods procurement.

Mr. Gordon Earle: On your slide 12, though, in terms of the procurement initiatives you are undertaking, such as training, certification, and orientation, it would seem to be aimed at trying to provide consistency across departments and within departments as to how the policy is carried out, if I'm not mistaken.

So I wonder now, when you talk about a program of training and certification for procurement specialists in departments, would that be mandatory, that each department that is involved with procurement should have someone there certified according to this training program you will institute?

Mr. Alan Winberg: Yes. Treasury Board, in addition to the specific mandate to develop procurement policy, is the employer for the Government of Canada, and the initiative to develop a program of training and certification for departmental procurement officers is a major initiative designed to recognize the professionalism required of those people in every department, including DND and Public Works and Government Services, to ensure that they understand the basic values, principles, and best practices. I believe this will have a major impact on government procurement activity in future.

Mr. Gordon Earle: So if that proceeds as you picture it, conceivably if someone working in one department, who is involved as a specialist in procurement, were to transfer to another department, they could carry on the same level of quality service in that area.

Can you tell us how far that has proceeded? Is it just something being planned, or do you have the course set up? Are people actually involved in the certification program at this point?

Mr. Alan Winberg: Doing this was under discussion for about five years. It was brought to Treasury Board ministers to decide if they wanted to pursue this in February of this year, and Treasury Board ministers approved putting in place a program of training and certification of procurement professionals in departments.

We're now taking the next step of designing the specifics of that framework. We are working with some of the professional associations involved in procurement, because there will be a range of certifications that will be recognized.

For example, the Purchasing Management Association of Canada has a well-recognized program of training and certification at different levels of certification. If you want a job in procurement in a number of large organizations in Canada, that certification, that training, would usually be a requirement of the job applicants they receive.

Our intention is to move to a similar level of recognized professionalism in a fair and just manner over a period of time with the personnel involved in procurement in the Government of Canada. We will do this in a careful way. We will recognize the expertise that does exist in our organization, and we'll give people a chance to take the training required to achieve these levels of certification.

Mr. Gordon Earle: At some point, will it then be mandatory that if you are to be dealing with procurement, you must be certified?

• 1715

Mr. Alan Winberg: As part of this initiative, we're working with the procurement community and the professional associations to develop a training program, a recognized set of required courses for levels of certification, and a timetable and schedule for putting that in place. Over a period of years—and this will take a number of years—a larger percentage of the procurement specialists within the Government of Canada will have that certification. In addition to that specific certification, there are a number of types of work that go on in undertaking government procurement, and there may be additional certifications we would look at, and we would enter into agreements with those professional associations as well.

The Chairman: Thank you, Mr. Earle.

We'll finish the second round with Mr. Richardson. Then we're going to have time for an abbreviated third round.

Mr. John Richardson (Perth—Middlesex, Lib.): Thank you, Mr. Chairman. I would just like to address this question that came up about two years ago in the discussions over asset disposal within the Department of National Defence. In particular, it was those assets that were support assets, such as housing and the facilities that went with the base, and the time the government had invested in many housing units from Victoria to Halifax. We were seeking from Treasury Board at that time some consideration that this was a soft kind of item. It was a capital good that needed to be replenished.

Under the program of trying to regenerate the morale in the forces, because of the conditions of housing from coast to coast, they were allowed to sell off these assets. The moneys earned with that went into their housing account to be used for no other reason but to replenish the housing stock at the quality and quantity that was required.

I understood—and the fellows from Treasury Board who were there said they weren't asking for the moon—this was a possibility. I'm not sure this has not been inactive, and the person in charge of the housing and accommodation does have that authority now.

Would you know that this kind of authority to dispose of assets such as housing was surplus—the housing that was not only surplus on existing bases but bases that we were foreclosing? That would make sense to me because it was money that was moving around, just refurbishing and upgrading assets as needed. With the draw-down of the numbers in National Defence, there was a big surplus of homes that were put up in the forties and early fifties, and they were not of high quality, by the way.

The Chairman: So what is your question, Mr. Richardson?

Mr. John Richardson: Has that authority been addressed? I have a feeling that it has been addressed because I talked to Mr. Massé about a year ago and he thought it was reasonable, but he never did get back to me about it.

The Chairman: Can one of the witnesses help us with that question?

Mr. Alan Winberg: Yes, Mr. Chairman, we'll be happy to look into this and give you a status report on that issue.

The Chairman: Do you have in your mind what the request is from Mr. Richardson?

Mr. Alan Winberg: The way I understand it is, has a provision been made with regard to the sale of surplus housing? Does that money flow back to National Defence for use in housing programs. We'll see about that issue for the member of the committee.

The Chairman: Can you reply back to the clerk with the answer so that all the members will have it?

Mr. Alan Winberg: Yes.

The Chairman: All right. Thank you very much.

Mrs. Judi Longfield: Can I just say Downsview, Esquimalt—all of that. Those were recommendations that we put forward in our report.

Mr. Alan Winberg: Mr. Chairman, I would be happy to include that issue and find out what the status is on it and include it in our response that comes back to you.

The Chairman: Very good. Thank you. That would be helpful for us.

Are you through, Mr. Richardson?

Mr. John Richardson: Yes, thank you.

The Chairman: Okay. We'll go to an abbreviated third round. I would like to give each member a chance for perhaps their most important question and then we'll go back and forth until we are summoned to the House.

Mr. Hanger do you want to ask your most pressing question and then give some of the other members a chance?

• 1720

Mr. Art Hanger: I would like to make a follow-up statement to Mr. Richardson, Mr. Chairman. In Calgary, military housing is being auctioned off right now at the price of about $470,000 per acre in open land. The housing itself is being distributed at the rate of about $100,000 per unit, if there was a military house sitting on it prior to...and that is in its raw state; in other words, it hasn't been refurbished at all.

I would suggest there is a value of nearly 1,000 acres close to downtown Calgary that is at least worth $500 million. It's all being administered by the Canada Lands Company Limited, or something of that nature, all controlled by the government. We talk about money going back into military housing and military hardware; that's just one example. Edmonton is also in the process of working out a similar type of an endeavour that will undoubtedly yield hundreds of millions more dollars.

My question here has to do with these transition costs again. You say your current procurement initiatives should include training, certification, orientation, and the recognition of transition costs and competitive bids. Would that include the retrofitting of certain used equipment?

Mr. Alan Winberg: If a contract is being let and there is an incumbent supplier, the transition cost work would involve assessing the cost of moving to a new supplier in terms of the training or the changed accommodation or whatever. That would be calculated in a systematic and business-like way and then made known before bids were sought for the new contract.

Mr. Art Hanger: What about submarines purchased by this country from England? When they were purchased the public was told it was going to cost somewhere in the neighbourhood of $800 million or thereabouts.

Mr. Robert Bertrand: It was $500 million.

Mr. Art Hanger: Whatever the case, I thought it was closer to $800 million.

Mr. Robert Bertrand: It was $800 million for a refit.

Mr. Art Hanger: Needless to say, we have now been told there were additional costs included that will kick this price well over a billion dollars. So here is my question. Were these transition costs included in the original bid, or did the buyer, which is the Government of Canada, have to come back to Treasury Board and say, “Look, there are extra costs here. How are we going to handle that?”

Mr. Alan Winberg: The transition costs referred to in my deck relate to developing a guideline so that for new competitive bids we would be able to operate in a business-like manner, taking into account the transition costs. What you're asking me is different from what I was presenting to the committee in terms of transition costs.

Mr. Art Hanger: Then we have a different scenario on our hands here with the purchase of the Upholder submarines. In the original purchase price, can you tell me whether they included this present retrofitting they're undergoing? I understand too that there was a little segment in there to do with regional development money. Do you know nothing about that?

Mr. Alan Winberg: Mr. Chairman, I'm sorry, but the specifics of an individual procurement you'd have to ask the departments involved in that procurement about. I don't have the information.

The Chairman: We'll take that up with the Defence officials who will be coming before us, so Mr. Hanger will be given the chance to ask that question directly to those officials.

Mr. Bertrand, did you want to take a—

Mr. Robert Bertrand: No, I just wanted to mention to Mr. Hanger that I could get that information for him. I'd be glad to give Mr. Hanger that information.

Mr. Art Hanger: Okay.

The Chairman: Is there a question on this side?

Mr. Clouthier.

• 1725

Mr. Hec Clouthier (Renfrew—Nipissing—Pembroke, Lib.): With regard to selling assets of land or buildings, would that be let out to local real estate companies, Alan?

Mr. Alan Winberg: The way this works now is we have a crown corporation called the Canada Lands Company Limited. In general, those kinds of real property assets get transferred to the Canada Lands Company Limited and then they continue the process of sale in a business-like, commercial manner.

Mr. Hec Clouthier: So they could realistically go to the local market and say to a local real estate firm, you sell it.

Mr. Alan Winberg: The Canada Lands Company Limited is a crown corporation that does its business in a business-like way. It is not subject to these regulations. Our contract regulations apply to departments and agencies of the government. I'm not aware of the specifics of the corporation's contracting practices or policies.

[Translation]

The Chairman: Mr. Laurin, a final question.

Mr. René Laurin: Two short questions, Mr. Chairman.

Is the Treasury Board subject to the same rules for the procurement of goods and services as the other departments?

Mr. Alan Winberg: Yes.

Mr. René Laurin: I would like to get back to a question that is very likely to figure in my report. If I clearly understand how the policy works, the Department of Fisheries and Oceans could hire a firm of specialists to carry out a study on the future of groundfish in the next 10 years, without asking for any sort of authorization.

Mr. Alan Winberg: That's correct. This Department can conclude service contracts within the level of its authorization.

Mr. René Laurin: I assume that the Department would proceed in a similar fashion to hire specialists to help it find possible solutions to the Y2K bug.

Mr. Alan Winberg: Yes, but allow me to point out that the Department of Public Works and Government Services has prepared a major service contract with respect to Y2K preparedness.

Mr. René Laurin: But they were free to do so.

Mr. Alan Winberg: The Department of Fisheries and Oceans could use the contracts that have been signed and that have already gone through a competitive process.

Mr. René Laurin: Are the departments ever obliged to issue tenders to hire such specialists?

Mr. Alan Winberg: They have the choice.

Mr. René Laurin: They are never obliged; they have the choice.

Mr. Alan Winberg: They can use the mechanisms that have already been established by the Department of Public Works and Government Services, which allow them to act very quickly, or they can sign service contracts within the limits of their authority.

Mr. René Laurin: So the departments can spend hundreds of thousands of dollars, even millions, to hire consultants, because they have full authorization to do so, but they cannot buy paper worth $6,000.

Mr. Alan Winberg: Yes, you have noted this distinction between services and goods.

[English]

The Chairman: Mr. Earle, a last question to you, if you have one.

Mr. Gordon Earle: I'll give you my observations since we started looking at this whole process of procurement. It comes across to me as a very complicated and long, drawn-out process for something that should be relatively simple to obtain goods and services from. I'm getting a better understanding as we talk to various departments and various people about what's involved.

The thing that still rings in my ears is that from the time you start out with the statement of requirement, and then with the decision to purchase and so forth, and you move through with requests for proposals and all these different stages, it seems like there's a fair amount of time involved—in many cases years. With these various changes you're looking at in terms of training, certification, guidelines, and so forth, do you foresee that those things will in fact reduce the time span involved in this process? If a department needs something, they can start the process and within a reasonably short time acquire in the most efficient and effective way the goods or the services they're trying to acquire.

• 1730

Mr. Alan Winberg: The answer is yes. I believe we will move to faster, simpler procurement. I believe we will make the fastest progress at simplifying and speeding up those procurements that are more routine and of lower value. As the value of the procurement goes up or the risks associated with that procurement go up, I believe we will still make progress, but it will not be as fast as for those more routine, lower-value procurements.

For procurements that are below the thresholds of the trade agreements, we think we can make very quick progress at streamlining and simplifying. Once we have certified professional people working in our procurement function throughout government, I believe we will be able to delegate higher authority for those lower-value procurements, especially those that are below the thresholds of trade agreements.

The Chairman: Mr. Hanger has a request for some information.

Mr. Art Hanger: Mr. Chairman, we actually have a number of questions that we would like to submit to Mr. Winberg about the procurement process—some specifics. We'd like to do it through you. If you would be willing to respond to those written questions, we'd appreciate it.

The Chairman: We would appreciate it, and of course, depending on the answers, I'm sure our witnesses would be available to come back if the committee feels that's necessary.

Mr. Winberg, Mr. Kelly, and Mr. Chilibeck, I want to thank you very much for attending today and helping to shed some light on what is an interesting topic but somewhat germane to us as members. We intend to understand this as best we can and make an appropriate report to the minister.

The committee is adjourned until Thursday at 9 a.m. Thank you.