INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 8, 2001

• 0903

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): Colleagues, I call the meeting to order pursuant to Standing Order 108(2), consideration of science and technology policies.

Today we are having one of our round tables on Government of Canada research agencies. We're very pleased to have with us today, from the National Research Council of Canada, Lucie Lapointe, general secretary; from the Canadian Space Agency, Mr. Mac Evans, president; and from the Networks of Centres of Excellence, Jean-Claude Gavrel, director.

I would propose that we have everyone's opening statement and then move to questions together.

I'm assuming that we'll begin in order with the National Research Council. Madam Lapointe, please.

Ms. Lucie Lapointe (General Secretary, National Research Council of Canada): I'm very happy to be here today and to have an opportunity to talk about the National Research Council of Canada and its programs. I should add that this is an organization I'm very proud of, and I believe all Canadians deserve to be quite proud of its achievements over the years.

I'll focus my presentation on the role of NRC, on how well we've performed that role over the years, and what we see that role becoming in the future as we move forward.

The National Research Council has a good track record. Looking at our performance, it's easy to see that NRC is an investment that provides very good returns for its stakeholders.

• 0905

I'll start by defining what NRC is. NRC is in the business of using public and private investment to create knowledge, while at the same time focusing on the innovation steps that turn knowledge into wealth for Canada and indeed for all Canadians.

Legislatively, NRC is a departmental corporation. We're focused on long-term issues and we're directly accountable to Parliament. A 21-member governing council appointed by government oversees all of the activities of the National Research Council.

NRC's a federal agency with strong links with partners, clients in industry—both large and small firms—in universities, in research hospitals, and to the international scientific community, as well. Our vision is national, but it's delivered in large measure by building upon our regional strength and upon R and D opportunities.

We've been around since 1916. Since that time, the consistent vision of NRC has been of building the Canadian economy based on knowledge.

We propose to continue on that pathway by helping build an innovative knowledge-based economy in Canada to the judicious use of science and technology. We are presently working at developing the next vision for the organization—the vision to 2006. We are at the stage of both internal and external consultation on our vision and the underpinning trusts that will create it.

[Translation]

We do research at NRC. We do it in 17 research institutions located across the country, from Victoria, in British Columbia, to St. John's, Newfoundland. We also have three technological centres operating in Ottawa.

We have a very active research presence in areas of national strategic importance. We have over 3,000 employees, 1,000 associated workers and close to 600 students who work in biotechnology, information technologies and manufacturing technologies.

Last week, my colleague Peter Hackett met with you and gave you some information about NRC programs in biotechnology, and on nanotechnology activities. At present, they are modest, but because of the developments in this area and its potential possibilities for Canada, this is an area in which we would like to invest more.

NRC activities are concentrated in areas of national strategy and, as is indicated on the page before you, these are areas with which you are fairly familiar.

In addition, the Canadian Institute for Scientific and Technical Information provides researchers, students, engineers and entrepreneurs with access to exhaustive scientific, technical and medical information. Not only do we make knowledge available in these areas, knowledge drawn from around the world, but also we publish 14 Canadian research journals under programs run by the Canadian Institute for Scientific and Technical Information.

We maintain a national network of technological consultants serving more than 14,000 small- and medium-sized enterprises. This is the IRAP or PARI program, which enjoys considerable support, which is excellent and very well perceived, and not just at the national level. In fact, several countries have been exploring the possibility of creating such a network elsewhere.

We ensure the operation of national facilities which are used in scientific and technological circles. For instance, we fulfil a mandate entrusted to us under our legislation respecting our astronomy facilities.

• 0910

You attended a presentation in March, I think, about the long- term astronomy plan. Once again, you are familiar with this particular area.

[English]

Canada faces a complex and evolving S and T landscape that demands a national integration with a strong focus on the regions. The Government of Canada has invested very significant new funds in S and T over the past little while and is committed to doubling the national R and D investment by 2010. Much of this new investment is delivered through extramural grants through non-governmental bodies dedicated to excellence in specific fields. Many new centre network projects and consortiums will result. But these investments to produce full benefits must be able to draw on the complete national innovation infrastructure and the full national competence in each key area of science and engineering.

NRC plays a unique leadership role with its national programs created to reflect national goals. These programs involve extensive national and international linkages, but they are delivered regionally. We integrate performers through novel forms of partnership, including collaborative projects through innovation networks. NRC plays a key role as a neutral stakeholder in these complex private sector and public sector partnerships. Our role requires that we operate comfortably in government, scientific, and business milieux, and I believe this is working. Over the past decade, the demand for our programs and services by regional interest from the private sector as well as from research partners in the universities has increased dramatically.

Well, how have we been doing? We have quite an impressive scorecard over the years. This page shows just a few elements for the past five years. Over the past five years, NRC's partnerships with industry have doubled. We have nearly tripled those with public organizations, and those with the universities have grown fivefold. The revenue from R and D service from collaborative agreements and from licensing has reached $100 million a year. We have incubated 83 firms in our industry partnership facilities and more than 1,600 new collaborative agreements have been signed by industry with universities and with international organizations.

We've provided training and research opportunities for thousands of students and visiting workers. This year alone, we have 600 students and some 1,100 estimated visiting workers. What this means is that our facilities are being used at an ever-increasing capacity. Just as one example, the Biotechnology Research Institute in Montreal employs about 200 people who are paid by us, yet on an average day there are more than 800 people in that facility, working in that building. That pattern is typical of our institutes across the country.

We've been very successful in getting leverage on our investments in projects. In fact, we are leveraging three times our contribution in partner contribution. The backdrop to this bar chart is a very complex set of inter-relationships and partnerships. We use the word “cluster” to give a feeling for that complexity.

Innovation is a central issue to Canada's economic prosperity. Innovation takes knowledge to create wealth, and that is the global competition in which Canada is engaged. But innovation happens regionally. The key to think globally is to act locally.

This figure tries to depict the concept of clusters. It's centred on innovative firms. At the heart of the cluster is the growth of firms. So it's centred on innovative firms that have some degree of commonality in the technology basis for their businesses. Now, to be successful, these firms need technology. They need financial assistance and support, and they need research knowledge and local community expertise.

Bringing these things together as a cluster creates an efficient local innovation system that's key to the global competitiveness of the region and of the country as a whole. Our strategy is to connect NRC's core research strength—our knowledge and partnership network—with commercial development and product-oriented achievement of industry. That to us provides a winning innovation formula. For a small, incremental investment, we have the opportunity to make a considerable impact.

• 0915

[Translation]

Every stage in the process of creating a technology cluster is based on consultation. We begin by organizing meetings, workshops and community round tables, in order to set up networks, define the technoly base and identify champions, following which we develop a strategy in collaboration with local and regional partners.

Once that is done, we implement an action plan. But we see to promoting the growth of technology clusters by concentrating on research and development, technological assets and the sharing of information to meet the needs of local businesses and to form local and global partnerships so as to nurture the growth of knowledge- based businesses.

But we also have to let people know about the achievements of the technology clusters. How come? We have to let people know about these achievements in order to attract new investors, partners and collaborators, and consolidate the infrastructure network to enable the technology cluster to develop and succeed.

The result of all these activities is that the NRC...

[English]

NRC is becoming a powerful force in regional innovation. We have major labs that leverage private sector provincial investment and build partnerships. We create new enterprise and foster existing company growth. We build local strength and synergy to access global markets. We provide integration and federal focus at the local level.

What's the bottom line? It's new business, new technology, new industry, and those act as magnets to draw national and international investment and help attract highly skilled professionals. Hopefully, we can create Canadian success stories that compete with success stories from elsewhere in the world.

Last week, on May 1, in the context of his presentation on biotechnology, Peter Hackett spoke to you on the creation of the ag-biotech cluster in Saskatoon. All I will briefly give as an example is the national capital region.

In 1995, NRC and Ottawa Economic Development began to work together to bring the players to the table, and to do what I've just described—to begin to work on an action plan on how we can enhance the linkages between the various and extensive presences. Since then we have had the regional innovation forum that we do on a yearly basis, and of course it has expanded way beyond Ottawa Economic Development and NRC. It now includes OCRI, Ottawa Life Science, and so on.

I think it's important that NRC played a convener role, and in part that's because of its credibility in the research base that we provide. We weren't alone in this. There were a lot of other federal players, and I don't want to understate their contribution. There have been a lot of federal players, and of course provincial government players. There have been a lot of other players. The cluster is something we are part of at this stage, but somebody had to convene it. With the unique set of expertise resident in NRC and the credibility of the organization we were able to play that role. Of course the success of the ICT cluster in the national capital region is increasingly known worldwide.

There are cluster initiatives currently in various stages of development, primarily in Atlantic Canada. Following the year 2000 budget, we received $110 million over five years to create clusters in the Atlantic region. For all of these activities, we have had consultations in the region. We have begun the dialogue in identifying areas of opportunity, areas taking stock of what's there, taking stock of which competencies could be built on. There have been round tables. Blueprints for action have been drawn up for most of these areas.

• 0920

There are technology road map activities currently under way in P.E.I. in the area of agrifood. P.E.I. was not initially proposed for a cluster; however, it is an activity we are currently undertaking. As well, we are doing a road map in Newfoundland, looking at which industry will be key for the future. That road map should be done for the fall.

There is opportunity to enhance technology clusters more comprehensively across Canada. A number of initiatives have been discussed. I should say at this stage that this is based on not very extensive consultation—in most cases, very extensive consultation—but getting together with the local players to in fact identify where would be opportunities for levering our activity.

So until such time as we know that we may indeed be supported in our request for additional funds in additional technology clusters, we have, of course, not gone the step of holding round tables, of beginning to do a blueprint, and so on. Therefore, these are some of the cluster opportunities, and there are others as well in Saskatchewan, Alberta, and British Columbia.

In summary, the technology clusters are recognized engines of innovation, not only in Canada but I think internationally, and a requirement for success in international markets. In Canada, NRC's technology cluster strategy is focused on making the new economy work efficiently in all regions of the country. It's an approach that has gathered momentum. Communities right across the country seem to be embracing that concept.

We've identified a number of strategic opportunities for additional investment, and those have been presented. Of course, additional funding is needed should we implement them.

I will conclude by saying that there has been massive new investment of federal dollars in S and T and innovation. A lot of this has gone to third-party organizations that have been focusing on building the university research base. I personally believe that if Canada is to derive maximum benefit from these new investments, we need to make use of the strength of NRC to link firms and research organizations and to focus it on the regions.

You've been given the daunting task of identifying priority, demanding accountability, and ensuring national and regional benefits. The National Research Council, with its coast-to-coast reach and national facilities, programs, and services, can assist you in this role. With support, NRC can integrate these resources and build dynamic technology clusters and innovative regions right across the country.

Indeed, I believe NRC is recognized as being a unique element of the national fabric. It's a key element in ensuring the future prosperity of Canada and of Canadians.

Thank you very much for your attention. I would be happy to answer questions once we have finished all the presentations this morning.

The Chair: Thank you very much, Madam Lapointe.

I'm now going to turn to Mr. Evans from the Canadian Space Agency.

Mr. Mac Evans (President, Canadian Space Agency): Madam Chair, members of the committee, thank you very much for the opportunity to come and explain to you what it is the Canadian Space Agency does and how we contribute to the innovative nature of the Canadian economy. My presentation will focus a lot on what it is we do, and how we do it, in order to give everyone a full understanding of what is the Canadian Space Agency's role.

• 0925

Our organization was founded in 1989, and what we do is manage Canada's national space program. The legislation that created the agency gave us three mandates: one, to promote the peaceful use and development of space; two, to advance knowledge of space through science; and three, to ensure social and economic benefits for all Canadians. We have taken those three mandate statements in the legislation and developed the two primary objectives that drive everything the agency does—namely, to develop and apply space science and technology to meet Canadian needs and to do that in a way that develops an internationally competitive space industry.

To situate the agency, we have a budget in this last fiscal year of $340 million, and 80% of that is spent in Canadian industry. We employ about 400 public servants and roughly 40 students. We have headquarters in St. Hubert, Quebec. We also have groups located here in Ottawa and some liaison offices located in the United States and Europe. We employ an astronaut corps of seven, but now, since Mr. Garneau has retired, six.

A look at our budget history shows that in 1999 the budget provided the Canadian Space Agency, for the first time, with a stable and ongoing level of funding of about $300 million a year, starting in 2002-03. This is a major shift in how the government has funded the Canadian space program. Prior to this, as you see in that chart, our funding was based solely on specifically approved projects. When the project was completed, the funding for the agency would decline. So now, like any other government organization, we have the ability to plan on a stable financial basis.

The basis of all our activity is in fact partnership. In here we list the partners who are primarily interested in our activities. We service the space needs of over 14 government departments. We also work cooperatively with every provincial government in Canada. We work with our industry base, which includes over 250 companies, mostly SMEs, in all regions of Canada.

We are developing internationally competitive industries in all regions of Canada. We work very closely with the academic community in Canada and we provide the opportunity for leading researchers to have access to the international scientific community in the area of space.

Finally, everything the Canadian Space Agency does is linked, one way or another, to international cooperation. NASA, of course, is our major partner, but Canada is also a member of the European Space Agency. Ours is the only non-European country to be a member. We have bilateral relationships with France, Japan, Sweden, Russia, China, and many others.

We are guided by a CSA advisory council, which is a new creation composed of 50% industrial and academia personnel and 50% from the government departments, since governments departments are major shareholders in our program. They are appointed by the minister. The role is to advise the president of the CSA on the overall strategic direction of the Canadian space program; to help us identify opportunities outside of our traditional areas of operation; to comment on our performance in meeting the strategic objectives we have agreed on; and to assist in establishing a balanced approach between the areas of strategic importance to Canada in space.

In terms of our space industry, this has been a very strong element of our economy. It is growing. In 1999, the last year for which we have statistics, the revenues of the space industry in Canada totalled $1.8 billion, and 40% of that was in exports. That is the highest ratio of any country in the world.

• 0930

We have 250 firms, mostly SMEs, employing 7,000 people. The major companies are the six that are shown here. The largest of our companies is MDA, located in Vancouver, Toronto, Ottawa, and Halifax, followed by SED Systems in Saskatoon, Bristol Aerospace in Winnipeg, COM DEV in Cambridge and Moncton, EMS Technologies in Ottawa and Montreal, and Telesat in Ottawa.

That gives you a bit of background into the overall picture of the agency. So what is it that we do and where do we apply our resources?

We have five strategic areas of operation: earth and the environment, satellite communications, space technology, human presence in space, and space science. We also operate the National Space Qualifications Services facility and a laboratory just outside Ottawa. We try to combine all of these exercises in what we call a youth outreach program, which is our attempt to take the fascination of space and capitalize on that in our youth, hopefully to get them interested in science and technology.

So how do we split our budget? This shows how we plan to expend our budget over the next five years. I'll talk about each of these areas in a minute. Earth and environment represents our largest area. Human presence in space, which is the astronauts in our space station program, represents the next largest. And then we split the remaining roughly 10% each into space science, space technologies, and satellite communications. And our overhead, the running of the agency, represents about 10%.

Our primary goal in the earth and environment service line of the agency is to understand our planet. We're involved in environmental monitoring, we're involved in assisting provinces, the federal government, and industries in managing our resources, and we are a significant player in disaster management, not only here in Canada, but around the world. Our space environment program looks at things like solar storm effects on the earth. Our atmospheric environment program looks at chemical pollutants in the atmosphere, ozone depletion, and atmospheric circulation. Our surface environment program studies climate change, forest management, marine and offshore activities.

The largest element of our earth and environment program is, of course, our RADARSAT program. RADARSAT-1 was launched in 1995. We now have a worldwide network of 75 distributors. There are 600 clients from 57 countries who are regular users of the RADARSAT information. Our sales in 1999 were more than $20 million, and starting from zero in 1995, we have captured more than 15% of a growing world market for earth observation data.

It is the most advanced earth observation in use and it has very many applications. Here we see some of those applications. We show the oil spill off the coast of Japan. Interesting here is that the Japanese at the time had their own radar satellite in orbit, but it did not have the sophistication of our satellite and they had to come and buy the data from us to assist in the clean-up of that impending disaster. Many of you will recall the Manitoba Red River floods of a few years ago, and RADARSAT was used operationally day by day to assist the people on the ground in containing that flood. And Hurricane Mitch was another area where we have applied our capabilities in disaster management.

In global climate change, one of the unique things RADARSAT has been able to do is create the first complete map of Antarctica, which sounds strange, but that is the case. And this map is shown here in a mosaic form. The reason this is important is that Antarctica contains 70% of the world's fresh water and what happens down there has a major impact on our climate. What our RADARSAT has been able to do for the first time ever is measure the flow of the glaciers and the breaking up and the calving of icebergs from Antarctica. So the scientific community now has its first clear picture of what's happening in Antarctica. It was one of the top ten science stories of 1999.

• 0935

We are continuing our RADARSAT program with the construction of RADARSAT-2. This will be an even more sophisticated version of our radar satellite, and it is aimed not only at meeting the markets here in Canada, but also to look at new markets around the world. It will be high resolution and it is scheduled for launch in 2003. It is now under construction.

The agency does not operate its own satellite communications, that is done by Telesat Canada, but we do work with people who are looking for applications of space satellite communications, particularly in the area of tele-education and and tele-medicine, which are areas of unique importance to a country of the nature of Canada. We are working to deliver mobile satellite marine information networks, and of course, multimedia services are the prime interest in the information technology area. We believe all these activities assist the government in fulfilling its commitment to make Canada the most connected nation in the world.

Our space technology program is, in fact, the launch pad for innovation in the whole space program. What our people do, working with industry, is advance technology development for future space activities and assist the industry in the development of technologies it needs for its commercial success. Through this program we are able to contract R and D to industry. We are able to develop activities that will allow those industries to take their new technologies, fly them in space, and get them space-qualified, so that they can have an important element of their product commercialization activities looked after. We work with industry and academia in the developing of these technologies, identifying them and then pursuing them. And this is also where the technological base of the CSA resides, in our technology program.

This program carried out more than 200 projects in the last year. It resulted in 48 patents, 59 licences, and 60 published papers. This is the program that works mostly with SMEs across the country to assist them in their research activities. And the focus of this program is in the areas of remote sensing, satellite communications, and space robotics.

I don't need to say very much about our astronaut core. They're very well known to Canadians, in particular Chris Hadfield in his recent mission to the International Space Station. We're very proud of the astronauts we have. We go through a very intense selection process to choose these people, and so far we have been amazingly successful in identifying really first-rate astronauts. Canada flies more astronauts than would be our normal due simply because our astronauts are amongst the best in the world.

Canada's contribution to the International Space Station has been in the news, of course, in the last few weeks with the delivery of Canadarm2 to the International Space Station. I'm sure all of you know that that new icon of Canadian technology worked flawlessly on that mission. But that is just the first of many parts of our contribution to the station. In about a year's time a mobile base system will be added to Canadarm2, which will allow the arm to move very easily across the length of the space station. And then a few years after that we will add our special purpose dexterous manipulator.

Canada has a unique role in this program, in that from this moment on the station cannot be built without the use of this new set of robotics technology. We do have at our facility in St. Hubert training facilities for astronauts on the new robotics systems, and every one of the astronauts who flies to the International Space Station, with the exception of Mr. Tito, gets trained on our facilities at St. Hubert. If he paid, he could come.

• 0940

Our space science program is in fact a world-class research program. We operate in the area of life sciences, microgravity sciences, astronomy, and planetary exploration. We don't do the science in the agency. What we do is facilitate Canadian university researchers in their quest to do world-class research in space. We provide them with access to space. We fund the development of space instruments. We do all this of course in coordination with NSERC and CIHR. We do open the doors for our researchers to participate in international programs.

Some of the things we do are in life and microgravity sciences. If you recall my opening statement, I said that one of the things we really try to do with our program is to meet the needs of Canadians. This science program, as are other programs, is aimed at doing that.

While we do experiments in space, the type of experiments we do gives the potential for having significant impact for life here on earth. One of the things we're studying is osteoporosis and motion sickness. We're looking at crystal growth so as to better understand the protein crystals in the human body as a key to a lot of the advances in medicine, and we're working on advanced materials.

As to the area of astronomy, Lucie mentioned earlier that NRC runs the astronomy program. What we do as part of the astronomy effort here in Canada is to provide our astronomers with access to international space-based research facilities.

You're all familiar with the Hubble space telescope, and Canadian astronomers are participating in that. NASA is now talking about the successor to that, the next generation space telescope. We are carving out a role for Canada in that program. We also are working with the European Space Agency on some of its major astronomy programs.

We have our own small satellite program, a telescope, which we hope to launch in a couple of years. We have, believe it or not, a Canadian instrument on a Japanese satellite on its way to Mars. What we've done there is take an instrument we use to study the earth's environment and atmosphere and put that instrument on this mission to Mars, so a Canadian instrument will be helping to quantify the atmosphere on Mars.

We believe that the future holds promise for Canadian technology, particularly robotics technologies to be part of the world's space effort to study the planet of Mars and in fact to land explorers on that planet.

I mentioned earlier that we do have this outreach program for the youth of Canada. We try to bring as best we can the excitement of space to the schools across the country. Just about every one of our astronaut flights will include youth-based experiments, which can be used by the schools in this country to encourage our youth to get involved in science and technology and, hopefully, to pursue careers in that field.

That, Madam Chairman, is the end of my presentation. I'd be delighted to answer questions.

Thank you.

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

I'm now going to turn to Mr. Jean-Claude Gavrel, the director from Networks of Centres of Excellence. Mr. Gavrel.

Mr. Jean-Claude Gavrel (Director, Networks of Centres of Excellence): Give me a minute, Madam Chair—

The Chair: Here's more technology.

Mr. Jean-Claude Gavrel: —as I set up my technology. I do both a presentation and technology at the same time.

The Chair: Okay.

A voice: You're a multi-tasker.

The Chair: Multi-tasking is good.

• 0945

Mr. Jean-Claude Gavrel: Can everybody hear me? Good.

I'm going to talk to you this morning about a special program of the federal government, the Networks of Centres of Excellence.

[Translation]

This is a very different program from what you have been hearing about up to now. This is not a program that comprises physical facilities and buildings, but it is a program for funding, partnerships and what I would call virtual research institutions.

[English]

The program was created in 1989. Its mission, as you can see on the slide, is to mobilize Canada's research talent in the three key sectors of academia, the private sector, and government labs and basically put them to the task of developing solutions—technological solutions or others—to large problems, solutions that will improve the quality of life of Canadians and have a major impact on their lives and on innovation as well.

The program, as I mentioned a minute ago, is a permanent program of the government. It supports research in universities and hospitals, so the funding we provide is only for those institutions operating in partnership with private-sector and government labs. The participation of government labs or private-sector institutions is self-funded. They come and they contribute to the program in that sense.

The idea is to foster synergies between what we call the creators of the knowledge and the users of that knowledge. That's where the link of the private sector comes in as an extremely powerful element.

We focus on areas of critical importance and on large problems whose solution will obviously have benefits for Canadians. The other unique aspect of that program is that it's multi-disciplinary—some people have also coined the term “inter-disciplinary”—in nature.

[Translation]

The governance structure of the program is as follows. This is an Industry Canada program, which is run by a secretariat, which I represent today. This secretariat comes under three granting councils, in addition to Industry Canada, namely the Social Sciences and Humanities Research Council of Canada, the Natural Sciences and Engineering Research Council of Canada and the Canadian Institutes of Health Research.

This is why Health Canada, which runs the Canadian Institutes of Health Research, is involved in the program.

You may note something interesting here, which you can see on this diagram, and which I have emphasized, the International Peer and Selection Committees. This is not a standing committee, but rather committees that are brought together as necessary to evaluate applications made to our programs, so as to evaluate these programs regularly. This is what guarantees the excellence of our program.

What I have highlighted in yellow at the bottom of the page shows you that, right now, we have 22 Networks of Centres of Excellence, each of them directed by its own board.

[English]

Where do we fit into this spectrum? If you look, R and D in Canada is about $14.9 billion. These are 1999 Statistics Canada figures. I've built this as a pyramid to show where our program fits proportionally. We stress the word “excellence”. We stress the peak.

About $4.4 billion of the original $14.9 billion is for R and D that is actually executed in universities. Federal funding, through the granting councils I mentioned a minute ago and through the space agency and other agencies as well, is about $1.2 billion. Now, our program is very modest: it's $77 million. This is why I'm doing the show and speaking at the same time today.

[Laughter]

Mr. Jean-Claude Gavrel: Actually, just for your information, the overhead, the administrative cost of that program, is less than 4%. It runs at about 3.2% of the program.

Here we have program funding graph for 1995 to 2001, and I think you should notice two things. One is the fact that obviously the government has increased that program's funding and shown its commitment to it, and I think this commitment reflects the fact that the program has delivered. The other aspect is the bars on the graph showing the total, i.e., the yellow lines. The program is in fact doubled by the additional contributions of industry and other organizations. If we look at 2000 to 2001, we are, as I said, at $77 million, but we're close to $160 million in terms of the full impact if I measure all the research investment.

Here's the NCE map. Highlighted in red are the acronyms of the 22 networks. They've been located on the map where the administrative centre of that network is, but just remember one thing: we build on regional strength, and a program is not only where those red dots are but is national in scope. We simply have to put the centre somewhere.

• 0950

The entire program networks around the country, linking these strengths together to create the critical mass. I think we talked about that earlier when we talked about technology clusters. One way to do it is to physically put in clusters. Another way is to link these clusters into a national program bringing the best together.

Why is that? Canada is a very large country. It's a very successful country in innovation, but it's still only one of the many much larger countries in the world doing the same thing. Our contribution to world knowledge, depending on how you measure it, is around 2% to 4%. It's only small. How are we going to get the maximum benefit from our investment? This is what I think the program really does successfully.

To give you a quick idea of the regional distribution, and you can look at those details more closely, this is the distribution in three measures. One is the investment dollars we put in. The other one is the number of researchers involved. The third bar is the number of organizations participating in the program in the various provinces.

On the overall scale of activity, with this program, we bring together over 5,000 people working in university and government labs, provincial research centres, and the private sector, as well. Over 900 Canadian organizations from universities, hospitals, government agencies, industry, and other partners are involved. These are just the Canadian numbers. Later I'll show you the international connection. I think it's an element I want to stress to this committee.

[Translation]

Our networks fall within three major areas of research. The first one is health, human development and biotechnology. I have given you a list of some seven or eight networks. We cover such diverse areas as arthritis, vaccines, early child and society.

The second one is information and communication technology. It is not surprising, given that Canada is a leader in this area. There is the field of telecommunications, microelectronics, photonics, and related fields such as telelearning and even mathematics, a very important field. We often tend to regard it as a basic research area, but in fact mathematics is a very applied field today, whether in cryptography, for instance, which has immediate applications, or even the complex field of satellites, radars and so on.

The third area is obviously one which corresponds to a key element in our economy in Canada, namely natural resources and the environment. Here we have several networks in aquaculture and an entirely new network in clean water management.

Another area which is perhaps a bit more recent in our research is the manufacturing sector. In fact, one of our brand-new networks, one of the four new ones that I announced a month and a half or two ago, is the automobile network, AUTO 21, which was announced in Windsor.

[English]

What is a typical NCE? I've talked about the NCE as being a virtual organization, but “virtual” needs to be defined in some way. An NCE is managed by a board of directors. It is a board with representation from the sector, not from the people who actually receive the money, and obviously is an independent board from that direction. The responsibility of the board is to manage to program the funds to determine where the research should be carried out and to basically ensure the accountability of those research dollars.

An NCE can usually be broken down into about four to six research themes, for a total of maybe 15 to 25 projects. Again, here I detail the number of professors an average NCE would have in a university and the number of highly qualified personnel as between 100 and 150.

If I pick up on a comment I made earlier, what is interesting is if we fund an NCE at a level of between $3 million and $6 million per year, we can do two calculations. We have that reported on a yearly basis. The first one is we measure the additional contributions by the partners, which about doubles it. It would correspond to contributions both in cash and in kind. The other factor is if you add the individual funding the researchers bring to the table themselves—from the granting councils or others, because they tend to then influence their own research to direct it only to the NCE—it can be quadrupled.

• 0955

Some of the accomplishments involve innovation. One of the major contributions of this research program is highly qualified people—by that I mean people with master's or PhD degrees—who will create the technology of tomorrow and provide the new knowledge. The other one is of course patents and licences. We have our fair share.

What I think is most impressive here is if you look at the number of spinoffs. If you think of innovation, it's fine to create knowledge, but you need to put it into practice. I point out the fact that the NCE, with their very small funding and only in existence for ten years, have already contributed to 10% of the total spinoff companies of the Canadian universities. That has been measured since the 1960s. It's a study the the NRC's IRAP people have done. I think this is an accomplishment that clearly denotes the strength of the program.

You can measure things with numbers. You can measure things with stories. With the stories here, we have a few that are very significant.

There is a recent spinoff company out of the Canadian Genetic Disease Network that has secured $70 million in funding. This is important. This is significant. I'll skip the details. You have it in the material I've provided to you.

Another one is the Canadian Arthritis Network. How do you relate to specific outputs of research? This group has developed the first non-medication-based treatment for arthritis. Again, it's very promising. It's in testing right now.

Another one is in the ISIS network, Intelligent Sensing for Innovative Structures, where we have aging infrastructures in terms of bridges, etc., in Canada. We all see the effect of salt in winter. If we can replace the steel and put sensors in the bridge to have a better sense of its health, we will be greatly advanced. This network is ahead of the world in the work it does in this area.

Forest management, again, is an area where Canada has large forests that it manages. We are constantly looking for a sustainable means of doing so, as well as working with aboriginals and communities. The network does this.

I mentioned international connections. I believe one of the next steps for this program is to go international. Again, if we look at how much research we can do in this country versus how much is going on in the rest of the world, it's through collaboration and partnership where we will get additional benefits.

This is an example where the SFM network has launched a proposal with a number of partners from the U.S., Finland, and even Russia, to look at sustainable management. We're bringing a lot of expertise to the table, but we're also going to gain a lot. That's the balance.

Somebody from Finland told me once, and he was quoting Nokia, that Nokia is not afraid of collaboration at the research level. They share everything at the research level. Why? He said it's because they believe they're smarter and faster in turning it into a product. They collaborate at the research level. He said there is another thing they do. If you collaborate with two people, you're going to give something and you're going to get the same thing back. If you collaborate with three, four, and five people, you get three, four, or five times more. I think that's very important to do.

We already have hundreds of connections, but they tend to be pointed connections. We don't have anything structured. Each network has researchers who work with hospitals, companies, etc., around the world. I think we want to put this in a more structured form.

Of course, NCE means excellence. We select our networks. We monitor them in terms of five criteria: excellence of the research; the capacity to train highly qualified people; the networking and partnership strength of those people; and of course the quality of the management.

As I mentioned earlier, we follow a very vigorous international calibre, peer-review process. Here I'm listing countries that participated in last year's selection committees for our networks.

The last time an evaluation of the program was done was in 1997. The program came out quite well. The report concluded we met our objectives in all of its criteria. Additionally, the program was a net positive economic and social contributor to the country.

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.): Point of order, Madam Chair.

The Chair: Mr. Bélanger.

Mr. Mauril Bélanger: I just want to point out, Madam Chair, that we have a meeting that goes from nine to eleven.

The Chair: No, it goes to 10:30.

Mr. Mauril Bélanger: It's even worse to end at 10:30 with this group. We now have half an hour left to ask questions and have an exchange with these people. It has been an hour of presentations.

Might I suggest that's a tad overdone.

The Chair: Thank you, Mr. Bélanger. Your point is taken.

Mr. Jean-Claude Gavrel: I will move quickly to conclude.

The Chair: Thank you, Mr. Gavrel.

Mr. Reg Alcock (Winnipeg South, Lib.): It's not your fault.

Mr. Jean-Claude Gavrel: If I may, Madam Chair?

• 1000

There are opportunities for international collaboration—you have this material. There are extensive similar organizations being set up around the world now, and they've copied the Canadian model. I've been asked recently to go to Denmark. I've been asked to go to Brussels to talk about our program. We were innovators, Madam Chair, with the NCE over ten years ago, and I think we can continue this.

In conclusion, I see the NCEs as powerful partners for innovative research. Some of the numbers we have pointing towards innovation show it. More detail can be found on our website.

Thank you.

The Chair: Thank you very much, Mr. Gavrel. We appreciate your meeting us to give the end of your presentation.

For the information of the members, all witnesses were asked for a ten-minute presentation. They were a little lengthy; however, they were very interesting.

I'll turn to questions immediately. Mr. Penson, please.

A voice: Mr. Rajotte.

The Chair: Oh, Mr. Rajotte.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you very much for your presentations.

I have one general question on the cluster initiatives. How is it you identify where we put a particular cluster? For instance, with New Brunswick and e-commerce, why would you choose New Brunswick versus another region in the country?

Ms. Lucie Lapointe: As I've indicated, the process involves extensive discussions with the community.

In the case of New Brunswick, the discussions were held with the New Brunswick community. Work in that area was seen as an important priority. In fact, it only was in further discussions, once we got access to funds for the Atlantic initiative, that we firmed up any plans for any specific proposal in the area. It's not that we go into these discussions with a firm idea of an actual deliverable, if you would. As I said, the whole idea of a cluster is in fact to build links.

In the case of New Brunswick, we have no institute. We have no research capability in New Brunswick. Of course we have the presence of the IRAP program. We were delivering information through our Canada Institute for Scientific and Technical Information, but we viewed our being able to contribute in this area as founded on having a research presence. And the nature of this presence, as I said, was developed in consultation with the community.

Mr. James Rajotte: That is my question.

Take the nano institute in Edmonton, Alberta. Is its location more motivated by the fact that Alberta does not have an institute, or by the fact that Edmonton has a specialization in this area, attracting you to put a cluster there?

Ms. Lucie Lapointe: NRC is not present. It doesn't have a research presence, you may remember. We haven't got a research presence in either Alberta or New Brunswick. In those cases, if we were going to be involved, we had to work. Yes, these two areas have built a more considerable research presence than some of the clusters, where it was strictly based on linkages—if you wish, of an existing institute of the NRC involved in building these links with the community.

You have to have a few factors there: the community competency, the interest, the ability to lever the funds in order to build a significant presence—all are factors to take into consideration.

Mr. James Rajotte: Within Edmonton, and for other cities as well, there's actually.... Economic Development Edmonton has eight cluster groups, and they do it in all sorts of areas—what the NRC is doing. But they do it for all sorts of groups. I'm only trying to understand why you'd pick one in Edmonton.

Ms. Lucie Lapointe: I should say that we've spoken about the research presence, but in building clusters the community dialogue may lead to additional areas of interest where links are built with existing institutes elsewhere. The NRC has the national presence, and the idea is to bring this national research base to the community's interests as well.

The fact that nanotechnology is indeed an area of discussion at the present time, or an area where there might be a significant opportunity that the provincial government would wish to invest significantly in, does not preclude in fact opportunities for linkages in other areas in that province.

• 1005

I'm not sure this answers your question, but clustering, as I said, is essentially based on links. The R and D link is important. The presence is important. It's true, the whole of the NRC is a research presence, the whole of what the NRC is offering to the community, to become a part of the dialogue in terms of the efforts that could be of use in the region.

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

Mr. Lastewka, please.

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

Ms. Lapointe, you mentioned how for the last number of years there's been a great deal of extra federal funding for research and so forth. I want to talk about the small-business productivity gap; I understand the IRAP program was to help out small business. Could you tell me how many technical advisers you have now under IRAP?

Ms. Lucie Lapointe: I'm working from memory. I think we have approximately 300 across the country.

I would draw your attention to the fact that at the next session—at 10:30—the director general of the Industrial Research Assistance Program is going to be present and appearing before you, and could provide you with more specific information on this.

Mr. Walt Lastewka: Okay, I'll do that.

Ms. Lucie Lapointe: It's about 300 or 260, something like that. Those are the numbers, and they're present in 150 different locations in Canada.

Mr. Walt Lastewka: Okay.

Mr. Evans, you mentioned that the space program gets a number of requests from provinces. Could you give an example of some of these requests from provinces? You highlighted a couple in your presentation. What kinds of requests for assistance would come from provinces to the space agency?

Mr. Mac Evans: I was referring to our RADARSAT program, for example. The provinces have all contributed to this program by purchasing data for use in their information management systems. We have other activities under way where we will work with research institutes in the various provincial organizations. For example, CRESTech in Ontario is a centre of excellence in the province; we will do cooperative research with them. We have worked in the past with the Alberta Research Council. We work in cooperation with them in cooperative research programs.

It's not that they come to us specifically for something. It's in joint research programs where we work with them.

Mr. Walt Lastewka: You mentioned the Manitoba Red River flood, and hurricanes and so forth. Are there any similar instances in the provinces of Ontario or Quebec?

Mr. Mac Evans: You would recall the great ice storm in Ottawa and throughout the Montreal region. Not during the fact, but after the fact we provided all sorts of images that allowed people to assess the extent of the damage.

Mr. Walt Lastewka: Okay. Thank you, Madam Chair.

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

[Translation]

Mr. Brien, you have the floor.

Mr. Pierre Brien (Témiscamingue, BQ): I'm just going to make a brief comment. I know that there are other people who wish to ask questions. I am going to leave them a little time.

I wish to congratulate the people from the agency and all their partners on their latest mission. I hope they will never end up in a situation where they have to accept contributions from tourists to fund their space programs, as Russia has had to do. I think that is quite scandalous. Having to send a tourist like that is demeaning for the astronaut's profession. I do not know what the partners' role is or what they can say in a project like that one. To my mind, this gave a very bad image to the whole orbital station development project, which is extremely important.

[English]

The Chair: Mr. Evans, do you wish to respond?

• 1010

Mr. Mac Evans: Of course we had nothing to do with that. But as partners in the International Space Station program, we had to agree to the terms and conditions under which Mr. Tito flew. His mission was a success, but the impact on us was that we had to postpone until he left some of the work we had planned to do that week on the new arm.

However, in the longer term, we will see more of this trend. It's not much different from the early days of aviation: professional fliers such as Lindbergh and others were really breaking the ground and opening new frontiers, but it wasn't long before people started to be willing to pay to fly in airplanes. We're seeing the same trend here in the space program.

I think it's the right trend. It may not be happening the right way or at the right time, but it is right to try to open up the frontier of space to as many people as possible. I've talked to a lot of astronauts—not only our own but Americans too—and they have mixed views on whether paying your way into space is the right thing. But I would say the consensus is that if we're going to open up space to all humanity, then it's going to have to start some day—and we've now had the first effort.

The Chair: Thank you.

Mr. Bélanger.

[Translation]

Mr. Mauril Bélanger: Thank you, Madam Chair. I too wish to congratulate the Canadian Space Agency.

[English]

for a job well done.

Mr. Evans, I'd like to know, what does the future look like for the Canadian Space Agency, in terms of the space station? I gather that the Americans have rolled back the research budget substantially—some say because of cost overruns. So is there an opportunity for Canada to acquire more than 2.5% of the research time, and if so, what would it take?

Mr. Mac Evans: The United States, of course, has budgetary problems. If NASA proceeds as it says it will, these problems will have quite significant implications. Perhaps the most serious would be to limit the space station's capacity to have more than three astronauts aboard at a time. If that happened, I estimate there would be less than half an astronaut's time available to do actual research.

This is something that concerns us greatly, so we have already entered into discussions with the United States—as have all the other partners. This would be a significant blow to what the station was intended to do. But assuming that sanity prevails and this does not come to pass, and that we do have the six crew astronauts up there, there will be ample time for research.

To answer your next question, what can Canada do to increase its ability to use the space station, I think the issue is not whether we have access to enough time on the space station, but whether we have adequate capability and financing to support scientific research there. If we had more funds available for this sort of thing, they would go to increasing our efforts to make the scientific and industrial communities more aware of what space stations can do, and to preparing experiments to fly up there.

Mr. Mauril Bélanger: I gather that the incremental funding required for the arm is secure for the next few years.

Mr. Mac Evans: The budget for our contribution is in place, yes.

Mr. Mauril Bélanger: In terms of additional funding, are there increments whereby we can expect a certain amount of participation? Is it just that if we've got some extra dollars to kick in, then any amount would suffice, or would a minimum of additional funding be required to have us increase the use of the space station for our scientific needs?

• 1015

Mr. Mac Evans: As a partner, we are responsible for our fair share of the common operating costs for the whole system. This is not totally worked out, but it's a large number—in the neighbourhood of $20 million to $30 million a year. So far, however, we've been able to barter our contribution with the United States, so we have access to the station for a considerable amount of time without having to pay these common operating costs. But if were to significantly increase our use of the space station, we would find ourselves having to pay this $20 million to $30 million a year. That would be the biggest cost increase we'd face.

[Translation]

Mr. Mauril Bélanger: You mentioned that, under its legislative mandate, the National Research Council of Canada is responsible for astronomy. Is that correct?

Ms. Lucie Lapointe: Under our mandate, our role is to manage national astronomy facilities.

Mr. Mauril Bélanger: Do you have a mandate to build them?

Ms. Lucie Lapointe: Our mandate has been changed. There were some transfers from Energy, Mines and Resources at the time. We have a mandate to represent the community.

Mr. Mauril Bélanger: Are you able to tell us to what extent the long-term astronomy and astrophysics plan is a priority?

Ms. Lucie Lapointe: This plan is actually a national priority involving a large number of parties, not only NRC, but also the Canadian Space Agency, universities and lots of other organizations.

NRC is fully responsible for this national priority. In fact, Dr. Carty has written to the head of the coalition, Mr. Taylor, very clearly stating his unconditional support for the long-term plan.

Mr. Mauril Bélanger: I can infer from what you say...

The Chair: Final question, Mr. Bélanger.

Mr. Mauril Bélanger: My question will be long.

Can we infer from what you say that this is a first priority for any new investment from the National Research Council of Canada?

I also wish to talk about something else. I would like to know, according to the National Research Council of Canada, what the condition is of our public laboratories. For some time now, the government of Canada has been investing a lot of money to improve labs which are not ours, those in universities and hospitals, through private and other partnerships. There are a lot of public labs that may be in great need. I am trying to find out what condition our public laboratories are in because they are essential for fulfilling the legal responsibilities of the government of Canada.

Are our labs currently in satisfactory condition?

Thank you.

Ms. Lucie Lapointe: I am going to begin by answering the second part of your question.

Indeed, your question concerns more than NRC. I am going to answer for NRC. It is very important, as you know, that the labs in our agency be on the cutting edge and that we maintain our infrastructure for doing research.

Having said that, we have estimated that we will need several million dollars to bring our facilities up to date. We had received funding from the Program Integrity Fund. We received $7 million for three years in the year 2000 budget. Does that enable us to solve all our problems? No.

To come back to what you said earlier, our priority is occupational health and safety. We have made investments in this area and we plan to do so even more, because this is a priority area for many agencies. Treasury Board is studying a broadened application to try to determine more strategically the needs of federal labs in this area.

Mr. Mauril Bélanger: What do you answer to the first part of my question?

• 1020

Ms. Lucie Lapointe: I am going to answer the first part of your question, namely whether we can infer what the Council's priorities are. As I said in my presentation, the Council's chief priority is the establishment of a technology cluster. Having said that, however, the President of the NRC, in all the representations he has made, has indicated that the astronomy plan is a very big priority.

Mr. Mauril Bélanger: But which comes after clusters.

[English]

The Chair: Thank you very much.

Mr. Penson, please.

Mr. Charlie Penson (Peace River, Canadian Alliance): Ms. Lapointe, I want to follow up on what Mr. Bélanger was talking about.

Within NRC, do you have a special planning and priorities organization that helps you decide what should be recommended to cabinet? You're dealing with a lot of big projects in the science area: the astronomy one, the neutron facility, the nanotechnology thing. How do these come forward? NRC must have some kind of process. Can you help us with that?

Ms. Lucie Lapointe: In my presentation I spoke of the NRC's council—a 21-member body appointed by government to oversee our activity. In fact, this group has a significant input into fleshing out and defining future priorities for our organization. However, I should say that the opportunity areas identified for investments also draw on our networks of advisory boards from our various institutes. Essentially, we view our role as helping to bring forth opportunities for investment in Canada. Some of them are directly associated with NRC programs, and NRC is a player in those domains. I think astronomy would be one of them.

Mr. Charlie Penson: Can you tell us where the new neutron facility they're looking at fits in with these priorities?

Ms. Lucie Lapointe: As I've indicated, the neutron facility is another area. The astronomy file and the neutron facility file are both proposals in which other players are involved, and NRC has been supportive in determining that those would be important national investments. For NRC to perform a role in this, it would involve investing funds in NRC. But by no means are we the sole user or beneficiary of the investments that will be made there.

Mr. Charlie Penson: But you didn't quite answer my question. Is there a planning and priorities committee within NRC that decides which projects go forward to cabinet, asking for approval?

Ms. Lucie Lapointe: There is indeed such a body. The senior executive committee of our council works with us closely to define priorities for the organization. We use it extensively.

The Chair: Last question, Mr. Penson.

Mr. Charlie Penson: Can you tell me what the top priorities are? This committee is very interested in reducing the productivity gap, especially with the United States. That's what this study is all about—to try to find out what direction we should be going in.

Ms. Lucie Lapointe: We view the building clusters as a very high-impact activity at NRC, our own top priority. This includes activities located across the country. In fact, in the slide package you have, I think there's a rundown of all the activities that NRC would take to cabinet with a view to building clusters nationally. This is NRC'S top priority. But we also view it as a very high priority to move forward in the two areas you identified.

Mr. Charlie Penson: Thank you.

The Chair: Thank you, Mr. Penson.

Ms. Jennings.

• 1025

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair. Thank you very much for your presentations. They were all interesting. I will be brief, because I see that time is passing.

Mr. Gavrel, I would like you to tell us a little more about how a Network of Centres of Excellence comes to be. You said during your presentation that there are 22 across the country. How?

Ms. Lapointe, I would like to talk about what my colleague Mr. Bélanger talked about: the long-term astronomy project. You clearly explained that Mr. Carty has given his total support to this project during all his presentations. You are no doubt aware that this Committee passed a resolution recommending that the government allocate the necessary funds, part of which would go to NRC, to manage the construction of the new facility. I would like to know how things stand. Do you have any information about what the government intends to do? Do you know what answers were given to Mr. Carty?

I would like to know. I think this interests the whole committee. Mr. Evans, unfortunately, I do not have any questions for you, but I congratulate you.

[English]

The Chair: I have to hear the rest. I have to have the answers to your first questions before we go further.

[Translation]

Ms. Marlene Jennings: I have only these two questions. I actually asked them to speed up the process.

Mr. Jean-Claude Gavrel: A competition is held to select a network. This is a very rigorous process. Our competition depends on the budgets we have at our disposal. Our budget was about $45 million a few years ago. In 1999, it was increased to $70 million, which enabled us to organize two large competitions. The first one was an open competition, to which all the country's researchers could decide to submit proposals to us, be it in information technology, genomics or natural resources. This competition was held in 1999, and resulted in our selecting three networks.

Networks are selected in three stages. During the first stage, we study the letters of intent submitted, which are reviewed by an international peer selection committee. Then we retain a smaller number. In 1999, there were 45 applications and 12 were retained. We asked the 12 applicants to submit full proposals to us, which once again were evaluated one at a time by peer committees and later together by a selection committee. The applications were then transmitted to Cabinet, which made the final decision.

The second competition is targeted. The targets are ultimately selected, once again, by Cabinet by the following process. We begin by consulting the community. Then we ask the various departments what the general directions are that the government plans to take. That led us in the year 2000 to the four areas I spoke about briefly, genomics and society, childhood and development, clean water and automobiles in the 21^st century.

Ms. Marlene Jennings: Thank you very much.

Ms. Lucie Lapointe: The answer to your question is simple. Several information sessions about the long-term plan were organized for the benefit of the minister, who is very familiar with the project, its scope and the support given by the various agencies involved. I do not know exactly what stage we are at right now. I would not like to mislead you; I prefer not to say anything more.

Ms. Marlene Jennings: Thank you.

[English]

The Chair: Thank you very much.

Ms. Marlene Jennings: Congratulations.

The Chair: Thank you.

Mr. Cannis, you had a brief question? No?

Mr. Evans, did you have something to respond to Madam Jennings?

Mr. Mac Evans: I just want to say that the Canadian Space Agency is part of this group looking at the long-term astronomy plan, and we have set aside the funds required for the space-borne part of that plan. Those funds are in our plans.

• 1030

The Chair: One moment, Mr. Bélanger. I want to clarify something here for the sake of stating what we're doing.

I want to understand the coordination between the different groups. Maybe I'm missing something here, but in your presentation, Madame Lapointe, you said you have proposals for extending technology clusters across Canada. I see that you've identified London, Ontario, as the national automotive parts and vehicle research centre. Yet a conglomerate of twenty universities agreed that Windsor was the natural centre for automotive research and excellence. So do we talk to each other, or am I missing something here?

Ms. Lucie Lapointe: There is no doubt that should we pursue the opportunities in London, Ontario, that are based on a research presence we have there, we of course would be.... In fact, integral to the approach is to link with all of the R and D performers, and in fact we would be working very closely. Indeed, all of the players that have an interest, all the possible suppliers, would be integrated in an effort we would put together. And we count on activities such as the centre of excellence to in fact network more broadly than the community in which it is involved.

The Chair: One of the things we've heard over and over again at this committee is that one of the problems we have with how we do research in Canada is we don't listen to industry. We don't look at what industry is doing and we don't partner with industry. We set up all kinds of organizations and additional funding as a government to partner with industry, and I look at this and say I must be missing something when we know the largest investment by industry in automotive was in Windsor, through Daimler-Chrysler, through the university's research centre. So why would we be moving to London or doing something and not looking at what industry is doing? We also know that Ford has just announced a huge investment for Windsor, for St. Clair College, for the manufacturing centre.

We keep hearing from industry, “you're not listening to us”, and I see this and I think, are we listening, or am I missing something again?

Ms. Lucie Lapointe: The diagram I showed you, which indicated that we build clusters, if you recall, has the firms at the centre of the diagram. The needs of the firm are indeed key and the centrepiece. So it requires absolutely a dialogue with industry.

What we're hoping to do, though, is link it much more closely to the research programs—some of which are ours, some of which are others—and link to the financial community all of the other stakeholders you have on that diagram to ensure that you essentially see to the commercialization. We want to have research programs that serve the needs of industry, that work with them and ultimately see to the exploitation of the knowledge that is generated through the activities, and see to the investment, not only for large companies but as well for small and medium-sized companies that would end up being supported as essentially part of those discussions.

So in terms of building networks, certainly you are quite right, Madame Chair, the needs of the industry are absolutely central to this and this is central to the model we're proposing here.

The Chair: Mr. Gavrel.

Mr. Jean-Claude Gavrel: Certainly what the networks do is exactly that, they link the centres of expertise and excellence. While AUTO 21 has its administrative centre in Windsor and has obviously a lot of research there, it also involves communities from across the country.

Certainly from our perspective, I know very well that the network.... If I pick on AUTO 21, the program leader is Peter Frise. He is very active and knows everything that goes on in the community. So I can assure you from this perspective that should a new research centre establish itself somewhere it will be linked to AUTO 21.

We want to ensure through our program that in fact we're not duplicating research but we're leveraging it.

The Chair: Again, Mr. Gavrel, I'm not trying to pick on AUTO 21. I'm trying to use the industry as an example, because when I meet with the industry—not the researchers, not the university, but the industry—I'm hearing from industry, “they're not listening to us, they're not working with us”. They say you're going in your own direction.

This is what I see when I look at the investment that's just been made in Windsor by Daimler-Chrysler, as an example. I don't see that anywhere else. I don't see it in London. So when I see a vehicle R and D centre my head has to say, why London? It's not a natural fit.

We have expertise around this table from people who used to work in that industry. I'm just using that as one example, but I have to say that it's disappointing, because I don't see us moving any further. I don't see us listening to industry. I don't see us working with industry. And I think that's where we're missing the boat. I think that as a government, as a country, one of the reasons we're not moving ahead is because we're not working with industry, not just automotive but all industry, and we're not listening to them. They keep telling us we're doing this and you're doing this over here and we're not meeting together, and that's a problem.

• 1035

Ms. Lucie Lapointe: If I may add one little thing, we currently have a research institute in London and we are not proposing an additional research institute on any such thing. We have an integrated manufacturing technology institute located in London, Ontario, and I should add that significant investments from those companies you are referring to have been made in the institute in major partnership programs.

The Chair: I was reading from your thing that talked about proposed—

Ms. Lucie Lapointe: Yes, I understand.

The Chair: I was looking at your slide. I saw that, and, again, I just had meetings a few weeks ago and we're hearing from industry.... I'm suggesting that we need as a country to look at what industry is after, because we need to ensure that jobs are created. Part of the idea of the innovation, part of the idea behind the study, is to look at how we ensure that jobs in Canada are maintained in Canada.

I'm only pointing to automotive as one example. There are many examples. We could go on and talk about aerospace and where those companies are located as well, but I'm pointing to that as an example from the people I've spoken with, the people we hear from at this committee, and suggesting that there needs to be a better dialogue between industry, not just with the researchers, but with industry itself. I think we are missing a link there.

I apologize, Mr. Bélanger; you have a final question.

Mr. Mauril Bélanger: Madam Chair, given the answers I've gotten on the state of the publicly owned labs, Government of Canada labs, and given our need to live up to our regulatory mandates, I would hope we would consider inviting the Treasury Board to give us a view of all of our labs and whether or not this program integrity has provided enough resources to make sure that as a country we have the ability and the wherewithal to do what we're supposed to do, in all fields. I'm not just talking about the NRC here. I'm talking about health and agriculture, and all other fields. I have a sense that because of past efforts in the last few years our own labs are suffering, and I think we need to find out if that is accurate or not.

The Chair: I appreciate that comment very much, Mr. Bélanger. We might be able to get some partial answers in the next round table we're going to move to.

I want to thank all of our witnesses this morning. It's been very good information. They were great presentations, a little long, but great presentations, and we look forward to meeting with you all again as we all try to move Canada's innovation agenda forward together.

We're going to suspend for about 60 seconds. It's 60 seconds, everybody, so don't leave; we'll be back.

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The Chair: I'm going to call the meeting back to order.

We have four witnesses for our next round table, which is on value for money in research and development programs.

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I'm sure the witnesses were listening carefully as we ran out of time for questions. So if we can try to keep our presentations and our opening comments to a minimum that would be very good. I'm sure that other members will ask me to cut you off if you go any longer than ten minutes. The quicker you could be the better it will be for everybody.

We're pleased to have with us this morning, from the Office of the Auditor General of Canada, Richard Flageole, Assistant Auditor General, and Peter Simeoni, principal, audit operations branch. From the Canada Customs and Revenue Agency we have Paul Berg-Dick, director, business income tax branch; and from the Department of Industry we have Jeffrey Parker, executive director, Technology Partnerships Canada. From the National Research Council of Canada, we have Margot Montgomery, director general, industrial research assistance program.

Without any further ado I will ask the Office of the Auditor General, Mr. Flageole, to make his opening comments.

Mr. Richard Flageole (Assistant Auditor General, Office of the Auditor General of Canada): Madam Chair, thank you for this opportunity to participate in the committee's review of Canada's science and technology policies and programs.

I am accompanied this morning by Mr. Peter Simeoni, who's the audit principal responsible for a fair amount of audits that we have done in recent years on science and technology.

This is an important subject and one that the Office of the Auditor General has reported on several times over the past nine years.

As you are well aware, one of the principal functions of the office is to carry out value-for-money audits. This morning I would like to briefly review the audit reports that have dealt with the government's management of science and technology activities. Our reports have looked at science and technology issues government-wide at the portfolio level and at the level of departmental programs. Our most recent audit looked at what are known as “big science” projects.

Also, I want to present the committee with the criteria we used to determine if value for money was achieved at each level. We hope that this discussion will be relevant to the goals of your study.

Madam Chair, let me begin with a brief overview.

The federal government spends several billions of dollars a year on science and technology in addition to tax incentives to encourage research and development in the private sector. The government accounts for the largest share of Canada's total investment in research and development. It is difficult to find S and T issues that the government is not somehow involved in.

Because of the importance of federal S and T activities, our office has produced a series of reports that promote a mission-driven, results-based approach to federal spending on S and T. These reports stress that the government's investment in science and technology can and should be managed, and in particular that the performance of the investment can and should be measured.

This series of reports goes back to 1993, when we first talked about mission-driven, results-based research in what was then the Department of Forestry. The idea was that a department did research in support of its mission and mandate and that these responsibilities should provide direction to their research efforts. With this general direction set out, good management required that the specific research results needed to carry out the mission be determined as a focus for specific research programs and activities.

[Translation]

In 1994, we applied this idea to the whole government. We tried to establish whether the federal government was doing everything it could to optimize the resources allocated to its activities in the area of science and technology.

At the government level, we asked the following questions: are there a strategic orientation and priorities guiding federal activities in science and technology? Are these activities coordinated and are the results evaluated and communicated to Parliament?

At the departmental level, we asked the following questions: has management clearly stated what it wished to accomplish and have the objectives been achieved? We pointed out significant shortcomings in each area.

In 1996, the government announced its science and technology strategy, in part to follow up our 1994 report on supervision and management.

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In 1998, we examined the progress made by the government in implementing its science and technology strategy. We wondered whether the government was meeting its 1996 commitments. Was it applying the principles it had established for the management of departmental activities in science and technology? We found that progress was slow. To ensure optimization of resources in this area, the government needed to act aggressively on its 1996 promises and increase attention in the following three areas: developing mission-driven results-based management frameworks for science and technology activities; using external peer reviews to ensure scientific excellence; and developing partnerships inside and outside government to better leverage federal expenditures.

In 1999, we looked at federal investment in innovation in Canadian industry. We examined four federal contribution programs in the Industry Portfolio that had combined expenditures of $1.3 billion over three years. In particular, we asked whether these programs were based on a sound understanding of innovation performance problems in the economy—in other words, was there a strategy in place to target spending, whether there was a business case justifying why specific projects were funded, whether there was a strong rationale for government support and whether management knew if value for money was achieved.

We found that no strategy existed to explain how the Portfolio addressed performance problems in innovation or what results it was trying to achieve. We also found problems with due diligence in two of the contribution programs. We will follow up this year on the report and we will be pleased to discuss the results with the committee after tabling.

[English]

In 1999 we also reported the results of our study on good management in science-based organizations, which I think is particularly relevant to the committee's current interest. The purpose of this study was to help federal science managers manage better by describing what good management should look like in research organizations. Our study found that well-managed science organizations share a number of attributes or characteristics that we grouped under four themes.

These organizations focus on people. They know who they need, and they develop and retain the right mix of talent in a positive and supportive environment. They show leadership. They align themselves with the needs of those who depend on them for results. They achieve buy-in for their vision, values, and goals. They undertake the right research at the right time with the right investment. They manage research to ensure excellence and needed results. They leverage resources and capture organizational learning. Finally, they strive for exceptional performance, are widely known and respected, and meet the needs of those who depend on the results of their work.

The extent to which the attributes are demonstrated by an organization is a measure of how well it is managed. Said another way, measuring performance against these attributes would show the extent to which value for money is achieved. Since we reported our work, several federal science organizations as well as others have used these attributes to assess their own performance.

In 2000 we reported the results of our audit of the government's administration of the tax incentives program for scientific research and experimental development. We asked whether management had set out clear objectives for the program, had set clear rules and guidelines to help claimants and staff, had procedures in place to manage the risk of ineligible claims, and was resolving claims efficiently and effectively and treating taxpayers consistently. We found that there was significant room for improvement in each of these areas, and again we will be doing a follow-up next year on management's action.

Finally, in December 2000 we reported on how the federal government decides to invest in big science projects and used the Sudbury Neutrino Observatory as an example. We identified the following lessons learned.

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The government needs complete and accurate information to properly assess the costs and benefits of the big science projects when deciding whether to invest. For example, the government needs good information on the nature of the science, project risk, life cycle cost, expected scientific benefits, and any economic benefits. Interdepartmental systems for reviewing and handling science activities should be used to manage decision-making for big science projects. And finally, accountability within the government and to Parliament needs to be improved. There needs to be a single federal authority for each project that would report on performance.

Madam Chair, with these reports over the past nine years, the office has developed a range of value-for-money criteria that I hope the committee will consider and find useful in the course of its study.

This concludes my opening statement. We will be pleased to answer any questions the committee might have.

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

We're now going to turn to Mr. Paul Berg-Dick from Canada Customs and Revenue.

Mr. Paul Berg-Dick (Director, Business Income Tax Division, Tax Policy Branch, Department of Finance): Thank you, Madam Chair.

Just to clarify, I'm with the tax policy branch of the Department of Finance. We work closely with CCRA, but I'm presenting today on behalf of the department.

I prepared a brief handout, as well as a longer opening statement. I thought it might be useful just to briefly go through the handout to set out a bit of the context for our scientific research and experimental development tax credit program. It is the biggest program, in terms of providing support for the industry. It's value for money, or the other one is optimisation des ressources de programmes.

The first chart I guess you've all seen—everyone has it. Obviously we're lagging behind in terms of our R and D effort compared to other jurisdictions, and we have a goal to increase our ranking to fifth from fifteenth.

If we turn to slide three, we look at the breakdown of the R and D across the different performers. Certainly the business sector is the one that's increased its level the most between 1990 and the year 2000—in fact increasing by 6% per year in nominal terms. And you have to recognize, too, in terms of increasing our ratio, we have to be over and above the change in our GDP, which has been running about 4% in nominal terms. So the other groups have actually been falling behind that level, although that's likely to change in the years ahead, with increased funding being provided certainly at the federal government level. But certainly business has been increasing their level of R and D.

I'd also point to the foreign aspect there. The foreign funding of R and D is becoming increasingly important, and in fact has had the highest growth rate in that ten-year period—11% per annum over that period.

In terms of slide four, if we step back and look at why the government should be supporting research and development—and again from how we frame this from a tax policy perspective—research and development gives rise to spillover benefits. When one company does R and D, all of that doesn't accrue to that particular firm. It provides a benefit to other firms as well—those that learn from that. Therefore, left to themselves, industry would not invest in as much R and D as would be socially desirable. As well, R and D provides a significant factor for economic growth, in terms of linkages to technology, linkages to productivity. So, again, we get a benefit on that side to the two coming together.

Turning to slide five, in terms of the tax incentives themselves, we start from that spillover benefit as our objective, but we have some other objectives as well, and that's to provide relatively more support for small business than for large business. Small businesses have more trouble getting financing, especially for intangibles, and that's why we also want to assist small business. At the same time, it's important as we go through this—and this has been an ongoing process—that we have a theory, in terms of the spillover benefits, but that theory has to be translated into the law, and then from law into administration and our working with CCRA. My notes go into that in more detail. But this means we'll always have to be looking at the program, as well, in terms of how well we're doing.

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Slide six sets out the current tax credit structure. All R and D is allowed to be deductible in the year. In addition, for large corporations we provide a 20% tax credit, so for every $100 of R and D they do, they get $20 of tax reduction.

As I mentioned, for smaller companies they receive a 35% credit on their first $2 million of R and D, and that amount is actually refundable. So because of the concern about financing, the CCRA can send a cheque of up to $700,000 to a small business in respect of its R and D undertaking.

In terms of effectiveness of the program, we undertook a major evaluation, which was published in 1998, looking at the program. It's a significant program, as I mentioned, with $1.4 billion going out annually in tax credits affecting about 11,000 businesses. Smaller companies are an important element of that. They are obviously more of those 11,000 businesses—just over three-quarters—but of course their average value is low, so about one-third of the program is going to small businesses and another two-thirds to larger businesses.

Slide eight looks at the impact of the program. By the analysis we undertook, we determined that for every dollar of support the government put in, it generated approximately $1.38 of additional R and D spending by firms, which in our view was very favourable. Certainly in terms of the impact on businesses, the increase in their R and D expenditures means that with the credits many firms can do more, especially for small businesses.

As well, we've been successful in attracting businesses from outside Canada to come to Canada. There I would point to companies such as IBM and a joint project with Technology Partnerships in terms of marketing and e-commerce, as well as Ericsson and the work they're doing on wireless in Montreal.

That being said, I think there are still ways we can improve the program. In the February 2000 budget we identified some problems with certain claims that were taking a long time to resolve. I think we've made some progress there and have now been able to deal with those issues.

We also identified some problems with respect to internal use software where claims were being made and the question was whether in fact they embodied the criteria that would apply to research and development. We're in the process of consulting with stakeholders on that and getting information back on that.

At the same time, CCRA has launched a 13-point action plan, working with an industry committee. I think that's been working quite well, coming out of the Vancouver conference a number of years back. That committee has set up 11 sector-specific committees to really look at the program and make sure that both CCRA and industry know the rules, know how to apply the rules, and make sure that we can minimize, in terms of an audit perspective, the conflicts that can happen later on.

One of the things CCRA is doing as well is setting up an R and D audit protocol for the larger companies so they can go in and make sure that the R and D companies themselves have a system in place to identify R and D that will be eligible for the program. I think those are all very positive results.

In conclusion, Madam Chair, I think this is a very important program. I think it's certainly what sets Canada apart from many other countries in terms of the support for R and D. I think it's been viewed quite positively by business and been quite successful in that regard.

I'll be happy to answer any questions after the presentations.

The Chair: Thank you very much, Mr. Berg-Dick.

We're now going to turn to Mr. Jeffrey Parker, from the Department of Industry, Technology Partnerships Canada.

Mr. Jeffrey Parker (Executive Director, Technology Partnerships Canada, Department of Industry): Thank you very much, Madam Chair.

I have a brief deck that I've provided as part of the information package on TPC. I'll go through that not in detail, but relatively briefly, to give you a sense of what TPC is about, how effective it's been, and where we see ourselves moving and changing as we sort of move toward the future.

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Essentially, TPC is an investment fund. It works on the basis of a grant and contribution budget. It has a budget of about $315 million a year. It was started in 1996 as a special operating agency focusing in a number of key areas in the knowledge-based economy: aerospace and defence, and environmental and enabling technologies. We invest in research and development in innovation.

It's important to state that all of the investments we make are repayable, and there's upside sharing with those investments. We expect to get a return on our investments.

TPC is based on a very sound system of due diligence that we perform on each application or proposal that comes before us. We're mandated to ensure that the small and medium-sized enterprises participate and that all regions of the country benefit.

It's important to point out that as cabinet specified, one-third of the TPC expenditures are targeted for enabling and environmental technologies and two-thirds of our expenditures are for aerospace and defence.

I would point out that we are a partner in technology development, that we continue to work closely with governments, that there are no restrictions in terms of the size of programs, that we invest broadly in terms of technologies, and we have a focus in terms of competitiveness.

On page four are the key criteria we use for our investments: how the investment would contribute to the objectives of the government and how it delivers benefits to Canada; is the technology feasible and can the company carry it out; is there a need for government funding, or is there another market that basically could provide the funding; and finally, will the contribution be repaid? I would point out that we do undertake a very substantial process of due diligence.

On page five is the theory of TPC. Investments upstream basically help the company get to market faster, so it speeds up the process of expansion and development of the activity. Basically, we get paid back in terms of the downstream, when the product or the technology becomes successful.

I won't bother with page six. That's simply to show the complexity in terms of how we deal with the funding.

It's important to note that we're only one part of a large continuum. We have to work together. I think that's part of what today's discussion is all about. TPC is closer to the end point. We look at technology development, pre-commercialization, but basically we have to work in cooperation. We have to work as part of a pipeline with a number of different agencies.

TPC operates with an advisory board that gives guidance. We have reviews by an internal management board, as well as an interdepartmental advisory committee. Our investments are all announced publicly and scrutinized by the media.

TPC is basically identified as being a strategic technology activity. We have investments in wireless technologies, in biotechnology, in environmental technologies, and in aerospace and defence. We have quite a broad range of investments.

I would make the point that essentially TPC has had to reconstitute itself, realign itself as a result of the WTO challenge that happened. As a result of that, we're no longer focusing on export and we're no longer focusing on products. Rather, we're looking at technologies and the development and the expansion of those technologies.

So in a sense we're far broader now in our view of what benefits are. We're much more careful in how we express the results of our program to ensure that we do not get caught up in WTO rules. Part of this is to say once again that TPC is a very visible instrument. It is under national as well as international scrutiny.

The impact of TPC is basically that there was a pent-up demand, or there was a period of time when there was no opportunity to invest in the aerospace and defence sector. That gave the opportunity for an enhanced investment in the environmental and enabling technologies. So there have been a couple of spikes in the year 1999-2000 as well as 2000-2001. But in the years to come, those will level out. There will not be those kinds of investment levels in the future.

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Turning to page 12, TPC is on target. We have $2.1 billion in innovation spending leveraged, which is 95% of our original forecast. We have 5,200 jobs maintained or created, which is over our original forecast. We have started the repayment phase. Again, we're ahead of schedule on that. We have very few failures, less than 0.5% of all of our investments. We have a very low administrative budget with which to handle these investments.

Part of TPC is to try to ensure we have a diversified pattern of investments. Certainly, there has been a lot of criticism in terms of TPC focusing mainly on Ontario and Quebec. Indeed, we've been trying to deal with that. Part of it is in terms of taking a look at our own investments in small and medium-sized enterprises. We've entered into an arrangement with IRAP in order to be able to invest more broadly. As well we have two new projects underway with regard to moving down the scale in terms of our involvement with the aerospace and defence sectors.

If you look at the portfolio on page 14, you'll see that indeed there is a concentration in Ontario and Quebec, particularly in terms of the money invested. But if you take a look at the number of projects, you'll see that there was better distribution across the country. Page 15 identifies the kinds of projects we have invested in all regions of the country.

Finally, turning to page 16, at this point in time we are in the process of taking a look at TPC's mandate and coming to a decision as to whether or not it's advisable or appropriate to continue with that two-thirds, one-third split; whether or not TPC should broaden its focus with regard to the kinds of technologies it supports; and whether or not we can do our business more efficiently and more effectively in order to speed up the review process. Indeed, part of that will involve taking the message out to all communities in all parts of Canada.

Thank you very much. I would welcome any questions you may have.

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

We're now going to turn to Ms. Montgomery from the National Research Council of Canada.

Ms. Margot Montgomery (Director General, Industrial Research Assistance Program, National Research Council of Canada): I've brought slides, copies of which I believe you will receive in a minute. If you don't mind, I'll just flip through them and give us a change of pace.

IRAP, the Industrial Research Assistance Program, is a 50-year-old program. It had different names back in the early days. It has been active in Canada for over 50 years, in fact. It is a $135-million program.

This slide shows the guiding mandate, mission, and strategic objectives that apply to our activity. I'll just mention that our strategic objectives are to try to increase the innovation capabilities of small and medium-sized enterprises, as well as a more recent strategic objective, which is to become the national enabler of technological innovation for Canadian SMEs. This is consistent with our partnering history.

The next slide shows a map of Canada. The red dots indicate the location of IRAP offices, which are primarily communities but often cities. There are over 90 community locations where we are present, and from those 90 locations, we serve the surrounding area. Our staff members are constantly travelling.

This slide shows a model of our performance framework, which was one of the recommendations of the Auditor General and which we have been following through on. At the bottom of the model you see our core competencies in technology and innovation management. In terms of our contribution to firms, it falls into three categories: the technical advice we provide to firms, because we are a knowledge organization; the networking we do to connect our client firms with sources of expertise, typically technology expertise but also beyond that to business and marketplace expertise; and the cost-shared funding we provide to firms to help stimulate innovation projects. The objective is to increase innovation capability.

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The impacts we're seeking in terms of changes in the performance of firms are shown in the blue boxes: skills, knowledge, improved management, enhanced linkages, increased innovation in terms of new products and processes, and financial performance.

The mandate and mission are on another slide, as I mentioned, so I won't pause there.

At a glance, IRAP consists of over 260 industrial technology advisers who are scientists and engineers. They are located in those 90 communities. We serve over 12,000 SME clients annually. It's closer to 14,000 now. We're involved in 4,300 funded innovation projects. That's part of the action model I just mentioned. Through those projects, as well as through the unfunded technical advisory services we provide clients, there are 3,800 links to sources of technology. So we're actually a network that operates very effectively to link our SMEs with the sources they lack.

This slide is, I think, a bit repetitious. It mentions, however, two key partnerships that I would like to draw your attention to: the Alliance of Manufacturers and Exporters of Canada runs a technology visit program, which helps us build awareness in SMEs of new technologies and best practices in host firms; and the partnership with Technology Partnerships Canada whereby we deliver projects costing under $2 million to SMEs in Canada.

These are three examples of clients that IRAP has worked proactively with. In the first case, Merlin Plastics in Delta, British Columbia, is a small firm that came to IRAP in 1995. We provided technology advice along with some competitive intelligence from the open literature to help the firm with a problem they were experiencing related to consumer plastics being recycled into near-pure raw materials. The result over a period of two years was that the company established a small in-house laboratory. Two engineering personnel have been part of the company since that time. The business has grown, and it now employs over 30 employees after starting out with three. As of the last 12 months, they've opened a second plant in Calgary, and they are beginning to access international markets. So it's a very small firm that has grown a little bit larger and has had a considerable amount of success based on our technical input only, not funding.

I'll come back to the last example if I have time.

The next slide concerns the national enabler of technology innovation. This shows the nature of the network member partners. IRAP works in partnership with over 100 organizations, and as this slide demonstrates, they come from a variety of sectors primarily with a technology focus in terms of research institutes, provincial research organizations, technology centres, the research entities in Canadian universities, and the technical ones in colleges. But it also goes beyond that—to business centres, industrial, and professional organizations such as the Canadian Association of Management Consultants. Regional, municipal, and economic development agencies are also part of our very active network.

Since 1994 IRAP has been building the Canadian Technology Network, which is a 1,000-member organization that focuses on working for shared purpose as well as individual interests to enhance the innovation capacity in Canadian communities. There's an electronic inventory of member capabilities, which this network shares. The strategic vision for the next stage of development for CTN is to begin to enter into shared action plans to address gaps in the innovation system in Canadian communities. We've done some of that, and that's what we want to do more of.

This is a picture of IRAP's total expenditures in regions in 1999-2000. The red ends of what look like cigarettes are the expenditures for the TPC part of that partnership, just to show you that we have quite a strong regional distribution of that TPC partnership.

In 1998 Richard Lipsey and Kenneth Carlaw of Simon Fraser University—and I put it up simply because it demonstrates some of the ways in which they found IRAP to be contributing to the innovation system—had this to say in a study of contribution programs:

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The acquisition of tacit knowledge is encouraged by IRAP for SMEs. The undertaking of many experiments and transfers that would otherwise not be possible with the risks associated for small firms; encouraging the flow of information between users, between users and producers, and between sources of information—these mechanisms are extensively used. These are the networks IRAP has been building.

IRAP increases the firm's level of technical competence and the ability of the firm to create their own research and development results, as well as to be a receptor for the results generated by others, which is an important factor, given that Canada cannot generate the majority of technologies that we want our industry to be using.

The following slide is about IRAP's activities with universities, which are tremendous sources of technology and research for commercialization in this country. We have currently 60 industrial technology advisors co-located in universities and partnering with the research entities, 30 in technical colleges. Of the 800 university spinoffs we've been tracking in IRAP over the last 15 or 16 years, half received funding assistance from IRAP. And the revenues for the 800 spinoffs total more than $2.6 billion at this point, since that mid-eighties beginning point.

These are some of the future visions we see as opportunities for IRAP. I won't go into detail, but I arrived in time to hear my colleague Lucie Lapointe mentioning technology cluster activities of the NRC. This is a tremendous activity in which IRAP can work collaboratively with other parts of NRC and with other members of the IRAP network in technology competence building in communities.

The international innovation and technology linkage is the last item I want to spend a minute on. The advisory committee on science and technology for the Prime Minister has recommended a $20 million a year initiative associated with extending IRAP internationally, based on the need for SMEs to access technology globally. Should this be funded, our plan is to increase the number of foreign technology visits we help firms undertake, to undertake competitive intelligence activities that will bring information about sources of technology to Canadian SMEs, and to set up collaborative projects that are large and often longer than our current level of activity with European Union, intelligence manufacturing systems consortia, and other international group projects.

IRAP has undertaken some pilot projects. We can't really afford, with our current resources, to go beyond experimentation and, in a limited way, to explore the benefits to SMEs of some of these international linkages. We have memorandums of understanding with a few entities, primarily in Asia, and with a lot of leadership from our British Columbia regional offices. We have a staff exchange going on currently with a French counterpart, the Agence de valorisation de la recherche, whereby a staff member from each organization is exchanged. We expect that to lead to greater understanding of potential technology alliances for our SMEs and their equivalent.

We lead technology missions. We've done five visits, for example, over the period 1998 to 2000, for which we have data that indicate over $100 million in further research collaborations, sales, or investment information for the firms who participated. The costs to IRAP of those missions was approximately $300,000. It's a relatively encouraging trend, which we hope to have the opportunity to pursue.

My last slide is simply focused on IRAP innovation. We believe we are a program that is responsive to local business needs, aware of national industry trends and regional trends, linked to resources throughout Canada through our strong partnerships. We've been attracting considerable—sometimes more than we can handle—international attention, with government organizations in other countries coming to study us and emulate our program. We have evidence that our clients are satisfied through our client survey activity.

Thank you.

The Chair: Thank you very much, Ms. Montgomery, that was very good. We did that in 40 minutes. Now we're going to turn to questions.

Mr. Penson.

Mr. Charlie Penson: Thank you.

It's very interesting, as we go through this study on science and technology, trying to determine how we can improve our productivity in Canada and take a higher place in the world, improving our standard of living. I know the emphasis of government, especially in the last budget, is to put a lot of money into science and technology, into innovation, to try to help that. So I think it's important that we understand whether we're getting good value for our money here.

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We need a good evaluation of how these projects take place, how the selection takes place in these big science projects. After sitting here for some time, I'm still not very clear on how we determine priorities for Canada. Is it a sort of shotgun approach? Maybe there's good work being done in a lot of different areas, but listening this morning to the industry technology clusters group made me wonder, is there a chicken in every pot across Canada, is it regional, is it political? How are these things decided? As the Auditor General's department has just told us, we're talking about billions of dollars here. We get groups coming to committee, like the astronomers, lobbying for committee support, asking for motions to be passed. It's very difficult for members.

I want to explore first with the Auditor General's department your suggestion that there should be a single federal authority for each project. Is that along the lines of having a chief scientist's department that would help members of Parliament and cabinet decide what direction we should be going and where we should be prioritizing our money in science and technology?

The Chair: Mr. Flageole.

Mr. Richard Flageole: The comment we made on the single authority you're referring to was in line with the need for reporting on big science projects. It is a very basic question, and if we go back to our 1994 government-wide audit, I think we stressed the need for better coordination, better mechanisms, better ways of setting priorities. There are different models and I can think about the discussions we had at the time. If you look at the world, there are very different models for doing that. I don't think it's the role of our office to tell the government how they should organize themselves. We're looking for very specific results. I'm not sure there's one magic way of doing this.

I think more and more today science and technology activities are realized on a horizontal basis, involving a whole lot of partners from the federal government, from the private sector, or other levels of government. So there is a clear need to put the machinery in place to ensure that these things will happen. In the 1996 strategy the government came along with a suggested way of handling these things, so there are already ideas on the table for tackling those issues. What we reported at the time—and we will be doing a follow-up—is that the government has been slow in putting those mechanisms in place.

I don't know if Mr. Simeoni wants to add to this, but again, I think some decisions have been made. I think it's now time to implement them.

Mr. Charlie Penson: Perhaps I just pursue that a little. In the course of your evaluations you've come to some conclusions, and obviously you must have some recommendations on where we go from here. We don't want to make the same mistakes over and over again, so we want to improve our performance. You've got some criteria here in number 20 in your presentation. What exactly are those criteria you're suggesting?

Mr. Richard Flageole: Madam Chair, Mr. Simeoni is the expert dealing with those issues. I think I'll ask Peter to comment on that.

The Chair: Mr. Simeoni.

Mr. Peter Simeoni (Principal, Audit Operations Branch, Office of the Auditor General of Canada): Madam Chair, paragraph 20 of our opening statement refers to all the value-for-money criteria we've used over the past nine years. When we were considering what we would come and talk to the committee about, we realized that our own body of work dealt with science and technology issues and their management by the government at a number of different levels. In the course of designing our products, our audit reports for Parliament, we had to think through very carefully what value for money might look like in a given area and to defend our conclusions based on those criteria and the results of our work.

I think Mr. Flageole is referring specifically to the work we did on what we called the attributes of well-managed research organizations. We felt, after a number of years looking at this area, that what good management might look like in science and technology wasn't terribly well defined, but we did know that there were very large, very successful organizations in North America. We looked outside the federal government, because we were looking for new experiences that obviously must be managing themselves very well.

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So we went and spoke to them. We came up with a list of ten criteria that could be used to assess the performance of any federal institution engaged in science and technology, of any partner of a federal institution engaged in technology that we believed would provide a very good indication of whether or not value for money was being achieved at that time by the organization as well as into the future. Our view was comprehensive.

Mr. Charlie Penson: In doing so, you would expect, I presume, that the organization would set out very clearly what they hoped to achieve, and it would be measured against that.

Mr. Peter Simeoni: Since 1993-94, when Richard and I happened to be the individuals responsible for those early reports, that's precisely the theme we have pursued. We've been building on the idea in a series of reports that the government could engage in science and technology for specific purposes and that there could be more clarity around those purposes. That clarity should lead to a management structure.

In 1996 the government accepted all of what we had to say on that subject, and in its strategy laid out a management framework for doing exactly that. Unfortunately, they've been slow to fully act on their promises, but we remain hopeful.

The Chair: Last question.

Mr. Charlie Penson: Can I just ask you a question in regard to the tax incentive programs for R and D? It looks like there's a conflict between the gentleman from finance here, what he's saying, and the Auditor General. You're saying in article 17 that you conducted an audit on the tax incentive program, and you found that there was significant room for improvement.

Finance has said they had an evaluation on $1.4 billion of annual tax credits, and I gather from what Mr. Berg-Dick was saying that things are fairly satisfactory. So can I just ask where the divide is here?

The Chair: Mr. Flageole.

Mr. Richard Flageole: We reported on the handling of the tax credits in April 2000. Unfortunately, I'm far from being an expert on the topic; neither is Peter. We have a group in the office who are dealing specifically with those complex tax issues. So perhaps I can offer to provide the committee with additional information later in answer to the question.

On the other side, we have an individual in the room who was quite involved with that chapter, so another option would be to invite him to the table. I will leave it open to you. Either we will answer later, or we'll ask Mr. Elkin to....

The Chair: Mr. Berg-Dick has a comment.

Mr. Paul Berg-Dick: I think on a broad perspective the program has been shown to be successful. That doesn't mean it can't be improved. It doesn't mean the administration can't do a better job in terms of what they were set out to do and then in making sure we've been able to achieve those objectives.

I think that's why in the budget 2000, by working with CCRA and having had the benefit of the results of the Auditor General, we came out with a plan to deal with some of the claims that had been going on for a long time period. We have been able to try to deal with those issues as well as to launch a review of the internal software, which again had formed part of that.

So I think I'd distinguish between the broad basis of the program versus some of the specifics of the program. I think it's important that we always be mindful of how we could improve the program and where there have been problems to deal with those.

The Chair: Thank you, Mr. Penson.

Mr. Charlie Penson: Perhaps I just ask the Auditor General's department to respond to the committee. I would like to see that evaluation.

The Chair: I think that's what he said he was going to do.

Mr. Charlie Penson: I guess he asked the question and I would suggest that we do get it.

The Chair: Certainly, Mr. Penson.

Madam Jennings.

[Translation]

Ms. Marlene Jennings: Thank you, Madam Chair. Thank you very much also to the witnesses for their presentations.

As you know, one of the reasons for this round table is the question of productivity. Everyone is aware of the latest news in the newspapers and the media, namely that the productivity rate here in Canada is not very high, especially compared with our neighbour to the South.

My comments are addressed not to the Auditor General but rather to the Canada Customs and Revenue Agency and the Department of Industry in connection with its agency Technology Partnerships Canada and the people with IRAP.

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It's good for us to provide financial support for some companies, especially small- and medium-sized enterprises that want to do research and development in order to find innovative procedures or new products and services. Still, there are some obstacles regarding incentive tax credits.

Mr. Berg-Dick, you said that there had nevertheless been some major improvements in management, standardization of decisions and so on. But this message, this is not the message I hear in my riding, which has quite a large industrial park made up of small- and medium-sized enterprises. If indeed there were major improvements in the management of this program, there must be a lack of communication, because the same question still remains in people's minds. People wonder what the use is of applying for a credit because it can take months, even years before they have an answer. They never know whether their investments are eligible or not. I suggest therefore that you examine the possibility of conducting a publicity campaign about this issue among SMEs.

I turn now to IRAP and Technology Partnerships Canada.

Often projects lead to a product for which the company must subsequently obtain a permit in order to market it. To my knowledge, there are companies that work, for instance, in the biological sector developing biological products to treat, say, pests, etc. They have to get a permit from the Pest Management Regulatory Agency. The process may take a year, or it may take two. In the meantime, the companies remain without answers and they cannot put their product, which is ready to be sold, on the market. They cannot market it. This hinders productivity. The delays encountered before managing to develop a product, putting it on the market and marketing it are part of the full continuum of productivity.

I wonder what you are doing in this regard. You must surely hear about these things from companies in which you have invested and which you have provided with financial support. I cannot believe that you are unaware of the fact that we have federal agencies which represent obstacles. If this does not come under your department, the Department of Industry, what are you doing? What is the Department of Industry doing to force other departments to improve their evaluation and approval process?

The Chair: Ms. Montgomery, do you wish to answer this question?

Ms. Margot Montgomery: I sense a certain danger in answering this question.

I agree that sometimes there are barriers for our SMEs. They are not prepared, they do not plan efficiently for the delays and requirements of our regulatory regime, which is not only Canadian, but global, in reality, because SMEs must...

Ms. Marlene Jennings: I am going to interrupt your briefly. In the sector I have just mentioned...

A voice: It is provincial or national.

Ms. Marlene Jennings: ... they are already on the market. They are already marketed in other countries.

Ms. Margot Montgomery: But they need Canadian approval.

Ms. Marlene Jennings: Yes, that is right.

Ms. Margot Montgomery: There are limits to what we can do to help SMEs that find themselves in such situations. What we try to do is to give them this information as soon as we can. Our relations with our clients, SMEs, last for fairly long periods. They may last between three and ten years, depending on the circumstances and the development of the business concerned. So we try to provide them with information on competitive intelligence, to share this information and encourage them to become informed and make contact as early as possible with the people most likely to help them in their specific situation.

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There is also the role of the industrial associations within the regulatory regimes. We try to encourage the associations to contact their colleagues, SMEs, industries, the industrial world, but we do not have any direct influence on the regulatory regime. When we are invited to do so, we try to make them aware of the difficulties, but there are limits to what we can do.

Ms. Marlene Jennings: But you can still inform your minister that your experience shows, for instance, that it is an obstacle caused by another department, and that that really creates obstacles to the growth of our businesses' productivity in a particular area. Do you do that?

Ms. Margot Montgomery: We do everything we can in specific situations. Yes.

Ms. Marlene Jennings: Thank you, Madam Chair.

The Chair: Thank you, Ms. Jennings.

Mr. Brien, please.

Mr. Pierre Brien: I also wish to come back to the tax credit program. My question is for Mr. Berg-Dick.

As I understand it, the problem consists of the difficulty of having sure notice concerning eligibility for tax credits, not only where I am from, but throughout Quebec and Canada. It is very difficult to encourage people to invest when, with another project, three years prior, they were taxed again because the project was deemed ineligible.

This was true where I am from, in the mining industry and in another area studied by the committee, but it is true also of scientific research and experimental development projects.

What are you doing to improve your process so that when a business uses the credit program, it will not have to pay tax again three years later?

[English]

Mr. Paul Berg-Dick: Again, this is an area where CCRA has recognized that it is very important to get feedback to companies on a timely basis. They have as an objective that they will be able to look at a claim once it's complete and make a determination within 120 days. That's their goal. They have not been able to meet that in the past, but now they're working towards that, and have now been able to achieve that at a higher level.

At the same time, I think it's important that there be clear guidance both to the taxpayer and to CCRA so that both sides know what's going to be eligible or not. That's what this action plan in terms of working with industry has been attempting to do. I think that is positive progress.

Finally, CCRA has been working with small businesses, and actually going out before they undertake R and D, to try to give them a sense as to what would be eligible and what would not be eligible, so they'll know in advance, before they have undertaken the R and D, what the likelihood is of it qualifying for the program. In this way we don't get into the situation where three years after the fact you have a problem.

So I certainly think there are some positive developments on the part of CCRA to try to deal with some of those issues.

[Translation]

Mr. Pierre Brien: I understand your answer. But the problem is exactly the same as when I entered politics, seven years ago. Seven years later, nothing has changed. So much so that if I had asked you this question seven years ago, I think you would have given me the same answer.

How are we to believe that this time the changes will really be made? Because what is eligible and what is not does not always seem to be clear to the department. Moreover, it is not any clearer for the businesses that do not divulge to their investors the risk they are running of having to pay tax again for the investments made.

In an environment that is evolving very quickly, we have a problem of private investment in research and development. I am convinced that the tax system is a powerful tool, but I hope that this correction occurs soon and that, even if there are areas that are not so simple... You said in your presentation that we want certainty. It does not exist at present.

[English]

Mr. Paul Berg-Dick: But it's always difficult to determine, in research and development, the breakdown between when does experimental development stop and regular development continue. That's always difficult to do.

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What has changed is the action plan that has been put together, the fact that they have a group now that's focused in on making sure that those claims are evaluated on a timely basis. With regard to a lot of the problems that had existed in the past—because two years ago I think there had been an agreement that there wasn't clarity in the program as to what was eligible and what wasn't—there have been changes. Certainly from the feedback we're getting from the industry groups—again, it takes time to filter that through wherever—I think there has been progress there.

The Chair: Last question, please.

[Translation]

Mr. Pierre Brien: Mr. Parker, you have a nice transparency there, a nice sheet that you used in your presentation, explaining where the technology partnership program can get involved. My question in twofold. You concentrate mainly on technology, but not necessarily on the technological repercussions affecting traditional sectors of the economy. If I showed that to business people where I come from, to the businesses in the region, I would be laughed at, because a lot of those things do not really apply to them.

Your tool is perceived—and maybe that is the point, but we have to know—as being a tool designed for a few large research companies. It does not seem to be very suited to small- and medium- sized enterprises that wish to do research and development.

I want to understand. Is this a tool designed for big businesses? If it is designed for SMEs, it is very poorly suited to their needs at present. I am convinced that where I am from and in the regions—when I talk about the regions, I do not mean Quebec, the Atlantic Provinces or the West; I am talking about the regions within Quebec—practically no one uses that tool. I am not saying it is not effective, but it does not meet the needs of SMEs and only concerns a few areas of economic activity. So it is not found very often in the traditional sectors of the economy, such as natural resources, where technology is very present.

[English]

Mr. Jeffrey Parker: I think it's fair to say that there has been a concentration in terms of TPC's investment in larger enterprises as opposed to smaller enterprises. Certainly one of the objectives of TPC is to ensure that there is the possibility—the capacity—for small enterprises to have an investment.

When it comes to the sectors of the economy, and when you're talking about whether or not the more traditional sectors of the economy have that opportunity to benefit from TPC, then I would say in terms of the gross amount—the size of investment—there has not been a substantial number that go into the traditional sectors, because traditionally what has happened is that these are not the sectors where they have been focusing in. We have not received applications in terms of the fact that these areas would wish to undertake research and development through to developing new products and new processes.

That said, I can point to TPC's investments in the area of mining, oil and gas, and fisheries. There are a number of investments in the traditional or in the primary sectors of the economy but not substantial numbers.

So in some degree, yes, that's true. And in some degree, TPC is not the instrument that's going to be able to reach out and address each and every small company, which has the opportunity, or which is interested in the opportunity of development in terms of the broadening out of its technology or its platform.

One of the things that we have done to try to compensate for that is to work through NRC—through the IRAP program—where they have a network that is available across the country and a focus that is much more specific in terms of the small and medium-sized enterprises. I think we have a very effective partnership with them that allows for the application of TPC funding to go down to the SME level and more properly address the more traditional parts of the economy coast to coast.

The Chair: Ms. Montgomery, you wish to reply as well.

Ms. Margot Montgomery: Yes.

[Translation]

To add to what Jeffrey has just said, of the 280 projects approved, and mentioned by TPC in its presentation, 188 are projects we classified as SMEs. For these projects, the ceiling is about $2 million. The average contribution that we make is $380,000. The technologies involved are not distributed in the same way as for the rest of TPC. The distribution, for us, is 50% for information technology. That may be in all industries. Information technologies, advanced materials, advanced manufacturing processes are other big fields of investment for us. Aerospace, for instance, does not get SME investments.

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[English]

The Chair: Thank you.

Mr. Bélanger, please.

Mr. Mauril Bélanger: I just want to correct something a colleague mentioned a while ago, that the astronomy and astrophysics group was looking for a motion. That wasn't the case. That motion was an initiative from members on this side, supported by almost everyone on the other side. So it wasn't them looking for that motion.

An hon. member: They were looking for support.

Mr. Mauril Bélanger: As is everybody coming here, but they hadn't asked for it specifically.

[Translation]

My question is for our witnesses. When were you notified that you had to appear today?

[English]

Ms. Margot Montgomery: One week.

Mr. Jeffrey Parker: At least two weeks.

Mr. Mauril Bélanger: Why is it you waited until today for us to get the documents?

Mr. Jeffrey Parker: Can I comment?

Mr. Mauril Bélanger: Yes.

Mr. Jeffrey Parker: Essentially, there was the initial invitation, which suggested there was going to be a round table—a participatory round table. I think it's only over a period of that two weeks that we became aware that there was an expectation that there was going to be a presentation required.

Certainly in my case, I believed that we were going to be part of a discussion back and forth, more than a set of presentations. So as we became aware that there was an expectation for a presentation, then we prepared and provided that.

Mr. Mauril Bélanger: Fair enough.

Madam Chair, I would hope that maybe we could encourage people to send documents ahead of time. And I would like an exchange as opposed to a strict presentation format, for what it's worth.

Now, with regard to the Auditor General's office,

[Translation]

do you make a distinction between basic research and applied research?

Mr. Richard Flageole: Madam Chair, of course, we make this distinction. I think that in the departments, we have the two or the three... After all, it is a...

Mr. Mauril Bélanger: How do you show this distinction, this difference you make in your evaluation methods?

Mr. Richard Flageole: If we examine what we really call research, mission-driven research, I think that the different federal agencies have to do basic research with an ultimate goal. I think we begin with something and it is something that progresses, etc., from there.

Mr. Mauril Bélanger: Not necessarily, no.

Mr. Richard Flageole: I think we could...

Mr. Mauril Bélanger: The ultimate goal is to increase our knowledge.

Mr. Richard Flageole: Precisely.

Mr. Mauril Bélanger: I am trying to find out what measurements you apply to check whether, indeed, we get value for money in basic research, and to know what criteria you use for applied research. Can you tell us the difference among these criteria?

Mr. Richard Flageole: Yes, of course, but, Madam Chair, I wish first to clarify something. Our office does not evaluate the results of the departments' research. We expect the departments to have mechanisms in place to evaluate precisely that.

If we come back briefly to a principle we discussed earlier, we come back to the fundamental fact that we would expect, I think, the departments to have a reasonable idea of what they wish to achieve in conducting research projects, even if they are in a much more basic area of research.

Certainly the level of uncertainty is much greater in this type of thing than in projects that are much closer to applied research or much closer to the marketing of a product. I think that the basic principles we stated among the characteristics of performing organizations apply as much in one context as in another. It is the level of uncertainty that will vary a lot then.

Mr. Mauril Bélanger: I would like to make a comment in closing, Madam Chair.

From listening to the presentations for a few weeks now, I wonder whether we are actually not too inclined towards the private sector and commercial market value where research is concerned. I do not mind this being a component. It is essential to the economic well-being of our country and our country's ability to compete internationally. I have no difficulty with that. But I begin to wonder seriously whether we are not going too far in that direction and whether we are not neglecting the country's ability to do basic research.

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I am somewhat chagrined to see that even the Auditor General seems to be pushing the government in that direction by insisting that there be measures for evaluating basic research, when it is almost impossible to have any. If the raison d'être of basic research is to increase our knowledge, we therefore cannot measure whether this knowledge will have an economic value. It is not up to us to do so. I am beginning to be very concerned by this general tendency that most of the government programs linked to science and technology seem to be taking.

That is the comment I wished to make. I have a final question for Mr. Parker.

[English]

The Chair: Thank you, Mr. Bélanger.

I have Mr. Lastewka and Mr. Penson still on my list.

Mr. Lastewka.

Mr. Walt Lastewka: Thank you very much.

I don't want Mr. Parker to be left out of my questioning, but since TPC made the change with the $30 million going to IRAP and the people on the ground implementing it, I think there's been a lot of success. The only problem I've seen across the country is that you run out of money for your IRAP people too soon because it's too successful, and that's why I want to concentrate on the tax credit system for small business.

I personally think that it's too cumbersome. We have very few small businesses taking advantage of it now because it's almost impossible for them to implement it. I've seen instances with small businesses, those with ten people and under, who get rated by the automotive industry as their top ten suppliers globally, yet they can't take advantage of the financial tax credit system.

Maybe that message hasn't been made loud and clear, but I would hope to get it on the record today. I think the small business tax credit system of the financial department needs to have a complete review. I'm glad to have the Auditor General here, because maybe we're in a position...because 90% of our small businesses, 2.4 million, have ten people or fewer. It's too cumbersome for them to go into the tax credit system.

Maybe there should be a new method for the small business entrepreneur, because a small business can't take on a full-time person to do the paperwork being requested by the financial department. I hear it over and over. Maybe it needs to have a good audit. Why is there only...? I think you mentioned 7,000 or 8,000 firms out of the 2.4 million. Let's say there's only one-third of them in manufacturing. Can you see the unbelievable lack of use of the tax credit system?

Sir, they've given up, and personally I've given up on it, because it's too cumbersome, there's too much paperwork, and there's no direction. When you have a small firm that requires direction quickly, we can't have someone from the finance department or the revenue agency hiring third parties to come and take a look at it at their convenience. I think we have a real disaster in that area, and we haven't wanted to take a look at it.

I would appreciate a copy of your action plan as to how you're going to attack that. I would hope that the Auditor General's department would also take a look at how to make it better.

I'm really concerned about the small business productivity gap, and I think the tax system is in part responsible for the fact that there's a gap there, because many small businesses have just given up. I would ask that you do some work in that area.

I'm glad that we have all four of you here with representatives from the three departments. I see the success in the IRAP program. I see the success of assistance, guidance, direction, and assistance in funding to make things happen. That's why they have so many requests.

I see the exact reverse on the other side. I think we have a problem.

• 1200

The Chair: Mr. Berg-Dick.

Mr. Paul Berg-Dick: As I mentioned earlier, I think there has been increasing effort on the part of CCRA to make a better link to the small business community in terms of making that community aware of the program and also in terms of working with them to determine how they can prepare their claims and fully utilize the program.

I'd be most happy to ask my CCRA colleagues to not only provide you with a copy of the action plan but also to go through what they're doing with respect to small business so you can get a sense as to what activities are ongoing. On the other hand, I think it can always be improved, so perhaps that's something one could look at.

Mr. Walt Lastewka: Maybe we need a shift here. Maybe the tax credit system doesn't apply to small businesses, and we should take that money and move it over to IRAP because they have all the technical people on the floor and they're in and giving direction. I think this is where the Auditor General's office should enter the picture. We have a small business productivity gap. There are a number of reasons for it. With my involvement in small business, I think this is a major reason.

Mr. Paul Berg-Dick: I would only point out that there are a number of...especially in the software area, where this program has been a key element in the firm's success, and the fact is that they do get the credits and are able to use that as a source of financing. Perhaps the links between this program and IRAP could be improved. A better sort of communication and joint working arrangement might well be something we should be looking at.

Mr. Walt Lastewka: We've had situations where the IRAP individual provided all the technical information and so forth for a company, and then that information was given to the tax credit side. Then we waited and waited and waited until we dropped the program. Sir, even if you haven't heard it before, I think there's a very strong message that the tax credit system does not work.

Mr. Paul Berg-Dick: I'll certainly take that back to my CCRA colleagues.

Mr. Walt Lastewka: I'll be glad to give you examples.

Mr. Paul Berg-Dick: I think, to make the link to the CCRA, people are working in that area, and....

The Chair: Okay.

Mr. Flageole and Ms. Montgomery wish to respond as well.

Mr. Richard Flageole: I just want to briefly comment on this. As we reported in our April 2000 chapter—and I think the issue was raised again this morning by another member—we had concerns about the lack of clarity with respect to eligibility for those projects. We had concerns about the thoroughness of the review that should be done when they are assessing the claims. I think we raised questions about the amount of documentation that is necessary to do that.

Again, the department prepared an action plan, as I mention in the opening statement. We will follow up for sure next year on the results of the actions taken by the government, and we will be reporting to Parliament on this.

Mr. Walt Lastewka: I'm not sure there shouldn't be a shift because there are many more small businesses that have three, four, five, or six people than there were before. Maybe the system has to be examined to be made different for those people.

The Chair: Ms. Montgomery, do you wish to respond?

Ms. Margot Montgomery: Yes. I just wanted to mention that I don't have the exact statistic in my head, but I could provide it. We did look at the numbers of IRAP clients who are receiving SRED tax credits, and we were dismayed that it was not a higher percentage. My recollection is that it's something around 48% or 50%.

We have been working very proactively with the team from CCRA to try to align the business process of IRAP and the SRED claim process so the SME that makes a proposal to IRAP for funding and is funded will automatically be compliant as to input to the SRED programs as a sort of paperwork rationalization.

In the same way, we are very conscious of each other's criteria and are trying to ensure that our IRAP ITAs are conveying to the SME client how and where the requirements of CCRA differ from ours. We work together on doing that, though I'm not saying we couldn't do better.

The Chair: Thank you.

Thank you Mr. Lastewka.

I now have Mr. Penson and Mr. Bélanger. I didn't realize they had other questions.

Mr. Penson.

Mr. Charlie Penson: I just have a question for Mr. Parker from TPC. If he doesn't have the information here, I'd be happy if he would just provide it to the committee.

First of all, because there are billions of dollars of public money involved, I would like to know how much money TPC is currently exposed for, how much has been loaned out.

Secondly, Mr. Parker, I would think that you're going to have successes and failures, as any other group does. Can you provide the committee with a list of those clients who have not met their obligations and paid back taxpayer money?

• 1205

Mr. Jeffrey Parker: Certainly I'll provide a list of those clients who either have not been successful, have failed, or have fallen off the table. I don't have that list with me, but I'll certainly provide the committee with the list of clients who—

Mr. Charlie Penson: Specifically, please tell us of those who have not met their repayment obligations.

Mr. Jeffrey Parker: There is some flexibility, and we exercise a lot of discretion on repayment. There are times, for example, when you forecast when the opportunity is going to come, when they're going to have a certain level of revenue that will sort of trigger repayment. Now, if there is a delay in reaching that level of revenue, we will negotiate and we will work with them in shifting the repayment time frame a bit. It's not necessarily a case of saying “On x date you will start repaying, and come hell or high water, that's it”. We have to have the capacity to work with the company, to recognize what's happening in the economy, and to recognize what's happening in the business cycle as well.

So there is flexibility there, but I will provide you with the information on those who are tardy in their repayment.

Mr. Charlie Penson: Maybe I should be asking the Auditor General's department to look into that.

Mr. Jeffrey Parker: Perhaps.

The Chair: Okay, Mr. Penson, those are enough editorial comments.

Mr. Jeffrey Parker: I have one more comment.

The Chair: I was just kidding.

Mr. Jeffrey Parker: Our exposure at this point in time is approximately $1.6 billion of invested money.

The Chair: Okay.

Mr. Bélanger, you had a final question?

Mr. Mauril Bélanger: Yes, Madam Chair.

I just wanted to point out that the chart on page 6, which you glossed over, could be somewhat misleading in that you state that the average investment is three to five years. Yet, if you look at the 1996-97 investments, they stretch out for five years, the 1997-98 investments stretch out for seven years, the 1998-99 for six years, and the 1999-2000 for five years, and that's only because we've met the end of the graph. I suppose you've already charted it out for a few years beyond, so it would seem that this is somewhat misleading.

Mr. Jeffrey Parker: Yes and no. Let me explain. The first statement is correct. There are a large number of small investments—i.e., less than $10 million—which are for three to five years. But if you take a look at the larger investments, particularly investments in aerospace and defence, then they indeed are over a longer time, sometimes as long as 10 to 12 years. That's what's showing there. But on average, in terms of the number of investments we've made, three to five years is the normal length.

Mr. Mauril Bélanger: Is that on average?

Mr. Jeffrey Parker: That's on average.

Mr. Mauril Bélanger: You can do wonderful things with averages.

Thank you.

The Chair: Thank you, Mr. Bélanger.

I want to thank all the witnesses for being here today. We appreciate your presentations, and we appreciate the discussion that's taken place. Please, could you get back to us as quickly as possible with responses to the unanswered questions, and we look forward to meeting with you again in the future.

Thank you. The meeting is now adjourned.