OGGO Committee Report
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GOVERNMENT RESPONSE TO THE THIRD REPORT OF THE STANDING COMMITTEE ON GOVERNMENT OPERATIONS AND ESTIMATES: Effectiveness of the Office of Small and Medium Enterprises and the Canadian Innovation Commercialization Program Introduction The Government of Canada is pleased to respond to the Standing Committee on Government Operations and Estimates’ report titled “Effectiveness of the Office of Small and Medium Enterprises and the Canadian Innovation Commercialization Program”. Public Works and Government Services handles over 80 percent of all government procurement, awarding $16.6 billion dollars worth of contracts in fiscal year 2010-2011. On average, Public Works and Government Services Canada awards over 40 percent of all domestic contracts to Canadian small and medium enterprises. For domestic contracts valued up to $1 million, this percentage rises to 75 percent. The Government recognizes the vital role that small and medium enterprises play in Canada’s economy and within government procurement. In Canada, small and medium enterprises account for more than 98 percent of businesses, represent more than 60 percent of jobs, and in the last ten years have been responsible for more than 50 percent of all job creation. The June 3, 2011 Speech from the Throne and Budget 2011 both reaffirmed the Government’s commitment to support small and medium enterprises and stressed the need to reduce red tape. Canadian businesses, especially small and medium enterprises, face a number of barriers that prevent them from participating in federal procurement. For example, the Canadian Federation of Independent Business in its June 2011 report “Big Opportunities, Bigger Challenges: Examining SME Access to Federal Procurement” identified a number of challenges small and medium enterprises face. These include late payment, onerous paperwork, narrow contract specifications, and bundling of contracts. In addition, the Government is committed to reducing barriers to Canadian businesses with the formation of the Red Tape Reduction Committee. The current economic downturn has made it increasingly difficult for small and medium enterprises to gain access to new business opportunities. These challenges are more significant for Canadian businesses attempting to bring their innovative goods and services to the market. Investment in research and development has become scarce with fewer investors willing to assume the risks in a time of uncertainty. The Government, through programs targeting innovation, can complement private investments. The 2011 report titled ‘Innovation Canada: A Call to Action’, which resulted from the review of federal support for research and development chaired by Tom Jenkins, points to the important role federal procurement has in supporting and nurturing innovation. The report recommends a number of ways public procurement can support innovation. These included making innovation an objective of public procurement as well as basing procurements on a description of need to be met rather than detailed specifications. The report notes: “Public sector procurement and related programming should be used to create opportunity and demand for leading-edge goods, services and technologies from Canadian suppliers. This will foster the development of innovative and globally competitive Canadian companies while also stimulating innovation and greater productivity in the delivery of public sector goods and services.” The Office of Small and Medium Enterprises and the Canadian Innovation Commercialization Program are two elements of a greater effort by Public Works and Government Services Canada to create more modern and responsive procurement processes that are efficient, service-oriented, and focused on the needs of stakeholders. The Office of Small and Medium Enterprises was established in 2005 to advocate on behalf of small and medium enterprises in federal procurement. The Office has a multi-faceted approach to increase small and medium enterprises’ access to federal procurement, reduce barriers, simplify the contracting process and provide training and education to suppliers interested in doing business with the government. Since 2005, through national headquarters and its regional presence, the Office has assisted over 140,000 individuals and suppliers interested in doing business with the government through seminars, trade shows, email inquiries, a 1-800 line, and meetings. To further support its outreach to suppliers, the Office launched the buyandsell.gc.ca website in 2010 to consolidate procurement information across government. Buyandsell.gc.ca provides businesses with information written in plain language to encourage participation in federal procurement opportunities. In addition, the website provides access to data such as the Standing Offer Index, in support of Public Works and Government Services Canada’s commitment to fair, open and transparent procurement. To date, the buyandsell.gc.ca website has had over 230,000 visitors. Canadian businesses have voiced concern over the lack of innovations being procured and used by the federal government. Traditional procurement defines specific products and services required and does not focus on new innovations. To bridge the “pre-commercialization gap” that exists for innovative businesses entering the marketplace, the Office designed and operates the Canadian Innovation Commercialization Program. Announced in Budget 2010 as a two-year pilot, the program supports Canadian businesses in commercializing their innovations. Through the program’s two Calls for Proposals, 710 proposals were received. To date, 64 projects have been pre-qualified. Examples of pre-qualified innovations include a more efficient generator that has received private sector interest and LED street lights that use less energy and reduce greenhouse gas emissions. The program is supported by a national outreach strategy that has reached over 14,000 individuals at 400 events. The Government appreciates the Committee’s report and provides the following responses to address each of the Committee’s recommendations. Recommendation 1 The Committee recommends that the government study the possibility of ensuring greater independence in the governance of the Office of Small and Medium Enterprises. Response The Government of Canada recognizes the importance of ensuring the effectiveness of the Office of Small and Medium Enterprises' activities. Witnesses offered differing perspectives on where the Office should be located to most effectively serve small and medium enterprises. Suggestions included that the Office be at arms length to procurement operations, be moved to another government department or be given greater autonomy within its current structure. There was no consensus on this issue. The Government recognizes the importance of transparency in the activities and impact of the Office of Small and Medium Enterprises. The Government believes that the Office of Small and Medium Enterprises is most effective at influencing federal public procurement from within the Department of Public Works and Government Services Canada where it has direct access to procurement decision-makers. As it has built its body of experience, the Office continues to evolve to increase its influence. Recommendation 2 The Committee recommends that the Department of Public Works and Government Services and the Office of Small and Medium Enterprises consider developing a policy framework for bundling of contracts accompanied by guidelines for federal procurement staff to help them determine the types of contract that should be bundled. Response The Government recognizes the concerns raised by the Committee regarding contract bundling and the potential consequences for both industry and the Government. Contract bundling in federal procurement is a longstanding concern of small and medium enterprises. The consolidation of requirements to leverage the buying power of the government can be an appropriate and effective procurement strategy to obtain best value for Canadians. In specific scenarios, such as goods or services that are naturally supplied together, bundling can best reflect the structure of an industry and take advantage of economies of scale. In other circumstances, goods and services are not naturally supplied together, and contracting bundling can create barriers and reduce access to federal procurement opportunities, especially for small and medium enterprises. The Department of Public Works and Government Services has introduced a process to develop National Goods and Services Procurement Strategies. The ongoing development of these strategies includes in-depth reviews of the way the government purchases certain categories of commonly procured goods and services. This process includes extensive consultation both within government and with industry to strike the best balance between the potential advantages of bundling, and the appropriate structure for the specific industry to ensure fair, open access to federal procurement. Recommendation 3 The Committee recommends that the Department of Public Works and Government Services consider making the Canadian Innovation Commercialization Program permanent in order to further stimulate innovation in Canada if it is possible in the current reality. Response Introduced in Budget 2010, the Canadian Innovation Commercialization Program is a two-year pilot that is designed to assist Canadian businesses in commercializing their innovative pre-commercial goods and services. Through a competitive procurement process, the program provides pre-qualified businesses an opportunity to have their innovations tested and evaluated by the Government who serves as a reputable first customer. Providing real-world feedback to participating businesses can assist them through the final stages of research and development and into the marketplace. The Government as a reputable first customer has the potential to open new opportunities for pre-qualified businesses in the private and public sectors. The approach of the program has been well received by industry and has generated interest from other jurisdictions, including Australia, Chile, the United States of America and China. The Government is looking to adapt the lessons learned and apply them to the standard procurement process. As the program’s two-year pilot nears completion, the Government will consider how it will proceed with the Canadian Innovation Commercialization Program and assess the effectiveness of the program in meeting the Government’s objectives. Input provided by the Committee will be integrated into the overall assessment of the pilot program. Recommendation 4 The Committee recommends that the Department of Public Works and Government Services takes appropriate measures to find a balance between industry, academic and other non-private sector experts to ensure that perceptions of conflict of interest are mitigated. Response The Government recognizes the concerns raised about a perceived conflict of interest related to businesses participating in the Canadian Innovation Commercialization Program as a result of the involvement of private sector evaluators. Currently, the program uses a three-stage approach designed to manage the quantity of bids and wide range of innovations submitted:
At stage three of the process, the selection committee that validates the pre-qualified innovations selected consists of private and public sector experts, of which at least 70% are from the private sector. Representatives are chosen based on their knowledge of and experience in innovation and commercialization across multiple sectors. While this approach allows for greater involvement of industry, concerns have been raised regarding the access provided to participating industry experts and the potential conflict of interest. In consideration of this, all members are required to sign non-disclosure and conflict of interest agreements. Should a member have a conflict of interest with a proposal, they are required to remove themselves from the process related to that proposal. The Government will continue to provide a balance between the inclusion of academic, private and public sector expertise while ensuring a fair, open and transparent evaluation and validation process. The membership of the selection committee is continuously evolving to achieve this balance. Conflict of interest considerations will continue to be a priority in the management of the selection committee. Conclusion The Government firmly believes in the value that Canadian innovations and small and medium enterprises contribute to federal procurement and the economy as a whole. By taking concrete steps to help small and medium enterprises participate fully in public procurement and encourage innovation through procurement the Government can promote sound financial stewardship in public procurement, support a vibrant small and medium enterprise community and nurture Canadian innovation. The Government appreciates the efforts of the Committee and is committed to taking action on the recommendations presented. |