Procurement (including issues and policies): Standing Committee on Government Operations and Estimates—May 29, 2023

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Contracts related to ArriveCAN

Context

The Canada Border Services Agency (CBSA) has identified 45 contracts it used to support the ArriveCAN project. These contracts were identified in CBSA’s response to Order Paper Question (OPQ) 881. Of these 45 contracts, CBSA has confirmed that 30 were awarded by Public Services and Procurement Canada (PSPC) on its behalf.

Suggested response

• PSPC is committed to open, fair and transparent procurement processes, while obtaining the best possible value for Canadian taxpayers
• The CBSA had an urgent requirement for professional services to support the development, integration and maintenance of a new secure application to support its response to the COVID-19 pandemic
• PSPC undertook the procurement and worked closely with the Canada Border Services agency, who is responsible for the management and delivery of the business requirements
• In this case, the requirements were complex and included integrating multiple data sources from across Canada, including passport and public health data
• The CBSA utilized multiple contracts to support the ArriveCAN initiative. These contracts were used, among other things, to support the development, launch and maintenance of ArriveCAN

If pressed on subcontracting:

• Complex information technology (IT) projects often require a diverse number of resources with different expertise and skillsets
• Within the IT industry, it is common for firms to subcontract or collaborate with other suppliers or individuals to address particular IT challenges and solutions. Subcontracting is also commonly observed in other industries and sectors
• In professional services contracts let by PSPC, a contractor may subcontract work unless prohibited by the contract terms. Canada does not have a contractual relationship with any subcontractors
• Subcontracting does not relieve a contractor from any of its obligations under the contract or impose any liability upon Canada to a subcontractor
• All personnel proposed by the contractor to perform the work, including those from its subcontractors, met the security clearance requirements and integrity provisions of the contract prior to commencing work

If pressed on why PSPC will not provide the names of subcontractors:

• For confidentiality reasons, the Government of Canada does not disclose the names of companies who have worked as subcontractors for one of its suppliers, as this is considered third-party information

If pressed on Shared Services Canada’s (SSC) role with ArriveCAN

• SSC assists partners department to host their applications in a data center or in the cloud
• In support to ArriveCAN, SSC has enabled the cloud connectivity and leveraged its contracting vehicle to allow the application to be securely housed in the cloud
• SSC has an established a list of pre-qualified cloud vendors that meet security requirements who can be leveraged by departments to run their applications

If pressed on the fees charged by GCStrategies for managing these contracts

• The rates were reviewed by PSPC officials and were deemed fair and reasonable, based on knowledge of the commodity
• GCStrategies certified that rate(s) for non-competitive contracts were not in excess of the lowest price charged to anyone else, for like quality and quantity services. This certification is subject to government audit
• The rates submitted by GCStrategies for the most recent competitively awarded contract were similar to those offered under the non-competitive contracts
• On October 20, 2022, GCStrategies stated publicly in parliamentary committee testimony that the standard industry markup on rates are anywhere from 15% to 30% depending on the skill set and the type of resources required
• Both overhead and profit are built into the rates that professional services contractors offer. The overhead for typical staffing firms would be expected to contain a recovery of general and administrative costs incurred by the staffing firm such as:
  • facility rent
  • infrastructure
  • labour
  • recruitment
  • marketing

Outsourcing of professional services

Context

There has been recent media attention on federal government spending on professional services contracts, noting a 40% increase between fiscal year 2015 to 2016 and 2020 to 2021. This information was sourced from the Public Accounts of Canada, tabled in the House of Commons on December 14, 2021. The House of Commons Standing Committee on Government Operations and Estimates (OGGO) is currently carrying out a study on this issue. Budget 2023 proposes to reduce spending on consulting, other professional services, and travel by roughly 15% of planned 2023 to 2024 discretionary spending in these areas. This will result in savings of $7.1 billion over 5 years, starting in 2023 to 2024, and $1.7 billion ongoing. The government will focus on targeting these reductions on professional services, particularly management consulting.

Suggested response

• PSPC and SSC are committed to open, fair and transparent procurement processes
• As common service provider, it provides procurement tools to support other departments in advancing policy and program objectives and the departments and agencies are responsible for identifying and defining their requirements
• The decision to hire public servants or to pursue professional services contracts is made by departments and agencies based on multiple factors including the nature and duration of the activity and the availability of specialized skills or knowledge
• The vast majority of PSPC contracts for goods and services are for work that cannot and has not been traditionally carried out by public servants such as construction services, renovation work, or ship building
• SSC works to ensure the operation of secure, modern, and reliable government IT infrastructure and systems
• SSC has robust process that involves assessing all potential options for successful delivery, with a focus on best practices, capacity, and existing solutions

If pressed on the growth in expenditures on professional services:

• Over the past decade, government expenditures on professional services have remained consistent relative to both total government expenditures and the total payroll for public servants

If pressed on SSC’s robust process:

• In order to assess options for successful delivery, SSC determines whether:
  • the solution can be built and operated in-house
  • the use of commercial solutions should be included
  • external expertise is needed to achieve the desired outcome
• Accessing some technologies through contracts enables SSC to provide cutting edge products and services that are aligned with global best practices and offer extensive support and functionality to users
• This practice allows SSC to access services or technologies that are best delivered by industry to provide secure and cost-effective solutions to meet the needs and expectations of a digital government
• SSC leverages large-scale investments that industry has made in other public sectors and private markets, to obtain cost-effective, secure and reliable off-the-shelf products and highly specialized solutions

If pressed on management consultants:

• SSC is committed to providing high quality services to Canadians while ensuring the best value for taxpayers. The procurement of professional services, including management consultant services, is, at times, needed to acquire special expertise
• Work performed can be as diverse as:
  • providing advice on SSC’s technology roadmaps
  • performing a third-party review on a business case, or
  • providing additional support to SSC employees in developing processes (playbooks) and supporting tools for SSC enterprise services
• SSC exercises due diligence when contracting for goods or services. All contracts are to be issued in accordance with the Treasury Board’s policies, as well as regulations, guidelines and procedures

If pressed on reasons for “outsourcing” technologies and work:

• As an example, it would be more costly to deliver and manage satellite services with in-house resources. Such a highly specialized domain where industry excels is better delivered by the private sector
• Another example is the contract for the high-power computer that Environment and Climate Change Canada uses to generate environment and weather forecasts, advisories, and warnings. This is a highly specialized domain that would cost more if delivered internally
• SSC uses temporary professional services to support programs and projects that have defined time periods and require surge capacity for delivery
• When needed, SSC will use additional resources from industry to complement its current program and project staff to support the planning and execution of those programs and projects

Integrity in federal procurement during the COVID-19 pandemic

Context

In the fast-paced and constantly evolving marketplace to secure necessary products and supplies to support the Government of Canada’s response to the pandemic, questions may arise as to the measures that PSPC has in place to protect the integrity of the federal procurement system during this period.

Suggested response

• To help ensure the Government of Canada does business with ethical suppliers, a government-wide integrity regime is in place
• This regime holds suppliers accountable for their misconduct, and also encourages them to cooperate with law enforcement and take corrective action
• PSPC has consistently applied the integrity regime to all procurements in a manner consistent with the Ineligibility and Suspension Policy and no contracts have been awarded to a supplier that is ineligible or suspended under the regime

Procurement of vaccines

Context

PSPC is working with the Public Health Agency of Canada, Health Canada and Innovation, Science and Economic Development Canada, along with the COVID-19 Vaccine Task Force to procure COVID-19 vaccines, therapeutic drugs, and related supplies.

Notes:

• All questions regarding the regulatory review of vaccines should be directed to Health Canada
• All vaccine and therapeutic health-related questions and questions about allocation and distribution should be directed to Public Health Agency of Canada
• All questions on donations should be directed to Global Affairs Canada and Public Health Agency of Canada
• All questions regarding the domestic manufacturing of vaccines should be directed to Innovation, Science and Economic Development Canada
• All questions regarding the regulatory review of vaccines should be directed to Health Canada and Public Health Agency of Canada
• All questions regarding Medicago’s organization and the decision to cease Medicago operations in Canada should be directed to the Mitsubishi Chemical Group
• All questions regarding vaccine expiration should be directed to the Public Health Agency of Canada

Suggested response

• The Government of Canada is committed to protecting the health and safety of everyone in Canada from COVID-19. Since the beginning of the pandemic, the government has worked closely with vaccine suppliers to secure access to safe and effective vaccines
• Since July 2021, Canada has maintained a steady supply of vaccines for every eligible person who wants 1. As of May 5, 2023, approximately 165 million vaccine doses have been brought into Canada
• We continue to work with the Public Health Agency of Canada and suppliers to execute an approach to supply management focused on ensuring sufficient supply of vaccines for Canadians and minimizing wastage of vaccine doses. Several of these contracts remain under active negotiation to reduce or defer doses
• Our vaccine procurement strategy is also based on the best scientific advice available, which includes working with vaccine suppliers to secure new formulations for variants, boosters and pediatrics as they become available and are approved by Health Canada

If pressed on vaccine contracts and deliveries:

• Canada has agreements with Moderna and Pfizer that provide access to a range of products, including pediatrics and boosters and the latest approved adaptations of vaccines
• Canada currently has supply of bivalent vaccines from both Pfizer and Moderna that are effective against multiple COVID-19 variants

If pressed on delivery of pediatric doses:

• As of May 5, 2023, Canada has a supply of 1.86 million doses of Moderna bivalent BA.1 vaccine that can be used for children aged 6 to 11 years
• Canada also has a supply of 0.9 million doses of Pfizer pediatric primary series doses and 0.2 million doses of bivalent BA.4/5 vaccines that can be used as a booster for children aged 5 to 11 years
• In addition, Canada also has a supply of 1.5 million doses of Pfizer’s infant vaccine and 0.7 million doses of Moderna’s vaccine for children aged 6 months to 5 years old. Supplies are expected to be sufficient to meet needs
• Pfizer will deliver 16 million doses in 2023, and 14 million doses in 2024
• Moderna will deliver 18.5 million doses in 2023

If pressed on future Novavax supply and domestic delivery:

• PSPC has an agreement with Novavax to supply vaccines and Canada secured an order of 52 million doses from 2022 to 2024, with options for 24 million additional doses. Of these, 9.7 million doses have been delivered, and the total order has been reduced by 6.3 million doses for a new total of 45.7 million doses. We are working closely with the Public Health Agency of Canada and Novavax to plan the schedule for deliveries of remaining doses
• In February 2021, the Government of Canada announced it had signed a memorandum of understanding with Novavax to pursue the production of its COVID-19 vaccine at the National Research Council of Canada’s Biologics Manufacturing Centre in Montréal. The existing supply agreement enables the government to pursue opportunities for Novavax to produce their COVID-19 vaccine at this facility once it is operational

If pressed on Novavax potentially going out of business:

• Our government’s main priority continues to be keeping Canadians safe. We will continue to monitor the situation regarding Novavax

If pressed on future Medicago Supply:

• Canada and Medicago had already launched discussions to terminate the Advance purchase agreements (APA) by mutual consent prior to the announcement by Mitsubishi as a result of changes in Canada’s needs for vaccine supply, as well as delays to the delivery of the Covifenz® doses. PSPC is proceeding with this mutual termination of the APA with Medicago, which will cease any further or future financial responsibilities

If pressed on future Sanofi supply:

• A contract termination for mutual consent was signed on February 23, 2023 to reduce 6.2 million firm doses to zero

If pressed on the release of vaccine contracts:

• The Government of Canada is committed to transparency and accountability, and has publicly disclosed contracting information to the fullest extent possible that is permitted by contract and law
• This includes working with vaccine suppliers to try to secure their agreement on publicly releasable versions of Canada’s vaccine contracts, while respecting our confidentiality agreements and protecting our negotiating position

If pressed on the details of advance purchase agreements:

• We continue to seek opportunities to be as transparent as possible about our procurements in support of Canada’s COVID-19 response, while respecting confidentiality agreements and protecting our negotiating position
• Officials from my department recently participated in 2 closed sessions with the House Standing Committee on Public Accounts and I appreciate the measures that the committee put in place to ensure that we continue to respect our obligations to the companies and protect their commercial confidential information
• Every contract is different as they reflect specific requests and requirements put forth by the supplier
• PSPC has worked with its vaccine suppliers to secure their agreement on publicly releasable versions of Canada’s vaccine contracts
• These documents fully respect the Access to Information Act, therefore information that is commercially confidential or that could impact Canada’s ability to negotiate future contracts has been protected
• As we have throughout the pandemic, PSPC will continue to openly communicate with Canadians about the work we are doing to support Canada’s pandemic response

Contracts awarded to McKinsey & Company

Note: All questions related to McKinsey’s work on robotic process automation and accelerator services are in a separate question period note (Phoenix IBM and pay stabilization).

Context

There has been recent media and Parliamentary attention related to contracts awarded to McKinsey & Company, and outsourcing more broadly.

Suggested response

• PSPC is committed to open, fair and transparent procurement processes, while obtaining the best possible value for Canadian taxpayers
• As central purchaser for Canada, PSPC awarded 24 contracts to McKinsey & Company since 2011 with a total value of $104.6 million
• Half of the total value of the contracts awarded to McKinsey & Company were awarded through competitive processes. More than 40% of the total value was under a standing offer for specialized services
• The decision to procure professional services to meet operational requirements rests with client departments, which can then request PSPC’s procurement services or departments can award contracts within their own authorities

If pressed on various reviews of contracts to McKinsey & Company:

• As you are aware, on January 11, 2023, the prime minister tasked the president of the Treasury Board and me to undertake a review of contracts awarded to McKinsey & Company
• The review is examining whether the integrity of the procurement process was maintained and complied with government policies and control frameworks
• As part of this process PSPC’s Office of the Chief Audit, Evaluation and Risk has reviewed all contracts awarded to McKinsey by the department, including those awarded on behalf of client departments as a common service provider
• The review determined that overall, the integrity of the procurement process was maintained and compliant with the values and ethics code for the public sector, Directive on Conflict of Interest, and supporting procurement policy instruments and procedures. Specifically, no instances of non-conformity were found with respect to conflict of interest regarding current or former public servants or public office holders as well as McKinsey. However, it also found areas of improvement related to record management and contract administration
• PSPC has accepted all recommendations associated with this audit and has put in place a management action plan
• In addition, my department is currently reviewing all national master standing offers related to benchmarking data analytics and services and will replace these tools in the future with a procurement approach that ensures open, fair and transparent competition as a starting point
• The McKinsey standing offer sunset in February as planned and the remaining standing offers all sunset between February and September 2023
• At my request the Procurement Ombudsman is currently reviewing the procurement processes associated with the award of contracts to McKinsey & Company by all federal departments and agencies
• I welcome these reviews as they will help determine what further adjustments or refinements should be undertaken to continue to strengthen the fairness, openness and transparency of federal procurement practices

If pressed on PSPC issued contracts:

• Of the 24 services contracts awarded by PSPC, 3 contracts were awarded through competition,19 were undertaken as call-ups against a non-competitive standing offer that was established for McKinsey & Company’s benchmarking services and which ended as planned in February 2023, and 2 other sole source contracts, of low dollar value, were awarded outside the standing offer
• All 24 contracts were awarded in 2018 or later. The 3 competitive contracts represent more than half (53%) of the total value of contracts awarded to McKinsey & Company

If pressed on open-ended supply arrangements

• PSPC establishes supply arrangements and standing offers instruments to facilitate access to, and accelerate the procurement of, various goods and services by establishing qualified suppliers. These instruments are not legally binding contracts and do not involve any guarantee of work to suppliers
• The year 2100 is commonly used for these types of arrangements so that our IT system does not inadvertently end the supply arrangement
• The lists of qualified suppliers are refreshed through regular intake processes. Supplier compliance is confirmed on a quarterly basis. In addition, supply arrangements themselves are reviewed on a regular basis, with the most recent review launched in 2019 as part of procurement modernization
• Based on my direction, my officials are currently revising the relevant procedures to ensure that in the future we reflect this kind of arrangement in a way that is more clear

If pressed on the allegations around tax fraud and actions abroad that McKinsey is facing:

• PSPC is aware of the adverse information related to McKinsey & Company and its affiliates. The company’s status under the integrity regime remains unchanged at this time
• Under the Government of Canada’s integrity regime, if a supplier is charged or convicted of one of the offences listed in the Ineligibility and Suspension Policy, the supplier may be suspended or determined to be ineligible to be awarded a contract. A suspension or determination of ineligibility would also be triggered by a foreign offence that is similar to one of the listed offences

If pressed on the allegations around McKinsey conducting lobbying activities with PSPC without registering as a lobbyist group:

• McKinsey & Company, like many suppliers, reached out to PSPC at the onset of the pandemic emergency to offer its assistance
• Companies are responsible for understanding and complying with their obligations under the Lobbying Act

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