Think Small for Big Changes
LOUISE MERCIER-JOHNSON
© 2008 FrontLine Defence (Vol 5, No 1)

In December 2000, Public Works and Government Services Canada (PWGSC) issued a draft Request for Proposal (RFP) for Government On-Line – a major government initiative involving 28 federal departments and agencies. Intended to put Government Services on the web over a period of 4 years, the price tag of the project was expected to be in the hundreds of millions of dollars.

According to Michael Asner, author of the RFP Report and an internationally recognized procurement expert, “a week after the draft RFP was issued – from BC to Newfoundland – protests were being made to the then Ministers of PWGSC Minister, Alfonso Gagliano, and Industry Minister, Brian Tobin.” The protests were in reaction to the new tone of what was procurement reform of sorts, and the RFP release was meant to consolidate all the smaller government contracts to align the procurement system.
 
 
January 2008 – Master Corporal Anouk Beaudet (left) brings a young Afghan girl to Captain Hélène Lescelleur for treatment. Personnel from the joint Canadian-led medical and dental ­services hospital are operating a free clinic today in the city of Spin Bolduk. (PHOTO: Cpl Simon Duchesne, QG Afg Roto 4)

The protesting organizations claimed that “…unless immediate action is taken, the majority of these opportunities will likely go to large national or multi-national IT corporations.”

As with most large capital procurements of defence and aerospace capability, the government must consider the fine line between immediate and future operational requirements of the Canadian Forces and the need to re-invest in the economic future of Canada.

A strong investment and strategic approach to developing and maintaining an indigenous industrial capability would provide Canada with the ability to:

  • Maintain and grow a sustainable indigenous industry for the future support and upgrades to fleets of tanks, trucks, ships, aircraft and critical information systems;
  • Support and encourage innovation and excellence in new products and services;
  • Develop high technological aerospace and defence centric capabilities;
  • Enhance the global competitiveness of Canadian aerospace, defence, space and security companies; and
  • Foster collaboration between industry, government, universities and research and development establishments.

Recommendations to the ministers at the time of the protest led by Atlantic Canada, strongly advised that a form of “set-aside” be used to ensure that at least some portion of the work went to small business. According to Asner, “the most vocal and organized protest was from the Information Technology Association of Prince Edward Island (ITAP).

Representing the association and ­others, Terry Posylek of ITAP sent a letter to Minister Tobin reminding him that “small- and medium-sized businesses (SMBs) are the heart and soul of entrepreneurship, innovation and economic growth in Canada…”

In 2008, almost eight years later, the same premise of small business as the engine of growth remains true, demonstrated by the explosive growth of the Canadian Association of Defence and Security Industry (CADSI) that has been dominated by small-medium sized businesses. CADSI President, Tim Page, ­confirms that “ the majority of CADSI’s growing membership has been from small and medium sized companies looking to sell technology solutions to Canada’s defence and security community.” This reality may be primarily due to the fact that direct access to the market place is limited at best.

Set-asides are powerful tools of public policy, but to date have been resisted by Canada’s government. There has been little or no focus on small business, despite conservative estimates that small business represents 90% of CADSI’s membership (a reflection of the industry) and employ tens of thousands of Canadians in communities across Canada.

For the 94-96 Report of the Committee on Small Business to the NAFTA Free Trade Commission, the NAFTA Government Procurement working group agreed that each committee would be composed solely of government officials (Canada’s included Foreign Affairs, Public Works, Industry Canada and Treasury Board), although each country emphasized its intention to consult closely with its small business community regarding the committee’s work.

In accordance with the NAFTA agreement, within the text of the agreement, members agreed that the main emphasis of the Committee would be:

  • The identification of available opportunities for the training of small business personnel in government procurement procedures;
  • Identification of small businesses interested in becoming trading partners of small business in the territory of another party;
  • Development of database of small businesses in the territory for use by entities of another Party wishing to procure from small business programs;
  • Consultations regarding the factors that each Party uses in establishing its criteria for eligibility for any small business programs; and
  • Activities to address any related matter. 

Apart from a modest requirement from Industry Canada for a voluntary set-aside for small business, the current challenge for SMBs is that Canada provides virtually no support for the growth or sustainment of its small business capability expansion.
 
Indeed, there is a more stringent requirement for Aboriginal set-asides, which has substantially raised the profile of Aboriginal companies – proof that set-asides work.

Without a strategic approach to supporting small businesses, the common strategy to date appears to grow a company to a critical stage of corporate development, then sell the entire capability to an off-shore large firm, thus introducing ITAR restrictions to what was once, a home grown Canadian capability.

Major procurements currently represent over $10B of expenditures by the Canadian government. Without a Small Business Office to provide guidance or improved access to information, SMBs are impeded from participating in large government procurements. Mexico and the United States, on the other hand, have both created mandatory set-asides for small businesses that have benefited those countries with a growing indigenous capability ranging from IT capability to advanced microwave technologies.

Despite a firmly held belief that small businesses in Canada grow and develop the next generation of emerging technologies, small businesses seem to be relegated to second class status as they face regular challenges of:
 

  • Difficulty in accessing current ­procurements based on how they’re packaged by the government

– With the streamlining of procurement to single level of responsibility like large standing offers and OWSM (Optimized Weapon System Management) style programs, large complex programs have been created that are beyond the reach of small business groups

  • Limited access to information about major procurement programs

– Only Primes are given document access.

– Primes are not motivated to work with small business, as demonstrated by their propensity to ‘make it’ rather than ‘buy it’ approach which increases their company workshares.

  • IRB set asides that have limited value to small businesses

– Primes are mandated to identify 60% of 100% mandatory Canadian IRB content; with typically less than 4 months to get companies under contract, these time restraints force Primes to focus on large scale IRB’s that are ill-suited to smaller output capabilities of SMBs.

– Primes take a ‘bigger bang for the buck’ approach, typically committing a pre-existing supply chain to future contracts because it’s the fastest, least-risky approach to securing IRB mandatories.

  • Little or no focus by any government agency to provide access, guidance or direction to small businesses on a complex expensive government process.
     
  • Little or no government direction as to best approaches to work with large complex system integrators (SI’s).
     
  • Industry associations provide limited support to small businesses as representatives from the large companies dominate Boards and Committee Chairs where government primarily interacts as a single point of contact.

Without a mandatory program dedicated to the protection and growth of small businesses in Canada, there is little opportunity to foster the growth of SMBs in the defence sector. Will Canadianism lose out in the long run?

In the year 2000, during the turmoil over the Government On-Line program, PWGSC accurately responded to protesting organizations that one department could not create a set-aside program – explaining that, in accordance with Annex 1001.2b of NAFTA, only the Government of Canada can introduce set-asides, not a single Ministry.

With an overhaul of the entire procurement system unlikely, small incremental adjustments could be a way ahead – protecting and growing small business in accordance with the spirit of the NAFTA working group. The development of a Small Business Office, potentially under the Secretariat of Small Business within Industry Canada, coupled with an ‘IRB like’ mandatory for Small Business set-asides (similar to those created by Mexico and the United States), would provide additional opportunities to grow indigenous capabilities in the near term.

SMB access to government contracts to build “Made in Canada” capability is fundamental to the growth and long term viability of this important sector within the Canadian economy. A Small Business Office would create what currently does not exist – access to that market place.

As an internal agency responsible for describing and defining government processes to outside agencies, such an office could create a natural internal mechanism for the Industry Minister to monitor industrial growth while providing a quick litmus test to the working relationship between various government departments, associations and industry.

A mandatory 10% set-aside for Small Businesses would align Canada’s investment strategy within the range of their NAFTA partners’ successful Small Business set-asides while facilitating growth in a key Canadian industrial ­sector – defence and aerospace.
 
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Louise Mercier is Vice President, Government Relations at Edgewater Computer Systems, Inc. in Kanata, Ontario.
© Frontline Defence 2008

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