Increasing Cost of Computer Systems Outsourcing in the Federal Government

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1 Increasing Cost of Computer Systems Outsourcing in the Federal Government Report September 2009 Professional Institute of the Public Service of Canada Ottawa David Macdonald Page 1 of 33 PIPSC 2009

2 Increasing Cost of Computer Systems Outsourcing in the Federal Government REPORT By David Macdonald, Economist Embryonic Business Technologies For the Professional Institute of the Public Service of Canada September 2009 To obtain more information: National Inquiries Line: Inquiries: Aussi disponible en français This document can be found on-line at under Issues / Publications. The Professional Institute of the Public Service of Canada (PIPSC) was founded in With its 57,000 members, the Institute is the largest union in Canada representing scientists and professionals employed at the federal and some provincial and territorial levels of government. The Institute was founded to protect the interests of professional public employees and became a bargaining agent following the implementation of the Public Service Staff Relations Act (PSSRA) in The Institute is the bargaining agent for more than 41 knowledge-based Groups and negotiates with 27 different employers in seven different jurisdictions. The Institute serves its members with approximately 140 full-time staff in its National Office and Regional Offices in Halifax, Montréal, the National Capital, Toronto, Winnipeg, Edmonton and Vancouver. Professional Institute of the Public Service of Canada 250, chemin Tremblay Road, Ottawa, Ontario K1G 3J8 Tel./Tél.:(613) Page 2 of 33 PIPSC 2009

3 Executive Summary Recent unexpected deficits have focused attention on how the federal government can trim expenditures while maintaining service. Mounting outsourcing costs provide a potential means of doing so. This report examines outsourcing spending on Computer Services (CS), the largest outsourcing category for the federal government. Three separate sources are used and conclusions are supplemented with employee interviews. The value of contracts signed for CS outsourcing has risen dramatically from $250 Million a year in up 93% to $482 Million only three years later. Actual spending on contracts has also jumped substantially from a lower plateau of $520 before 2006 to a new higher plateau of $700 million afterwards. A large discrepancy exists between the winning bids on tenders and the final contract values. Final contract values are often revised upwards significantly from the winning bid suggesting government procurement competitions are a foot in the door instead of a competitive bid. The outsourcing trend is not government-wide but is being driven by four large departments: Canada Revenue Agency (CRA), Department of Public Works and Government Services Canada (PWGSC), Public Safety & Emergency Preparedness and Department of National Defence (DND). These four departments alone make up more than half of all outsourcing spending over the past five years. However, each department has significant fluctuations year to year suggesting that outsourcing costs could be constrained without undue affect on the overall functioning of the department. CS outsourcing spending is also concentrated among firms that provide it. One firm alone, CGI represents 19% of all outsourcing contracts over the past five years. Of the over 1200 companies that provided CS outsourcing, the top 10 firms represent 44% of the outsourcing contract dollars. Outsourcing is likely expanding because there are few constraints to its use. Managers often prefer it because it reduces their workload, although failing to properly oversee contracts is leading to costly amendments. Often it is very difficult to wait the average six months to hire new employees and so outsourcing firms provide a means of bypassing the process. In the process, they also bypass bilingualism, meritocracy and transparency requirements for civil service jobs. While actual CS outsourcing costs are exploding, there are certain hidden costs that should also be considered. As more of the CS workers become outsourcing firm employees instead of employees of the federal government, institutional knowledge increasingly resides outside of the federal government. As capacity is eroded, the federal government becomes more dependent on the small number of private firms that control Computer Systems Outsourcing Page 3 / 33

4 outsourcing. As needs change, it is costly for the government to change contracts due to change fees and departments become less responsive to changing technology and changing needs. At the same time, with more private firms accessing Canadians private information, data security becomes an expanding issue. 1. Provide clear guidance on cutting back CS outsourcing costs; 2. Cut time to hire delays by streamlining HR procedures; 3. Create a bridging mechanism to help transfer outsourcing firm employees into the civil service. However, CS outsourcing is not a forgone conclusion. The Department of Indian and Northern Affairs has managed to radically cut back on outsourcing costs while maintaining service. In order for a larger scale savings on outsourcing to occur, the federal government should: Page 4 of 33 PIPSC 2009

5 Background With the backdrop of massive and unforeseen budget deficits in 2009, there is a renewed interest in the government spending taxpayers money effectively. The civil service is a critical part of that puzzle. Its operation of government departments and ideas on how to streamline services with an on-theground perspective is central to ensuring that stimulus dollars are effectively spent. With a view to keeping costs down in providing federally funded services, some politicians have shown concern to the growing trend of outsourcing throughout the federal civil service. As more and more services are being contracted out, the bill increases to the federal government. In many outsourcing cases, there are federal public service employees who provide a similar service. Contractors and public service employees are often working side by side on the same projects. It is unclear what types of cost savings can be obtained from this arrangement. In some instances of outsourcing, short term contracts can be appropriate. However, as the scale of the contracting out continues along its upward march, it is less and less clear that services that are being contracted out could not be done with existing government employees if given the appropriate mandate. The civil service has three main categories for employment: Indeterminate, Specific Term and Casual. Indeterminate employees are those that have been hired full time not for a specific project but for ongoing work. Specific Term employees are hired on contract for a specific project. Once a specific term employee has worked on contract for more than three years, they automatically become an indeterminate employee. The three year term of continuous service must not contain any point where there was more than a one day gap between contracts. If such a one day gap occurs then the three year clock is reset. That is to say that if someone has worked for three years for the government as a specific term employee then there is likely a need for their services on a longer term basis. Government policy requires that that person be hired as a permanent employee or indeterminate employee. That way the role that that person has played is maintained and the institutional knowledge that they have gained remains within the federal government. Specific Term employees must go through an appointment process similar to indeterminate employees. The final category of Casual employee does not need to go through an appointment process but they can only work a maximum of 90 days in each calendar year. The outsourcing discussed below involves employees that do not fall under any of these three categories. Instead the employees are hired by a private firm that has a contract with the government. In most instances, the employee of the private outsourcing firm does similar if not identical work as other public service employees often Computer Systems Outsourcing Page 5 / 33

6 with a desk onsite at government offices. Outsourcing firm employees are very similar to actual public service employees except that the government is paying a premium to the outsourcing firm and in the interviews conducted for this report no interviewee reported an outsourcing firm employee being paid as much as their public sector colleagues. Ranking the value of contracts for outsourced services reveals that Information Technology Consultants top the list with over $1.67 Billion worth of contracts signed between and Coming in second is Management Consulting at $1.52 Billion over the same period. This report will examine the outsourcing of information technology (IT) and computer services (CS), the most outsourced area in the federal civil service. 2 The advent of extensive CS outsourcing is a recent phenomenon. Ten or twenty ago, CS played a much smaller role for departments. However, even recently most departments provided their CS internally through internal staff. It is only recently that there has been a push to outsource CS. The Department of Public Works and Government Services Canada (PWGSC) has embarked on an interesting experiment in providing Shared 1 Technically Other Professional Services not Elsewhere Specified has a larger total of over $3 billion. However, the category appears to be a catch all for services that have not been categorized elsewhere. Figures based on Proactive Disclosure of contracts over $10,000 listed on all departmental websites. 2 Based on Proactive Disclosure of contracts over $10,000 listed on all departmental websites. Services. In this instance, smaller departments pool their resources and maintain a common group of Computer Service technicians for example. By sharing resources, efficiencies and specializations can develop instead of having each department duplicating their specialized staff. Some departments have moved from providing their CS internally to having PWGSC do it for them and transferring money to pay for it. Often the former department employees are transferred across to PWGSC. In the case of IT, PWGSC introduced the IT Shared Services Organization (IT- SSO) in 2006 and signed up seven departments to pool their IT resources. Five of those departments eventually moved to the new IT-SSO model under PWGSC. However as we will see, private contractors are essentially providing this service on their own for significant sums of money. PWGSC sees this shared services approach as the way forward and wants to sign up more departments to the model. The goal is to move many of those CS workers who formerly worked in individual departments to PWGSC to provided shared IT support to many departments. While this appears to be a novel way of consolidating CS resources, PWGSC is also one of the government s biggest outsourcers as is shown below. Shifting resources to PWGSC without constraints on further outsourcing may be a shell game that merely increases contracting costs instead of consolidating resources. Page 6 of 33 PIPSC 2009

7 Methodology To examine the extent of the outsourcing of Computer Services within the federal civil service four primary sources were employed: the Merx tendering data 3, Proactive Discloser of contracts over $10,000 4, Public Accounts for Professional and Special Services 5 and interviews with Professional Institute of the Public Service of Canada (PIPSC) CS Stewarts, CS managers and employees of outsourcing firms working for the federal government. 6 The Merx database is a public tendering forum primarily for the federal government but also used by other public sector actors. As part of the North American Free Trade Agreement (NAFTA) the federal government is required to provide a transparent tendering process through which companies, whether Canadian or foreign, can bid on any contract for goods or services over $25,000 CDN. As such, all contracts for goods or services that 3 (Accessed July 23, 2009) 4 The Treasury Board Secretariat maintains a list of all departments and agencies with links to their contracts disclosures at (Accessed July 23, 2009) 5 The Department of Public Works and Government Services Canada Maintains the Public Accounts for the latest fiscal year at eng.html (Accessed July 23, 2009). Similar reports are available for past fiscal years through Library and Archives Canada at x.html (Accessed July 23, 2009) 6 The interviews were conducted between May and June CS Stewards were provided for interview by PIPSC. CS Managers and employees of outsourcing firms were not PIPSC members. However, contacts with them were arranged by the PIPSC Stewards. are publically tendered by any federal government department are tendered through Merx. Merx acts as the clearinghouse for all federal government contracts reliably recording the date, winning bidder, winning amount, the nature of the contract and the federal department involved. Contract definitions are quite specific and are directly comparable to the proactive disclosure codes. The awarded contracts are archived on the Merx website and they create a complete record of all outsourcing that was publicly tendered by the federal government. As part of a policy enacted by the Treasury Board in 2004, all government departments and agencies are required to publish all contracts that they have signed over $10,000. This Proactive Disclosure of signed contracts reliably contains the date, amount, department/agency involved, contractee and nature of the contract. The codes that define the nature of each contract are quite specific and are readily comparable to the Merx codes. Although the proactive disclosure data is scattered across all departments and agencies, for the purpose of this report, it has been aggregated into a single database. The Public Accounts of Canada are published by the Department of Public Works and Government Services Canada (PWGSC) on a yearly basis. Various sections of this report examine how departments and agencies spend their funds. Section 3 details how much Computer Systems Outsourcing Page 7 / 33

8 federal departments spent on Professional and Special Services. The latter is separate from spending on grants and separate from spending on the acquisition of land, equipment, buildings and construction projects. The public accounts are exhaustive in terms of tracking actual spending on outsourcing. By contrast, Merx only tracks tendered contracts over $25,000 and Proactive Disclosure only tracks contracts over $10,000 For the purposes of this report, only outsourcing that relates to Computer Services is examined. The Public Accounts are published yearly and represent spending over the government s accounting year from April 1 st to March 31 st. The Merx tenders and proactive disclosures are adjusted to fit the accounting year. Public Account spending on Professional and Special Services is broken up into sub-categories. This report only examines the data under the heading Informatics Service. That heading includes inter-departmental transfers that are removed so that only private sector outsourcing is included. It should be noted that while the Informatics Service category under Public Accounts roughly overlaps with the much more specific categories in the Merx and Proactive Disclosure sections, there is no way to do a detailed match up. As such, the Public Accounts data of what was actually spent may differ from the Merx and Proactive Disclosure sections due to differences in categorization. As such, broad trends revealed by the Public Accounts will be more relevant than detailed comparisons. All categories used to identify CS outsourcing have focused on contracts that provide IT consulting as opposed to those that sell software or hardware. The goal is to identify people providing services to the federal government through private companies instead of the broader scope of other IT related products. In contrast to the Public Accounts, the Merx data and the Proactive Disclosure data are quite comparable and differences between these data sets are almost certainly due to legitimate variances and not difficulties in determining comparable categories. PWGSC has become increasingly involved in providing computer services to federal departments through the IT- SSO initiative. As such, departmental transfers to Public Works for the purpose of Informatics Services have been tracked separately in order to better examine this trend. The most recent Public Accounts data for actual spending is available for the fiscal year. The Proactive Disclosure of signed contracts data starts in and runs through The Merx data of tendered contracts on the other hand is updated daily and so much more recent figures are available. The primary numerical data was supplemented with interviews of one CS manager, seven CS employees (all were PIPSC stewards) and one outsourcing firm employee working alongside public sector employees. Page 8 of 33 PIPSC 2009

9 The Big Trends Chart 1 illustrates that in general, CS outsourcing mirrors the concerns politicians and policy makers have about an increasingly expensive trend. Between and actual spending for CS outsourcing was relatively stable at an average of $520 Million a year. Contracts signed between and ran on average $264 Million a year. The discrepancy between spending and value of contracts signed is due to the broad categories used in the spending and the much more specific ones used for contracts signed. Particularly in and , the differences are due to the purchase of telecom services that would not be considered CS outsourcing. Unfortunately, the spending data does not provide appropriately specific categories to properly filter these telecom services out in a consistent way. The value of the contracts signed likely represents a more accurate reflection of the potential savings represented by the slowing of CS outsourcing. Unfortunately, contract signed can span over various periods, sometimes years. Contract span and payment schedules are not consistently recorded. As such, the full value of the contracts signed is recorded in the year of signing. Given this necessary assumption, the amount spent in a given year may differ from the value of the contract signed in that year if the contract spans more than one year. Starting in 2006, spending on CS jumps to a new plateau of on average $696 million or 34% from the average from Between and , the federal government spent an additional $173 million outsourcing in CS alone. Data has yet to be released for the fiscal year and so it remains unclear whether the new plateau of approximately $700 million a year is being maintained. In contrast to the higher plateau for actual spending data, the value of contracts signed for CS outsourcing has climbed consistently since from $250 Million/year to $482 million/year in , nearly doubling in only three years. Computer Systems Outsourcing Page 9 / 33

10 Chart 1: Overall CS Outsourcing $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $ Actual Spending "Informatic Services" Transfers to PWGSC for CS Merx public tenders Contracts Signed (Proactive Disclosure) At the same time as federal departments were outsourcing more of their CS work to private sector contractors, some departments were also transferring more funds to PWGSC as part of the IT-SSO project. The wave one departments shifted a portion of their CS resources to PWGSC in Instead of providing the service internally or outsourcing to the private sector, these IT-SSO departments were now transferring funds to PWGSC to provide CS instead. In Chart 1, there is a doubling of CS transfers to PWGSC from a total of $23 million in 2005 to $45 million in A large proportion of that increase was due to the new IT-SSO participants: Transport ($6.2 million increase), Health ($2.4 million increase) and Veterans Affairs ($5.6 million increase). 7 Chart 1 illustrates the interesting disconnect between official public tenders through Merx and either actual spending or value of contract signed. It highlights the surprising lack of transparency and the large degree of flexibility departments have to be charged significantly more than the winning bidder for a tender. 7 At present, Veterans Affairs is not currently part of the IT-SSO initiative Page 10 of 33 PIPSC 2009

11 Table 1 below illustrates the significant flexibility departments have to increase the contract value from the original winning bid to a higher final value. This may seem counterintuitive, that one would increase the value above what a company bid in a competitive process. However, as Table 1 illustrates, managers at various levels are given the authority to significantly increase the value of the contract over the original winning bid. In essence, the MERX winning bid becomes the floor but not the ceiling for the final cost of a contract. Likely what is happening is that after a company has won the bid they find additional items that the department wants, that were not fully specified in the tender and argue that the contract value needs to incorporate these new items. Table 1: Approval Amounts for Competitive Service Contracts Position Original Contract Value Approval Contract Amendment Approval Minister 10M 5M ADM 5M 2.5M Director General, RDG s 5M 1M Senior Directors 3.5M 750K Regional Director 2.5M 400K Directors 2.5M 400K Managers 1M 200K Chiefs 400K 100K Sr. CMO s 300K 50K CMO s 200K 25K Contract Officers 100K 15K Buyers 70K 10K SPAs 40K 5K Buying Clerks 10K 2K Source: PWGSC Supply Manual 8 8 Reproduced from table Contract Entry and Amendment Approval Limits SERVICES in PWGSC Supply Manual: Chapter 6- Annex 1 Conditions Imposed on the Approval Authority Limits for Departmental Personnel pg. Annex Computer Systems Outsourcing Page 11 / 33

12 Although the value of signed contracts and the spending on outsourcing has been rising dramatically since 2005, the value of winning bids on the Merx site, the official public tendering site for the federal government, has actually dropped slightly. As shown in Chart 1, the value of CS outsourcing contracts in Merx dropped from $234 million in 2007 to $224 million in 2008 (up from the low of $183 million in 2006). One might expect the Merx tendered amounts to rise in step with the actual spending and the value of contracts signed. Instead, the amount in awarded private sector CS tenders dropped from its high of $343 million in to $224 million in The discrepancy appears to signal that the value of winning bids from the tendering process differs significantly from the value of final contracts that are actually signed. If the Merx public tenders bar (yellow) and the Contract Signed bar (light blue) in Chart 1 are compared they are clearly diverging. The Contracts Signed bar is on a clear upward path with the Merx bars flatlining for the past several years. By , the value of the contracts signed is more than twice the value of the winning bids. The trend of awarding a tender and then turning around and signing a contract worth significantly more has been occurring since at least Moreover, the gap between the winning tender bid and the actual contract value appears to be growing rapidly with showing the largest discrepancy so far. With contract value 115% higher than winning bid value by , the winning bid amounts from the tendering process start to lose their meaning. Departments have significant discretion when it comes to modifying terms between a winning bid on Merx and the final contract. Contracts are often tendered for a short period, a year for instance, but can then be renewed for many more periods afterwards. The winning bid value will only reflect the first year but the contract value will represent all the renewals of the original winning bid. The value of a contract can also be increased by significant amounts without going back to tender. At the higher levels, contract values can be increased by 50% without requiring the department to go back to treasury board to seek approval and possibly have the changes go to tender on MERX. In addition to changing the value of a winning bid before the contract is signed, many tenders are negotiated as Standing offers meaning that instead of the aggregate contract value being negotiated, an hourly wage per person is negotiated. The final aggregate amount is not known at the bidding stage. For instance, outsourcing firms might compete to provide additional CS technicians to staff a computer helpdesk. The firms would not compete on the aggregate value of the contract but only on what they would charge the department per hour to provide an additional help-desk technician. The data suggests that tendering through Merx may be a foot in the door for outsourcing companies. They then have considerable leeway to increase the final contract values from their winning bid in the Merx tendering process. It is unclear how much of each of these factors is contributing to the aggregate value of Page 12 of 33 PIPSC 2009

13 won bids being only half of the sum value of final contracts signed, but a concerning discrepancy certainly exists. Of the three data sources, the value of contracts signed appears to be truest reflection of potential savings from outsourcing. Merx winning bids appears to be a floor and not a ceiling for spending on CS services. The amount actually spent as recorded in the Public Accounts likely overestimates the value of outsourced CS as its categorization is slightly too broad for that level of specificity. From this point onward, the value of contracts signed will be used as a proxy for CS outsourcing spending. Computer Systems Outsourcing Page 13 / 33

14 Contracting Out by Department CS outsourcing has seen a clear uptick since Table 2 details the totals spent on outsourcing by any department spending over $50 million total between fiscal year and fiscal year As well, any agency within the department that spent more than $10 million total over the same period is also included. The Canada Revenue Agency (CRA), PWGSC, the Department of Public Safety & Emergency Preparedness and the Department of National Defence (DND) are spending significantly more than other departments on outsourcing CS. Those four departments alone have spent close to $900 million in CS outsourcing over the past five years. In fact, put together those four departments have spent more than all the other departments combined. While three of the four departments have little differentiation on their underlying agencies, the Department of Public Safety and Emergency Preparedness contains three large agencies that are broken out in Table 2. Canada Border Services Agency alone would rank 5 th among departments after DND if it was separated from its parent department. Both Corrections Service and the RCMP also outsource a significant amount of their CS work instead of accomplishing it in-house. Page 14 of 33 PIPSC 2009

15 Table 2: Total CS Outsourcing by Department between FY and FY Department Signed Contract Value Number of Signed Contracts Average Contract Value CANADA REVENUE AGENCY $276,426, $166,321 PUBLIC WORKS AND GOVERNMENT SERVICES $259,617, $76,201 PUBLIC SAFETY AND EMERGENCY PREPAREDNESS $212,830, $117,456 Canada Border Services Agency (CBSA) $111,473,812 Correctional Service of Canada $53,491,253 Royal Canadian Mounted Police (RCMP) $43,612,668 NATIONAL DEFENCE $143,798, $249,649 INDUSTRY $100,678, $73,115 Industry Canada $64,545,045 Statistics Canada $17,916,140 National Research Council Canada $11,266,505 AGRICULTURE AND AGRI-FOOD $86,220, $98,990 Agriculture and Agri-Food Canada $67,174,675 Canadian Food Inspection Agency $19,045,947 TRANSPORT $72,390, $116,196 FOREIGN AFFAIRS AND INTERNATIONAL TRADE $68,818, $67,403 Foreign Affairs Canada $55,042,843 Canadian International Development Agency $13,404,044 PRIVY COUNCIL $61,740, $131,643 Elections Canada $57,278,927 CITIZENSHIP AND IMMIGRATION $58,914, $133,292 HUMAN RESOURCES AND SKILLS DEVELOPMENT $56,398, $80,225 Human Resources and Social Development Canada (HRSDC) $30,038,888 Service Canada $25,989,695 Source: Proactive Disclosure 9 9 Based on all contracts signed by PWGSC under the Proactive Disclosure policy between and in the category of Information Technology Consulting and other similar categories. Computer Systems Outsourcing Page 15 / 33

16 The Canada Revenue Agency (CRA), Department of Public Works and Government Services Canada (PWGSC) and the Department of Public Safety & Emergency Preparedness are all within the $200 million range for money spent on CS outsourcing over the past five years. However, PWGSC has signed significantly more contracts over that period which has driven down its average contract size to just over $76,000 per contract. The other two departments have significantly fewer contracts signed meaning the average value per contract is much higher, at well over $100,000 per contract. DND is in the mid $100 million range in total CS outsourcing over the past five years. Of the top five it has significantly fewer contracts signed at just under 600 since With so few contracts signed for such a big outsourcer, DND has by far the highest average cost per contract at just under $250,000. Of all the departments either listed in Table 2 or not, DND has by far the highest average contract cost. The next closest is CRA which pays on average $166,321 per contract or approximately $84,000 less per outsourced contract compared to DND. While the ranking in Table 2 appears to show a clear differentiation between departments Chart 2 demonstrates that spending on CS is quite variable year to year for the biggest outsourcing departments. Departments appear to have a large degree of flexibility in how much they outsource year to year. In all cases though there does appear to be a floor that departments outsource every year. Chart 2: CS Outsourcing at the Canada Revenue Agency CS Outsourcing at CRA $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $ Source: Proactive Disclosure Page 16 of 33 PIPSC 2009

17 While the CRA has spent the most on outsourcing CS since 2004, much of that spending is concentrated in contracts signed in the fiscal year as Chart 2 shows. It is likely that with such a large spike, the contributing contracts will span several years. The spike in the fiscal year is largely due to a jump contract values in the first quarter with CGI Information Systems. Interestingly, much of the increase in that quarter is due to CRA retroactively amending their contract disclosures almost two years later to a higher amount spent instead of the original value. Many of the contracts signed in Q were repeatedly revised with higher values. The CRA appears to have a floor of outsourcing spending of at least $30 million a year (with a slight exception in of $20 million). As was noted above, departments have a significant degree of flexibility to increase the value of their signed contracts. As illustrated with the CRA, departments are in fact doing this. In the case of the CRA, they are doing it retroactively long after the original contract was signed. With this sort of revisionist history occurring, the original contract value is more of a broad estimate of the final value the government will pay rather than an upper limit. Chart 3: CS Outsourcing at Public Works and Government Services Canada CS Outsourcing at PWGSC $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $ Source: Proactive Disclosure Page 17 of 33 PIPSC 2009

18 In Chart 3, PWGSC also shows a spike in outsource spending in Unlike the CRA, the PWGSC increase was not due to a particular company or small set of contracts driving up the costs. Instead, there were a record number of contracts signed in the first quarter of 2008 significantly driving up the CS costs. In all of PWGSC signed 277 CS outsourcing contracts, however, in only the first three months of the department signed 715 contracts significantly pushing up their outsourcing costs for that year. Over the course of the five years of data, PWGSC is consistently paying at least $40 million a year in CS outsourcing (with the exception of ). Chart 4: CS Outsourcing at Public Safety and Emergency Preparedness CS Outsourcing at Public Safety and Emergency Preparedness $60,000,000 $50,000,000 $40,000,000 $30,000,000 RCMP Correctional Service Canada Border Services $20,000,000 $10,000,000 $ Source: Proactive Disclosure The Department of Public Safety and Emergency Preparedness in Chart 4 is broken down into its major constituent parts: Canada Border Services, Correctional Services and the RCMP. In each of these smaller sections there are variations from year to year. Canada Border Services for its part sees a large increase in , after a fairly small amount spent in The costs were driven up by multiple contracts signed with Sapphire Technologies, Emerion Inc and Veritaaq Technology House. In general, the Department of Public Safety and Emergency Preparedness appears to be spending a minimum of approximately $40 million a year on CS outsourcing (with the exception of ). Page 18 of 33 PIPSC 2009

19 Chart 5: CS Outsourcing at Department of National Defence CS Outsourcing at DND $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $ Source: Proactive Disclosure DND, having the fourth largest outsourcing bill has a lower minimum outsourcing cost of approximately $20 million a year. CS outsourcing costs jumps substantially in Four contracts signed late in the fourth quarter of totalling over $14 million significantly pushing up CS outsourcing costs for the year. Computer Systems Outsourcing Page 19 / 33

20 Outsourcing by Company The costs of outsourcing CS functions from the public service have been increasing but there are very few companies that benefit from this additional public cost. The companies receiving the vast majority of the CS outsourcing dollars are highly concentrated. Table 3 details the top ten companies ranked by the amount they received from the federal government for CS outsourcing between and One company, CGI provided $309 million in CS outsourcing over the past five years. It received almost four times more public dollars than the next highest ranked competitor IBM. CGI alone represents 19% of all CS outsourcing dollars paid by the federal government since It should be noted that this outsourcing it for service based consulting not for providing hardware or software. CGI is providing people to solve government IT problems. With a single company controlling a significant portion of government CS operations, there is likely corresponding influence that comes along with it. As CGI employees essentially working for the federal government gain more knowledge of government IT systems, CGI retains that knowledge, not the federal government. With such a large proportion falling to just one company, it appears to have become the government s defacto IT- SSO department. From the Public Accounts data approximately $20 million a year is being transferred to PWGSC to administer its IT shared services initiative. On average over the past five years, CGI alone has received over $60 million a year making it three times larger than the IT shared services initiative. However, CGI does not have to abide by any governmental policies on fair hiring practices. As well, there is no oversight as to how money is spent to make sure that a significant portion of this money is not merely enriching shareholders instead of providing value to Canadian tax payers. CGI and other major outsourcing companies are receiving so many taxpayer dollars that they are becoming unreviewed departments that cost more year after year. Page 20 of 33 PIPSC 2009

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