Ottawa’s annual spending on outsourcing contracts has climbed by 24 per cent, records show, even as total federal expenditure eased last year from its pandemic peak.
Outsourcing increased to $14.6-billion, 74-per-cent higher than when the Liberals promised in 2015 to cut back on the use of external consultants.
The outsourcing figures are contained in the recently released public accounts for the 2021-22 fiscal year, which ended March 31. For context, program expenses for the government as a whole were down 23 per cent from the previous fiscal year, when pandemic-related spending was at its highest point.
The rise in outsourcing of federal work has coincided with a 24-per-cent increase in the size of the federal public service, from 257,034 employees in 2015 to 319,601 in 2021.
Senior federal officials from Treasury Board, Shared Services, and Public Works and Government Services appeared last month as part of the House of Commons committee on government operations study on outsourcing and were asked to explain the rising costs. They said the decision to outsource is made by each department.
Mollie Royds, an associate assistant deputy minister for procurement with Public Works, said outsourcing is needed to obtain special skills, “including skill shortages in information technology areas of expertise, which are in high demand across the government and the private sector.”
The new outsourcing figures show an acceleration of a trend reported on in January by The Globe and Mail – which has also covered rising costs related to a variety of specific outsourcing projects in the IT sector. Examples include the fact that IBM has received more than $650-million in contract work related to the troubled Phoenix pay system after a 2022 contract extension with the U.S.-based tech giant.
Another report found that the flow of federal tax dollars to global consulting firm McKinsey & Company has increased steadily each year since the Liberals formed government seven years ago, from nearly no funding to $17.2-million in 2020-21.
The latest public accounts show another big jump: McKinsey received $32.5-million in contract work in 2021-22, an 89-per-cent increase.
The Globe was also the first to report that total spending to create and maintain the ArriveCan app is on pace to reach $54-million, more than double what the government recently said was spent. Conservative Leader Pierre Poilievre put forward a motion Tuesday calling on the Auditor General to prioritize an audit of the ArriveCan app spending. The motion will be put to a vote Wednesday.
The company that received the most ArriveCan-related outsourcing work, GCstrategies, is a two-person business with no standalone office. It has deals with several government departments and relies on subcontractors to deliver on its IT services contracts.
The public accounts show the total value of federal tax dollars flowing to GCstrategies has climbed steadily from less than $500,000 in 2016-17 to $18-million last year, or more than $46-million over the past six years.
After these Globe reports, the Commons committee on government operations launched separate studies into federal outsourcing and the cost of the ArriveCan app specifically.
The committee began its ArriveCan study by hearing from GCstrategies’ two partners, Darren Anthony and Kristian Firth. During their testimony, they told MPs they charge a commission of between 15 per cent and 30 per cent of the total value of federal contracts.
Mr. Firth said the company’s work specifically related to the app is worth about $4.5-million a year, or $9-million over two years.
NDP MP Gord Johns asked the two men whether their commission on ArriveCan was closer to 30 per cent or 15 per cent, but Mr. Firth said he couldn’t provide exact numbers.
“You made, according to my math, between $1.35-million to $2.7-million between the two of you. You can’t tell me what number in between that? Most people know how much they made,” Mr. Johns said.
“That would be accurate, pre-tax,” Mr. Firth responded.
The $14.6-billion figure for federal outsourcing is based on an entry in the public accounts for professional and special services. A research group at Carleton University that has been studying outsourcing trends recently reported a similar total – $15.1-billion – using a different methodology.
The research team analyzed publicly-available federal contract award data and found that about a third of that amount – $4.5-billion – was for IT contracts. That category topped the list, and facilities and construction was second, followed by professional services.
The Carleton group – led by Amanda Clarke, an associate professor of public administration and digital government – released a paper last month that said the federal government should modernize its approach to IT outsourcing.
Specifically, the researchers say Ottawa needs to invest in in-house digital competency.
“At present, outsourcing IT expertise remains a preferred default in most departments,” they wrote. They note that the vast majority of senior public service leaders have never had to learn how modern technologies work.
“Given how central IT is to the core functionality of all government programs and services, the lack of digital expertise amongst the senior ranks of the federal government is a significant liability.”
The paper said attracting IT talent into the public service will require higher pay and removing bilingualism requirements.
Another recommendation is to borrow an example from Britain and impose spend control on IT contracts, including caps on their cost and length.
They also highlight the “significant data quality issues” with the government’s public disclosure of spending on contracts.
“Public sector patterns of dependency on IT vendors and consultants have expanded, in part, because of a lack of transparency on their cost and scale.”
Technation, which advocates for Canada’s technology sector, has pushed back against the notion that building “in-house” is the most efficient option for Ottawa, and said the federal government should not be competing with the private sector.
“There is a wealth of innovative IT solutions out there and we continue to encourage the government to adopt a ‘Buy not Build’ approach, as it works to deliver a government that is enabled to be more open and more collaborative,” said Michele Lajeunesse, the organization’s senior vice-president of government relations and policy, in a statement Tuesday.
Editor’s note: Editor’s note: A previous version of the McKinsey chart incorrectly double-counted the value for 2018-2019. This version has been corrected.