Federal government spending on outsourcing contracts has increased by more than 40 per cent since the Liberals took power, a trend at odds with the party’s 2015 campaign promise to cut back on the use of consultants.
A Globe and Mail analysis of federal records shows Ottawa spent $11.8-billion in the 2020-21 fiscal year on contracts. That represents a 41.8-per-cent increase from the $8.4-billion spent in the 2015-16 fiscal year, when Prime Minister Justin Trudeau’s Liberal government was first elected.
The Globe’s analysis examined the latest available data in the government’s public accounts related to spending on outside contracts in the category of professional and special services.
This category includes things such as management consulting services, legal services, IT services, temporary help and security guards.
The growth in outsourcing has not coincided with a smaller public service. The number of federal government workers increased from 257,034 to 319,601 between 2015 and 2021, a 24 per cent rise.
Queen’s University economist Don Drummond, who has held senior federal government roles and who once led a spending review for the Ontario government, said outsourcing can be effective and efficient when it involves bringing in specialized expertise that isn’t available in the civil service.
“However, it is concerning that both contract and bureaucracy costs have risen sharply,” he said. “To a degree, this might be related to the extraordinary increase in federal government activities flowing from COVID. But the situation calls for careful analysis that more and more inputs are not being thrown into producing about the same service. That would indicate a deterioration in effectiveness and efficiency.”
The 2015 Liberal platform pledged to free up $3-billion a year through a spending review, which it said would include “reducing the use of external consultants.”
The increased spending on contracts continues a trend identified in a January, 2020, report by the Professional Institute of the Public Service of Canada (PIPSC), a union that primarily represents scientists and professionals in the federal public service. That report focused more narrowly on service contracts in the areas of management consulting, temporary help and IT consultants.
The report notes that spending on IT consultants and management consultants more than doubled between 2011 and 2018.
Rather than Public Accounts data, the PIPSC analysis was based on the government’s disclosure of federal contracts, which is subject to frequent revisions as the terms of contracts are posted and adjusted. The union told The Globe its approach allowed for a more targeted look at the outsourcing of personnel spending, given that the Public Accounts data can include other costs, such as fees for software.
The union’s report points to the problem-plagued Phoenix pay system as an example of outsourcing gone wrong.
Phoenix was designed under the previous Conservative government through an outsourcing arrangement with IBM. The Liberal government launched the system in 2016. Phoenix has since caused frequent errors that have left workers unpaid, underpaid or overpaid, resulting in widespread disruptions and distress throughout the public service.
The Globe reported in December that the government has paid $560-million in damages so far to public servants as a result of the Phoenix problems. The cost of compensation is approaching twice the $309-million spent by the federal government between 2009 and 2016 to develop the system, which was supposed to generate long-term savings.
The PIPSC analysis highlighted a common practice in which the government initially awards a contract to a company at a relatively low cost following a public competition. Then the value of the contract is increased substantially through amendments. The PIPSC analysis found that IT contracts generally end up costing more than twice what the government originally expected.
In an interview, PIPSC president Jennifer Carr said the growth in outsourcing is creating a “shadow public service” that works alongside public servants, but is not subject to the same rules in areas like language requirements, employment equity and diversity.
Ms. Carr said outsourcing should focus on short-term needs and allow for the long-term work to be handled by the public service, but she said that often does not happen.
“It’s not in the best interests of the contractor to give any of that information up to the public service, because basically they would be consulting themselves out of their own job,” she said.
“Because these contracts are reopened multiple times … They wind up ballooning from small amounts to almost triple or quadruple the cost, and it’s really hard to track the final value of the real cost of the contract because of the reopening.”
Isabella Brisson, a spokesperson for Treasury Board president Mona Fortier, defended Ottawa’s outsourcing approach.
“The procurement of professional services is needed to acquire special expertise, and to meet unexpected fluctuations in workload,” she said in a statement. “Shortages in certain employment groups and specific geographic locations make the use of external professional services necessary to maintain operations. For example, nurses are hired through this mechanism to deliver temporary health care in Northern Canada.”
The statement also noted that departments are required to exercise “due diligence and effective stewardship of public funds” and that all contracts must be issued in accordance with Treasury Board rules.
From a government-wide perspective, the Liberals had been falling behind their own deficit-reduction projections prior to the COVID-19 pandemic. The deficit then grew dramatically as the pandemic led to reduced tax revenue, and to increased emergency spending to support Canadian workers and businesses.
The 2015 Liberal platform promised that the party would run three years of deficits of no more than $10-billion before balancing the government’s books in 2019-20.
Instead, the Liberal government posted deficits of $19-billion in 2016-17, $19-billion in 2017-18, $14-billion in 2018-19, $39.3-billion in 2019-20 and $327.7-billion in 2020-21.
The Liberal Party’s 2021 election platform did not include a timeline for eliminating the deficit, nor did Finance Minister Chrystia Freeland’s December fiscal update. That update did estimate the size of the deficit would decline to $13.1-billion by 2026-27, though those bottom-line projections do not take into account the billions in new spending promised in the 2021 platform. Updates on that spending are expected in Ms. Freeland’s 2022 budget.
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