CCI report calls on feds, provinces to revamp approach to buying from Canadian tech companies

The Council of Canadian Innovators (CCI) believes that improving Canada’s approach to public procurement could help address the nation’s “historic innovation underperformance.”

CCI, which lobbies on behalf of the country’s technology scaleups, today released a new report that outlines the challenges tech firms currently face in selling to governments across Canada and offers recommendations that the feds and provinces could adopt to enhance their approach to buying from the nation’s innovative companies—moves it says could help Canada address its longstanding productivity woes.

“The fact is that the current culture of government procurement—both federally and provincially—is not serving the Canadian economy.”

The report calls on Canadian governments to take six public procurement policy steps: launch a national procurement agency or empower an existing agency to serve as a bridge between Canadian tech firms and government like Business Finland; set small and medium-sized business (SMB) procurement targets; adopt “outcomes-based” Forward Commitment Procurement like the United Kingdom (UK); develop new standards for innovation procurement; prioritize commercialization; and create a federal procurement concierge.

According to the report, in 2021, procurement amounted to 14.6 percent of Canada’s gross domestic product, while typically, procurement accounts for over a quarter of all public sector spending. As CCI noted, given the amount of money at play, “the stakes are high.”

“This is hundreds of billions of dollars, and a meaningful force that shapes our economy. So when Canadian governments do a poor job of buying innovative technologies and cutting-edge digital services, that significantly undermines our innovation economy,” the report states. “And when the government disproportionately relies on large foreign technology service providers to offer sub-par solutions, that impacts Canadian companies’ ability to compete and succeed globally.”

The report’s assessment of the present state of play was blunt: “The fact is that the current culture of government procurement—both federally and provincially—is not serving the Canadian economy, and it is not serving the government’s own purposes.”

CCI pointed to a recent Auditor General report that found about a third of the 1,480 mission-critical government digital applications are in poor health, and high-profile scandals, such as the Phoenix payroll system situation, the ArriveCan saga, and the Canadian surface ship program.

“Canadian governments especially struggle to buy innovative, novel products and services, and Canada has a long-standing innovation problem,” stated the report, which was authored by CCI director of policy and research Laurent Carbonneau and director of strategic initiatives Abu Kamat and is based on existing research and interviews with Canadian tech leaders.

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According to CCI, Canada’s procurement failures can be grouped into some key categories. These include: overspecification at the outset; long and cumbersome processes; a lack of in-house capacity and expertise among public servants to engage with vendors; and institutional government culture and career incentives that fuel risk-averse decisions.

CCI believes that other countries’ approaches offer a path forward. The report cited the United States’ Small Business Innovation Research program, the UK’s Forward Commitment Procurement model—which has since been adopted by other countries around the world—and Finland’s approach as some good examples.

Canada’s productivity problems are well documented, and the country has long ranked below its peers in business research and development spending and intellectual property generation. The federal government has largely struggled to implement its innovation agenda. It has punted the launch of the Canada Innovation Corporation and open banking, only recently began consultations on its Scientific Research and Experimental Development tax incentive, and has faced difficulty parlaying its plans into meaningful economic growth for Canada.

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CCI noted that for generations, Canadian governments have focused on supply-side science and innovation policy, but this strategy has failed to close the gap between Canada and its peers. “Policymakers have under-examined our considerable public sector procurement spend as an opportunity to create demand-side pull for innovation,” states the report.

The report argues that Canada’s “waterfall” approach to public procurement of innovative solutions, where design is done once, in full, at the beginning of the process, “has long been identified as a problematic way of operating,” adding that other governments around the world often take a different, more flexible tack.

According to CCI, “overspecification and lack of dialogue” is a big barrier for tech companies. Per the report, Canadian governments tend to “prioritize process over outcomes” in procurement, and most programs do not have a mechanism for direct feedback.

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The length of the process can also be a “significant obstacle,” particularly for SMBs, and a challenge that is “magnified by a series of systemic inefficiencies,” including layers of bureaucratic approvals that “collectively stretch the process beyond timelines that are reasonable for commercial entities.” Limited in-house technical capacity to assess innovative solutions also makes things difficult for Canadian tech companies, the report notes.

As it stands, CCI said that Canada’s current approach to procurement often ends at the point of purchase. “In Canada, the government is often narrowly focused on the purchase of an innovative product for its own use, and once the purchase is complete, that is the endpoint,” stated the report, which argues that creating more paths to commercialization could help tech companies that sell to government scale their solutions and lead to greater economic benefits.

CCI argued that the common denominator between these challenges is risk aversion, which manifests in “exhaustive risk assessment frameworks with overly complex tendering processes, heavy bureaucratic documentation requirements, and stringent qualification criteria.”

“The status quo in procurement has a price, evident in shortcomings with procurement outcomes and sluggish innovation performance,” states the report.

Feature image courtesy Unsplash. Photo by Tom Carnegie.