Government bid practices turn off Canadian tech talent
Process too slow for makers of super-fast computer system
By Kathryn May, The Ottawa Citizen May 2, 2009
May 2, 2009

A small Ottawa high-tech company that's making inroads in the U.S. with its "world's fastest computer" can't afford the time and effort to do business with the federal government.

Three weeks ago, the board of directors at Liquid Computing directed senior management not to get drawn into a bidding process with Public Works because such an action "sucks up" enormous time and energy that "never goes anywhere," said Pat DiPietro, managing partner at VG Partners' technology fund, which is the major investor in Liquid.

"I have lost total faith in dealing with the government on any issue," said DiPietro, who is also on Liquid's board.

"I encourage all my companies not to talk to the federal government. I never hold out any hope. It's so impossible to deal with, it just sucks so much effort out of the company."

Public Works decided to try one of Liquid's computers after doing all its technical reviews, but that meant calling for bids. That's when the board decided it had had enough.

A federal procurement is long, complicated and eats up too much money and time for a small company.

Liquid's board felt the firm's product is unique and buying it without seeking other bids was a no-brainer because no other company has successfully married computing and communications technology.

"So here's the rub. We are selling in the U.S. ... and we don't have a single Canadian customer, which is so typical of our country," he said.

"We don't seem to give a rat's ass that we are losing our indigenous technology capacity. It's a repeat performance of the Avro Arrow over and over again. It's so disheartening when you think that what's important in the next century is the ability to innovate and we are losing what training is here."

The Liquid Computing story exemplifies why a growing number of small and medium-sized businesses (SMEs) say they are giving up on bidding for government contracts. They complain the government doesn't buy Canadian, doesn't nurture innovation and its procurement practices actually shut out small firms and give big companies the advantage.

A big complaint is the government's shift to "bundle" more work into big contracts, which are simply too big for small firms to bid on. Last year, Public Works bought $4.8 billion in goods and services from SMEs and they nabbed 49 per cent of the dollar value of the contracts that went to Canadian firms.

The Canadian Advanced Technology Alliance recently presented the Liquid story to MPs on the government operations committee, which is studying the effect of federal procurement policies on small business.

CATA's Charles Duffett told MPs that Liquid's computer, "arguably the fastest in the world," has no real competition, but rules wouldn't allow Public Works to buy it as a "trial" without a full-blown procurement.

Duffett argued the government should be an incubator, buying and trying new products. Having government as a client is a critical endorsement for a company breaking into foreign markets.

Like other groups, CATA rejected some MPs' proposals for "set-asides," which would guarantee small businesses a slice of large federal contracts.

"What I would like is a policy that encourages Canadian technology. I see Canadian technology as a huge wealth creator. If you can get that machine running and keep it running, it creates a lot wealth in Canada," Duffett said.

CATA has long argued the government has a public policy obligation to nurture Canadian-grown business. It has pushed for the government to use its procurement policies to promote Canadian firms, giving them experience so they can tap into global supply chains with larger companies.

Without it, DiPietro says Canada risks jobs and opens the door to foreign companies to grab its technology at bargain prices.

And he worries Liquid will be one more technology like the lightbulb, telephone and video camera, invented in Canada, but commercialized outside the country. He's even more frustrated to see billions of tax dollars plowed into a dying car industry when new technology is "the hope of Canada's next century."

"If this persists, some other company will buy us and then we lose the technology in Canada. It's inevitable if we don't make inroads in our own marketplace."

Liquid Computing was started by a handful of former Nortel and Sun computer executives in 2004 and its inroads in cloud computing quickly made it one of Ottawa's startup darlings.

Its signature blue, refrigerator-sized computers combine the best of computing and telecommunications technologies and merge them in a single platform called Liquid.

But DiPietro said it's not the speed that piqued Public Works' interest, but rather that Liquid can integrate computer networking and storage into one compact data centre box.

The government has thousands of computers and DiPietro estimates every 10,000 or 20,000 of them could be replaced by 1,000 Liquids for a fraction of the cost, space, manpower and power consumption.

Public Works has plans for four major IT projects as part of the government's shared services initiative. The first contract, known as GENS, is for a new secure network to replace a morass of 125 different networks in government. The next contracts would consolidate its 144 data centres, supply and maintain 315,000 desktop and laptop computers as well as look after network security.

Small business has long complained about federal buying practices, but the GENS proposal sparked an outcry led by Ottawa agencies that supply IT workers to government.

They argued that "bundling" the work in one big contract would cut them out and lobbied MPs to "unbundle" or separate the professional services.

Large firms have argued the government will pay more with such an approach.

During committee hearings, Conservative MP Chris Warkentin said he feared government has become so afraid of another costly technology flop that they aren't giving emerging technologies a chance. He said tender calls for big IT projects often call for old technologies, eliminating small companies with new cutting-edge technologies.

Liliane Saint Pierre, Public Works' assistant deputy minister of procurement, acknowledged departments try to minimize risk and one way is to shift the burden of the risk of big projects to the contractor.

But she said Public Works has heard small-business complaints and will separate professional services from the GENS contract.

A CATA survey found its members generally support a new network and realize only a handful of big telecom firms like Bell and Telus can build the network, but small firms want a chance to bid on the rest.

Duffett said the survey showed 60 per cent felt bundling will lead to losses. They see bundling as uncompetitive and favouring large companies.

He said they find the bidding process expensive, slow, complicated and government should do more to make it easier for small firms.

But part of the problem is the rules-bound culture within departments. Duffett said his members say public service managers and executives, who should be responsible for buying decisions, aren't using their authority because of conflicting rules and policies.

The committee plans to write a report to Public Works and as the chairman, Liberal MP Derek Lee, warned:

"I see the benefits of 'bundling,' but it also has to find ways to make room for small and medium-sized businesses. Tell me when your department designs its procurement you will resist to turn everything into a Wal-Mart globalized supply chain."

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