Contracting out services helps build national prosperity by encouraging the formation of a robust industry, one with export potential.Sean Kilpatrick/The Canadian Press
Alex Beraskow is a management consultant and retired executive with three decades of experience in information technology.
While much has been said about government procurement practices, given the millions upon millions spent on McKinsey & Company consulting services and the cost of the ArriveCan app, some things remain misunderstood.
The Government of Canada is our country’s single largest employer and our most complex business. It is easy to target consultants and contractors as a cost sink, but while there are specific issues with McKinsey and ArriveCan, there is nothing inherently wrong with outsourcing.
In fact, when done right, outsourcing is good and should be encouraged.
At issue is the tough question “Do we make/build ourselves or do we buy?” The easy answer is always to make/build. Unions, such as the Professional Institute of the Public Service of Canada (PIPSC), with about 60,000 members, would always prefer hiring more public servants.
But many successful private corporations focus on their core competencies and buy the rest. For example, Coca-Cola and Nike – two of the top brands in the world – do not do their own manufacturing; instead, they buy the requisite products from qualified suppliers.
Consider, for example, that if the federal government were to commission a new building requiring the skills of 500 electricians, those workers should not become civil servants. For many “services,” the government should be a buyer, not a maker or builder.
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The benefits of “buying” include turning fixed costs – employee salaries and the requisite support costs of buildings, pensions, etc. – into variable ones that the government can more easily adjust.
The government would have a choice of multiple vendors rather than be held captive by in-house expertise; would draw on the expertise of global firms with independent, impartial consultants who possess knowledge gained elsewhere; and would have a contractual commitment to getting a job done rather than simply a best effort.
Contracting out services also helps build national prosperity by encouraging the formation of a robust industry, one with export potential. For every dollar in profit, corporations pay taxes. That money comes back. With export sales, that money multiplies.
The Quebec government took a very innovative approach several decades ago. Having “nationalized” its hydroelectric power – Hydro-Québec was the result – it conceived large-scale plans to build dams (James Bay and elsewhere). Instead of hiring employees to build those dams, it turned to the private sector – engineering firms such as Surveyer, Nenniger & Chênevert (SNC), Lavalin and others.
Those firms, starting out as small local companies, were able to grow in capacity and capability by honing their skills on their “home turf” first, then expanding to become global firms, with vast exports as well as knowledge creation (intellectual as well as financial capital). The government, with a well-crafted strategy, provided that platform – and profited handsomely by creating a robust industry, one that pays taxes at home and employs people who also pay taxes.
Another example: Cognos, acquired by IBM, started out as a professional services firm, offering advice to federal government clients. From its humble roots as a consulting firm, it grew to become a global company with significant exports around the world.
Government outsourcing essentially creates that “home turf” where private-sector firms can build up their skills. Hospitals have internships so young doctors can practise and learn their “craft.” Many professionals need that same sort of environment.
The government’s contracting regime can definitely be improved and would likely remain a work in progress for some time. What the government builds and what it buys should be enshrined in policy. The government should also stop insisting on buying services that are lowest-cost compliant – like Walmart products, they may not necessarily be the best value.
But we should not look at the McKinsey and ArriveCan scenarios and conclude that there is something wrong with the practice of outsourcing itself.