The federal government is out of step with modern IT contracting practices, clinging to old rules that result in giant, over-budget contracts with a big risk of failure, says a new report.

The government has been talking about reforming the way it buys technology for years, a promise that went into overdrive after the Phoenix pay disaster, the biggest public management failure in federal history. But the new research suggests progress is slow.

Amanda Clarke, an associate professor at Carleton University’s school of public policy and administration, is leading a research team digging into thousands of federal contracts awarded between 2017 and 2022, to make sense of how the government spends $15 billion a year on all contracting except National Defence.

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Speaking tech to power

Clarke argues departments are still defaulting to old ways of building and buying big IT projects – and to a hard-to-break dependency on contractors and consultants.

Every government policy and program depends on technology. Clarke argues government methods for buying IT and managing relationships with vendors are key to both project and policy success and, ultimately, the government’s ability to serve Canadians and keep their trust.

Based on the team’s research, Clarke proposes a new playbook to reform the way the government buys IT, built on best practices from other countries. She turned over her findings and recommendations to the government operations committee that launched its own probe into outsourcing.

“We have to turn the old IT procurement playbook on its head. That means investing in in-house talent, putting in spend controls, like limiting the length and value of contracts, and mandate the use of open source,” Clarke said in an interview.

But a central piece to that proposal is recruiting top-flight in-house technical talent. Other reforms aren’t going to work if the government doesn’t have people with technology know-how to plan, manage and oversee projects.

“If you don’t invest in in-house talent you can’t commit to broader digital modernization plans. You can’t reform government through consultants. It’s not going to work. You need people on staff who are empowered, accountable and understand the strategic questions around technology,” she said.

Clarke argues best practices, led by digital government reformers in the U.K. and U.S., show small and short contracts – preferably under $2 million and no longer than three years – have the best chance of success.

The Carleton research team found the government spends about $4.6 billion a year on IT contracting.

Despite evidence giant IT projects are more likely to fail, the Carleton research found 54 per cent of federal contracts break the $2-million threshold for likely project success. Among those, the average contract was $25 million and the largest was $1.8 billion.

Clarke calls for a shift to “modular contracting” dividing big deals into smaller contracts with deliverables. This way the government can reduce risk, avoid getting locked in with one big vendor and attract more small suppliers. If a project isn’t working or a department isn’t happy, it can pull the vendor and hire a new one without the whole project unravelling.

The proposal takes a page from reforms in the U.K. and U.S. where decision-makers capped the size and duration of contracts. With that experience, Clarke recommends limiting contracts to $2 million and no more than three years, including extensions.

For years, unions have hounded the government with formal complaints and studies that conclude outsourcing brings higher costs, reduces quality of services, hollows out the skills of public servants and erodes transparency and accountability.

Still, spending on IT contracts grew 27 per cent over five years (adjusted for inflation). Only security and medical related contracting, which skyrocketed during the pandemic, were higher.

Clarke said she hopes MPs will dig into why departments are outsourcing and fix some of the longstanding issues, such as outdated human resources and staffing practices. They push managers to hire an army of consultants, known as the shadow public service, because it’s easier and faster.

The government is committed to recruiting in-house talent and has thousands of positions to fill. But Catherine Luelo, Canada’s chief information officer (CIO), said the government will need a mix of contractors and hires to fill those jobs.

The ratio of that mix is a big unanswered question. Everyone agrees the government has to use consultants and contractors to fill gaps when they come up. The elephant in the room, however, is how they have embedded themselves in departments.

What often happens is big management consulting firms or tech firms, like KPMG or IBM, are hired for specific expertise, but they lead the project and take over strategic planning, design and execution public servants should be doing.

“They’re much more than a shadow public service. They are embedded,” said Clarke. “They work with government email addresses. They become part of the internal machinery and are holding the reins on projects that should be led and managed by public servants.”

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Federal paymasters struggle to rise from Phoenix

The government is always going to need to hire developers, programmers or user researchers to fill gaps, but senior managers have to be tech savvy enough to be wise shoppers and partners with vendors.

“If not, you will run into the position where you are shopping blind and that’s when accountability breaches can set in,” said Clarke.

It’s also not good for morale and employee wellbeing when in-house tech workers see interesting work go to contractors – often paid considerably more – over them.

Countries like the U.S. and the U.K. are putting more effort into upskilling their bureaucrats, especially in the senior ranks. Canada needs to do the same thing, from directors-general on up who lead policies and programs.

“We have a cadre of deputy ministers who have never been asked to understand technology and CIOs who are just used to developing projects by outsourcing,” said Clarke.

The government has taking steps to start building up in-house capacity. It created the Canadian Digital Service, the Digital Academy at the Canada School of Public Service and supported fellowships at the nonprofit Code for Canada, all with the goal of improving the digital skills of public servants. These efforts need to be expanded. Universities teaching public administration should have digital training on the curriculum.

For recruitment, many issues remain. Higher pay will be a thorny issue in the public service, but Clarke argues it would save the cost of highly expensive consulting fees over the long run. Hiring thousands of IT specialists will be even more difficult without competitive pay.

This article was produced with support from the Accenture Fellowship on the Future of the Public Service. Read more of Kathryn’s work here.

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Kathryn May
Kathryn May is the Accenture Fellow on the Future of the Public Service, providing coverage and analysis of the complex issues facing Canada’s federal public service for Policy Options. She has spent 25 years writing about the public service – the country’s largest workforce – and has also covered parliamentary affairs and politics for The Ottawa Citizen, Postmedia Network Inc. and iPolitics. The winner of a National Newspaper Award, she has also researched and written about public service issues for the federal government and research institutes. Follow Kathryn on Twitter: @kathryn_may.

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