Business

Government Struggles Over Software Development Outsourcing

Compared to the C$496 billion spent by the federal government last year, the amounts are minimal. But this week's revelations about millions of dollars in potentially fraudulent invoices from contractors, as well as the ongoing ArriveCAN app scandal, show what a mess software development can be for government .

Even after a thorough investigation, Karen Hogan, the Auditor General, said she could not determine exactly what it cost to create ArriveCAN, which was hastily created in 2020 to collect contact and health information from international travelers during the Covid-19 pandemic and to coordinate quarantine measures. Ms. Hogan's Best Guess That's about $60 million for an app that has been widely derided as difficult to use. Its initial budget was $2.3 million.

This week, as federal officials announced measures to strengthen the surveillance of public markets, particularly for software services, they said the government had asked the Royal Canadian Mounted Police to investigate $5 million in invoices from three software contractors as potential fraud. Officials did not name the companies but said the suspicious billings were not linked to ArriveCAN.

Citing the criminal investigation, Jean-Yves Duclos, the minister of public services and public procurement, refused to provide details of potential fraud. But he suggested that contractors had taken advantage of the fact that government contracts were mostly in paper form to bill multiple government departments for the same work.

“Until recently, when everything was done on paper, it was difficult for ministries to coordinate and share this information,” he told a news conference. Mr. Duclos pointed out that 98 percent of contracts are now in electronic form, making it easy for officials to search for fraudulent double billing attempts.

The political debate around ArriveCAN and the Auditor General's report have highlighted that, under the public procurement system, millions of dollars go to companies that don't actually create software. Rather, these companies are middlemen who find software developers to do the work and then recoup a large portion of the contract value for their efforts.

In the case of ArriveCAN, the middleman was a two-person company called GC Strategies. The auditor general estimates the company took in $19 million from the project. During a parliamentary hearing, one of the company's owners, Darren Anthony, claimed that the correct figure was around $11 million. He also said he had not read the Auditor General's report and did not intend to do so.

Whatever the amount, Mr. Anthony said he and his business partner ended up with about $2.5 million over two years after paying the contractors who actually created the app. He said the company spends about 30 to 40 hours a month on the project. After the publication of the Auditor General's report, the government suspended all relations with GC Stratégies.

Teacher. Daniel Henstraa political scientist who studies public administration at the University of Waterloo, told me that the rise of companies like GC Strategies was a direct consequence of government's decades-long shift from civil servants developing software for outsourcing work.

When a project needs to be completed under tight deadlines, like ArriveCAN, the usual procurement system is “almost impossible to follow,” he said. Even if government officials could identify all the necessary subcontractors — which Professor Henstra says is rare — certifying that they are up to the task and then entering into contracts with each of them would overwhelm the system.

To government officials, companies like GC Strategies are “like gold,” Professor Henstra said. “It's very timely for the government to just pass the money through one of these companies, which is really just an umbrella company, and ask them to find the actual contractors to do the work .”

But, he added, at both the federal and provincial levels, the deal sometimes “blows up,” as with ArriveCAN, and raises uncomfortable questions about what exactly the intermediaries are doing in exchange for millions of dollars of public money. .

Professor Henstra believes that Canadian governments generally outsource too much work, including the policy consulting work he himself does for the federal government.

“If the government had a strong policy analysis capacity, we would not need my services,” he said. “They would, and should, do it in government.”

But the days when government had an army of software coders who spent their entire careers in public service probably won't come back, he said.

Demand for experienced software developers continues to outstrip supply despite recent layoffs in the tech sector, Professor Henstra said, and no government is likely to want to bear the cost of outbidding companies like Google or Microsoft for their services.

“There should be more of this type of capacity in government,” he said. “The trade-off is that when you do things in government, it’s expensive and it probably takes longer.”

Nonetheless, Professor Henstra said that despite the ongoing heated political debate, the rising cost of the ArriveCAN app and recent fraud allegations are exceptions.

“The government is getting things done and its relationship with entrepreneurs is working pretty well overall,” he said. “It is possible for bad actors to break the law, and when they are detected, they are prosecuted. But in the meantime, most of these contracts are concluded in good faith, they multiply and serve the public interest.



Originally from Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has reported on Canada for The New York Times for two decades. Follow him on Bluesky: @ianausten.bsky.social


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