Canada’s Billion Dollar P3 Boondoggle

What the Liberals and Conservatives Don’t Want You To Know

The real story behind the cost overruns at the Canadian Firearms Centre

"Just read your piece on the firearms P3 – quite a revelation. I am amazed we have never heard this before – congratulations for bringing it to light." Murray Dobbin, author of Paul Martin Canada's CEO

The controversy around the Canadian Firearms Centre (CFC) is a key element in the Conservative Party election campaign. It has been their cause celebre for years as the Reform Party, the Canadian Alliance, and now as the ‘new’ Conservative party. It has been their rallying cry for speaking for Western alienation from Central Canada, especially Ottawa and the Federal Government. As a pseudo-republican party, the Reform-Alliance-Conservatives have decried the Canadian Firearms Centre, as an attack on the ‘right’ of Canadians to own guns, in this case hunting rifles and shotguns.

Canada has long had gun control legislation, originally brought in by the Trudeau Liberal Government. This legislation at the time was denounced by some as an attack on the right of Canadians to ‘bear arms’. Though such rights have never been enshrined in law. The attacks on the Trudeau legislation came from rump right wing conspiracy groups like the Gosticks, Canadian League of Rights and by Alberta Separatists like the Western Canada Concept, the predecessors of the Reform Party.

Declaring their purpose was Law and Order and Good Government the Liberals introduced the first Gun Control legislation in response in part to the October Crisis in Quebec. This legislation was limited to hand guns and automatic weapons, and was not without controversy at the time. Gun Collectors, hunters, farmers, those from rural Canada and of course the right wing of the conservative movement were opposed to any form of gun control, it was seen as the State interfering in the rights of the individual. This American republican notion is at the core of the current Conservative opposition to the Canadian Firearms Centre.

The new legislation was introduced in response to pressure on the government from women’s groups and largely centered around mobilization of public opinion in Canada’s largest cities; Toronto and Montreal, after the Lepine Massacre at Ecole Polytechnic. Again the Reform Party, representing a grass roots right wing populist movement, cherished the ‘right to bear arms’ and belittles feminism and women’s rights, as can be attested to by their political alliance with right wing women’s groups such as Alberta Women United for Families. Their opposition to day care and abortion, and any state interference in the so called free market that might impose a tax based social program for the good of all, is key to their political discourse. As the Alliance and now Stephen Harper’s Conservatives, this is still their underlying ideology.

So the issue of the CFC is wrapped up in their political ideology of being the Republican Party of Canada. Even if there had not been cost overruns at the CFC the Reform-Alliance-Conservatives saw the gun legislation and the centre as a backroom conspiracy to take guns away from Canadians. As the saying goes; "just because you’re paranoid doesn’t mean they aren’t to get you", and in the case of the CFC and in particular functionaries in the Department of the Justice, opponents of the Gun registry had a reason to be concerned.

In the Auditor Generals report on the cost overruns at the CFC, one of the issues that arose was the fact that deputy ministers in Justice overseeing the creation of the centre were of the opinion that the CFC was to be a ‘gun registry’. Its purpose was not only to register the owners of rifles and shotguns, but also act as a criminal registry, their underlying hope was that it would reduce gun ownership in Canada. This was the self-justification for creating an overly complex gun registration process, which by its very nature should have been fairly simple and straightforward.

It wasn’t like Canada did not have gun control, while handguns and automatic weapons were ‘restricted’ in Canada, any Canadian owning a rifle or shotgun had to possess a FAC, a firearms registration license. You just didn’t need it to purchase rifles or shotguns. This licensing procedure was introduced under the Trudeau Liberals initially as part of the national gun control legislation.

The local police issued a FAC, after you showed a birth certificate, a driver’s license and were fingerprinted. It allowed you to purchase and collect non-restricted weapons. A special collectors license was issued in the same way, to gun collectors. A special license and registration was required to purchase, transport and own a handgun. It wasn’t that the legislation banned handguns per se, it severely restricted their access. In the case of automatic weapons, again these were restricted to registered collectors, and any use of them had to be authorized by the local police or RCMP.

So the infrastructure was already in place that should have made it relatively simple to centralize in the CFC. While gun registration was not mandatory, a vast majority of responsible gun owners had FAC’s. Transferring that registration information should have been the basis of data gathering for the CFC. But within the Justice Department, this was not good enough, they also wanted a criminal registry. So the Justice Department’s Canadian Firearms Program (CFP) decided to start from scratch, to create a Canadian Firearms Centre, where all Canadian gun owners had to register their guns regardless whether they already had an FAC.

This program was overly complicated, the questionnaires were not user friendly, and unlike the old FAC this was all being done using a brand new computer program and database. This was further confirmed by the independent audit done of the CFP in January 2003 by Raymond V. Hession with the aid of KPMG and HLB Decision Economics Inc.

Hession found that "the CFP operates as a sub-activity within the Department of Justice. As such, the intermingling of a highly operational service delivery function (the CFP) with a policy-rich department whose culture is expected to be circumspect and prudent can be problematic. The department has a very demanding policy agenda, involving itself in virtually every legislative, regulatory and program activity of the government. The CFP has, with its continuing controversies and extraordinary logistical demands, layered unprecedented burdens on the department’s management. And, correspondingly, the CFP is continuously contending for the resources and management attention it has needed to sustain its performance against its legislated milestones. The aggregate effect of these organizational dynamics includes a cumbersome leadership model, less intense focus on the mission of the CFP and corresponding inefficiencies in operational execution. Leadership, focus and execution are further sub-optimized currently because of the multiple headquarters deployments (Edmonton and Ottawa) and processing sites (Montreal and Miramichi)."

But before those in the Conservative party say; I told you so, Hennison condemns them as well as provinces like Alberta which have opted out from the federal program; "Uncertainty is the enemy of the CFP. No end-to-end integrated plan to achieve "steady state" operations, no legislative or financial authority to enable administrative improvements, an ASD contract still requiring certification, differential costs and service levels between opting-in and opting-out provinces, provincial and territorial politicians promoting delay, etc., are all contributing to the uncertainty. Fuelled by the aggressive actions of the anti-firearms control lobby whose cause is aided by the uncertainty, these vested interests are frustrating the alignment of all parties to the achievement of the expected outcomes."

In other words the very opponents of the Canadian Firearms Program and the Canadian Firearms Centre must also shoulder their responsibility for increasing the cost overruns, this is particularly true of provinces that have opted out. The Centre expected and calculated its original costs based on all owners registering their guns and the provinces opting in, at no time did they calculate the costs of provincial government abdicating their responsibilities by opting out. This caused some of the cost overrun. Nor did they calculate the economic impact of a boycott by gun-owners, supported and encouraged by the Reform-Alliance-Conservative party and by provincial Conservatives like the Klein and Harris governments, Ministers and MLA’s.

But the real reason for the cost overruns was the simple fact that the entire CFP was a public private partnership, a P3. This is the key finding of the internal Justice Department audits done in 2000 and 2001, the Auditor Generals Report in 2002 and the Hennison audit in 2003.

The billion-dollar boondoggle is the result of privatization. You will never hear this from Stephen Harper and the Conservatives. Because the Reform-Alliance-Conservatives and their allies such as the Fraser Institute, the National Citizens Coalition, the Atlantic Market Institute, and the CD Howe Institute are all proponents of the privatization of government services.

The Gun registry cost overruns are the direct result of the move to privatize, outsource and contract out government services begun under the Mulroney Conservative Government, and continued by the Liberal Government under PM Chretien and his finance minister Paul Martin.

The push to privatize government services was the result of the tax cutting, free trade neo-conservative political agenda adopted by governments in the 1980’s under the leadership of Ronald Reagan in the US, Margart Thatcher in the UK, Brian Mulroney in Canada and Sir Roger Douglas in New Zealand. It impacted on all levels of government, federal, provincial/state, and municipal. Business lobbyists such as the BCNI and the NCC and their think tanks such as the Cato Institute and Fraser Institute promoted privatization as the answer to debt and deficit crisis governments faced. The fact that the tax cuts introduced by the neo-cons caused this crisis was ignored. Regardless of the impact of tax cuts their answer was always the same; reduce the size of government, and contract out/privatize government services.

One of the influential texts produced in response to the neo-conservative agenda was Reinventing Government, How the Entrepreneurial Spirit is Transforming the Public Sector, by David Osborne and Ted Gaebler published in 1993. It became the bible for the reduction in government services in order to reduce deficits by using contracting out, outsourcing and public private partnerships. It was the bible of the ‘new ‘ way for governments to do ‘business’. It was a liberal version of the harsher conservative view that all government services could and should be privatized.

It became the rallying cry of governments under siege from business and the right wing. In the United States it was embraced enthusiastically by the Democrats and Vice President Gore. In Canada it became the Chretien Liberals alternative to the Klein Revolution in Alberta. And it is the reason that Canadian Firearms Program ended up being a billion-dollar boondoggle.

Facing a massive deficit and debt crisis that was world wide, governments began to end their Keynesian approaches to social spending and embrace the new neo-conservative agenda. Reduce spending, outsource government contracts and increase tax cuts to business. The Liberals were no different, and Reinventing Government became an internal bible within the various departments. It was read by Cabinet Ministers, deputy ministers, and most importantly its ideas of contracting out and outsourcing was embraced in every department as a way of supposedly saving money.

The Liberals began the promotion of private-public partnerships (P3’s) and contracting out not based on any real economic analysis but based on popular business ideology. One of the areas the government saw, as perfect for outsourcing was its IT needs. The computer and information technology boom meant that the government could easily contract out these services rather than developing them in-house. Various departments began wholesale contracting out of IT services, including hardware purchasing and installation, computer programming and data base construction, as well as data inputting.

Unfortunately in their rush to privatize and outsource, they failed to develop a business plan that would allow for project oversight, and worse they failed to tender specific contracts for services. The government became a slush fund for private sector IT companies which were not the small computer companies of struggling entrepreneurs of the Wired generation, but large-scale corporate monopolies.

Such was the case with the Canadian Firearms Program, as is clearly shown by all the audit reports. In the case of the creation of the CFC, not only was the IT contracted out but also so was all the staff who did data intake, customer service and data input. The entire Centre is one large venture in private delivery of government services. Cost overruns occurred because of having " multiple headquarters deployments (Edmonton and Ottawa) and processing sites (Montreal and Miramichi)." These were staffed not by public sector workers, but by contracted out workers.

Management was the only area that was not contracted out, but in this case the management also did not have the knowledge or experience to oversee the IT component of creating a brand new data base for registering Canada’s gun owners.

The Auditor General reported that: "The Department had major difficulties in distinguishing between expenditures for project implementation and ongoing operations. This problem particularly affected two of the largest categories of costs: communications activities and the development and implementation of computer systems supporting the Canadian Firearms Registration System. The amounts allocated to these areas in various official documents differ significantly from one another. For example, one document provided to us stated that for 1997-98 the cost of the Canadian Firearms Registration System was about $13.5 million. However, the document provided to us for audit purposes stated that this amount was about $20 million."

And why were there cost overruns? "From the start of the business process and technological development of the CFP, EDS and SHL Systemhouse (subsequently acquired by EDS), responding to requirements defined by the CFP project management, performed a large number of changes (1997-319 changes; 1998-310; 1999-474; 2000-415; 2001-260; and, 2002-112) leading to a CFP technical solution that had rapidly evolved from seemingly straightforward to very complex."

In other words from the beginning the IT companies controlled the whole process, they provided the hardware, developed the software and data processing, and maintained control over it leasing it back to the government. Every time a change was made a charge was issued, driving up the operational costs of the CFC and the CFP. The costs were in the millions, and the government still did not own the hardware, software or data, this was still the property of the IT company.

And the reason these costly changes were required? "The Canadian Firearms Registration System information technology was modified several times before and after licensing and registration began in December 1998. The technology was developed in parallel with repeated changes to Program forms, rules, and processes and before legislation and regulations were finalized. The Department stated that the complexity of the system increased unnecessarily because many of the design assumptions were invalid; the system was intended to capture detailed information about firearms for criminal investigations and process licence and registration applications; however, the information needed for criminal investigations was well beyond the administrative needs of the Program; and small changes, such as modifications in data entry on a form, required major changes in the whole system because of its size and complexity, and these changes typically took three to six months to implement at a cost of millions of dollars."

So the Justice Department created a system that was not just simply about Canadian registering their guns but also an attempt to track gun ownership for police purposes. This was the underlying problem with the IT program. And they left the creation of this overly complex database to EDS and SHL Systemhouse. That system instead of being adaptable became a very expensive white elephant.

"In 2001, the Department told the Government that the three-year-old Canadian Firearms Registration System was not working well; its technology was expensive, inflexible, out-of-date, and could not be modified at a reasonable costs to support future operations. Construction and maintenance costs of the existing system were exceptionally high and without radical change, these would represent over 60 percent of future operating costs. This would be significantly higher than the industry norm of 10 percent to 20 percent."

EDS made their money and left the CFP and consequently Canadian Taxpayers on the hook for their outdated system. And anyone who works with computers, even a home computer, knows that there is something wrong when a database program and computer hardware is "expensive, inflexible, out of date (sic) and cannot be modified to support future operations". Somebody sold the government a pig in the poke, and left laughing all the way to the bank. That somebody was EDS.

Who is EDS? Well does the name Ross Perot ring a bell? EDS is originally his company for outsourcing computer programming and database processing it is one of the largest US based IT providers in the world. On their web site they state "EDS' core business is outsourcing services. Our innovative portfolio is built around our unique offerings in mainframe, data center, help-desk and desktop services, application maintenance and development, business process outsourcing, and transformation services." In this case they provided CFP with outdated and costly mainframe computers, lets not even ask who uses mainframes anymore, and proprietary application development and maintenance. In other words at the end of 2001 the CFP did not even own their own equipment and applications.

EDS informs us that "Outsourcing is about more than simply cutting costs. It's about increasing business value for your company." And what business value did we get from EDS? "Its technology was expensive, inflexible, out-of-date, and could not be modified at a reasonable costs to support future operations " Proudly EDS reports their "Canadian revenues of Cdn $1.25 billion in 2002," much of that revenue was paid by Canadian taxpayers thanks to their screw up at CFP.

And so what was the solution that the Government came up with to resolve this problem? To further outsource the computer operations of the CFP! That’s right, in a bill passed in the House of Commons, voted on by the Liberals and Conservatives the boondoggle that was caused by outsourcing in the first place was going to be fixed by…. (wait for it) outsourcing to a different company!

According to the Auditor General; "In 2002, following a competitive procurement, an Alternative Services Delivery (ASD) contract was awarded to Team Centra (a consortium of CGI and BDP). This outsourcing contract will, upon certification, replace the existing services. In the interests of cost containment and technology evolution, the strategic focus of the ASD solution is dependent on Commercial-Off-The-Shelf (COTS) software replacing the custom-built solution. Current indications are that the complexities of the CFP continue to put the potential economic advantages of the COTS solution in jeopardy."

So were costs more controlled under the current contracted out services with Team Centra than with EDS? Not so according to the Hennison audit. "Nevertheless, the program administration remains unnecessarily complex and costly. KPMG reports that program expenditures were $200,364,000 in fiscal year 2000-2001 and $136,629,000 in fiscal year 2001-2002. The Minister of Justice recently stated that the expenditures for the current fiscal year will be somewhat less than the $113,500,000 previously expected."

So the problem originally was that the government was sold an out of date mainframe computer and overly complex customized data base program and the solution is now to hire another IT company to come in and sell us "off the shelf" computers.

The logic of this befuddles the mind, except to those proponents of contracting out and privatization as the answer to everything. This begs the question, if the original CFP cost overruns were caused by outsourcing the IT why not bring it back in-house, and purchase off the shelf computers and software directly? The ideology of Public Private Partnerships is so imbedded in federal government departments, and provincial governments Canada wide that they cannot admit that P3’s are a failure, even when it is so obvious, as it is in this case.

The result of all this outsourcing of computer technology for the CFP is the recommendation from Hennison that "to bring development costs under control, with the exception of normal application maintenance, no additional software functions should be added to the existing technical infrastructure." So when outsourcing fails once we try it again and when it fails again and cost overruns occur we now freeze the program.

Like EDS, Team Centra benefited from outsourcing. "By joining forces with AMS, CGI has doubled its critical mass in both the United States and Europe. With 25,000 professionals and US$3 billion in revenue, CGI is one of the largest independent IT and BPO companies in the world," says their web page. And again they profited from cost overruns at CFP, just like EDS.

The CFP is an example of who exactly benefits from P3’s, as the companies providing outsourcing services. There are clearly no cost savings in outsourcing government services, there is less direct control and less accountability. And yet these same companies that outsource are the ones that not only claim they are more efficient than in-house services, they also are companies that support tax cuts for business. No wonder the Conservatives don’t want to talk about this being a P3 boondoggle. It damns their ideology that privatization and contracting out save money and are more efficient than public sector services provided by public sector workers.

None of these companies has been sued or have had their contracts cancelled. There will be no attempt to recoup the losses from companies that swindled the taxpayers of Canada, by providing "technology was expensive, inflexible, out-of-date, and could not be modified at a reasonable costs to support future operations."

Where else could this be happening? EDS and CGI still have contracts with the Federal Government and its departments, they provide IT outsourcing to provincial governments in Canada, municipalities, hospital boards, and universities. If this is Reinventing Government then we should expect more billion-dollar boondoggles, not less, thanks to outsourcing, privatization and P3’s.