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Government Struggles with Software Development Outsourcing| GuyWhoKnowsThings

Compared to the C$496 billion the federal government spent last year, the amounts are small. But this week's revelations about millions of dollars in potentially fraudulent billing by subcontractors, along with the ongoing ArriveCAN app scandal, show what a huge disaster government software development can be.

Even after an extensive investigation, Karen Hogan, the auditor general, said she could not determine exactly what it had cost to create ArriveCAN, which was hastily launched in 2020 to collect contact and health information from international travelers during the Covid-19 pandemic and coordinate quarantine measures. Mrs. Hogan's best guess That's about $60 million for an app that was widely derided for being difficult to use. Its original budget was 2.3 million dollars.

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

Citing the criminal investigation, Jean-Yves Duclos, minister of procurement and public services, declined to offer details about possible fraud. But he suggested that contractors had taken advantage of the fact that government contracts were mostly paper-based to bill multiple government departments for the same work.

“When until recently everything was done on paper, it was difficult for departments to coordinate and share that information,” he said at a news conference. Mr. Duclos noted that 98 percent of contracts are now in electronic format, allowing officials to easily search for attempts at fraudulent double billing.

The political debate around ArriveCAN and the auditor general's report highlighted that within the government procurement system, millions of dollars flow to companies that do not actually create software. Instead, those companies are middlemen who find software developers to do the work and then pocket 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 received $19 million from the project. In a parliamentary hearing, one of the company's owners, Darren Anthony, stated that the correct figure was about 11 million dollars. He also said that he had not read the auditor general's report and that he had no intention of doing so.

Whatever the amount, Anthony said he and his business partner were left with about $2.5 million over two years after paying the subcontractors who actually created the app. He said the company had spent 30 to 40 hours a month on the project. After the release of the auditor general's report, the government suspended all dealings with GC Strategies.

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 the government's decades-long shift from civil servants developing software to outsourcing the work.

When a project must be done on a tight deadline, as ArriveCAN was, 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.

For government officials, companies like GC Strategies are “like gold,” Professor Henstra said. “It's very convenient for the government to just transfer money through one of these companies, which are basically just a coordinating company, and have them find the actual contractors to do the work.”

But, he said, at both the federal and provincial levels, the agreement sometimes “explodes,” as with ArriveCAN, and raises uncomfortable questions about what exactly middlemen are doing in exchange for millions of dollars of public money.

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

“If we had a strong policy analysis capacity in government, there would be no need for my services,” he said. “They would, and should, in government.”

But the days when the government had an army of software programmers who spent their entire careers in public service are probably not coming back, he said.

Demand for experienced software developers continues to outstrip supply despite recent layoffs in the tech industry, 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 capacity within the government,” he said. “The downside is that when you do things within the government, it's expensive and probably takes longer.”

Still, Professor Henstra said, despite the heated political debate currently taking place, the rising cost of the ArriveCAN app and recent fraud allegations are exceptions.

“The government gets things done and their relationship with contractors works pretty well for the most part,” he said. “There is scope for bad actors to violate the law and, when detected, they are prosecuted. But in the meantime, most of these contracts are made in good faith, are increasing, and serve the public interest.”

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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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