New Ontario vendor qualifications could displace smaller IT shops

By Lynda Leonard

Proposed changes to the Ontario Government’s Vendor of Record (VOR) qualifications for Task-based I&IT Services could eliminate all but very large companies and put an unexpected twist on a familiar Canadian business story.

India-born Ashind Thukral emigrated to Canada in 2005. By early 2011, the enterprising electronics engineer had started his own company, A.T. Consulting and Recruiting. In September 2011, winning VOR status with the Ontario Ministry of Government and Consumer Services (MGCS) that helped the business grow.

For awhile it seemed like Ontario was keen to do business with companies like Thukral’s. Government leaders frequently talk about the importance of the SME sector in the province’s economy and major economic policies like the Business Growth Initiative are focused on SME knowledge sector expansion. Many SME’s in the IT services have taken this as a cue to invest in growth.

“One of the reasons I could start my business is because of the policies which were so pro-small business,” Thukral said.

But his expectations of business growth were dashed when MSG issued a Request for Bids in May that served notice that it plans to reduce its list of VORs in the IT service category from 317 to 10. And it is clear from the qualification criteria that those 10 companies will have to be very large. To qualify, bidders must provide references from three accounts generating revenue of $25 million and where they have 250 placements annually.

“This goes against the model for an immigrant to come here and open their own business and be successful in such a short period of time,” Thurkal added.
Additionally, bidders must be ISO-9001 certified. That’s bad news for any Canadian-based vendors, says Michael Leacy, president of the National Association of Canadian Consulting Businesses (which represents large medium and small professional staffing firms).

“Even the large firms won’t meet the mandatories. Few companies in Canada can take on that much business,” he said.

Leacy estimates that fewer than 20 Canadian staffing firms will qualify.
For SMEs, the bar is impossibly high. Many of them operate on a business model of a small core staff supported by a larger roster of consultants who work on smaller, but sometimes more specialized, projects and contracts.

The RFB was released May 25 without any prior industry consultation. MGCS indicated it would accept feedback up till June 9. This prompted Thukral and many of his competitors to form a coalition to oppose the changes. They have filed their objections and organized a lobby to bring their views to Queen’s Park, but they are not optimistic.

“The Ontario Government has burned a bridge of trust,” said Bud Derakshani, founder of Yoush Consulting and one of the members of the Ontario Small and Medium Business Coalition (OSMBC). “For the past three years no hint of this direction has been given to us. So this came as a shock. We have had very little opportunity to react and protect our businesses.”

OSMBC warns the new measures will produce mass lay-offs of IT professionals – the very class of knowledge workers on which the Ontario Government has pinned its economic aspirations – and closures of up to 300 Ontario-based SMEs.

The motivation for the changes seems to come from recent criticism from the Ontario Auditor General whose last report noted that hiring an external consultant to do IT work costs the government $40,000 more annually than hiring permanent staff. Clearly it requires more staff to manage 317 suppliers than 10.

But the OSMBC questions how the costs will actually be achieved. A reduced field of competitors means the government will be better able to exercise its leverage for volume discounts. This will produce a downward pressure on IT consulting rates and favour companies able to deploy staff in other low-cost jurisdictions.

Leacy believes that Ontario-based companies should be doing business with the Ontario government. He says the new approach is not consistent with best practice among provincial governments, many of who have adopted or are considering the managed service provider (MSP) process.

Other organizations are also promoting more inclusive approaches to enabling SME contributions to the public sector supply chain. The Information Technology Association of Canada (ITAC), is also concerned about the impact that the dramatic reduction in number of VORs will have on the SME sector and believes that encouraging large companies to work with smaller ones is one solution. It cites progressive examples in procurement policy that promote collaboration in I&IT service contracts between large and small vendors in jurisdictions like the U.S. and the U.K.

A new VOR process will be in place by October. For now, many SMEs are anxiously hoping for further word from MGCS while adjusting to the changes. “I’m an optimist,” Derakshani says but he’s not optimistic that there will be a change in direction. He has already heard from many coalition members and estimates that as many as 60 will close their businesses.

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Jim Love, Chief Content Officer, IT World Canada

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