Okay, we will take a 15 minute recess and come back and continue with our business. Thank you.

-- Break

... with whatever number of Members come back, unless a Member raises the issue of quorum.

At this time I would like to ask the Minister if he would like to... On process, first of all, I would just like to read this out.

In consideration of the BIP, I would like to indicate to the committee the process that will be used to review Tabled Document 20-13(4) and debate surrounding the business incentive policy.

The Minister of Resources, Wildlife, and Economic Development will make introductory remarks on the current business incentive policy of the government. At the conclusion of the Minister's remarks, he will be asked if he wishes to move to the witness table and to bring in witnesses. If the committee concurs, then once the Minister and his witnesses have been introduced, I will permit all Members the opportunity to make general comments for up to 10 minutes on the current business incentive policy. In making opening comments, questions will not be permitted at that time. Once all Members who wish to make general comments are concluded, the chair will permit questions on the topic.

At this time I would like to ask Mr. Kakfwi if he would like to make introductory remarks on the business incentive policy?

Thank you, Madam Chair. The Government of the Northwest Territories has used procurement policies to pursue economic development objectives since 1976. Policies like the business incentive program are only one of a variety of tools used by the government to support northern business development and to pursue employment for northerners. Other tools include the Business Credit Corporation Act, the Northwest Territories Development Corporation Act, the building and learning strategy, negotiated contracts, the Business Development Fund policy, and other policies, strategies, and programs.

The business incentive policy was first adopted in 1984. It was originally intended to provide NWT owned and operated business with financial compensation for the higher costs of operating in the north. This compensation was intended to:

First, level the playing field so that northern business could effectively compete with southern businesses; second, to support the cost of employing and developing northern resident business management, administrative, and technical staff; and third, to support the cost of using northern business support services and suppliers.

After five years, the effect of the policy was a 70 percent northern and 30 percent southern split in contract awards in the construction, maintenance, and service sectors. By 1989, two concerns were emerging.

First, businesses in larger centres were competing effectively with southern business, but there was no growth in the total market share of northern business. In addition, businesses in smaller communities were still disadvantaged relative to both southern business and businesses in larger centres.

Second, northern businesses did not necessarily operate to the benefit of other northern business or the northern labour force. In fact, northern business often imported southern labour and ordered material from southern suppliers.

In an attempt to address these issues, a number of changes were made to the policy in 1991. The basic bid adjustment was increased from 10 percent to 15 percent and an additional five percent adjustment was added for local companies. The result of these changes was a rapid increase in both northern and local awards raising the overall proportion of northern/local awards to 85 percent. I would add that the current proportion of northern/local awards is about 95 percent.

To address the issue of real northern benefit, bidders were asked to provide additional information about the northern and local content of their bids, including subcontractors and suppliers. This content included material supply, labour, accommodation, freight, and overheads. The requirement for this additional detail created significant work for both the contractors and the GNWT contract authorities. Contract awards were slower as GNWT tender offices were faced with complex investigations to determine the lowest BIP adjusted bid. Furthermore, increased expectations regarding northern content increased the need to police whether promised northern labour was utilized in the performance of the contract. Complaints continued, now focusing on companies being storefronts for non-resident businesses and promises to employ local labour were not being met in all cases.

The GNWT was overwhelmed with requests to review situations and make rulings on the basis of the spirit and intent of the policy. Efforts to enforce local and northern benefits resulted in accusations that the policy had become administratively cumbersome, bureaucratic, vulnerable to political influence, and generally ineffective.

In August of 1994, Cabinet directed that the public be consulted to identify the issues and problems related to the current policy and to offer suggestions for possible changes. The consultations lasted three months and included public meetings in all regional centres, as well as more than 300 written submissions. The major concerns identified included: First, businesses can circumvent the northern ownership provisions; Second, one incentive rate applies whereas benefits vary according to individual contract;

Third, northern labour promised in bids may not materialize;

Fourth, northern manufacturers receive no benefits from the policy;

Fifth, the costs and benefits of the program are unknown;

Sixth, the grandfather provisions of the policy should be abolished.

The Department of Public Works and Services, in concert with other program departments, then developed a new approach to the business incentive policy which attempted to deal with the specific issues raised in the public consultation.

The changes proposed were fundamental, in that there would no longer be 'eligibility criteria' or BIP approved companies. Rather, the bid adjustment would be calculated and would reflect three variable factors:

First, the specific business sector and the cost variance over a similar southern business;

Second, the specific contract location;

Third, the proportion of company operations conducted in the north.

An additional 2.5 percent would be available to 'northern companies.'

This would effectively address concerns regarding the single incentive rate, the circumvention of ownership provisions and the grandfather clause issue.

In addition, the proposed policy would:

First, eliminate bid adjustment with regard to commercial accommodation;

Second, establish northern and local labour requirements within contracts and provide a bonus or penalty upon completion;

Third, include incentives for northern manufacturers.

The proposed policy was presented through public meetings in all regions between February and April of '96.

The results of this consultation were consistent. Concerns were expressed that the proposed bid adjustment process was far too complex. The public expressed a preference for the existing policy.

In September of '96, the Premier sought the views of the Premier's panel with respect to the BIP issue. The panel were provided with a presentation on the issues and possible options with respect to future directions. The panel's recommendations were:

First, that there is a requirement for the business incentive policy;

Second, the existing policy should be revised to incorporate those changes which were generally acceptable to the public during the consultation.

In October of 1996, a Joint Minister/Ordinary Member Working Group was established to review and make observations and recommendations on the following:

First, review the current business incentive policy, including its objectives, accomplishments, and shortcomings, including the interim manufacturing directive;

Second, review the results of the public consultation on the revised business incentive policy;

Third, discuss the costs and benefits associated with implementing the business incentive policy;

Fourth, review various options for implementing the business incentive policy.

The working group met on five occasions before presenting their recommendations on the 12th of December, 1996. Their recommendations may be summarized as follows:

First, broaden the commercial accommodations directive to include legitimate bed and breakfast operations and eliminate bid adjustments on accommodations;

Second, to consider the northern manufacturing directive and rationalize its application and proposed incentive rates;

Third, implement a system where northern and local labour is specified in contracts and bonuses and/or penalties are provided based upon actual northern and local labour utilization, and discontinue bid adjustments for northern and local labour;

Fourth, to further review the grandfather provisions of the business incentive policy;

Fifth, to consider four options related to bid adjustments as follows: 10 percent northern and 10 percent local; an overall reduction in bid adjustments; no adjustment; or a sliding scale option;

Sixth, to decrease the "northern only" tender limit from $30,000 to $25,000, consistent with limits established in the Internal Trade Agreement;

Seventh, to do further analysis of the relationship between standing offer agreements and the business incentive policy.

Madam Chair, we are not able to provide an accurate dollar estimate of the cost or the benefit of this program. We do know that 95 percent of the nearly $100 million in contract awards last year were won by northern firms. We also know that in recent years, bids from southern companies on NWT contracts have declined steadily and we know that, year by year, northern companies are increasingly becoming competitive with their counterparts in southern Canada.

We know that goods and services are now available in many of our communities which were not available a decade ago. We know that the hotel facilities in many of our communities are far superior to what was available in the not so distant past.

Madam Chair, I stated earlier that the BIP was just one tool utilized by this government to address our economic circumstances. But I believe it is an essential tool. This government vigorously and successfully fought to have this essential policy exempted in the Agreement on Internal Trade and throughout our consultations and presentations, there emerged a clear majority who believe the BIP remains an important and necessary policy of this government.

The business incentive policy has now been under review for almost three years. We have consulted with the public on two occasions. We have consulted with the Premier's panel. We have consulted with the standing committee, Mickey Mouse and with the Joint Minister/Ordinary Member Working Group. Sorry, I just wanted to know if you were paying attention. We have published discussion papers and we have conducted various reviews and cost benefit studies. I believe the time for study, review and consultation has past. It is now time for decisions to be made. Thank you.

Thank you, Mr. Kakfwi. Are there general comments by Members? We hope that you have been attentive to the fact that we would prefer you not to have questions contained in your general comments, but that you would save those until later. General comments. Mr. Roland.

Thank you, Madam Chair. I think that it is as Mr. Kakfwi finished off. It is time for some action on this issue. I have shared concerns with businesses in the community I represent, I guess, the way it exists right now. Questions come up that how can a company who is outside of the region get lower points than a company from within a region. All these things play into this need for the policy revision. I think that it is a tool that can still be used in the north. But it definitely needs to be adapted. I hope that at the end of the day that we have made some changes to have a positive impact on communities and local businesses. Thank you.

Thank you, Mr. Roland. General comments. Mr. Miltenberger.

Thank you, Madam Chair. The intent of the BIP as laid out by the Minister in another document, is a good one and that is how to keep things in the north. The issue is that of implementation and the complex system that we have created in trying to meet that goal. But no matter how we try to put additional rules in place to make sure that the policy is honoured, it seems that there are ways developed to circumvent the system that is in place. Going through one or two or sometimes three northern companies before bringing in people from the south. The whole issue of storefronting that is laid out in the work done by the committee. So the question to me is how do we make changes that are going to improve the system and can we do anything substantive given the complexity of this particular policy and the fact my community, like Mr. Roland's, and like this House is split on the issue. Some people think that BIP is very essential and should be enhanced and improved. Other people think that we could do away with it or people think that it is just corporate welfare. I think there is a clear need to maintain northern business in the north, government money in the north but how do we do that. I think that the committee that was struck came up with some good recommendations. The one issue that I think we have to make decisions on and not study any further is the one of the grandfather clause. I think we should be very clear identifying that corporations that make billion dollar profits, that are internationals, should probably not be covered under BIP. That was not the intent of the program.

My own preference, I still think there is hope for the Yukon model where they give you a tax incentive at the end once you have completed the work. That you do not have all these up front costs and structures in place trying to monitor things ahead of time. Before the contract starts is the way to go in the long run, but I do not think that we are going to be able to make substantive changes given the complex nature of this particular policy prior to division. So I think that we should seriously look at the recommendations of the committee and the ones that they reached consensus on we should concur with, and then maybe talk a bit about the ones where there was no consensus but wide clear direction. As the Minister said, I do not think it is a case of studying things, even like the grandfather clause any further. But we should say something definitive on the issue as an Assembly to provide clarity for the next 800 days because I am sure that this particular policy will be debated at length after division as well as each new territory seeks to chart its own path through this particular area. Thank you, Madam Chair.

Thank you, Mr. Miltenberger. Mr. Steen. No, Mr. Steen. No. Okay. Mr. Barnabas.

Thank you, Mr. Barnabas. General comments. Mr. Picco.

Thank you, Mr. Picco. General comments, Mr. Ningark.

Thank you, Mr. Ningark. General comments. Next I have, Mr. Krutko.

Thank you, Madam Chair. As the Member of the working group, basically we have put in front of you seven recommendations in certain areas we felt that should be more discussions on and concentrate on those particular issues in relation to the accommodation directive and the question about bed and breakfasts versus hotels. The other area was looking at the northern manufacture directive. There was a lot of long debate on that one because right now there is no policy in place to deal with that. As Mr. Picco stated the cost has to make sense. That the cost of producing something does not cost extremely more than what it costs to ship it from southern Canada.

Also, in regard to the whole question about northern and local labour, we did look at the whole aspect of what is in other jurisdictions, such as the Yukon, where it is a tax rebate where you get it at the end of the project.

A lot of time was spent in regards to the discussion of the grandfather provision. The grandfather clause where a lot of concerns were raised in relation to the corporations and businesses that are listed and are multimillion dollar corporations which have southern based headquarters in southern Canada, and also operate all across the country, and also overseas.

Then, the whole question about the bid adjustment was raised which we looked at the fairness especially in relation to the community opportunities in which there is some sort of incentive. So sort of balance it out between northern and local.

The other question was in regards to the northern only tender in relation to the amount that has gone from $30,000 to $25,000 that we looked at the possibility of seeing what was there. But one thing that I think that people have to really realize here is that in relation to the international trade agreement that there is an exemption put forth in relation to this protection for the people in the Northwest Territories. I think that is one thing that people sort of overlook. I think that is something that we have to be aware of that this is a protection mechanism that special provisions were made for this type of protection for people in the north and northern operators. So that is something that we have keep in mind when we are looking at this thing. You cannot just throw it out because it is there for a purpose and one of the main purposes, it is a protection mechanism especially in regards to the International Free Trade Agreement.

Thank you, Mr. Chairman. Mr. Chairman, I would like to start off stating that I believe the statement put forward by Minister Kakfwi. It is fair and it describes the BIP in all its glory. The only short problem that I see in the statement is it seems to miss the fact that the BIP is a subsidy. It is a subsidy from this government to business. As a subsidy, it should be looked at in that form. As we go through the budget we realize that every subsidy almost is being cut 10 percent, 50 percent or 100 percent in some cases. So, we should look at it in that form. There is no doubt that the statements made by the Minister as to the benefit of BIP at one point, probably, was all true that they did serve the purpose. I would even suggest that if you look at the number and the list of the grandfather companies and the fact that many of them are multimillionaires now is that the result of BIP? I am not suggesting that it is but I have to look at it that way too. It obviously benefited them. Some of them enough to put them in the million dollar bracket. So, we must then ask ourselves should we continue to apply BIP to these big companies. At what level do we stop applying BIP? I am not sure that if eliminating the grandfather clause will reduce the cost of implementing BIP enough so that we can say we are actually eliminating it 5 percent, 10 percent overall the cost of BIP. There is one thing that is quite obvious is that the BIP is not only in capital. BIP is right through the whole government expenditures, O and M, everything that can be confirmed by the list of companies that are grandfathered, that are benefiting from the BIP. It is through the whole system. So it is hard to track and put a dollar figure on it.

Last year I put forward a motion in this committee that we freeze the BIP until such time as we could define what exactly it is costing us and what the benefits are. Now since then, the government through briefings that we have had with them have indicated quite clearly that this BIP subsidy is still quite heavily relied on in the smaller communities although it might not be necessary anymore in the larger communities like Yellowknife or Hay River or Fort Smith. I cannot leave out Fort Smith. You know we did get a fairly good education from the government as to there being some benefits to the small communities, but I think there is one thing that came clear in the discussions that we have had with government. It is that the BIP is not necessarily required, to my understanding anyway under article 24 of the Nunavut Land Claim. It simply says in the land claim, the way I have been told anyway, that something similar to the BIP would be in place in Nunavut.

Thank you, Mr. Chairman. I have spoken at length in this House before through Members' statements and committee of the whole in support of the business incentive policy. I believe it is a policy that does need adjusting and modifying and refining at certain times and certainly there are areas right now that perhaps we should be looking at changing, but the basic essence of the policy, that being to support the purchase and supply of northern goods and services from northern companies, is still one that I believe this government should hold to. That is not some lofty, philosophical policy.

We need to look hard at why we would have such a policy in place. I think the answers to that are obvious. It increases labour development, it increases the numbers of jobs in the north, it enhances economic development, that is why we should support it. It is unfortunate that we cannot come up with a comprehensive look at quantifying the benefits versus the costs, because I am quite certain that if we could identify the benefits of the business incentive policy, every Member of this House would be satisfied that this is a policy well worth keeping and perhaps with some minor adjustments.

My friend, my colleague, Mr. Steen, has referred to the big companies that have become millionaires under the assistance and subsidy of the business incentive policy. Could I suggest that the big companies that have a presence in the north became big by working hard and they also have a big payroll, they employ a big number of northerners, and they have a big overhead to maintain. If they became that big, they generally employ quite a number of people and I do not think that we want to start playing around with that at a time when the public service is being reduced. I think we need to do everything we can to enhance growth in the private sector.

As a government we say we want to pull back, we do not want to be responsible for creating jobs, but we want to create an environment whereby the private sector can develop and create those much needed northern jobs. If we do not have the business incentive policy, what are the alternatives? That is something that we also have to consider. At a time when we are cutting back in our capital expenditures as a government too, we have to understand that there are small and medium sized construction companies that have grown up here in the north that are going to have a hard time coping and struggling with this drastic reduction in capital projects here in the north. They have to get through this time on a lesser amount of work and a lesser amount of projects out there, and I think that to start interfering with showing them preference is going to be a mistake. They are going to have a tough enough time hanging on through these hard times. If we think that the increase in rates of people who are requiring income support have gone up in this past year, I think that all we are doing is inviting that to escalate even further if we pull back this very important support to northern business.

With that, Mr. Chairman, I think that I should also actually touch on the issue of the manufacturing. Mr. Picco, my colleague from Iqaluit, raised a good point when he talked about manufacturing. Should there be a manufacturing policy that would require someone in Iqaluit to purchase out of the west? That is why I think that the 20 or 25 percent limit is a reasonable limit to put on as an added charge, on manufactured goods. If the cost of shipping and handling becomes prohibitive then, obviously, it would be over the 25 percent and those companies would not have that opportunity, but a 20 or 25 percent allowance for people manufacturing products in the north, I believe, is reasonable. Certainly there is a lot of manufacturing in my riding, but it is increasing in a number of other communities as well.

The reason why I think we could justify providing them with a greater northern preference allowance is because the type of work manufacturing is, it is more labour intensive, so it does provide greater benefits to northerners and there are not that many things that you can effectively manufacture in the north. We are kind of a captive market here to suppliers and manufacturers in the south, but if there is the odd thing that we can break away and sensibly manufacture here in the north, then I think this government should support that. Like I said, I wish we could quantify the benefits of this business incentive policy, because I am sure that everyone would see that it is well worthwhile and I will certainly be supporting its continuation and modifications where necessary. Thank you.

Thank you, Mr. Chairman. I think I can acknowledge, like others have, that at one time the BIP was a very essential program for northern manufacturers, northern construction people, and other industries, but I have to look at the original intent of the BIP and that was to allow northern companies to get the contracts and to make them competitive. I do not think it was intended that these companies should be subsidized by any means. My feeling is that, in many ways, the BIP has become very successful and it has achieved its intent. I say achieved. The question that really needs to be asked is, is it needed everywhere now? Is it needed by all those companies still? How badly?

We have to remember that this is a costly process and I would like to address the question of cost at some point. That cost is being taken away from other badly needed programs, social issues, we do not have a job creation program in the territories. We are spending millions of dollars in this area, but does it necessarily create more jobs if these companies still get the contracts without the BIP? The question that has to be asked is, can you ensure that northern companies will continue to get the contracts? Because that was the original intent of it. I think it is correct. We need to address this, we need to take some action. The BIP policy is complex, it is not as simple as perhaps initial appearances. A lot of people think that we need to do away with it, other people think we should keep it.

Now, looking at the recommendations of the committee, the northern manufacturing directive, yes, again, we are getting into a program, though, where we are saying supply funding for northern manufacturing companies. Is there a way to address that other than through a 25 percent increase in cost? These companies, presumably, are manufacturing now so can they not continue to manufacture and supply their goods, if they are guaranteed that they get so many contracts?

Bed and breakfasts. The recommendations by the committee make sense to me. On the grandfather clause, the multi-nationals, I agree, if you are talking about banks and so forth, but there are a lot of companies listed there that are northern companies. Just because they are large does not mean that they should not be competitive. If the BIP was kept does not mean that they should not be considered the same as others. They employ a lot of people.

The BIP is applied, like Mr. Steen said, it is applied everywhere in the government. It has tentacles all over the government with small, little purchasing items to huge, huge contracts. It boils down, to me, to the main question of, what is this costing and can it be downsized? Can we save money by changing the system? I would like to address that question later on. Thank you.