Federal IT contracting cost more than in-house services: PBO report

OTTAWA — The federal government spent more on contracted information technology services in four federal departments in 2022-23 than it would have if the work had been done by public servants, the parliamentary budget officer found in a new analysis.

A report from the PBO published Thursday said the federal government spent $18.6 billion on professional and special services in 2022-23, with $2.6 billion of that money going to IT.

The departments and agencies spending the most on IT were the Canada Border Services Agency ($287 million), the Department of National Defence ($346 million), Employment and Social Development Canada ($268 million), Public Services and Procurement Canada ($230 million) and Shared Services Canada ($256 million).

Those departments and agencies accounted for more than half of total government spending on IT contractors.

The PBO said that in the four departments it studied, IT services provided by outside contractors cost taxpayers between 22 and 25.7 per cent more than they would have if the services had been provided in-house.

The PBO said the Canada Border Services Agency did not share enough data to be included in the results.

Parliamentary Budget Officer Yves Giroux said the House of Commons government operations committee asked his office last March to undertake the study due to concerns about government contracting.

In an interview with The Canadian Press Giroux said those concerns arose from a few issues including the controversy over ArriveCan — a COVID-19 app created to allow travelling Canadians to confirm their vaccination status which ended up costing more than $60 million. There was also a lot of concern about the overall increase in the amount being spent on outside contractors even as the public service has expanded.

Several federal unions have called on the federal government to reduce its reliance on contracted services.

While the PBO was asked to look into the work of more than 600 companies hired by the federal government, it said it had to narrow the scope of the probe to four government departments due to difficulties in accessing information. It examined 93 IT services contracts for 2022-23. The contracts analyzed involved contractors who were paid on a per diem basis and worked more than 200 days.

The federal public accounts report shows Canada spent $20.7 billion on outsourcing in 2023-24, up from $18.5 billion in 2022-23, $17.5 billion in 2021-22 and $14.7 billion in 2020-21.

The Government of Canada website indicates that the number of federal public servants has grown from 300,450 in 2020 to 367,772 in 2024.

Giroux said contracting out services is more expensive than using internal expertise, “even when you make generous assumptions.” The PBO report compared the cost of hiring contractors to what the government would have paid if it had tasked public servants with the work.

Giroux said the report based its cost estimates on having the most senior government IT professionals do the work.

“Even then, contracting is about 25 per cent more expensive than using the internal expertise,” he said.

The report said that, with the data that was provided, the PBO was “unable to determine the underlying reason for these premiums and whether these premiums were justified.”

The federal government has committed to cutting down on contracting. Former Treasury Board president Anita Anand launched a spending review that outlined reductions of $500 million for contracting and travel. The minister also set out guidelines for public service managers on when to outsource work and when to leave it to government employees.

Giroux said the rising cost of outsourcing is “surprising when you put that in the context of government statements and announcements on their intentions, but not really surprising if you look at the historical record of the last several years.”

“I don’t think the public service will be very surprised. It will probably confirm what they already think or suspect,” Giroux added. “Whether they’ll be irritated or frustrated, I can easily imagine they could be.”

Martin Potvin, spokesperson for the Treasury Board of Canada Secretariat, said in a media statement that contracted services have “always been an important part of how the government delivers programs and services to Canadians.”

He said departments can hire outside contractors for professional and special services, such as legal services, management consulting, protection services, scientific services and engineering.

The PBO report encouraged parliamentarians to ask the Office of the Auditor General to conduct an audit if they want a more in-depth review of IT contracting.

This report by The Canadian Press was first published Jan. 16, 2025.

Catherine Morrison, The Canadian Press