1 Limitation of Liability in IMIT Contracting Background

1 Limitation of Liability in IM/IT Contracting Background, Current Situation & Industry Concerns Presentation to SSC Procurement Benchmarking Committee Sharon Chamberlain July 4, 2013

2 Presentation Goal T 0 provide the background on the genesis of the PWGSC Acquisitions Branch Framework for LOL in IM/IT Contracting and Outline the Current Situation Key Areas • Genesis of PWGSC Acquisitions Branch Framework and the Core Elements • Current Situation, SSC’s Approach & Industry Concerns • ITAC’s Request

3 Genesis of PWGSC IM/IT Framework Timeline 20002003 PWGSC Treatment of Liabilities #1 ITAC concern PWGSC IT Branch Quest & Due Diligence On ITAC Concern September 1, 2003 25 years prior SSC RFP’s 2000 -2012 Harmony TBS Policy & PWGSC Special Authority = Workable Foundation for PWGSC Acquisitions Branch Framework, with Refinements 2012 -2013 Again #1 ITAC Concern as SSC Undertakes Enterprise Procurement

4 Go. C Due Diligence for Solution Development (2000 to 2003) Contiguous work to develop the new overarching TBS Policy & a Special Authority to allow an exception for am area of special, indirect and consequential damages of third parties promulgated concurrently to TB Minsters Outcome: Approved in 2003 • Rigorous PWGSC Review § Consultations with Industry – Small Industry/PWGSC Working Group § Nature of IT § History of Occurrences § PWGSC funded Risk Study by Leading Software Industry § PWGSC funded Study on Insurance Availability § In-depth Review of Options § PWGSC Business and Legal Review § PWGSC IT Acquisitions wrote TB submission for exception § Developed risk models and accompanying standard clause and process to be used with clients • Rigorous TBS Policy Work § Joint PWGSC and TBS Work to find an overarching policy approach § TBS funded a review by a professor emeritus on risk and public policy § Close collaboration with TBS on PWGSC TB submission for exception § TBS wrote Policy on Decision Making in Limiting Contractor Liability in Crown Procurement contracts ITAC Communications at Political Levels on Criticality of Addressing their #1 Issue for the past 25 years

5 TBS Policy “Decision Making in Limiting Contractor Liability in Crown Procurement Contracts” • Key thrusts • Protection of the Crown • Contractor responsibility • Exceptional transfer of risk (TB exception for IM/IT procurement) • Risk based implementation (Four models see below) • Four models for liability • • Model 1: Standard commercial or military products and services … commonly available in the marketplace Model 2: Complex developmental products, services and construction contracts Model 3: Contracts where there is limited scope for negotiating liability provisions, … where no other viable alternative to serve a program requirement exists Model 4: Highly specialized services contracts in support of assuring the health, safety and economic well being of Canadians

6 PWGSC Developed Risk Assessments for IM/IT Standard Groupings • PWGSC IT Acquisitions Branch in concert with clients developed standard model 1 commodity/service risk assessments • • • Desktop products Software Telecom services IT Professional services Others • Other Models – Used as Applicable, some interpretation required

7 Current Situation & ITAC Concerns Environmental Changes ITAC Concerns • SSC enterprise procurement approach for IT architecture • SSC revisit of LOL on a file by file basis ▫ Sometimes adopts former PWGSC IT LOL framework unchanged ▫ Other times SSC business and SSC procurement perform new risk assessment and set limits and clauses for file • ITAC understands the SSC rationale is: ▫ SSC considers enterprise approach as having unique considerations ▫ SSC wants to ensure full accountability of the successful suppliers • SSC positions on “Other times” risk assessments causing major concerns for ITAC members • ITAC ‘s #1 problem as under Corporate Governance rules, officers cannot accept liability requirements that: � Create risks well beyond commercial limits � Cannot be demonstrated to be a genuine pre-estimate of actual damages � Create liability for events/requirements beyond those they have agreed to meet

8 ITAC Request – Some Questions Reevaluate PWGSC Acquisitions Branch IT LOL frameworks in context of SSC procurement strategies & goals • Considerations for SSC • Still buying standard commercial products and services • Software based solutions where bugs are inherent • Best commercial pricing (even lower) • Greater transparency when deviating from established PWGSC IT contracting frameworks • Is deviating required and warranted? Impacts? • Are higher than normal “industry standard” commercial LOL limits impacting competition, pricing? etc. • Do higher than normal LOL limits afford SSC greater accountability from suppliers? incent better behaviour? • How does this lever fit within an overall contract performance management framework?

9 The ITAC ASK ITAC requests that SSC: • Set up a joint government (SSC, TBS, PWGSC)/Industry Working Group • In the interim, continue with the PWGSC SACC clause • End goal • to establish a regularized and standardized LOL approach akin to the current SACC Manual clause

10