Limitation of Liability in IM/IT Contracting Background, Current Situation & Industry Concerns

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

2. Presentation Goal T0 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 September 1, 2003 SSC RFP’s Timeline 2000- 2003 2012-2013 2000-2012 25 years prior PWGSC Treatment of Liabilities #1 ITAC concern Harmony TBS Policy & PWGSC Special Authority = Workable Foundation for PWGSC Acquisitions Branch Framework, with Refinements Again #1 ITAC Concern as SSC Undertakes Enterprise Procurement PWGSC IT Branch Quest & Due Diligence On ITAC Concern

4. GoC 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