Marian Macdonald Assistant Deputy Minister Supply Chain Management Division

1. Supply Chain Management Presentation to the Information Technology Association of Canada (ITAC) Marian Macdonald Assistant Deputy Minister Supply Chain Management Division Ministry of Government Services May 27, 2010

2. Context • Procurement modernization is a priority initiative of the Ministry of Government Services • The Ontario Public Service does business with approximately 52,000 vendors each year representing $4.8B in spending • Supply Chain Management Division (SCMD) has been mandated to implement a suite of initiatives to streamline the procurement process making it easier for both vendors and government buyers • SCMD has also been mandated to ensure government procurement policies support environmental, economic, and social priorities • New trade obligations require Ontario to review its procurement processes, particularly the second stage processes of Vendor of Record arrangements

3. Standardized Terms and Conditions • SCMD is concluding an initiative launched in 2009 to standardize terms and conditions in IT contracts • Vendor input into this initiative was secured through a White Paper issued on MERX • SCMD also conducted extensive analysis of public and private sector practices and commercial practices • Consultation identified 9 common terms and conditions where standardization was sought by both buyers and sellers • Changes to these 9 common terms and conditions are expected to make it more attractive for vendors to do business with Ontario, remove barriers to entry for vendors, streamline Ontario’s procurement process and reduce costs

4. Standardized Terms and Conditions • Ministries will be required to utilize the standardized terms and conditions in most I&IT contracts • A change management process will support exceptions including a requirement to clearly inform Ontario’s vendor community of the changes made to the standardized terms and conditions • Ministries will still be permitted to use Limited Contract Negotiation Framework for more complex I&IT initiatives • This process allows a negotiated approach to terms and conditions identified in the procurement process

5. Standardized Terms and Conditions Issue 1 – General Indemnity Threshold • Vendors indemnify Ontario for damages arising from “anything done or omitted to be done” while performing their obligations Approach • Ontario is not proposing to change this requirement. • Modifications being made to limitations of liability will favour vendors and mitigate this issue.

6. Standardized Terms and Conditions Issue 2 – Limitation of Liability (LoL) • Vendor’s liability is limited by waiving indirect damages and capping direct damages based on risk analysis, except breach of confidentiality and infringement of 3rd party IP (uncapped). Approach • Ontario will modify the current practice. • Damages will be capped based on a risk profile of the procurement. The cap will be comprised of both fixed and variable amounts tied to a multiple of fees payable.

7. Standardized Terms and Conditions Issue 3 - Linkage between Insurance and LoL • Vendor’s insurance and the cap in the LoL are linked in Ontario agreements. Vendors are responsible for direct damages equal to insurance proceeds set out by the RFP plus the value of the cap in the LoL. Approach • Ontario will modify the current practice. LoL and vendor insurance will be delinked. • LoL to be total amount of damages recoverable by Ontario, regardless if vendor carried more insurance that would have covered a claim. • Per private sector agreements, Ontario will also exclude bodily injury and tangible property from the LoL cap as an offsetting risk mitigation.

8. Standardized Terms and Conditions Issue 4 - Intellectual Property (IP) Rights Ownership • Ontario’s current IP policy states that ministries “must obtain the necessary rights in any contract which involves creating intellectual property or providing it to the government”. Approach • Ontario will modify the current practice. • Ontario will adopt a vendor ownership model with one or more licences to Ontario.

9. Standardized Terms and Conditions Issue 5 – Termination for Convenience • Ontario can typically terminate agreements on 30 days notice without liability. Approach • Ontario will modify the current approach. • Ontario will change the agreement termination notice period from 30 days to 60 days. This is a more commercially viable approach that gives Ontario time to begin re-procure, as appropriate, while providing vendors with a longer notice period.

10. Standardized Terms and Conditions Issue 6 – Performance Warranty • Ontario often seeks long performance warranty periods resulting in higher Ontario costs and revenue recognition impacts for vendors. Approach • Ontario will modify its current practice. • Ontario will continue to specify a performance warranty period but structure it with two phases each with a distinct remedy. i) 120 day full warranty including returns, refunds, and right to terminate ii) Repair only after the initial 120 days.

11. Standardized Terms and Conditions Issue 7 – Acceptance Testing • Ontario RFPs and contracts do not always clearly set out acceptance testing processes resulting in uncertainty for vendors and potential revenue recognition issues. Approach • Ontario will modify its current approach. • Ministries will be required to adopt an objective approach to acceptance testing such as, but not limited to, quantifiable test criteria, time limited acceptance period (“x” days from date of purchase, remediation period) and “deemed” acceptance criteria.

12. Standardized Terms and Conditions Issue 8 - Setoff and Holdback • Both setoff and holdback provisions are used by Ontario ministries as a performance guarantee but can create revenue recognition issues for vendors. Approach • Ontario will modify its current practice to adopt more commericially viable provisions. • Setoff provisions will be eliminated. Holdback provisions will be permitted but where used will require ministries to include management provisions and milestones in contracts.

13. Standardized Terms and Conditions Issue 9 – Most Favoured Customer (MFC) • Most favoured customer provisions require vendors to provide Ontario with pricing provided to other Canadian public sector entities for like deliverables in like quantities. Approach • Ontario will modify its current practice. Ministries will be instructed to remove MFC clauses from procurements.

14. Standardized Terms and Conditions • Next Steps • SCMD proposes to issue a White Paper to inform the broader vendor community of the changes Ontario is making to standardize terms and conditions • SCMD is working with its legal community to draft new terms and conditions which will be embedded into Ontario’s procurement templates • Modifications will be made to the Procurement Directive to mandate use of standardized terms and conditions • Change management process will be launched across government to train ministries in the use of standardized terms and conditions • The new standardized terms and conditions will not be grandfathered into existing agreements

15. Consulting Services VOR Program • SCMD has launched an initiative to modernize its consulting services VOR program • Ontario currently has 5 consulting services VOR arrangements • Ontario establishes its VOR arrangements on a 3-year cycle with limited refresh capability • The consulting services VOR Program qualification process is cumbersome for both vendors and government

16. Consulting Services VOR Program • Key components of this program review are: • Establishing a methodology for establishing and renewing VOR arrangements including the frequency by which vendors can apply to a VOR arrangement • Differentiating between task-based and project-based consulting services by defining and clarifying assignment types and establishing service categories and roles that support clients • Establishing appropriate methodology for qualifying vendors depending on services being provided • Reviewing pricing models including use of fixed and per diem pricing • Establishing a methodology for enhanced vendor evaluation and measurement including a fair process to address non-performance

17. Next Steps • SCMD has launched consultation with ministry buyers to ensure changes to the consulting services VOR program meets the needs of ministries • A White Paper will be released (pre-notice is on MERX) seeking vendor feedback on a range of options that address each key component • SCMD will finalize its approach based on the consultations with both buyers and vendors • SCMD will launch the modernized approach to consulting services in 2011 when existing agreements

18. GreenFIT Strategy • Ontario is committed to leveraging its procurement spend to address priorities important to Ontarians including environmental, economic, and social priorities • Green innovation and technological leadership are the driving forces behind the GreenFIT strategy • The Government of Ontario is looking for new and innovative goods and services that can be piloted in a government setting and can contribute to reducing Ontario’s environmental footprint in areas including: • Reducing toxic and polluting emissions (including green house gases); • Supporting resource conservation (e.g. water); • Conserving energy; • Providing for renewable energy generation; and • Reducing and diverting waste.

19. GreenFIT Strategy • A joint initiative between the Ministries of Government Services and Research and Innovation, GreenFIT will create opportunities for green technology companies as they introduce new green innovative solutions into the local and global marketplaces. • GreenFIT solutions will be studied to measure their effect on the environment while they are in use by the government. • The Government of Ontario will showcase high performance GreenFIT solutions. This will provide an ideal platform for companies to demonstrate the effectiveness of their products to other potential customers.

20. GreenFIT Strategy • Open Expressions of Interest • This is an unsolicited procurement vehicle that allows vendors with an innovative green solution, that is not currently being sought under any other procurement process, to submit an idea to the government. • High potential solutions will be those considered to be innovative, are viable for use within the Government of Ontario, and demonstrate a strong potential for short and long-term environmental and economic impacts. • An open expression of interest is currently posted on the MGS ‘doing business with government’ website

21. Accessing the Open Expression of Interest 1) Access the GreenFIT webpage through: www.doingbusiness.mgs.gov.on.ca 2) Select “How to Participate” 3) In the Open Expression of Interest section, select the “self assessment tool” link. 4) Register to access the online self assessment process.

22. Accessing the Open Expression of Interest • Login and complete the three parts of the online self assessment process. The results of the self assessment will help determine if the project is suitable for a GreenFIT Open Expression of Interest. 6) Register for the Open Expression of Interest service. 7) A system generated email containing a GreenFIT ID# and a link to download the Open Expression of Interest template will be sent to you. 8) Complete the Open Expression of Interest template then submit to: greenfit.application@ontario.ca.

23. GreenFIT Strategy • Targeted Expressions of Interest • From time to time, the government will seek new green technologies or solutions that can be adopted to targeted operations, programs or processes. • Currently, there are no targeted expressions of interest available

24. Accessing Targeted Expressions of Interest 1) Access the GreenFIT webpage through: www.doingbusiness.mgs.gov.on.ca 2) Select “Targeted Expressions of Interest” 3) This area provides information about Targeted Expressions of Interest.

25. GreenFIT Strategy • Request for Proposals (RFP) • Ministries will seek innovative and green solutions through Ontario’s regular procurement processes by either allowing vendors to submit innovative products or by seeking ‘solutions’ rather than specific goods/services. • The Government of Ontario posts its Requests for Proposals on MERX. Applicable proposal requirements, processes and other information will be outlined in individual RFP documents.

26. Questions ?