Towards Best Practices For Cost Recovery*: A Summary of the First Session
* Note: Effective August 12, 2003, the External Charging Policy replaced the Cost Recovery and Charging Policy of 1997. The following document was created under the 1997 Cost Recovery and Charging Policy.
Table of Contents
Introduction
The theme for the first Best Practices session was "Making Sense of Cumulative Impacts", that is, working with the challenges of undertaking cumulative impact assessments as required by the Treasury Board's  Cost Recovery and Charging Policy. The Policy states:
Departments and agencies must work with clients to assess cumulative impacts of multiple fees from all federal sources, and assess proposed fees in that context.
Three presentations were offered and were followed by a panel and plenary discussion period. Following are highlights from the presentations and the discussions.
Highlights from the Presentations
Cost Recovery in the Canadian Food Inspection Agency
Gary Kuffner's presentation described the experience of the Canadian Food Inspection Agency (CFIA) in developing cost recovery programs.
Mr. Kuffner began his presentation by providing an overview of the mandate, mission and objectives of the CFIA and a summary of Agriculture Canada's relatively long history of managing cost recovery programs. Taking corporate priorities and history into account, Mr. Kuffner outlined aspects of CFIA's programs that have proved to be important. These include: a set of guiding principles; a consistent approach to a wide range of programs; transparent costing of all of CFIA's Abased activities; extensive consultations with clients; and, ongoing annual reviews to adapt and amend programs as required.
CFIA's cost recovery guiding principles indicate how CFIA has reconciled many competing policy objectives and institutional pressures. CFIA's principles are that CFIA will:
- not compromise health and safety
- honour international trade agreements
- conduct open, transparent consultations
- minimize the impact on Minister's legal liability
- use a blended approach to reduce, avoid and recover costs
- apply cost recovery to areas where "private good" is dominant
- use an equitable approach strive to minimize impact on competitiveness
- make no exemptions or exceptions if there is a private good and the beneficiary is identifiable.
Mr. Kuffner also described how CFIA has worked with Treasury Board. CFIA found Treasury Board very helpful in explaining cost recovery policy requirements and in working with CFIA to refine the policy. Treasury Board supported CFIA in finding ways to implement the policy so that the requirements of CFIA's programs and clients were addressed. Key to CFIA's success has been its work with its client sectors. From this experience, CFIA now works with the recognition that:
- changing paradigms takes time (i.e., client expectations about services)
- clients are most interested in equity (i.e., how the competition at home and abroad are affected by domestic requirements)
- "user say" should be proportional to "user pay": clients must be listened to, while bearing in mind that the Minister is responsible for maintaining legislated standards
- cost reduction remains a priority since vote net funding means that funding to maintain service levels depends on revenues received
- alternative service delivery can sometimes reduce costs
- deregulation in some areas should be considered
- service standards and complaint resolution mechanisms should be developed
In closing, Mr. Kuffner summed up factors for meeting the requirement of cumulative impact assessment. These include: working closely with clients to determine what can feasibly be assessed; taking into account the type of information/data available; and, evaluating how clients assess the analysis of, and conclusions about, cumulative impacts.
View from the Outside
Doug Blair's presentation provided insights into the views of industry by looking at the complexity of the issues involved in assessing cumulative impacts. To start, Mr. Blair looked at how fees can affect a client sector, taking into account considerations such as investment prospects, range of products that might (or might not) be developed and impact on product prices.
Next Mr. Blair looked at the Treasury Board requirement and some of the challenges of measuring cumulative assessment: for example, measuring impact on individual products, business lines, firm developments and on an industrial sector as a whole (e.g., investment, innovation, GDP, growth, jobs).
Mr. Blair also reviewed responses to adverse impacts (e.g., fee reductions for individual products; limits of total fees paid by companies as measured by sales or profit; limits of fees based on percentages of industry sales or profits). He observed that the prospect of reduced fees raises a number of issues: fairness; impact on program revenues; and, impact on policy objectives for cost recovery programs.
In looking at the scale of the cumulative burden of cost recovery on clients and government, Mr. Blair reviewed a number of factors:
- costs of total fees charged
- costs of administering cost recovery programs
- fees charged by other departments (and the related administrative costs)
- costs to consumers (e.g., reduced choice)
- related economic costs (e.g., productivity, growth, investment, competitiveness, jobs).
In closing, Mr. Blair provided an example to demonstrate how $215 million (M) in regulatory fees charged to manufacturers reduced sales by $307M, reduced the GDP by $146M, reduced employment by 2,500 and resulted in net revenues of $46M. With this example, he offered for consideration the questions: whose concern is this and what are the implications for Health Canada's fees?
Panel and Plenary Discussions
Following the presentations, questions were posed by the Chair to the panel of presenters to initiate a panel and plenary discussion.
What approach would you suggest departments take in addressing cumulative impacts?
As the first response was that Treasury Board should provide greater guidance and leadership, subsequent responses concerned Treasury Board's role. Sentiments differed. The experience of some was that Treasury Board provided sufficient support and that Treasury Board's limited role allowed departments to solve the challenges of particular programs in ways that worked best for the program and client sector concerned. Others favoured Treasury Board taking on a more active role by providing more definitive guidance as to expectations, scope and approach.
To address the cumulative impact of fees and lessen the financial burden, would a cap on the fees for each company help? (A "cap" was described as being a limit on fees so that fees would not be greater than a pre-determined sum or percentage of sales.)
The notion of a cap met with a mixed reception. For some programs, a cap would be of little use given the range of possible fees that might be involved. For others -- particularly where fees covered services with clear benefits to the payers, the concept was seen as distorting the issues relating to the demands for services. On the other hand, the concept of a limit on the fees imposed by government was seen as being: of interest to industry; essential as a means for some programs to support program objectives in a cost recovered environment (e.g., preventing non-availability of products); and, relevant to other government policies (e.g., policy supporting small business in developing or pursuing innovative technologies).
If fee reductions were allowed based on some specified criteria (e.g., sales), how might a department confirm/verify that criteria have been met (e.g., audited sales records, certification, audit program)?
Responses to this included: keeping verification simple (e.g., having company officials sign off, conducting random audits) and working closely with clients to avoid getting into the business of conducting audits. One observation was that if there is indeed a financial burden, the onus should be on the industry concerned to prove that there is a burden.
To support cost recovery programs, should these programs be given greater flexibility concerning Treasury Board rules (e.g., carrying forward of revenue) and accounting mechanisms (e.g., multi-year or non-lapsing authority)?
Some observed that some departments have most of the necessary flexibility, the key one being able to carry over Vote net revenues between fiscal years. It was, however, observed that departments have this flexibility if they choose to use it through the 5% lapse carry over provision. The observation was made that some form of agency status may be required to allow some additional necessary flexibilities. It was pointed out that there are a wide variety of different special operating agencies with quite different powers and reporting relationships and that this is a fact not always well understood either within or outside government.
Could the use of fee reductions for non-performance (e.g., reduced fees if performance targets not met) support a more business-like approach (e.g., improved value for money/increased client satisfaction)? Would this approach compromise the credibility of the regulatory process?
This concept also met with a mixed response. One response was that industry would agree with linking fees to service and would also welcome fee reductions for non-performance. (Apparently there is a proposal that the American process for approving pesticides adopt a dual track system: a high fee for fast track processing of applications, a lower fee for the slower track.) Another response was that if penalties were introduced concerning service delivery, then there should also be penalties for non-compliance with service requirements (e.g., submitting incomplete forms). As to the impact on credibility, the observation was made that this is already an issue with the public and media, the concern being that the payer somehow influences regulatory decisions. This perception would only be heightened by a formal link between fees and performance.
This discussion raised a broader point about the rationale for introducing fees for services: as a means for supporting better quality service or for reducing government costs (i.e., to support programs whose funds were cut). To this point, the observation was made that industry bought into the notion of cost recovery as a lever to support changes in the way government operates and to cut costs.
When someone questioned what benefits have been had from the introduction of cost recovery requirements, it was observed that cost recovery has supported greater efficiencies in program delivery and has had an impact on the demand for services and the quality of, for example, drug submissions. It was also noted that cost recovery has proven to be a practical response to the fundamental challenge of funding services without raising taxes.
The Presenters
Andy Butterfield is Manager, Office of Management Services, Therapeutic Products in HPB.
Mr. Butterfield joined the Bureau of Drug Research in 1971 and has worked within HPB in more than a dozen positions in the areas of research, policy, planning and management. In 1994, Mr. Butterfield joined the Therapeutics Products Directorate (then Drugs Directorate) as the directorate operational planner, with responsibility as a "sideline" for coordinating the introduction of revenue generation with a target of $1-2M. After the 1994 Program Review the TPP cost recovery initiative became somewhat more ambitious: generating $33M last year and an anticipated $38M this year.
Gary Kuffner is the Assistant Project Leader at the Business Initiatives Centre of the Public and Regulatory Affairs Branch at the Canadian Food Inspection Agency. He has worked in many areas within Agriculture and Agri-food Canada over the last 24 years and with cost recovery issues since 1985. Since 1994, he has been involved in the implementation of the CFIA's Business Alignment Project. This project is tasked with developing a coordinated response to the Program Review's 22% reduction of the Agency's resource base. The project has relied on a "blended" strategy of cost reduction, cost avoidance and cost recovery initiatives to generate $47M in new revenues and $24M in resource reductions.
Doug Blair is an economist specializing in federal regulatory policy and process, business impact assessment and cost-benefit analysis. Mr. Blair spent 12 years working for the federal government. While at Treasury Board, he helped develop the current federal regulatory policy, the policies governing business impact assessment and the business impact test. Over the past few years, Mr. Blair has conducted a number of business impact assessments for Health Canada, including drug submission fees in 1995, establishment licensing fees in 1996 and medical device fees in 1997. As President of the Blair Consulting Group, Mr. Blair provides economic analysis and strategic policy advice to a broad range of clients, including Health Canada, Industry Canada, and a number of industry associations. Most recently, he completed a multi-sectoral study of federal cost recovery for mandatory regulatory programs called "Where does the Buck Stop?" for the Business Coalition on Cost Recovery.
Other Links
For further information and copies of the presentations, contact the Office of Revenue and Costing
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