National Defence Committee on April 29th, 2010

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chair, and thank you to our witnesses.

First of all, you mentioned the companion document to the defence strategy. To what extent should it be detailed? There comes a point where, yes, we laid out our general strategy for defence, but with a companion document there are security issues related to it. How much would you expect to be involved or included in such a document?

[Timothy Page]

We have suggested that the Canada First defence strategy does an excellent job of laying out what the government's intentions are to rebuild the military, and there's an investment plan, which we understand has been adopted by the government, but there is no alignment of those two documents with economic and industrial objectives for the country. And because the government is committing to spend a quarter of a trillion dollars over the next twenty years, we think it makes sense, as they go forward to rebuild the military, that they do so with one eye on rebuilding the military and one eye squarely focused on nurturing and developing the Canadian economy in capability areas that will serve future military needs and serve our national economy.

So how detailed does it need to be? We don't know. What we're requesting is that there be a commitment at least, and a recognition that an industrial plan is important to the country and that it be aligned effectively with the Canada First defence strategy and frankly with market opportunities, because our domestic market and our domestic requirements are relatively small compared to those of the global arena.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

How would you propose that we would include our strengths in science? So we have our researchers who are deciding on their projects. To some it looks a tad haphazard, but aligning our strengths in scientific research--we are the leaders in the world in certain areas--and matching that with industry and defence as well....

[Timothy Page]

Totally. Our report asks for as much. We are not going to be competitive on the low-cost scale of the defence industry. We need to be competing in the knowledge-based area, because as a small market we are more likely to be suppliers to the supply chains of large global companies.

Those big companies aren't looking for legacy technology. They're not looking for second- or third-best; they're looking for best in class, and Canadians are good at that. We have a great education system driven by engineers and scientists. We should be capitalizing on our human resource capacity to focus on those areas of the defence environment where Canada can be competitive.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

The observation I've made is that in the United States--this is true around the world, but especially in the United States--they've managed to grow defence industries in the proximity of their military bases. They recognize the synergy and the cost savings involved in servicing the different pieces of equipment.

We have that to a certain degree. We have Med-Eng, which makes the bomb protection suits. They're in Pembroke, maybe 30 miles away from the base. Those bomb suits were in the movie The Hurt Locker. We have the frag vests that our committee members wear when we visit Afghanistan. Even Bubble Technologies, the world's leader in radiation detection, was more of a function of having the national research universal reactor close by, and its scientists.

What is Canada not doing that we're not growing industries to the same extent? After all, industry is jobs, and jobs are the currency of this decade at least.

[David Stapley]

I'd like to start by commenting on what you referred to in the U.S., which is the community of industrial capacity outside the bases. The Communications-Electronics Command in the U.S. is a good example, because it buys for many different parts of the U.S. military. It has spawned a fine group of SMEs close by. They talk to the defense department and get real-time responses to their needs, so the industry grows.

We simply don't have enough action at our bases to justifying spawning that many companies. Some do. The guys who provide repair and overhaul services could be close by.

The second thing you alluded to is crucial. That's the line of sight and connectivity between the investors, the scientists, the industrialists who build the stuff, and the users. Everybody works hard at it, but we need to find a better way to bring that community together to pick the winners--and I don't mean at the expense of losers. If we're doing something in science--it could be the Med-Eng example--and we're going to buy it, let's connect it and get it done with a minimum amount of process.

That's what you hit on that's so relevant to what we're proposing. How do we streamline that without losing accountability, and create the jobs locally?

Thank you.

[The Chair, Conservative, Maxime Bernier]

Mr. Page.

[Timothy Page]

We haven't yet described a vision of what the country expects from its defence industrial base. We haven't identified, nurtured, and supported champions such as you just identified. We haven't identified a strategy, and strategies that can be used to support them.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

I will now give the floor to Mr. Harris.

[Jack Harris, NDP, St. John's East, NL]

Thank you, Chair.

Sorry for jumping in and out. I had other demands on my time. I hope my questions haven't been asked, although I do have some notes.

I'm interested in your suggestion that a fixed percentage of the defence capital budget--I think you said 5%--be put into R and D to be managed by the industry. How do you see that working? You're asking the government to devise an industrial strategy, and the government will say, “Here are the sectors, and these are sectors where we want to see the action”. Then you're suggesting government should say, “You decide where the R and D should take place”.

Doesn't that give rise to conflicts within the industry itself directly with the competitors or others? Isn't it really something that the government should decide, presumably with advice from industry?

[Timothy Page]

I'll mention two things, if I might, in an attempt to answer your question.

Our consultation process told us that there is a mounting deficit in private sector R and D related to defence, and that is in part driven by the absence of an industrial strategy that would drive private sector investment. We can't be complacent about that. The status quo is not an acceptable option because the world is not waiting for Canada to catch up. In the opinion of our industrial sector, more money into private-sector-led R and D was important. Now, who drives that bus? There has to be a relationship between industry and government in terms of what is important, but once that decision has been made--and let's assume that it's co-developed and that each party is putting some money in--then the question is what do you do with the results of that S and T or research and development? Who owns the intellectual property associated with that? It's our view that the ownership of that R and D should be largely held within the industrial hands, because industry is much better capable of commercializing that R and D work into product capability and services that will serve not just a military customer but also a commercial customer and thereby make that entity more competitive in the domestic environment and more ready to compete internationally.

[Jack Harris, NDP, St. John's East, NL]

But you've also talked about projects co-invested into by industry and government that would have capabilities that were created by industry and government that then would be used. But you don't see that as a sharing of the intellectual property aspect of it?

[Timothy Page]

As the technology is being co-developed, each has an interest in that. The question is for what use, for what end use? The end user obviously needs access and an understanding of that technology, as Mr. Stapley was commenting earlier, but so too does the private sector in order to be able to maintain its role as the steward of military equipment and in order to continue its technology evolution to support future military requirement and commercial opportunities, both of which make it a more competitive private enterprise.

[Jack Harris, NDP, St. John's East, NL]

How far down the road have you gone in identifying or suggesting particular sectors or expertise that you would see as being the front-runners in an industrial strategy for Canada?

[Timothy Page]

The report is somewhat timid on that front only because it would be presumptuous of us as an organization to be suggesting where the government might end up. What we're asking for is a dialogue, a commitment to a defence industrial strategy and then a dialogue to assist in the development of that.

But having said that, there are very clear champions in this country who are supporting the military requirement and supporting the domestic economy. Those would be a good place to start. Look at the uniqueness of where Canada has requirements, whether it be in the great north, whether it be the expanse of maritime environment or our land border or our increasing support to international peacekeeping efforts in failed and failing states. There are a number of areas where the government might land in answering your question. But the jewels in the crown of the defence industry for the next 15 years are around defence electronics.

[The Chair, Conservative, Maxime Bernier]

Thank you.

Now I will give the floor to Mr. Hawn.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chairman.

I've got three, maybe four, fairly short questions.

Public Works established the position of procurement ombudsman in 2008. Have any of your members had dealings with that office? And if so, is there any feedback on that?

[Janet Thorsteinson]

We have not had any specific feedback on that. If you look at the sorts of requirements that can be dealt with by that ombudsman, as opposed to those that might go to the Canadian International Trade Tribunal--or would have to go to court should there be a national security exception invoked--they are not really in the kind of capital acquisition zone that most of our members would be interested in approaching.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Good, thanks.

The government is trying to incorporate some positive incentives into contracts, carrots versus sticks. What's your view of that? Do we need both? Are both carrots and sticks appropriate? How would you see that developing in the future?

[David Stapley]

I think the answer to that is yes, because it is a matter of degree, and as long as there is balance and risk and reward, fine. Industry has to be very accountable for its performance. I don't think there is any question about that. We simply ask for balance on the risk management equations. So yes, carrots and sticks are fine.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

My last question, saving it for last on purpose because I really want to get it on the record, is funding stability. We've talked about the defence industrial strategy and so on and we have talked about funding and what not. I know what the answer is going to be, but I have to ask it to get it on the record. How important do you think it is to the defence industrial strategy, to the future of our defence capabilities, to the future of our industrial capabilities, that we have stable, long-term, and adequate funding?

[David Stapley]

I think it is important from two perspectives. From the procureal perspective, I think it is obvious, we can plan our head count, employment levels, we can plan our investments, people and technology, and then because we are prudent we discount it a little bit so that we don't have to go through a shock treatment, something we try to avoid. It is a very hard thing to do, as you know, when you have to downsize.

Stability in the investment stream is important, but we are realistic too. We have to understand the government's side of it. That is where the communication and openness is important. Why does the industrial strategy matter in that context? Arguably, to some degree it is where we can stand up and say we have created x thousands of jobs, we have advanced the technology engine by a factor of two or three, and we have positioned us to exploit the following markets with very specific examples because of the IRB strategy attached to a program, or better yet, an industrial strategy. I think it makes it a little bit easier for the very difficult trade-offs that the government has to make between social programs and defence procurements, for example. In that sense, I think it will certainly help stabilize to some degree the investment stream, which certainly helps us, so there is at least an indirect relativity between what we are advocating and the ability of government to deal with it, so we don't run through another fixed-wing search and rescue situation, where everybody was right but here we are.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I'll ask it in a slightly different way. There are various elements that go into making a success and in getting where we want to go. Can we get to where we want to go without stable, long-term funding?

[Timothy Page]

I guess the facetious in me would ask where you are trying to go. If the objective is to re-equip the military and the strategy is to buy off-the-shelf, offshore in-production capability, where there is likely marginal benefit in return to the Canadian economy and knowledge-based jobs, our report says that is a missed opportunity and one we wouldn't think to be a huge success. But fundamental is the long-term, stable, predictable commitment that this government has made to refurbish the military. That, in and of itself, is a good start but it is not sufficient for us as an organization to claim victory. Victory arrives when we have that funding commitment aligned with industrial objectives that allow for a win-win environment for both the military and the economy.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I totally understand, but the long-term, predictable, stable funding is a critical element of that.