National Defence Committee on Oct. 7th, 2010

[The Chair, Conservative, Maxime Bernier]

Mr. Hawn, do you have something to add?

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I appreciate Mr. Bachand's remarks. I mean, the motion is valid; it does follow the normal procedure of 48 hours--deux dodos, two sleeps. That has been the process for the five years that I've been here.

But I appreciate your comments, and I appreciate your support.

[The Chair, Conservative, Maxime Bernier]

Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

It sounded like Mr. Hawn indicated that Lockheed and Boeing are attending at a certain date.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I said that's what we are proposing.

[Geoff Regan, Liberal, Halifax West, NS]

I'm sorry, we thought you meant that...because members hadn't heard about--

[Laurie Hawn, Conservative, Edmonton Centre, AB]

No, no, we were just proposing future business.

[The Chair, Conservative, Maxime Bernier]

Do other members want to express their opinion? Do we have a consensus to approve the motion?

(Motion agreed to) [See Minutes of Proceedings]

The motion has been approved as it was presented, so we'll go on with our agenda for today.

Welcome, Mr. Williams. Thank you.

It's your turn. You are here as the former assistant deputy minister, materiel, Department of National Defence. I'm very pleased to have you here.

You are going to have ten minutes to speak to the members, and after that I'll give the floor to members. You have the floor.

[Alan Williams, former Assistant Deputy Minister (Materiel), Department of National Defence, As an Individual]

Thank you Mr. Chairman for inviting me to speak to you today about the Joint Strike Fighter.

Throughout my 33-year career in the federal public service I have had many opportunities to appear before you on a range of subjects. I always found it to be an honour and privilege to do so and I always enjoyed our exchange of views.

At the outset, I'd like to thank the clerk, Jean-François Lafleur, for distributing my expansive comments in English and in French. In my allotted ten minutes, I'll present an abridged version of those comments.

During my career I was presented with a number of opportunities that went well beyond my basic job description at the time, and afforded me an opportunity to do something exceptional for Canada and the Canadian people. One of these opportunities was in signing the memorandum of understanding with the United States on February 7, 2002, that resulted in Canada's participation in the second phase of the Joint Strike Fighter, or JSF, program. This signing was unique because its purpose had very little to do with my responsibilities as assistant deputy minister of materiel for the Department of National Defence, but rather what I could do for Canada, for Canadian industry, and for the creation of jobs in Canada. This signing had nothing to do with buying or committing to buy these jets, but rather everything to do with providing an opportunity for Canada's aerospace industry to participate in the United States' largest defence procurement in its history, a procurement valued at over $200 billion.

In the 2001-02 timeframe, the issue of replacing our fleet of F-18s was, and pardon the pun, not even on our radar. These jets were being modernized and were expected to last through 2017-18. Nevertheless, there was one overriding reality that made the decision whether to join this phase rather easy; namely, if Canada did not participate, its industry would not even be provided with the opportunity to compete in this $200-billion program. This possibility was one we could not contemplate, so Canada entered the program.

True, there were other benefits from being a participant, but they paled in comparison to the benefits now open to our industry.

When the government made the decision to sole source for the JSF as our next jet aircraft, I was disappointed. I could not understand why they took this decision. There are obviously valid reasons to sole source. As you are probably aware, defence procurement is subject to the Agreement on Internal Trade. The AIT is an agreement, internal to Canada, which came into force on July 1, 1995. In principle it requires procurements to be competed but recognizes there are exceptions. For example, in the event of National Security or where there is an unforeseen urgency, and I emphasize the word “unforeseen”, competition may be bypassed. I listened closely to the reasons the ministers provided for sole sourcing this acquisition and frankly, all are flawed.

First, ministers said that a competition was already conducted, so there was no need for another one. The ministers are referring to the competition conducted by the United States to determine which company would build the jet. On October 26, 2001, Edward Aldridge, Under Secretary of Defense for Acquisition, Technology and Logistics, announced that Lockheed Martin was the successful candidate over Boeing. I vividly recall how we were all glued to our TVs at National Defence headquarters awaiting the announcement. We were experiencing our own defence academy award drama. This competition had absolutely nothing to do with the need for a competition to determine which jet aircraft in the marketplace could meet today's Canadian military requirements at the lowest life cycle cost. Equating one competition with the other insults our intelligence.

Second, the minister said the government is buying the Joint Strike Fighter in order to provide Canadian industry with the opportunity to compete for $12 billion in contracts. The fact is, these potential benefits pale in comparison with the guaranteed benefits that would accrue to Canadian industry through a competition. In a competition of this size, all bidders would be required to provide an industrial and regional benefits plan as part of their bid. This plan would require each bidder to provide a guarantee of benefits equal to or greater than the value of the contract.

Third, the ministers claimed that this is the best aircraft available. When asked how he knows this, the Minister, Peter MacKay, responded that it was on the basis of briefing notes provided to him from within the Department of National Defence. Unfortunately, “in-house” analysis will reflect “in-house” bias. Other knowledgeable military experts have voiced other opinions.

The Joint Strike Fighter may in fact be the best aircraft to meet Canada’s needs. If it is, let it win in a competition. The only way to know for certain which aircraft can best meet Canadian requirements, and at what cost, is to put out an open, fair, and transparent statement of requirements and request for proposal and conduct a rigorous evaluation of the bidders’ responses. The bid that meets the requirements of the Canadian military with the lowest life-cycle costs would be selected.

Directing the contract for aircraft jets to the Joint Strike Fighter highlights the basic risks associated with avoiding competition. These include higher costs--perhaps up to 20% more--reduced opportunities for Canadian industry, and most importantly, uncertainty as to whether the best product has been acquired to meet the needs of the military.

By the way, funds squandered because we pay too much come from the Department of National Defence's capital budget, funds that, were it not for sole-sourcing, would be available for reallocation to other military capital priorities.

Yet the government continues to increase the percentage of non-competitive procurements at an alarming rate. In 2004, 8.8% of the value of National Defence contracts over $25,000 was non-competitive. By 2009, this percentage had risen to 42.1%, a fivefold increase. The phrase “competitive procurement” is quickly becoming an oxymoron. The procurement process is out of control and has degenerated into handouts for the chosen beneficiaries.

There is one other large downside risk to sole-sourcing, namely the increased potential for impropriety. The expenditure of public funds, especially when we're talking about billions of dollars, demands not only the highest degree of integrity, but also the appearance of the highest degree of integrity. An open, fair, and transparent process is critical. Undertaking sole-source deals leaves the procurement process more vulnerable to fraud, bribery, and behind the scenes deal-making and leaves the federal government more susceptible to such charges.

Thank you. I'd be pleased to answer your questions.

[The Chair, Conservative, Maxime Bernier]

Thank you very much, Mr. Williams.

Now I will give the floor to Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chair.

Mr. Williams, thank you very much for coming before us today.

In relation to the competition that took place in about 2001 between Lockheed Martin and Boeing in the concept demonstration phase, to what extent, if at all, would you say that Canada's exhaustive list of requirements was included in the competition?

[Alan Williams]

Very, very minimally, and that's probably exaggerating it. You have to understand that in this program your degree of influence is predicated on your degree of money. We were a level-three player in this. The only level-one player in this was the United Kingdom. They joined for $200 million in this first phase, when we paid $10 million. They paid $2 billion in the second phase; we paid $150 million. They contributed about 8% in the second phase, while ours was .06%, so to think that we would have any degree of influence doesn't really make any sense.

The fact is that on December 20, 1995, the U.K. signed the only level-one partnership agreement with the United States. In so doing, this agreement allowed them to be full partners in the development of the requirements and in the system design. No other player in this program has had that opportunity, so to suggest that we were anything more than what we signed up for in the first phase--i.e., as an observer--is greatly exaggerating any influence or input.

The other point to remember, of course, is that at that time we hadn't even developed requirement statements for our jets. This was nowhere on our radar, so there was nothing to compare and contrast what was going into the U.S. platforms with what we in fact needed. We were in it for one basic reason, and that is, as I've said, to give an opportunity to our industry to participate. As you've heard, they have done a magnificent job and have done really extraordinarily well. For that, they deserve a lot of credit--and by the way, so does a small group of people. I think you've met Michael Slack. He and a very, very small group of people were very aggressive at keeping the primes really focused on making sure that our industry knew the opportunities. He and his small team did a magnificent job and I think they should be applauded for that.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Would you describe the 2001 competition as looking out for Canada's interests as defined or dictated by the Department of National Defence?

[Alan Williams]

No. Our interest was in doing our best for our industry. This could turn out to be the perfect aircraft for us. That wasn't our focus at the time.

[Geoff Regan, Liberal, Halifax West, NS]

Okay.

In regard to the MOU that was signed by Pierre Lagueux and the MOU signed by you in 2002, did any of these agreements contractually bind Canada to purchase this specific aircraft?

[Alan Williams]

No, neither the 2002 one, which I signed, nor the 2006 one, which the deputy minister signed on December 11, 2006, binds Canada to acquire the aircraft.

[Geoff Regan, Liberal, Halifax West, NS]

Was there a clause disallowing a competition for the Canadian government's—specifically for the Canadian air force's—needs, open to other aircraft manufacturers?

[Alan Williams]

Absolutely not; in fact, the contrary appears, as people know, in clause 3.2.1.1.1. The 2006 MOU basically suggests that every country should be able to abide by the laws that govern procurement in that country.

[Geoff Regan, Liberal, Halifax West, NS]

You're referring to clause 3.2.1.1.1. of the 2006 agreement, which says:

Actual procurement of JSF Air Vehicles by the Participants will be subject to the Participants’ national laws and regulations and the outcome of the Participants’ national procurement decision-making processes.

[Alan Williams]

That's correct.

[Geoff Regan, Liberal, Halifax West, NS]

Okay, thank you.

Did you ever get the impression that the Canadian government's objective in signing the 2002 MOU was to sole-source for the JSF?

[Alan Williams]

I never got that impression throughout my retirement period. I know that when the 2006 MOU was signed, if you read the reports and statements at that time, neither did the Canadian government at the time, because they acknowledged in the release of December 11 that they were still looking at competition. Michael Slack at the same time is quoted as saying that this doesn't foreclose any competition. There were subsequent memos from Industry Canada saying that this, again, doesn't preclude.

Even the chief of the air staff, André Deschamps, on the day, I think, that the announcement was made, is quoted in the issue of Canadian Defence Review, when asked about the Joint Strike Fighter.... I'll read this to you. This interview took place just a few months before; it came out in June. The question from the magazine was: “Where is the next generation fighter on your list of priorities?”

The next generation fighter is very high on my list. We know government wants to get to that discussion soon, and we definitely need to get on with a process to get a new fighter. It sounds like a long time away, but as we know it takes a lot to go through a contracting process and produce a new fighter. We just finished upgrading our CF-18s to what we call the R2 standard. It's a tremendous upgrade creating a great platform, and will give us a high performing aircarft to keep us competitive certainly through this decade. That doesn't mean we shouldn't move forward on selecting what will replace the CF-18. Were moving forward hopefully in the not too distant future to establish a discussion with government.

So I would argue that not only had the government basically stated that this didn't preclude a competition, but certainly inside the department the chief of air staff, in response to the question, didn't say “I can't wait to get the Joint Strike Fighter; I expect that announcement to be imminent—that's the only one for us.”

All of this comes clearly to reflect the position that there in fact would be a competition.

I would disagree with him when he says it takes an awfully long time. I think we could do it in a short timeframe, but that's another question.

[Geoff Regan, Liberal, Halifax West, NS]

When you say in your brief that the potential $12 billion in contracts “pales in comparison with the guaranteed benefits that would accrue to Canadian industry through a competition”, are you saying that there's a possibility that with a competition Canadian companies could actually get more than $12 billion, or that they would have access to more than $12 billion worth?

[Alan Williams]

I'm saying there's an absolute certainty that they would get more than $12 billion.

Even the $12 billion is up to competition, you know. When I was there, I think we won 38-point-something percent of those that we.... Even if you say it's $12 billion, and maybe we'll win a third, maybe we'll win 40%, you're talking about $4 billion to $6 billion typically for contracts—we're not going to win it all—whereas, even if you talked about a $16 billion program, that amount has to be guaranteed.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Williams.

Your time is up. I will have to give the floor to Mr. Bachand.