You have 90 seconds.
Evidence of meeting #44 for National Defence in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was process.
A recording is available from Parliament.
Evidence of meeting #44 for National Defence in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was process.
A recording is available from Parliament.
4:05 p.m.
Conservative
John Williamson Conservative New Brunswick Southwest, NB
Mr. Perry, in about 85 seconds can you compare and contrast how our defence procurement is occurring today versus how it has occurred under previous governments?
4:05 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
Do you mean in terms of the process?
4:05 p.m.
Conservative
4:05 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
I think the process has undergone some pretty significant evolution. It's become more intergovernmental. There are a lot of different perspectives and different viewpoints about whether or not that's made things better or made things worse. Some people, such as my colleague here, would say that it's going to necessarily slow everything down.
I think it's going to take a long time before we can actually tell what the real impact of that is going to be. Most of the new process has been applied very selectively to a number of the key files that were already in trouble and already very complicated and that were sort of halfway through their project life. It's going to take a number of years, probably a decade or so, to see that new governance structure applied from day one on projects and to have them move through that process from their conception to their close out. I think that's potentially going to represent a very significant difference, and we're not going to really know exactly what impact it has had for a number of years.
4:05 p.m.
Conservative
4:05 p.m.
NDP
Élaine Michaud NDP Portneuf—Jacques-Cartier, QC
Thank you, Mr. Chair.
First of all, I would like to thank our two witnesses for their particularly interesting presentations.
My first question is for whomever is best able to answer it, perhaps for both of you. I would like to briefly talk about the new defence procurement strategy that the government presented several months ago. Do you think that this strategy, in its present form, will have an impact and be able to at least partially address the procurement problems we are seeing right now?
4:05 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
I think you have to look at that package and that strategy as a bunch of constituent parts. We're only starting to see some of the governance structures being put in place right now. It's also supposed to be accompanied by a revised industrial offset policy, which is still very much in its infancy and hasn't been fully fleshed out.
There are also components such as third party review and outside review at many different stages of the process, which are only just starting to come into effect.
I think that holistically there's definitely an opportunity for that to improve things in the sense of preventing key files from running into big problems. I think it's kind of important to contextualize some of the difficulties we've had. It's not as if the Department of National Defence can't buy anything, but certain key files, the big ones, the complex ones, have run into very significant difficulty.
If these changes can help improve the process such that those big projects aren't hitting the major roadblocks that our fighter file has and that our fixed-wing search and rescue had, for instance, then I think things will improve.
That being said, I think a number of the other issues that I'm highlighting, regardless of whatever the governance process is, can be strengthened in terms of budgeting, particularly in terms of resourcing. Unless you actually get enough resources and people with the right kinds of training in place, no matter how significant the improvements to governance and these other processes are, they're not going to have maximum impact.
4:05 p.m.
Professor, Department of Management and Economics, Royal Military College of Canada, As an Individual
Is it the same question?
4:05 p.m.
NDP
Élaine Michaud NDP Portneuf—Jacques-Cartier, QC
Yes, did you want to add anything to the same question?
4:05 p.m.
Professor, Department of Management and Economics, Royal Military College of Canada, As an Individual
The secretariat, which will have to look after procurement, will certainly improve things slightly because we are talking about a new coordinating institution that was not there before. In that sense, there will be an improvement, but the fundamental issue remains the same. If you have four boxes and you have a coordinating mechanism, things will definitely be better, but the fundamental problem is that there are still four boxes and everything stops if there is one yes or one no.
4:05 p.m.
NDP
Élaine Michaud NDP Portneuf—Jacques-Cartier, QC
Mr. Perry, you had raised another issue in your report, which was available in English only, unfortunately. So I had to struggle a little. You mentioned the impact of the staff being reduced over the years.
Mr. Berkok, you also briefly talked about that, or at least about the potential impact of staff rotations among military procurement specialists. My understanding is that this would be an important strategy to review.
If we look at the figures quickly, in the 1990s, there were almost 9,000 employees specialized in military procurement. In 2004, this number dropped to 4,200 and, in 2009, there was a slight increase of 155 people. So there are 4,355 employees. That is not enough and there is a lack of specialized knowledge within the various departments, if I understand correctly.
4:10 p.m.
Professor, Department of Management and Economics, Royal Military College of Canada, As an Individual
We were just talking about that before the meeting. The major defence projects—as was mentioned, there were 10 or 12—are very important projects. We are not talking about buying computers or soap, we are buying major things. If Public Works and Government Services Canada staff are working on that, there are no particular economies of scale in doing things under the same roof, because these are two different things. These are big projects: we are buying F-35s, which is certainly very different from buying computers. If you transfer the staff from Public Works and Government Services Canada to the Department of National Defence, you will need fewer employees. Savings can therefore be achieved if this expertise is transferred to the Department of National Defence. I'm a bit disappointed with the governance of procurement.
4:10 p.m.
NDP
4:10 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
Sure.
I think the member raised earlier that during program review and the other major departmental reductions that started in 1989 as the federal government adjusted to the new fiscal situation in dealing with the deficit, a select group of those faced a disproportionate impact. Those were the most affected departments, or MADs. The significant take-away for the discussion today is that every one of the departments that plays a major role in defence acquisitions was part of that cohort that was most significantly reduced during the 1990s. As a result, at DND—that's the place where you can get the most relevant and easy metrics—they were reduced very significantly, with the good reason that the defence department was receiving less money, and less money for procurement. So the decision to downsize that aspect of the workforce at that time made sense.
What we're dealing with today, though, is a confluence of factors. There are fewer people, because that workforce was reduced and then it was never really increased, and it has actually been cut a little bit as part of the deficit reduction since 2011. The other key impact is that at that time, the way the packages for the public service and the military were apportioned out, they essentially incentivized people with a lot of experience close to retirement to leave and do other things.
So you have fewer people now, and the ones who are there don't have as much experience by virtue of where they are in their career path. You kind of have issues right now demographically where people who should be in middle management positions with a certain amount of experience didn't get that because they were brought in later.
The other impact of this is that at the same time over that period in the 1990s when we really didn't buy much in the way of big, complex procurements, people are now at a mid-career point never having had the experience of working on a big project. Had we not gone through that phase and that period, you'd have had a more even distribution of experience. I think we're very much dealing with an experience deficit, at least up until the early 2000s with the legacy of that period in the mid-nineties.
The big issue to look at going forward is how you actually address that capacity gap, and why departmentally it wasn't addressed more than it has been since the budget started going up in a significant way in 2005.
4:10 p.m.
Conservative
The Chair Conservative Peter Kent
Thank you very much. That's time.
Mr. Norlock, please, for seven minutes.
4:10 p.m.
Conservative
Rick Norlock Conservative Northumberland—Quinte West, ON
Thank you very much, Mr. Chair, and through you to the witnesses, thank you for appearing.
I'm very much interested in this subject. I have a lot of personal views that I'll keep to myself because, you know, we're part of a team.
One of the things I have noted, and I guess, Mr. Berkok, you can attest because I have here that you are from the department of management and economics, so an economist you may be. I have a couple of questions, and then you can answer them within the time allotted.
Most western democracies, if you look at their domestic press, are criticized for their procurement abilities and strategies. Despite what an academic may see, people in those countries just see problems with the military procurement processes. But I think, based on my experience as an MP, our ability to acquire C-17s, the C-130J, the armoured patrol vehicles, tanks, Chinook helicopters.... All these things were needed. They were needed rather quickly, and they were obtained quickly. So we were nimble. We were able to take processes the Canadian public, the majority of whom understood why it was being done, accepted.
In your opinion, how and why did the government have such notable success—I'll let you determine whether it was or not; I believe it was—with these projects, but not others? What lessons can be learned?
I will go directly to the national shipbuilding procurement process. Historically, if you go back 60 years or so, Canada did have a capability to build ships. We have the third largest navy, etc., etc. We lost that capability because we failed to keep renewing our fleets. Now we have a decision to make as a country. We have to renew our fleets. From my perspective it's a matter of how we get people working, how we regain that which we historically had, create the jobs, and from an economic perspective, then be able to be in the marketplace to sell that, such as the United States, which as far as I'm concerned is the power it is today because of its military industrial complex.
I wonder if you could each take some time to comment on what I just said.
4:15 p.m.
Professor, Department of Management and Economics, Royal Military College of Canada, As an Individual
The first batch of acquisitions was bought during the Afghanistan war. We used the national security exception. That means we removed the checks and balances provided by Industry Canada. Are there possibilities we can do it in the country? We just bypass. In fact, in the case of many, we didn't have any capabilities, from C-17 to C-130 something, the Hercs, so we just bought them off the shelf. We didn't have the capabilities, so they were done quickly, swiftly. In fact, with the C-17s, the Americans kindly allowed us to cut in the queue. There were no problems there. I don't see any problems there. We needed them. We bought them. We didn't have capabilities, right? We don't manufacture aircraft. Actually, I will mention one, and we're bypassing and not considering that particular one.
Your second question regarding shipbuilding is more problematic. We have a policy going back to, if I'm not mistaken, 1911. We build ships here. It's a policy, not law. We always built our ships here. But we are in a new era. As an economist, I'm completely opposed to building the hulls here because we want to create jobs. That chips away at the defence budgets. Ships cost way more to build here than in allied countries from Denmark to Holland to Norway to Poland, and, if you count them as allies, Korea. They can do a way better job. We're building them here to create jobs. Whichever government comes in, I don't think they're going to change this. But as an economist, I'm appalled because we are in the 21st century, and you can buy them from your allies. We have some capabilities to.... Let me give you this information. If you build a combatant ship, the hull is only about 12% of the cost, even if you include the fact that our hulls must be such that they're operable up north. If you build a ship for the Mediterranean, it doesn't have to be that strong, double-hulled, etc.
Half the cost, 50%, give or take 5%, is combat systems. There you say, “We have some—we buy them mostly from Americans—but some other countries are ready to supply combat systems”. In a sense, when we build them here, it costs not only defence, but down there it costs me, the taxpayer, more to buy some jobs.
4:15 p.m.
Conservative
The Chair Conservative Peter Kent
Professor Berkok, in the interest of equal time, perhaps we could ask Mr. Perry to answer.
4:20 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
I would agree with you that those sets of procurements you outlined were successes, but I think the important thing is to look at those and look at exactly what lessons you can take away.
Regarding the first two for airlift, I would argue, as would most of the people you talked to about this, that those are relatively unique, because those were requirements for which there were very few actual suppliers, and given the timelines as well as the ongoing operational imperative in Afghanistan, we didn't really have that many options. So I wouldn't look to those in particular as being a model you could replicate in very many other places.
The C-17s are probably the only pieces of major military equipment that Canada has legitimately bought, and ever will buy, off the shelf, because we usually make modifications.
The second batch for Afghanistan was also very successful, but I think that was very much driven by the wartime imperative. Essentially the defence requirement, almost explicitly, and no other consideration besides fielding equipment as quickly as possible, delivering it immediately to troops in need, was the only driving factor.
After all of those procurements that you mentioned happened, there was sort of a reaction within the rest of the bureaucracy such that, for very good reasons, the normal departmental imperatives at Public Works or Industry Canada were not followed through on. Now we're seeing a sort of recalibration such that considerations beyond purely defence issues are now exerting more influence over the system, which is part of the dynamic.
What was your question about shipbuilding?
4:20 p.m.
Conservative
Rick Norlock Conservative Northumberland—Quinte West, ON
Isn't it in Canada's best interests, since we don't have a shipbuilding capacity, to have the capacity perhaps with a view to, in the future, being a vendor of equipment to countries that are currently like us?
4:20 p.m.
Senior Analyst, Security and Defence, Conference of Defence Associations Institute
Very briefly, I think there's potential value there in at least three ways.
First is any economic spinoff from the domestic economic activity, which you would offset against any price difference somewhere else.
Second, having a domestic shipbuilding industry is important for sustaining whatever ships you build, and you want to maintain that capability.
Third, in terms of exports, we have already seen, though not on the NSPS, the national shipbuilding procurement strategy, component, at least one major announcement about the export of some of the technology that went into the upgraded Halifax class frigates.
4:20 p.m.
Conservative
The Chair Conservative Peter Kent
That's time. Thank you very much.
Ms. Murray, go ahead, for seven minutes, please.