National Defence Committee on Oct. 24th, 2023

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you, Mr. Chair.

I appreciate the ombudsman coming, and I appreciate all the recommendations. That does make our task a lot simpler for us, especially when we start looking at defence procurement.

My understanding of your study, from what you just said, is that you only concentrated on the ones that National Defence had final authority on. I'm anticipating that you didn't look at some of the great big contracts like shipbuilding, fighter jets and others that are involved at three or four different departmental levels. Your recommendation is along the line of what we can do to streamline that process among National Defence, Procurement Canada and Treasury Board.

First of all, I find it striking in your report to National Defence.... You make your recommendations. Unlike what I've seen in responses from the department to the Auditor General or to the defence ombudsman, where they either accept or reject the recommendation, in almost every one of yours, the response starts the same way. It's an almost identical response: “We will review our processes and look at the management action plan.”

Are you satisfied that this is good enough to deal with recommendations that you made in your ombudsman's report?

[Alexander Jeglic]

We also did note, obviously, that there was a certain repetition in the responses that we got from the department. However, I think it would be a bit premature, because we do have a follow-up mechanism. The department did actually write to me, providing an update at the end of September, but our evaluation of the implementation of these recommendations will happen only in our follow-up review, which should be in early 2024.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Can you share the response that National Defence sent to you, in a kind of interim report on what they are doing in response to your recommendations?

[Alexander Jeglic]

I would just need to check with the Department of National Defence before tabling that, because it's still in its draft phase, but I could certainly endeavour to look into whether I can table that with the committee.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

I think it is timely and important for our study on defence procurement if we have that type of input.

In your opening comments, and also in response to questions, you talked about the issue of incorrectly awarded contracts. You had one example, but I think you said there were 19 that were inappropriately contracted or awarded. Is it because of cost? Does it cost the taxpayer more because they were incorrectly awarded?

[Alexander Jeglic]

I'll just clarify that. This is under the third line of inquiry, which deals with evaluation and contract award. In 10 instances, we did not have sufficient evaluation information to determine whether, in fact, the contract had been rightfully awarded. If you don't know what the individual evaluators did and you don't know what the consensus evaluation is, it's difficult to say that the contract was rightfully awarded. Then, in other circumstances, we found, as in the example I gave with the Leopard conversion into monuments, that the bid validity period had expired.

There are other examples I could give, such as one where there was a requirement for an educational background, but the resource did not have the required educational background to meet the mandatory criteria. By definition, if you didn't meet the mandatory criteria, it's a wrongful award of contract.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

In your evaluation on national defence procurement, did you come across any circumstances or situations in which kit was bought, or defence materiel or equipment was bought, that was inappropriate for the original ask from the Department of National Defence and the Canadian Armed Forces?

[Alexander Jeglic]

I think it's important to clarify. Under the purposes of our review, there were not many pieces of the procurement file we looked at that actually involved defence-related goods or services. Traditionally these are contracts less than $5 million, but that's where DND would still have their own contracting authority.

I'm not trying to skirt the question; I'm simply trying to explain why we reviewed DND the way we did. We reviewed all 17 departments and agencies in the same manner, using the same methodology. However, it goes back to the question of funding. If we did have additional funding, we would have the ability to pursue, perhaps, larger engagements that could include the defence side of the procurement realm.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

You would be able to do that analysis based upon the entire gamut of how procurement happens, involving the entire scope of the whole Government of Canada.

[Alexander Jeglic]

Yes, that was the background or underpinning rationale for why we pursued this five-year systemic review plan.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

This morning we heard.... The public accounts committee report came—

[The Chair, Liberal, John McKay]

Mr. Bezan, I don't want to hurt your feelings, but you're done.

Mr. Fisher, you have five minutes.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

Thank you very much, Mr. Chair.

I want to thank the ombudsman for being here today.

My riding of Dartmouth—Cole Harbour has many defence-related companies, from start-ups right to huge defence contractors. These smaller companies are innovating some really brilliant tech, and as they're scaling up, of course, they're looking to bid on some Canadian contracts, hopefully. From the issues that you've audited or investigated, what could we do as a government specifically to streamline and make it simpler to help these smaller companies take part in the Canadian government procurement process?

[Alexander Jeglic]

A large portion of our stakeholders are, in fact, small and medium-sized businesses.

You'll hear me talk about overly restrictive criteria. If you have criteria that require a company to be of a certain size in order to participate, obviously that makes it more difficult for small and medium-sized businesses. Also, people don't appreciate how payment terms impact small and medium-sized businesses differently than they do large suppliers.

What we always recommend.... I shouldn't use the word “recommend”. What we always suggest is that they participate in the supply chain differently to start and take the opportunity to be a subcontractor in larger projects to gain that experience on federal contracts, so that for any mistakes that are made they don't bear the financial burden associated with it, yet they're learning lessons and gaining valuable experience, and through that they'll be able to naturally grow. That's typically the advice that we would provide to small and medium-sized businesses that, as yet, haven't entered the federal procurement supply chain.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

It's interesting that you talk about the payments. A new business would presumably need to have that money within 30 days or so. With government, it's probably 60 days, 90 days or 120 days.

[Alexander Jeglic]

Absolutely.

You'll notice that one of our “knowledge deepening and sharing” pieces was about late payments and how they mean different things to different people. On the government side, there are defined definitions as to what “late payment” means, but if you're a small or medium-sized business, you're perceiving that payment will be made within 30 days after delivery of the goods or service.

Sometimes there's a disconnect. That's why we wrote that piece, so there's an appreciation of the various responsibilities within the transaction.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

I get the sense that we are pretty good at the little things when it comes to procurement, but we struggle when we get to the big things.

How do we take what we know about smaller procurements and apply it to the bigger projects?

[Alexander Jeglic]

The bad-news answer is this: I wouldn't suggest that what you said is accurate for this specific purpose, in the sense that we saw identifiable issues in relatively small-scale procurements. There are certainly lessons to be learned, and there are certain departments that are particularly good at certain things. IRCC, for example, has excellent documentation protocols that could be mimicked. The RCMP also has a certain oversight functionality of aspects of their procurement processes that can catch some of those errors early on. It's a dangerous question: How much oversight is enough without creating an additional burden?

I heard previous witnesses talk about the risk-based approach. I strongly believe that is the right mechanism to continue to pursue, in terms of defence procurement.

The one thing I will soften is this: Regarding the list I read, I have to be careful to note that those are my ideas, not my recommendations. I did not do a review of defence procurement. Those are ideas I've had that I've brought forward from other reviews I've done. They could be useful as you study defence procurement.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

You mentioned the national security exception in the States. They can invoke that, certainly.

Does that cause any issues with regard to general procurement in the States? When the Americans want to qualify for overseas contracts but keep it in-house, might other countries be reciprocal? Do you see that happening?

[Alexander Jeglic]

Because my jurisdiction is limited to Canada, I can't speak to the international angle. I have previous life experiences in the United States, but I wouldn't want to draw parallels between what I saw previously and what I do in my current role.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

If we were to do something similar to the national security exception, would you see that causing a problem with our general procurement role if Canadian companies try to get contracts in other countries?

[Alexander Jeglic]

What I would say about the United States is that there's an offset. What the NSE does in the United States is trigger enhanced oversight by the GAO—the Government Accountability Office.

If we were to try something similar in Canada, or even propose something similar, we would need to determine who would be the overseer of the appropriate invocation of NSE or disarmament of the obligations at the national level.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

Thank you.

[The Chair, Liberal, John McKay]

Mr. Jeglic, I want to thank you on behalf of the committee. Your testimony has been highly stimulating. While I know you're saying these are not recommendations but rather ideas, you can't have a recommendation until you have an idea in the first place. We appreciate your ideas. I suspect that, somehow or other, this testimony is going to be featured in our report. You've been very helpful. I appreciate your not only staying in your remit but also going beyond your remit with some very useful and helpful ideas.

With that, colleagues, again, thank you.

We'll suspend while we re-empanel.

[The Chair, Liberal, John McKay]

I call this meeting back to order.

For our second hour, we have two witnesses with us today as individuals: Alexis Ross, president of Apex Defense Strategies; and Professor Trevor Taylor, director of the defence, industries and society program at the Royal United Services Institute.

Both of you have been briefed, so I'll ask you for your five-minute opening statements, starting with Alexis Ross.

Welcome to the committee.