Government Operations Committee on June 5th, 2008

[Mark Holland, Liberal, Ajax—Pickering, ON]

Another one of those surprises was the $2.9-billion project to build three support ships for the Canadian navy, and that's also running into problems. Again, I know you can't get into the specifics of it.

The other comment was that they're simply asking the private sector to take on too much risk. That's one of the factors that's causing this to be unattractive and for them to not want to bid on some of these larger projects. You would think that these larger projects would be fairly attractive; if you have a 20% contingency on a several-billion-dollar project, that's a fairly substantive contingency. It gives you a lot of room to move.

What do you make of that comment, speaking generally of the amount of risk you're asking these private contractors to take on in these projects and its implications on costing?

[Dan Ross]

Madam Chair, I think that's a very good question. It is an area I personally am concerned about, the department is concerned about, and the Department of Public Works is concerned about.

Not related to any specific program--obviously I can't comment on that--but when you ask industry to take on the full-service delivery of something, and to do it over a 20-year period, even though you'll renegotiate labour rates on an annual or biannual basis, and you ask them to take on the management and deliver, let's say, power by the hour for an aircraft, or a ship being available to go to sea on a daily basis, and you ask them to do all that management and take all that risk, there's a price to that.

How much risk do you transfer to that vendor, to that industry, and how much does the Government of Canada take itself? It goes to the question of limits of liability if there's an accident. It goes to the complexity of the job you're asking them to do; they're taking on a management function that we can't do any more.

My group had 13,000 people before program review. Today there are 4,000 people. I don't have 300 people to put on an aircraft fleet to do its day-to-day maintenance and management; I have 25 people. So a certain degree of risk is being passed from the government to those major industries. They are very capable of doing it, but there's a cost to that.

We're looking at that very carefully and asking, is too much risk being passed to vendors, and what's the price of that risk?

[Mark Holland, Liberal, Ajax—Pickering, ON]

Do I have time for another question?

[The Chair, Liberal, Diane Marleau]

No, sir.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Okay, thank you very much.

[The Chair, Liberal, Diane Marleau]

Ms. Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Madam Chair.

I would like to thank our witnesses for being here today.

We have some reservations about the adequacy of working relations between the Department of National Defence and Public Works as regards the awarding of contracts. When you appeared before the Standing Committee on National Defence at the beginning of the year, you provided certain information. One of the things you talked about was the basic steps in the procurement process, which involves 12 steps, if I understand correctly. The Canadian Forces identify problem areas and specific needs. The work continues through other stages, during which the new needs are clarified.

I would like to know what specific need identified at the beginning of the procurement process was being met by the 80 tanks that will be ready in 2011. In addition, I would like you to tell my how many tanks are being deployed and how many are here for training purposes.

[Dan Ross]

Madam Chair, I'd be happy to do that.

Our requirement was stated, as we said, in performance terms of protection levels from improvised explosive devices, mines, and direct fire from what's called an RPG, a rocket-propelled grenade--formerly produced by the Soviet Union--with wide proliferation in many parts of the world. They will penetrate up to a metre of steel--a metre.

You can defeat those with certain technologies and composites and what we call bar armour, which defeats the fuse before it strikes a tank. You have to have a vehicle that can carry the weight, and you have to have a vehicle that will defeat the high-velocity fragments and blast underneath and have sufficient mass so that the whole vehicle isn't thrown into the air. We really needed a robust larger vehicle that could clear the routes and take this beating instead of having our light armoured vehicles do it.

That was the fundamental requirement driver. We did not want to have to design one; we wanted to buy one off the shelf. They are no longer in production, so the choice was surplus main battle tanks that had that protection and mobility and were available on the market.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

May I ask you a question that flows out of your answer? For the same reasons you mentioned earlier regarding procurement, the period of time after the purchase was considered important when the choice was made. What is the life expectancy of these tanks?

[Dan Ross]

It would be at least 30 years, easily.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

So there is a guarantee that the equipment and spare parts will be available for the next 30 years.

[Dan Ross]

Or at least 25 years, easily. The Leopard 2 is being used in about 10 countries. It is not an old tank, it is a new one, and the technology is very good.

We are a part of an international user group. We have guaranteed supply of the new technology for at least 30 years.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Let us get back to the figures. At the moment, how many tanks are being used for training purposes? What needs has the Department of National Defence expressed for the year 2011?

[Dan Ross]

The requirement is up to 40 that are capable of deployed operations. Normally, we would deploy 20. We have another 20 that would be available to replace those 20 in operations for maintenance and repair and overhaul, because they get badly abused and worn while they're in deployed operation, and we have 40 for training.

I did mention earlier that 2011 is the end state. It's not the beginning. They'll be back in Canada this summer, and we'll be getting the repair and overhaul done and bringing those into our formation and training structure. That will consist of 40 that we'll upgrade significantly and 40 we'll leave generally the same for training.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Recently, the C-17s have been in the headlines. What is the current situation regarding the four C-17s that were purchased? You say we have them. When will they be operational? What need was identified at the outset?

[Dan Ross]

They're fully in service now. We made no modifications to the C-17 except to put a Canadian maple leaf on the tail. They are in Texas right now having the standard defensive self-protection system put on. The other two have been done. They are fully in service.

[Liliane saint pierre]

Madam Chair, I believe the member is referring to an incident that happened in the spring in one of the aircraft. However, everything has been repaired, and the aircraft have been delivered.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

The two aircrafts have been delivered?

[Liliane saint pierre]

Yes.

[The Chair, Liberal, Diane Marleau]

Mr. Albrecht.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you, Madam Chair.

I want to thank our witnesses for appearing here today. I especially like the title of your briefing notes, “Progress on Reforming Defence Procurement”.

I think all through your notes both of you have indicated progress. In order for us as committee members and for Canadians to honestly feel that there's progress, it's important to review the history, and I think you've done an excellent job of that.

I want to refer to a couple of the statements that were made. You said that the extremely detailed specifications leading to unique Canadian solutions often became unaffordable to maintain, with little potential for export sales. This left the Canadian Forces to struggle with making the end product work.

I grew up on a farm, and that reminds me of days when something broke down and you'd have to use baler wire or baler twine to make it work. That might be okay for a farm situation for a day or two, but certainly very unacceptable for our Canadian Forces.

You go on to say there is little scope for long-term strategic investments generating self-sustaining industrial capabilities. Later you talk about critical equipment delivered late and industry working in a feast or famine environment. And then finally you talk about the fact that now, wherever possible, you are procuring to high-level performance standards, not detailed specifications. And I want to come back to that a bit later in the form of a question.

I think it's important that we underline today that our primary goal in all of this discussion and the concern for us as committee members and for Canadians is the safety and security of our men and women in uniform, whether that's here at home in search and rescue, or whether it's on the field in Afghanistan, rebuilding in Afghanistan.

I just want to refer to a recent national defence committee report in February, where it says:

The equipping of our troops for the mission in Afghanistan is proof that with a degree of political will and bureaucratic initiative, the procurement process can indeed work effectively.... “...Canadian soldiers in Afghanistan have been provided with some of the best equipment in the world and, perhaps of more importance, the national defence procurement process has been dramatically successful in delivering new, important operational equipment quickly. Where it traditionally took up to 10 or more years for major equipment to reach the troops in the field...new mine-resistant armored personnel carriers, uninhabited aerial vehicles and additional armor plating for trucks all arrived in Afghanistan within one year of the request by the commanders.”

Again, both of you referred to that improvement in the process. Could you just expand a bit on the two points: one, moving from the technical specifications to performance specifications, and then also, maybe outline a little more definitively what were some of the steps that were taken that actually led to this massive improvement in the efficiency in the procurement process. Madame Saint Pierre mentioned moving to 22 months for the C-17s, and I think that's a good example. Are there others that you could share with the committee?

[Dan Ross]

Perhaps I could start, Mr. Chair.

Moving to performance specification is a cultural change, and that has a significant history. The materiel branch of the Department of National Defence, prior to program review, had about 13,000 people. Several thousand were research and development scientists who were split off. We had two large branches: supply and procurement, which was very professional and had a very large capability, and an engineering organization.

Program review slashed our personnel strength by 54%. We were forced to go to three integrated engineering organizations that largely had only engineers. That situation endured for about ten years. Then over the past three years we've been rebuilding our procurement and project management expertise in rank level and skill.

We created a culture of writing engineering specifications for everything. An engineer is trained to apply that rigour and that specificity to a solution. I have to say, personally, that I always disagreed with that, because that is required for certain solutions, but it is not required if you can't afford the developmental solution. If you're in the military off-the-shelf business of having great, proven solutions paid for by other countries, you have to get away from technical specifications.

To be very honest with you, it has been a difficult cultural change, and my senior managers in materiel group and I have been somewhat ruthless in saying that there will not be a detailed specification for every radar on a ship. We will go to industry and say that this is the performance we want in the operation centre of the radar picture, and by the way, make sure that it's a proven radar that's not developmental. And we'll let industry propose the best system of radar for that ship. It drives down your schedule. It drives down your technical risk. It drives down your costs. And you get good operational output.

I can kind of résumé that as being a big and ongoing cultural change—it's not finished—because I cannot see every specification, every statement of work that's being sent over to my colleagues in Public Works and Government Services.

You combine that with insisting on good, proven solutions off the shelf. You combine that with improving your project management skills and all the internal processes in the Department of National Defence. Many of those 107 months were because of self-inflicted issues within National Defence itself.

Go ahead, Liliane.

[The Vice-Chair, Conservative, Daryl Kramp]

Just give a brief response.

[Liliane Saint Pierre]

I'd just like to add very quickly that one of the key things we've done is work smarter and better. We are now making huge efforts to work in parallel. We are trying to combine the project approvals we are looking for with getting advanced contract approval. Again, that really has an impact on reducing the time required to lead to a contract.

At the same time, huge improvements related to working with the industry--you know, giving them advanced notice and requests for information, letting them know what is coming up--gives them an opportunity to get ready or make a determination as to whether they are interested in pursuing a bid against those requirements.

And finally, creating joint teams among the key stakeholders--the departments involved, the Department of National Defence, and Public Works--allows us to have timely exchanges of information and to work together better.

[The Vice-Chair, Conservative, Daryl Kramp]

Thank you, Ms. Saint Pierre.

Now we'll go to Mr. Silva.