Government Operations Committee on April 26th, 2010

[André Beaulieu]

Nearly all of the companies and SMEs in the region.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

And approximately what number are we talking about?

[André Beaulieu]

Dozens and dozens. Unfortunately, I do not know them all.

All small engineering and architectural firms as well as those specialized in construction are experiencing the same problem. Nor do they know those who have had some success. My company had more dealings with the contract for BLJC. At that time, I had an employee tasked with making regular visits to all of the project leaders and examining the schedule for the contracts. I paid someone on a full-time basis to go and examine the list of the jobs that were in our area of expertise and to convince the project leader to give us a contract.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I have two questions, Mr. Chair. In order to ask these questions, I need help from the research analysts or perhaps the clerk or the lawyers.

[The Vice-Chair, Conservative, Chris Warkentin]

Your time has nearly expired.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

May I ask my two questions quickly?

What can the committee do? Does the committee have the legal right to see the contract that was awarded to SNC-Lavalin to determine whether it contains obligations to encourage small and medium-sized enterprises in the region? And given that the contract expires in 2013, what can the committee do? Can we help small- and medium-sized businesses?

Mr. Chair, I would appreciate you noting my two questions so we can see what can be done, because I believe they are important. I'm not sure who is taking note of them. Is it you or the clerk?

[The Vice-Chair, Conservative, Chris Warkentin]

Absolutely, and we will do that.

I'm going to turn to Mr. Lake now for just a few minutes. We're running short of time, but we will get back to it as we contemplate how we go forward in this study, absolutely.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair, and thank you, Mr. Beaulieu.

It's always interesting to sit in on a committee of which one is not a regular member—and I'm not a regular member of this committee. It seems to be an unusual committee process to have you here before we have the Public Works folks here to give some context to the situation.

I notice when I look at the notes the analysts have provided for us that following a process that PWGSC considers fair, transparent, and competitive, the department awarded eight AFD—alternative forms of delivery—contracts to SNC of Toronto, Ontario. These contracts took effect April 1, 2005, which I guess would have been under the previous government, and for an initial duration of four years.

Your company would have received contracts in a competitive procurement process right around that same time, before and after that date, and won some government contracts. Would you agree those contracts at the time were awarded in an open and transparent manner?

[André Beaulieu]

We do not know which process Public Works and Government Services Canada used to award the contract to SNC-Lavalin. What we do know, is that as of 1999, when Public Works launched a call for tenders, the company that obtained a contract from Public Works was, as I said earlier, Brookfield LePage Johnson Controls. These three companies merged to offer their services and obtain the Public Works and Government Services Canada contract to oversee building maintenance. Then, Public Works issued another call for tenders in 2005, and at that time, it was SNC-Lavalin ProFac that obtained the management contract for building maintenance as of 2005.

This is a federal government tendering process, in this case Public Works and Government Services Canada, that I am not familiar with. I do not know what principles it was based on nor what process Public Works used to offer the contract to SNC-Lavalin. We do not know all the rules. We do not know SNC-Lavalin's mandate in full. What we do know is that, as of 2010, SNC-Lavalin ProFac's contract expired. Now, a company called SNC-Lavalin Operations and Maintenance is responsible for overseeing the upkeep of federal government buildings until 2013. Unfortunately, however, we have no information on the process used by SNC-Lavalin to obtain the contract from Public Works.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

That's interesting. My question actually was about the contracts that your company received during that time, but this is a good question. Maybe the committee will want to invite the minister of the time, from April 2005, to come to talk about the process back then.

Were the contracts awarded to your company awarded in an open and transparent manner?

[André Beaulieu]

All the contracts we have carried out to date for SNC-Lavalin were obtained further to a call for tenders. There are very few of them, compared to the number of contracts awarded in the past when management was done by Brookfield LePage Johnson Controls. Since SNC-Lavalin has taken over, we have received very few contracts through a bidding process. It is not that we are the highest bidder, it is simply that we do not receive an invitation to bid. As I explained earlier, the problem is that the calls for tender are not public. People are invited to submit a bid.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I would like just a quick clarification, because I know that my time is up. When you say “fewer contracts”, are you talking about their being fewer in number or in dollar value? Could you put some context behind that statement?

[André Beaulieu]

It is both. The number of contracts has declined considerably. There are perhaps five times fewer, and the same thing is true with regard to the value, which has declined by at least 60%.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I don't know whether there is some documentation that can be provided, but perhaps it would be interesting for the committee to see some documentation around those contracts.

[The Vice-Chair, Conservative, Chris Warkentin]

You have a few seconds, if you'd like to ask a specific question.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Perhaps you could provide the committee with some documentation around the numbers of the contracts you received from SNC-Lavalin.

[André Beaulieu]

Absolutely, that is not a problem. I do not have them with me, but I can provide you with documents and the list of files that we worked on with SNC-Lavalin. You will be able to compare that with the number of contracts we received from the previous manager, Brookfield LePage Johnson Controls.

[The Vice-Chair, Conservative, Chris Warkentin]

Monsieur Beaulieu, we appreciate your testimony today, and we appreciate that you have come. We are going to continue this investigation. The committee has called SNC-Lavalin to come, as well as Public Works and Government Services Canada, and I suspect we will be able to ask some of these questions to them.

We will continue, but we're going to suspend now for just one minute as we move on to the next witnesses.

Thank you.

[The Vice-Chair, Conservative, Chris Warkentin]

Committee members, we are going to move along with our second hour of hearings.

We have only 45 minutes for your time here, witnesses. We appreciate your attendance today.

We have Cynthia Binnington, Vice-Admiral Denis Rouleau, William Pentney, and Kevin Lindsey. We appreciate your attendance. We thank you for your testimony.

We are moving forward on our study of the freeze on departmental budgets and envelopes with regard to government operations. Today we have witnesses from the Department of National Defence.

I know that you have a submission to start out with, then we will undertake some questions and answers for 45 minutes, and then we have some other business that needs to be taken care of.

We're going to move along to see whether we can cover as much as possible.

[William F. Pentney, Associate Deputy Minister, Department of National Defence]

Thank you, Mr. Chair. Thank you for the opportunity to appear before the committee.

My name is Bill Pentney. I am the associate deputy minister of the Department of National Defence. The deputy minister unfortunately is out of town. He sends his regrets.

I'm here with my colleagues: Vice-Admiral Denis Rouleau, who is the vice-chief of defence staff; Kevin Lindsey, who is the assistant deputy minister, finance and corporate services and our chief financial officer; and Cynthia Binnington, who is the assistant deputy minister for civilian human resources in the department.

Mr. Chair, we welcome this committee's interest in how Budget 2010 measures will affect our operations. I want to assure committee members that DND and the Canadian Forces are well situated to manage these budget measures and to continue to deliver the results that Canadians expect.

Just as Canadians take pride in the recent accomplishments of our sailors, soldiers and air personnel supporting the RCMP during the Vancouver Olympics—we succeeded in fulfilling our specific mandate, that is, to ensure the safety of the athletes during a sports event—assisting the people of Haiti following January's catastrophic earthquake, and bringing hope for a better future to the people of Afghanistan. They can look to the future with assurance.

This June, the Canadian Forces will again work to support the RCMP when leaders of the world converge on Ontario for the G8 and G20 Summits. At home and abroad, the men and women of the Canadian Forces will continue to operate in a proud, effective and efficient manner.

Before getting into Budget 2010, I would like to remind the committee of what has happened with Defence spending over the last several years.

Recent governments have made significant investments in defence, and in order to understand the impact of the budget measures outlined in Budget 2010 it's important to put this into the context of recent history. Budget 2005 and 2006 afforded significant new baseline resources for the Department of National Defence. These two budgets provided increases that amounted to an overall annual increase of about $4.5 billion to National Defence's annual funding base. These increases were phased in over a number of years and have been fully implemented effective this current fiscal year.

In 2008 the government released the Canada First defence strategy as a detailed road map for the modernization of the Canadian Forces that would underline a long-term road map that really extends over the next 20 years. So our planning horizon is very much a long-term planning horizon.

The strategy pledged stable and predictable defence funding over the next 20 years and provided for an increase in the annual defence escalator, from 1.5% to 2% commencing in fiscal year 2011-12. It laid out plans for necessary investments and the four capability pillars that are core to a military capability: personnel, infrastructure, equipment, and readiness. Progress has been made in each of these pillars. Over the past year the government announced significant investments in defence infrastructure, both building new infrastructure and recapitalizing some of our aging infrastructure portfolio. There have also been major announcements in equipment, both meeting urgent needs in Afghanistan, such as delivering Chinook helicopters and unmanned area vehicles to the troops, and recapitalizing the baseline, the basic fleet, with, for example, an announcement of $5 billion towards a whole family of land combat vehicles that will equip the army beyond Afghanistan and for the future.

We are looking forward to the delivery in June of the new C-130J Hercules aircraft, the workhorse of the air force--six months ahead of schedule, I would note.

Last summer the government announced a contract for the purchase of 15 medium- to heavy-lift helicopters, and we expect our first delivery in three years. In addition to that, there's been a series of announcements to refurbish existing fleets, such as the destroyers and frigates in the navy and CF-18s.

On the personnel side, recruitment efforts are continuing to deliver impressive results for both regular and reserve forces and attrition is diminishing. During the fiscal year that just ended, the regular force grew by 2,200 personnel, which is the best net increase we have achieved in recent years. So we've made encouraging progress in attracting individuals generally to join the armed forces and specifically to what we refer to as stress trades, trades where we need particular individuals. Unlike many government departments, we run the full gamut of high-end policy analysts to high-end welders and electricians. So we employ trades in support particularly of our navy and other fleets throughout the country. Civilian public servants continue to play a critical role as crucial members of the integrated team.

Budget 2010 reaffirmed the government's pledge to increase the defence budget annually. But with the size of the defence budget equal to roughly one-fifth of federal government program spending, we expected the department would be affected by the government's need to address the economic and fiscal situation. As you know, the budget contained two key measures that affect the department. First, like other departments, DND and the Canadian Forces will have to absorb a freeze on operating budgets. Effectively, that will mean that we have to absorb increases for civilian and military personnel of 1.5% this year, and that freeze in operating budgets will carry on until 2012 and 2013.

In addition, as you know, the budget also included provisions to slow the rate of previously planned growth for DND by $525 million in 2012-13 and $1 billion annually thereafter.

We expect the implications of these measures to be manageable. The key, and I underline “the key”, and exception here is that defence spending will continue to grow. While defence will be subject to the overall operating budget constraint announced in Budget 2010, the defence escalator will continue to apply. As a result, the budget will continue to increase, just at a slower rate of growth.

The timing of these measures allows us sufficient time to adjust our long-term expenditure plans. As an organization, we will strive to protect the essential tenets of the Canada First defence strategy and minimize the impact of a slowdown in funding growth through our work on strategic review, which will be completed in this fiscal year. The strategic review, which all government departments have been asked to undergo over the last four years--we're in the last year of the cycle--will help us determine if there are implications requiring adjustments to the Canada First defence strategy planning assumptions across all four capability pillars: equipment, infrastructure, readiness, and personnel. We're also carrying out a close examination of other possible internal efficiencies.

We are a huge and decentralized organization with a high operational tempo. We've had significant growth in recent years in both people and dollars. It's time to conduct a thorough review of what we're doing and how we're doing it. In conducting that review, we'll continue to focus on where it's been, on increasing effectiveness and efficiency, on delivering on our core roles, and on meeting the priorities and expectations of Canadians.

Mr. Chair, we're confident that we can manage the impact of Budget 2010 in a manner that allows us to stay the course in terms of the Canada First defence strategy. The key here, and I've underlined it, is the time associated with delivering on a long-term defence plan and having the time to implement the adjustments that are announced in Budget 2010.

The department and the Canadian Forces are in solid shape to weather the current financial realities and to continue to deliver what Canadians expect of us. We're also working hard to find further efficiencies and to address the short-term challenges--because there are short-term challenges--while keeping our eye on our long-term plan.

With those opening remarks, Mr. Chair, I welcome the questions of the committee.

[The Vice-Chair, Conservative, Chris Warkentin]

Thank you, Mr. Pentney. We appreciate your submission this afternoon.

We'll begin the round of questioning with the eight-minute round. We'll start with Ms. Hall Findlay from the Liberals.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

I'll just note that we are a bit short of time, so I will try to split my time with my colleague, Ms. Coady. If we have additional time for a second round, that would be great.

Thank you all very much for being here.

You get to choose who is best to answer. My question is not specifically on how you're going to manage the freeze. You've addressed it here, and I want to give you absolute support for conducting a thorough review of what we're doing and how we're doing it, because I think everybody should be doing that on a regular basis.

You said that you will focus on increasing efficiency and effectiveness, on your core roles--and here's the key--and on meeting the priorities of Canadians. I looked at the budgets from 2004-05 through to 2008-09. The budget went from about $14 billion to $14.5 billion, $16 billion, $17 billion, $18.5 billion, and $19 billion plus. I thought we were ending our engagement in Afghanistan in 2011. Historically, when Canada has been at war, we've spent a lot of money being at war. Then, when we've stopped being at war, we have reduced spending rather dramatically.

I'm very curious. I understand that there's this long-term plan, but no longer engaging in what has proved to be a very expensive war strikes me as being something that would end up reducing our costs. Can one of you please explain to me where we should be saving money because we're no longer going to be engaging in Afghanistan the way we are? And thus, what is the real delta in terms of increased allocations for this long-term plan?

[William F. Pentney]

Mr. Chair, I can start, and others can either correct me or fill in.

Underlying the government's commitment to the Canada First defence strategy is really a twofold pledge. One is to have an annual defence escalator and to continue to grow the budget. The second is to provide incremental funding for the cost of deployed operations.

We have about 68,000 soldiers whose salaries we're paying now. Just late last week we sent planes full of soldiers to Afghanistan on that deployment. The incremental extra costs incurred, over and above their baseline salaries--the cost of paying their allowances, feeding them, and all of that--are incremental to the ordinary baseline. They are provided from the government through a separate funding line, as approved by cabinet.

The deployment to Haiti, which got such public attention, added incremental costs to the Canadian Forces. So over and above the baseline costs and the funding line you see set out in the budget for reinvestment in capital equipment, infrastructure, and people, it costs us more when we send those people on major missions overseas, as it does in Afghanistan and as it did in Haiti. There's a separate allocation provided to the Canadian Forces and the department to offset those costs.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Just to clarify, this budget is not just for people, with all respect. I mean, we've spent an incredible amount of money on capital and on other aspects of being in Afghanistan. Are you saying that the incremental costs of being at war are actually over and above this budget?

[William F. Pentney]

They're reflected in separate appropriations from Parliament. They're over and above the baseline budget.