Government Operations Committee on June 9th, 2016

[RAdm Patrick Finn]

It is, in fact, the latter. It does not guarantee industrial benefits to Canada. To date, though, I would say that through our investments of approximately $300 million, the industrial benefits that have accrued to Canadian industry are in the vicinity of $800 million. Canada has a very strong aerospace industry. I understand it to be, if memory serves, about the fifth largest in the world. As a result, it has performed very well in open competition for various components for the F-35, and it continues to deliver on that. In the future....

I beg your pardon.

[Erin Weir, NDP, Regina—Lewvan, SK]

Wouldn't it be better to negotiate concrete and specific industrial benefits into these procurement contracts, rather than just being part of a consortium that may or may not receive them?

[RAdm Patrick Finn]

I am sorry to say that it depends. In this particular case, as it turns out, had we negotiated.... Understand that this is often perceived as a U.S. program. It is not. We have others like it, such as the Seasparrow missiles, which is an international program with many countries involved, all of whom have a say in the process. That international community opted not to have direct offsets. Interestingly, in this particular case, other countries actually got less than their investment because Canada got more back than it invested.

[The Chair, Conservative, Tom Lukiwski]

You have less than a minute.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

I am wondering if you could quickly name the major types of fighters that are being considered as replacements for the CF-18.

[RAdm Patrick Finn]

What we will do is industry engagement, and there will also be an involvement of industry coming forward. We tend not to go out and say, “We will consider only the following products.” We look to industry and international providers to come forward and indicate their interest. It will likely be, I suspect, a cross-section of those who have come, a number of whom—

[Erin Weir, NDP, Regina—Lewvan, SK]

Could you mention a few that you are considering for sure? I recognize that it won't be an exclusive list.

[Lisa Campbell]

Just to clarify, the way the Canadian government procurement process is structured, the Department of National Defence decides on the capability it needs and its requirements, and then it comes to us, Public Services and Procurement Canada. We go to industry, see what is on the market, and make recommendations to the government on that basis.

[The Chair, Conservative, Tom Lukiwski]

Thank you.

Mr. Drouin, go ahead.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

I want to focus on the procurement process and modernizing procurement. If I recall, in 2012, with regard to the MSVS program, there was an issue with the RFP. The government at the time had to cancel it four minutes before the bid closed. What worries me is bringing confidence to the industry, that, yes, they can do business with the Government of Canada when it comes to military procurement. Apparently, this had to do with Treasury Board approval.

Can you assure this committee that this won't happen again and can you explain the steps the government has taken to ensure that this doesn't happen again?

[Lisa Campbell]

I will start and then perhaps turn it over to Mr. Finn.

You are right that military procurement gets a lot of focus and interest, in part because we try to do so much with it. At its root, it is about buying the best equipment for our Canadian Forces. We also try to leverage it for industrial benefit, achieve competition, and achieve best value. There are a number of things going on at once.

One fundamental thing we have been doing that has made a big difference is engaging with industry very early in the process and making sure that what we are actually asking for exists in some form. What modification would it require? Can we buy it in a reasonable amount of time to meet the needs of the forces? That has been a huge factor for us. As well, and Mr. Finn will probably talk about this, the independent review panel for defence acquisition which has been established helps firm up requirements much earlier in the process, which is an important piece for us. It means that there is some certainty.

The other thing is that we find we are much more strategic now about applying value proposition broadly across defence procurement. I talked about that in my opening remarks. It means that we are very targeted about where we will leverage defence procurement for the benefit of Canadian industries.

Mr. Finn, go ahead.

[RAdm Patrick Finn]

Thank you for the question.

You're correct. In the context of the medium support vehicle system project, there was a request for proposal that had to be cancelled just prior to closing. It became an interpretation of the authorities in place and whether or not, in our estimation, we could have continued and sought what were the ultimate authorities further on once the RFPs had closed. There was a differing view, and in respect for those who interpret that, we wound up cancelling that RFP.

We've done a lot of work since then, and as a result of it. My colleague mentioned, for example, the two-step process. We've had problems there where, by virtue of a very narrow interpretation of mandatory requirements, bidders put in financial information in a large bid, and it differed somewhat from one page to the next, and we wound up having to throw out their bid.

A number of those things have come from that experience in projects like the one you describe.

We equally now have a defence industry advisory group, where again Lisa and I sit with industry. We have a fair bit of work under way in areas such as intellectual property. We're working closely with the associations to make sure that we hear from them about what's going on. Our minister has launched his defence policy review. He has also included questions about defence procurement to ask industry and Canadians...notwithstanding everything we already have under way, what else could we do to continue to improve it.

Key to that is we really are working quite heavily on opening the dialogue so that we can hear best practices and understand the points of friction from industry.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I read the minister's speech at CANSEC. She talked about collaboration. One of the issues that I keep hearing on the street is that PSPC has this commercial, off-the-shelf culture and DND has a customization culture. What are we doing to ensure that, at the lower level, there's greater collaboration early on, at the start? I think that was actually highlighted by the Auditor General's report in 2012 on the F-35. He said at the time that PWGSC, at the time, was not made aware of this early on in the process.

What do we do to ensure there's greater collaboration between PSPC and DND at an early stage?

[RAdm Patrick Finn]

Thank you very much for the question.

There are a number of things we now do. For example, for all of our large projects, we collocate all of the people, so PSPC, National Defence, ISED. They are collocated, working together to make sure they have a common view that's put forward.

I would go back to your opening comment, if I could, please, about off the shelf versus developmental. I would say we're much more aligned. To the greatest extent possible, we prefer military off the shelf. There's no doubt about it. That's what we've executed in C-130Js, C-17s. We've done it with light armoured vehicles. We've done it in a whole number of areas because the development does, in fact, bring a lot of risk with it.

Again, in other things that we've brought in as relevant to the transport procurement strategy, we now have, for example, an independent review panel for defence acquisition, which, very early, looks at the requirements and performs that challenge function up front. We're trying to advance the robust challenge function. We're improving how we do costing. There is greater engagement with industry so that industry can inform us collectively on what kinds of products they have and what they can deliver. We're doing that, I would say, in a very joined-up fashion, if I can use that expression, to ensure we are completely aligned in what we're trying to execute.

[Lisa Campbell]

I would echo that. We work very closely at the official level, at the senior official level, in integrated teams, and we do this for all of our client departments. DND is the biggest one, but there's also the Coast Guard, for whom we are an important buyer.

I would say as well that we looked at international models to make sure that Canada is in line with its counterparts in terms of what it's buying for the size of our country, for the size of our forces. We often benchmark with international counterparts and that helps us inform our recommendations to government.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you.

[The Chair, Conservative, Tom Lukiwski]

You have 30 seconds. Can you get in a question and an answer?

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

No, thank you. That's good.

[The Chair, Conservative, Tom Lukiwski]

Thanks very much.

We're now going to go to five-minute rounds, and we have first, Monsieur Blaney.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Thank you, Mr. Chair.

I listened carefully, and I heard more talk, more costs, more bureaucrats, more delays, but no ships in sight.

Ms. Campbell, I would like to come back to the horizontal engineering program plan. It's a nice complicated name. What the Canadian Coast Guard representative essentially said before the committee is that investments had to be made in the shipyard's capacity, operations had to be restarted and vessels had to be built.

Do you realize that there is a total contradiction between the program's spirit and the federal legislation that prohibits awarding two contracts and paying twice for the same thing? We put our trust in you, and the government is doing the same. You are responsible for delivering the strategy to us. You have the necessary expertise, and we have shipyards. We even have a 50% excess in capacity, in Canada. Shipyards are ready to build vessels and deliver them over the next few months.

What is happening? A bureaucratic empire is being built, dozens of millions of dollars are being lost and, ultimately, there are no ships. In addition, the time frames we are being given today are just as unrealistic as those we have been given in the past.

[Lisa Campbell]

Thank you for the question.

I will clarify a few things for you.

I would like to repeat what I said earlier. The contract related to the horizontal engineering program plan has not been used for infrastructure. Those are really engineering processes....

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

I apologize, but that's not what the Canadian Coast Guard official said before our committee, Ms. Campbell. You are completely contradicting the justification he gave for awarding that contract. Who is telling the truth? There is a contradiction here.

Contracts have been awarded based on the criterion whereby any increase in capacity is covered by the owners. Shipyards that had qualified were excluded. However, the score system and federal money may have enabled them to qualify and build vessels. We may not have been here hoping for vessels whose construction has been put off indefinitely, Ms. Campbell.

[Lisa Campbell]

Thank you for the question.

I also want to remind you that the process for selecting the two main shipyards was competitive and that the then auditor general....

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Absolutely. It was in fact competitive, Ms. Campbell, but allow me to finish my....

[The Chair, Conservative, Tom Lukiwski]

Mr. Blaney....