Government Operations Committee on April 1st, 2022

[Dr. Jeffrey Collins]

I could take a first crack at it.

With a large production plan like this, we're talking about several thousand aircraft, and you tend to build them in blocks, as was indicated by our colleagues earlier. The idea is that for each block, you're learning as you go what the particular mechanical challenges are, particularly on the F-35. As my colleague, Mr. Perry noted, it's like a flying computer. What are the software challenges? Every time more of these machines enter operation, you are learning about how to fix them and manufacture them, if there was anything on the production lines. It's a normal build cycle.

We see this with ships too, by the way. Often, they can be built in blocks. With this particular block IV, this is where I will often see someone from the joint strike fighter office or Lockheed Martin come in to explain more, because I personally.... Some researchers have a hard time ascertaining specific technical differences about what's going on. One is, in particular, a better engine, perhaps one has better software operates or is better at notifying about the glitches with earlier variants.

That would be my initial answer to it.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Collins.

Unfortunately, we are out of time. Mr. Kasurak and Mr. Fergusson, if you have an answer to that question, please put it in writing and submit it to the clerk, and we will distribute it.

I appreciate that. I apologize. It is because of time constraints.

We'll now go to Ms. Vignola for six minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for being here. Your expertise is valuable to us.

Mr. Collins, with respect to the joint strike fighter program, the federal government is funding the design and production of the F‑35 with seven other countries. As well, a memorandum of understanding was signed in 2006. Under this memorandum, Canadian companies could bid on procurement opportunities related to the F‑35, but they couldn't include industrial offsets.

How does this memorandum affect not only the Canadian economy, but also the development of knowledge and industrial technologies in Quebec and Canada?

[Dr. Jeffrey Collins]

Your question really gets to the heart of the joint strike fighter program, and the emphasis is on “joint”. In the partnership of the original eight countries, the idea was that by funding annually the payment of the research and development on this aircraft, the companies in your country would be able to benefit from the global supply chain and bid on them. My understanding from DND estimates is that about $2 billion U.S. has already been obtained in contracts by Canadian firms. The flip side is that you end up having to buy the aircraft, which was always going to be the challenge of having an “open competition” to replace the CF-18, given the terms of the agreements and the payments we had been making into the joint strike fighter program.

The other loss, for lack of better terminology, is the fact that it's very hard, if not almost impossible, for Lockheed Martin in this particular case, to get points and offsets. They couldn't because the terms of the agreement.... Because Canada funded the agreement every year, Canadian companies could participate in the manufacture of this aircraft. Therefore, once more and more countries bought into it, the idea was that Canadian companies would be able to bid on the larger [Technical difficulty—Editor] dollar figure supply chain contracts over time.

That's one of the challenges, but the benefits, depending on the perspective, are being part of the partnership supply chain.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you.

From the technological and industrial knowledge standpoint, the partnership benefits mainly Lockheed Martin rather than the partner countries. Is that right?

[Dr. Jeffrey Collins]

That's a tough question to answer. These types of projects always have a prime contractor, but the supply chains are very sophisticated and complicated. Whether it's a ship, submarine, jet or armoured vehicle, there is so much software and advanced technology going into it that it's literally like a multination supply chain.

It's the type of question that really would deserve further study, and I think it's right to ask it. Canadians, as a whole, should be aware of how these companies can potentially benefit in terms of keeping dollars in-house.

I don't know if my colleagues have anything to say.

[Peter Kasurak]

Mr. Chair, I would like to comment on that, if I could.

It's difficult to quantify what Canada is actually receiving, although it's probably clearer than the alternative. It should be kept in mind that industrial benefits, whatever they're called today, were very difficult to track. You couldn't tell whether it was going to be money that would have been spent anyway. A lot of it couldn't be adequately costed. No matter which system you use, the number you're going to end up with is going to be fairly soft.

This approach at least means that Canadian firms have to be competitive and commercially viable to get contracts, so we know we're supporting the right people. The alternative has to be kept in mind, as well as whether this approach is actually working.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you.

I'll continue with you, Mr. Kasurak. I have a fairly general question.

According to the “Strong, Secure, Engaged” policy, the Department of Defence planned to invest $164 billion in 348 capital projects by fiscal year 2036‑37.

Given the exploding costs, including the costs of the national shipbuilding strategy; given the air defence needs; given the project to renew the submarine fleet; given the inflationary trends, which are often more significant in defence construction; given the training needs to address the labour shortage; given the past and current challenges with monitoring and overseeing spending; given all this, does the projected $164 billion seem sufficient, insufficient or exaggerated?

[Peter Kasurak]

I doubt it's exaggerated. I fear that it won't be sufficient. Until we actually see a contract, we won't really know for sure.

The problem with all these projects, and the F-35 in particular, is that the sustainment costs—the costs of operating the aircraft and keeping them flying—have been escalating and causing a problem, even to the United States.

How much we will pay in the end is a good question, and I think it's a major problem for the government.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Ms. Vignola.

We'll now go to Mr. Johns for six minutes.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you, all, for your really important testimony.

Mr. Collins, you were asked earlier, I believe by Mr. Paul-Hus, about which countries had done a good job with procurement. You stated that for level-three partners like Australia, it's similar, sadly, to Canada.

Can you speak about one that's done better, like maybe Denmark, Norway or Turkey, who are also level-three partners?

[Dr. Jeffrey Collins]

It's a great question, sir.

I think it's about defining what you mean by “better”. Often, when I think about who's doing well in procurement, it's really about project by project.

The one thing I'll give the Danes and Finns credit for—and the Swiss as well—is their ability to make a decision. This idea that we take the better part of 15 or 16 years to actually get a decision.... Kudos to those countries for having a much more condensed process, relative to ours, of just a few years. That's really about political prioritization. You can kind of look into how the defence procurement process is structured.

In that case, I think your question points to where there are examples of specific projects of equal complexity that are done right. In those particular examples, it's that those countries had a much tighter timeline just in terms of making a decision on when to buy aircraft.

[Gord Johns, NDP, Courtenay—Alberni, BC]

That leads me to my next question, which is around the 2019 mandate letters. The ministers of National Defence, Public Services and Procurement and Fisheries and Oceans were all instructed in their mandate letters to propose options for the creation of a single defence procurement entity.

Although that was left out in the 2021 mandate letters, can you talk about why it's important that a single entity be accountable for defence procurement, and how that ties into my previous question?

[Dr. Jeffrey Collins]

One issue that comes up a lot is about restructuring the machinery of government to respond to procurement. Restructuring during the middle of handling major procurement projects can be challenging. It is telling, though, that the last several times this country has had rapid buildups of military acquisitions, it has gone with a separate defence acquisition agency. The department of defence production was the last department, and it was phased out in 1969.

In that particular example, you have a deputy minister and a minister who are visibly accountable, both in the House of Commons and with Canadians writ large. A challenge there is that there are also still cabinet confidences. There are still competing government mandates, whether it's offsets, delivering specific capabilities or meeting alliance pressures. Those are all still there, no matter how you change the machinery of government.

However, from the perspective of government accountability, I completely agree that having an identifiable minister and deputy is important.

By the way, other allies have done this. Australia, for example, has a minister for defence procurement. There is a separate agency there as well.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you.

Mr. Kasurak, I'm going to let you chime in as well. You talked about the problematic issues around the politics of ensuring that, number one, the goal is to make sure that the men and women in the military get the best equipment they can in a timely fashion. Can you speak a bit about some of the obstacles here? Again, maybe you can cite some other countries where they've had a better process?

[Peter Kasurak]

The first problem is that there really is a lack of consensus as to what we want the Canadian Forces to be and what being “well equipped” really means. Do we want to have an army that is domestically postured and able to do constabulary duties, or do we want the complete war-fighting capability?

The electorate will say, well, yes, the Canadian Forces should be well equipped, but then when it comes time to pay for it, when they see the bill, they say, well, sorry, I'm not interested in paying that. The politicians then have to try to steer the ship down the middle, and we have not been doing a very good job.

Overall, overarchingly, we do not have a very well-structured strategy for the armed forces as a whole. If we go in multiple directions with it, hoping to satisfy everything, we generally fail. We don't do a very good job.

Now, are there other countries that do better? I'm not so sure. I'm not so sure that I would hold Australia up as a really great example—

[Gord Johns, NDP, Courtenay—Alberni, BC]

I don't think we were.

[Peter Kasurak]

—although at a strategic level, in the last few years they've started to get their act together, I think, certainly better than we have. I think all democratic countries struggle with “guns and butter” questions, though.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Given the war in Ukraine, and certainly with NATO and our obligations to NORAD, what has that exposed in terms of meeting our obligations and changing the conversation in terms of the political dynamics? How do we meet the needs of those commitments?

[Peter Kasurak]

Well, now, certainly, we have a battle group in Latvia that is more or less on the front line. Looking at our light equipment for the army and its total lack of integral air defence, they start to look like fairly poor choices. We're looking at making up equipment deficiencies that we built up after the end of the Cold War, around 1990. We got out of the heavy equipment and the dense equipment for the services, and now we realize that, well, if we're going to be on the front line, even in a cold war, we need to relook at this question.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Johns. We'll now go to our second round.

We'll start with Mr. McCauley, for five minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Gentlemen, thanks for joining us today. We've had some very interesting answers.

Mr. Kasurak, I'm going to refer to your comment about how there's a lack of consensus for what we want to be and where we want to be. In one of our earlier studies a couple of years ago in this committee, we had a witness who said that Canada lacks a strategic plan, and that we're putting the cart before the horse with a lot of these procurements because we don't know what we want to be or who we want to be on the international stage.

Have you seen in your past—or currently—any sense of a longer-term strategic plan, so that we can build a consensus on what we want to be and what we should be procuring?

[Peter Kasurak]

Well, for instance, when you look at “Strong, Secure, Engaged”, the words say one thing, but the force structure and the money behind it seem to say another.

On the navy side, for instance, it's built around their own model in “Leadmark”, which is their strategy paper. They want to be a global navy. Well, are you going to be a global navy with 15 frigates—even 15 magnificent frigates—and can we even afford the 15 frigates that the navy says it would like to buy?

There are these disconnects between the words in our strategy documents and the actual substance behind them.

[Kelly McCauley, Conservative, Edmonton West, AB]

Do you see a solution going forward? I mean, good Lord, things are bad enough as it is.

I look at handguns. Apart from knives, they are probably the most simple offensive weapon we could purchase, but it's been 10 years, and we're still getting sued over our procurement decision. We cannot stop everything and then develop a strategic plan now. It's too late for that.

How do you see us going forward properly, so we don't have the navy making demands for 15 very expensive, very qualified ships that may not fit into what the government wants or what our plans require?

[Peter Kasurak]

There are ultimately two questions there.

One is who decides, and I think it's cabinet. These questions are ultimately cabinet decisions. It's up to ministers to look at the proposals coming from the defence establishment and say, “Yes, that's what we want and, yes, we're going to pay for it.”

What can be done in the short term? Probably not a lot. A lot of these questions, like being sued by disappointed vendors, are going to happen no matter what you do. It's a part of the pain of doing business in a society that's open and has a lot of—