National Defence Committee on Feb. 6th, 2007

[The Chair, Conservative, Rick Casson]

We'll call the meeting to order.

Today we start our study on procurement with the Department of National Defence. We'd like to welcome today Minister O'Connor—thank you, sir, for being here—along with CDS General Hillier and Deputy Minister Elcock.

Thank you all.

Before we get started, I'd like to remind the committee that after the opening comments by the minister, we work on a pretty tight timeline, and today I'm going to be very strict. The opening round is for ten minutes; then we go to a five-minute round after that.

In order to be fair to everybody, I will be cutting off questioners. Mr. Minister, I apologize ahead of time: I may be cutting you off as well. But we're going to keep to the ten-minute timeline for each questioner, and then the five-minute timeline in the second round.

As usual, we will start, sir, with a presentation—whatever you would like to offer—and then we will get into the questioning.

The floor is yours, sir.

[Gordon O'Connor, Conservative, Minister of National Defence]

Mr. Chairman, members of the committee, it's a pleasure to appear before you to discuss defence procurement. I'm sure you'd agree, having met our men and women in Afghanistan, that procurement is a critical aspect of ensuring that the Canadian Forces have what they need to do their important work.

Over the years, the House of Commons defence committee has done very good work for the members of the Canadian Forces. It has taken the time to carefully look at such challenging issues as the quality of life for our military, operational readiness, and of course Afghanistan. I'm happy to join you today as you begin an examination of defence procurement.

I must tell you that it is a study that I think will, in the end, ultimately help the dedicated men and women of our Canadian Forces. That is because unfortunately, in my opinion, those who wear the Canadian uniform have had to battle underfunding, cope with personnel shortages, and work with obsolete and aging equipment for far too long.

I feel privileged that a little over a year ago, I was given the opportunity to do something about it, and to make changes to help revitalize and reinvigorate the Canadian Forces.

This government is procuring equipment fast and in a more open and transparent way. We are getting the right tools for the Canadian Forces, we are getting the right price for Canadian taxpayers, and we are ensuring benefits for Canadian industry.

Let me explain. I think everyone will agree here that investment in the Canadian Forces is long overdue. The fact is, pent-up demand for investment and recapitalization is driving the current procurement agenda, and it is putting major pressure on my department to shorten delivery schedules and streamline the acquisition process.

During the election campaign, we promised to rebuild the Canadian Forces, and over the past year we've worked hard and have delivered on that promise.

Like the members of this committee, the Prime Minister understands how important the Canadian Forces are for Canada. Like you, he is dedicated to reinvigorating our forces after years of neglect. And, he is determined that Canada remain a force for good in our troubled and dangerous world. Our Prime Minister sees a critical role for the military. He understands that realizing our government's vision of an effective armed forces requires that they be well equipped and properly outfitted.

Ladies and gentlemen, this government is doing its utmost to provide the tools our men and women in uniform need to succeed. And Mr. Chairman, an efficient and reliable procurement system is at the centre of these efforts.

Bluntly, here's the situation our armed forces find themselves in. The Department of National Defence and the Canadian Forces possess billions in capital assets. That covers everything from trucks to fighter aircraft, to naval vessels, to barracks and office buildings. Past governments have failed to invest the funds needed to keep all these assets in working order, and for more than a decade the Canadian Forces recapitalization rate—that is, the investment in the assets they own—has been about half of the amount DND and the Canadian Forces need.

Because of years of significant under-investment, we have a huge replacement backlog.

Aircraft, trucks, ships and other important military hardware that should have been replaced years ago are still in operation. Much of the equipment that the Canadian Forces owns needs to be replaced or rebuilt.

The Department of National Defence has taken a good look at military procurement. It knows that the timeline for delivery for new equipment is wanting. It has taken nine years from the identification of a need to the final awarding of a contract; then it has taken another six years for the actual production and delivery of the equipment. The military has been acquiring equipment and systems late in comparison to their needs—too late. Often by the time new platforms are delivered, new technology has rendered the equipment out of date.

Clearly, Mr. Chairman, this lengthy process is not acceptable. Speeding up and improving the efficiency of our procurement process is a priority.

Speed is important in a security environment where threats are fluid and unpredictable, and where quick response is required.

Our military personnel cannot afford to wait 15 years for us to provide them with the tools they need to address these threats. So, keeping in mind our duty to be open, accountable and financially responsible stewards, we have been working to change things.

Obviously, reforming the defence procurement system is a huge challenge. The system depends on many factors, some of which are beyond the control of the department. The system depends upon the efficiency of the acquisition process itself, which involves not only DND, but other government departments—other departments that have their own objectives, timelines, and processes.

But we are making progress. I would like to highlight for the committee some key areas where the Department of National Defence is taking action to reform the procurement process.

First, my department is taking an active part in the Treasury Board's initiative to reform the defence procurement process.

We are working to establish stability within the planning environment by producing an affordable and sustainable plan for defence. We are looking beyond our immediate needs to set out the Canadian Forces' capital requirements in the future and establish how Canadian industry might best contribute to our requirements.

We are also working to buy more “off the shelf” products. As costly prototype development and customization are reduced, the procurement system can react more responsibly. Following upon that, by identifying strategic performance requirements rather than detailed and overly specific technical requirements, we have invited industry to come to us to demonstrate how they can fulfil our needs. This avoids the time-consuming departmental process of coming up with a list of detailed and lengthy technical specifications.

We are ensuring benefits for Canadian industry. For every contract dollar awarded, the contractor will commit a corresponding dollar in economic activity in Canada.

Finally, and most importantly, as we work to make things better to improve on a process that has already been bogged down for a long time, we have made the requirement for transparency and accountability a priority. In all our decisions, we must remain a responsible steward of public funds.

For example, in recent acquisitions, we openly published our high-level requirements and invited industry to respond; then we fairly evaluated every proposal to ensure the best value for Canadian taxpayers.

This government has taken steps to reinvigorate our armed forces. In June of last year, about seven short months ago, we outlined our plans to purchase joint support ships, strategic and tactical aircraft, medium- to heavy-lift helicopters, and trucks. Last Friday's announcement regarding the signing of the contract for the purchase of C-17s is a bold step forward, providing the Canadian Forces with the equipment they need when they need it.

This summer, only one year after we announced our intentions, the first of these aircraft will land at CFB Trenton, and the Canadian Forces will take delivery of the first of many new and urgently needed resources. This summer, our forces will have the rapid, reliable, and flexible capability to move troops and heavy equipment quickly over long distances, and we will have ensured that Canada's military maintains a vital ability to respond to domestic emergencies and international crises. No longer will we have to rely solely on chartered strategic airlift. These strategic-lift aircraft are currently costing taxpayers over $100 million a year.

Our own planes will guarantee that during a crisis the Canadian Forces will have the tools they need to respond, and we'll no longer be held to ransom by market rates that spike 1,000% during crisis.

A new day is dawning for the Canadian Forces. The government is committed to providing the Canadian Forces with the equipment it needs. We have made a firm commitment to the Canadian Forces. We have greatly speeded up a process that was long and complicated.

We have saved taxpayers millions of dollars, and we ensured value for money by requiring proven, off-the-shelf aircraft, thereby avoiding the high risk and potential delays that often accompany new technologies.

But we are not done yet. Plans are in the works for other essential equipment. As I mentioned, we are planning to replace our aging Hercules fleet. This is integral to ensuring that critical resupply missions in overseas operations such as Afghanistan can be carried out effectively and reliably.

DND should have started the Hercules replacement years ago. Canada's Hercules fleet has logged more flying hours than any other military Hercules fleet in the world. The wear and tear on these planes, some of which have been in service since the early 1960s, likely means that planes will be grounded by the end of 2010. Already four can't be flown.

We also require medium-lift to heavy-lift helicopters to allow us to move troops and heavy equipment or supplies in dangerous theatres of operation. We need to fly our soldiers over threats such as mines and ambushes in these dangerous places.

We're replacing our medium-lift trucks, which have been in service since the 1980s and are now beyond their projected lifespan. From support during emergencies here in Canada to operations overseas, these trucks are the backbone of army logistics and essential to the mobility of our forces.

We are planning to enhance the capabilities of our navy with the procurement of joint support ships. The new ships will replace the navy's two auxiliary oiler replenishment vessels, which are now over 35 years old and a challenge to maintain.

We are also replacing aging vessels with ships that can do significantly more than those now in service. They will give the Canadian Forces a valuable strategic sealift capability. These added capacities to provide support to Canadian Forces ashore will improve our operational effectiveness.

These are essential purposes, and time is of the essence. Failure to take action today to replace equipment will create serious problems for our military units in the near future. Investments in defence are investments in our future.

All our procurement projects are in response to the urgent needs of our soldiers, sailors, air men and women, and of Canadians.

All of our projects are time dependent.

I would like to emphasize, Mr. Chairman, that all of these procurements have been following open, fair, and transparent processes. DND has provided potential suppliers with the opportunity to indicate their interest and demonstrate their ability to meet the performance requirements of the military.

In negotiating our contract for the purchase of the C-17s, for instance, the government openly invited industry to identify any solution that would meet high-level performance requirements. Proposals were fairly assessed. I want to assure Canadians that there is significant military, civilian, and political oversight throughout the procurement process.

In the coming weeks, this committee will learn about the respective roles of departments and how we work together collaboratively to ensure the timely, transparent, and fair delivery of military procurement projects. You will also discover the improvements that this government has incorporated into the acquisition process and plans to further enhance the system. These improvements have the potential to save my department years of planning and development, and reduce both the risk to our forces and the costs to Canadians.

The Canadian Forces have made do for too long, and these procurement initiatives are more than overdue. I'm sure that this committee is going to have a long, hard look at procurement. Given the amount of money involved and the very real implications for our men and women in uniform, I know that Canadian taxpayers would expect no less.

I hope this committee will consider the past, but also come to appreciate the challenges we face today and in the future in providing the Canadian Forces with the tools they need.

I am confident, ladies and gentlemen, that you will then come to understand why the government is taking the actions needed to revitalize the Canadian Forces.

I am proud of having the opportunity to participate in improving the protection of Canadian interests at home and abroad.

I'm proud that this government is keeping its promise to put Canada first.

Thank you.

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Minister.

Maybe before we get into the first round, you did mention our recent trip to Afghanistan. I'd like to pass on the committee's thoughts to you on the great job we found our men and women doing there, from the leadership on down the ranks.

At times, we had the opportunity over dinner or breakfast to have direct contact with the troops. To the person, they were proud of what they were doing and confident in their task. We came home a pretty proud bunch of parliamentarians to know that we have people like that out there, doing their job.

Thank you.

Mr. Coderre, you have ten minutes.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chairman.

When I see General Hillier seated next to General O'Connor, I can only wonder about what happened in the past months so that now we finally need C-17 aircraft.

I remember that I had taken a specific interest in this issue on several occasions. Obviously, we can criticize the previous government, but we had a $13 billion plan. We worked together with all our partners to make sure, as we all want to, that our troops get the best equipment.

Today, we heard that it is urgent to obtain C-17 aircraft and that Canada must come first.

General Hillier, you were on record saying that we didn't truly need this, and that what you were looking for at the beginning was only access to those planes. “Access” means also to lease them.

We spoke about DART. The problem with DART was not that we didn't have the equipment at that time. It was the political decision-making that has made it look as though we played with the timing a bit.

What happened, General Hillier, so that National Defence now wants C-17s? We know that NATO has already bought three of these aircraft, that we could have taken part in the agreement whereby you could have acquired these airplanes in 48 hours.

Now we're saying “Canada first”. Canada first means that you have to make sure we protect Canadian interests. Protecting Canadian interests—and my definition of “sovereignty”—means also that you are able to do your own maintenance of that equipment.

Now, with C-17s, because of the intellectual property, we won't have any access to it, and we'll have to invest a lot of money in Trenton to make sure that we provide even the first line of maintenance.

General O'Connor, why do we truly need those planes? The way I see it, I could have put the $3.4 billion into the condition of the troops, more trucks.... I don't see the rationale for it. Would you explain it to me?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

Yes, I will, and then General Hillier can answer his part.

You may not be aware, but the defence department has had a requirement for strategic lift going back more than a decade, but your government chose to suppress it.

[Denis Coderre, Liberal, Bourassa, QC]

A requirement for access.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

We want our armed forces to be self-sufficient. We do not want to depend upon other governments or commercial enterprises to lift our forces in a strategic manner. If we go to other governments and are proposing to lift our forces to do something they don't appreciate or don't support, we won't get the support from them.

And when it comes to leasing commercial aircraft, essentially strategic airlift is under the control of the Russian government. We already know of incidents when the Russian government has refused the use of aircraft because they don't agree with its use.

The British, for example, eventually bought C-17s because they had trouble with the leased aircraft, because the Russian government refused to allow them to land where they wanted to land them.

We are not going to be hostage to any foreign government and are not going to be hostage to any foreign company. This country and its armed forces are going to be as self-reliant as can be.

If you look at our geography, we are surrounded by three oceans, and when we have to move anywhere, we have to move great distances. One of the problems we've had in the past is that we have been employing our tactical aircraft—our Hercules aircraft—as strategic aircraft, and we are burning up the hours. The reason we have the oldest Hercules aircraft on the planet is that we've been using our Hercules aircraft in a strategic lift mode.

[Denis Coderre, Liberal, Bourassa, QC]

General, if I may, I understand—

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

No—

[Denis Coderre, Liberal, Bourassa, QC]

If I may, I understand about that, and that's why General Hillier wanted to have replacement Hercs, not C-17s.

[The Chair, Conservative, Rick Casson]

Denis, let him finish.

Go ahead, Mr. Minister.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

Let me finish. We also are getting Hercules, if you recall. In fact, we're ordering 17. You wanted 16; we're ordering 17. So we're getting them both.

[Denis Coderre, Liberal, Bourassa, QC]

So we don't need them.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

We're getting both strategic lift and tactical lift, because the Canadian Forces need both tactical and strategic lift.

Now I'll hand over to General Hillier, and he can answer his part.

[The Chair, Conservative, Rick Casson]

General.

[Gen R.J. Hillier, Chief of the Defence Staff, Department of National Defence]

Sir, the only thing I would say, in addition to what the minister has said, is that when you need strategic airlift, if you are leasing it or are getting a piece of the NATO pool or are trying to beg or borrow it from friends and allies, everybody else in a crisis all wants it at the same time, and it's very difficult to get. Your flexibility and ability to be successful in what a country decides to do with the armed forces is not guaranteed.

The second part is that the leased aircraft cannot carry everything we necessarily need to carry. A great case in point is the armoured and engineering construction vehicles we just put into Afghanistan—a fundamental part of the reconstruction piece in southern Kandahar, a fundamental part of building Route Summit, for example. You can't carry those in our C-130s; you cannot carry them in most of the leased aircraft. You can carry them in the big Antonovs, but then the third point becomes that those big Antonovs and other leased aircraft can't land in all the airfields where we are.

As an example, when we put those heavy engineering vehicles in, we had to carry them to an intermediate staging base on an Antonov, and then we had to borrow from friends the airlift to take them into Kandahar. As a result, we could not guarantee when we would get them.

So I would say, sir, to own versus to lease a portion of the strategic airlift gives you the flexibility and the agility at the start of a crisis, when people—perhaps in the worst days of their lives—need some help—

[Denis Coderre, Liberal, Bourassa, QC]

General Hillier, I have only 10 minutes.

[Gen R.J. Hillier]

—to be able to set up the divisions for success, that's our military—

[Denis Coderre, Liberal, Bourassa, QC]

With all due respect for the armed forces and especially for you, I know that you said several times that you wanted to replace the Hercules aircraft.

I can see another problem: things are being done much too fast. You dealt with only one supplier. By supposing that only one company could meet the requirements, you lost some negotiating power. Boeing has the Conservative government over a barrel, and Canadian interests are at stake. I think that this is indecent.

In the light of certain documents and articles, instead of proceeding with an ACAN, we could easily have asked some other companies to submit their proposals regarding delivery dates, capacity and tonnage.

General O'Connor, you went to the Pentagon and met Secretary of Defence Robert Gates. We have a major issue called ITAR, International Traffic in Arms Regulations. You could have made an agreement with the Government of the United States. Why can't we have those kinds of statements under procurement to protect our Canadian citizens?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

First, it's not a matter for the Department of Defence; it's a matter for the Department of Foreign Affairs. ITARs are controlled by the Secretary of State, and the prime actor in this is the Minister of Foreign Affairs.

However, when I was in Washington, I did speak to Secretary Gates and asked him to give us all the support he could to encourage the State Department to make sure that our requirements are facilitated.

[Denis Coderre, Liberal, Bourassa, QC]

Let me come back to the C-17s. My question is for General Hillier.

Is it not true that in the department, on a certain occasion, Colonel Burt said that there were no problems with requirements? For instance, we could have had Airbus rather than Boeing, because the issue was not about capacity, tonnage, and especially not delivery. Ultimately, we could have proceeded with an invitation to tender, which could have saved some money.

In fact, I see that this is not only costing us $3.4 billion, but that in addition, we gave maintenance away entirely to the Americans. Because of the ITAR regulations, our industry cannot make any profits from research and development.

Moreover, are we not at the mercy of others with regard to maintenance? In fact, we will not have any maintenance capacity, because the Americans will be taking advantage of the second and third capacity levels.

What has changed in the requirements to make you, and by you I mean the department, absolutely want to have these cumbersome aircraft? Once again, we could have reached an agreement with NATO, with our allies—they are not strangers—who purchased three of these aircraft. We do not need them on a daily basis. Among allies, we could have worked to further our interests.

[The Chair, Conservative, Rick Casson]

We have time for a ten-second response.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

Mr. Chairman, we do need them every day. If we get into one of these pools with the allies, everybody wants them at the same time. We are a continent surrounded by three oceans, and we need strategic—

[The Chair, Conservative, Rick Casson]

Thank you very much.

Moving on, Mr. Bachand, you have ten minutes.

[Claude Bachand, Bloc, Saint-Jean, QC]

Thank you, Mr. Chairman.

First, I want to welcome the Minister of National Defence.

Honourable Minister, you said in your presentation that a new day is dawning for the Canadian Forces and your entire speech had a sense of urgency about it.

We think that we are perhaps at the beginning of a new era for Quebec and Canadian taxpayers, if we look at the way you are currently proceeding. The Bloc Québécois is highly critical of what is going on. Let me explain.

First of all, defence procurement must be based on a defence policy. Then we can see what kind of material we need to implement the policy. This is called the Defence Capabilities Plan.

You are announcing purchases in the amount of $21 billion and we have not even seen the Defence Capability Plan yet. And I object to the manner in which you announce this! Minister, it is up to your department to choose the type of contract. You chose to award a contract to Boeing. This means that no other company had an opportunity. With regard to Boeing, I am not only talking about the C-17s, but also about the Chinook helicopters. This contract is even more costly than the C-17 contract.

The contract was announced in July 7, during the Farmborough International Air Show. By the way, at that time, everyone was away on vacation. I called the companies and I told them that we were not aware of this, that we had not heard anything about it. Let me quote the contract award:

You are hereby notified that the Crown intends to solicit a bid for the above requirement and negotiate a contract with The Boeing Company, the only known source of supply capable of meeting the high level mandatory capability requirements.

Contract awards are the first problem because it is not a fair, just and open procedure. You get into bed with a company and tell it that we want aircraft.

I already told this anecdote to the defence committee. When I wanted to buy my first car, my father said that he would come with me. I had seen an extraordinary red Camaro convertible—Mr. Chairman, I swear to heaven that today, I would certainly choose a blue one—and I liked it. When we got to the garage, my father told me that he would let me do this in my own way. I told the salesman that I wanted the car, but this is the one I wanted and no other car. My father then told me that we had to leave. When we got outside, he told me to let him take care of this and watch how he went about it. We went to three different garages. He told the salesman that he might want to have a car for his son and asked him the price, without omitting to say that we had been to other places and that the prices were excellent.

If you say that you want to deal exclusively with Boeing, you can no longer negotiate anything with that company. We lose our negotiation leverage.

You have another way of choosing the supplier you want, namely the requirements. For instance, if you say that you want a freight capacity of 39 tonnes and not 19.5 tonnes, you automatically get rid of all those you do not want and you keep those that you want. These are basic principles. There is also the delivery schedule. By requiring a delivery schedule, you can eliminate more candidates.

Let us take the 15-year contract that you mentioned earlier. We had to wait for 15 years before getting Sikorsky marine helicopters. The Sikorskys will not be delivered on time. There will be a five-and-a-half-week delay and you are supposed to penalize them $100,000 for each day that they are late. Now you said that you would not do that. What kind of message does this send to Boeing? You have eliminated candidates because of the delivery schedule, but you will not penalize anyone if there is a delay.

You can see, Minister, that there is a major problem. The department told the American companies that they could do whatever they like, and that if they wanted to apply the ITARs, they could do so. By the way, a Venezuelan junior employee was fired by Bell Helicopter. This junior employee was not fired because of incompetence, but because he was working on specific projects that the Americans wanted to keep secret from people coming from 20 countries that they had listed.

You gave the companies whatever they wanted. The ITARs are a good example of this. You told them that they could build their aircraft wherever they choose. This is serious, because 60% of the aerospace industry is in Quebec and we will have to be satisfied with half of the spinoffs, and perhaps even less. You also told them that they could deliver whenever they wanted to, except in the Sikorsky case.

You are right, Mr. Minister, if you want the taxpayer to get his money's worth, we cannot wait 15 years. However, there is a difference between buying immediately something of the shelf and waiting for 15 years. You chose to skew the balance completely to one side. This is not in the taxpayers' interest.

You can understand why we are put off by this, as we showed last Friday.

I would like you to tell me that I should begin my intervention in this way, that I am entirely right and that the next time, we will not do it in this way.