Thank you, Mr. Chairman.
Good morning. It's a pleasure to be here to brief you and take your questions on defence procurement, a subject for which I am largely accountable in the Department of National Defence.
I have been the Assistant Deputy Minister, Materiel, for almost two years now. For the previous 30 years, I was an officer in the Canadian Forces.
I finished my career as Commander of Land Forces Western Area, followed by three years as deputy foreign policy adviser to the Prime Minister, from 1999 to 2002, and then I moved to the public service, as an assistant deputy minister in the Department of Public Works, where I was involved in contracting real property and IT services to the government departments.
I came back to DND in early 2004 as ADM of information management, and then for almost for the past two years as ADM of materiel.
I have seen first-hand the success our soldiers are achieving in Afghanistan, as I know you have recently. It has not been without significant sacrifice, but there is progress being made there, and there can be no doubt that Afghanistan is on the right track.
It reinforces to me the need to ensure that the Canadian Forces have the equipment they need to do the very, very demanding task that we ask them to do. They need that equipment in a timely manner. They can't wait, as they have in the past, on average, 15 years for a process to deliver. We are implementing a number of initiatives aimed at changing that process, and I want to take this opportunity to touch on three of those today.
First of all, we're moving to a performance-based, best-value competitive process where industry is provided broad, high-level, mandatory performance criteria and invited to propose their solutions; second, ensuring that we have a single point of accountability within performance-based procurement, where a single prime contractor is responsible not only for the provision of the equipment but for the long-term effective operation of that equipment; and third, wherever possible, procuring proven off-the-shelf equipment as opposed to somewhat riskier and lengthier developmental technologies.
All of these initiatives seek to improve the existing procurement system, but it doesn't circumvent the rules and processes that are in place by Treasury Board and Parliament. The departmental and interdepartmental approvals and oversight processes remain exactly the same. The basic tenets of fairness, openness, and transparency have not changed and continue to be the cornerstone of our procurement practice.
In the past, the procurement process at National Defence was a lengthy and extremely complex one. A number of organizations were involved.
To a significant degree, however, the delays and complexities have been self-inflicted wounds by DND on itself. We have spent years producing lengthy, detailed, complex technical specifications in the tens of thousands of pages, often with hundreds of mandatory requirements that entailed responses that were equally lengthy and complex.
We have in the past refused a 90% solution of a proven off-the-shelf product, engaging instead in expensive and time-consuming development, customization, and Canadianization. These processes have been long and costly, both to the government and industry, and obviously to taxpayers. The result has often been that all bidders were non-compliant and the entire process was unsuccessful, causing months and in some cases years of delay at significant and unnecessary expense to both taxpayers and industry. The focus has been on the process itself rather than on the results needed, which are safe and operationally effective equipment in the hands of our troops in a reasonable timeframe, and 15 years is not a reasonable timeframe. Those things had to change.
In terms of performance-based best value, we don't need to tell industry, a Sikorsky or a Lockheed Martin, how to build a helicopter. They know how to build aircraft. What we need to tell them is what capability we need to provide to our soldiers, in broad, high-level performance terms, and let them come to us with their solutions, if they have a solution. That's what we've done with strategic airlift, tactical airlift, and the medium to heavy helicopter projects. For each project, we provided industry with the high-level performance requirements and invited them to propose solutions, and we evaluated those solutions against the high-level performance needs of the troops.
Each process was fair to all the vendors, it was open to anyone who had a solution, and it was transparent to taxpayers. Each process had the same level of departmental and government approvals, including cabinet. The new process has the potential to deliver equipment years sooner than it has in the past. We are looking at now focusing our major procurements on the concept of that performance-based, best-value process.
I want to elaborate further in two ways. We look at this in two versions: one being off the shelf and the other one being design-built. Let me talk about off the shelf for a second. The preference, if possible, is to seek proven off-the-shelf solutions when acquiring equipment, whenever possible. In most cases, an existing capability that provides a 90% solution is the most prudent and effective way to proceed. In some cases, such as the replacement of our aging Hercules tactical air fleet—and we have grounded, permanently unflyable, four out of our 32, and others will follow shortly—the urgency of the requirement dictates that waiting for developmental technology to come into full production is not an option.
What is perhaps more important is that acquiring an existing, proven technology greatly reduces the risk associated with the acquisition. We know what the operational performance is. We've seen it, it's evaluated, and it's proven. There is much more cost certainty in the acquisition price, which we know. We have seen that with our allies and we know what industry pays. The delivery dates can be defined with precision, and the in-service costs are demonstrable and predictable.
Projects that seek these proven off-the-shelf solutions state mandatory high-level requirements in operational performance terms—terms such as protection, mobility, range, and often include things like key safety, certification, and delivery parameters.
These are publicly advertised to industry, inviting them to propose responses and often provide their product for us to evaluate against the mandatory criteria. We insist on, if at all possible, firing the guns, flying the aircraft, and conducting destructive testing on vehicles so that we know they will survive IEDs and to confirm that they meet the operational requirements of the forces before we buy them.
For example, test driving a shiny new red Camaro ensures that it performs to your expectations—I don't think they make them anymore. It does bring more certainty to the process.
If only one company is able to meet our requirements, we can save a considerable amount of time by negotiating directly with it.
Cost risk is minimal, and our negotiating position remains strong, as we have solid information on actual market prices and the maintenance cost data from our allies.
If a number of companies meet our requirements, we issue a call for tenders, and the bid assessment process takes its course.
There are occasions when design-build projects must be employed, for example, for new classes of ships and certain combat vehicles. The joint support ship project is an example of a design-build procurement process.
We recognize that there is greater risk in a design-build process, but it can be mitigated by having the prime contractor be responsible not only for the acquisition portion or the production portion but also for long-term in-service support for that equipment.
Build quality delivers lower maintenance and through-life costs. By weighting the in-service support price in their bid higher than the acquisition price, we are motivating the builder and rewarding the builder who has invested in quality and knows the equipment will be cheaper to maintain. I'll use the example of engines in a ship. If we motivate the bidder to put top-quality engines in a ship, he will bid a much lower in-service support cost, knowing he doesn't have to fix them every day, and the long-term cost of ownership of that ship over the life of it will be lower for the department.
So the message is simple: build in quality, performance, and reliability, and there's an advantage to the bidder. The total cost of ownership is lower to the taxpayer, and therefore the best value, and soldiers have better and more reliable equipment.
In closing, I would just like to take a few moments to clarify a popular misconception with respect to some of the major acquisitions we recently made. I want you to know that not one of those processes involved single sourcing. In each case, it was a competitive process.
Sole-source contracting is primarily used by DND, with our colleagues in Public Works and Government Services, for urgent operational requirements on operations, such as the M777 Lightweight Howitzer, which you may have seen in Afghanistan or heard about in Afghanistan, where it has been enormously important for the protection of our troops, or in cases where the service or item required is governed by proprietary intellectual property rights. For example, I need to buy spare parts for LAVs from General Dynamics, which makes the spare parts and owns the intellectual property for LAVs.
It's important to note that in every situation we aim for competition. However, for certain capabilities, there may be only one solution available, and that is a reality we can't change. As I said before, if there's only one company able to meet the requirements, significant time can be saved by negotiating with them directly. If there are multiple companies that can meet the requirements, then, as I said, a formal request for proposal is issued and a normal evaluation process ensues.
In all cases, it's a best value for the crown process. Allegations that negotiating with a single supplier produces higher acquisition costs is not true. We have a very good idea of the market prices for off-the-shelf equipment, like a C-17 or a Chinook helicopter, and would not enter into that contract if the value for the Crown were not there.
In summary, the steps taken by my organization, along with my colleagues at Public Works, and by the Department of National Defence, represent pragmatic, effective solutions that will result in a streamlined defence procurement process.
There is no need to massively overhaul the system, nor is there any requirement to create new agencies or organizations. I would point out that the contracting support from Public Works and the team led by Mr. Williston is totally integrated with the Department of National Defence's procurement team already and has been for many years.
Within DND and within the existing system, implementing a performance-based best-value procurement model has already paid dividends. Seven months after the statement of operational requirement was approved, we were in contract for strategic airlift. The process was fair, open, and transparent, and the Canadian Forces will receive their first aircraft this summer, just one year after the government announced its attempt to proceed.
I should add as an aside that this procurement was due in no small part to the dedication and professionalism of the civilians and military members in my organization, as well as Public Works and Government Services, Industry Canada, and the Treasury Board Secretariat.
A lot of challenges remain, but they are not insurmountable. We are working hard with our colleagues across government on resolving the ITAR issue with our American counterparts. Retention and rebuilding of a professional project management capacity is also one of my major priorities. A more efficient and streamlined process is already yielding benefits.
Thank you for your kind attention.
We are now available to answer your questions.
