Evidence of meeting #34 for National Defence in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was requirements.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

M.J. Ward  Chief of Force Development, Department of National Defence
J.D.A. Hincke  Chief of Programs, Department of National Defence
Dan Ross  Assistant Deputy Minister (Materiel), Department of National Defence

9:05 a.m.

Conservative

The Chair Conservative Rick Casson

I call the meeting to order.

This morning we're continuing our study on the procurement process, including the tendering process and the establishment of capability requirements.

Today we're very pleased to have with us Mr. Dan Ross, ADM, materiel; General Ward, chief of force development; and General Hincke, chief of programs.

Gentlemen, the usual process is that you are given an opportunity to present your comments and then we go into questions.

We have two hours, so we have lots of time. I understand, General Ward, that you'll be first. Then we'll have General Hincke; we'll finish up with Mr. Ross.

Gentlemen, the floor is yours. We look forward to your comments.

9:05 a.m.

MGen M.J. Ward Chief of Force Development, Department of National Defence

Thank you, Mr. Chairman.

Good morning, ladies and gentlemen. I am MGen Mike Ward, Chief of Force Development. My role, on behalf of the Deputy Minister and the Chief of the Defence Staff, is to harmonize, synchronize and integrate the Force Development activities of the Navy, the Army and the Air Force, as well as the duties carried out by DND's Assistant Deputy Ministers.

Force development is that function that continuously conceives and redesigns the military so that it is better geared to fight the next war than the last one. It includes analysis of government policy on defence and the security environment, as well as we can predict it, out into the future. It uses that analysis to identify possible future scenarios within which we would apply military force or use military skills in things like humanitarian interventions. In those scenarios, we test our forces and our equipment to determine what changes might need to be made as we replace or modernize them at key stages in their lives.

Ultimately we combine the results to create a long-term plan that sets priorities for development over time. This defines the equipment requirements that guide what we procure, and we work closely with other government departments and our allies to share knowledge and experience so that we have confidence in our results and the recommendations that we forward.

In conjunction with each of the services and the associated deputy ministers, I focus on the developmental capabilities. Those capabilities will permit the Canadian Forces to provide Canada with effective and relevant military power. These include command and control systems and special operations forces at the national level, as well as major core capabilities such as ships, fighting vehicles, and aircraft in each of the services.

When we conduct force development, we speak in terms of capabilities. While our purpose today is to help educate about defence procurement, it's important to see the output of the procurement process as enabling an element of the force to be capable of doing a job or completing a mission.

The capability must be balanced, and therefore capabilities are made up of a combination of highly skilled and well-trained personnel, modern equipment, and the readiness to complete a mission, as you've seen recently during your visit to the task force in Afghanistan.

To further explain, a main battle tank is not, in and of itself, a capability. Only when it's married up with a trained crew and is prepared for a mission does it become part of our arsenal. A patrol frigate tied up to a dock is also not, in itself, a capability. Her Majesty's Canadian Ship Ottawa, however, now completing a six-month tour of operations in the Arabian Gulf with her full crew and six months of training and preparation, constitutes a complete military capability that's ready to complete a variety of missions.

The key to success as regards force development is the establishment of a long-term plan that considers the following: the security context Canada is dealing with and in which we need to develop our forces; the methods we use to employ our forces where they are needed to counter threats to Canada, either at home or overseas; the main requirements, with respect to our forces and materiel, that must be met to ensure that they are relevant and decisive; and, the financial circumstances under which the plan becomes cost-effective, justifiable and achievable.

Success in force development and strategic planning enables clarification of development options and capability acquisition.

I'm specifically responsible to work very closely with the associate deputy minister for policy and provide him with the military advice he requires in order to create the long-term defence capability plan that lays out how we will manage our military over a 20-year timeframe. Managing means how we invest in, modernize, recapitalize, or ultimately replace in service those capabilities, ships, aircraft, and fighting systems that serve or no longer serve our needs.

The plan is key to ensuring that we maintain a high level of operational effectiveness while at the same time efficiently managing our people and our fleets of equipment. I work hand in glove with the chief of programs to ensure that the defence plan can be resourced and afforded, and with the assistant deputy minister for materiel to make sure those capability requirements can be acquired in a timeframe that ensures a high level of operational effectiveness for our forces.

I welcome any questions you may have about the force development process.

Merci beaucoup.

9:10 a.m.

Conservative

The Chair Conservative Rick Casson

Thank you.

Sir.

9:10 a.m.

MGen J.D.A. Hincke Chief of Programs, Department of National Defence

Good morning. My duties on behalf of the vice-chief are primarily threefold. I manage the defence services program, oversee performance management and government reporting for DND, and coordinate issues with respect to strategic capabilities and resources between DND and other international security partners like NATO and NORAD.

The Defence Services Program comprises all the activities and projects approved by the Department which are deemed to be critical for the delivery of affordable and effective services to the government of Canada and Canadian citizens. I am responsible for allocating the resources needed to meet the Department's objectives. That could include staff, capital or financial assets.

As regards the Defence Services Program, my organization asks itself the following: “What is the best way to meet a resource need?”, and “Can we afford it?”; it then provides the answers. To that end, I have a staff responsible for analyzing every aspect of a project proposal, including how urgent the operational requirement is, any capability gaps, financial constraints, turnaround times, contractual obligations, and so forth. My staff helps me set priorities for the Defence Services Program and coordinate approvals at both the departmental and Treasury Board levels as regards spending authority.

In managing the Defence Services Program, I also receive horizontal support and decision-making advice— in other words, within the Department, at my level—from the Program Management Board, which I supervise on behalf of the Vice-Chief of the Defence Staff and which is part of the third level of the Department's approved governance structure. The Board uses n a planning horizon of one to four years and looks primarily at resource allocation and management in the course of the fiscal year, as well as any corresponding financial repercussions. The Board also recommends changes to the Program in subsequent fiscal years and submits them to the Vice-Chief of the Defence Staff and the Deputy Minister for approval.

My division is also responsible for internal performance management framework across the department. As part of this mandate, we assist in the development and implementation of the departmental governance process in order to respond to internally and externally mandated reports, like the reports on plans and priorities, etc.

As part of this we collect data department-wide on a huge variety of issues ranging from operational performance, to capital planning, to workforce numbers. This data is incorporated into reports we produce, such as the departmental performance report, the report on plans and priorities, the management accountability framework, and the program activity architecture with the Treasury Board.

The responsibility for managing, coordinating, and advising on strategic-level capabilities and resource issues of a security nature related to NATO, Partnership for Peace, NORAD, and other government departments and NGOs, also falls under my mandate as the chief of programs. Generally, we facilitate relations between DND and these organizations by responding to and influencing real issues, programs, and resource demands within the department.

On procurement, I am obviously part of a much larger whole. I work in close consultation with both the chief of force development for demands and the assistant deputy minister of materiel to effectively and efficiently meet the department's mandate to give our troops the tools they need to assure success.

I will be pleased to answer any questions you may have.

9:15 a.m.

Conservative

The Chair Conservative Rick Casson

Thank you.

Mr. Ross.

9:15 a.m.

Dan Ross Assistant Deputy Minister (Materiel), Department of National Defence

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.

9:30 a.m.

Conservative

The Chair Conservative Rick Casson

Thank you very much, gentlemen.

Just before we get into our first round of seven minutes, I would like to remind the committee or suggest to the committee that we are going to need 10 minutes at the end of our session to deal with some committee business. We will stop this at 10:50 to try to deal with that.

Mr. Coderre, you are first.

9:30 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

Thank you, Mr. Chairman.

It is an honour to be in the presence of so many generals. We definitely feel very safe.

I am particularly pleased that you are with us today, gentlemen. Indeed, as the saying goes,

the devil is in the details

Although we may talk about major principles and concepts, I have always believed that requirements cannot really be determined on the basis of criteria. I think you really have to focus on the ultimate goal—in other words, what you're really trying to achieve—rather than on platforms.

As you know, we do not support the purchase of C-17s. But, what really concerns me is the enormous power you have. I am not questioning the integrity or transparency of the process, but the fact remains that you have the power to change the criteria as you go along—either the delivery date or the payload capacity available to transport the equipment. In that context, we could talk about strategic airlift capability. That must be taken into consideration.

General Ross, to begin with, I would like to talk about the C-17s and then the ITAR or International Traffic in Arms Regulation. You have produced a paper in which you make certain recommendations. I think it's important that we discuss this.

First of all, the Minister of Defence has talked much about transparency and openness. For the sake of transparency, can you confirm that the air force payload requirement for strategic airlift was 40,000 pounds until very recently?

9:30 a.m.

Conservative

The Chair Conservative Rick Casson

Mr. Ross.

9:30 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

Yes, thank you.

9:30 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

Could you keep your answer short so we can ask...?

9:30 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

Yes, thank you.

I was involved and was aware of those discussions. The statement of requirements had not been finalized at the point when we had discussions about what the payload requirement was. Colonel Burt—the director of air requirements—and his staff had been thinking in terms of their old Airbus A310 aircraft, which was effectively our only strategic airlifter. They put materiel in the cargo bay of the A310 Airbus, which had a capacity, I believe, of about 19,000 pounds. It had been in their minds that they needed a capability for strategic lift that was no worse than what they already had in their A310.

In the review of those requirements, the question was asked whether or not that is truly a strategic airlifter that can take armoured vehicles trans-Atlantic or trans-Pacific to operational missions. The air staff re-evaluated it prior to the SOR being completed and signed off by the vice-chief, and they felt their minimum requirement really was to be able to haul two completely up-armoured LAV IIIs trans-Atlantic to Europe, refuel, and go to a mission somewhere overseas.

This is a personal view, but I think they had been trying to do that sort of job with the Hercules for many years. They were using a Hercules as a strategic airlifter, but a Hercules would carry one vehicle, with some difficulty, trans-Atlantic. That's why it went from 19,000 pounds to 39,000 pounds, which corresponds to two armoured vehicles.

9:35 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

So two LAV IIIs are—

9:35 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

Exactly, sir.

9:35 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

My problem is this, then.

The Chief of Defence Staff identified before this committee the armoured recovery vehicle presently in Kandahar as an example of the capability requirement for the C-17. However, it appears from the DND documents that this vehicle is 87,800 pounds. Furthermore, the Badger armoured engineering vehicle is 92,200 pounds and the Leopard tank is 93,696 pounds. That's pretty big.

It is obvious, therefore, that from that ACAN, that's still a requirement of only 86,000 pounds. DND has no perceived need to transport these heavy vehicles in any urgent manner, so what drove the 86,000-pound requirement? Do you believe it was simply to get rid of the competition so that it eliminated the A400M?

9:35 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

The weight you've referred to is in pounds. What was stated in our SOR was 39,000 kilograms, or 39 metric tonnes. All SORs are in metric.

9:35 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

I'm from the old generation.

9:35 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

The C-17 will transport an Abrams tank, which is 70 metric tonnes, trans-Atlantic. That's what the U.S. Army designed the C-17 for. The C-17 will carry anything we own, not just two LAV IIIs.

9:35 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

So you didn't want to get rid of the competition?

9:35 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

We posted our requirements to the market and we received several proposals. Unfortunately, the others were Russian aircraft that were not certified in North America, and we cannot fly our troops on uncertified aircraft.

9:35 a.m.

Liberal

Denis Coderre Liberal Bourassa, QC

As I told you before, it's not a sprint, it's a marathon, so we'll have another occasion to talk about it.

You had a document, sir, about procurement of defence goods under ITAR. We know that on the C-17 it is a direct commercial sale, right? You didn't have an MOU or an FMS, which is a foreign military sale, right? So now you're saying that, regarding dual national restrictions, you issued a code red and said it's an unmanageable problem.

My problem is this—and I agree with you, by the way, totally. If we're talking about dual national restrictions, we're not just talking about the fact that people who work in the industry work and have dual citizenship. The Department of State is talking about 25 countries, including Asians, Chinese, Lebanese, etc. That's a total disgrace in terms of our own sovereignty, and we're abdicating our Charter of Rights. But that's the government's problem, and I hope they'll do something about it.

But the problem goes further than that. We're also saying it will have an impact on our own DND employees. Can you confirm that? It means that our own personnel from DND from those 25 countries who have dual citizenship won't be able to work on or have access to this equipment. That's pretty scary.

Why don't we have a deal? Why didn't we go to the Department of State or the Department of Defense or even the President of the United States? That's what an MOU is all about.

9:35 a.m.

Conservative

The Chair Conservative Rick Casson

A short response, Mr. Ross.

9:35 a.m.

Assistant Deputy Minister (Materiel), Department of National Defence

Dan Ross

Yes, those restrictions do apply to DND employees who are dual nationals. An enormous amount of work is being done by the government, by us, with Foreign Affairs and with the State Department, to resolve this. Significant progress is being made, and we hope the government will be able to announce some improvements in the near future.

9:35 a.m.

Conservative

The Chair Conservative Rick Casson

Thank you, Mr. Ross.

Monsieur Bachand for seven minutes.

9:35 a.m.

Bloc

Claude Bachand Bloc Saint-Jean, QC

Thank you, Mr. Chairman.

I'd like to welcome our guests.

Mr. Ross, did you mention in your presentation that Defence Department staff have been working hand in hand with Public Works for a number of years now?