Evidence of meeting #35 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 industry.
A recording is available from Parliament.
9:45 a.m.
LGen George Macdonald
The C-17, for example, which Mr. Coderre was asking about before, has an equally strategic airlift requirement in Canada as well, to provide support to Canadian Forces, or to major disasters—
9:45 a.m.
NDP
9:45 a.m.
LGen George Macdonald
Exactly. The ice storm that occurred in 1998 is an example of where strategic airlift would have been very useful, to transport heavy equipment from the west to the east. The Hercules is used throughout Canada on a repeated basis.
9:45 a.m.
LGen George Macdonald
There is no real complication between those two. They have domestic and international capabilities of quite a large number of missions.
February 13th, 2007 / 9:45 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
Thank you, Mr. Chairman.
I would like to thank our guests for coming here today and providing their insight.
My first question is for General Manson.
In the past, you have argued that renting military equipment is not only costly in the long term but that it could also compromise Canada's security. In a CTV news article from June 16, you were quoted as saying:
When a crisis occurs everybody needs these airplanes at the same time and Canada could find itself at the bottom of the totem pole of those who are looking for the rental of those facilities.
Could you elaborate on that? I think it has already been touched on a little bit today, but can you give me some examples of when that has happened? Has it happened to Canada in the past? And not just in the aircraft, but you can take a look at it from a naval perspective as well. I think we saw it in the attempted evacuation of Canadian Lebanese citizens from Lebanon and some of the competing nations that were going in there when we didn't have the domestic capability to do it ourselves.
9:45 a.m.
Gen Paul Manson
Yes.
In those comments I was basically looking forward, in a world that is changing very rapidly, with a lot of unforseeable crises coming up. It's precisely at that time, if there were a major international crisis and Canada was one of the long lineup of nations waiting to use a leased strategic aircraft, for example, that it may very well be that we would be at the bottom of the totem pole and that we would have to wait until other nations' requirements were fulfilled before we could have access to a strategic airlifter that would get our disaster response team to somewhere in central Asia or for some military requirement as well. Owning our own strategic aircraft, of course, solves that problem so that we have instantaneous access to strategic airlift when the crisis occurs and we don't have to wait in line.
9:50 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
Are the four C-17s that are proposed going to be able to deploy DART in one shot? If we line up all four airplanes on the runway and load them up, can we get DART over in a single shot to anywhere in the world?
9:50 a.m.
Gen Paul Manson
I'm not certain of the details of that, but I believe that's one of the reasons the C-17 has been seen as an excellent solution to the Canadian requirement, that it can handle deployments such as the disaster assistance response team.
9:50 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
I am going to change gears here for a second. I have a project management background, and I want to talk to you a little bit about the change you see as far as requirements are concerned, going from being bogged down and writing technical specifications, thousands and thousands of pages at some point, to performance-based requirements.
From a project management perspective, first of all, you do an analysis to determine what your needs are. Once that analysis is complete, you often go into a design phase.
Maybe I am wrong in this, but are we not shifting the design by going to performance-based requirements? Are we not shifting the design work, the technical specifications, onto industry? Would that be a fair thing to say?
9:50 a.m.
Gen Paul Manson
It might be true, but only in the case where nothing is available on the shelf to meet the requirement.
In virtually all cases these days, given the way in which the industry has internationalized, in which interoperability has become an important part of military equipment that is available around the world, it is in a rare situation that Canada would have to buy a piece of equipment that has to be designed for Canadian needs. By detailing requirements on the basis of performance needs, you don't have to go into a major design phase at all. You evaluate competing systems in the marketplace that will or will not meet Canadian needs and buy one of those without having to go through a major development or design process.
9:50 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
So, in essence, we're realizing economies of scale by buying stuff off the shelf. Would that be a fair assessment?
9:50 a.m.
Gen Paul Manson
There are many, many economies, of course, by buying off the shelf. In every case where the Department of National Defence can buy an existing piece of equipment that has been tried and true, used by allied services, they will buy off the shelf. It's a very important feature. The cost of designing and developing a new piece of equipment to meet specific Canadian needs is very, very high and should be avoided wherever possible.
9:50 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
There's been discussion about these industrial regional benefits. At one point in time, the Canadian industry didn't have the capacity to handle a lot of contracts. I think the capacity has increased somewhat.
In your opinion, does Canadian industry have the capacity to compete on an international scale for a good portion, if not all, of the contracts that will be available through purchases of C-17s and Hercules, for example, or in building new ships and so on? It's not just the fabrication part but also the information--the computer capacity and all that other kind of stuff. Do we have enough of it here to compete on an international scale?
9:50 a.m.
Gen Paul Manson
The Canadian aerospace and defence industry does compete very well, but in rather select niche markets. We have learned through sad experience, for example, with the Avro Arrow back in the 1950s, that Canada cannot compete with the big guys around the world, particularly on very large systems like fighter aircraft, ships, and that sort of thing.
Over the years, the Canadian industry has tended to focus its attention on such things as flight simulation, aircraft engines, particularly small aircraft engines, and communications. We've done very well, and compete around the world very effectively, in areas of that kind.
As I touched on in my remarks, a major problem has emerged lately, and that's the question of Canadian content value. There is a rule that says industrial benefits for every major program should have 100% Canadian content value. But the fact is that because of the internationalization of the marketplace, a given Canadian product may have only 30% or 40% Canadian content. That presents a problem to the companies that have to provide industrial benefits. Instead of meeting 100% of the contract value, because of that factor they actually have to produce industrial benefits of maybe three times the contract value.
That's a very difficult thing to do, and it's there that I think Canadian industry is going to have very serious problems meeting industrial benefits obligations with the massive defence expenditures that are going to be coming along in the next decade or two.
9:50 a.m.
Conservative
Blaine Calkins Conservative Wetaskiwin, AB
Would it be fair to say that in the past, then, for the sake of meeting industrial regional benefits, the Canadian Forces could or should have been better equipped? Based on...you know, spending four times as much as they should have for something, they would have been able to procure more equipment and have more capability.
9:55 a.m.
Gen Paul Manson
That's a tough one. It's a subjective area.
Defence spending is in fact a zero-sum game. Although the Department of National Defence may have to pay a premium to cover industrial benefits out of the carefully stated defence budget, in that sense they can't acquire as much as they would otherwise. On the other hand, they benefit from industrial benefits going into the Canadian defence and aerospace industry, because they are the people who by and large provide in-service support for the equipment once it gets into existence, and who in many cases will provide off-the-shelf equipment for the Canadian Forces.
So the premium has to be balanced against the benefits, the rather subtle but important benefits, that the industry gets out of the industrial regional benefits policy.
9:55 a.m.
LGen George Macdonald
Yes, Mr. Chairman.
I just want to add that notwithstanding the fact that we have a very strong aerospace industry, there may well be some pressures on that industry to fulfill all of the industrial benefits as these larger projects go through. One policy that's causing significant concern for the companies is the requirement to provide 60% of the identified industrial regional benefits at contract signing. This puts a huge demand on them to resolve the industrial benefits issue up front, which may result in lower-quality benefits, or benefits that could have been better distributed or whatever over the longer term had they had the opportunity to do so.
9:55 a.m.
Conservative
The Chair Conservative Rick Casson
Thank you, sir.
Mr. McGuire, it seems you're going to get the last word here, as we're running out of time for this session.
9:55 a.m.
Liberal
Joe McGuire Liberal Egmont, PE
Thank you very much.
I'd like to continue on the topic of IRBs. As General Manson said, everything seems to be dysfunctional here, whether it's the DND personnel, the bureaucracy, or the political aspect. The IRB program is a program that most countries have. It's not just a Canadian phenomenon. Most western European countries and American companies distribute the benefits of these large purchases on a regional basis, where possible.
9:55 a.m.
Gen Paul Manson
That is quite true. Most of our allied countries do have industrial regional benefits programs, sometimes with other names. But it's important, particularly when a country has to buy offshore. There's a balance of payment question that can be resolved with a good industrial benefits program. But Canada, being Canada, has regional aspects to industrial benefits that some other nations might not have.
9:55 a.m.
Liberal
Joe McGuire Liberal Egmont, PE
Well, we're 40 times bigger than most other countries too. I think that's probably because people who serve in the military serve from all across the country, not just from one or two areas. It's a national profession, and the governing principle behind the IRBs is that the economic benefits should be distributed also. DND knows that IRBs are policy. The bureaucrats know that IRBs are policy. The people who compete for these contracts know. So it's always built in. They're not unaware. These same companies apply for contracts, or compete for contracts, all over the world, not just here, so they're well used to the program.
Why would that be such a complicating factor if everybody knows the IRBs policy? It has not functioned only in Canada for many years. I mean, the whole system knows it. Most of the western countries have the same type of policy. Why is that a dysfunctional part of the whole system?
