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.
Conservative
The Chair Conservative Rick Casson
We'll call the meeting to order, as we continue our study on the procurement process.
We would like to welcome today General Manson—welcome, sir—and General Macdonald. We have you two gentlemen until 10, and then we're going to bring in another panel to brief us. We usually open it up to comments from the witnesses—make your presentations as you wish—and then we'll have rounds of questioning.
The floor is yours. Mr. Manson, are you going to start?
General Retired) Paul Manson (President, Conference of Defence Associations Institute
Yes.
Gen Paul Manson
Good morning, Mr. Chairman.
I am General (Retired) Paul Manson, and I thank you very much for allowing me the opportunity to appear before your committee here this morning.
Last year, the Conference of Defence Associations Institute, of which I am the president, published a monograph entitled, “Creating an Acquisition Model That Delivers”. Today I'd like to present some personal thoughts, based on that work and on my other experiences over the years with the procurement of major systems for the Canadian Forces.
By way of establishing my credentials, I might mention at the outset that for the past 30 years or so I've been involved with defence procurement in one way or another. From 1977 to 1980, I was the program manager for the new fighter aircraft program leading to the acquisition of the CF-18 Hornet for the air force. As Chief of the Defence Staff from 1986 to 1989, I was, of course, intensely involved with numerous capital equipment projects. Following retirement, as the CEO of a major Canadian aerospace company, I saw the system in operation from the other side, so to speak. During this period, by the way, I served, for a time, as the chairman of the Aerospace Industries Association of Canada. Now, as the president of a think tank on defence and national security, I see that scarcely a day goes by without the important matter of defence procurement being raised in one way or another.
Let me begin my quick review by stating the obvious. Regardless of how great may be the military's requirement for new equipment or services, or how ready the industry may be to fulfill those needs, without there being, in this country, an efficient and effective procurement process, the system cannot do what's necessary for the military, the industry, or the government. A major conclusion of our studies is that such a system simply does not exist in Canada today. This is the consequence of a gradual and barely perceptible degradation over the past several decades, to the point where it's largely dysfunctional at the present time.
Take, for example, the fact that 15 years or more is typically required to bring a major new military system into operational service by the Canadian Forces. That's much too long, for reasons that are self-evident. Our analysis of the causes of this inordinately long procurement cycle time has led us to conclude that multiple factors are at work here, and they can be found in three main areas, namely, first of all, within the Department of National Defence; secondly, within the interdepartmental bureaucracy; and thirdly, at the political level. I'd like to say a few words about each of these three.
First, within the Department of National Defence, over the years, and with the best of intentions, military and civilian staffs, in their pursuit of perfection in defining military requirements, became bogged down in an evolving internal process that turned out huge amounts of paper—in some cases, literally thousands of pages—in what amounted to detailed technical specifications. Your committee is already aware of a dramatic change of philosophy in this regard with the introduction of the concept that's called “performance-based requirements”, and the Minister of National Defence spoke about this in his appearance before your committee last week. It's a welcome change, not just from the industry's perspective, but also in that it greatly simplifies the staff work within the Department of National Defence and it facilitates the importance business of evaluating competing systems.
Another serious problem emerged within National Defence during the 1990s, and it was the direct result of the huge manpower cuts to which that department was subjected. The number of qualified program management personnel available to staff major crown projects was severely reduced, with predictable results. Not only did the shortage of suitably skilled personnel contribute to an increase in procurement times, but it also presented risks to the quality of program management, with possible adverse impacts on decision-making and program costs. The department is still recovering from this. I understand that other government departments also suffer from a shortage of program management personnel having experience in major defence procurements.
This leads me to the second area of concern in regard to lengthy procurement times, which is the interdepartmental routine to which all major equipment programs are necessarily subjected. Gradually, over the years, we've seen the emergence of a complex and frustrating process within the federal bureaucracy. Many departments are involved. Typically, apart from DND, a major crown project will involve Public Works and Government Services, the Department of Industry, the Treasury Board Secretariat, Finance, Foreign Affairs and International Trade, Justice, and perhaps other departments. It goes without saying that a consensus must be achieved before the Department of National Defence would dare to bring a given project before ministers who, traditionally, need little incentive to reject a big ticket item when it's apparent that the bureaucrats “haven't got their acts together”.
Reaching consensus can be excruciatingly difficult. Even getting senior officials from all the participating departments together for a senior review board meeting can sometimes take months to organize; all of this, of course, adds to the total program time.
Increasingly over the years industrial and regional benefits—IRBs—have become a critical element of major defence equipment programs, especially in cases in which the government must go outside Canada for procurement. The mechanics of putting together a good IRB package at the bureaucratic level are difficult enough, but the real test comes when a given project moves into my third area of concern, which is the political arena. It's here, regrettably, that some of the most serious delays occur; in fact, just the prospect of running into difficulty over IRBs at the cabinet level can force delays of months and even years.
Competing companies eager to reap the huge influx of new business that can come from a defence contract are not reluctant to play the IRB game; furthermore, they know how sensitive the regional element of industrial and regional benefits can be in this country, and they'll play up this angle in the hope of inspiring support from regional ministers.
Inevitably, the Prime Minister and his colleagues around the cabinet table have a solemn obligation to ensure that competing demands are reconciled in such a way that men and women of the armed forces are provided with the right equipment in a timely fashion, and in this regard it's my personal opinion that the greatest challenge facing the defence procurement system today is the alarming growth in IRB demands associated with the coming re-equipment of the Canadian Forces.
A good example is their creation of rigid formulas, such as the 100% Canadian content value requirement for the industrial benefit component of a given contract. Competing companies face the almost impossible task of producing sufficient industrial work to comply with the 100% CCV rule, while Canadian industry, for its part, simply doesn't have the capacity to absorb the huge surge of tens of billions of dollars of high-tech business that this rule calls for in the coming decades with the massive amount of equipment procurement that's foreseen.
To add to this burden, the Department of National Defence typically pays a premium of several percent to accommodate industrial regional benefits, and this usually shows up as an increase in the purchase price of the equipment or the service.
All of this is to say that the management of industrial and regional benefits has the potential to become a major barrier in the government's attempt to streamline the procurement process.
One other factor always comes into play at the political level, and that is, quite correctly, affordability. In my experience, cabinet ministers don't often challenge the professional judgment of the military as to which technical solution is best for the Canadian Forces. When it comes to deciding whether a proposed solution is affordable, however, the cabinet must believe that the proposed expenditure is of a high enough priority to displace the countless other spending proposals before them—not just for the military, but also in such areas as health care, the environment, and other social programs.
When a decision is made to put off a given defence acquisition—and many budgetary reasons can be found for doing so—the forces are compelled to extend the life of existing equipment, which can be very costly both in dollars and especially in operational terms. Look, for example, at the sad case of the maritime helicopter. Twenty-seven years after the replacement program was initiated the Sea King helicopter is still flying.
Mr. Chairman, allow me to summarize this admittedly cursory presentation by stating the obvious, that in these critical times, following decades of neglect, the re-equipment of the Canadian Forces must progress quickly and rationally, following a streamlined process that takes into account the needs of the military, first and foremost, but also of a dynamic Canadian industry, while always working in the best interests of the Canadian taxpayer. I can say optimistically that there are encouraging signs that the process is getting back on track, but there is still much room for improvement, and I sincerely hope, Mr. Chairman, that your own deliberations will contribute greatly to that important goal.
Thank you.
Conservative
The Chair Conservative Rick Casson
Thank you, General Manson. I apologize for mispronouncing your name earlier.
General Macdonald, you have some comments.
Lieutenant-General Retired) George Macdonald ( Former Vice Chief of the Defence Staff, As an Individual
Mr. Chairman, members of the committee, I'm pleased to have the opportunity to participate in your review of government procurement, and especially to be able to do so with General Manson.
As some of you know, before retiring from the military, I was the Vice Chief of the Defence Staff from 2001 to 2004. As such, my responsibilities included the strategic planning and resource allocation, including procurement prioritization, for the department and the Canadian Forces.
Let me state from the outset that while today we are addressing specific procurement issues, the persistent problems almost always relate to imprecise policy objectives and inadequate funding. These together exacerbate the complexities of defence procurement, which is already a unique process. For example, there are often limited choices of equipment available to meet the requirement. It's not like shopping for the family car, where you have a number of options, all of which will get the job done.
My time as VCDS was one of very constrained resources. I spent a great deal of effort just trying to make ends meet, working to maintain the essential capabilities to support the operational missions of the Canadian Forces. At the internal budget allocation sessions each year, the demands for resources were often always significantly higher than the funding available. This amounted to a never-ending exercise of juggling allocations and deciding which priorities were the most compelling. In all areas, the demand had to be essential to receive funding; we couldn't seriously consider anything that wasn't. As a result, the resource demands for things such as the infrastructure upgrade or replacement of buildings were repeatedly deferred. By all accounts, these challenges continue.
This constrained environment demanded a strong strategic planning and requirements development process. One of the key aspects of this was to have a consistently identifiable top-down system, where requirements were established based on cooperatively recognized priorities.
To institutionalize this, Vice-Admiral Garnett, who was my predecessor as VCDS, oversaw the adoption of capability-based planning and the regular review and prioritization of requirements by the CF and DND leadership.
Ultimately, procurement is about what we buy—that is, capability—and how we buy it, which relates to the process. Capability-based planning involves the definition of what the CF needs, and ultimately in what priority, to meet the CF mandate, missions, and roles in support of government defence policy. This policy is derived in turn from a formal assessment of our national interests. Throughout, the statement of requirement needs to emanate from a coherent top-down direction from government.
As VCDS, I continued to champion and evolve this process. The objective was to ensure that we could fully support the applicability of all CF capabilities to a current or future mission, all consistent with government's defence policy.
Within DND, the establishment and prioritization of capabilities was a collective responsibility, and we were part of a process that could demonstrate a link between government policy and our spending on capabilities. If a capability wasn't essential to an identified role, it was not supported.
I should add an aside at this point to be clear about what I mean by a capability. Too often the assumption is made that the purchase and delivery of capital equipment constitutes a new capability, where in fact it is usually only the first step, and often not even the most expensive portion.
To provide a completely balanced capability, personnel must be available, and they need to be properly trained and supervised. Operating concepts need to be put in place, and access to robust command and control must be assured. Infrastructure, both buildings and information technology, must be accounted for. Also it's critical to ensure that the necessary support services for spares, maintenance, repair, and overhaul are provided for the long term. In short, capabilities must be complete to be useful.
We must also keep in mind that military capabilities typically take years to acquire and mature. Even then, the policy or doctrine under which they are employed may change, requiring adjustments that may ripple through all the functionalities of the capability.
Overall it is important for DND to maintain strategic integrity in identifying requirements. When approval to spend resources to meet a requirement is sought, DND must be able to demonstrate how such action will contribute to overall military capability and to defend the proposed scope and priority of the proposal.
This is vetted through a rigorous interdepartmental process to ensure thorough consideration. This confirms that a capability fits into the overall strategic plan appropriately and that value is being realized from the investment proposed.
The capability planning process, which I have described, supports the procurement process. It is fundamentally logical, well-documented, and mature. It helps to identify the real priorities and why they are important, and it promotes confidence and awareness of our defence needs.
So what are some of the areas that could be examined for possible improvement? From personal reflection, I will briefly address five. The first is funding.
If government funding is inadequate to acquire and maintain the needed capabilities, they will be incomplete or will atrophy over time. To compound matters, the cost to support some essential capabilities will increase if the equipment is pushed beyond its normal useful life. An example of this is our Hercules fleet, with its high maintenance costs.
In another funding area, when the government makes decisions that incur additional direct costs for the military, such as the deployment to Afghanistan, incremental funding should be provided and as the expenses are incurred.
Finally, consideration should be given to permit management of the DND budget on a multi-year basis, to enable more flexibility and efficient spending.
The second area that I'd like to touch on is operational priorities. Critical operational requirements sometimes have to jump to the top of the priority list. For example, the need for new artillery pieces in Afghanistan necessitated an accelerated purchase, well ahead of that which was planned. This action should not be allowed to redirect funding away from existing legitimate needs. Funding flexibility, by providing an increment to the DND budget as needed, can relieve the financial pressures that the initiatives create.
A third area is risk management. Military capability planning is done in a complex, unpredictable environment, yet it is important to ensure that the capabilities proposed are the right ones, the ones that will serve Canadians for the longer term. The consequences of misjudgments in terms of money and potentially lives can be significant. It is therefore necessary to forecast effectively and to continually re-evaluate the requirements. It is also important to recognize that earlier solutions may need to be reconsidered from an operational and a resource perspective from time to time.
Fourth is requirements determination. Your committee deliberations thus far have touched on the need to simplify the specifications for what is needed and to solicit input from industry on solutions they may have to offer. I support this. However, once a requirement has been confirmed, the personnel charged with procurement for that requirement should be given the wherewithal and the authority to do so without outside distraction or interference.
Finally, the fifth area is policy. The identification of priorities and the concomitant decisions needed to enable capabilities will falter if there is any confusion about the government's objectives and resulting policy. The traditional dilemma for Canada is to determine the balance of effort to assign to domestic versus international requirements. Clear enunciation of the policy regarding these choices is fundamental to the formulation of capabilities—a good start to any procurement process.
I'll conclude by summarizing three main messages. The first is that it is important to ensure a solid policy foundation for CF capabilities and then to establish the relative importance of those capabilities and commit the budget to deliver them adequately. Secondly, capabilities constitute more than just equipment. Thirdly, the employment of capability-based planning principles serves the government well in decision-making. These principles help to ensure best value for the Canadian taxpayer through the funded requirements that emanate from the extensive multi-departmental process that supports defence procurement.
Thank you, Mr. Chairman. I look forward to your questions.
Conservative
The Chair Conservative Rick Casson
Thank you very much.
We'll start our opening seven-minute round with Mr. Coderre.
Liberal
Denis Coderre Liberal Bourassa, QC
Gentlemen, I would like to start by thanking you for your service to the country. I know, General Manson, that you have continued to work extremely hard, namely for the Canadian War Museum, which is much to your credit. L.Gen. Macdonald, you too have given a great deal, be it to the public service or during your military career.
L.Gen. Macdonald, I would like to ask you some questions, because as Vice Chief of the Defence Staff, you were able to see the action plan that the former government had developed, the famous $13 billion plan. We know that the issue of the Air Force was key. You know that on our side, we find wanting to buy C-17s and to replace the Hercules aircraft at the same time is not only excessive, but also unnecessary. We can do one or the other, in other words replace the Hercules aircraft or consider buying C-17s.
I know this is somewhat delicate, because you are now a consultant and a lobbyist for one of the companies that wants to obtain some of these contracts. While remaining non-committal, could you tell us if any research has been done? Did the proposed projects include buying or leasing C-17 aircraft—there was talk of six at the time—and keeping the Hercules aircraft in a newer state? In passing, they are not all too old; part of the fleet is still operating well. Was there talk about replacing the Hercules aircraft instead?
I would like you to tell us what the deal was when you were there. I agree with Mr. Manson: there is a political aspect, and governments share their points of view. However, the authority comes from those who define the requirements, and the decisions were made by the Department of National Defence.
So I would like you to say a few words to provide some clarification. What really happened, and what were the proposed plans and scenarios when you were Vice Chief of the Defence Staff?
LGen George Macdonald
Thank you, Mr. Coderre.
The strategic and tactical transport needs of the Canadian Forces have been an issue for decades. The C-130 has proven to be a very valuable asset for the Canadian Forces and there's never been any lack of commitment to replace that capability over the longer term. As you well know, the current fleet of C-130s is in desperate need of replacement.
When I was Vice Chief of the Defence Staff, the thinking embodied in what we call the strategic capability investment plan, developed in 2003 and 2004, was that we had to focus on where the most dire need was for transport for the Canadian Forces. The C-130 was the locus, if you will, or the focus, of that attention, but a project to replace the C-130 aircraft in a wholesale fashion was simply not seen to be affordable in the near term. The approach taken was to develop a requirement for an area of the C-130 mission, that of fixed-wing search and rescue, to divert some of the pressure on the fleet by beginning a lower-priced project for a new aircraft that would specifically be able to do that part and take the pressure off the C-130, so that it would be able to do the more operational mission it had, because using a C-130 in search and rescue is a rather extravagant way of approaching it.
At that time, a strategic aircraft purchase, a C-17 purchase, was not seen to be affordable with the budget we had, so we did not include it in the budget, notwithstanding the fact that we recognized there was a need to provide strategic airlift. The approach taken was that we had the opportunity to charter aircraft when needed. We had our American and U.K. colleagues, our friends and allies, who had C-17 aircraft, and we had been able to use their services from time to time, but there was a risk that in a time of crisis, when everybody required strategic airlift, we would not have access to them. That was deemed to be a risk that we simply had to accept because there wasn't money in the projected defence budget to afford that aircraft.
Since the Conservative government took over, they have clearly declared that strategic airlift is a higher priority, which has made it affordable. It'll be a tremendous asset for the Canadian Forces. But at the time I was VCDS, and given the constraint requirements we had, we focused on the C-130s as the fleet that needed to be addressed.
Liberal
Denis Coderre Liberal Bourassa, QC
But at that time, if I may, the necessity for the mission was tactical aircraft; we were not talking about C-17s. I recall that at that time you had, of course, several scenarios in your department. You preferred to have at least six C-17s, and you were putting together some options on whether you would lease them or buy them, but the fact was that you would not have both of them; it was one or the other. The scenario was, do we replace the Hercs with C-17s and keep some of them, or do we forget about the C-17 and go totally to the replacement of the Hercs?
Would you confirm that even in General Hillier's mind at that time it had nothing to do with the C-17, but was all about replacing the C-130Js? Wasn't that so?
LGen George Macdonald
I think most people were focused on the C-130. But the reality is we always recognized the need for a strategic and tactical airlift. There was never an exclusion of a strategic airlift for the sake of tactical. The Hercules is not a good strategic airlifter and the C-17 is not effectively employed as a tactical airlifter. To have one or the other doesn't make much sense. It should be a combination of capabilities.
In the capability-based planning process, strategic airlift was an absolutely critical element that was not fully satisfied. If money were no object, we would like to have lots of C-17s and lots of C-130s.
LGen George Macdonald
At that time, because of limited finances, we felt that the C-130 issue was more critical, and to relieve pressure from it was the primary issue.
February 13th, 2007 / 9:30 a.m.
Liberal
Denis Coderre Liberal Bourassa, QC
I find it an interesting position.
General Manson, I have to agree to disagree on the IRBs. I believe that when we're talking about taxpayers' money, the reason we have an aerospace industry is because of the regional bases too.
Don't we believe that if we need the C-17, one of the key issues is to also have the ISS? If you cannot have in-support service, why bother? You have ITAR and all of those issues. Don't you believe that even before you sign the deal, it's better to have settled that issue first?
Conservative
The Chair Conservative Rick Casson
Can we have a short response, please? I know it's hard to do, but we're running out of time.
Gen Paul Manson
Yes. Allow me to say that the fact that there's disagreement is not surprising, because there has been disagreement over industrial regional benefits. There is no disagreement on the fact that they are important and they are needed. I do not deny that.
I'm calling for a more logical approach to it, perhaps on the basis of a government procurement policy and an industrial regional benefit policy that set the stage for each new program, so that it's not done on an ad hoc basis each time.
Bloc
Claude Bachand Bloc Saint-Jean, QC
Mr. Chairman, I want to thank our guests for coming. I think both of our guests are highly competent. They had long military careers and know the ins and outs of the file that we are currently studying. I think they will make an important contribution to our study.
Gentlemen, do you consider the current procurement process to be fair, open and transparent?
Gen Paul Manson
Yes, I believe it is, Mr. Chairman. I think it is very fair. I think it is very open. It's very transparent.
Having been out of the Department of National Defence for something like 18 years, I see no evidence that there is any attempt to colour the results of any evaluation or any procurement. They do their very best to be as open and fair as they possibly can. I have great confidence in the fairness of the system.
Bloc
Claude Bachand Bloc Saint-Jean, QC
Do you acknowledge that National Defence is responsible for the requirements? That is where they establish the requirements in terms of the size of the cockpit, the range of the aircraft, as well as its capacity to lift and carry cargo over a precise distance. Do you acknowledge that if these elements are defined precisely, you can choose from among the suggestions and select whomever you want?
LGen George Macdonald
I think the case you're referring to, of course, is the fixed-wing search and rescue statement of requirements.
Bloc
Claude Bachand Bloc Saint-Jean, QC
It is not just about that. In terms of strategic and tactical airlift, there can also be requirements. In the case of the tactical airlifter, we can say we need an aircraft that has such and such a payload, that is capable of covering such and such a distance and that is such and such a size. With requirements like that, we can get the aircraft we want and choose whomever we want. Do you agree with me?
LGen George Macdonald
I think the fundamental issue here is that the military have the experience necessary to identify what the requirements are to perform their mission. None of these statement of requirements for significant projects is done without the most serious consideration for all of the issues that are related to them.
The statement of requirements is a fundamentally important part of the process. I think it's important for the government to recognize the military expertise in developing that statement of requirements. If the government ultimately chooses not to satisfy the requirement, due to funding or other reasons, then it's of course for the government to decide. But I think to respect the military's judgment in that and to accept it is very important.
Bloc
Claude Bachand Bloc Saint-Jean, QC
You are raising an important issue, one of political interference. I put that question to Mr. Ross, and you have undoubtedly read his reply. Is it possible for politicians, the minister or the Prime Minister to say they want a specific aircraft and for them to tell you to define your requirements in such a way as to make it possible to obtain that aircraft? Is political interference a possibility in the choice of aircraft or the choice of any kind of military equipment?
LGen George Macdonald
I suppose anything is possible, but I think it's important to recognize the military expertise and that the military has a responsibility to identify to the government what the implications of a decision like that may be in the performance of the military mission.