Mr. Chairman, honourable members, first I'd like to thank the committee on behalf of AIC and its 400 member companies from coast to coast. We welcome the opportunity today to share with you the aerospace sector's view on how Canada ought to improve its defence procurement practices.
We believe the proposed changes we are tabling before you will translate into better outcomes for everyone, outcomes that could contribute to Canada's capacity to define and prosecute Canada's first foreign and defence policy; support the men and women of the Canadian Forces by providing them the right equipment where and when they need it to carry out their missions at home and abroad; and optimally benefit Canadians through the prudent investment of their hard-earned tax dollars.
We applaud the Government of Canada for moving ahead on acquisition of new airlift aircraft that will help Canada prosecute its sovereign foreign and defence policy. Regrettably, systematic weaknesses in Canada's defence procurement system impede industrial development outcomes that would otherwise maximize the return on an aggregate $13 billion expenditure these procurements entail.
Much of the public debate surrounding airlift procurements is centred on the government's choosing of a sole source as opposed to opting for a competitive procurement process and on the regional distribution of the industrial benefits that flow from these procurements. These questions speak to an overarching shortcoming in how Canada's defence procurements are managed.
Canada lacks a clearly articulated policy to guide the leveraging of defence expenditures in order to strengthen world-class capabilities found in a domestic industrial base. In this regard, Canada uniquely stands out from other nations. We need a policy framework that promotes a robust domestic industrial and technology base, one that protects our sovereignty and security while fuelling our economic development.
In the absence of a strategic vision, Canada's approach to defence procurement will remain piecemeal and will be destined to yield suboptimal results in both national security and economic terms.
The absence of an industrial policy on defence procurement constitutes a serious disincentive for Canadian-based firms, whether they are domestic or foreign-owned, to maintain operations in Canada. They face mounting pressures to relocate to or establish operations in the U.S. and Europe in order to meet government-imposed eligibility conditions for access in these larger defence markets. If this bent should continue, Canada can look forward to the day when its relatively modest defence requirements will be served exclusively by companies operating elsewhere.
The Government of Canada must formally recognize industry's role as a strategic asset to the nation's defence and security. This is particularly necessary if Canada is to possess this industrial base with full capability to support its military aircraft fleets over their entire life cycles. Relying on foreign sources degrades Canada's defence capabilities. In times of crisis, access to foreign sources cannot be guaranteed as they may be fully engaged to meet the requirements of their own domestic armed forces.
Too often, defence procurements are all but signed, sealed, and delivered without a comprehensive review by senior decision-makers of all the procurement options and their implications. For instance, how does the selection of a domestic versus a foreign contractor affect us? What are the impacts of competitive versus sole source tendering? How do these decisions fuel the vitality and global competitiveness of Canada's industrial base?
There is a prevailing pattern of behaviour that has emerged within the Department of National Defence, one that is worrisome to industry and, we submit, counterproductive to the economic interests of the nation. DND officials calmly develop detailed equipment specs in isolation from other key government departments and even more so from industry.
Such a specification-driven mindset largely predetermines the choice of platform, discourages innovation, and often limits the range of solutions that can be brought forward by industry. Once these equipment specs are fully developed within DND, the procurement requirements often surface with an urgency to move them forward. This spawns late-in-the-day process anxiety amongst decision-makers and a revisiting of the procurement strategy in an emotionally charged environment fraught with bidders, provincial leaders, and industry organizations advancing their interests to the media, which looks to criticize and to fix blame. The end result is delays and increased costs, both for the government and for the industry.
The men and women of the Canadian Forces and Canadians in general deserve better. A better way is to adopt a capabilities-based approach through defence procurement, one that sets out the mission and the general capabilities needed to achieve it. This can lead to more competition and therefore better value for money in Canada's defence spending.
Senior government leaders need to be more fully engaged much earlier in the process of determining how large individual procurements move forward. They must establish clear outcomes, both defence and industrial, and endorse the best approach for achieving them.
Industry leaders can play a value-added role in helping them do so, including setting procurement strategies that allow maximum scope for bidders to submit innovative yet practical proposals that maximize the outcomes the government seeks.
Establishing an efficient, effective, and politically accountable procurement process takes time and requires the participation and active support of government decision-makers and industry leaders to give it full effect. Recognizing this, immediate steps can be taken to strengthen how the current airlift procurements can be more effectively leveraged to maximize their industrial development return by way of leading-edge Canadian solutions finding a place in global supply chains across the commercial, defence, and space sectors.
The changes advanced by AIAC will not impair Canada getting the aircraft it has chosen, nor cause delay or additional cost.
The government's approach to achieving Canadian industrial benefits, CIBs, will affect a quantity versus a quality bias. Typically the prime contractor must return to Canada, within a relatively short timeframe, economic value equal to 100% of the contract value.
This tends to drive the contractors to commit to short-term purchasing transactions related to the mature product lines. At present, no value discriminators are employed to incentivize contractors to build forward-looking, long-term, high-value business relationships, relationships such as co-development of new technologies and the early involvement of Canadian companies in the new development programs.
Specific measures tabled by AIAC to the government include:
- Providing contractors more direction on industrial outcomes sought; only requiring them to meet quantitative measures is simply not sufficient.
- Employing value discriminators to recognize the higher value of certain types of CIBs; for example, technology transfer over simple procurement of non-complex items.
- Allowing flexibility in the eligible period for contractors to discharge their CIBs to Canada. Adherence to rules should not trump good business.
- Managing a prime contract through CIBs in a consolidated manner across all contracts that contractor has with the Government of Canada, rather than managing in individual stovepipes.
- Directing that 100% of the in-service support for the tactical aircraft and helicopter fleets being acquired be performed by the current Canadian-based ISS industry, including overall fleet management, engineering support, repair and overhaul, modifications, and life extension upgrades.
The government must also obtain from the aircraft manufacturers as part of the initial contract the full data packages and intellectual property necessary to sustain the aircraft once they enter service in Canada and without any restrictions under U.S. export control policies.
Further, the government should seek to have the contractors bestow on Canadian companies the licences and product mandates that will allow them to carry their expertise into export markets.
By adopting these proposed changes, government and industry will be better aligned in advancing Canada's foreign and defence policy and fiscal goals while contributing to the global competitiveness of Canada's aerospace industry.
Thank you.