National Defence Committee on Feb. 13th, 2007

[Gen Paul Manson]

Well, everyone agrees that IRBs are important and are an essential element of any major procurement. The problem that we foresee is that because there are conflicting aspects to it from National Defence to industry, this can lead to an elongation of the procurement process. That is the concern, not the IRBs themselves.

There must be a national policy stated ahead of time that will tell everyone what the rules are. They have to be good rules, mind you, so the process can move much more quickly than it has been moving in the past decade or so.

[LGen George Macdonald]

I would add, sir, that nobody disputes the need for IRBs. It's a logical thing to do. It does not influence National Defence's statement of the requirement. The military focuses on the requirement, and IRBs are recognized as a necessity, but not as something the military worries about. This is normally the purview of Industry Canada.

Canada has taken IRBs to a new art form when it comes to defining the rules and the structure under which you apply them. Many countries have offsets, so you don't have to define specific causalities of a proposal for a project; rather, you have some offsetting trade arrangement. Canada imposes stricter rules and more regulations in the suitability of IRBs, which causes the elongation of projects.

[Joe McGuire, Liberal, Egmont, PE]

What do you mean by the 100% Canadian content value? Can you explain that to everyone?

[Gen Paul Manson]

My understanding is that about 10 years ago, a rule was built into the process that declared that an industrial benefit that is offered by a company seeking a contract from National Defence must include 100% of the contract value of content made in Canada. In other words, an aircraft, say a Bombardier aircraft, might say $50 million. Of that $50 million, perhaps only $30 million or $25 million is Canadian content. They had to import components—engines, materials and so on—to go into that airplane. So the Canadian content value of that particular benefit is less than 100%. To build the total up to 100%, the company must bring in industrial benefits that are two or three times the value of the contract itself.

I hope that clarifies it. It's a complex issue, but the basic point is that Canadian companies, in building their own products, don't always use 100% Canadian materials and labour and content in those products.

[The Chair, Conservative, Rick Casson]

Thank you very much.

Thank you, Mr. McGuire.

Gentlemen, thank you for being here. We appreciate it. We certainly appreciate your continued efforts to serve your country, even after all your years in the military. Thank you, and I'm sure it will add valuable content to our report.

We'll just take one minute while we change panellists. We're on a tight schedule, so don't wander off.

[The Chair, Conservative, Rick Casson]

Okay, could we get back to order, please?

We have with us, for the second half of today's meeting, representation from the Armed Forces Communications and Electronics Association of Canada, Mr. Dupont, chairman and chief executive officer. From the Aerospace Industries Association of Canada, we have Ron Kane.

Then we have Mr. Page, is it? Will you be presenting as well?

[Timothy Page, President, Canadian Association of Defence and Security Industries]

I will.

[The Chair, Conservative, Rick Casson]

We have the three gentlemen here. We have an hour. I apologize for that, but we're trying to squeeze a whole lot of information into a short period of time. Take what you need to give your presentations, and then we'll open up with a round of questions. Who would like to start?

Mr. Kane, thank you very much.

[Ron Kane, Vice-President, Defence and Space, Aerospace Industries Association of Canada]

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.

[The Chair, Conservative, Rick Casson]

Very good.

Mr. Dupont.

[Gilles Dupont, Chairman and Chief Executive Officer, Armed Forces Communications and Electronics Association]

Good morning, ladies and gentlemen. I am happy to be with you today to provide you with the opinion of members of the Armed Forces Communications and Electronics Association.

The association originated in the U.S in 1946, with the aim of creating a better understanding among defence, government, and industry professionals in the fields of communications and electronics.

It has since grown into a non-profit international association composed of 31,000 individual members and over 1,300 commercial corporations worldwide. The scope and interests of AFCEA members have expanded far beyond the vision of its military founders, and AFCEA today serves as a bridge between government requirements and industry capabilities in the ever growing information technology community, what is now known as C4ISR.

AFCEA is also supporting global security by providing an ethical environment that encourages a close cooperative relationship among civil government agencies, the military, and industry.

AFCEA Canada was incorporated in 1986 as a component of AFCEA International and has its national headquarters in Ottawa with a council of advisors, or board of directors, drawn from across Canada to guide its activities.

AFCEA Canada also has a program management committee that manages the AFCEA Canadian national program. The current program consists of an executive breakfast series; professional development events; social events; and TechNet North, an exhibition and professional development event held in Canada every second year.

AFCEA Canada pursues its objective by providing an ethical forum for the exchange of ideas and information among its members and a bridge between industry and government in the specialty fields of communications, electronics, command and control, intelligence, surveillance, reconnaissance, and information systems.

In regions and cities where there is sufficient professional concentration in these fields, local AFCEA chapters are organized. Chapters are currently active in Montreal and Ottawa.

AFCEA Canada is also the main contributor to the AFCEA education fund of Canada. This fund encourages a high level of academic achievement in science and engineering by assisting and motivating deserving students through scholarships and incentive awards.

Unlike other associations that represent industry sectors, AFCEA draws its membership from all three segments making up the professionals in information technology. Our members are from the military, the public service, and the private sector.

AFCEA is member owned, and it is governed by volunteers from its membership. It has a very small paid staff at its international headquarters in Fairfax, Virginia. We also have a small staff in Brussels, Belgium, to look after AFCEA Europe and two people here in Ottawa to look after AFCEA Canada. Members of the international executive committee and the international board of directors, of which I am part, are all volunteers.

I would like you to remember during question period that the well-accepted definition of a volunteer is the person who doesn't understand the question. I am a volunteer.

AFCEA applauds and supports the current efforts of DND to move toward a performance-based, best-value competitive process. However, the competitive process cannot override the primary purpose of acquiring a working solution that fulfills an existing requirement, not yesterday's requirement. Mandatory performance criteria are sometimes not flexible enough. Of course, this will be the claim of all contractors who do not qualify.

The point of view of the evaluators of proposals must also be taken. In the pursuit of best value, it is sometimes better to allow for shades of grey rather than restrict the evaluator to a black and white situation. The selection of the lowest-compliant bid implies that the specifications of the RFP have to be perfect; otherwise the selection risks being flawed.

Moving away from the lengthy process of producing complex technical specifications is arguably the best move DND could make in improving the procurement process. Not only did it produce poor results at times, but sometimes it didn't produce any results. This process was also tying up engineering resources that are internal to DND and could have been used for a better purpose. I know. I was one of them, until my retirement in 1987.

Adopting the single point of accountability concept enunciated by DND is also supported by our membership, if it is coupled with a guaranteed Canadian content. As much as this can be an improvement to the process, the selection of this single point of accountability must be based on the capability of the selected prime contractor to perform in this function for the desired length of time. However, in the case of an offshore prime, the supporting contract should be limited to the first few years, to affect the technology transfer to a Canadian prime who could then take on the long-term O and M activities.

On the acquisition of IT systems and services, this concept is far from being adopted. DND currently contracts for bodies rather than corporate capabilities. This is much more expensive, from an internal DND management perspective. But the main reason, I suspect, is because DND feels qualified to assess the capabilities of individuals while they do not feel supported by PWGSC and Industry Canada when it comes to evaluating the capability and financial stability of contractors.

I know that changing the processes of other departments is certainly out of the scope of this committee. However, if DND is to be successful in adopting the single point of accountability concept, it has to ensure the right prime contractors are selected. The concept needs a prime that is capable of delivering all the mandated equipment and services; a prime that has the financial stability to last for the duration of the support contract; and finally, a prime that is a good corporate citizen and is committed to remaining a good corporate citizen of Canada.

An unstated benefit of the single point of accountability concept is that the multitude of other contractors required to deliver the goods and services associated with a complex DND contract would then be the responsibility of the prime. As much as I hate to admit it to this committee, large Canadian and international corporations are much better equipped to handle the lobbying of many contractors simultaneously than the Government of Canada is.

Finally, AFCEA also supports DND in its announced intention to buy proven off-the-shelf products. This concept is particularly applicable to minor purchases of IT security products. In today's world of new and fast-moving threats to IT security, it is imperative to acquire products and technology that are current and leading-edge. Relying on older tools results in higher risk and inadequate protection.

As stated earlier, AFCEA is not an industry association but is one that is made up of military personnel, public servants, and contractor personnel. The kind of interaction among all three population segments that AFCEA provides for the IT sector should be encouraged for all other defence sectors.

Having only a paper evaluation of contractors can have a detrimental effect on the proposed changes to the procurement process. Government project teams are made up of people and so are contractor teams. The interaction between the two sides, within an ethical and professional framework, will greatly improve the knowledge level on both sides. The net result will be a defence industry having a better understanding of the requirements and a government having a better understanding of industry capabilities and limitations. The two sides are partners, not enemies.

As commendable as DND efforts to correct inefficiencies in the procurement process are, the fact remains that DND is only one player in a multi-departmental process. The length of time between the announcement of a program and the start of the procurement process is far too long. PMOs are formed and sit on their hands for a while, and contractor teams are stood up and then dispersed to other tasks because of an untimely procurement start.

On major crown projects, the industrial regional benefits program of Industry Canada adds complexity and sometimes long delays to the acquisition process itself. In particular, the IRB policy is very difficult to implement for proven off-the-shelf purchases. Of course, direct IRBs are almost impossible to identify, and indirect IRBs are subject to antiquated rules that have not kept up with the changing Canadian economy.

Perhaps DND should lobby Industry Canada for an adjustment to the policy. For instance, long-term applied R and D activities could be eligible for the program, giving a longer-term outlook to the policy of IRBs.

Perhaps the time has also come for the government to review its policy of central purchasing. Our neighbours to the south do not have a central purchasing agency, and yet their federal government buys approximately 30 times what ours buys on an annual basis.

With DND and other government departments moving toward performance-based best-value competitions, with preference to off-the-shelf acquisitions, central purchasing may no longer be the most efficient way to procure goods and services. Perhaps there should be a redeployment of resources to the function of qualifying contractors through a very thorough due diligence process, instead of the paper evaluation that is carried out now.

In conclusion, AFCEA fully supports the initiative of Mr. Dan Ross to streamline the acquisition process in DND. We also agree that the tenets of government procurement should remain. However, we believe this should be accomplished within an improved interdepartmental approval and oversight process if the DND improvements are to be noticeably effective.

We are confident that the changes to the process will not be limited to the acquisition of large ticket items, such as aircraft and helicopters, but will also be applied to the small acquisition of C4ISR products and services, where the membership of AFCEA is most active.

Finally, I don't think we can overemphasize the importance of the human interaction between public servants and contractor personnel. The procurement process could greatly improve if the two sides better understood each other.

Of course, this interaction has to be done within an ethical and professional framework to preserve the tenets of government procurement in Canada. AFCEA Canada provides such a framework for its membership and is prepared to facilitate the interaction for non-members if sanctioned to do so by DND.

Thank you very much for your time. I look forward to your questions.

[The Chair, Conservative, Rick Casson]

Thank you very much, sir.

Representing the Canadian Association of Defence and Security Industries, we have the president, Mr. Timothy Page.

[Timothy Page]

Thank you very much, Chair, ladies and gentlemen.

There is no more important role for government than the security of its citizens and the protection of its national economic infrastructure. The government's commitment to reinvest in the Canadian military is fundamental to Canada's national security interests. CADSI applauds the government's decision to move quickly to begin the rebuilding process. Like the majority of Canadian taxpayers, our 500 members expect the government to achieve the best possible value from its acquisitions and to maximize the opportunities for competitive Canadian businesses to participate in a meaningful way.

We say this because we believe that Canada's defence and security industries are vital contributors to the government's ability to protect and defend Canada and Canadian values. We appreciate the opportunity to appear before the committee at the front end of the government's multi-year, multi-billion-dollar rebuilding commitment. Taken together, these procurements for our land, air, and sea forces have the potential to transform Canada's defence and security industrial base. The federal government's procurement strategies are at the centre of that transformation and are therefore the main focus of our input to you this morning.

My remarks to you will be divided into three main subject areas, which I will address briefly, in turn: defence procurement, industrial and regional benefits, and export controls. Each form an integral part of Canada's ability to proceed successfully with defence procurements and to achieve a maximum return for Canada in industrial capabilities of strategic national interest.

As it relates to defence procurement, CADSI recognizes the importance of a federal defence security and foreign policy agenda to set the framework for Canada's long-term military and security requirements. We understand the importance of a federal commitment to long-term stable and predictable funding levels for our military and security forces.

In addition to a policy framework and adequate sustained funding, CADSI believes there's a third crucial ingredient to successful defence procurement, and that is a front-end political and interdepartmental decision-making mechanism that engages the government, the military, and industry in aligning the acquisition of military equipment with strategic government objectives for industry, domestic economic innovation, and trade competitiveness in defined areas of national interest. Unlike our allies, Britain and Australia, Canada does not engage these related interests in a concerted strategic fashion at the front end of defence procurements.

For this front-end work to be successful, CADSI members believe the government would have to articulate what it believed to be capabilities of strategic value to national security and economic interests. Let me be unambiguous. I am talking here about an industrial strategy for Canada's defence and security industries, a strategy that would consider, in its design and priorities, the current and future equipment, technologies, and in-service support needs of the military. It would consider international market and supply chain growth opportunities. It would also consider the distinctive security requirements of Canada as a maritime and northern nation that shares, as we do, a continent with the powerful United States.

There is a broad spectrum of opportunity for indigenous businesses to play in these environments. An industrial strategy, leveraged through defence procurements, would strengthen Canada's security and promote its economy in key technology areas.

Over the past couple of minutes, I have talked, as you might expect, about the economic and industrial opportunities available from effectively managed defence procurements. Let there be no doubt, however, that it is the military's responsibility to define its operating requirements, based on the missions the government has asked it to perform, and there should be no compromise in what the military decides it needs.

While business inherently supports the basic principle of competition, CADSI members agree that the key issue is not whether the government ultimately decides to build or buy off the shelf, to compete or sole source any particular procurement to meet its stated requirements. The most important issue, regardless of the chosen procurement strategy, is whether the government has established objectives up front and a strategy to achieve those objectives that maximize military, economic, industrial, and trade benefits to Canada, from the acquisition stage through the full life of the purchased equipment. It also has to involve industry as a contributor to that discussion.

One final comment on procurement. CADSI members support the government and the military in finding a faster process, one that delivers the required equipment in a timely and cost-effective manner and that assures maximum value for taxpayers and maximum involvement of the Canadian industry. We believe this is best accomplished through a process that is transparent and in which industry has a fair, open, and competitive opportunity to present solutions that respond to the customers' requirements from the earliest time in the procurement process.

The recent example of the joint support ship program, or JSS, may provide the committee with a process model worth supporting. Industry has described the JSS process as being one with open dialogue, where relevant documents are posted on a website in draft form for review, and where there is perceived to be an open and genuine interchange between the navy and industry around functionally oriented specifications—and by that I mean broad mission performance specifications. The procurement is focused on getting the best solution, and it is based on a front-end strategic interest in nurturing competitive Canadian industry. There is no ambiguity in regard to the process or how industry fits into the process. Consequently, to date there has been broad-based acceptance from all stakeholders.

As for industrial and regional benefits, Canada was among one of the first countries to develop and implement a program that sought to generate domestic economic value from the acquisition of military equipment supplied by offshore manufacturers. The program remains an important weapon in the government's arsenal to leverage Canadian companies into the supply chains of major defence contractors and to help nurture and develop Canadian-based capabilities that support our national security and long-term economic interests.

In the context of the IRB program, we ask the committee to consider a number of suggestions that we believe would strengthen the program and bring greater value to taxpayers. We ask for the program to encourage investment in Canadian-based companies and transfers of technology, IP, and R and D, by allowing credit for upfront investments, by properly valuing the technology being made available to Canada, and by offering a multiplier as appropriate. Currently, IRB credits are only provided when the recipient of the technology is able to generate downstream sales from the use of that technology.

We invite the committee to consider an IRB program that includes more flexibility, one that would allow banking a lower percentage of IRB obligations committed at contract signing. We believe this ultimately will lead to higher-value economic outcomes for Canada.

We recommend that a significant percentage of each IRB program be dedicated to investments in key capabilities of strategic importance to Canada and to the needs of Canada's military and security forces. We encourage winning contractors with IRB obligations to look across the spectrum of their business units to find benefits consistent with Canada's strategic interests.

As it relates to the export market, in the context of maximizing Canada's export potential through defence procurements, we ask the committee to consider that since the Hyde Park Declaration and the Ogdensburg Agreement from the 1940s, Canada and the United States have established a unique relationship for the mutual defence and shared security of North America. Much to Canada's economic and political benefit, our two defence and security industrial sectors, as a consequence, have become deeply integrated on both sides of the border.

Fully 50% of Canada's defence and security revenues are earned through trade with the United States. However, this traditional, deeply integrated industrial relationship is at risk because of U.S. interpretations of its export controls regime under the international traffic in arms regulations—ITAR—that reinterpret what it means to be a registered Canadian person. Left unaddressed, ITAR may significantly weaken Canada's technology and industrial capabilities. At a time when Canada is making the most significant reinvestment in its military and security forces for the past 30 years, much of the new equipment may well come from U.S. prime contractors. This situation therefore deserves the attention of the federal government at the highest political level.

In that context, CADSI recommends that the government, through senior political intervention, negotiate with the U.S. government an ITAR solution that applies equally to employees of the federal government and industry. We encourage a mutually agreed upon security clearance process and an enhanced Canadian-controlled goods program to be agreed to, to create an ITAR-certified Canadian company competing on a level playing field with U.S. companies. And we encourage that a process be created to expedite technical assistance agreements and manufacturing licensing agreements for companies that have been ITAR-certified.

Ladies and gentlemen, in conclusion, Canada has the industrial capacity, a highly skilled workforce, and the technical expertise to play a meaningful role in supplying and supporting a substantial part of Canada's current and future defence and security equipment requirements. What role Canadian industry will play in the rebuilding and long-term support of Canada's military will depend on decisions being made by the government now and over the next 18 months.

With the requisite political will, Canada can use its procurement, IRB, and other policy and program tools to obtain the equipment needed by the military to perform its duties. At the same time, we can maximize benefits for the Canadian economy, sustain high-quality jobs in Canada, and generate substantial export sales opportunities.

Thank you for your attention.

[The Chair, Conservative, Rick Casson]

Thank you very much.

Thank you all.

We'll open up for a round of questions, committee, but in order to get everybody in, I wonder if it would be all right to reduce the time to five minutes each, if you're all right with that.

And we'll remember Mr. Dupont's comments about being a volunteer.

Go ahead, Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

I was a bit scared, Mr. Dupont, because the way you were talking,

I thought you were going to say “God bless America” at the end.

Gentlemen, it's about time that I hear people from the industry who truly are now fighting even for their existence.

We have a government that has totally abdicated our Canadian sovereignty. The reason why there's R and D, the reason why you have an industry, is that you had a government that put forward some industrial policies and made sure every region could have a share.

Now if you want to have R and D, you need ISS. This is the first time, with equipment, that we have a government that has bought C-17s that we truly believe we don't need, but for which we won't have any ISS.

Second and third line maintenance is necessary for research and development. Without this maintenance, R and D will be pointless. Boeing talks about identifying $577 million out of $3.4 billion; so there will be some compensation. The fact remains, however, that a small $1.3 billion cheque was given to Boeing, which will look after ongoing maintenance.

Gentlemen, I hope that your respective organizations will take a stand. I know that there are perhaps some concerns, as the Department of National Defence awards the contracts and determines the selection criteria. But if we do not do what is necessary now, we will americanize the aerospace and aeronautical industry and end up being a franchise.

Mr. Page, I know that 50% comes from the United States. I also know the ITARs exist. One of your members, Bell Helicopter, had to lay off a Venezuelan engineer because he had dual citizenship.

I hope that we will be able to work together so that this government can do its job.

To be on the record, we have a Minister of Public Works and a Secretary of State for Foreign Affairs who have said the Boeing C-17 is ITAR-friendly, which is total baloney. Dan Ross came here and said he's trying to negotiate a deal not only à la carte for his own defence department, but afterwards, for the industry.

I think we should get our act together and make sure we have a one-two punch, because at the end of the day,

Mr. Dupont, we could probably say that we are the employee of the month of the United States' industries. In my opinion, an industry truly has sovereignty when it is able to help our men and women in upgrading and producing their equipment.

Monsieur Page, I would like to know how you deal with ITAR. I think it's a good first step that we're talking about it today. The Liberal Party of Canada, since the beginning, was pushing to make sure that we had something not only after a contract, but when we negotiate a contract.

I also believe one of the main problems happening right now is that we have a government that is totally abdicating and believes that since it's only four airplanes and we don't have the infrastructure, we should let Boeing take care of it. How can we manage, together, to have a true strategy in which you can be part of that process and make sure that this government, which has abdicated our Canadian Charter of Rights and our sovereignty, is efficient in protecting our men and women?

[The Chair, Conservative, Rick Casson]

Mr. Page, you have one minute to respond.

[Timothy Page]

Where should I start?

[The Chair, Conservative, Rick Casson]

Wherever you want.

[Timothy Page]

My dear Mr. Coderre, thank you very much for your question.

It is clear to members of our association that ITAR is not a new phenomenon. It predates the arrival of this government; it's been around for a long time.

What's important for members of our organization is for this government to ensure that it is making all necessary efforts at the highest political level to ensure that there is a mitigation found, in order to ensure, as you suggested, that Canada is able to maximize the benefits it can obtain through spending $13 billion of federal taxpayers' money.

If I might, I would add one quick addition. You mentioned ISS, the in-service support industry. There are other sectors of the defence and security community that we believe should form part of an industrial base, which we're inviting the government to consider in the construct of an industrial strategy for the defence and security community.

I take it that buzzer was my minute.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Rick Casson]

Thank you. It was.

Mr. Bachand.

[Claude Bachand, Bloc, Saint-Jean, QC]

Thank you, Mr. Chairman.

I want to welcome you and to thank you for appearing before us. You made a very generous contribution today. I was very glad to hear your presentation. I am addressing this question to all three of you.

With regard to the famous so-called advance contract award notice, would I be right in saying that if we identify too much with a single company, we lose all our negotiation leverage? In fact, we are too much at the mercy of the company and it takes advantage of the situation to impose its own conditions.

My next question is for Mr. Page.

We already discussed the importance of Canadian content and of the fact that the entirety of the spinoffs should go back to the aerospace industries. Why should we not request that things be done in this way? For instance, with the C-17 aircraft and the Chinook, the contracts have to do with this sector. The aerospace sector is involved in high technology research and development. I already said that 60% of the spinoffs was not enough. Besides, I have heard the same comment several times from representatives of the industry in Quebec.

We really have no interest in exchanging the entirety of funds assigned to the aerospace sector, for a 40% share allocated to Atlantic salmon or to Arctic spruce. I think that you could clarify this matter.

Finally, I would like to know whether, in your opinion, the Minister of Industry failed to do his duty when he told the people from Boeing that they could share out the economic spinoffs as they saw fit in Canada, without taking into account important regions like Quebec, that harbours 60% of the Canadian aerospace industry.

[Ron Kane]

Perhaps I could respond to Monsieur Bachand's first question, in terms of whether ACAN or a sole sourcing approach limits your ability to lever the highest value in national benefits out of the prime contractors.

We think that if the Government of Canada was clear in terms of the outcomes it desired from a particular prime contractor, you could maximize those through a sole source procurement, as you could through a competitive environment.

If you take Boeing, for example, Boeing is now into the development of its 787 Dreamliner, which is the next generation of commercial aircraft. It will soon go into development feasibility studies on the 737 replacement program, the most popular airliner flying today.

What we haven't seen from this government's approach, in terms of IRBs, has been a declaration of the industrial outcomes most advantageous to the development of Canadian capabilities. The IRB policy uses rules by which 100% of the contract value is broken down to 60% at the time of contract award and 40% within eight years. A rules-based approach is simply not sufficient to give direction to the prime contractors, in terms of the outcomes Canada wishes to obtain.

Certainly the ISS component of a contract is essential to our industry. We have first-class ISS providers in Canada, and they have to be fully engaged in the support of those aircraft fleets when they come to Canada. It's good for our industrial development and it's good for supporting the Canadian Forces in a 24/7 environment.

I don't think the contracting approach, either sole source or competitive, is a limiter or an advancer. It's having the government declare up front what its national objectives are on those procurements.

[The Chair, Conservative, Rick Casson]

You have a few seconds left.

[Timothy Page]

I would echo the remarks of my colleague, Ron Kane. ACAN, sole source, build, buy off the shelf—that is not the key issue for us, as I suggested in my remarks. It is important to understand whether there's a strategic objective behind the procurement strategy and whether or not that strategy is going to effectively leverage benefits that meet with Canada's national security interests.

Monsieur Bachand, my remarks may have led you here, and if they did they were intended to. Our interest is to ensure that the opportunities Canada has around the procurement of C-17s, for instance, take advantage of the full depth and breadth of the Boeing company's business units, in support of Canada's defined national security interests. It's certainly not to exclude aerospace—it's a significant and vital industry in our Canadian economy--but rather to suggest at the front end that decision-makers are considering what other assets the country may be looking to attract to Canada.

Boeing is a large player in the strategic border initiative with the Department of Homeland Security. They play a significant role in both marine and land technologies. If there are strategic objectives that either the military or the government has identified that will meet long-term needs, why not encourage Boeing to look across the full spectrum of their business units for such opportunities?