National Defence Committee on Feb. 15th, 2007

[The Chair, Conservative, Rick Casson]

I call the meeting to order.

As we continue with our witnesses on the procurement process, from the Department of National Defence we have General Lucas, Chief of the Air Staff. Sir, welcome. We have Colonel Burt, director of air requirements. Welcome, sir.

And from Public Works and Government Services Canada we have Terry Williston, director general, land, aerospace, marine systems, and major projects sector; and Len Bradshaw, airlift capabilities project.

I understand, General, you'll be making a presentation. Then we'll open it up for questions. The floor is yours, sir.

[Lieutenant-General J. S. Lucas, Chief of the Air Staff, Department of National Defence]

Mr. Chairman and members of the committee,

thank you for inviting me back to speak with you about Canada's Air Force. It gives me great pleasure to see members of Parliament show interest in the Canadian Forces. I know that some of you are amongst those who spent time at our headquarters and on our wings last year, meeting and speaking with our personnel and, in most cases, flying in Canadian Forces' aircraft. I encourage all members of Parliament to visit their Air Force and gain a better understanding of what our men and women are doing on a daily basis to provide security at home and abroad.

I'm delighted to have with me today the people you've introduced, Mr. Terry Williston and Mr. Len Bradshaw from Public Works and Government Services. They will cover off certain aspects of your interest in the procurement process. Colonel Dave Burt is my subject matter expert on requirements matters and brings a wealth of experience with him.

As Chief of the Air Staff and commander of Canada's air force, I am responsible for what we call force generation. This means ensuring that commanders who employ air power in Canadian Forces operations have the equipment and trained personnel required to do the job. As the force generator, I set the operational requirements for air force equipment that will be used by our men and women to conduct the job assigned them by the Government of Canada. For the air force, that job is wide-ranging as we focus on Canada's security needs.

Day to day we maintain surveillance and control of the air space enveloping the second-largest country in the world. We assist our navy in monitoring the maritime approaches along the longest coastline in the world. We respond to calls from Canadians in need, providing immediate assistance through our search and rescue squadrons. Our personnel are on duty around the clock, integrated into Canadian Forces operations, contributing to Canada's economic, environmental, and physical security in the post-9/11 world.

Air force personnel continue to make a tremendous contribution to Canadian Forces operations around the world, especially in southwest Asia, where the air force has been present since Canada first became engaged in the region over five years ago. Today you can find air force personnel almost everywhere you turn throughout the theatre of operations: at the theatre support element, largely run by the air force; with the joint task force in Kandahar, both on the airfield and outside the wire at the forward operating bases, and with the provincial reconstruction team; and elsewhere throughout Afghanistan. Many of them are working side by side with their colleagues from the army, some in fully integrated units.

Since my last appearance before this committee in November, you have had an opportunity to visit our personnel who are doing such a great job in Afghanistan. I trust you are as impressed as I am with the tremendous job being performed by the men and women deployed in that theatre of operations. And I hope you had a chance to observe the challenges our people face in carrying out such operations on behalf of Canadians.

That brings me to the focus of this meeting: the challenge of generating air force capabilities that are needed to conduct and support Canadian Forces operations here in Canada and around the world.

Canadian Forces operations are, for the most part, no-fail missions. Whether it's rescuing a hiker from the mountains of British Columbia, saving lives over the stormy Atlantic, providing essential life-saving supplies to Canadian communities in distress, or supporting humanitarian or combat missions around the world, we must succeed, often under extreme conditions. And unlike sports, in combat operations there is no second place.

My role as the force generator of aerospace forces is to ensure that we have the right combination of equipment and trained personnel to carry out the tasks assigned to us by the Government of Canada, to a standard that will permit us to succeed and survive to carry out those tasks another day.

Two years ago, on February 7, 2005, my predecessor appeared before the Standing Committee on National Security and Defence. At that time he characterized the state of the air force as fragile, as increased pressures were put on the air force to protect Canadian interests in the post-9/11 world. He said:

Currently, aging fleets and infrastructure impose further strains on the air force's ability to fulfill its roles. The gap between national procurement funding and the need and the diminishing experience levels of and the ability to retain our personnel exacerbate these existing problems.

In short, the air force faces a sustainability gap in its ability to generate operational capability as it transforms to fulfill its role in defence of Canada and Canadian interests.

He emphasized that in the post 9/11 security environment the changing nature of the threat places even further demand on the Air Force' stretched resources.

What has happened since then? Since February 2005, two successive governments have reinvested in defence, and while much work has been done to put spare parts back in the bins in order to keep our aircraft flying, our aircraft continue to get older and continue to run out of hours.

The most critical situation we face right now is with the air mobility fleet, in particular the CC-130 Hercules fleet. That is the aircraft on which you flew into Kandahar recently. As you heard last week from my colleague Mr. Ross, the assistant deputy minister for materiel, four of our fleet of 32 aircraft have already run out of hours and are sitting on the ground in Trenton. By 2010, we will have only 18 flyable aircraft remaining from the original fleet of 32. So we welcome the government's decision to move quickly to acquire four strategic airlifters and 17 replacements for the CC-130 Hercules aircraft, which will restore our ability to support Canadian Forces operations at home and abroad into the future.

Other areas are also being addressed. By early 2009 we expect the first of the Cyclones, the replacement for the Sea King helicopter, to arrive, and we're working towards acquiring Chinooks to replace a capability lost in the 1990s.

While we are slowly beginning to recover from the fragile state described by my predecessor, the need remains urgent as time runs out on our legacy fleets of aircraft, which brings me to the main point: how we determine the operational requirements for equipment we need, which is the air force's role in the procurement process.

The requirements flow from defence policy. The defence policy, and scenarios that are developed from that policy, help us to identify the capabilities we need to accomplish the tasks assigned to the Canadian Forces.

When we first identify a need for a new capability, we establish guiding principles. One of the key guiding principles is in fact to obtain best value for Canadians. Based on these guiding principles, we use capability-based planning to identify what we call the high-level mandatory capabilities. These high-level mandatory capabilities are derived from internationally agreed standards and an analysis of the needs of the Canadian Forces that will employ the equipment.

From the high-level mandatory capabilities flow the mandatory requirements, those requirements that any potential supplier must meet in order to satisfy the Canadian Forces' needs. By way of example, the strategic airlifter required by the Canadian Forces needs to, among other things, take combat-ready equipment across long distances, including the oceans, and rapidly deploy them where and when they are needed. The mandatory requirements, along with a number of rated requirements, are packaged into a statement of operational requirements.

Draft statements of operational requirements go through a challenge process within a range of organizations within the Department of National Defence. They are subsequently refined to ensure they represent the capability required before being submitted to the minister.

Once the statement of operational requirements has been finalized, the rest of the procurement process can begin, based on the tenets of fairness, openness, and transparency, as you heard many times from the Minister of National Defence and from ADM Materiel last week.

The statement of operational requirements is just that: the statement of what the men and women of the Canadian Forces need in order to undertake the missions the people of Canada call upon them to perform. I'm happy to see that Canada's air force is beginning to receive the equipment it desperately needs in order for our men and women to continue to serve Canada and to serve Canadians.

Mr. Chairman, members of the committee, I would happy to answer any questions you may have at this time.

[The Chair, Conservative, Rick Casson]

Thank you very much, sir.

We'll start our opening round of seven minutes for each questioner. Mr. Coderre will begin.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you very much, general, colonel, gentlemen. It is an honour and a privilege to have you here.

We know that we are dealing with several billion dollars here and that this money needs to be well spent. We also recognize the importance of the equipment for the Air Force.

Because this is a two-hour meeting, we will have many questions. My first question is for you General Lucas, and then, given that you have brought along an expert in the field, Colonel Burt, I would also have some pointed questions to put to him.

First off, you must know that Liberals do not approve the purchase of the C-17s. We think that we could have rented them and made better use of public funds, furthermore, we get the impression that we've given the Americans a blank cheque because we don't have the copyright nor will we be doing the maintenance on these aircraft.

Today, general, I'd like to discuss C-130J with you. Through the agreements and synergy brought about through the CF-18 modernization project, the costs and risks were shared among the countries, which was to the advantage of Canadians. We did it with Australia, the U.S., and the U.K.

If there is this brotherhood of nations, fairness and some fair-play, why did Australia purchase the Hercules C-130Js for U.S.$54.5 million and the U.K. for $64 million? These amounts included initial technical support. You can't say the Canadian aircraft cost more, because the additional costs were already included. The Americans paid $64.5 million. Yet, it cost Canada $188 million per aircraft, or twice the price paid by our allies.

The $3.2 billion contract is for the purchase of 17 aircraft; that's quite a lot per aircraft. Out of these $3.2 billion, over $1.7 billion will go to maintenance over a 20-year period, for a total of $4.9 billion. That's a lot of money.

What could possibly explain why we would be so inclined to buy aircraft which cost $188 million in Canada when they cost half that amount in other countries?

[LGen J. S. Lucas]

First off, thank you for your question.

I mentioned earlier that we are interested in value for money. It is of interest to note with respect to the C-130J that we have not in fact entered into contract at this point in time. So obviously there are going to be some negotiation processes that we'll need--

[Denis Coderre, Liberal, Bourassa, QC]

That's a hope.

[LGen J. S. Lucas]

Well, I have to say that we will be in a world of hurt. Our older fleet of C-130 aircraft is dying out from underneath us very quickly, and we need to find some way of replacing that. We set a requirement, which I feel very strongly was a very good requirement, and the process to date has identified one compliant bidder, that being the C-130J.

By way of interest, you mentioned other countries that we have collaboration with. In fact, the three countries you mentioned all operate the C-130J. I met recently with the heads of their air forces. All three countries are very pleased with that particular aircraft. It is serving them very well right now. So I'm actually quite enthusiastic that we are going to receive them.

In respect of the actual price, I do know that the gentlemen on my right here will, over the next while, be doing some extensive negotiations with Lockheed Corporation on this issue. They will drive a hard bargain, as they have in the past, and I'm sure we will get good value for money. I say that because I have confidence in them, but it really is not the air force's responsibility to negotiate the price. It is our responsibility to set the requirement, and then once Public Works and Government Services and other arms of government have done their work, we'll bring them into service.

So as to your question regarding price, I think I would have to defer that to the gentlemen from PWGSC.

[Denis Coderre, Liberal, Bourassa, QC]

So eventually it will be answered. Thank you.

Colonel Burt, we saw an exchange of a lot of e-mails. You're becoming pretty public these days. I saw some in the newspaper, Le Devoir, and from CanWest, on a series of issues.

It's a bit troubling. We surely don't question your integrity. You have a great reputation. You're a man of integrity. You're one of our greatest experts on the requirements, and you clearly know how to deal with an SOR.

What's troubling me is what happened after the famous meeting on May 1 with General O'Connor.

You've been saying since the beginning, and starting on April 28, that the requirement for the strategic airlift was based on a certain weight, which is the 43,000 pounds. You were also talking about delivery dates. We all know the process of the strategic airlift took years and years, and it seems that within weeks we changed some of those requirements. Why was it amended on April 28, from your initial e-mail saying we should have a competition between the two companies?

I'm not biased. As a matter of fact, all I care about is that we have the best equipment. But because it's taxpayers' money, I'd like to make sure it is fair and well spent. We all agree on that.

By some intervention, it seems we changed the way the procurement was put together. We took out the A400M. That's a bit troubling, because perception sometimes is reality.

What happened after April 28? Something also happened between May 1 and June 13. I believe the integrity of the SOR was not necessarily honoured because we had some political intervention.

Would you please expand on that situation? I noticed some of the e-mails that Major Goulden, you, and the others talked about. What happened in the timeframe?

[The Chair, Conservative, Rick Casson]

Mr. Burt, his time is up. If you could just hold that, when we come around to his turn again I'll get you to answer.

[Denis Coderre, Liberal, Bourassa, QC]

I would like to have a little taste of it first.

[The Chair, Conservative, Rick Casson]

Just a real short response and then we have to move on.

[Colonel D. C. Burt, Director Air Requirements, Department of National Defence]

Thank you for your initial comments about the job we do in the directive of our requirements.

Very shortly, I can say that at no time through this process has there ever been any influence from the government with respect to the operational requirement. I would also say that we develop these operational requirements absolutely clearly to provide best value to Canadians and the Canadian Forces and to meet performance requirements of the Canadian Forces. We do not develop the requirements to focus on, to include, or to eliminate any particular product that's out there.

[The Chair, Conservative, Rick Casson]

Thank you.

Mr. Bachand, seven minutes.

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

Thank you, Mr. Chairman.

I'd like to welcome everyone.

First off, I'd like to start by explaining to you why members of the Bloc Québécois called for this study. We had started work on Afghanistan, and after that, we wondered what other issue we could address. That is when we decided to study the procurement process.

I hope you share our opinion, in that Parliament, at this point, is not very involved in the decision-making process. I must admit that I've always been somewhat frustrated to see the astronomical amounts being spent. Indeed, an amount of approximately $20 billion has been announced.

In my opinion, parliamentarians need to take a critical look at this issue, because we're dealing with taxpayers' money. That is currently the philosophy which guides our committee and it has led us to undertake this study.

I also have a few questions to ask.

Last July 7, I was surprised to see that a number of contracts were already posted on the MERX's site. The C-17s, the Chinook and Hercules were there. However, when it came to the Hercules it was a letter of intent. I would imagine that is how the Department of Public Works and Government Services wants to proceed with the Hercules. What I was surprised by was the C-17s and the Chinooks, both platforms are produced by Boeing, and there were advanced contract notices out, for ACAN.

Finally, I even wrote an article published in Frontline; I hope you read it. I found this article quite interesting. I spent a lot of time writing it. I'd like to hear your comments once you've read it, if you have not already done so.

I believe we lose our bargaining leverage when we tell a company that it is the only company we want to deal with. Do you agree that it affects our bargaining power? From that point on, the company understands we will only do business with it. In that way, it can be stricter as to the time when it will manufacture the product, where it will be done and how it will be done. I think we're losing bargaining leverage.

I would like an answer to that first question.

[LGen J. S. Lucas]

Thank you for your question.

I agree that this is an important matter.

In fact, because of the dollar value associated with procurement, it demands a fair bit of attention from us. I'm quite pleased that we're looking at this subject. As we move forward, finding a way to deliver useful products to the men and women of the Canadian Forces in a very timely fashion, while meeting the needs of the taxpaying public, is a wonderful thing.

I can provide part of the answer, but once again I would defer to these gentlemen when it comes to the negotiating process. That is really their bailiwick.

With respect to ACAN, we set a requirement based on what our needs are and then we go out and have a look at what products are available. If it is found that in fact there is only one product likely to be able to meet our needs, this is when the government is inclined to use ACAN, the advance contract award notice process, so that we can move expeditiously.

All of the defence procurements that were announced are needed urgently in the Canadian Forces, which have tended to use a process that, while fair and equitable, moves quickly.

I have to say that with the arrival this summer of the first C-17, the process from announcement to delivery capability will be almost unprecedented. I am certainly delighted.

I would now ask my friends from PWGSC to respond to the second part of your question.

[Terry Williston, Director General, Land, Aerospace and Marine Systems and Major Projects Sector, Public Works and Government Services Canada]

I would start off by saying that ACAN is only the government's indication of an intention to award a contract. There's no guarantee that a contract is going to be awarded. So we certainly continue to hold the upper hand when it comes to negotiating, because if the government's needs are not addressed, there will be no eventual awarding of a contract.

I would also counter by saying that a competition for which there isn't a real competitive environment is not just uncompetitive, but if the competition is such that there is only one legitimate contender, it's very difficult to get a fair price. In that case, we have no visibility or opportunity to negotiate with the supplier. We just take the price that's been offered.

In the case where there isn't an open, competitive field of equally qualified suppliers, ACAN and the negotiation with the sole qualified supplier offers the Government of Canada the best opportunity for value.

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

I would now like to deal with requirements. When it comes to the procurement process, the Americans have a performance-based approach. I personally get the impression Canada creates requirements to fit with a platform it has in mind, in other words from the moment when we want a given plane, which carries a given weight and we know there's only one on the market and that is part of our requirement, we know exactly which plane will meet our requirements and in that way we sideline the competition. That is also a message being sent to a company, sort of like the ACAN, because the company knows that it is the only one able to meet the criteria.

Why do we get the impression that when the armed forces formulate criteria, they already have a platform in mind.

What about political involvement? Can a minister specify a type of aircraft? And you, within the forces, do you have to comply with requirements to find the specific aircraft requested by a department or a minister? Could this type of situation occur? According to Mr. Ross and one other person, it is possible. Do you think political interference is possible?

[LGen J. S. Lucas]

I believe, as Mr. Ross has said, this possibility exists. I've certainly not seen it, and certainly what we have here is a process. Let's just talk about airlift, because that's the one that seems to be the focus of attention.

We've had on the books for quite some time the requirement for a total airlift solution, both a strategic piece and a tactical piece. Depending upon the priorities of the military and of the government, we would then be able to address either all or part of it.

I was delighted when the resources were made available to address both parts of the airlift equation this time around, both the strategic and the tactical piece. Our strategic requirements are essentially fourfold. We want to be able to lift large amounts of material, for long distances, at rapid speeds, and to bring them right into where they're needed--those four pieces. And the air force doesn't do this in isolation. We work with the army, for instance, and ask, “What is the nature of the kind of equipment...over the next 10, 15, 20 years. What are the kinds of things you're going to need to move?”

I began in my opening presentation by talking about the high-level mandatory requirements. We've identified this as a way of expediting the procurement process. Instead of trying to identify every last little piece, we've identified a representative piece. A representative load for us was two light-armoured vehicles, two LAV IIIs. A representative distance for us was from here to Ramstein, Germany, because if you look at where we are in the world, an awful lot of what we think we're going to do over the next couple of years is either in the African domain or over in the Asian domain. To get there, it makes an awful lot of sense for us to hop first into Europe and then out of Europe into those domains.

[The Chair, Conservative, Rick Casson]

Thank you. We're going to have to move on. I'm sorry your time is up. Keep that thought.

We'll get back to Mr. Bachand.

Ms. Black for seven minutes.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Thanks very much, Mr. Chairperson.

I want to welcome each of you to committee, too, and as you can see by the questions from the opposition members on the committee, I think we all have some unease about the appearance of a sole-source contract, and I think all the questions are heading that way.

I have some specific questions about the C-17 and how this process has gone. I'm wondering when the change in lift size happened and exactly why, because for quite some time it was 43,000 pounds, and then suddenly it seemed to increase to more than double that.

I'm also curious about how high up in the chain was the involvement of the SOR, the statement of operational requirements, for the C-17. I wonder if you could answer that.

And my final question in that vein is this. Who initiated and who approved the national security exemption on this contract?

There might be a variety of people who can answer this question.

[LGen J. S. Lucas]

I can probably give you information on the first two questions. On the last one, unfortunately, I don't have the expertise in that particular area.

When it comes to the process whereby we set requirements, there is an ongoing process. It starts at certain levels, and over time, it bubbles its way up to the top. I talked earlier about a challenge process where we set something out and it gets looked at.

I also talked about guiding principles. One of the guiding principles for strategic lift was that we already have a platform that performs one element of strategic lift, and that is our Airbus A310 aircraft. So one of our principles was that whatever we got had to be able to lift at least as much as that particular Airbus, because it didn't seem to make a lot of sense for us...especially when we were looking for a bipolar solution, if you will, one that had a strategic element to it and one that had a tactical element to it.

When things began to bubble up and we looked at the numbers, it seemed to us a bit of an anomaly that we would only want to be able to lift one LAV III vehicle, which is essentially only incrementally more than our tactical aircraft can do right now. So we were going to have two parts to the solution, and in its early stages we identified a requirement for something that was only incrementally larger than the Hercules could lift right now, so--

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

So why wouldn't you have done that in the beginning, when you already had the Hercules?

[LGen J. S. Lucas]

That's a good question. In fact, as I said, requirements are built into the system and they come up, but they're not really completed until they get to the top. In fact, it was before it got to me that we began to challenge the idea that it made a lot of sense for us to buy a strategic lifter that could only lift one LAV III.

We talked to the army. We looked at the kinds of scenarios that were unfolding for the future, and we identified that a more representative load for us to lift would in fact be two LAV IIIs, and the distance from Trenton to Ramstein would be a distance that we would want to do because the kinds of places in the world we're likely to go with this would require that as the first hop, that 3,500 miles.

That's some of the background. I have to say that for a while the file was not proceeding as quickly. When the new government came in, they identified this as one of their platforms. We began to work on the file a little more, so that was probably why, in that timeframe, you saw more work being done on it. And the challenge function caused that requirement to be put in better shape, because when I signed off on it, saying it needed to be able to lift two LAV IIIs, I was confident that this was in fact a load that a strategic lifter should be lifting, and the distance of the 3,500 nautical miles made perfect sense from my perspective.

We have I think a very good, solid requirement. The one that went forward has my complete endorsement as being the kind of thing that makes sense. Especially if you're going to have a strategic lifter and a tactical lifter, you want that strategic lifter to be able to lift the big loads, cover long distances quickly, and get into those destinations you want it to be able to.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Okay, thank you.

And the national security exemption?

[Terry Williston]

The trade agreements to which Canada is a signatory have allowances for exceptions to the trade agreements when the national security interests of the country are at stake.