National Defence Committee on Feb. 27th, 2007

[Maxime Bernier, Conservative, Beauce, QC]

Thank you very much.

As you just said, the policy will generate direct and indirect industrial benefits.

It is a direct benefit when the government, as in the case with Boeing, can purchase an aircraft with parts that may be coming from Canadian suppliers. In that instance, these are direct benefits.

As regards indirect benefits, these are benefits that result from contracts awarded by the Government of Canada to firms other than the one that won the bid.

I'll give you a practical example. The Canadian aerospace sector is asking for numerous indirect benefits, particularly with respect to the 787 project, the new aircraft that Boeing is manufacturing and which should be on the market within a few years. High technology or composite materials are necessary for various parts of this plane or for the wings.

Under the terms of our contract to purchase military planes from Boeing, Canadian firms will receive consideration for contracts related to the 787 project. This is what Canadian industry is asking us to do. If this sector is working on new aircraft which will fly for 20 or so years, that will enable us to be well positioned for the future. That is an example of indirect benefits.

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Minister.

We're now going over to Mr. Bachand, and then back to Mr. Blaney.

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

Thank you, Mr. Chairman.

I would not say that it is deplorable. However, I do feel that we need to have a significant debate on ministerial accountability here this morning. The minister is before us. As we speak, he is the one who is responsible for some $20 billion from Canadian taxpayers who will watch TV this evening and observe that we are talking about $20 billion. The people are saying this is about $20 billion, but I am saying that that is more like $20,000 million.

Today we are questioning the minister. His plan of attack is not insignificant. We can see that he is well prepared. If the Bloc Québécois asks a question that goes a bit too far, he replies that what we did was not in our program. Furthermore, the minister talks about history: the Liberals are criticized for things that were said when some of them were ministers.

Nevertheless, that does not resolve the issue that is currently before us. I am asking the minister to assume his ministerial responsibilities and defend the figures that have been submitted to us.

I do not want to relate the history of the wars of 1914-18 and 1939-45, and be asked whether or not my father went to Holland to defend the country, so that I have to answer that, yes, indeed, he did go because that is not the issue. Today we need to concentrate on the issue before us.

I am simply asking the minister to focus on this matter. I have two questions for him. After that, he could take the rest of the time to answer.

First of all, you talked about obligations with serious penalties. Minister, don't you think that Boeing couldn't care less?

By the way—I don't know if you know this—as far as the Sikorsky marine helicopter is concerned, you've just been told that delivery will be delayed, that the penalties amount to $100,000 per day and, believe it or not, your government responded by saying that this was not serious, and that the penalties would not be applied. So don't tell us that there are obligations with penalties, because the Sikorsky example is not a good one.

Secondly, with respect to the Chinook helicopter, there is still $4.7 billion to come; $4.9 billion for Lockheed Martin; $3 billion for the search and rescue aircraft. Will you change your approach, assume your responsibilities and tell these companies that you are the one signing the cheque? Will you ensure that the regional and industrial benefits match the size of the sector and inform these companies that 60% of the economic benefits must go to Quebec? If you do that, you will look like a hero in Quebec, Minister. That may work out very well for you politically. Now, because of the law of the jungle and the laisser-faire approach, the people are a bit upset when they see how Quebec is being treated when it comes to the division of these contracts.

Do you intend to continue in the same direction? It is not too late for you. Perhaps $3.4 billion have already slipped through, but another $10 billion at least, or maybe even $12 billion, is coming. It is not too late to change the way things are going. I would like to hear what you have to say on the matter.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you very much.

You referred to the regional and industrial benefits that the aerospace sector stands to benefit from. I said earlier that we are talking about more than $12.6 billion. This is a significant amount of money. Consequently, we are making sure that the industry will be able to participate in the high tech projects, as I said earlier.

However, it is important to know something. I would like to go back to what I said in my opening remarks. I said that, in order to assess the opportunity or the added-value of industrial benefits provided by companies such as Boeing, the government has to base itself on several criteria.

First of all—this is important—it has to be directly connected to the purchase that we are making. That is quite understandable.

Secondly, the industrial benefits have to occur following the signature of the contract. Namely, we will not accept contracts that Boeing may have signed with its suppliers prior to the signature of the contract. These have to be new industrial benefits.

Thirdly, the obligations have to be in line with our industrial benefit policy. That means that, as I said earlier, there has to be a transfer of technology and this has to be significant for small businesses. That is what my department and I, as the minister, are doing.

I would like to add that I am proud of managing this policy with the public service, because we will ensure that the Canadian aerospace sector benefits from contracts that will be very significant to it, so that it is well positioned for other contracts that it may enter into with other international players.

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Minister.

We'll go over to Mr. Blaney, and then back to Mr. McGuire.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you, Mr. Chairman.

Minister, I would like to welcome you and your representatives.

This morning I have three reasons to congratulate you. First of all, Mr. Watson, who teaches economics at McGill University, congratulates you for managing to rise above regional rivalries in managing military procurements. In this manner, we will ensure that taxpayers have good value for their money and that we are fair.

Secondly, you have managed to do this while respecting deadlines. We can clearly see that the C-17 procurement contract process was both rapid and transparent.

Thirdly, you came to see us this morning. We are pleased that you have come here.

Minister, you have been in this position for one year. I would like to know what you have done for the aerospace sector and the defence sector to date. We saw that the previous government had to some extent abandoned everything pertaining to military equipment procurement. In the past year, what have you done as the minister for the defence sector and the aerospace sector?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

In 12 months, we have done more than the previous government did in 12 years.

I was asked some questions earlier about the regional distribution of these contracts, and I would like to go back to that matter.

The CF-18 contract was awarded by the previous government. I would like to put some questions to my colleagues from the Liberal Party, who did not establish any regional minimum amounts in the contracts, and did not tell the Boeing representatives where they had to do business.

The CF-18 contract of the previous government did not impose any regional minimum limits on the firm that won the bid. Today, the same individuals are before us, in the committee, and are asking us to impose regional minimum amounts when in fact they did no such thing when they were in power.

With respect to the regional distribution of contracts for the marine helicopter procurement program developed by the previous Liberal government, Quebec obtained only 22% of the benefits. I can assure that the aerospace companies in Quebec and Canada will benefit and be in a good position for these contracts.

I am very proud to announce that Pratt & Whitney, a Quebec firm, received the largest contribution under the Technology Partnerships Canada program since it was established, namely $350 million. In Montreal, last fall, my colleague Michael Fortier announced this contribution which will be used for research and development to ensure that the company will remain competitive internationally.

These are concrete facts. This is what we are doing for the Quebec and Canadian aerospace sector. And this is just a start, because there will be economic benefits totalling more than $12.6 billion for all military procurement. I am certain that all companies, throughout Canada, will be able to position themselves in order to win these contracts.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Are you telling us that the military procurement policy that calls for direct and indirect benefits is being applied by the new government but was not necessarily applied by the previous government in the same manner? Is that what you are saying?

[Maxime Bernier, Conservative, Beauce, QC]

The fact is that, as far as the CF-18 contract is concerned, when the Liberal government was in power, Boeing had agreed to 75% of the value of the contract in the form of regional and industrial benefits. It was a Liberal government that did the negotiations at that time. Our policy is very clear: there has to be 100% of the value of the contract awarded to a foreign manufacturer in the form of benefits.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

You talked about direct and indirect benefits. In your presentation, you mentioned a 15% amount that had been allocated for small- and medium-sized businesses. This is interesting, because we know that small business sales are not the same. You spoke about nearly $2 billion. It must be said that 15% of $2 billion is a considerable amount of money and this amount will go to small businesses, which are one of the drivers of the economy.

Could you provide us with more information about the way that this money will be allocated?

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Blaney. Your time has expired.

We'll move over to Mr. McGuire, and then Ms. Gallant will finish up.

[Joe McGuire, Liberal, Egmont, PE]

Thank you, Mr. Chair.

I'd just like to remind Mr. Blaney that, thanks to the economic policies of the previous government, there is actually money there to make defence procurements and other procurements. That process was well under way before we began experiencing this hiccup that we're doing now.

I have two questions, Mr. Minister. One, according to The Globe and Mail this morning, it appears that a contract has been awarded to CAE Inc. of Montreal for training air force crews on the new Hercules and Chinook helicopters. That's a plane contract that hasn't even been awarded yet. I wonder who else was competing for that training contract.

Two, how do you actually award the regional benefits? Do you take into consideration all the government assistance to the aerospace industry, in this case? As you know, a lot of government assistance goes to the aerospace industry, as it does to the automobile industry and so on. Is it all taken into consideration when you decide what region should get what? How does that actually work?

So there are two questions: on the training contract that appears to have been awarded, and the actual way you divide the regional industrial benefits.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

I will ask my deputy minister, Richard Dicerni, to answer the first question, and I'll take the second one.

[Richard Dicerni, Deputy Minister, Department of Industry]

I believe the article this morning refers to a process that the Department of Public Works and Government Services has undertaken. They put out the equivalent of an RFP. In this case, it was referred to as a letter of interest. I'm given to understand that a number of companies have responded. This process closed last week, I believe, and is currently being reviewed by the appropriate officials at Public Works.

[Joe McGuire, Liberal, Egmont, PE]

It's called a sudden shift in the procurement process. Why would you have a sudden shift in the procurement process in regard to this contract?

[Richard Dicerni]

I would suggest that I can perhaps follow up with my colleagues at Public Works. They are the ones who do the procurement. I have my hands sufficiently full with Industry Canada.

[Joe McGuire, Liberal, Egmont, PE]

So we're passing the buck back.

Go ahead, Mr. Minister. We only have a few minutes left.

[Maxime Bernier, Conservative, Beauce, QC]

Concerning the Canadian content value, I thank you for the question, because it's very important.

What you are looking at are works done here in Canada, in this country. As an example, suppose Boeing, for the IRBs, gives a contract to Pratt & Whitney, but the value of the contract is $100 million. Maybe Pratt & Whitney, within that, has work done outside Canada for $20 million. We won't count the $20 million. We will count only $80 million on the contract value of $100 million, because the work has not been done in Canada. That's important. In terms of the way we count the Canadian content, it's something we're doing very precisely, and we're going to be sure a subcontractor, like Pratt & Whitney in my example, will do 100% of the work here in Canada. If, in part, the work is done outside this country, we won't count that as Canadian value.

[Joe McGuire, Liberal, Egmont, PE]

How can this country really benefit when the intellectual dimensions of these contracts are basically given to the Americans, and we take whatever they might have to offer as compensation? How do we really get ahead in that way of awarding contracts?

[Maxime Bernier, Conservative, Beauce, QC]

It is important to point out that technology is transferred when a company such as Boeing is awarded a contract. Boeing does business with various suppliers in the country who have access to this leading-edge technology. That is the reason why they are asking us to provide them with a list of the nine state-of-the-art technologies. Industry representatives told us that we should require Boeing to ensure that the economic benefits are directed to these nine leading-edge sectors, because these companies want to benefit from the significant work that will be done, in the future, on the international aerospace scene. That will enable them to work on the latest technologies.

[The Chair, Conservative, Rick Casson]

Thank you, Minister.

We just have a few minutes to wrap up. Ms. Gallant, you'll have the last spot.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

Minister, first of all, I'd like to commend you on the speed with which you have conducted your role in the procurements. The faster that men and women in the armed forces receive their equipment, the better, and the safer they are.

As well, the way you've distributed the IRBs across Canada is appreciated. Outside of Quebec, we have a growing aerospace industry. In my riding alone, we have Arnprior Aerospace, which has the potential to get more jobs at a time when factory closures are really throwing a lot of people out of work. It is a fledgling, new business to aerospace. Hypernetics is further down the road, and E.T.M. Industries and Haley Industries are even further down the road. So the work is greatly appreciated and the IRBs will be working.

Earlier in the testimony we heard about the EH-10 contract and how the cancellation fees were $500 million. Now taxpayers face another lawsuit to the tune of $100 billion on the allegation of political interference. In addition to the fee cancellation and the potential lawsuit, what was lost in terms of IRBs?

[Maxime Bernier, Conservative, Beauce, QC]

The value of the contract was $4.4 billion, and the amount of IRBs that this country lost was maybe $3.8 billion, so I agree with you that it's a big loss for this country. It's not only a loss in terms of the IRBs, it's also a loss of taxpayers' money and a loss of more than $500 million in penalties that this government had to pay after the cancellation of this contract. That was a lot of money for taxpayers.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

The reason I ask is that the opposition has made no secret of the fact that they would try to cancel the C-17s.

Another purchase made during that decade of darkness was the submarine procurement. I understand there are two that are finally seaworthy and we're able to use them. With that particular procurement, because there is such an emphasis on IRBs with what the government of the day is purchasing, would you tell us what the value of the IRBs was with respect to the submarine purchase?

[Maxime Bernier, Conservative, Beauce, QC]

The value of the IRBs was zero. At that time, the previous government didn't ask for any IRBs. Maybe that was in part because it was a purchase by this federal government from another government, but they had the opportunity to give IRBs to Canadian industry and did not deliver any IRBs after the contract was signed. I think it's something we can question right now, but that was something the previous government did in the past.