National Defence Committee on Feb. 27th, 2007

[Maxime Bernier, Conservative, Beauce, QC]

Thank you very much.

I will ask Mr. Tom Wright, from my department, to speak to that.

[Tom Wright, Assistant Deputy Minister, Industry Sector, Department of Industry]

We required

that 100% of the acquisition value of the contract be provided in IRBs. We also required that 100% of the contractor's share of the maintenance contract with the American government equally come back as industrial regional benefits.

Within that, we've also asked that 60% of the requirements be identified up front at the time of the contract signing. Equally, and I think the minister reviewed this briefly in some of his earlier comments, 50% of the contract value is to be seen in the aerospace and defence sectors. So, too, 30% of the IRBs are to find themselves within the key technology areas. There were nine key technology areas that the government settled upon and were reflected in the RFP. Further, 15% are to be in small and medium-sized Canadian businesses.

Those really are the outlines of the IRB requirements within the strategic airlift program.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Following up on that, will the same approach be used in future procurements in terms of the requirements established for this particular purchase? Will the same requirements be used for future procurements?

[Tom Wright]

The government actually tailors the requirements against the particular purchase. It's conceivable that some of those could shift for subsequent procurement decisions. It's been a mainstay of the policy that 100% is required. The 60% is a number that has varied through time and could vary into the future. This was, to the best of my knowledge, the first time a technology list has been used. It appears to have been successful. I have every expectation that we will be seeing it used again into the future.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Having a strong defence industry in Canada obviously has major benefits for the Department of National Defence, in that in the future it will give them an opportunity to acquire, hopefully, equipment from Canadian corporations. Could you help the committee understand how the industrial benefits that you've negotiated will lever the opportunities for Canadian R and D companies?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

We feel it is very important to hold discussions with industry representatives. That is why people from my department, representatives from the Canadian aerospace and defence sectors, as well as myself, drew up a list of the nine technologies that were key for these sectors. There were areas such as space, communication systems, etc.

For both the aerospace and defence industries, these technologies are important for the future. Aerospace stakeholders have to be on the cutting-edge technologically in order to be competitive and to be able to obtain international contracts. This is the first time that we established with the industry criteria that would ensure that the benefits would be real, advantageous, and of a high-quality for the whole aerospace industry.

As I said earlier, Boeing will be making announcements over the next few weeks about these contracts. As you know, these are private contracts, that is, they are contracts between Boeing and its suppliers. I'm sure my colleagues will be very appreciative of these announcements because they will reflect the diversity of our industry and the size of our country. Boeing deals with suppliers in Quebec, as well as in Manitoba and Western Canada.

Boeing is very familiar with its suppliers in this country. The benefits will allow Canadian industry to position itself. That should also be the case for the Quebec industry, which is important. In terms of the contracts and business opportunities that Boeing will generate through its industrial benefits, I am confident in the Canadian aerospace industry's capacity for positioning itself and for being globally competitive.

I am not pessimistic about Quebec's aerospace industry's future. Contrary to my colleague from the Bloc Québécois, I am very optimistic and I believe that these companies will continue to prosper internationally, especially due to our military purchases. That financial contribution of more than $12.6 billion over several years represents a solid commitment to our armed forces, but it also represents a solid commitment to the Canadian aerospace industry.

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Minister.

That ends the opening ten-minute round. We're into a five-minute round. We start with the official opposition, over to the government, and then back to the Bloc.

Mr. Brison, and then Ms. Gallant.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Thank you, Minister, for being with us today.

In the 2005 budget the previous Liberal government announced $13 billion of new investment in the Canadian armed forces. That was the biggest investment in the Canadian armed forces in 20 years, which of course spans the previous Progressive Conservative government's period as well as the Liberal government's period. I would remind you of that.

As Minister of Public Works after that, I actually played a role in terms of some of those procurement decisions and in fact worked closely with the previous industry minister, who is now your Minister of International Trade. One of the things he fought for as Minister of Industry at that time, and successive governments fought for, was a significant level of in-service support contract and provision by the Canadian aerospace industry. In fact, the Canadian aerospace industry has built a global expertise in in-service support because successive governments recognized the importance of protecting it in these contracts.

Your government has made a decision to depart from that approach and is in fact contracting ISS through the original equipment manufacturer, the OEM. That is a significant departure from the previous government's approach and in fact the approach of successive governments.

FrontLine Defence magazine, in a recent article in February 2007, says this:

Canadian companies will be denied the ability to directly and independently support DND on these programs.

It goes further:

The years invested in building this component of the Canadian industrial base are being jeopardized by the current ISS procurement strategy by placing Canada's world class Aerospace ISS Industry under the control of foreign American companies...Overall, this new process is not only a threat to thousands of Canadians jobs but it also increases the sovereignty and security risks to Canada by reducing our independent capability to maintain our own military assets.

I'd like your response to that. It sounds to me as if this is the worst government decision in terms of Canadian aerospace since Diefenbaker killed the Avro Arrow.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

On a point of order, Mr. Chairman, could I get some clarification from my colleague? He quoted a magazine, and I wonder if he could quote the author of that particular source.

[The Chair, Conservative, Rick Casson]

That's not a point of order.

[Scott Brison, Liberal, Kings—Hants, NS]

I have no difficulty with that at all. He's a major Canadian supplier. He's part of the industrial base.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

My colleague reported and confirmed that this represents major investments in defence, for our military, for the past several years.

Those major investments represent over $13 billion. It is important to point out that at the time the Liberal government had cancelled the EH101 helicopter contract, which was very costly for Canadian taxpayers. Thus, I'm very surprised to note the sudden interest on the part of my colleague for military equipment. At the time, the Liberal government did not seem at all concerned about that.

This contract that was cancelled by the Liberal government had been awarded in 1992. The penalties resulting from that cancellation cost the government more than $570 million. That's what the previous government left us in terms of military purchases. It cancelled contracts and left it up to taxpayers to pay the $570 million bill. That's somewhat disappointing, but it reflects the previous government's concerns.

I am proud to confirm that out of the $1.6 billion going to service support, $90 million will go to Boeing. That amount will lead to industrial benefits. It is important to point out that our government is not the only one that deals with the American government and manufacturers. In fact, Australia and other countries who have purchased military equipment deal with the manufacturer and the American government for maintenance.

Earlier I mentioned $90 million but I was mistaken. It is $900 million out of the $1.6 billion that will result in economic benefits.

We acted as most major industrialized countries do. We obtained military equipment at the best possible price for Canadians and we made sure that the maintenance would take place where the most competent people in that area are to be found. Canadian companies will benefit from those contracts.

We acted as most other OECD countries do and we did not put a condition on the American government that would have required a maintenance centre in Canada. Imagine what the cost to taxpayers would have been.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Chair, on this point, what the minister--

[The Chair, Conservative, Rick Casson]

Your time is up, Mr. Brison, I'm afraid.

Over to Ms. Gallant.

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

Thank you, Mr. Chairman.

Through you, to the minister, early--

[The Chair, Conservative, Rick Casson]

Mr. Hiebert.

Mr. Hiebert wants to start for the Conservatives.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you, Mr. Chair.

I note that Mr. Brison, who is the member for Kings—Hants, just raised some interesting questions for you, Mr. Minister. I was wondering if you have any comment on the following statement:

I have learned since 1997 that politics can in fact be the natural enemy of public policy. In fact, for very short term political reasons sometimes, decisions are taken that have a very deleterious impact on Canadians in the long term. I do not think there is a better example of a case where public policy was sacrificed on the alter of political expediency than the case of the cancellation of the EH-101 contract and the decisions made after that, and I will list some of those. Of course my colleague from Saint John spoke earlier of the $800 million in cancellation fees. There are also: the Sea King maintenance and upgrade, $600 million; Canada search helicopter program, $790 million; long term service for that program, $1.7 billion; maritime helicopter project, again $2.9 billion; and the maritime helicopter project and long term service support, again, $1.7 billion. The total cost is around $8.5 billion as opposed to the actual cost for the EH-101s, which would have been $4.3 billion. Even with Liberal math, this does not make any sense.

This is from Hansard, March 1, 2001, from the member from Kings—Hants.

Mr. Minister, do you have any comments on the billions of dollars that were wasted under the EH-101 contract under the previous Liberal government?

[Maxime Bernier, Conservative, Beauce, QC]

My first comment pertains to what Canadians now know about our government. We made a commitment during the election campaign. As you know, our government fulfils the commitments and promises it made to Canadians.

Our commitment was to equip our troops with the equipment they need to be able to do their job on the international scene. During the last election campaign, we made a commitment to purchase military equipment, and that is what we are doing.

Contrary to the policy of the previous Liberal government, who talked at great length about military procurement but did not take action, our policy is to make purchases, military purchases and not to cancel contracts. We do not want to cancel contracts; rather, we want the armed forces to have the equipment they need to do their work.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Chair, a point of order, in 2005 the Liberal government got the job done in making the largest defence procurement in the last 20 years of $13 billion.

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

This is not a point of order, Mr. Chair.

[The Chair, Conservative, Rick Casson]

That's not a point of order.

Was your comment finished, Mr. Minister? Were you finished with your comment?

[Maxime Bernier, Conservative, Beauce, QC]

Yes.

[The Chair, Conservative, Rick Casson]

Okay.

Back over for the question, you have two minutes left.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I pass the balance of my time to Mr. Calkins.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Mr. Hiebert, and thank you, Mr. Chair.

Minister, thank you very much for appearing before us today. I appreciate your candour.

Sir, we have heard a lot of words bandied about lately. If you could clarify for this committee and for the benefit of Canadians who may be watching or reading the media with regard to this process, what's the difference between direct and indirect industrial benefits?