Thank you, Mr. Chairman.
It is a great pleasure to be back here again, albeit in a different perspective, with my friend and colleague, Doug Bland, to discuss Canadian defence procurement. I will keep my remarks brief so we can have as much time as possible for questions.
Defence procurement is a subject that I am very passionate about and have devoted over ten years to learning and overseeing both at Public Works and Government Services Canada and at the Department of National Defence. Having seen first-hand and up close the tremendous dedication and commitment of our men and women in the military, I do not view this subject merely as an administrative exercise, but rather one that above all must see to their security interests.
In spite of the recent proliferation of reports and studies, the process is still accused of being too lengthy and too costly. Why is this the case, and how can it be improved? The answer, I believe, lies in two facts.
First, heretofore this very complex process has been examined in a piecemeal fashion rather than in a broad, comprehensive manner. As a result it has been difficult, if not impossible, to gain a true understanding as to how all the components fit together. Second, implementation of change has not been given adequate attention.
It was with these limitations in mind that I took to writing Reinventing Canadian Defence Procurement: A View From The Inside. I believe that for the first time anywhere, this book provides a complete and comprehensive description of the entire defence procurement process as well as a road map to implement the 25 recommendations made in the book.
If there is truly a desire to improve the process, I believe I have removed the mystery as to how it can be done. The book not only describes the process, but also provides insight into the behaviour of the players in the process so that one can understand why they are motivated to act as they do. Seeing how everything fits together, we can ensure that the recommendations align together to address the real weaknesses, not the perceived ones.
For example, at a lecture on topics in defence management at Queen's University, I asked the students if they thought the following five statements were true or false:
(1) The bureaucratic defence procurement process is unresponsive.
(2) There is too much political interference in the defence procurement process.
(3) The major funding pressures in the Department of National Defence are to pay salaries and benefits for military personnel and to acquire capital.
(4) It costs less to maintain new equipment than the equipment being replaced.
(5) Canada is dependent upon others, especially the United States, for strategic lift capability.
Perhaps, not surprisingly, most of the students agreed with each statement. In fact, each of these statements is more false than true. Allow me to comment briefly on each.
First, the bureaucratic process can work rather quickly. It took less than two years to sign a contract for the new maritime helicopters from the time Defence Minister David Pratt gave the go-ahead. The most significant cause of the delay was awaiting government approval to proceed.
Second, in the ten years that I have been responsible for procurement, I have not been aware of any instance where a minister has influenced the outcome of any defence procurement. This is largely due to the legal consequences resulting from the passage in the mid-1990s of the agreement on internal trade, or AIT.
Third, today more money is spent on maintaining equipment than on acquiring equipment. Yet historically, emphasis was placed only on the initial cost of acquisition, leaving the department somehow to find the additional funds to support the acquisition. The usual source was the National Defence capital budget, thereby eroding it even further.
Fourth, the costs to maintain new equipment are greater than for the old equipment being replaced. It will cost more to maintain the new maritime helicopters than the Sea Kings they replaced. Today's weapons systems are essentially complex software systems that require frequent and expensive updates and revisions. Accordingly, at the outset of any capital program it is necessary to obtain funding not only for the acquisition, but also for the full life-cycle costs.
Fifth and finally, with respect to strategic airlift, it is noteworthy that as of April 2003, when I last asked for the information regarding Operation APOLLO, Canada had moved three times the amount of freight and five times the number of troops for the Americans as they moved for us. The reality is that in coalition warfare each country contributes assets to complement those of its allies.
In retrospect, I probably should have added one more myth--namely, that directing or sole-sourcing a contract speeds up the procurement process. In fact, you can lose more time trying to find ways to avoid competition than conducting an open, fair, and transparent competition.
In addition, sole-sourcing is generally a lose-lose-lose proposition. The taxpayers lose, as more of their money is usually spent on sole-source or directed contracts than when a competitive process is followed. Industry loses, as the quantity and quality of industrial and regional benefits demanded can be compromised. And the military loses--doubly. First, the excess expenditures come from their budget. Accordingly, these funds are not available for reallocation to meet their other priorities. Second, without competition we generally cannot be certain that we are acquiring the best equipment that meets the needs of our men and women in the military.
In my book, I discuss and make recommendations in three broad areas: the legal framework, the industrial impact, and the core procurement process itself. In my brief opening comments, I will just touch on the process, but of course I would be pleased to answer questions on all of the areas.
If there is one overarching observation that can be made, it's that there is a lack of clear accountability at all levels in the process--the parliamentary level, the ministerial level, and the bureaucratic level. The good news is that it is all fixable. I provide details on how it can be done, and done quickly.
In the book, I quote from an Ottawa Citizen article in which Anne McLellan, in addressing a specific defence procurement, refers to Defence Minister Bill Graham and Public Works Minister Scott Brison as the two ministers in charge of the procurement. She was right. With respect to defence procurements, ministers from these two departments are in charge. The problem is that whenever two ministers are in charge, neither is in charge. It is time to address this reality.
Perhaps the most significant of my 25 recommendations is the creation of “Defence Procurement Canada”, or DPC, an organization that combines the procurement resources from National Defence and the contracting resources from Public Works. It becomes the sole organization accountable for defence procurement. While I present five different governance models, I favour the one whereby DPC reports to the Minister of National Defence. Under this model, the Minister of National Defence is accountable for all elements in the procurement cycle, from the preparation of the statement of requirements, through the request for proposals, through the evaluation, and through the contract signing and administration.
The benefits generated from such a model go well beyond clarifying accountability. Significant resource savings will result due to the overlap and duplication of the duties and responsibilities. My conservative estimate is in the range of 48 and 125 person-years, or annual savings of between $4.8 million and $12.5 million annually. Equally important, it alleviates a large skill shortage problem that is becoming even more serious as the population ages.
The process will also be streamlined. When two departments are involved, the process moves only as fast as the slowest of the two. In the book, I cite one example where it took nine months for National Defence to negotiate a deal and over 21 months for Public Works to agree to it. While this may be an extreme case, the reality is that getting approvals through two channels rather than one takes extra time, and therefore slows down the process.
That being true, an obvious question arises--namely, why was the process structured this way in the first place? The answer is twofold. First, Public Works' role was designed to ensure integrity in the process. However, today there are other mechanisms that serve the same purpose. These include the Canadian International Trade Tribunal, the court system, the Auditor General of Canada, the media, and the general openness of our society. All help guard against any wilful manipulation of the defence procurement system. DND and PWGSC personnel are well aware of the dangers in operating with anything less than full openness, transparency, and fairness.
A second argument for the involvement of Public Works is its role as a common service agency, achieving government-wide savings. However, it is quite clear that in this case we are limiting ourselves to defence-specific goods and services, with no potential savings benefits to other government departments.
Delays in the procurement process arise from primarily three sources: first, awaiting government approval to proceed; second, excessive time for the military to finalize their statement of requirements; and third, overlap and duplication between National Defence and Public Works. Accordingly, with Defence Procurement Canada fully accountable, regular reporting on performance can be requested and expected from DPC, including reporting on the causes of any delays.
Finally, my advocacy for DPC should in no way be construed as a criticism of the people in Public Works and National Defence who work on defence procurement. To the contrary, I can personally attest to their smarts, energy, commitment, and integrity. They do magnificent work within the existing governance framework. Imagine what they will achieve once the constraints are removed.
In closing, Mr. Chairman and members of this committee, I am confident that, taken together, the full package of recommendations in the book will address the weaknesses in Canadian defence procurement and make it the best it can be now and in the future. Our men and women in the forces deserve nothing less.
Thank you, and I'll be pleased to answer your questions.