National Defence Committee on March 1st, 2007

[Dr. Douglas Bland]

I have a very short comment.

The principle we are talking about in this research is that you will appoint some minister responsible for the management of the system. That is separate from the decision of what to do. The manager will take it from the statement of requirement to contract, and then present that information to cabinet, which is the decision-making body. That's where your control comes, especially if it's backed up by a vigilant Parliament.

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

Okay.

Mr. Williams, in your book you mentioned that one of the major causes for the delay in procurement is political interference in the process, or political reluctance to make decisions.

[Alan Williams]

No, in fact I said the exact.... This is important. I said there has not been any political interference. And what do I mean by that?

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

Let me quote from the book, if I could.

You give an example of the fact that in the fall of 2005, then Minister of National Defence Bill Graham brought forward a four-pack of requirements for the military, which included fixed-wing search and rescue, tactical airlift to replace the Hercules, strategic airlift, and medium- to heavy-lift helicopters. In the book you indicate that the four-pack went to cabinet and then was reduced to one item, tactical airlift. Then:

Thus, in 2005, the minister announced that he was going to be replacing the Hercules with this tactical airlift. Of course, there was an intervening election and in February 2006, the Conservatives came back and lo and behold, strategic airlift and tactical airlift and medium- to heavy-lift helicopters reappeared as priorities.

So my question has to do with the fact that sometimes it appears that the military requirements are constant but the political appetite is varied. I'm wondering if you can comment on how to ensure that proposals from the Canadian Forces get their due consideration at the appropriate time.

[Alan Williams]

There's a very important point for me to clarify. When I talk about political interference, I'm talking about it once the government says to do something. In other words, under the agreement on internal trade, we now have very significant legal consequences if the process is undermined in any way. What happens before the government says go is a whole different story. In my mind, that's not political interference. For better or worse, that is government doing its job. So everything you've talked about in those examples is not political interference in the process to buy something, but the overall scrutiny that occurs before the decision is made—sometimes being done better and sometimes being done worse.

You're quite right: it's up to the government, through its policy paper, to make the decisions on what kinds of capabilities it needs. Are these the four they think are up on its list? Different governments may have different points of view, and that may change from government to government.

Having said that, this is why having a defence capability plan, approved by cabinet and having gone through scrutiny here, would be invaluable, because it takes it away from that. With integrity and objectivity, people can ensure the linkage between a capability plan and a policy statement, irrespective of the government that comes into play.

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

Mr. Chair, I'll leave the balance of my time.

[The Chair, Conservative, Rick Casson]

Go ahead, Mr. Calkins.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

I appreciate your comments, and I want to say, Mr. Williams, I enjoyed reading your book. I found it quite enlightening.

Further to what Mr. Hiebert was saying, the whole contrast I got on that particular passage you wrote is that the strategic capability investment plan, which is now I believe called the defence capabilities plan, didn't highlight some of the things that were being proposed politically. The bottom-up process of creating that military wish list and the top-down political drive sometimes don't marry up, and that causes the delays.

My experience working in the government has been that when we knew a minister was arriving, quickly all the buildings would be painted and the trucks would be washed and everything would look good; the grass would be cut. The minister shows up and the brand-new shiny stuff is all there; we have our nice little celebration, and the minister drives away, thinking, “Look at that, everything is hunky-dory and everything is fine”.

I'm wondering if you could elaborate for us whether sometimes the bureaucracy or the ground level gets in the way of informing at the political level of what actually needs to be done. Is that part of the problem? How do we solve that problem of the bureaucracy getting up, the politics getting down, and finding that common ground?

[Alan Williams]

From my perspective, point one, when ministers would come in, the senior officials I would work with--and I'm talking about all departments, but National Defence in particular--I think provided objective briefings to the minister with a wide set of options, as opposed to trying to distort or skew things.

Point two: I think it's healthy and expected that when you have these discussions, the government, the leaders of the country, will have their priorities, which may or may not mesh with those of the military, or they may be slightly out of sync. That doesn't surprise me. I'm not naive enough.

Having said that, when something did not appear anywhere on their priority list, and now it jumps up, it just gives you cause for concern. You want to ensure, to the best of your ability, that what we're spending billions of dollars on is not a whimsical thing. And I'm not saying anything is, but it's one that has been thought through to link to the kinds of capabilities the military needs decades down the road.

I think the interplay is valuable and worthwhile, but having a defence capability plan that has the scrutiny of this committee will make it more unlikely that somehow out of the blue something else will come in to divert money to something that may have political significance but frankly isn't in the best interest of the military.

I was just pointing out that the more scrutiny and oversight that's given, the more planning that's there, ensures that when we're spending billions of dollars, we do it clearly with forethought. That of course allows us to do it the right way, as opposed to having to bypass different processes.

[The Chair, Conservative, Rick Casson]

Thank you.

I thank you all for being brief and to the point.

Gentlemen, it's always a pleasure to have you here, together or separately. You've appeared before this committee many times, and you've made some suggestions today not only on the procurement process, but maybe on the way the committees function and how to do a better job there as well. We appreciate that.

We must suspend for a minute while we bring the Auditor General on.

We thank you very much.

[The Chair, Conservative, Rick Casson]

I'd like to welcome the Auditor General to the committee. We have the finance committee coming in at eleven. Of course we have our own opinion on who should have priority here.

Ms. Fraser, it's always a pleasure to have you here. I'll let you introduce the officials with you. As usual, the floor is yours for your comments, and then we'll open it up for a round of questions, and I hope we can include everybody in a short period of time.

Go ahead, please.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair.

We are very pleased to be here today to talk about the work we have done on audit procurement in the Department of National Defence. Accompanying me are Hugh McRoberts, Assistant Auditor General, and Wendy Loschiuk, principal responsible for defence audits.

First, let me say that this committee's current study on the procurement process as it pertains to defence acquisitions is welcomed by my office, and I hope I can contribute to your work. However, my ability to add to some of the discussion may be limited. I'm happy to talk about the findings of any of our audits tabled before Parliament, but I really cannot comment on subjects we have not audited--for example, the C-17 strategic airlift procurement or the Victoria class submarine.

When we plan our audits in any area, risk and materiality are key elements we consider. In the case of National Defence, the concerns that we have noted in the past, plus the spending anticipated for new equipment, naturally draw our attention. I look forward to coming before this committee at some future date to have more detailed discussions based on audits we will be doing in the future.

This committee is examining whether the procurement process works and what can be done to make it better. I have said in the past, and continue to believe, that more rules and more process are not the answer. The current system, if followed, can provide the openness, fairness, and accountability that are essential to ensuring National Defence gets the equipment it needs, and that it achieves best value. But for the system to work properly, management must exercise sound judgment to ensure good monitoring and oversight and that necessary action is taken if things start to go wrong.

Where we have commented upon defence contracting, I have, as you know, rarely had concern about the fairness or openness of the process. My recent audit on relocating members of the Canadian Forces, RCMP, and federal public service did raise such concerns, and the government is addressing those.

I have found, rather, that the defence acquisition cycle seems to suffer more from the burden of its own weight. The process can be cumbersome and layered with reviews and approvals—some of which do not seem, on the surface, to advance decision making. For example, we found that delays in getting approvals for flight simulators slowed one of the projects under the CF-18 upgrade program.

Defence is looking to introduce new platforms into service very quickly—much faster than they have been able to, in the past. Nevertheless, government regulations require that a fair and open bidding process be followed and that there is transparency in the selection of successful contractors. Following regulations takes time, and Defence cannot skip steps or cut corners to speed up delivery. Senior management from all the departments that are involved in defence acquisitions must be accountable for ensuring the fidelity of the process and for demonstrating that all steps were taken to obtain the best value.

The fast pace of technology change and the speed with which Defence wants to introduce new platforms into service leave no doubt that things must be done faster and better. I am glad to say that Defence is working to reduce its acquisition time and improve project management. Defence is focusing more on the capability it wants the platform to deliver and letting bidders work out the options to present for consideration.

Our audits have identified four key areas in which defence acquisition management needs to improve. Requirements need to be better defined and clearly linked back to well-defined defence priorities and objectives. Overall project monitoring can be weak. Risks should be better identified and managed, and finally, options analyses and the related business cases have often been poorly done.

We have also reported our concerns about the problems caused by a lack of skilled, experienced staff assigned to manage many major acquisitions. We raised this issue during our audit on upgrading the CF-18 fighter aircraft. Defence downsizing in the past combined with the retirement of skilled personnel has left the department short of managers who have the knowledge that was gained through years of contracting, and acquisition experience that is needed to run a major project.

Several defence acquisitions also include a long-term service contract to provide maintenance and support. We audited one long-term service contract, that being the NATO flying training program in Canada, in which the contractor provides military pilot training. Partnering with the private sector does not absolve National Defence of its accountability and responsibility to achieve results, and the department must hold its private sector partners accountable for the level of service provided. We have found that this is not always an easy thing to do, and it requires that performance measures and expectations be made clear upfront. When performance is not met, there must be ways of compensating the government.

We have recommended that National Defence re-examine how it enters into agreements with the private sector. The defence department has taken steps to improve its long-term service contract agreements by better defining performance and holding contractors accountable, and by getting some flexibility. In this way, when needs change the department can avoid expenditures for which no services are received.

Mr. Chair, I want to thank this committee for the opportunity to discuss our findings on defence procurement. I believe that the audits that we have conducted over the last 10 years or more have contributed to better procurement practices in the government and, as a result, better stewardship of public funds. We will continue to monitor and report on acquisition capability.

This concludes my opening remarks. We would be happy to answer any questions from committee members.

[The Chair, Conservative, Rick Casson]

Thank you very much. We appreciate those comments. Hopefully we'll be able to get some more direction from you as we go through the questions.

Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chair.

I have two brief questions to ask and I will be sharing my time with Mr. Martin.

Thank you very much, Ms. Fraser. I intend to introduce a motion to the committee, stating that we would like the Auditor General to investigate the current contracts, particularly those concerning the C-17s, tactical airlift, trucks and so on. It is time we take a closer look at what is going on in that area. Do you think it is right or does it worry you that the military community and the procurement community sometimes appear to be a closed circle? There are people within the Department of National Defence who define the criteria. It is a very secretive business. We are left with the impression that the management of this issue... Basically, the important thing is that there are people within DND who are saying that this is what they want and they are going to arrange things so that they get it. Do you not think that one problem stems from the advance contract award notice, or ACAN? Do you not feel we need a much more competitive system and some sort of filter between the two, which would create a balance and serve as devil's advocate in order to ensure proper criteria?

My second question is this. In order to protect the perception of the process, if a minister had too many clients in the military procurement service, do you think that he should recuse himself when a procurement process is initiated? We are talking about $17 billion, $13 billion of which went without a tendering process. I would like to hear your comments on this.

[Sheila Fraser]

Thank you, Mr. Chair.

First of all, with respect to conducting an audit, given the amounts announced and future procurement, the office will of course conduct audits. As I indicated, we analyze the risks and materiality of various activities. Furthermore, I believe we have an audit planned for defence procurement, probably early next year.

As for specifications, if ever there were a bias in favour of a certain supplier—and I do not wish to create the impression that this is the case—, it would be very difficult for the auditor to detect. We can review the process that was used to determine the specifications, but obviously, we are not experts in the field. I think we would find that different experts might have different opinions. Thus, the process would have to be reviewed. Is it logical? Has an analysis been done? Is it based on documents and analyses that are reliable? That is the nature of our work.

For instance, when we conducted our audit of the CF-18 upgrade program, we noted that a few contracts had been awarded to a single supplier, however, it was very clearly indicated in the file that, for intellectual property reasons, a single supplier could supply the instruments. We are trying to understand why there was not an open process.

With respect to ACANs, the office made its position clear a long time ago, in 1999-2000. We feel that ACANs contribute very little to competitiveness. If the committee wishes, we could submit a letter that we sent to the Standing Committee on Public Accounts, which explains our reasoning. Although it definitely ensures greater transparency, one can see, simply by looking at the title, that it constitutes a notice that is given prior to awarding a contract. It means greater transparency, but it is not a competitive process.

As for the last question regarding the perception of conflict, that falls under the responsibility of the Ethics Commissioner, rather than the Auditor General.

[The Chair, Conservative, Rick Casson]

Mr. Martin.

[Keith Martin, Liberal, Esquimalt—Juan de Fuca, BC]

Thank you, Mr. Chair.

Madam Fraser, Mr. McRoberts, and Ms. Loschiuk, thank you very much for being here.

I have a lot of questions, but I'll just stick to a couple.

First, I sincerely hope you look at the strategic airlift, because we moved our reduction capabilities from six planes to four, with a loss of over $440 million to the Canadian taxpayer, by virtue of the fact that we chose to purchase rather than lease, which would have given us larger capabilities at a better price.

My question to you is on defence acquisition. Mr. Williams gave us an intriguing proposal. He said we should have a “Defence Procurement Canada”. From your perspective, which is unusual and unique, would that work to facilitate and streamline the defence acquisition cycle you mentioned? How would that work with other procurement abilities in the government at large?

Second, do you think service contracts should be rolled into the purchase of the particular assets? For example, if we purchase more submarines, the group we purchase them from would also be responsible for the service contract, which they could hive off somewhere else. That way we would connect the responsibility for the functioning of that asset to the group that actually made the asset.

Thank you.

[Sheila Fraser]

On the first issue, for the very first issue of the audits we would be doing, obviously we would welcome any suggestions from the committee on the areas it believes we should be looking at. We will be going into an analysis of areas that we believe should be audited.

On the question of setting up a special unit, we have always taken the position that it is really up to government to decide how it wants to organize itself. It's what we call machinery of government, and we try to not make comments on that.

I would just add perhaps two elements that the committee should consider. The first is that the majority of contracting that Public Works does is for defence, so there would be a significant impact upon Public Works should that be moved out of Public Works. That should be considered.

The other issue--and we have seen it in many cases over the recent past--is that when there is a reorganization in government, it can take a lot of time and energy from senior management away from, if you will, the business of the day to establish and create new organizations. The only comment we would make is that if you were to create another organization, there would have to be very good reasons to do that, because it will demand a lot of time and effort by senior people. When these big shifts occur, it can be very destabilizing within government departments. It is something that would appear to be as crucial as getting procurement done more quickly. You almost have to wonder if that is going to help or if that is going to impede that process.

I would just mention those two considerations for the committee.

Finally, on the service contracts—

[The Chair, Conservative, Rick Casson]

I'm sorry, we're on a tight schedule. We have to move on and keep to it.

You did make an offer to us of a letter. Could you forward that, please?

[Sheila Fraser]

Yes, we'll be glad to give it to the clerk.

[The Chair, Conservative, Rick Casson]

Mr. Bouchard, go ahead, please, for seven minutes.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Welcome, Madam.

My question concerns the existing procurement system. As we know, three departments are involved in the procurement process. First, the military determines what is required, Public Works and Government Services is responsible for the competitive aspect, and the Department of Industry is responsible for the economic spinoffs.

You also said—and I noted this—that the process was at times cumbersome and layered with reviews and approvals. Thus, there are three bodies responsible for the procurement process.

One of the witnesses proposed a solution, namely, creating a procurement agency. In your opinion, would such an agency improve the procurement process?

[Sheila Fraser]

Thank you, Mr. Chair.

As I indicated a little earlier, I am always reluctant to comment on questions related to the machinery of the system, because the government has the right to organize itself however it sees fit.

I sincerely believe that, if an agency were created, there would be other stakeholders, regardless. The Treasury Board Secretariat is another important stakeholder. It performs a critical examination in order to ensure that business plans are reasonable, needs are clearly defined and money is well spent. It must continue to fulfill that role, whether or not a separate agency exists. I imagine the Department of Industry would also continue to play a role. Thus, this would affect only the part of the process linked to awarding contracts. At present, the vast majority of purchases made by Public Works and Government Services are related to the Department of National Defence.

I therefore wonder whether that would really simplify the system. We noted certain things in the past. There were several committees, and the documentation and arguments were perhaps not very strong. Some documents had to be returned to DND to obtain further justification. I think we can make the process more effective and efficient, but I believe it will always remain complicated.

[The Chair, Conservative, Rick Casson]

You have four minutes left.

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

Thank you for appearing here today.

You are well known for being the guardian of sound management of public funds, and that is, I believe, your mandate. By initiating this study, the Standing Committee on National Defence had the same goal in mind. As you know, the sums of money involved are rather astronomical. We are talking about $20 billion. I heard you say that you were going to look into the C-17 contracts. Is that right?