Thank you, Mr. Chairman, for inviting us to appear before the committee. I am pleased to have this opportunity to introduce our association and my colleagues to the members. I appear before you with David Stapley, the newly elected Chairman of our Board of Directors, and Janet Thorsteinson, our venerable Vice President for Government Relations. Previously, Janet Thorsteinson has worked for several years in the federal government as a procurement officer for the Department of Public Works and Government Services.
We have an opportunity, I hope, over the next few minutes to present the report you have before you on military procurement.
Before beginning formal remarks, I want to make sure I have situated you with respect to who we are as an organization. The Canadian Association of Defence and Security Industries, otherwise known as CADSI, because it is shorter and easier to say, is a membership-driven, not-for-profit corporation. It is run by an elected board of directors who serve in a volunteer capacity.
We have some 800 corporate members that pay a membership fee to be a part of our organization, and those companies have operations in some 177 different federal ridings. They collectively employ 90,000 Canadians, mostly knowledge-based workers, generating $10 billion in direct military sales per year to both domestic and international customers. There is 50% of the industries' revenue that is earned from the export marketplace.
As we undertook this study on military procurement we thought it was important to look at the context within which our consultation of industry was taking place. That context included the federal government being at the front end of a 20-year, $240-billion commitment to rebuild Canada's military across its land systems, aerospace, and maritime requirements. This is the most significant investment in a generation. It will define not only the capability of the Canadian Forces, but also the shape and viability of Canada's defence industrial base for the next 20 years. Defence spending can leverage knowledge-based jobs in Canada, thereby contributing a robust and globally competitive economy. Canada needs both a strong defence industrial base and a strong economy for our security and sovereignty.
I will now dive into the report. I will speak to the three principal sections of the report in order. First is the section dealing with defence and the economy and the principal findings from the consultation exercise. Some 450 industry experts and academics contributed to our understanding and to our report. First among the findings in the section dealing with defence and the economy is that defence and the economy are both critically important to Canada. They are interdependent. They're not mutually exclusive.
Defence trade is not free trade. Foreign governments the world over are intervening to protect and promote industrial capabilities that support their defined national interests. Canada's defence market requires proactive defence procurement strategies to enable and ensure domestic industrial participation. R and D and export markets are key drivers of industrial-based competitiveness in Canada. ITAR is a critical impediment to our industrial competitiveness.
Finally, under our findings in the section on defence and the economy: among its allies Canada is unique in not having a defence industrial strategy that helps to guide the relationship between government and its industrial base and to formally align economic objectives with military procurement priorities.
In the section in our report dealing with the defence procurement process itself, our principal findings included that more effective program delivery can be achieved through improvements to the procurement process. The procurement model should be structured to acquire required kit and optimized Canadian content and jobs.
Defence procurement strategies should include defined industrial objectives, but they don't seem to be at play today.
Requirements should be performance-based and should not be overly prescriptive. Risk-averse behaviour and practices merely serve to increase program costs and timelines, and they limit Canadian content possibilities.
Finally, an overly thin layer of procurement professionals within the system contributes to weaker transparency and accountability and to a lack of consistency in the procurement process.
With respect to our findings in the area we refer to as governance, we found a need for a political champion for the defence industrial base in Ottawa. We found that government policies, programs, and procurement strategies need to be better aligned to achieve optimal economic advantages for Canada. And we found that the absence of a formal communications mechanism decreases transparency and increases misunderstanding between industry and government.
Based on those findings, we came up with the following recommendations, again, in each of the three blocks.
First, related to defence and the economy, our overriding priority is our call for the creation and implementation of a defence industrial strategy, one that would nurture and support critical domestic industrial capabilities. It would default to Canadian solutions when they meet the defined military requirement. It would commit 5% of DND's capital budget to a private-sector-led R&D program. It would be one in which Canadian industry would enjoy a first-customer relationship with the Canadian government--when the government identifies a military requirement and wants to go to market to acquire that requirement, it would buy what it has co-invested in with Canadian industry.
It would be a strategy that would ensure that IP is obtained when buying defence equipment so that it can be supported domestically throughout its life cycle.
It would be a strategy that would inevitably include export programs and strategies, including an ITAR fix and the IRB program, among other federal policies and programs, as vehicles for implementing the defence industrial strategy.
With respect to our recommendations in the area of procurement processes and practices, our report calls for the alignment of the defence industrial strategy with defence procurement priorities, the Canada First defence strategy, and market opportunities.
Articulate domestic industrial objectives as the requirement is being defined and before the procurement strategy is chosen. Assign program business and contract risk to the party best suited to managing that risk. Require performance-based specifications, and reduce the number of mandatory requirements in favour of rated requirements. Increase administrative transparency and consistency. Develop a cadre of procurement professionals.
Finally, in the area of governance, our report recommended the following measures. First, create a defence industrial advisory council. It would report at the ministerial level to provide active and ongoing advice vis-à-vis the defence industrial strategy and Canada's defence industrial base. Second, create a joint industry-government defence procurement advisory council. It would report at the assistant deputy minister level to improve understanding, communications, and management of procurement issues on an ongoing basis. Third, create a single point of accountability at the cabinet level for both defence equipment and the defence industrial base.
Mr. Chairman and members of the committee, our report concluded that political leadership and commitment is essential in this area and that we need to act strategically to support both the Canadian Forces and the Canadian economy, because Canadian Forces' capability will be stronger with a viable defence industrial base. We also concluded that as a consequence of these consultations, expectations have been raised within our industry for government action in these areas. Bold and urgent political action is required to build the report's findings and recommendations into Canada's defence procurement objectives and processes before the Canada First defence strategy has been spent and the opportunity lost. CADSI remains committed to assist the government and this committee in a constructive way to achieve these objectives.
Finally, if I might, Mr. Chairman, next steps.... In its report, CADSI has concluded that DND's acquisition program should not be considered in isolation from the impact the acquisition program could have on the Canadian economy, if effectively managed in concert with a defence industrial strategy, and the benefits that would accrue to the Canadian Forces of having a strong Canadian defence industrial base nurtured by a defence industrial strategy.
Ladies and gentlemen, if the committee agrees with this view, then we encourage you to ask the government to create a defence industrial strategy. Should the committee want to look at this matter in greater depth, my colleagues and I and our organization would be delighted to assist in that respect.
Thank you for your time. Thank you for your attention. We look forward to your questions and a discussion.