National Defence Committee on April 1st, 2010

[Dan Ross]

I think I'll not put any personal views out there.

A lot has been done through the current construct. A lot was done. Can we trilaterally improve some of our process, and so on? Yes, we can. Mr. Ring and I are specifically going to work hard on that.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Again, I'm not asking you for a specific answer on this, but are discussions among those three departments regularly ongoing to find ways to streamline the current process?

[Dan Ross]

Yes, the interaction is very substantive. On the last Friday morning of every month, at the assistant deputy minister level, we meet with central agencies, We review every one of the major programs in depth and with some rigour.

I personally talk to Mr. Ring, the new ADM for acquisitions, virtually every morning. He calls me at about 6:15 every morning. We review our issues for the day and synchronize how to move forward. I'm in the office, and he's at home.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Hawn.

I'll give the floor to Mr. Martin.

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

General Ross, it is nice to see you again. Thank you for being here. I can see that obviously worked with military precision.

I have a couple of comments and a question.

In looking at the materiel list, it doesn't seem to reflect the asymmetrical warfare that our men and women will be fighting in the future. At some time in the near future, a list will be needed to ensure our troops have the type of materiel they will need in order to fight in those types of environments.

I don't know whether an effort was made to solicit DND personnel to provide solutions, in an anonymous way, in terms of things they see from their perspective to improve efficiency and save money. It may be something to consider, if I may be so bold as to suggest it. Getting input from those who are on the ground and who could anonymously provide solutions would then elicit a response that could be helpful.

My question concerns the joint supply ship. Do you anticipate when there'll be an effective project approval date? Has a date been set at all?

[Dan Ross]

No, because we don't as yet have a revised preliminary project approval from Treasury Board. I can't accurately predict that date, although as Mr. MacKay said, it really is a top priority for him, and he would like to move that forward as soon as possible.

We will have those documents ready for him when he needs them.

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

I compliment your decreasing of the time from 108 months to 48 months. That's fantastic. It's still four years, and I know you want to shorten that further.

First, in your experience, what countries have you seen with the best practices, all things being equal, in being able to have a shorter procurement time?

Second, from your perspective, if you can answer this, with DND, Public Works, and Industry Canada involved, where can we look to be able to shorten the procurement process?

[Dan Ross]

You mean our own process?

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

That's correct.

[Dan Ross]

In terms of other countries, we often look at the Netherlands and Australia as being most comparable to Canada in terms of size and how we do things. We have a very close relationship with the national directors who run their organizations.

It's difficult to compare us to the United States, which has massive programs. They are prepared to develop new technology. My counterpart there spends over $60 billion annually on developing new technology. They're prepared to go out and spend $5 billion to develop a new armoured fighting vehicle. We will buy a very small number, and we'll buy them off the shelf.

The British have had some challenges, largely in their cost estimation. We are quite conservative, and we normally allocate significant contingencies to avoid those cost overruns. We rarely have cost overruns.

People quote the joint support ship to me, but we did not sign a contract with inappropriate costs for joint support ships.

That leaves me with the Australians, who have implemented some really significant reforms in the way they do defence procurement. Nevertheless, they aren't much faster, if at all. They've had some extremely difficult programs that have been very late and over budget.

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

Before my time runs out, I have a quick point. With respect to your comment concerning the private sector, is there a further way to bring your defence contractors to the table and solicit from their perspective what can be done to streamline the process? I know they continue to be frustrated by a number of things.

It may be of value to bring them to the table, at least to get their input on how that process can be shortened.

[Dan Ross]

That's a good point. Every quarter I chair a meeting of the defence industry advisory committee, which includes the CEOs and presidents of about 15 major Canadian companies. Every 90 days, we spend an afternoon and have very frank conversations. They find that extremely helpful.

Tim Page, the chair of CADSI, is in that group. Mr. Lajeunesse, from the aerospace industry association, is in that group. That is our forum, in which we have really honest conversations.

Perhaps I'll go back to your second previous question, sir, about where we can improve our processes. My sense is that we need to integrate our efforts and have a Public Works and DND bilateral effort. We need to synchronize our teams so that we're doing one job once, and we need to change the culture so we can do that more efficiently. We could perhaps have joint sign-off sequences that we would do once in our buildings.

I don't think it's really an issue of Industry Canada or Treasury Board Secretariat or the other players. My process goes right from problem to definition to disposal. Public Works plays that key contracting piece in there, and that's where we need to target the most efficient activity with the most efficient use of, effectively, PG procurement specialists.

Mr. Ring and I are going to work very hard on that.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

We'll give the floor to Ms. Gallant.

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

Thank you. I'll be sharing my time with Mr. Payne, if there's some left.

My question has to do with where we are in the procurement process for some of our major purchases. What comes immediately to mind is one that you itemized as being $20 million or $20 billion over 20 years for the Chinooks.

[Dan Ross]

It's $2 billion.

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

It's $2 billion over--

[Dan Ross]

Plus $3 billion for in-service support over 20 years.

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

Okay. So the design phase has been done in conjunction with DND, and it's gone to tender.

[Dan Ross]

It's under contract.

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

It's under contract. Do you know whether the contractor is now looking at subcontractors, and taking into consideration industrial regional benefits? It's my understanding that if we purchase an item from the United States, for every dollar we spend in the United States, that company--in one project or another--is required to spend a dollar in Canada. That's not just a dollar on photocopying or something; it has to be a dollar on highly valued technical purchases.

[Dan Ross]

The Chinook contract was signed last August for $17 billion. That included the complete definition of the scope of the work we wanted on our Chinooks. It included extended-range fuel tanks, special self-defence systems, de-icing of the rotor blades for Canadian winters, self-protection systems. It is a very, very capable Chinook F helicopter.

Boeing proposed two extremely good industrial regional packages to Canada. At that time it proposed a package for acquisition, both direct work and indirect work. My understanding was that Industry Canada was very happy with that proposal. It is dollar for dollar in Canadian content terms, not just dollar for dollar contract terms.

So if they propose to buy technology from Canada to meet their IRB commitments, and there's only 25% content in that, only the 25% content counts towards their commitment. So it is actually a lot of money.

They are working right now with major Canadian in-service support suppliers on their second part, which is to meet their IRB requirements for in-service support. They will partner with Canadian companies to do the maximum of actual direct work on the helicopters. If they can't do it directly, they will provide strategic opportunities for other companies, for example, to do work on other Boeing fleets worldwide. For example, they could propose to do work on 787s and manufacture components in Canada for the next 15 to 20 years to meet Chinook ISS IRB commitments.

The new policy by Minister Clement has been very effective in encouraging a much longer-term strategic approach to those IRBs by Canadian companies. I've been very, very happy with that new approach on the IRBs.

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

So would these IRB contracts or subcontracts extend the length of the service contracts as well, or would they be up for renewal?

[Dan Ross]

They match the service contract periods. If we begin with a ten-year contract for maintenance with Boeing and its partners, they must deliver the value of that work in equivalent IRB commitments, so it's ten years. If we renew that for another five years, they're committed for another five years.

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

With respect to the actual hangars required for the Chinooks, is that something you would be involved in, or does that come under the infrastructure aspect of defence construction?

[Dan Ross]

I contribute a portion of the infrastructure cost. If the air force feels it wants additional facilities or there are underground works needed, the chief of the air staff has to fund that incremental part with the assistant deputy minister of infrastructure. That has all been planned out; it's funded. The design work of the buildings and hangars is under way.