National Defence Committee on April 1st, 2010

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

We have a number of technicians right in the military. How do you decide whether we're going to have those people do the servicing or the private sector, or is there a combination of both? How is that arrived at?

[Dan Ross]

We look at every project from first principles when it is being defined. The specific example of civilian maintenance is largely driven by the combat deployability of the platform. If the platform is combat helicopters that will go in very dangerous places, it's almost always a military air force technician.

We could be augmented by technical expertise from a company called Boeing, for example. If it is a non-deployable fleet, that is to say, a training fleet in Moose Jaw, you could obviously consider--as we do with Bombardier--having Bombardier use civilian maintenance technicians to do that work. There's an advantage because they're never posted, they tend to come and work for long periods of time, and you have a smaller workforce and a more efficient workforce. But they're not deployable. You can never take them into a combat situation.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

And now we give the floor to Mr. Bachand.

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

Thank you, Mr. Chair.

I realize, Mr. Ross, that I have too many projects here in front of me and that we won't be able to go over all of them. However, I would like to focus on a few of them that are nearer and dearer to me.

Regarding the Sikorsky sea helicopter, as you no doubt know, the delivery of these helicopters was delayed and this should have resulted in a fine of approximately $90 million.

Were you the one who decided not to impose a fine, or was it the federal government, that is the politicians?

[Dan Ross]

I'm not exactly sure which.... Are we talking about the current project or the previous project?

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

No, the current project, the Cyclone--it's late in delivery?

[Dan Ross]

It was initially predicted that it would be delivered in 48 months. Sikorsky came back to us and discussed a weight problem, that the helicopter in its design was too heavy to meet the specific endurance requirement, which is a very difficult one, by the air force. They wanted to defer the delivery by about a total of 22 months. They initially asked for more money. We did not pay more money. We agreed that we would make a small investment, I believe $70 million, in an upgraded powertrain system so we would have growth potential in the transmission and engine of the final delivered helicopter. And we agreed to allow them more time to solve the weight and power issue.

We also had a technical issue with control data from the United States of the data exchange box, which is the crypto-secure box, which was outside the control of Sikorsky. They could not access that information through foreign governments, so we gave them a small amount of money to design a different solution. They had to design a different solution because they couldn't access the technology.

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

I for one have a bit of a problem when the government signs a contract with a military company like Sikorsky and when later, the company reneges on some of the promises it made. Yet, when it comes to signing a contract, companies always promise the moon. Everything is fine up until the contract is signed. In my opinion, the company failed to uphold the terms of the contract.

Based on what I've read, had Sikorsky been fined as per the terms of the contract, it would have been on the hook for $90 million. My concern is that this will have a spillover effect on other contractors.

Is there not a danger that henceforth, defence contractors will make all kinds of promises when they sign a contract, even if they cannot meet the product delivery deadline, and that they will cite the case of Sikorsky as a reason for not being fined?

Is there not a danger that this will encourage defence contractors to be delinquent?

[Dan Ross]

In this case we have kept our liquidated damages whole. We have not forgiven them. We have moved those liquidated damages and those penalties to the next delivery.

If you refuse to take a delivery and apply all liquidated damages, you tend to stop your project, projects that take a decade to get to delivering a very difficult solution. So there has to be flexibility.

I agree you have to be firm. The Canadian government is more firm than virtually anyone else on tough contracts. This is a very tough contract. We have kept our liquidated damages and penalties whole, and we still have them to apply if they fail to deliver the helicopter with the performance that we need. And we test--rigorously test--every aspect of that statement of requirement.

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

If you have no objections, Mr. Ross, I would now like to talk about the Leopard 2 tank. KraussMaffei in Europe or Rheinmetall were awarded a contract to upgrade tanks that had already seen service in Afghanistan and that were slated to be put back in service in the same theatre of operations.

However, as you surely know, 40 other tanks in storage in Montreal are also scheduled to be retrofitted for tank training purposes. Is the retrofitting work moving forward quickly?

[Dan Ross]

The twenty that are being upgraded to exactly the German standard will be done and returned to the Germans and it will own the ones in Afghanistan. Obviously, sir, you know that.

We continue to work with Public Works to get a repair and overhaul contract in place. That request for proposal is due to close on April 15, in two weeks, at which time we will, with Public Works, evaluate those proposals and let a contract for the repair and overhaul.

That has been somewhat slower than we would have liked, but we have a small capacity, with two to a workshop, of trained technicians, and we have some operational tanks in Gagetown used for driver training.

My problem is not driving them; my problem is the gun and the turret. You need very well-trained specialists to be able to cycle that gun safely.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

I will give the floor to Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you very much, Mr. Ross, for being here this morning.

If I have any remaining time, I will provide that to Mr. Hawn.

Mr. Ross, could you start by explaining to me the relationship that your procurement area has and how you work in partnership with DRDC?

[Dan Ross]

We work very closely with Dr. Walker and his team, and I'll give you an example. The example would be urgent survivability upgrades for Afghanistan, where we progressed over 30 projects: additional armour, belly protection, ballistic eyewear, etc. And with the support from the test facility in Valcartier, we ballistically or explosively proved all of those solutions prior to acquiring them.

They also modelled this. If you put a land mine under an armoured vehicle, mathematically, they modelled how that material would resist that under-tank mine, and incredibly, they modelled some of those to 1% or 2% of reality, which is incredible. And then when we destroyed examples of all our vehicles and then we actually put the kits on them, they came in extremely accurately and close. We worked weekly with DRDC throughout that period of about three and a half years, to implement those projects.

Now, we also have a much longer strategic relationship with DRDC in planning future technology needs.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

That's maybe a good segue to the second part of my question. Through the procurement process or in partnership with DRDC, then, how do you help to drive and promote Canadian-based innovation?

[Dan Ross]

Mr. Jacobson is with me here today. He co-chairs a technology development council with DRDC, and they specifically look at those technologies coming up that the forces have a need for and DRDC has some expertise on and wants to partner with Canadian industry on. Virtually everything they do is in partnership with Canadian industry. So we have a technology development list that we formulate. We also work with Industry Canada, because they provide some funding and some interaction with industry as well.

That is a relatively new process of less than a year.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Very good.

Mr. Hawn

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you.

I'd like to close the loop on Monsieur Bachand's discussion of the Cyclone and Sikorsky. I recall when the original contract was let or discussed, and I can't remember the year--2002, 2003, something like that....

[Dan Ross]

December 2004.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I made the comment in public, long before I got to this place, that this was not going to work, taking an unproven airframe, an unproven mission package and marrying them. And I wasn't the only one. There were a lot of people saying this was not going to come in on time or on budget, and so on.

That being said, I think you discussed risk management before. I'd like you to discuss that. You touched on it, and maybe you can just finish it off. You talked about this as an exercise now in risk management, taking the penalties, doing some compromising, going back to the company and saying here's a way out of this so we don't stop the program; here's how we can perhaps make a silk purse out of a sow's ear and get a better airplane, and not punish the company unnecessarily.

[Dan Ross]

The first principle of complex project management is to get it done. You have to get it done. You have to maintain the schedule, if at all possible. Delay drives cost. It drives technical risk, operational risk. There are so many factors that come into play. To do that you have to demonstrate some flexibility.

We can't terminate contracts because they're hard, or the technology to be developed is hard. These are hard. The MHP platform is the most complex combat fighting platform this country will ever have in the foreseeable future. It is incredibly complex and capable, and it is hard.

Sikorsky is doing a good job. General Dynamics Canada, in Bells Corners, is doing a good job. We work closely with them. We maintain our contractual leverage. But at the end of the day you have to change this test date or that certification schedule because you have to get the job done.

Some European programs have been more politically directed in terms of several countries agreeing to collectively design and build platforms, and they have been very slow--much slower than our MHP experience.

The German government has just released a request for proposal for a similar type of helicopter because of their frustration with the NH-90 maritime program. They posted an RFP for 40 new maritime helicopters and they're very interested in our maritime helicopter program.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

You have the floor, Mr. Martin.

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

Thank you very much, Mr. Chair.

Mr. Ross, this has to do with replacing our fixed-wing search and rescue Buffalos. The NRC's report, as you know better than we do, said that the recommendations were unacceptable.

Can you tell the committee what the delay is in trying to replace the fixed-wing SAR aircraft?

I'm a member of Parliament from British Columbia, as you know. This is crucial, given the number of challenges we have in that part of our beautiful country.

Can you tell us what the delay is with respect to getting the RFP to replace the Buffalo?

[Dan Ross]

Thanks, sir.

In terms of the delay specifically, I think the requirement is to have a statement of requirement and a process that seems to be fair, competitive, etc. The government did go to the National Research Council to ask eight or ten aerospace professionals, and they submitted their report to us. I think Colonel Drover was here yesterday to speak about search and rescue.

The next step, which General Deschamps is taking very seriously, is to have a very thorough review of their recommendations. Looking at the SOR, which was written in early 2006, the National Research Council's views and advice are to revise that SOR, as appropriate, as soon as possible.

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

I'm trying to wrap my head around this. Search and rescue capabilities are needed the world over. We have some peculiarities, given our Arctic environment, but how difficult can it be to buy an off-the-shelf search and rescue replacement for our Buffalo?