National Defence Committee on Dec. 1st, 2011

[The Chair, Conservative, James Bezan]

Good morning, everyone. We're going to undertake our study of the supplementary estimates (B).

Joining us, of course, are the Honourable Peter MacKay, Minister of National Defence, and the Honourable Julian Fantino, the Associate Minister of National Defence for procurement. With the ministers are: Robert Fonberg, Deputy Minister of National Defence; Vice-Admiral Bruce Donaldson, vice-chief of the defence staff; Kevin Lindsey, assistant deputy minister and chief financial officer, finance and corporate services; Dan Ross, assistant deputy minister, materiel; and Matthew King, associate deputy minister.

I welcome all of you.

Minister, you have the floor for the first 10 minutes.

[Peter MacKay, Conservative, Minister of National Defence]

Good morning, Mr. Chair and committee members.

Associate Minister Fantino and I appreciate the invitation to appear on the topic of the supplementary estimates (B).

As you know, we both appeared before the Standing Committee on Government Operations and Estimates last June to discuss the main estimates.

Since becoming a cabinet minister in 2006, I have appreciated opportunities such as this to meet with parliamentary committees and discuss the business of defence.

Mr. Chair and members of the committee, this is my ninth appearance before this committee and my 23rd appearance before a parliamentary committee, so I'm familiar with the process.

You have already indicated, Mr. Chair, a number of the senior officials from the Department of National Defence, leaders within the department and the Canadian Forces, who are joining us here this morning. So I won't introduce them again, but they will also be available to answer your questions here this morning.

Together, these individuals and the associate minister and I represent the military and civilian professionals who manage our defence resources on a daily basis. With their support, Minister Fantino and I look forward to providing your committee with the information it needs with regard to supplementary estimates (B).

Mr. Chair, the defence team remains acutely aware of the global economic realities faced by the Government of Canada, by Canadians everywhere, and by our partners and allies around the world.

In this context, we have sought to carefully manage our resources so that we can both deliver on the operational needs of today while maintaining flexibility for the needs of tomorrow.

The supplementary estimates (B) are therefore quite modest relative to the overall size of our mandate and budget, and they do not identify any additional net funding requirements for this year. Let me repeat that: these supplementary estimates do not identify any additional net funding requirements for this year.

Nevertheless, we have identified a few areas where some incremental funding is needed so that we can deliver on important initiatives, such as exercising sound environmental stewardship by addressing past environmental problems on National Defence land--in other words, remediation and cleanup of certain environmental sites that are in the possession of the National Defence department--and providing long-term accommodations for the Communication Security Establishment Canada, CSE, suited to its expanded size and mandate in a post-9/11 world, and also providing CSE with the resources it needs to help the government combat illegal migration and human smuggling.

In addition to those new appropriations, Mr. Chair and committee, we're also seeking to reprofile or transfer existing funds so that we can move forward on projects such as reinforcing the Canadian Forces' presence in the Arctic by establishing a new training centre in Resolute Bay; supporting important health research related to blood loss, a leading cause of preventable death among battle casualties; and also ensuring that the Atlantic Canada Opportunities Agency has the necessary funds to organize and deliver the Halifax International Security Forum in the years to come.

Finally, Mr. Chair, for all these initiatives, any new funding identified in supplementary estimates (B) has been more than offset by decreases in other areas of defence spending, resulting in an overall decrease of $323,000 in appropriations and spending authorities for the year 2011-12.

Now, I understand that the committee no doubt has questions about some of the items and mechanics of the supplementary estimates (B). With the help of my colleagues here today, I would be more than happy to provide you with whatever clarification or information you might require.

Mr. Chair, I thank you again for this opportunity, and I look forward to the questions from your committee.

[The Chair, Conservative, James Bezan]

Thank you, Minister.

According to our routine motions, the first round when ministers appear before committee are 10-minute rounds, so to kick that off, Mr. Christopherson, you have the floor.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you very much, Chair.

Welcome to both ministers. It's good to see you again here at committee.

I will jump right in.

On page 107 of the supplementary estimates (B) under the transfers section--and I believe, Minister, you may even have touched on this in your opening remarks--there's a reallocation of resources of $46 million. The $46 million is taken from vote 5, which is for capital expenditures reallocated to vote 1, which is for operating requirements. Page 108 says that $28 million of the $46 million is used for the marine security operations centre, which is an operational requirement.

If the other $17 million comes from reprofiling of capital projects, where is that $17 million exactly? What capital projects are not being funded as a result of the money being transferred from a capital fund to an operating fund? Specifically, was any of the capital money that's being delayed or diverted scheduled to go into any base maintenance or base infrastructure? Is it being diverted because there are medium- or longer-term plans to close bases, and so why bother doing short-term capital investments if, in the medium or long term, you're planning to close them? That would be my specific question.

Then also on this matter, if you're having to transfer this money from capital to operating expenditures, that suggests that you don't have enough operating funds. What are you going to do going forward when it's likely that you're going to have less money to work with? Where are you going to find the funding for those operational matters going forward?

Also, if I may, on the matter of lapsing funds, $2.4 billion was lapsed. The department is allowed to carry over 1%. You're carrying over 12%, and 11% of that is going to be lost, because you can keep only 1%. That's the highest amount any department has been allowed to lapse. I want to bring to the attention of the ministers that in the 2009 Auditor General report, this very matter was raised, and the Auditor General at the time, Madam Fraser, said this:

The Department's financial management and monitoring of resources may not be adequate to support decision making by senior management. The lack of accurate and timely information for decision makers contributed to the lapsing of more than $300 million in funding that was available during the 2007-08 fiscal year but is now permanently unavailable to Nation Defence.

Madam Fraser further pointed out that in the year 2007-08, it was $500 million, and she went on to say that was a significant amount. The department said they had agreed with the Auditor General's concerns and would take action. There was a list of things they would do, and now we find we have a number that's multiple times higher than the figure named by the Auditor General, so it's getting worse.

I'd like the witnesses to address why an issue that was previously identified by the Auditor General is getting worse, particularly an issue the department responded was going to be fixed. Clearly they didn't: it's getting worse.

In case I do not get the floor again--because I know how this works--I was hoping that the ministers or other witnesses could show me where the $477 million is for the new clandestine satellite system, as well as the $623 million that's going to be required for the shiny new headquarters.

[Peter MacKay, Conservative, Central Nova, NS]

Let me take a few of those questions back to front.

The money for the new CSE headquarters is covered in these estimates. With respect to the Nortel campus, that is not found in the supplementary estimates (B), nor is the reference to satellites found in these supplementary (B) estimates.

Working further backwards, on the issue of lapsing, Mr. Chair, we have a very good story to tell. This is an outstanding record, in my view, of managing a budget of this size, when one considers the responsibilities managed daily by the Department of National Defence, the size of the budget, and the size of the carry-over. This is the critical point, Mr. Christopherson, that you're referring to in regard to the Auditor General's comments. It was, in fact, as a result of that report you're referencing that the carry-over amount was elevated.

It used to be that the Department of National Defence had a 1% carry-over. It is now 2.5% as a direct result of that report. It dawned on everyone that, given the size of the budget National Defence managed, to expect to come within 1% of spending authority every year was simply unrealistic, when every other department of government had a 5% carry-over. It was described to me by one member of the defence team as the equivalent of trying to land a 747 on the back of an aircraft carrier--it's a very short distance for landing a budget of that size. As a result of those recommendations from the Auditor General, we now have a larger runway, if you will.

To move directly to your question, what has happened since 2004-05, with this new spending authority we have, is that DND has not, in fact, lapsed the amount of money that's referred to in a number of articles and in some of the partisan rhetoric we hear around here. In spite of the fact that we have this large direct program spending, it has the lowest--I repeat, the lowest--carry-forward provisions of any department. And we are still able to manage that budget. DND is expected to manage to far higher expectations and tighter tolerances than other departments. So this anomaly that occurred in the budget year 2010-11, after allowing for its 2.5% carry-over and the reprofiling of funds to meet liabilities associated with deferred capital projects....

I want to pause for a moment and talk about deferred capital projects. There are many instances in which circumstances well beyond the control of National Defence--that is, a procurement project that is not delivered on time by a private company--results in the Department of National Defence being unable to pay forward certain amounts of money for a product that was not delivered. A case in point is the maritime helicopter project. We had profiled roughly $250 million to pay for maritime helicopters, which were to be delivered this year. Well, due to circumstances beyond our control, a private company did not meet those contractual requirements, therefore disallowing our delivery of that money. We are unable to carry forward that large amount of money in our budget.

I'm going to turn to Kevin Lindsey to allow him to expand further on this particular lapsing issue, because I know this is of interest to the members present.

Mr. Lindsey.

[Kevin Lindsey, Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence]

Thank you, Minister.

Mr. Chair, further on the lapsing question, as the minister has alluded to already, since 2004-05—in other words covering the last seven completed fiscal years, including 2010-11—DND has carried forward approximately 1.4% of its total spending authorities. That's about $118 billion. The residual lapse after the carry-forward, over that same seven-year timeframe, is 1.2% of those total spending authorities. I emphasize that this includes the anomalous year 2010-11. So in spite of the very tight margins within which the department is expected to operate, it actually has a remarkable record of managing those appropriations going back to 2004-05. I use that as a base year, because it's the year referred to in the transformation report.

I would add too that with respect to the Auditor General, she did note that $300 million in 2007-08. That figure is included in the data I've just given you. I would emphasize, too, that in testimony either at this or the public accounts committee, the Auditor General acknowledged that the carry-forward provision was far too low, and she ultimately advocated that the department increase that provision. Had the increased provision been in place in 2007-08, that $300 million she referred to would not have lapsed.

Mr. Chair, on the other questions, the vote transfer of $17 million is coming from a number of capital projects that have been deferred. None of that has to do with base maintenance. These are equipment projects that are at various stages of delivery. There are approximately 11 of these projects in which the cashflow is slipping. In aggregate they represent about $21 million, which is available to reduce the requirements in vote 1.

With respect to the shortage of operating funding, there is no shortage this year. This request is to deal principally with a government priority for remediation of contaminated sites. Because we have money available within our capital vote, the supply convention is to exhaust flexibilities from previous appropriations before asking Parliament to appropriate new money.

I think, sir, that addresses the questions.

[The Chair, Conservative, James Bezan]

Thank you, and the time has expired.

Next is Mr. Opitz.

[Ted Opitz, Conservative, Etobicoke Centre, ON]

Thank you, Mr. Chair.

Minister, thank you for appearing today. Admiral, it's also delightful to see you. And, gentlemen, thank you all very much for coming.

Having been at the lower end of this scale in working budgets at LFC and the Canadian Forces College, I really understand some of the challenges you have to face. I was at the bottom end of that, so I can certainly imagine what the challenges are at the top end of this pyramid.

Minister, in supplementary estimates (B), there's a transfer to Natural Resources to support the construction of the Canadian Forces arctic training centre, and on that I have a couple of questions. The first is, what overall purpose would this training centre serve in the Arctic? Second, sir, when will the centre be available for operations?

[Peter MacKay, Conservative, Central Nova, NS]

That's a very good question, Mr. Opitz.

Let me begin by thanking you for your 30-plus years of service in uniform in the Canadian Forces. I know that you have an outstanding record of military service. It's great to have you as a member of this committee, given your on-the-ground experience.

With respect to supplementary estimates (B) and the Natural Resources partnering that we have with the Canadian Forces for the Arctic research centre, this initiative is very much in keeping with priorities that the Canadian Forces and the Canadian government have set around having a further expanded footprint in the Arctic, if you will. It's in keeping with the core missions of the Canadian Forces, and it will allow us, in partnership with Natural Resources, to have a greater presence there and larger continental operations around the Arctic.

The Canadian army, as you know, has been heavily involved with the Canadian Rangers in the Arctic for some time, which gives us greater visibility and reach into what can be an unforgiving environment there, in terms of the challenges we face. So for sovereignty patrols, for surveillance, for the collection of local data, and for the mutually reinforcing partnership we have with other departments, including Natural Resources, this presence I believe will greatly enhance that capability and that presence we need in the Arctic.

We've also been working with Public Works and with NRCan to design this new facility. I'm told by the department that this design will essentially be completed this month--in November--and the final design review will begin in December. So we're well on our way. We have a construction firm that is building its new location, its new facility. The subcontractor for that building is doing it in a unique way that I'm sure many of you have seen. These buildings are prefabricated essentially. I don't want to use the analogy of Lego blocks, but because of the harsh climate, they're assembled in a way that is quite unique. These are transported there as part of the annual sealift.

There are no delays. That's the good news. Everything appears to be moving on time or ahead of schedule, with the completion date given as the summer of 2013. The contractor has actually indicated, in the notes I have, that they expect to exceed the current milestones that have been placed, and that this in fact may be finished ahead of time. So there is a good news story with respect to this facility. As you know, it's one of a number of installations that we're proceeding with, including a deepwater refuelling station at Nanisivik.

[Ted Opitz, Conservative, Etobicoke Centre, ON]

Thank you very much, Minister.

Mr. Chairman, I'm going to be sharing my time with Mr. Chisu, who is a former engineer. When you were talking about construction, I noted his excitement levels rise.

[Voices]

Oh, oh!

[Corneliu Chisu, Conservative, Pickering—Scarborough East, ON]

Thank you.

Thank you very much, Mr. Chair.

Thank you very much, Ministers, for appearing in front of the committee.

I would like to hear about the funding related to the assessment, management, and remediation of federal contaminated sites. Is this an ongoing project? What purpose does this funding serve? I know there are issues when you're transferring funds from vote 5 to vote 1, but the remediation of contaminated sites is an important task, and I commend you for doing that.

[Peter MacKay, Conservative, Central Nova, NS]

Thank you very much.

I find myself again extending gratitude for someone's military service. I know you have also served in uniform. In particular, your knowledge and understanding of engineering has been of great benefit to all.

These initiatives are best described as legacy responsibilities of the Canadian Forces--remediation of various sites to which the Department of National Defence has assigned high priority. We have a program in place that is committed to conducting the type of environmental assessment and cleanup that most Canadians would expect. We have an established record as an environmental steward. The department is addressing a number of these environmental remediation cleanups across the country--problems that have been in place for some time.

I expect that with your experience you have had occasion to see some of the environmental challenges that exist across the country. The Department of National Defence is committed to ensuring that these contaminated sites--these hazardous waste sites, in some instances--are managed in a safe and prudent fashion.

Goose Bay in Labrador is one of the sites where we have undertaken a major remediation. Much of that exercise literally involves cleaning the soil as a result of spillage of old fuel and antifreeze—types of material that are very toxic in the soil. The department spent only half of its planned spending in the past calendar year in support of remediation on the former Mid-Canada Line radar sites in Ontario. So half of the entire budget allotted for remediation went to that project.

It is safe to say that much of the progress in this area is ongoing and will be for some years. These are not issues that are dealt with quickly in some cases, given the size and scope of the projects we're undertaking, but it is responsible on the part of our department and governments everywhere that we move on with addressing these challenges. The cost of not doing so is simply too high.

When we encounter the various environmental sites that we previously owned and where National Defence operated, we prioritize them. We rank them in terms of size, scope, and the urgency with which we have to address them. We have set aside a specific budget to get on with cleaning up these federally contaminated sites. It's part of a broader whole-of-government effort to deal with the aftermath of a different time when people simply did not view their responsibilities the way they do today.

So I think Canada and most Canadians would expect nothing less of the Department of National Defence than to do its part, and that's exactly what's happening.

[Corneliu Chisu, Conservative, Pickering—Scarborough East, ON]

Thank you very much, Minister.

I need to note that it is very expensive to do environmental cleanups. Thank you very much for your explanation.

[The Chair, Conservative, James Bezan]

There is a minute and a half left.

[Mark Strahl, Conservative, Chilliwack—Fraser Canyon, BC]

I'll go, if that's all right.

I'm just a mere civilian, Minister, with no military service under my belt.

I notice that a transfer ACOA to assist in the delivery of the Halifax International Security Forum is listed. Can you quickly explain what DND's role is in that forum, and what value is provided to the department at an event like that?

[Peter MacKay, Conservative, Central Nova, NS]

Sure.

This annual event, which is hosted in Halifax, began some years ago. It's in its third year. The Department of National Defence partners with the Atlantic Canada Opportunities Agency in hosting some 300 what I would call world-class thinkers, leaders, in many cases members of the military, members of the foreign service, academics, business people, bringing them together in a forum that allows for a free flow and exchange of information that is extremely powerful and useful in the formulation of policy, in sharing ideas, and in exchanging and pressing one another on emerging global issues. This year, as you can imagine, much of the discussion focused on the Arab Spring and what is happening in the region. This directly impacts Canada, where we have soldiers deployed in that region, most notably in Afghanistan.

This was an opportunity also to interact directly with people such as U.S. Defence Secretary, Leon Panetta, who was in attendance, and Israel's Defence Minister, Ehud Barak. We had individuals from the private sector who were participating, some with experience in energy security, others with experience in the private sector that directly impacts on Minister Fantino's responsibilities around procurement. So we had a really diverse audience in Halifax. It's a rare opportunity, in my experience, to have as many of our European, Asian, and South Asian counterparts in North America to have these discussions in such an informal but informative environment.

This year's discussion, as I mentioned, had a very lively and dynamic component to it. We had discussions about Iran. We had discussions that impacted on our most recent experience in Libya. Lieutenant-General Charles Bouchard was part of a panel on the subject of responsibility to protect and the lessons learned in Libya, and how that would impact on future decision-making around deployments.

So this funding, in my view, is something that gives an exponential return on investment, not to mention the economic impact that it has on a city like Halifax at this time of year. For those reasons and others, I believe that this was a worthwhile investment.

It has also been used to leverage other sponsors. This event will eventually become self-sustaining. NATO was a major sponsor this year. There were other corporate sponsors who will be involved. Again, I believe it was a timely and important investment that we made in partnership with ACOA.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Valeriote, you have the last 10-minute round.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, Mr. Chair.

In the spirit of what is pronounced on page 870 of O'Brien and Bosc, wherein it says, “Chairs have generally exercised considerable latitude in the nature of the questioning permitted”, I'm wondering if you would find a couple of questions on the F-35s in order.

[The Chair, Conservative, James Bezan]

They're not relevant to supplementary estimates (B). Of course, as chair, I have no power to censor you and what questions you want to ask, but the witnesses are not obliged to answer them since they're not relevant to the study before us.

[Frank Valeriote, Liberal, Guelph, ON]

I suspect that the defence minister—

[The Chair, Conservative, James Bezan]

I also draw your attention to page 1068 in O'Brien and Bosc, and chapter 20.

[Frank Valeriote, Liberal, Guelph, ON]

Okay. I'll ask the question and I'll let the minister decide.

Last week, in committee, the Norwegian secretary of state for defence testified that Norway intended to purchase F-35s. However, while answering a question, some discrepancies in the numbers came up. Apparently the Norwegians are getting 52 F-35s for $10 billion, while we're getting 65 for $9 billion. If these numbers are correct, we seem to be getting a far better deal. The secretary of state also stated that the lifetime cost would be $40 billion. That is for 52 planes whereas our estimate of the lifetime cost is $30 billion. Again, there's an incredible discrepancy.

I'm wondering if someone at this table can inform the committee as to why there is this huge discrepancy in these costs.

[Peter MacKay, Conservative, Central Nova, NS]

I'm going to defer that question to Minister Fantino, but before doing so I will say that I wasn't at that committee, sir, so you can appreciate that I didn't hear the exact numbers that you're recounting.

I did, in fact, meet with the Norwegian minister, though. The good news that emerged from that meeting, and a meeting I had with the Secretary of Defence Panetta, was the affirmation that both the United States, Norway, and partner countries are proceeding with their F-35 purchases. So contrary again to much of the speculation and clatter, these countries are proceeding with those procurements. It's not to suggest that it hasn't been a controversial project, but we had assurances directly from the partner countries in the consortium that they're proceeding.

With respect to the cost, I'll let my colleague, Minister Fantino, respond to your question.

[Chris Alexander, Conservative, Ajax—Pickering, ON]

On a point of order, Mr. Chair, the F-35s will appear in the estimates, discussions, and briefings in the future. This committee is seized with the issue of readiness. We're going to be hearing from the Chief of the Royal Canadian Air Force. Ministers may be called before this committee again on this issue of procurement or other issues of procurement. I really don't see how this is relevant to the subject of today's meeting.