National Defence Committee on Feb. 7th, 2012

[Matthew Kellway, NDP, Beaches—East York, ON]

Thanks very much, Mr. Chair, and through you to the folks from the AG's office, thank you very much for your work and for appearing before us today.

I was wondering, in the context of the maintenance and repair, if you could identify for us some of the risks that emerge out of procurement of what I guess one would call developmental equipment.

I had the opportunity last night, in preparation for today, to skim through your previous reports on the acquisition of military helicopters and military vehicles. It seems to me that what emerges in those reports is a discussion about the differences between off-the-shelf equipment that's being procured and developmental projects. Could you identify some of the particular risks that you, as the AG's office, see in the procurement of developmental projects?

[Jerome Berthelette]

Thank you for the question. I think the best example, as you have pointed out, is to be found in the helicopters chapter, where we noted that both the MHP and the Chinook helicopter acquisitions involved certain levels of development. Neither of these aircraft could be called “off the shelf”. With the MHP in particular, if you look at the sort of range between off the shelf and completely developmental, it's really very close to developmental because it will result in essentially a new helicopter.

While there are off-the-shelf variants of the Chinook helicopter available, the one that Canada is acquiring has been Canadianized and as a result involves significant development. It will result in about $350 million being paid for non-recurring engineering costs. The risk related to this is that with any developmental project that involves complex equipment like helicopters and the technology that goes into it—all the black boxes, so to speak, and the self-defence suite of equipment that goes with it—it becomes very difficult. It's a complex undertaking.

It requires a concerted effort on the part of both the department and the manufacturer to come together to try to deliver this on time. The risks really are time, technology, and cost. So there are three main risks, and when you have developmental projects, each of those three risks is likely to be high.

[Matthew Kellway, NDP, Beaches—East York, ON]

What would your recommendations to the department be in terms of procuring developmental versus off the shelf, or if, in a sense, from the department's perspective, you were forced into procuring developmental projects...? What recommendations would you have to the department to mitigate those particular risks?

[Jerome Berthelette]

Managing developmental projects is complex, as I previously said, and it requires a great deal of attention on the part of both the department and the manufacturer. I think in most cases involving developmental projects, National Defence pulls together a team and asks the team to concentrate on that particular project. They spend a lot of time dealing with the manufacturer one on one as they work through the various issues that arrive in terms of the development of the project.

I think the most important thing National Defence should do is to focus on risks, analyze what those risks are, and make sure they have mitigation strategies that are consistent with the risks they've identified. The risks will vary between projects, and I can't give you or the committee, Mr. Chair, a list of what those risks could be, but certainly they go back to time, technology, and cost.

The department needs to focus on those areas and identify first and foremost what developmental projects are likely to be high risk and that they require the resources to manage them.

[Matthew Kellway, NDP, Beaches—East York, ON]

Can developmental strategies be put in place for these things, though? I understand each project will be different, but it's a way of approaching these things. I'm looking for, generally, what the recommendations would be around the strategy apart from careful monitoring.

[Jerome Berthelette]

I think management attention, careful monitoring, staying on top of the manufacturer, identifying key timelines for deliverables, and also including, as we have noted in this chapter, the in-service support contracting framework and OWSM. Performance incentives and penalty clauses are important elements as well.

[Matthew Kellway, NDP, Beaches—East York, ON]

Is strict adherence to procurement policy and procedures also what you would describe as a useful strategy for risk mitigation?

[Jerome Berthelette]

Absolutely. Normally, the policies we've looked at have been those leading up to the acquisition during the actual production of the helicopters in this case or of any developmental equipment. I think it's important and I think policies suggest that program management principles be applied, which means constantly going back over the project charter, the risks, and making sure they are current and the department is addressing them.

[The Chair, Conservative, James Bezan]

Thank you.

Moving on, Ms. Gallant, you have the floor.

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

Thank you, Mr. Chairman, and through you to our witnesses.

Sir, your report found that the Department of National Defence owns, operates, and is responsible for maintaining and repairing military equipment costing more than $30 billion and that the department spent over $2 billion to maintain and repair its military equipment. Is this more than most other departmental costs on such things?

[Jerome Berthelette]

Oh yes. I think National Defence is the largest owner of equipment in the government.

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

Do you know by how much?

[Jerome Berthelette]

No, I'm sorry, I don't know that answer.

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

Okay.

How does the procurement of new land vehicles, aircraft, and naval assets, as well as the revitalization of shipyards in Canada assist the Canadian Forces and the Department of National Defence in assuring the long-term viability of the Canadian Forces?

[Jerome Berthelette]

The Canadian Forces is all about people and equipment. Without good, modern, up-to-date equipment, the Canadian Forces would be hampered in its ability to carry out its missions, its operations, and its training.

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

Can you relate this to the subject matter at hand, which is the study of readiness in the Canadian Forces?

[Jerome Berthelette]

Readiness is a product of trained soldiers, support, and equipment. New equipment provides the army, the navy, and the air force with the ability to carry out their operations, to make sure the soldiers are trained to be able to fulfill the operations. New equipment is fundamental to the operations of the armed forces.

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

The optimized weapons system management is realizing cost savings, reducing maintenance inspection times, producing greater administrative efficiencies, and, most importantly, increasing fleet availability for Canadian Forces operations and training exercises. The report expresses concern that the slower than planned implementation of the OWSM framework could result in a negative impact on fleet readiness and availability.

How do you explain the gap?

[Jerome Berthelette]

For those pieces of kit that are under the OWSM framework, they are achieving those results, according to National Defence, which you have cited. There is still a lot of equipment within the air force, the army, and the navy that is not operating under that contracting framework. As a result, some of this equipment will have hundreds of contracts that will need to be managed by National Defence. It becomes very difficult and inefficient to be able to manage that. It becomes very difficult to hold the companies accountable, and it becomes very difficult to achieve cost savings. What we've found is that until the department moves the OWSM framework out into other existing pieces of equipment, it will not be able to realize the savings and the efficiencies you have identified.

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

Is the equipment you're referring to fairly old? What pieces of equipment would you be referring to? I want to think back to when they would have been purchased, where we didn't have a similar system in place.

[Jerome Berthelette]

I could refer members of the committee to page 19 in exhibit 5.3 of the chapter, if you have it in front of you. I'll use that as an example. In terms of the air force, we have the CC-130 Hercules, the CF-18 Hornet, the CP-140 Aurora, and the CH-146 Griffon. Some of these pieces of equipment have been around for more than 20 years and some for 30 years. The army, the air force, and the navy tend to keep their equipment for a very long time.

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

I think we're all familiar in this committee with the F-18s. They were bought over 40 years ago, and that's why you're saying it's difficult to hold the companies to account, because it has been such a lengthy period of time.

Insofar as the newer equipment we've been purchasing, we have been taking care of the maintenance and contracts in a much more efficient way.

[Jerome Berthelette]

Yes.

The ISSCF framework as applied to new equipment promises to provide exactly those types of cost savings and efficiencies that OWSM provides as well.

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

And the F-35 as well, I believe.

The Department of National Defence has agreed with the recommendations found in chapter 5 of the 2011 fall report. In your estimation, are you seeing that the Department of National Defence has planned and is taking on the action to address these recommendations?

[Jerome Berthelette]

I have two parts to this in terms of my answer.

First, with respect to the information management system, we refer to the new departmental management information system that is being rolled out. We have seen evidence during the audit that in fact the system is being rolled out and that it is going to be a very good step in terms of being able to provide the department with the information it needs to manage its equipment. They expect to have this rolled out according to the department by December, 2013. I think that's a good step.

We have not seen the action plan in terms of the other recommendations. I think it is important that the department move efficiently to roll out OWSM and that it ensures it has the proper framework for the ISSCF contracting framework, to ensure that it is applied consistently across all new acquisitions.