National Defence Committee on Feb. 7th, 2012

[John MacLennan]

The clear response we got was that there was no money in the salary wage envelope to pay the public service employees with the amount of work they had going on, so they would go to the O and M budget, regardless of what it cost. That is what we saw.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Is this kind of a bizarre side-effect of military accounting that you would rather take it out of the operations and maintenance budget than out of the wages budget, because the wages budget would go up, and the operations and maintenance budget still had some space in it? Do I understand that?

[John MacLennan]

There's a cap on the salary wage envelope budget that they've invoked themselves—the reduction and everything else. The operating and maintenance budget in a lot of cases gives a strong appearance of being a bottomless pit. So when we're looking at that we say we can't do all the work—

[John McKay, Liberal, Scarborough—Guildwood, ON]

What do you mean by “bottomless pit”?

[John MacLennan]

In the blink of an eye the work can be handed off to the private sector, and the costs aren't being challenged. When the mistakes are found and challenged, nothing's being done about it. Why not? So you would rather pay the bill twice to get something done that could have been done once.

[John McKay, Liberal, Scarborough—Guildwood, ON]

You hand it off to the private contractor. You get a fixed price, regardless of what the fixed price might be. At least you know what's in the budget for that purpose. But if you put it into wages it will be an ever-escalating trajectory.

[John MacLennan]

A trajectory for escalating wage increases—not in these current times, but yes, that's part of it too.

It still proves itself. From our own business case it's cheaper, when you include wages and benefits, to have the public sector do that work, and there's ownership at the end of it. These employees aren't making a profit. They're doing a job that they're proud to do.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Some of the allegations you make in here are almost tantamount to fraud. Have you actually approached outside authorities about these kinds of matters?

[John MacLennan]

No, we haven't gone outside. As I said, we don't know how bad it is—if we've just scratched the surface or if it's a lot worse.

Just from the attention of the media yesterday, I am getting information from people who used to work for DCC, and they say that when they were there they were asked to do things that were against their own conscience. I'm not going to provide that information from that person who said it because I don't have their permission. Now this is the stuff that's starting to resonate with some people. They know it's been a systemic problem for a long time and we're bringing it to light.

We're bringing it to light, and it's the only part that we're bringing to light because with the rest of the stuff that's going on in the department we're working proactively to do our business cases. But DCC seems to be an entity out there in between Public Works and National Defence that doesn't look like it has any accountability.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

[The Chair, Conservative, James Bezan]

Thank you.

Unfortunately, because of votes, that's all the time we have.

I do have a couple of quick questions. You said you haven't gone to outside sources, but I know that this summer the Auditor General's office went across a number of different bases, looking at operations and spending by the Department of National Defence and the Canadian Forces. Did you or any of your members at any point in time raise this issue with the AG?

[John MacLennan]

We usually don't get invited to those meetings or conversations. I know that we approached the Auditor General four years ago. We met with somebody in the Auditor General's office about some of the stuff going on around DCC. The AG had just finished an audit on DCC themselves and said that DCC got their designation changed through legislation as an agency or crown corporation and they were not due for another audit. Then it was seven years.

I think we did some research on what the audit did.

[Tim McGrath]

Actually, I took a copy. This is an excerpt from the Auditor General's website and the most recent review that they carried out in 2008. They do sort of recognize the issue that DCC is having with this rapid growth. From 2003 to 2008 they doubled in size, and since that time they've doubled in size again.

Part of the issue is that they're doubling in size and doing the work that was traditionally carried out by DND employees on the individual military bases, as opposed to what they were originally put in place for, which was the large construction projects, and particularly focused on contract administration.

The AG makes suggestions for areas of improvement, one of them being how to deal with this rapid increase in personnel and ensure that these people are skilled and qualified to do the work. That was part of the issue that we were finding, that perhaps these issues were coming up because some of the people in the positions didn't have the necessary skill set to understand if the work was being carried out in the most effective way and in the best manner and whether or not the work was done in the most efficient way and particularly was of good quality.

These are the types of things not only noted by us but also noted by the Auditor General back in 2008.

But certainly to your question specifically, Mr. Chair, it didn't appear that any people we had spoken to also spoke to the Auditor General during the time the Auditor General was on site doing their visits.

[The Chair, Conservative, James Bezan]

In the process, when you were raising concerns to the superiors and the upper echelon of the department, did you ever present any of this information to either the Ministers of Public Safety, Public Works, National Defence, or Treasury Board?

[John MacLennan]

We didn't bring any evidence or any of our concerns to the Minister of Public Works. The Department of National Defence was it because they are the client. They are the one responsible for this $21 billion budget. When we identified that there was wasteful spending going on, I would have expected that the department would have reacted and looked into it a little further.

[The Chair, Conservative, James Bezan]

My final comment to you, Mr. MacLennan, is that we received this brief last week from you and it's clearly marked “confidential”, for presentation to the committee here today. It is ruled that a document presented to a committee becomes the property of the committee and forms part of the committee's records until such time that it's made public here at committee, and it should never have been released to the media. Of course, this was in the media all weekend and all day yesterday.

So I am extremely disappointed that we're dealing with this through a media eye rather than under the scrutiny of the committee, first and foremost. It takes away our opportunity as committee members to do the proper job of scrutinizing and holding government to account for wasteful spending and things of this nature, or making a proper reference that this should be going over to the public accounts committee for their study, or sending it on to the proper authorities, such as the Auditor General.

Regardless, it is what it is.

We're going to suspend and allow our witnesses to change. We will bring in the representatives of the Office of the Auditor General.

[John MacLennan]

May I make closing remarks very quickly?

[The Chair, Conservative, James Bezan]

Very quickly.

[John MacLennan]

Knowing what we're going through with the financial restraints and everything else, we completely understand the government's position that it is not going to reduce the armed forces lower than 68,000. If you're not closing bases, tearing down buildings, or ripping up roads or hydro lines, our work will not go away for the 17,000 people who do that job. It's always going to be there if you've got that entity in place.

Thank you very much.

[The Chair, Conservative, James Bezan]

Thank you.

We are going to suspend. For those of you who want to grab a sandwich or a bowl of soup, it's in the back.

[John MacLennan]

Mr. Chair, what do we do with the background documents?

[The Chair, Conservative, James Bezan]

Please leave them with us.

Thank you.

[The Chair, Conservative, James Bezan]

We'll call the meeting back to order.

I know some people are still grabbing a sandwich, but we'll get back to our study.

We have new witnesses at the table. Joining us from the Office of the Auditor General of Canada we have Jerome Berthelette, who is the assistant Auditor General; Pierre Fréchette, who is the audit project leader; and Mathieu Tremblay, who is the audit project leader as well. We welcome all three of you to the committee.

Mr. Berthelette, you have the floor.

[Jerome Berthelette, Assistant Auditor General, Office of the Auditor General of Canada]

Mr. Chair, thank you for this opportunity to discuss our findings from a recent audit that looked at how National Defence manages the maintenance and repair of its military equipment. Joining me at the table are Pierre Fréchette and Mathieu Tremblay, two audit project leaders who worked with me on this audit.

Sustaining operational capabilities requires that military equipment be kept in good working condition. Effectively planning, supporting, and carrying out maintenance and repair activities for military equipment is therefore crucial to the Canadian Forces' ability to meet their core missions.

In 2009-2010, National Defence spent more than $2 billion to maintain and repair its military equipment. This included expenses for routine inspections, preventive maintenance, corrective repairs, spare parts supply, periodic repair and overhaul, engineering changes, and other related tasks.

Overall, our audit found that National Defence has planned and managed the maintenance and repair of military equipment to meet operational priorities in the short term.

The annual process of allocating available funds provides an effective forum to discuss priorities, with wide participation of those responsible for maintaining and repairing military equipment and those who need it for operations and training.

However, there is a significant gap between the demand for maintenance and repair services and the funds that National Defence allocates each year for this purpose. In addition, National Defence has indicated that its long-term investment plan for new equipment has likely allocated insufficient funds for equipment life-cycle costs.

The department does not know the specific long-term impacts of this funding gap on its operation and training activities. In the past some readiness targets had been downgraded in order to meet the capacity that was affordable with available funds.

Our audit also looked at contracting practices for maintenance and repair activities, an area in which National Defence has made significant changes over the last decade. In particular we looked at two new contracting approaches that were developed over that period: one, for existing equipment, called optimized weapon systems management, OWSM, in short; and one for new equipment, known as the in-service support contracting framework, or ISSCF. These new practices have the potential to help National Defence better manage maintenance and repair activities and realize cost savings.

We found that the implementation of the new contracting approach for existing military equipment, OWSM, has been slower and more limited than planned. As a consequence, National Defence has lost opportunities to derive potential benefits of improved performance, improved accountability, and reduced costs.

National Defence's in-service support contracting framework for new equipment awards both the acquisition and the long-term maintenance contracts to the same suppliers. Our audit found that National Defence is not adequately monitoring and mitigating the risk created by the introduction of this new contracting framework. For example, while the department knows this approach could reduce maintenance and repair expertise within the Canadian Forces and create dependence on a single supplier for each fleet, it has made little progress towards implementing mitigation strategies to address these risks.

In addition, we do not believe that the implementation of this approach has received the attention and resources it needs. Given that most of the acquisitions of new major military equipment planned under the Canada First defence strategy for the next two decades will be subject to the requirements of this framework, reducing the risks associated with the in-service support contracting framework will be important. Better coordination with other federal departments and the Canadian defence industry will also be required in order to achieve this.

Our report concluded that National Defence's ability to meet its training and operational requirements over the long term is at risk because of a persistent maintenance and repair funding gap, ongoing weaknesses in the implementation and oversight of the new contracting approaches, and the lack of sufficient cost and performance information for decision-making.

National Defence agreed with our audit recommendations and made several commitments in response. We understand that National Defence is currently completing a formal action plan to support its commitments.

Mr. Chair, this concludes my opening remarks. We'll be pleased to answer any questions the committee may have and to assist you in any way you may need with respect to this study.

Merci. Thank you.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Kellway, I believe you're going first. Again, in the interests of time, we may keep the first round to five minutes, and we'll just continue on. You have five minutes, please.