National Defence Committee on March 13th, 2012

[The Chair, Conservative, James Bezan]

Thank you. The time has expired.

With our last 10-minute question we have Mr. McKay.

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

Thank you, Chair, and my thanks to the minister and our witnesses for being here.

I have three series of questions relating to three fiscal years. I don't anticipate that you'll be able to answer all of them, so please feel free to respond in writing.

The first series of questions has to do with the final fiscal year 2010-11. The Public Accounts of Canada show that the Department of Defence walked away from $2.4 billion in lapsed money. You can imagine something like that happening occasionally, but cumulatively, over the last four or five years, it's amounted to a significant sum of money, somewhere in the order of $5 billion or $6 billion that the department has secured through budgetary processes and then had to give back at the end of the fiscal year. I'd be interested in your comments. I don't know whether this is an inability to manage contracts. I don't know whether this is a problem with forecasting. It leads one to be concerned about announcements running way ahead of delivery. Out of that $2.4 billion, can you, in some detail, tell the committee what was left on the table when the department walked away?

The second series of questions has to do with the supplementary estimates (C). I suppose in a perfect world we wouldn't have to be looking at March madness, but it is March madness and what is curious is that you're taking $214 million out of capital, and you're profiling $151 million into operations in Afghanistan. This begs the question: why didn't you know at this time last year that the operation in Afghanistan was going to require $151 million, given that you had a decent track record of expenditures in Afghanistan over the last 10 years? There is a lot of moving around within the capital envelope, so some are up and some are down. The overall question here is if, in fact, we didn't have this $214 million in supplementary estimates (C), what would we be getting? What is it that we are actually walking away from in capital expenditures? The secondary question has to do with the $733 million in the reduced area. Is that going to be, in effect, lapsed money, or is that, in effect, just the first installment on lapsed money? That is my second series of questions.

My third series of questions has to do with the main estimates. If we've learned anything on this readiness study, it's that the whole business of cyber-security is extraordinarily important given that the Russians and the Chinese seem to have a fondness for Canadian intelligence. Some of the witnesses have said they're not sure that this security operation should be housed within National Defence. What does this transfer to the Communications Security Establishment mean? What does it mean in money, in operations, in the contribution Defence will make to this intelligence information, and in the improved access that Defence would have to that intelligence information? My sense of it is that there is something buried in there. I just don't know what it is. Maybe ministers can enlighten us on what it will mean. The second question on the main estimates has to do with the transfer of $305 million to Shared Services Canada, which is essentially a transfer of money from one department to another and to Public Works.

I wonder what that means for the purposes of procurement. Is this an acknowledgement that the procurement process out of Defence has not been handled as well as it could have been? Given the history of moneys lapsed, maybe the government is addressing that issue. I'd be interested in your thoughts on that.

Then the final question has to do with the $232 million of major capital equipment in infrastructure projects, which are being walked away from. What does that mean? What are we walking away from when we knock $232 million off the budget?

The other thing that jumps out at me is on page 248, and that is the reprofiling of money with respect to NATO. On one line you're down $5.3 million; on another line you're up $12 million. On the third line it's straight-lined, so to speak. So what does that mean in terms of our obligations and ongoing commitments to NATO? I appreciate that those are a whole series of questions. It's entirely intentional on my part, because I get one shot at this—that's it—and I'd be more interested in factual responses than political, if I may.

Thank you.

[Peter MacKay, Conservative, Central Nova, NS]

Thank you very much, Mr. McKay.

I do appreciate the time parameters we're working with here, so I will undertake to give you more fulsome and specific information.

Working back to front with some of your questions, first, I would say we are not lessening our commitment to NATO, the monetary commitment does go up as a result of Canada's overall contributions. That is reflected there. Certain programs and certain missions, of course, do involve a financial commitment from Canada—that is, there's pool funding and then there is specific funding. As you know, with the changed role in Afghanistan, we are spending less vis-à-vis that particular mission. The “pop-up” mission, for lack of a better term, in Libya, which was also a NATO mission, was a specific contribution. So those are reflected in our overall contributions.

With respect to Shared Services Canada, I want to assure you that this has nothing to do with procurement. This has to do with the servers, the email process, and the databank that DND uses, as do other departments. We are now sharing or pooling resources with respect to that overall computer system for internal government use. It's not to do specifically with procurement.

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

Excuse me, please.

One of the things we've heard about readiness is, if you will, an “air wall” of intelligence security. In other words, the hacking has become so sophisticated that the concern is hacking into DND. How will that play through with your transfer of some of these services to Public Works?

[Peter MacKay, Conservative, Central Nova, NS]

That's a very good question.

The high-level, top-secret information will be protected. There will be more than an “air wall”, I assure you for that confidential information, particularly that which we would receive from, for example, the Five Eyes community, or information that would be of interest to some of those countries that you mentioned and others as well.

CSEC—and our new commissioner of CSEC is with us—can also give you some information on how DND and other high-level government information is protected. With respect to your question on CSEC, this new stand-alone agency is still under the auspices of the Department of National Defence—and I don't want to put too fine a point on it, but it's a bit like, you will recall, when CSIS was taken out of the RCMP and given stand-alone status. That's what is occurring here.

It essentially is still very much part of the DND establishment, but it now has a separate entity, separate budget, and that accounts for the money you're seeing here coming out of the DND budget.

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

Is anyone else contributing to that pool to set up this new security?

[Peter MacKay, Conservative, Central Nova, NS]

No, no. This is still coming from, in this instance, this budget.

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

So the RCMP is not contributing, the public safety minister...no one is contributing to this stand-alone agency?

[Peter MacKay, Conservative, Central Nova, NS]

To CSE, or to the shared services...?

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

To the new stand-alone agency....

[Peter MacKay, Conservative, Central Nova, NS]

No, that's completely DND money at this point.

Next year it will come directly to CSE as a stand-alone entity, not through the kidneys of the Department of National Defence.

[The Chair, Conservative, James Bezan]

Your time has expired.

[Peter MacKay, Conservative, Central Nova, NS]

I'll have to answer some of these other questions that are on the record, sir. I would be glad to speak to the issue of the lapse. Perhaps I could ask Mr. Lindsey to speak to that very briefly because there's a bit of a misnomer about lapsed funding. Part of it is accounted for on money that could not be spent because of contractual breaches, if you will, by a certain supplier for Maritime helicopters. That is money that was allotted for this fiscal year, which could not be spent because helicopters were not delivered. Part of that money has also accounted for the fact that when you have a large capital-intensive budget and these timelines are not met—I would argue through no fault of the Department of National Defence—the money doesn't disappear, it doesn't evaporate. It goes back to the fiscal framework.

Unlike any other department in government, we have a very small percentage of carry-over. So as one accountant within the department described it to me, it's like landing a 747 on an aircraft carrier. You have a large budget that you're trying to land within a particular year, and if certain contracts are not met, that money is not spent, but it goes back to the Department of Finance. We do have some carry-over and that envelope has actually been increased.

But Mr. Lindsey can explain the lapse process.

[The Chair, Conservative, James Bezan]

Mr. Lindsey, perhaps you make it as brief as possible because our time has expired.

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

I'm not sure I could in fact add anything to the minister's comments.

I would say 2010-11 was an extraordinary year. Of that $2.4 billion in appropriations that went unspent, about $1.5 billion was reprofiled to future years for DND's use. Most of that was attributable to the fact that capital projects that we had planned on were not delivered as anticipated.

The fact is we left $950 million on the table. I would point out, however, that since 2004-05, the amount of money, the amount of the appropriations that DND has left unspent, without using in future years, in relative terms and percentage terms, is far less than the government average in most other departments.

On the capital side, I don't have the data with me. I had it at our last meeting. It's something in the land of 2%. It's really quite extraordinary.

[The Chair, Conservative, James Bezan]

Thank you.

We're going to kick off our five-minute round with Ms. Gallant.

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

Thank you, Mr. Chairman, and through you to the ministers.

The mission in Libya saw Canada emerge to the forefront as a leader within NATO and having Lieutenant General Bouchard leading the air mission. Additionally, NATO nations will be meeting in Chicago later this month for further discussions of the NATO-led mission in Afghanistan. With all that being said, how important is it, from a strategic perspective, that Canada continue to have a seat at the table, remain a significant contributor to NATO, and work closely with our NATO allies to ensure operational successes?

[Peter MacKay, Conservative, Central Nova, NS]

Thank you, Ms. Gallant.

I know you are both an extremely active supporter of our Canadian Forces and a close follower of all things NATO.

I personally feel very strongly about Canada's membership and participation in NATO. We are a country that contributes mightily, both financially and more importantly in action, and that has been our history since we have been members of this organization, this alliance, when it first stood up some 60 years ago. That being said, NATO, like all organizations, military and otherwise, has to modernize. It has to adapt to the very rapid and sometimes volatile circumstances that are there. That involves investing in new equipment. That involves modernizing the structure itself and its finances, and making informed decisions.

You're right to point out that the meeting in Chicago this summer is going to be a critical one for NATO. It will be critical because decisions will have to be made and discussions will have to be had about the future of the NATO mission post-2014 in Afghanistan. Canada's role there has changed significantly, from one of combat to one of training. We will be active participants in that discussion and in those decisions.

We also know, to say the least, that there are a number of other countries and other conflicts brewing in parts of the world, including Kosovo and other places where Canada has been an active participant in the past. The importance of NATO is its flexibility, its ability to respond. There have been important discussions, which you would be aware of, on issues such as burden sharing, that is, ensuring that participant nations are carrying their fair share of the load. Canada has been at the forefront in encouraging nations in conflicts like Afghanistan to be forthright about what they're able to bring to the fight.

NATO itself in my view, even with its failings, and even with its fallbacks, remains the pre-eminent defence organization on the planet. I'm very proud of what Canada has been able to accomplish through this organization, and of the leadership role we have played. I'm proud of the participation both of personnel who have sat in various positions at NATO, and more importantly, of the men and women who wear the uniform and wear the flag of the Canadian Forces on one shoulder, but who also represent NATO as an organization that fights for peace and global security—one that has played a very active role in places like Afghanistan throughout its history.

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

Thank you.

Minister Fantino, in vote 5 there is a significant amount of money allocated towards the funding of the implementation phase of the LAV III upgrades. What benefits and capabilities will this enhanced platform bring to the Canadian Army and Canadian Forces as a whole?

[Julian Fantino, Conservative, Vaughan, ON]

To begin with, our experience in Afghanistan with the LAV equipment, which has been very valuable and certainly important in terms of our mission there, did indicate that there are some enhancements and some improvements that can and should be made. The current LAV is basically old technology. A great deal of studies were done after each one of those fatal and tragic incidents. A very comprehensive review has been done of all of those incidents, and as a result of that, we are now able to improve the safety and the effectiveness of the LAVs. Therefore this particular upgrade of our current LAV system will include those safety enhancements in terms of armour and the type of armour that is configured to the new restructured LAVs, along with a whole lot more enhanced technology.

That's really what this is all about. It will mean more effective equipment but also greatly enhanced safety for men and women using those vehicles.

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

Thank you.

[The Chair, Conservative, James Bezan]

Thank you time has expired.

Ms. Moore, the floor is yours.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

My questions go more specifically to the Associate Minister, Mr. Fantino.

I would like you to tell me clearly if you or someone from your department expressed to Lockheed Martin your concerns around the increase in the costs of the F-35 aircraft.

[Julian Fantino, Conservative, Vaughan, ON]

If I can address it in a broader way, we—all of us, the partners in the project that for Canada goes back to 1997—have been very active, engaged, and involved in every aspect of the joint strike fighter program going forward.

Our recent meeting in Washington brought all of the partner nations together, as well as the industry, Lockheed Martin. We all share the same issues with respect to the stability of the program, but more importantly, what came out of that meeting is the absolute renewed commitment by all the partners to continue with the program. It served a very useful purpose in that we were able to touch base with respect to mutual issues and concerns. No one's pulling out, and even though there is some reprofiling of the production, if you will, for obvious reasons, we don't expect that the reprofiling will significantly impact the costs of those aircraft, were Canada to actually order them. We have not ordered them.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

What, in your opinion will be the exact purchase cost? How much does Canada currently plan to pay per aircraft?