National Defence Committee on March 6th, 2013

[The Chair, Conservative, James Bezan]

Good afternoon, everyone.

We're going to quickly proceed with our meeting. Pursuant to Standing Order 81(5), we are conducting a study on the supplementary estimates (C) for 2012-13, on votes 1c, 20c, and 30c under National Defence, which was referred to this committee by the House of Commons on Monday, February 25.

Appearing before us today is the Honourable Peter Gordon MacKay, who is the Minister of National Defence. He's joined by our newly appointed Associate Minister of National Defence, the Honourable Kerry-Lynne Findlay.

At the table along with the minister are Robert Fonberg, deputy minister; Michael Martin, senior associate deputy minister; Vice-Admiral Bruce Donaldson, Vice-Chief of the Defence Staff; Kevin Lindsey, assistant deputy minister, chief financial officer, finance and corporate services; and Rear-Admiral Patrick Finn, chief of staff for the materiel group.

Minister MacKay, please give us your opening comments.

[Peter MacKay, Conservative, Minister of National Defence]

Thank you very much, Mr. Chair and colleagues.

I'm pleased to be here with you today to talk about supplementary estimates (C) for the fiscal year.

This is my 33rd appearance before committee since I was appointed minister and my 13th appearance before this particular committee as Minister of National Defence.

As you mentioned, Mr. Chair, I am joined here for the first time by Kerry-Lynne Findlay, who recently replaced Minister Valcourt as the Associate Minister of National Defence. Along with the other members of the team, we are ready to answer your questions.

Mr. Chair, as previous supplementary estimates have proven, the Department of National Defence has managed well within its expenditure planning levels for fiscal year 2012-13. In fact, the requirement for new funding this year is the first new funding since the 2010-11 supplementary estimates (B).

Over the next few minutes, I'd like to briefly go over some of the specifics that are contained in the supplementary estimates (C). Most notably, this round of estimates requests an increase of $1.607 billion in our operating expenditures budget.

Mr. Chair, just before I get into the details, the supplementary estimates (C) contain an error in coding in the supplementary tables. It was identified by officials responsible and corrective action was taken immediately.

I believe, Mr. Chair, you will have received a letter that was sent to the committee with respect to the reviewing of the estimates. It includes over $1 billion in personnel expenses, related to the Manuge-SISIP class action lawsuit, as well as changes to severance payments that are incorrectly listed as professional and special services. That letter, I believe, should be circulated.

Having said that, Chair, this is a significant figure. It's offset, to a large degree, by a decrease of $648.6 million in the department's capital expenditures budget and a decrease of $50 million in our grants and contributions budget. I would hasten to add that these decreases will not impact our major capital projects or the readiness of the Canadian armed forces. Taken together, this means that the Department of National Defence is requesting an increase of approximately $908.6 million in spending authority for the fiscal year 2012-13.

The increase in our operating expenditures is driven by a number of specific, unique, and, I would suggest, arguably one-time factors—the first and foremost I mentioned. Among these extraordinary items are the requirements for additional funding for the settlement of the Queen v. Manuge class action lawsuit, which alone accounts for just under $726 million; for the continuing implementation of the Canada First defence strategy; and for the implementation of the change in policy for the payment in lieu of severance pay for members of the Canadian armed forces, to align the military structure with the broader public service and provide for future savings, which together account for another $438 million.

In addition to a number of transfers to and from other government departments and agencies, this set of supplementary estimates also makes provisions for the evolution of our training mission in Afghanistan and for the development of important procurement projects for the Canadian Army and the Royal Canadian Navy—specifically specialized equipment for our military trucks—as well as planning and infrastructure linked to the Arctic/Offshore Patrol Ship project.

Mr. Chair, colleagues, the Department of National Defence and the Canadian armed forces recognize the fiscal environment in which we are operating and they understand to a person that they need to balance the requirements with the imperative of contributing to the government-wide efforts to constrain fiscal and federal spending.

As such, we have found ways to reduce the total number requested by internally reallocating funds within our budget and by following the Treasury Board directive instructing departments to identify any available funds they may have before requesting new moneys from Parliament.

All of this to say, Mr. Chair, that the Department of National Defence has worked very hard to manage its funds to offset the need for new moneys to the greatest possible degree. In this context and in this time of fiscal restraint, the department has sought to manage its resources in a way that allows us to continue to deliver excellence on pressing operational needs for today and into the future while ensuring the long-term health of the department.

Mr. Chair, the spending adjustments being sought today for supplementary estimates (C) are necessary so that we can give the Canadian Armed Forces the resources they need to carry out the important work we ask them to do on behalf of Canadians. That means the department will be able to meet its obligations by serving our members, our veterans, and the military families.

Colleagues, I thank you for your work and I look forward to your questions on the specifics of the supplementary estimates being presented today.

Merci beaucoup.

[The Chair, Conservative, James Bezan]

Thank you, Minister.

As everyone knows, according to our routine proceedings, when a minister is in attendance, our questioning time is 10 minutes in the first round.

Mr. Harris, you have that first question.

[Jack Harris, NDP, St. John's East, NL]

Thank you, Chair, and thank you, Minister, for joining us today. I also want to welcome Associate Minister Findlay to our committee and to her new role in the government. Congratulations on your appointment.

Minister, I recognize that you've made a correction we've just received this moment, but you will understand that it's caused a considerable confusion with respect to the allocation of government moneys of large amounts. Of the $1.4 billion increase requested here, in respect of authorities, at least half is related to the Manuge settlement and another several hundred million is related to one-time severance obligations.

I want to question the allocation to external contractors and professionals. Even before the supplementary estimates came out, retired General Andrew Leslie had been critical of the fact that the number of external consultants and contractors the department uses has been increased rather than reduced. General Leslie quoted a figure of $450 million as a result of this increase.

Can you respond to that, please? It was a very significant recommendation in his transformation report, one that put numbers on things that a lot of people were concerned about.

[Peter MacKay, Conservative, Central Nova, NS]

In fact, you've answered part of your question. The letter that was provided to the chair and to members does in fact correct an error that was made in coding the supplementary tables, and it was identified by officials to me last evening. I suggested we write directly to the chair to correct that. It includes the Manuge class action lawsuit settlement. That is a big chunk of that money, $1 billion, that was identified as professional expenses, which was improper.

With respect to General Leslie's work, when he was still a member of the Canadian Forces, he presented in a report certain suggestions on contracting. Much of that work in reducing contracts was well under way to coincide with the end of the combat mission in Afghanistan.

In fact, the department is reducing a number of the contractors and resources that were expended on contracting with expected savings in the range of $455 million. We're delivering savings by centralizing and streamlining some of the services. We are taking steps to curtail some of the national procurement process in purchasing of equipment and spare parts, and we are centralizing some of that procedure. That will result in savings of some $75 million.

Also, the department is centralizing and streamlining some of the human resources processes, and organizations are becoming more agile at delivering services across the country. That is to say, in a number of bases now across Canada, we are able to deliver services more efficiently, more effectively.

I spoke earlier about the end of the combat mission in Afghanistan and the eventual end of the training mission in March 2014. This will also result in considerable savings. The change in operational tempo will have a commensurate effect on savings.

[Jack Harris, NDP, St. John's East, NL]

Can I ask a specific question on that, Minister?

[Peter MacKay, Conservative, Central Nova, NS]

Sure you can.

[Jack Harris, NDP, St. John's East, NL]

You mentioned the $455 million potentially in contracting. Is there a larger or more comprehensive number on the savings as a result of the withdrawal from Afghanistan, on an annual basis, that we can expect to see? And why is it, given that we are expecting reductions as a result of the change, that we're looking for an additional $144 million for the training mission in Afghanistan?

[Peter MacKay, Conservative, Central Nova, NS]

It's because the training mission, to answer your last question first, as you know, is ongoing. We have personnel there, some 900-plus, who are continuing to play an important role as part of the Afghanistan contribution. We are still the second largest contributor to the Afghan training mission, and that is very much a part of our NATO, our ISAF, our international commitment to the continuing efforts to stabilize Afghanistan. So the money is directly attributable to those ongoing efforts.

As far as looking for future savings—

[Jack Harris, NDP, St. John's East, NL]

The question I have is about more, sir, with respect. Why are we looking for more, an additional $144 million? Are we doing more? Are we filling in for others who are leaving? What's happening?

[Peter MacKay, Conservative, Central Nova, NS]

The actual costs you're referring to, Mr. Harris, are incremental costs as part of the Canada First defence strategy, not directly attributable, as you're voicing it, to the Afghan training mission.

[Jack Harris, NDP, St. John's East, NL]

So $144 million is attributed to that.

It's a separate line on page 96 of the estimates.

[Peter MacKay, Conservative, Central Nova, NS]

This is a request under an increase in appropriation for vote 1. The training mission I have already referred to ends in March 2014, with the expected closure of activities to conclude by August. We expect the operating cost of the training mission in Afghanistan to be $522 million, over the four-year duration of that mission.

In December 2011, the Treasury Board approved funding of $172.4 million for the fiscal year 2012-13. This was actually a decrease of $28.4 million, to $144 million, so the $144 million that we are requesting today will be spent on the following items: salaries and allowances, $36.6 million; real-life support, so food and supplies and accommodations, $60 million; vehicle and equipment—much of the vehicle support there is rented SUVs, vehicle maintenance, supplies; communications equipment, so computers and satellite communication, accounts for $4 million; the movement, so the in-and-out rotation of personnel, theatre visits, and relief; pre-deployment training accounts for $7 million of that amount; and personnel support, which is $15 million, for the morale, welfare, local engagement, home leave travel, etc.

[Jack Harris, NDP, St. John's East, NL]

I asked why more, but perhaps you can answer this question, then. In relation to the $648 million or $649 million in capital expenditures as being transferred here, what equipment or capital expenditures are not being undertaken as a result of that transfer, which were planned in the budget and in the estimates?

[Peter MacKay, Conservative, Central Nova, NS]

Well, I just referred to the rented vehicles—$15 million. That refers to SUVs, up-armoured vehicles that are used and rented while we have an ongoing presence of trainers in the theatre.

[Jack Harris, NDP, St. John's East, NL]

We didn't get an answer to that one, but I'm asking for this one here, under—

[Peter MacKay, Conservative, Central Nova, NS]

I answered your question as to what that money is for Mr. Harris. I've answered it quite specifically, line by line.

[Jack Harris, NDP, St. John's East, NL]

On the $648 million that's being transferred out of capital, what programs or equipment are not being purchased this year as a result of the transfer of $648 million?

[Peter MacKay, Conservative, Central Nova, NS]

There are seven projects that are being converted from A-base to accrual budget, so that is money that is not spent this year as a result of conversion from 2012 to 2013, with an additional eight that will be converted in next year's budget. This year it's the maritime helicopter replacement—you're familiar with the difficulties we've had in having Sikorsky meet its commitments—projected military satellite installation, the land command support system life extension, the Aurora structural life extension project, the secure radio sub-project, the LAV reconnaissance surveillance system upgrade, and the land vehicle crew training system. Those seven projects converted from A-base to accrual budgeting—and you're familiar with accrual budgeting.

[Jack Harris, NDP, St. John's East, NL]

So the authority is still there to be spent next year, I take it.

[Peter MacKay, Conservative, Central Nova, NS]

That's correct.

[Jack Harris, NDP, St. John's East, NL]

How much time do I have left, sir?

[The Chair, Conservative, James Bezan]

One minute.

[Jack Harris, NDP, St. John's East, NL]

In that one minute I will ask you, sir, to tell us how it is that the PBO seems to be having trouble getting information from your department, amongst others, in finding out how exactly you plan to achieve the savings that have been allocated to your department.

Can you tell us why that is, and whether or not your department is prepared to cooperate with the PBO? We do have a problem in this Parliament in not getting information from the government.

[Peter MacKay, Conservative, Central Nova, NS]

We have provided voluminous amounts of information to the PBO over the years. With respect to cost savings, we've identified a number of contracts where savings will in fact be found. In fact, the number of contracts themselves are coming down.

I spoke earlier of the expected savings of $455 million and the steps we're taking to streamline the process to identify ways in which we're able to provide services more effectively to members of the Canadian Forces.

Since Budget 2012 was announced after the main estimates, reductions were not listed in the estimates. However, in supplementary estimates (B), you may know that DND used some of the frozen allotment to reduce requirements for new funding, so there is, as you pointed out earlier, on some equipment purchases carryover from one year to the next, if you're not able to spend it in some cases because of contractual obligations that are not being met in the private sector.