National Defence Committee on May 5th, 2016

[The Chair, Liberal, Stephen Fuhr]

Good morning everyone. Welcome to our defence committee and our study of the defence of North America and more specifically the Canadian NORAD region and our aerial readiness.

I'd like to welcome our witnesses, Colonel Horgan, Mr. Pitfield, Mr. Finn, and Ms. Campbell. Thank you very much.

As an administrative note, we'll be having two panels this meeting. We'll start with panel one morning, the witnesses you see here. I understand that Mr. Pitfield and Mr. Finn will share 10 minutes for opening statements and then Ms. Campbell will have 10 minutes, and then we can start with questions.

Having said that, welcome. Thank you very much.

Mr. Pitfield or Mr. Finn, I'm not sure who is going first, but you gentlemen have the floor.

[Jaime Pitfield, Assistant Deputy Minister, Infrastructure and Environment, Department of National Defence]

Thank you, and good morning.

Mr. Chair, distinguished members of the committee, thank you for inviting me here to talk about the role that my group, the assistant deputy minister of Infrastructure and Environment, plays in the readiness of the Royal Canadian Air Force.

As LGen Michael Hood told you when he spoke to you on April 14, readiness includes our people, our aircraft and systems, and the other resources that together provide the air-power capabilities the government requires to serve Canadians and Canadian interests. Infrastructure is a large portfolio of these other resources and that my group is concerned with.

On behalf of the Department of National Defence, ADM(IE) manages over $26 billion in real property assets, including buildings and roads, hangars and airfields, and runways across Canada. Simply put, if these facilities are not designed, built, and maintained to meet modern standards, the readiness of our air force is severely compromised.

Allow me to touch briefly on how ADM(IE) supports the air force in its mandate to provide reconnaissance, mobility, support, humanitarian aid, search and rescue, and force capabilities to the Government of Canada. Since 2014 ADM(IE) has been gradually assuming management responsibility for defence infrastructure, and on April 1, 2016, we achieved full operational capability when we became the sole custodian of over $26 billion in defence real property holdings on behalf of the Canadian Armed Forces and the commanders of the army, the navy, and the air force.

This centralization will allow the Commander of the Royal Canadian Air Force to concentrate on preparing and operating his air force without having to plan and operate a diverse and complex infrastructure base. Ultimately my role is to ensure proper prioritization of DND infrastructure, resources, support operations, and training, and to reflect the evolving needs and constraints of the department. For example, in the past General Hood had to ensure that he had functioning runways and hangars, but he also had to ensure that the local armouries were in good shape, that the hospital was maintained properly, and that roofs weren't leaking. ADM(IE) manages that now, prioritizing DND infrastructure resources. Centralization will permit ADM(IE) to allocate those resources more effectively, bringing the right resources to the right assets at the right time.

To support ADM(IE) in this endeavour, on 24 November 2014 the Government of Canada launched the federal infrastructure investments program, or FIIP, a plan to invest $452 million in new funding over two years to repair and upgrade Canadian Armed Forces facilities across Canada. In Trenton we're undertaking $234 million in investment to provide a reconfigured runway layout, new aircraft parking space, proper drainage, and upgraded lighting systems.

In Comox we're undertaking $52 million in investments. In addition to that, we've invested $18 million in FIIP funding for utility upgrades, flood control measures, shoreline erosion protection, military housing, and hangar and airfield repairs.

In Cold Lake we're undertaking $132 million in investments, improving the roads and utilities, runways and airfield, and constructing a new health care centre, with a total investment of just under $18 million in FIIP funding.

In Bagotville we're undertaking $175 million in investments. In addition to that, we will construct a new headquarters building and improve runways, airfields, and housing with a total investment of $16 million in FIIP funding.

In Winnipeg we're undertaking $68 million in investments and will be investing $4 million of FIIP funding to repair hangar doors and make roof and lighting repairs, etc.

In the north we've created a new aerodrome engineering section that will allow us to maintain critical air power assets in this remote region.

It is projects such as these, Mr. Chair, that will allow the assistant deputy minister of Infrastructure and Environment to focus on rationalizing and sustaining National Defence's real property portfolio while balancing evolving military requirements, financial responsibilities and effective stewardship of resources.

[Rear-Admiral Patrick Finn, Assistant Deputy Minister, Materiel, Department of National Defence]

Mr. Chair, and distinguished members of the committee, I'd like to add my thanks for the invitation to appear before you to answer questions relating to your study of the defence of North America.

As assistant deputy minister, Material, for the Department of National Defence, I am responsible for the acquisition and support of all military equipment. In other words, I focus on the technical readiness of the Canadian Armed Forces. I also oversee the material certification of military equipment in the same way that the Department of Transport does for the civilian equivalent.

With a budget of approximately $6 billion a year, a team of 4,000 people dedicated to the task, and over 12,000 contracts under management with my colleagues at PSPC, the work is complex and plentiful. The vast majority of procurements unfold as planned on an ongoing basis. Procurements for key equipment are, however, in a different category.

Defence procurement is a complex undertaking, particularly for large systems such as aircraft, ships, and armoured vehicles. The decisions made on equipment are often half-century ones. The next combat ships we deliver will still be in service in 2070. Many of the aircraft we are pursuing will be flying beyond the middle of this century.

At the same time, the threats this equipment will face are continuously evolving. This means that we must strike a balance between the anticipated life of the equipment measured in decades with the need to update the equipment on a continuous basis to meet evolving threats. This also means that the supply chain and support mechanisms must be adaptable and enduring to meet the needs of the Canadian Forces.

Equipment is de facto never in its final configuration, as upgrading aircraft, ships, and combat vehicles is a continuous process and bringing the new configurations into service is a complex undertaking that requires very close cooperation with various elements of the Department of National Defence.

That said, we continue to advance and deliver on various programs that will continue to increase the capability of your Canadian Armed Forces. From an aerospace perspective this includes:

the delivery of the fifth C-17 aircraft and bringing that project to effective project closure; the introduction of the C-130J aircraft and their upgrades to the block 7.1 configuration; the enhancements of the Aurora aircraft and their life extension, with block III aircraft well into delivery and block IV in definition; the introduction of the Chinook helicopters back into the order of battle; the transition to the Cyclone maritime helicopter, with training on the block 1.1 aircraft to start in the coming months; the completion of the evaluation process for the fixed-wing search and rescue aircraft to be completed this summer.

DND is not only introducing these aircraft into service, but is also well positioned to provide the necessary support to ensure their appropriate operational employment.

We in the materiel group are very proud to be able to work closely with the Canadian Armed Forces in the defence of Canada and Canadian values abroad.

Thank you for allowing me to provide opening comments.

I would be pleased to answer your questions.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much.

I understand that Ms. Campbell didn't want to speak.

[Lisa Campbell, Assistant Deputy Minister, Acquisitions Branch, Public Services and Procurement Canada]

I have about five minutes of remarks, if you'd like.

[The Chair, Liberal, Stephen Fuhr]

Yes, for sure.

[Lisa Campbell]

Good morning everyone. It's a pleasure to be here.

I'm Lisa Campbell, assistant deputy minister at Public Services and Procurement Canada.

Governments around the world spend a lot of money on goods and services to meet the needs of their citizens and Canada is no exception.

The amounts paid by Canada's provincial, territorial and municipal governments combined total over $100 billion a year.

Federal procurement spending contributes close to 1% of Canada's gross domestic product annually. Over the past decade, the federal government has issued more than 500,000 contracts on average per year, worth about $18 billion annually. This spending is used to acquire a vast array of goods and services, ranging from office supplies to information technology, to military equipment such as aircraft and tanks. About half of the federal spend is on defence spending, and the other half is on everything else the government needs to function, such as bridges, infrastructure, nuclear facilities, and vaccines.

A little-known fact that I want to share with you today is that over 80% of federal contracting is done by government departments themselves. At Public Services and Procurement Canada, we only handle 12% of the contracts, but that represents 80% of the money. We focus, I think appropriately, on the most complex procurements. That's where we put our specialized contracting expertise.

Our basic precept in Canada, based in law and policy, is that federal procurement should be fair, open, and transparent, and provide best value to Canada. We have heard from industry—and we engage with them regularly through supplier advisory committees and a recently formed defence industry group—that it's overly complex and administratively burdensome. We agree. Our minister has a mandate to modernize procurement, and that, quite frankly, is a business priority for us.

Let me spend a moment on some of the complex dynamics at play in procurement. Buying things, in and of itself, isn't complicated. It's what we try to do during the process that makes it complex. Canada is part of several trade agreements that require that we open up procurements to the world for fair competition. At the same time, we're also trying to achieve industrial and socio-economic benefits for Canada. There's a natural tension between those two dynamics, and this is perhaps most marked in the defence procurement area.

We have a mandate to modernize the Government of Canada's procurement practices so that they're simpler, so that they deploy modern controllership, and that they support economic policy goals, including green and social procurement. As part of this modernization, we started to look at our contracting processes. We're not just looking at our counterparts around the world. We're actually going to the private sector as well to see how businesses have made it simpler to streamline the basic contract forms; and we're also looking at our standing offers and supply arrangements to see if they can be streamlined. It would make it easier for business to sell and for government departments to buy.

Also, and this is a really important piece, we now have out on the street a request for proposal to acquire a new web-based e-procurement solution. I'm not saying it's going to become like Amazon, but that's where we're headed. Essentially, we want to move the Government of Canada procurement function to an e-business model, leveraging industry best practices, and reducing cost and process burdens for federal department and agencies and for suppliers.

Small and medium-sized businesses in Canada get about half of our contracts, and we want to make it easy for them. Ideally, they would eventually be able to do a lot of this off their smart phones, connect with their suppliers, find out what opportunities there are, advertise, and really be able to check contracts and how things are going.

We're also working with my colleagues at National Defence; and also Innovation, Science and Economic Development Canada; and representatives from industry associations, to improve our overall approach to contracting for the maintenance and repair of military equipment. There's a lot of focus on the start of contracts, but quite frankly increasingly a lot of work is done in service support and repair of military equipment, because, once you buy it, you have it for about 30 years.

In the old days you would put a contract in place and then let it run for 30 years, but that doesn't work anymore because in-service support means that the procurement life cycle is shorter and more complex. We're actually looking at our existing stock and flow and refreshing some of those contracts to make them, for example, performance-based. Where perhaps we had a fixed price and that worked in the past, now we're saying to companies, we're going to incentivize you. If you perform in the next five years, you might get the next tranche of work, but we're going to see how you do.

We're finding that to be really effective, both from industry's perspective, and also ours. It gives us better value.

Taken together, in our view, some of these initiatives will help modernize the federal procurement function, foster competition and innovation, and also allow us to better leverage procurement to advance economic, social, and green-policy objectives for the benefit of Canada and Canadians.

Thank you very much.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much.

We'll open the floor for our first round of questions, and we'll go to Ms. Romanado.

You have seven minutes.

[Sherry Romanado, Liberal, Longueuil—Charles-LeMoyne, QC]

Thank you so much for being here today. We appreciate your presence and wise counsel.

Mr. Pitfield, you were talking a little bit about the infrastructure and some of the purchases that are coming down the pipe and the investments that are being made. How important is factoring in current infrastructure into future purchases that we may be planning?

[Jaime Pitfield]

If I understand your question, the point you're getting at how the new construction or new capability fits with what we're already doing.

We spend about $1.9 billion a year on infrastructure. If I break that down, it's roughly $150 million for new construction; $250 million for recapitalization of existing infrastructure; and then several hundred million dollars for maintenance and repair, and O and M, and those kinds of thing.

As we bring new projects on—and these are years in the pipeline—we plan them and build them in such a way that they fit with what's already existing on a base or a wing. We're trying to leverage where we can. Going forward, we will be changing how we've managed in the past.

One thing we're looking for is to densify bases. Right now they sprawl and are very expensive to operate. We will be putting like functions with like functions, buildings that complement each other next to each other, and supporting base operations to the extent that we can.

[Sherry Romanado, Liberal, Longueuil—Charles-LeMoyne, QC]

My next question is for Mr. Finn or Ms. Campbell.

One item that was not in your presentation is the elephant in the room, the replacement of the CF-18s. As you know, in the 1980s we purchased 138 CF-18s. We remodernized 80 of them. We currently have 77. From what we understand, we need a magic number of 65 fighter aircraft to replace the CF-18s, according to our previous Prime Minister.

We've gone from 138 down to 80, and now have 77, and now we're going to 65. Have our commitments to our partners, whether they be NATO or NORAD, changed significantly enough to justify this number of 65? Again, we're not talking about attrition. We're not considering any training. I'm just concerned that we're lowballing on this number. I just want to see if you can give us some information on that.

[RAdm Patrick Finn]

I can only provide a little bit of information. It's really one for the air force or, I'd say, the Canadian Armed Forces.

I will touch on some of what General Hood said when he was here about a month ago. I think it's also important to remember how we were deployed at the time that we acquired the CF-18s, the footprint in Europe and what we were doing there, as well as the work in NORAD.

The fighter replacement project is called an options analysis, led by the air force, with briefings for the minister and others. Once the actual decisions are made and it enters into execution, if you will, my role as ADM Materiel is to to take it from there and deliver the requirements as set by the Canadian Armed Forces.

Other than to say, from personal experience in 36 years in uniform, is that where we've evolved from and to, as far as the footprint is concerned, is a key piece. I can't speak beyond that as far as the number of aircraft are concerned.

[Sherry Romanado, Liberal, Longueuil—Charles-LeMoyne, QC]

I'm not sure you can answer this. We are trying to extend the life cycle of the 77 that we currently have to 2025, I believe. What are your thoughts on the investments that are going to be required to keep these in the pipeline, to be functioning? Are we going to be upgrading all 77?

[RAdm Patrick Finn]

That is something I do. Also, it's not just the acquisition but the in-service technical authority; we are working on that.

We are completing a very large program to extend them to 2020. It is in the billions of dollars. We have a very detailed plan to do structural reviews, structural repairs, but also a significant number of upgrades to communications and their sensors. That is happening to all 77 aircraft.

Our estimate of the cost to go from 2020 to 2025 is about $400 million. We're doing work to bring detail to that. It breaks out as follows. Roughly half of that is for spares and maintenance. Irrespective of the aircraft we have—and I assume we have a fighter, which I think is a forgone conclusion—we will spend that money, irrespective of what was in the order of battle.

We have set aside another $200 million, approximately. Our efforts today to do the structural work to 2020 have worked very efficiently. They've worked very well. In fact, they have not been as costly as anticipated. That's because we have a process in which we, literally, take the aircraft completely apart, inspect all of the airframe, all of the structure, and then repair it where needed. In a number of areas there's been less repair required.

Our plan is to continue to do that. We will do as many aircraft as required to 2025. I'm not sure, at this point, how many that will be. We have an annual cycle of revisits. That will be some of the capital piece that we do to life-extend the airframe.

Of that $400 million, we've set aside about 20%—and again, these are rough orders of magnitude—for anticipated upgrades. If all of our allies go to a different set of communications crypto, we would upgrade the aircraft accordingly. That is the intention.

Again, about half of that money will be spent no matter what. It's about $200 million for structure, and potentially other pieces.

From the perspective of extending the life of the aircraft, that's what we'll do. From the context of the operational effectiveness of the aircraft, again, that's something the air force would have to speak to.

[The Chair, Liberal, Stephen Fuhr]

Ms. Campbell, you wanted to add something.

[Lisa Campbell]

Thank you.

That's an excellent question. As Mr. Finn indicated, it's an options analysis. That's when the Department of National Defence is looking at what its needs are, what's on the market, and what it should buy. We support them in that role, because we do industry engagement earlier and earlier. We've found that this helps us to be precise about what is available in the market, what Canada can afford, and what fits with our needs.

I would point out, as well, that increasingly we're buying complex systems to put on platforms, whether on land, sea, or air. The acquisition cost is a diminishing portion of that. The real money is in sustainment and in-service support over the life cycle. Increasingly, it is about two-thirds of the defence cost, if you look at it. It's something we need to plan for, be ready for. It's a continuous cycle, as Mr. Finn pointed out—continuously maintaining existing equipment while you're thinking about refreshing it.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much.

I'll give the floor over to Ms. Gallant. You have seven minutes.

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

Certainly today all our thoughts and prayers are with the people of Fort McMurray and the surrounding areas, who are now getting evacuation orders, and to the first responders and the members of the Canadian Armed Forces who are helping with those efforts.

Seeing the efforts on the news last night and this morning, I noticed that some Griffon helicopters were being used in the search and rescue operation there. That reminds us of the previous procurement of the Cormorants. The military had recommended that in order to do its job, 18 Cormorants were required. This committee travelled out to Newfoundland. We learned that for every three Cormorant helicopters they had, only one could be in the air, because they had to cannibalize the others for parts.

My question, first of all, is this. What is the number of Cormorants actually available to the Canadian Armed Forces to do their search and rescue operations?

[RAdm Patrick Finn]

I'm sorry, I don't have the information with me on the number that are available right now. What I can tell you is that the required rotary wing search and rescue is being covered. In the context of a kind of 3:1, as you indicated, materiel, I would say that that's not unusual of any fleet, whether it's ships or armoured vehicles, or things that are in heavy maintenance and are maintained locally. I think at times aircraft may be off the line but still actually at the wing and, therefore, could be brought back up to service quite quickly. The coverage of rotary wing search and rescue is in fact there.

As for parts, one of the things that I would add, though, particularly on the Cormorants, is the work that we did to acquire the presidential helicopters. Again, when President Obama came to office, shortly afterwards the project to replace their helicopters was cancelled. The airframe they used was in fact the same airframe as the Cormorant. We acquired them, VH-71s, and they're sitting at IMP in Halifax, Nova Scotia. They fundamentally have never been flown, and we have been using them to significantly increase our parts availability. As the fleet has matured, I can tell you that the availability of spare parts and the reliability of the components, which we continue to work with the original equipment manufacturer to increase, are such that the Cormorants on the three bases where they operate—noting that of course we use Griffons in Trenton—are able to perform other duties and respond to the SAR requirements.

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

Remember that the Cormorants were a cheaper version of the EH101 helicopter that was originally ordered but cancelled in 1993 out of political expediency after that election. Cracks were found in the tail rotor hub. I'm wondering whether or not that problem has ever been rectified.

[RAdm Patrick Finn]

I think ultimately the Cormorant was more focused on search and rescue. The EH101 was multi-purpose aircraft and also meant to be the maritime or shipboard aircraft, which of course engenders all kinds of things when operating in a maritime environment and structure, and with the anti-submarine warfare systems that come with that aircraft. It's more focused.

We became one of the early operators of that aircraft. Internationally people looked to Canada to what we were experiencing with the tail hubs. That has been rectified. That has gone back to what is now AgustaWestland for them to take action across the entire fleet. That has been addressed, and the Cormorant today operates very effectively in that role. It is approaching its midlife and we, the department and the air force, are looking at options for how to proceed beyond the midlife of this capability.

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

That's comforting, especially after we lost three members of the Canadian Armed Forces back in July 2006 due to that problem.

Let's switch over now to the Cyclone maritime helicopter project. We understand that there are cuts being made to that project. What aspect of that purchase is being cut? Is it the avionics upgrade or something else?

[RAdm Patrick Finn]

If I could just go back to your previous point, I don't believe the crash was related to the tail rotor hub issues in the Cormorants.

With the Cyclone there are no cuts being made to the project. There has been a reduction in the budget. I would tell the committee that in the process by which we look at vote 5 capital, my project managers, on a recurring basis through the parliamentary process two years ahead of time, are cash phasing and forecasting what will be the demands on their project. They are trying to estimate what the exchange rates will be, what the rate of delivery will be, what the training will be, and what any number of things will be.

We reprofile those budgets on an annual basis, and in fact are introducing a number of new methods to try to tighten it up, because, quite frankly, in the hundreds of projects that I have, as you roll them they become a significant source of the lapses in the reprofiling that occur. It is very hard to predict, and it's very hard to crystal ball it.

Therefore, the changes in the allocation to the project are really at my request, in what I can spend this fiscal year and next fiscal year. Again, that's working with the supplier Sikorsky and others.

We have delivered about a third of the aircraft. We're transitioning. We're about to start training on what are called the block 1.1 aircraft and continuing through to deliver the greater capability.

We have a very robust plan, and it's a project where a few years ago we really were at loggerheads with the supplier—both sides. We renegotiated that project, and we've really shifted into a method of delivery and introduction of capability that's very positive.

We have the Cyclones at sea now purely for testing. We've done a bunch of ship-helicopter interface testing recently. We're now well into the in-service piece, so it is well on its way to delivering the capability. We've had it at sea on a U.S. range called AUTEC tracking submarines and targets. It has a very impressive capability for that.

The change in budgets, as I say, is really as a result of my organization coming forward and saying through the parliamentary process, through the ARLU, through the estimates, what we need. There have been no cuts imposed on us.

[The Chair, Liberal, Stephen Fuhr]

That's your time.

Just before we move on to our next question, I would like to remind the panel to try to keep the questions related to procurement in general, or focus on what we're talking about, which is the Canadian NORAD region and aerial readiness therein and questions related to that, so that we can stay focused.

Having said that, Ms. Blaney, you have the floor for seven minutes.

[Rachel Blaney, NDP, North Island—Powell River, BC]

Thank you so much for being here with us today. I really enjoyed listening to your testimonies. I'm also the proud representative of CFB Comox and really happy to see some of the investments that are happening in the area.

I do know that the Buffalo aircraft is really the workhorse for our 442 Transport and Rescue Squadron, and that it's really facing the end of its life. I'm frankly concerned that we're putting the lives of our servicemen and women at risk, and I don't want to see any more critical failure reports.

Canada's pacific region deserves a reliable plane, so I have a few questions related to that. What is the current delivery schedule? Can you provide a status update on the fixed-wing search and rescue aircraft testing? When do you expect all 15 of the fixed-wing search and rescue aircraft to be fully operational in RCAF squadrons?