Good morning, Mr. Chair, and committee members. I appreciate this opportunity to appear before you today as part of the study on the readiness of the Royal Canadian Navy. At Public Services and Procurement Canada, we're working hard to ensure that the Royal Canadian Navy is able to maintain operational readiness and operate as a true blue-water maritime force. We're partners with the Department of National Defence in this endeavour, and both departments view procurement as a key enabler in achieving this important objective.
We're modernizing procurement policies and practices so that they are simpler and less administratively burdensome, deploy modern comptrollership, and include practices that support economic policy goals. The desire for deliberate policy making that leverages procurement is stronger than ever as the public budget is stretched around the world to achieve and support a number of socio-economic objectives.
We're currently working with other departments to develop proposals and approaches that will enable us to further leverage government procurement to bring about even greater social and economic benefits to Canadians. From a defence sector perspective, the use of industrial and technological benefits managed by Innovation, Science and Economic Development Canada in close collaboration with my department and the Department of National Defence represents an excellent example of how this can be achieved.
The success of procurement modernization rests in large part on our ability to engage and collaborate to achieve results. A number of elements within our procurement modernization agenda require the active involvement of other departments and industry, and in some cases, they need to be led by them.
Recognizing the importance of these relationships, we've established a senior level team that reports to the deputy minister of Public Services and Procurement Canada and to the secretary of the Treasury Board of Canada. The purpose of this team is to coordinate engagement with all stakeholders involved in government procurement, including suppliers in government departments like ours and the Department of National Defence, as well as to ensure all initiatives are meeting their goals through solid implementation plans with clear timelines and performance measures.
I'll just pause to explain. Our department does about 12% of the government's contracts, representing 80% of the money, but all the rest of the contracts, of higher volume and lower monetary value, are handled across government by departments themselves. In modernizing our practices, it is important that we employ a whole-of-government approach.
To make procurement simpler and less administratively burdensome, much of our emphasis to date has been on how and with whom we do business, and on providing better client services to departments. In particular, we're in the process of acquiring and implementing a new web-based commercial procurement solution to standardize procurement processes. Much of what we do is still paper-based. We can't afford to keep doing business that way.
This solution will allow the Government of Canada to simplify and improve the procurement process, as well as give us better analytics about the federal buy. We hope it will also make it easier for suppliers to do business with the federal government, especially small and medium-sized businesses. As a result of this, clients will have access to streamlined service delivery and a reduced process burden to support easier and faster procurement.
In addition, we're looking at our contracts and related terms and conditions to see how they can be streamlined and simplified where appropriate. At the moment, we have about 800 standard contract terms and conditions. We think we can make do with less than that, so we're looking to our counterparts around the world for examples of best practices that we can import to Canada, and we're already implementing many of those.
We also intend to assess current government contracts and related practices against these other jurisdictions to make sure that we're incentivizing the right kind of business behaviour. Instead of always punishing bad behaviour, we want to incentivize business to find efficiencies that we can share in with them.
Another key element of our procurement modernization agenda involves enhancing our ability to assess supplier performance, in other words, to rate industry on how they're doing continuously throughout the life of a contract. This will ensure that suppliers, including those in the defence sector, are evaluated on their performance, which will be used to help recognize and incent good supplier performance and positively influence the behaviour of suppliers by holding them accountable for their performance throughout the life of a contract.
Although all of the initiatives under procurement modernization will ultimately affect defence procurement as well as all of our other procurement, I'd like to bring to your attention two initiatives that are of particular interest to defence, the first being the sustainment initiative.
We're working with the Department of National Defence, with Innovation, Science, and Economic Development Canada, and with the defence industry to find more efficient ways to maintain the equipment we procure. As you all know, a large portion of the expense is actually in-service support and maintenance. We focus a lot on the acquisitions, but the real money and work comes after that.
This initiative provides the basis for more planning, earlier engagement, and rigorous option analysis up front in the procurement process. It's also more flexible, allowing us to go back to the market when we see that there are innovations we may want to take advantage of. It introduces, in our view, more competition, which we think is healthy for business and gives Canada more choice and flexibility.
The sustainment initiative is based on four principles: performance, value for money, flexibility, and economic benefits. These principles also guide how we are governing defence procurement and the decision-making process for new and existing military maintenance and repair procurements. By working towards generating tailored solutions and using a rigorous analysis tool, we are expecting to strike the right balance among these four principles to achieve better performance and strong business partnerships with industry.
The second initiative I'd like to highlight is flexible bid evaluation, which allows bidders to demonstrate, in two phases, that they meet our mandatory requirements within a specified time after bid closing. In other words, what we're doing is making sure that bids aren't rejected for relatively minor reasons. After a first bid submission, we go back to suppliers and give them an early assessment, giving them a chance to submit more information if needed.
We have found in the time that we've been using this that it maximizes competition. It maximizes the number of compliant bids, as well as innovation, and ultimately helps to achieve overall best value candidates. The positive impact of this process was evidenced by a recent defence procurement where four additional bids were found to be compliant after the process was applied. The winning bid was selected on the basis of best overall value, considering price, technical merit, and socio-economic benefits.
The process not only led to greater competition, it was also faster. I wish these stories would make the news more often, but it does happen, as Mr. Finn and I know, and I'm here to give you an example of it.
The process will also be applied to the procurement of the Canadian surface combatant project, which represents, as Mr. Finn said, the largest defence procurement in Canadian history.
Here in Canada we've seen how sustained funding and support for innovation can be transformative for Canadian companies, particularly those in the defence sector. With government contracts, they are able to contribute to Canada's safety and security, develop skilled workforces, seek export markets, and participate in the global supply chain, as well as reap benefits from their investment in research and development.
All in all, these elements of procurement modernization and sustainment have a positive impact on the Royal Canadian Navy's operational readiness.
We are working to deliver on the enhancement to the national shipbuilding strategy announced by Minister Foote in May 2016 by strengthening governance, building internal capacity, improving cost estimates, monitoring progress and ensuring value for money, and increasing transparency and accountability.
I would also like to highlight that the release of the national shipbuilding strategy's first annual report to Parliament later this year will represent a major achievement for our commitment to increase transparency and accountability. The report will highlight the progress made over the last year, positive impacts on Canadian communities, and expected milestones for the coming years.
Mr. Chair, I would like to invite the committee to visit Irving Shipbuilding's and Seaspan's shipyards' facilities to see first-hand the hard work that is ongoing. If you are interested, my office will be happy to arrange a visit.
I would also like to bring to the committee's attention something which has been in the news recently and perhaps clarify some misconceptions in this regard.
On November 9, 2016, Irving Shipbuilding issued an amendment to the request for proposals for the Canadian surface combatant, to disclose to potential CSC bidders that it had teamed with BAE to bid on the AJISS request for proposals. AJISS is in-service support for the Arctic offshore patrol ships and joint supply ships.
Competition is an integral part of the national shipbuilding strategy. A competition was held in which shipyards competed to be the government's strategic source for large combat vessels and large non-combat vessel programs of work.
The construction of small ships is competed to shipyards other than the two that won the work to build large vessels. In-service support and maintenance of vessels is competed to all shipyards. This means that Irving Shipbuilding and Vancouver Shipyards may legitimately bid on in-service support and maintenance, and they may partner with other companies in doing so.
Mergers and joint ventures are a normal feature of any industry, including the shipbuilding industry. They help maximize competition, innovation, and choice. BAE is one of the potential CSC bidders. Irving Shipbuilding has provided assurances that it has implemented measures to ensure that no information could create an unfair advantage for the Canadian surface combatant procurement process.
The government is aware of these measures and is satisfied that they protect the integrity of both procurement processes.
At Public Services and Procurement Canada, we are fully committed to the integrity of these two competitive procurement processes. We extensively engaged and consulted with industry prior to the release of the request for proposals for both the Canadian surface combatant project and AJISS. Although Irving Shipbuilding was responsible for issuing the request for proposals for the Canadian surface combatant, the government is involved, and will continue to be involved, in every step of this competitive procurement process, and will ultimately make the final call on the winning bidder.
Both the AJISS and CSC procurement processes are being overseen by independent fairness monitors who will observe the entire evaluation process. The fairness monitoring program provides client departments, government suppliers, Parliament, and Canadians with independent assurance that procurement processes are being run in a fair, open, and transparent way.
With respect to the request for proposals for the Canadian surface combatant, the government is responsible for key elements of the procurement, which will include determining the requirements and evaluation criteria, for approval of the evaluation plan. We also approve the request for proposals prior to its release. We also provide the fairness monitor. We will review the entire conduct of the evaluation process and final acceptance of the evaluation results. We also make the decision on the winning bidder.
As you can see, Mr. Chair, we're working to ensure the success of these important procurement processes. They're an integral part of the national shipbuilding strategy, which we hope will rejuvenate the marine industry, support Canadian technological innovation, and bring jobs and prosperity to many communities across the country. We're also working to deliver on the enhancements to the strategy by strengthening governance, building our internal capacity, improving cost estimates, monitoring progress, and ensuring value for money.
Thank you for your time. Again, I appreciate the opportunity to be here to speak with you.
