National Defence Committee on Feb. 1st, 2018

[The Chair, Liberal, Stephen Fuhr]

I call the meeting to order.

Welcome, everybody, to the Standing Committee on National Defence this morning. I would like to welcome our witnesses: Pat Finn, ADM, material, and Jennifer Hubbard, director general, international and industry programs. Thank you both for being here to help us discuss Canada and NATO and our relationship with NATO.

Having said that, I will give Mr. Finn the floor for his opening remarks.

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

Thank you very much, Mr. Chair.

Good morning and thank you for the invitation to appear before you today.

As indicated, I am Patrick Finn and am the assistant deputy minister (materiel) at the Department of National Defence.

I am joined today by the director general, international and industry programs, Jennifer Hubbard, who is currently also serving as the chairperson of the NATO Support and Procurement Organisation's Agency Supervisory Board.

The materiel group serves the Department of National Defence and the Canadian Armed Forces as a central service provider and functional authority for all defence materiel acquisition and support.

The materiel group's activities contribute to Canada's commitment to the NATO alliance. As highlighted in “Strong, Secure, Engaged”, NATO is a cornerstone of Canadian defence and security policy. Canada remains as committed as ever to this alliance, as evidenced through our contributions to various missions.

Canada contributes to the capital acquisition of all alliance common-funded capabilities through the NATO security investment program. This includes major capability delivery programs, such as the air command and control system and the preliminary work currently under way on the alliance future surveillance and control program.

NATO procures these common-funded capabilities, and provides a range of other services.

Of key interest to the materiel group is the NATO Support and Procurement Agency, known as the NSPA, which is headquartered in Capellen, Luxembourg, and provides integrated, multinational logistics and procurement support solutions for its stakeholders, operating on a no-profit, no-loss basis.

The NSPA manages a diverse range of activities, from support to operations and exercises to the provision of logistics services and life cycle management, including large-scale weapon systems acquisitions for its alliance customers.

For example, the agency's central Europe pipeline system program manages the operation, financing, and maintenance of an integrated cross-border fuel pipeline and storage system in support of NATO's operational military requirements during peacetime, crisis, and conflicts, including expeditionary operations.

The NSPA is the executive body of the NATO Support and Procurement Organisation, of which all 29 nations are members. Those nations are represented in the organization's agency supervisory board, which directs and controls the activities of the agency.

An official from my organization represents Canada at the agency supervisory board's meetings, and as I mentioned, Jennifer Hubbard is currently the chairperson of the board. This position was originally from 2016 to 2018, and we have been asked to extend her tenure until 2019, which I think speaks volumes about her capability and abilities.

Access to the services of these NATO procurement agencies has been invaluable in supporting Canadian Armed Forces missions. As the Canadian Armed Forces rarely deploy abroad alone, the use of these NATO agencies in multinational circumstances has proven to be a responsive and effective way to conduct coalition contracting for common goods and services.

During the military mission in Afghanistan, Canada and a number of allies obtained real life support at Kandahar Airfield through the NATO Maintenance and Supply Agency, the predecessor to the NATO Support and Procurement Agency. The agency served as the NATO contract integrator for the provision of a wide range of services, from food to camp infrastructure.

As a result of Canada's membership in the NSPA's multinational tube-launched, optically tracked, wire-guided, or TOW, missile system partnership, Canada has upgraded its TOW missile systems over the last four years and continues to rely on the agency for the maintenance of these systems, including the supply of spare parts.

My officials are currently working with their counterparts at Public Services and Procurement Canada and the Treasury Board Secretariat to examine our existing procurement authorities and to enable enhanced use of the NATO procurement agencies where appropriate, to better support future Canadian Forces military missions abroad.

As Canada's senior government representative responsible for defence materiel matters, I attend the twice-annual Conference of National Armaments Directors plenary meetings at NATO Headquarters.

The Conference of National Armaments Directors—or CNAD, if you prefer—reports directly to the North Atlantic Council and is tasked to advise the council on armament matters; act on issues pertaining to multinational co-operation in the research, development, and production of military equipment and systems; and contribute to the coherent, transparent, and mutually reinforcing development of common capability requirements.

My participation as Canada's national armaments director at the plenaries allows me to influence the improvements of the alliance's military capabilities. It also provides an opportunity to share national perspectives and best practices with all parties. Reporting to the Conference of National Armaments Directors are a variety of main armament groups that have developed a broad portfolio of multinational co-operation efforts in the naval, land, air, and joint domains.

The work undertaken by the conference and by the main armament groups underpins NATO's capability and interoperability, and the projects the conference governs and oversees are high profile and often very sensitive.

Before I close my remarks, I want to highlight a very important initiative to improve the delivery of NATO common-funded capability programs.

After successive reports by NATO's internal auditors found that the alliance's common-funded capabilities were being delivered over budget and behind schedule and were often falling short of requirements, the Secretary General directed the formation of a group of senior experts to analyze the problem and make recommendations for improvement.

To ensure that the Canadian view and best practices in program governance could influence the work and recommendations of the group of senior experts, my organization was represented on the group. One of the key issues we have stressed is the adoption of best practices that we use in Canada. We are pleased to report that our recommendations made their way into the recommendations contained in the final report that was presented to the Secretary General in April 2017.

I believe this issue epitomizes how Canada's commitment to NATO, its participation in NATO forums, and its provision of expertise and national best practices can make a meaningful contribution to the entire alliance.

I thank you for for allowing me to provide some opening comments, Mr. Chair, and we welcome your questions.

Thank you, sir.

[The Chair, Liberal, Stephen Fuhr]

Thank you for the remarks.

We'll go to our first round of seven-minute questions. Ms. Alleslev, you have the floor.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much.

What a pleasure to have you here.

Part of the focus of our NATO study is around the relationship between industry and NATO, and therefore how the government is ensuring that we.... Obviously we don't deliver capability in procurement without industry. We need industry to stay on that bleeding edge of technology. A lot of that bleeding-edge thinking is being done in NATO, and of course there's interoperability and interrelationship with other nations as a result.

I'd like to understand from you the value of the common funding. I'm sure you don't have those stats right here, but I'd like to ask you to get them for our committee. What is the percentage that Canadian industry wins of that common funding on an annual basis? How does that compare with our NATO partners, relative to our contribution?

Then I would like to understand the trend and whether we've been winning more or winning less, and how that trend has been going over time.

With respect to that thinking about how Canadian industry is playing in that space, could you also tell us what the breakout is by industry? In our defence procurement here at home, we know how much is spent on communications, electronics, socks, and so on. I don't know what that industry breakout is, but I'd like a feel for what it is.

With respect to that question, I know we had a NATEX—a NATO technical adviser—with the NATO communications information agency. Certainly the communications information agency is a critical piece in the command and control aspect of procurement and NATO, and Canada has a significant command and control capability. I'd like to understand why we no longer have one, what the thinking behind that was, and how we're ensuring that industry has that liaison or window or information, because of course you can't bid on something if you don't have your man in Havana, so to speak, and we no longer have our NATEX in NCIA in NATO.

[Patrick Finn]

Thank you very much for the question. I have some of those statistics with me and I'll go through some of them. I think some of the others, though, we will take away to make sure we provide some of the breakout that you indicate.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

You knew I'd be asking.

[Patrick Finn]

I think those are things that we look at all the time for the very reasons you're suggesting as well.

Fundamentally, as far as NATO procurement goes, if I could just quickly set the scene, as far as equipment goes and some of the things you gave as an example, NATO is ultimately about bringing the militaries of the allies together. Large procurements of what we would do in Canada are typically around ships, armoured vehicles, and aircraft. Those are done by the nations. They're actually provided to NATO. It's not a key area, with a few exceptions, in how they operate the AWACS and how they're looking to future systems.

As you indicate, a large part of it is the glue in how things come together. I will tell you, as we look at it from the NATO Support and Procurement Agency—and we have the stats—that for what we invest, Canada exceeds its contribution. I was there last fall. The agency tries to maintain kind of a balance, because, not surprisingly, all of the allies view it as we do. Yes, they want to have this military capability, but they don't want everybody else's industry to have a leg up, so they watch that very carefully.

There is a system, if you will, whereby offsets apply. Allies come together to work on certain projects. They'll join up to certain things, and the countries that join are entitled to that.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Could you focus in on the NCIA, please?

[Patrick Finn]

I can. I think my colleague Len Bastien was here a couple days ago to talk more about the NCIA. My role is more in the NSPA, but—

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Is he responsible then for appointing the NATEX?

[Patrick Finn]

If there were to be a NATEX at NCIA, it would come out of Len. Specific to the point on the NATEX, it is something from the previous construct, before the agencies were formed as they are now. It is a position that has been funded out of my organization for many years. Under the current construct, we actually didn't pull out. We moved the NATEX to the NSPA, where all the materiel group-type work occurs, where we're heavily involved, and where a whole bunch of Canadian companies—I have the list—are asking us to do more work.

As a result, we have a lieutenant colonel, who happens to be a REME officer right now, who is over there doing exactly what you described.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

But they're very different agencies.

[Patrick Finn]

They are.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

It's like saying that we have an industry representative in the mining industry, but we don't have an industry representative in auto. They're not the same thing.

[Patrick Finn]

Absolutely.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Was a report done on what the NATEX in NCIA was seeing—what his recommendations were, all that kind of stuff—when he left the post? Would we be able to get a copy of that report?

[Patrick Finn]

Again, I'll take it away. I don't know what occurred there. I do know that we continue to partially fund....

There was no one to send. The position was going to go empty at one of the last posting rotations. We've continued to provide some funding to the Canadian delegation in NATO to kind of ease the transition, so there's a continued involvement there. We are trying to really build....

What we are often getting out of CADSI and other Canadian organizations is no access to the broader defence sector. For the same reason we offered up Jennifer to chair the agency board in NSPA, I've put a liaison officer into NSPA to bolster and build the ability to gain access for the Canadian defence industry. Beyond that, I'll take it back and see the context and ask the question about future intentions for a NATEX at NCIA—which, again, falls to Len's organization—and some things like that.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much. That was right on time.

I'm going to give the floor to Mr. Yurdiga.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Thank you, Mr. Chair. I'd like to thank the witnesses for being here this morning.

My first question is a general question, I guess. The Government of Canada highlighted that by 2024 or 2025, Canada would be spending 32.2% of its total defence expenditures on major equipment. Can you speak to approximately how much of this funding will be allocated to improving our navy?

[Patrick Finn]

Thank you very much for the question.

I don't have a percentage with me. Our chief financial officer could answer that better, but I'll say in broad lines that it would be a significant portion, for no reason other than the Canadian surface combatants. As has happened in the past when we built our frigates, the type of investment involved there kind of dwarfs all other investments at $56 billion to $60 billion. Not all of that will go to the shipbuilding industry, but in a number of areas, as we get into implementation a few years from now, that will be a significant cash and eventually accrual-based investment.

I don't have a specific percentage, but it would be a significant portion for sure. We can come back to you if you want the specific percentage that breaks out for the navy.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Thank you. Yes, I would like to have those numbers. Would that be tabled to...?

[The Chair, Liberal, Stephen Fuhr]

We'll get them to the clerk.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

How does Canada differ in its defence procurement procedures when compared to other NATO countries? It's very important to see how we compare, where we're at.

[Patrick Finn]

Thank you for the question.

As indicated, I sit at the Conference of National Armaments Directors, where I have engagement a number of times a year with my colleagues, both in plenary and in bilateral engagements. We have other bilateral engagements and we speak a fair bit in a Five Eyes context.

In the broad approach of how we typically do major procurements, government establishes policy and makes those decisions. We then have a project or program approach that speaks to two gates entering definition, and then implementation is pretty standard among all our large allies.

We may be structured differently. In Canada, we have a separation between what my organization does and what Public Services and Procurement Canada does and what Industry, Science and Economic Development does, but almost all of our peer nations, I would say, have a similar breakout. It may be within their department of defence, but nevertheless they break it out that way.

I would say that in the context of all the things we need to do, ensuring we are gaining value for taxpayers' money is pretty common across the broad allies. I have not come across the silver bullet that we would adopt from somebody else's system, where they've kind of cracked it. We're pretty similar that way, in authorities and how we do things. Timelines can ebb and flow, but there are a lot of parallels and similarities between us and our allies in terms of large military procurement.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Thank you.

The basics of the procurement process start when the Canadian Forces identifies the capability deficiency. Is this always the case?