National Defence Committee on March 22nd, 2018

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

The chair is going to cut me off—I'm out of time—but I think I'll have more time later, so perhaps you could hold that thought. I'd like to pick up on that cultural element when I have more time.

[The Chair, Liberal, Stephen Fuhr]

Thank you for monitoring your own time. I really appreciate that, actually.

MP Gallant, the floor is yours.

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

Thank you, Mr. Chairman.

I particularly want to home in on our guest across the way and Mr. Hill's comments that parliamentarians should become more involved in the procurement process. That could be problematic if you're in cabinet and you have access to the chequebook and friends who might want some of those procurements.

We have been educating ourselves as parliamentarians, particularly through the NATO Parliamentary Association. For example, on shipbuilding, a number of us have gone to different countries to see how they have come upon the design and to see how they have their ships built on time and on budget. Take the Danish model; their patrol ship, I believe it was. They use a modular system. They have one project manager, and his job is to make sure that the entire project happens on time and on budget. They've been quite successful.

When we went to the national shipbuilding strategy here in Canada, we allocated part of the work on the east coast and part on the west. Another opportunity came up in central Canada. That one has been built on time and on budget, one of our supply ships—at least to be leasing for the next five years. When we asked in this committee whether or not the Canadian surface combatant would be using this modular system, which we've seen be successful in the Danish example, we were told, no, they were just going to leave the design up to the contractor. Subsequently, we're seeing that the responsible budget, which started at the order of $26 billion, has increased to the order of $100 billion.

So we tried to give our input to keep costs and timelines...since we don't even have a destroyer in our entire navy right now. We tried to make them timely. One of the ways to do so would be by taking a look at a country that's been successful, and they would have none of it. In fact, the strategy seems to be to engage many subcontractors or co-contractors, in some cases, that have a direct affiliation with the prime contractor. They're making profit over profit over profit that way, instead of looking at the Canadian taxpayer and our national security in getting the best value for our dollar in good time. So I just wanted to let you know that we have been trying to give input, but it just has not been accepted.

I have a question for you, Janet. What is the process for Canadian small businesses, with unique technology relevant to defence, to make their products available to your group? I know that being a member of CADSI is one of the ways, but that's very expensive for a small group. They do have the capacity to provide their products and services across NATO; it's just that they can't seem to make that contact. What would you suggest to industries in Canada who are small and the backbone of our nation? They can't all be GEs at the same time, but nevertheless, they have this unique and very important technology to use, and that is being implemented by different countries, just not through the NATO group. How can we help them along?

[Janet Thorsteinson]

Well, I'm not here as a representative of CADSI. I will, however, say that a membership of about $400 per year is not exorbitant, I don't think, for even a small company, because the small companies pay only that much.

Second, I think we need to recognize that for a small company to go even on a mission to Europe is a significant investment. What we have done to some extent is that we have in the past invited the Canadian NATEX to come to Ottawa to meetings with small businesses so that they can learn more about how to do business with NATO, how perhaps to make outreach to the prime contractors who are active in NATO, and to learn the process as well. I know that both Colonel Bedard and the previous colonel, Colonel Bates, have both spoken with small businesses here in Ottawa.

[The Chair, Liberal, Stephen Fuhr]

We'll have to leave it there. We're a bit over time.

I'll yield the floor to MP May.

[Bryan May, Liberal, Cambridge, ON]

Thank you, Mr. Chair.

First of all, thank you all for being here this morning. I am a guest on this committee today, so I'm a bit out of my element. I'm here representing MP Alleslev, and I wanted to mention that she was very pleased to hear that you would be here today, and she apologizes that she's not. I'll do my best to represent her well today.

For my benefit, as somebody's who's not typically on this committee, I'm wondering if you can elaborate on the differences between the NSPA and the NCIA procurement agencies within NATO, and give some ideas as to why Canada is less successful with the NCIA.

[Janet Thorsteinson]

NCIA focuses more on communications and informatics projects. Their projects tend to be very large. Some Canadian companies are capable of doing that, and some of them have been very successful—CGI and MDA, for instance. However, Canada produces an exceptionally broad range of goods and services. That broader range of goods and services, which also tend to be, by and large, of smaller dollar value, are more suited to the Canadian environment, and that seems to be where Canadian companies have elected to participate more.

[Martin Hill]

Can I answer some of that?

[Bryan May, Liberal, Cambridge, ON]

Please, Mr. Hill.

[Martin Hill]

NCIA does the “C3” for NATO. Its budget is relatively small, about $300 million a year. It is very difficult to get into NCIA, because it's very specialized in the C3 field. They have a lot of suppliers that have been there for years. My company, for instance, has been there for years and years. It is difficult for what I'm going to call the North Americans to get into NCIA, because it's almost all common-funded and therefore has very particular procurement rules.

NSPA is the big procurement agency that does projects that are given a title—NATO—and AFSC and AGS are both NSPA. All those really big, almost infrastructure defence projects go through NSPA, and almost all of them are also coalitions of the willing rather than NATO. If Canada is in the coalition, you will have all the access you need, and it is your national delegation who will know far more, actually, about the political and the financial end of those deals than will NATEX.

I cannot stress enough the importance of the national MOD, the national delegation, with the NATEX agency, working together. That is absolutely fundamental to success, and it would mean that your national companies would go to Ottawa to find out about these projects and the Canadian position, rather than having to travel all the way to Capellen in Luxembourg. I think that's really important for you to understand.

[Bryan May, Liberal, Cambridge, ON]

Thank you, Mr. Hill.

I'll go back to you for a moment, Janet, to expand on something that MP Gerretsen was speaking about. You suggested in your opening remarks if you had more time...in terms of identifying innovation that Canada should be focusing on to help in our process. I often find that technology is not the issue; it's the adoption of technology that is the barrier sometimes.

Do you have any suggestions of things that Canada could be focusing on from an innovation perspective that would help give us an advantage in NATO?

[Janet Thorsteinson]

A few years ago, the Department of National Defence issued a report by one of their science and technology committees on the issue of technical insertion and how that might be more effectively conducted within the context of long-term, high-technology contracts, and the challenges associated with that. I don't think I currently have a copy of that. I think I had it sometime in the past. It's something you might like to look at.

[Bryan May, Liberal, Cambridge, ON]

Does Canada have specific advantages right now that we are not taking advantage of and should be?

[Janet Thorsteinson]

I think the primary advantage I see right now is the shift in political focus for commitment to NATO and the minister's statement on the 20th that support for NATO was ironclad. I was exceptionally pleased to see that, and I look forward to exploiting that all I can. Thank you.

[Bryan May, Liberal, Cambridge, ON]

Thank you.

Do I have time for one more?

[The Chair, Liberal, Stephen Fuhr]

No, you're over time—just barely.

I'll yield the floor to MP Bezan.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you, Mr. Chair.

I want to thank our witnesses for being here.

Before I get into my questions, I want to say quite clearly that I'm a huge supporter of NATO and everything it does. Canadian participation in it is very important, especially to the Conservatives and I believe to all members of this committee. However, this one question has been raised to me in the past, and now we have the industrial representatives who participate at the NATO level here with us. We're always asked to keep participating in NATO. We are the fifth-largest contributor and we're leading the enhanced forward position in Latvia. We have boots on the ground, we're providing technical and financial assistance, and we're large participants at NATO headquarters and at SHAPE.

Yet, according to what Daniel just said, Canadian companies only get 1% of the contracts. I know you have lies, damned lies, and statistics, and I don't know what percentage dollar value that represents, but if Canada and Canadian companies are not benefiting from being part of NATO, and if the European nations definitely want Canada at the table and want Canada participating in NATO missions, shouldn't Canadian industry be getting something back out of that?

[Daniel Verreault]

There is no doubt that we should be doing far better. There is no doubt that, given where Canada is located, with our friends to the south and with what's happening in Europe, Canada is very well positioned to play a bigger role at NATO. From an industry point of view, and for the reasons quoted before, we are very challenged to make a big difference. The participation in the AWACS replacement will go a long way toward having Canadian companies more embedded in what's happening from a technical point of view and a business point of view at NATO. These common programs bring upon us far more benefit, because when you're in the headquarters and you're walking the halls, although there are limits due to security, you are still able to meet, discuss, advocate, and lobby. It's these events that add to our value in participation.

It is clear that in many fields we have world-class products. Yes, we need to choose companies as opposed to broad participation. We need to pick and choose carefully, because this is a long-term game, at a very sophisticated level of technology.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you.

Mr. Hill, you are the European in the room and have experience with both NATO and everything that's happening now with PESCO. One of the ideas behind PESCO, to my understanding, is that they wish to do more collaborative work on the procurement side, and have more interoperability. Is that something that benefits NATO, or do you see that as something that will undermine NATO?

[Martin Hill]

I'm not the expert on this, but I think it's quite clear that anything that happens under PESCO will benefit NATO. What it fundamentally will do is produce what we'll call a European “pillar” of capability that will of course be available to NATO, because the nations who own it are members of NATO, and they will allocate it to NATO as required. It's complementary, and absolutely not in competition. I think that's very important to understand.

Going back to the earlier question, there is dialogue at all levels between the EU and NATO in the defence environment. Much of it is informal. There is little formal dialogue, which makes it all a bit difficult to manage. When the EU, the EDA, or a commission does something, NATO is aware, and the two organizations do make sure that they are not spending their money twice, if you see what I mean. There's only one set of dollars to be spent on all of this. PESCO is complementary to NATO.

[The Chair, Liberal, Stephen Fuhr]

We're going to have to leave it there. The last five-minute question will go to MP Gerretsen.

[Martin Hill]

Can I just say one other thing? I cannot express enough how important it is for the government to push. With 1% of contracts, what you can do is in the infrastructure, in the investment committee, you can start being a bit reluctant to approve things and insisting that a Canadian company get something.

Now, that's highly political, highly charged, extremely unacceptable, but other nations do it. Why shouldn't Canada?

[The Chair, Liberal, Stephen Fuhr]

Thank you for that input.

I'll yield the floor to MP Gerretsen.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

Janet, just to go back to our discussion about the culture of NATO, Canada's role, how Canada looks at NATO, or how Canadians look at NATO, can you expand on what we were previously discussing?

[Janet Thorsteinson]

I'll say a couple of things on that.

First of all, I think Martin just told you the answer to a lot of that. The position taken by other nations may sometimes not be in line with approved practice. As Martin said, other countries do that.

As well, I think on the cultural side there's a difference in the relationship between industry and government, because, for instance, in many, many European cases, the companies are owned by the government. Navantia has strong government part ownership. I don't think it's fully owned, but Navantia has ownership by the Spanish government, and therefore it's quite natural that there would be a degree of co-operation and communication. Canada has historically not owned defence companies. They haven't needed to. They didn't feel they needed to.

Those natural communications are what I'm referring to in terms of culture.