National Defence Committee on June 9th, 2023

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

That's understandable. I just think that the criticisms of reaching 2% spending without clarifying that one of the ways that a previous government increased their percentage was to include new categories, and it wasn't new defence spending.... It was a recategorization of putting that spending that was already being done into the 2% spending.

In terms of those numbers, though, in terms of the increases, would that be something you could table with the committee? I would be curious of that progression going back to 2010.

[Christopher Penney]

NATO publishes those numbers. They are very easily available.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

That's perfect, thank you.

In answering another question earlier, you used the example of if there was a war, there might be difficulty at that time procuring.

Well, we're seeing a war right now, the illegal invasion in Ukraine by Russia. Have you determined any analysis that could be part of the reason for, again, criticisms of spending that has gone unspent? Is it an issue of there being only so many companies or agencies that we would work with in terms of procuring this equipment? It is probably in high demand right now in certain parts of this world.

Has that analysis been done? Is that a factor in some of the unspent money?

[Yves Giroux]

We haven't done an analysis of the specific factors behind the lapses at National Defence, but we have seen lapses for a number of years now and they predate the war in Ukraine.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

That's fair enough. Thank you.

In terms of U.S. procurement, I know you mentioned that you look at numbers. When I was on the finance committee, we often looked at U.S. military procurement from a finance perspective in the sense that, for example, defence in the U.S. would put out a request for tender saying—this is an example that was used so I don't know the details; this was testimony—to design a gun that can shoot around corners.

I'm serious. This is what the testimony was. That created this industry of people now developing all this technology. Obviously it's not a gun, but probably some sort of camera or microscope-type thing. By doing that, because defence spending was so massive in terms of their procurement, it incentivized companies to come up with all this different technology.

It's really difficult to compare the U.S. to the Canadian example. They may never have even used any technology that came out of it, but so much money was spent in even the development of these ideas that might be wild to us.

Are there policies, which may not be as extreme as some of that, that Canada could implement that would actually see the development of this sort of technology through our procurement process?

[The Chair, Liberal, John McKay]

Thank you, Ms. O'Connell.

It's an important policy question as to whether the PBO can answer a question that has to do with whether a gun will shoot around a corner. If in fact the PBO comes up with how to shoot a gun around a corner, we'll all be interested in that. That does strike me as a little bit beyond their mandate.

With that, I'm going to ask Madam Normandin to go ahead for two and a half minutes.

[Christine Normandin, Bloc, Saint-Jean, QC]

Thank you, Mr. Chair.

Mr. Giroux, I'd like to return to the matter of industrial and technological benefits. One of the criticisms I've heard from industry in recent years is that benefits have become politicized to some degree. Very broad criteria are put in place, and these may look positive and focus on a particular clientele, but they are not necessarily suited to requirements. Is that something your office has noted? Is the politicization of benefits that I've heard about giving rise to inefficiencies?

[Yves Giroux]

When we studied economic benefits or policies on industrial benefits, we found that benefits were often generated in areas not directly related to defence policy.

These expenditures meet the criteria for the number of dollars spent, but relatively few went to small and medium-sized enterprises. Very little is done in priority sectors like research and development, or investment in post-secondary institutions, even though the enterprises that are required to meet these criteria obtain credits of four to nine times the amounts invested. They could multiply the number of dollars spent in these sectors by four or nine times, but they do so very rarely. This suggests that the expenditures or investments that meet the industrial benefit criteria would probably have occurred in any case, or would not add anything to what would have been done without the policy.

[Christine Normandin, Bloc, Saint-Jean, QC]

Thank you.

I'm now going to address the geographical distribution of the benefits. I've heard that it used to be done from a regional perspective and that we actually knew where the money was going. It would appear that it's more difficult to know that now. Is that the case?

[Yves Giroux]

Our study did not focus on regional distribution. I don't know whether Mr. Penney found references to regional distribution in his studies or when the report was being written.

[Christopher Penney]

No, as Mr. Giroux mentioned, that was not included in the scope of our report.

[The Chair, Liberal, John McKay]

Thank you, Madam Normandin.

Ms. Mathyssen, you have two and a half minutes.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Building off what I think Mr. Fisher was asking, in terms of how you balance a speedy delivery with the idea of a more open process, a lot of small-c conservatives talk about the industry needing that competition in order to innovate, but there is that balance of speed and efficiency, and so on. How do you, as the PBO, try to assess where money could be saved from sole source? There's a lot of pressure on government to do that versus the open bid and to drive innovation within open bids, but also there are the costs.

[Yves Giroux]

It's a question that calls on many constraints. For example, you can have open competition, and you can have value for money or the lowest bid, but it's difficult to meet all of the constraints if you also add domestic production, because Canada has a small industrial defence base. If the government, or if any government, insists on domestic production, it's difficult to have sound competition that would also drive down the costs.

The only way to square that circle would be to say we are willing to go domestic, but if we don't get an accurate or a reasonable price, or if there are cost overruns, we will go abroad and we'll outsource this, or we'll go to foreign suppliers. Then that would be in breach of the domestic production capacity or policy, and that would leave Canada exposed to foreign suppliers in case of a war outbreak, which would require significant ramp-up of production.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Within your report, it said that even though there was that policy of going into Canadian companies, the money still went to foreign owners. The majority of the money still went into international hands because of the way foreign-owned companies take on Canadian contracts or Canadian companies themselves.

[Yves Giroux]

We didn't look at where the money went. We looked at the overall costs of the Canadian surface combatants, for example. We didn't look at whether the money was spent domestically or which share was spent abroad.

[The Chair, Liberal, John McKay]

Thank you, Ms. Mathyssen.

We will go to the very respectable-looking Mr. Kelly for five minutes, please.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

Our excessive project specifications, are they a factor in these excessive times we see and in the delays in getting projects funded and built?

[Yves Giroux]

That certainly is a factor. I'm not sure if I can call them excessive, not being a specialist myself on the needs of the Canadian Forces, so maybe they're totally justified. It's clear that we see it in procurement projects—not only defence but also IT projects—where, if you ask the ultimate users what they would like to have or what do they need to have, they'll have lots of specifications. It's not clear whether each and every one of them is necessary, but if they become part of the requirements in the contract, they drive up costs even though not every single one of them may be necessary.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Do you think that TBS thresholds are too low for military procurement?

[Yves Giroux]

To be honest, and I'm taking a risk by saying this, I'm not sure that the Treasury Board process adds that much value in terms of military procurement.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

You're concerned that maybe there should be no threshold and that TBS should be cut—

[Yves Giroux]

I'm not sure what you mean by “threshold” at TBS.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I mean for the $50 million or for the amount that would engage the TBS process.

[Yves Giroux]

Well, I think the Treasury Board Secretariat is not equipped with military specialists. If there are specialists, there are not that many, so I'm not sure they have the best skill set to be able to push back or to challenge appropriately the requirements of the Department of National Defence or of PSPC.