National Defence Committee on June 13th, 2023

[Karen Hogan]

Canadian procurement is usually an open and transparent process meant to ensure there are competing bids in order to reduce and avoid that kind of arbitrary price inflation. That's typically why our procurement process requires an open and transparent bidding to be done.

Andrew, did you want to add something on that front?

[Andrew Hayes, Deputy Auditor General, Office of the Auditor General]

I might just add that competition law would also enter into that aspect of ensuring that there isn't dumping or price inflation conspiracy, that sort of thing, which is against the law. It comes down to whether or not the procurements are also structured to make sure we get best value and that price is a consideration that will drive the procurement decisions.

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

There are two points on that.

Mr. Sousa was sort of getting into that, and you said you weren't sure.... There was an internal report by the Department of National Defence in Canada that said they were 30% short of 4,200 positions of trained procurement experts, and they've been struggling with that for years.

The Department of National Defence, within procurement, lacks the expertise in terms of physical personnel to do that study to ensure things like that don't happen.

If you could comment on that first, then I'll get to the second point.

[Karen Hogan]

Well, I said I hadn't really done an assessment on military procurement capacity, but that I can say there is a gap in procurement capacity across the federal public service in many areas. I raised IT.

In many audits that we do, we hear about the delays in procurement because there are no procurement officers. In fact, my own office struggles at times to have the right capacity and the right skill set in our procurement group. It's definitely across the whole public service, and that likely contributes to the 30% to 40% determination that you mentioned.

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

In terms of that ballooning cost, it being industry driven and the fact that we are shifting.... There was an idea, of course, of what you talked about, that open-contract, competition-based sourcing. However, the government is moving to sole-source procurement.

Can you comment on how that will influence the costing as we move specifically to sole source?

[Karen Hogan]

I guess it depends on what else you're trying to accomplish with those sole-source procurements, whether there are competing demands, and, as Andrew mentioned, if the dollar value and the value for money are part of the procurement decision. Sometimes it's about the timing. Other times it's about the other economic benefits. It might be about ensuring that there's an industry created in Canada.

All of those are trade-offs that impact the price, the delay. It's about what you want to accomplish in a procurement, other than just acquiring a good.

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

You see the issue, though. With the F-35s, for example, there was a sole source. They went to open competition. They eventually went to the Americans. The Americans are seeing now, through investigations, that they are being highly, highly gouged by certain companies. We buy at a certain competition rate. We do it in a sole-source fashion. Now that we're moving forward in other purchases, we don't have enough people to look at that competition.

Yes, competition law may say that's not possible, but if we don't have all of those pieces in place, is that not a problem in terms of driving up those costs?

[The Chair, Liberal, John McKay]

We need a very brief response, please.

[Karen Hogan]

Well, delays in general drive up cost, don't they? They go hand in hand. Not having the right personnel, not having a timely decision and not having a fast procurement will all be factors that contribute to that. I'm not sure I could point to just one thing to drive up a cost in a procurement.

[The Chair, Liberal, John McKay]

Thank you, Ms. Mathyssen.

Mr. Bezan is next, for five minutes, please.

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

Thank you, Mr. Chair.

I want to thank the Auditor General and her office for being here again.

Ms. Hogan, does the Department of National Defence give you access to all of the information you need to do your job when you're auditing anything? You have all of the security clearances needed; they don't withhold anything, so if you want to see contracts, you can see contracts.

[Karen Hogan]

Typically, we have absolutely no concerns whatsoever. Many of our personnel have the right security clearances that are needed, and if we don't, we would ensure we are able to get those. We have not at this point with National Defence had any concerns about access to information.

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

When you did your study on national shipbuilding and you were looking at the procurements in both AOPS surface combatants and joint supply ships out in Seaspan, you were able to see those contracts to ensure that taxpayers are getting a bang for their buck.

[Karen Hogan]

Absolutely. We've been able to see all of the contracts we wanted to see during our audits of National Defence.

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

Every report, when we get it back, already has a response from the government that they agree with the recommendations you're making. When your office is drafting a report, is there a back-and-forth between the government and your office when the report is being drafted, with respect to the wordsmithing or even changing the recommendations that you are making to National Defence?

[Karen Hogan]

At the end of every audit, we always ensure that we verify our facts with the department. We always clear factual accuracy and ensure that we received all the information. We then talk about the recommendation.

There is a bit of back-and-forth about the recommendation, absolutely. It is to ensure that the recommendation is something that the department will implement and that it will meet the goals of addressing the gaps and the issues we identified. There's no point in our putting forward a recommendation that no one will implement or that they just say they will and then do not do anything about it.

I would not say it's about negotiating or wordsmithing that recommendation. It's about making sure that it's an achievable recommendation that addresses the weaknesses we found.

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

Your predecessor in 2018 on the fighter jet replacement, when we were looking at the F-18s and buying used Australian jets, in a draft report that was leaked, said, “In our opinion, the government does not need to spend $470 million to buy used F-18 fighter jets that are as old and have the same combat capability deficiencies as Canada's current fleet”. He went on in the recommendation, saying, “National Defence should not purchase interim aircraft until it implements plans to recruit and train pilots and technicians.” That was in the draft report.

The final report says, “National Defence should develop and implement recruitment and retention strategies for fighter force technicians and pilots that are designed to meet operational requirements and prepare for the transition to the replacement fleet.”

It was definitely a change in tone. It was definitely not, “Don't bother wasting taxpayer money on the Aussie fighter jets.” Are we seeing this happen more often, or is that just a one-off?

[Karen Hogan]

I can speak a little to that situation. In my mind, that was really touching the policy line, the policy decision on whether or not the planes should have been purchased. In my view, the government had made a commitment to meet the NORAD's and NATO's highest level of alert. We needed planes in order to be able to do that. That's a policy decision.

I have not, in my time as AG, seen us change unless we were missing facts, missing information or our recommendation was really one that the department would not implement. Our goal is to improve the public service, not to spend time to not result in a change.

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

On that comment “to improve the public service” and with the study that we're doing, National Defence is looking at improvements in procurement of National Defence and getting the matériel and equipment that we need in a more timely and less costly manner. What are your recommendations to this committee on how we speed up the process of buying equipment? How do we make sure that...? You already touched on it, that there aren't enough people who specialize in buying defence equipment.

Where's the sweet spot, where we can do our fiduciary duty of respecting taxpayer money and get the equipment that our armed forces need in the dangerous world we live in?

[Karen Hogan]

I've said this before, but I'll put it in two points. It starts with having consensus on what the Canadian Armed Forces needs and what it should look like. Then it's about going ahead with the procurements to meet that end state but thinking about the whole life cycle planning of your procurement. It isn't just about getting the good; it's about having all the people that you need—

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

Our army doesn't care about life-cycle costs; our army cares about what assets we bring to deal with the threat environment, so—

[Karen Hogan]

I hear you, but the public service should care about life-cycle costs.

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

That's right, but how do we do it in an expedited manner to deal with the challenges that we have?

[The Chair, Liberal, John McKay]

What I care about is the time. Mr. Bezan's time is expired.

Maybe you could circle back in on Mr. Bezan's question at some point in the future.

Mr. Fisher, you have five minutes.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair.

Thank you very much to you, Ms. Hogan, and to your team for being here.

It's been a really interesting conversation. We've talked about a lot of similar things here, but I want to go to the national shipbuilding strategy.

You talked about trade-offs and the balance between, perhaps, quick procurement and building an industry, as we're doing in Canada. Traditionally we've been boom and bust. We build a couple of ships and then we send those folks off with skill sets to, hopefully, find other work. Then, maybe 30 years later, when we need new ships, we try to do the same thing.

You talked about 50 ships over 30 years across the country, but specifically in the Atlantic region, each ship is, I would say, vastly more efficiently built than the previous one was, although I think the increase in efficiency levels is getting a bit smaller incrementally as we build more and more ships. What we're seeing now in Nova Scotia, specifically in Halifax—and they cut steel in Dartmouth—Cole Harbour as well—is that we're building an industry of expertise and capacity in shipbuilding.

I can say for a fact, from what I've seen, that this is really valuable in terms of the spinoff jobs and the expertise that's being built—with some of the best shipbuilders in the world now—in Canada. It seems to be the way to go.

Your job, of course, is finding value for money. Do you find value in that building of a domestic capacity, where the value might not be seen on day one but might be seen closer to the middle or the end of the contract?