National Defence Committee on June 13th, 2023

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Considering the war that's happening, Ukraine is enabling us to be a bit more sensitive to our engagement.

What about the shipbuilding strategy? Are we able to fulfill some of what's being proposed?

[Karen Hogan]

The shipbuilding strategy is one of those areas that I think is contributing to some of the delays. I talked about trying to accomplish a lot in a procurement process where you have trade-offs. When you're trying to establish an industry to be able to build and repair ships in the country, that comes with a trade-off, so there's slowness—speed is one of those trade-offs—and potentially costs. You have to balance that in a procurement process.

It comes down to a policy decision on whether the procurement is about getting ships, or whether the procurement is about getting ships and establishing an industry or a technological base in the country.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

One of the recommendations made by a former witness was centralization—having a specialist procurement office to coordinate all these efforts under one roof.

Do you think that's effective, given the complexity that is there, that's going to be made, and the need for Treasury Board, ultimately, to make those decisions?

[Karen Hogan]

Whether you have one person or many involved in the procurement process, if the decisions keep changing, there will be delays. It's about having consensus on what the Canadian Armed Forces need.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

That's right.

On capacity, one of the questions was, do we have the capacity and expertise in-house to do this?

[Karen Hogan]

Do we have the capacity to do military procurements now?

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

How much do we need to enhance this? Obviously, it's not because you're suggesting that we're delayed—

[Karen Hogan]

I haven't done an assessment on how many procurement personnel would be needed in order to meet the demands, but I would argue that the current capacity in procurement across the federal public service is lacking. It's not even just in the military. It's in other areas. Look at IT procurements. There is a lack of capacity and expertise across the public service, in general, in procurement.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Is the expertise there, within the capacity we have?

[Karen Hogan]

I would like to think that our Canadian Armed Forces have the expertise they need on what is needed—on what the military will need to carry out its responsibilities effectively. It's about ensuring you have the right procurement officers to support that.

As I said, I did not do a detailed assessment to know whether or not we have all that expertise. In each of our audits, we highlight that delays are mostly around decision-making. It's the timing of decision-making that results in delay.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you.

[The Chair, Liberal, John McKay]

Thank you, Mr. Sousa.

Ms. Normadin, you have the floor for six minutes.

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

Thank you very much, Mr. Chairman.

Ms. Hogan, thank you for being here and for your opening remarks.

I'd like to come back to the lifespan and life cycle of equipment. You mentioned that we often have to extend their operational life beyond their lifespan, and that this generates fairly high costs. So I'm going to ask you a question in two parts.

Does it happen almost systematically that we exceed the useful life of the equipment we have?

If so, is it because we're over-estimating the useful life of the equipment? Since the unexpected always happens, shouldn't we build in a buffer period by reducing the estimated lifetime of the equipment by a few years, to make sure we never reach or exceed it?

I'd love to hear what you generally think of this.

[Karen Hogan]

The useful life of assets is an audit challenge every year. It's not just ships and aircraft; it could be a computer, for example. Analyses probably underestimate the lifespan of equipment, but the military is very good at extending it. However, this generates more costs.

Once you extend the life of a ship, it costs a lot more to keep it afloat. That's why I wonder about the equipment used in the Arctic. We know that Arctic waters are tough on equipment. So this is no surprise. We know that the equipment is going to exceed its useful life.

What do we do about satellites, for example? From the moment we buy equipment, we should think about its life cycle. If it has a lifespan of twenty years or so, we should say to ourselves that after about ten years, we'll determine whether it's time to start the contracting process to provide for its replacement. I find it a little odd that Canada isn't more proactive in this regard.

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

If I understand correctly, it would be better to make a slightly more modest analysis of the lifetime of the equipment, even if it means replacing something whose lifetime could be extended, rather than going almost systematically beyond the lifetime of the equipment.

[Karen Hogan]

That's exactly it. We also have to take into account the evolution of technology. If Canada wants to keep its equipment up to date, it needs to think in terms of life cycles and ensure that contracts are awarded on a more regular basis. In doing so, we ensure that no equipment shortcomings hinder our surveillance activities.

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

Thank you very much.

You said there weren't enough technicians to maintain the CF‑18s we got from Australia. Should we limit our acquisitions if we know we won't have the manpower to maintain these aircraft? Or, on the contrary, should we just go ahead with the acquisitions anyway, since training the workforce may take less time than the acquisition process itself?

How do you strike a balance between available manpower and our ability to maintain the aircraft we buy?

[Karen Hogan]

It's funny, but I'd rather present you with the other side of the coin: if we had the personnel, pilots and technicians, the sense of urgency to replace our equipment would be stronger. We'd have to have enough equipment to make sure we can meet the government's commitments, internationally and domestically.

So we can see one side of the coin or the other.

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

Thank you very much.

I'd like to come back to what you mentioned about inventory management. Units receive material late almost systematically, especially when it's critical material. I think you mentioned that, in this case, it was late 60% of the time.

Do you have any specific recommendations about inventory management for this kind of equipment? I'm not talking about large acquisitions, but rather equipment subject to more frequent replacement. Are there any specific issues that could already be addressed for equipment with more frequent inventory turnover?

[Karen Hogan]

This is an issue we've raised in our financial audits as well. You mentioned our performance audit, but every year the issue of inventory management at the Department of National Defence is raised in the Public Accounts of Canada. Many recommendations have been made. The Department of National Defence has a ten-year strategic plan. It makes progress every year, but it takes time.

As part of the performance audit, we recommended making sure that all so-called critical requests really are that. Sometimes, people claim that a regular request is critical in order to speed up its processing. That sometimes happens, but the big problem really is inventory management. You have to be able to plan to determine what material you need, where and when.

In short, we need better inventory management. The government doesn't manage its inventory effectively, but it's very good at responding to emergencies. We even gave an example in our report where the government was able to get the needed equipment, but the process wasn't efficient because there were a lot of transportation costs, in particular. In the future, we need to better estimate the day-to-day needs of the Armed Forces.

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

Therefore, it's important to avoid describing every ask as urgent just because that's how it'll get dealt with more quickly. Otherwise, if everything is urgent, nothing is urgent anymore.

[The Chair, Liberal, John McKay]

Thank you, Madame Normandin.

Next, we have Ms. Mathyssen for six minutes, please.

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

Thank you, Mr. Chair.

Ms. Hogan, in the United States there was a six-month investigation done on military spending. It was done by 60 Minutes. That prompted several senators to ask the Secretary of Defense to do an internal audit. The audit found that the military procurement process was plagued with arbitrary price inflations from the industry itself. It cited two major factors from its investigation, namely, the consolidation around a handful of industry players, and a massive reduction in public servants dedicated to evaluating procurement projects.

At some point, some of these companies were boosting their total profits by about 40%, and sometimes as high as 4,000%. There's a U.S. federal law that says that it will not allow military equipment to be sold to international customers at any price less than the U.S. pays.

Would you extrapolate from that, as we look to purchase American equipment from those same producers, that they would then inflate the price of what Canadians would be buying?

[Karen Hogan]

I'm not sure I know the study you're sharing with me. If the statement is true that foreign purchasers shouldn't pay less than what the American purchaser is paying, at best it would result in an increase cost to Canada.

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

Is there nothing in terms of what the Canadian procurement process does that looks at what international costs are, and how they're potentially gouged? Does that impact at all on how our own procurement process looks at things?