National Defence Committee on June 13th, 2023

[Dr. Philippe Lagassé]

As we saw with the shipbuilding strategy, you can make a policy that you're going to build something within Canada, but if you try to acquire other capabilities writ large, a challenge you're going to face is that you have to convince industry to invest in something that you're going to buy a very limited amount of. They then need to sell it internationally. As we've seen when it comes to foreign military sales to various regimes, we then get concerned about where we end up selling these things.

You have to convince industry you're actually going to buy on scale for them to make the investment worthwhile, which, given the size of our military, we simply can't do.

It's good to buy Canadian when we can, but Canada can't produce everything. It has to produce something that can compete on a global scale.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

How much of a role do you think the Canadian government can play in promoting some of the things Canada produces abroad in terms of defence, including with our NATO partners or any of our allies? I know they need that interoperability.

In what way can the Canadian government play a role in ensuring some of our own products are being pushed or at least promoted out there, so we can use our own stuff and be the leaders in that one way?

[Dr. Philippe Lagassé]

We already do that with the Canadian Commercial Corporation. The CCC has a program of promoting Canadian defence industries and defence goods. Here again, though, it is a question of how much you want to invest in particular capabilities.

I'll give an example that is maybe not well known. For instance, the upgrading of our Halifax-class frigates was a successful upgrade that was then subsequently pursued by the New Zealanders. We're actually quite good at this.

It's just a question of recognizing that we can't do it across the panoply of defence capability. We're very good in certain areas, and the CCC and the Government of Canada do promote those industries.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Okay. I like what you're saying. However, having spoken to some of these industries, it seems there's a lack of communication between what the needs are and what they could potentially produce. I think maybe filling in that gap would potentially be able to help with both.

I'm wondering if you could tell us about the procurement processes in other countries. What other countries are doing this better, especially in really pushing their own and getting their own domestic capacity up?

[Dr. Philippe Lagassé]

If you really want to see an example of what a truly nationalized defence procurement system is, look at a country like France. France will invest heavily in maintaining its own domestic defence industry—and at great cost, I would add. It sometimes leads to some illogical practices. For instance, some years Dassault will produce only a couple of Rafale aircraft. It's just to keep the production line going, but they keep it going.

You have to ask yourself as a Canadian—we had the Auditor General here—if we would accept subsidizing a defence industry producing one or two pieces of equipment just to keep the line going because we think it's important nationally to maintain that industry. That's always an option, but to be quite frank, we're too capitalistic for that.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Would you say that maybe France is in a different situation from Canada in terms of its geopolitical location? Do you think maybe Canada doesn't necessarily need to go that far in that respect?

[Dr. Philippe Lagassé]

Well, as we're seeing with the ships and the shipbuilding strategy, you can make it a policy that you will fund the development of Canadian industry and that you will buy a certain amount from Canada. That comes with cost increases. It comes with political pressure to keep those lines going. It comes with, in some cases, a higher cost and a reduction of capability, but ultimately, you build the ships in Canada; you get the expertise and you know that you can rely on that yard.

All of this comes down to trade-offs. Are we willing to do that beyond ships? That is ultimately the question that we have to answer.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you for answering the questions.

[The Chair, Liberal, John McKay]

Thank you, Ms. Lambropoulos.

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

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

Thank you very much, Mr. Chair.

I will first turn to professor Lagassé.

You've said that national defence policies and funding for the department are poorly aligned and that, given the needs, spending by the department should be more than the current 2% of GDP.

Yet the Parliamentary Budget Officer told us last week that not all of the Department of National Defence's budget has been spent and that the projected value of unused funds for 2023-2024 stood at about $4 billion.

How do you explain the fact that, on the one hand, amounts earmarked in the budget are insufficient and, on the other, funds remain unspent? What exactly is the problem?

[Dr. Philippe Lagassé]

There is a significant difference between the amount of expenditure required to maintain and keep resources up to date over the long term, and the ability to spend. The fact that we haven't been able to spend the allocated funds stems from the fact that we haven't spent enough beforehand to obtain the personnel and institutions needed to spend the money.

So you have to build some capacity within the department. When budget cuts were made in the 1990s, which had the effect of reducing staff by 30%, it reduced the ministry's spending capacity at the same time.

So a policy was adopted that required accomplishing an awful lot of things, but the institutional capacity to spend the money on those things was not there. In a way, even not being able to spend money is a reflection of previous budget cuts.

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

So the fact that the budgeted amounts that remain unused are constantly increasing, from year to year, shows that the structural problem is also getting worse. Is that correct?

[Dr. Philippe Lagassé]

If we can't invest in the staff whose job it is to spend the earmarked amounts, long-term costs will simply rise. In other words, not spending budgeted amounts or delaying the purchase of equipment has an impact on the final cost of the purchase, which will ultimately be higher.

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

Thank you very much.

In your opinion, cost estimates are generally too optimistic. You've suggested that we adopt a better method of calculating costs.

Having said that, I'd like you to explain why. After all, we need to correctly diagnose the problem in order to use the right remedies. What is the cause of this overly positive view of the costs?

[Dr. Philippe Lagassé]

It's because we like to have very ambitious defence policies, and the military likes to have defence policies that tell it to buy the equipment it needs. As a result, politicians, the Department of Finance and the armed forces all have an interest in ensuring that costs are very low, in order to have policies that allow them to buy equipment. However, at the end of the day, you're dealing with the real cost in the long run.

In short, everyone has their reason to be optimistic about costs.

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

I'd like to come back to something else you mentioned, and draw a parallel between it and something Professor Kimball said. You talked about how Australia and the U.K. are transparent in their procurement policies and publish annual reports. However, Professor Kimball said that oversight is often an impediment to procurement speed.

You mentioned the need for transparency and reporting. But could that become an obstacle to fast procurement?

Then I'd like to hear Professor Kimball's opinion on this aspect.

[Dr. Philippe Lagassé]

Studies are already being done within the government. We already have the data and the analysis. It's just a matter of providing them to the Canadian public and making sure to involve the Office of the Auditor General in the process to validate everything.

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

Could increased monitoring slow down the procurement process?

[Dr. Philippe Lagassé]

Oversight already exists. If we're more transparent, but you decide to make it a scandal or a crisis, then the process will be slowed down.

I understand the reluctance to be transparent, but at the end of the day, the only way to ensure greater trust in the system is to be more transparent. We're already doing the work and the analysis.

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

Professor Kimball, would you like to comment?

[Prof. Anessa Kimball]

I would add that as soon as several stakeholders are involved in the process, we see that the timeline gets longer. That's where inefficiency comes in.

It's a matter of compromise. As researchers, of course we want transparency and greater access to information. We're always complaining about the lack of information. The mere task of obtaining access to National Defence budgets is not that easy. I myself have worked on National Defence budgets and have just published a book on the subject.

Again, we want to conduct the analysis, but we're limited when we don't have access to financial data, timelines and that kind of information. It's very difficult for us to assess which options are good as compared to others.

Let's take the example of a problem related to the acquisition of fighter aircraft. We've seen how it takes longer to solve this kind of problem in Canada than in other countries. There's probably information in our system, but to know what is going on, we need more access to data and more comparative analysis.

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

Thank you very much.

[The Chair, Liberal, John McKay]

Thank you, Ms. Normandin.

Ms. Mathyssen, you have six minutes.

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

Thank you to the witnesses.

I think this might be a question for both of you. Ms. Normandin was talking about—and you commented on it before—the transparency, slowing things down, time restraints and so on.

Can you talk about how they have been impacted, as we move from an open-source contracting position to a sole-source one?

Certainly, there is give-and-take, but is it the same kind of concern—not complaint—in terms of those timelines?

Mr. Lagassé, you could go first.

[Dr. Philippe Lagassé]

I'll give a simple example.

For instance, if what we've seen comes to fruition and the government moves forward with the sole-source acquisition of the P-8A for the CMMA, one of the best ways to ensure that there's understanding and trust in why that decision was made is far greater transparency about the requirements and why that decision is made the way that it's made.

If there is a lack of transparency around sole-sourcing, as we saw with the fighter jets, that breeds political controversy, and that ultimately breeds delay. At the end of the day, if you cannot explain why you have done what you've done, and if you simply tell the public that this is what you're doing....

When I was on this panel previously, my mantra—and it continues to be my mantra today—was “explain things”. Don't tell. Explain to us why you're doing what you're doing, as opposed to simply announcing it. That's what breeds distrust, and that's what creates delays over the long term.