National Defence Committee on June 13th, 2023

[Shelby Kramp-Neuman, Conservative, Hastings—Lennox and Addington, ON]

Let's talk about the government's alignment of defence procurement with retention and recruitment. Simply put, are there adequate measures in place to ensure we have the personnel to maintain and operate the equipment we've purchased from the time it's delivered? To complement that question, can you provide numbers of how many pilots and technicians we currently have?

[Karen Hogan]

Nick might want to add in there. Following our audit, and in our follow-up on past audits, which is a tool we have only online that you can look at, we wanted to go and see how the CAF was doing on ensuring there were sufficient pilots. It has made some progress there on the pilot and procurement front, but it really hasn't made much progress on the maintenance and technical crew. It still had an ongoing process, and that's why we couldn't comment on it.

I don't know if you know, Nick, about the number of pilots. Do you have any numbers you can share?

[Shelby Kramp-Neuman, Conservative, Hastings—Lennox and Addington, ON]

If you could circle back to the committee with numbers, if you have any, that would be helpful.

[Karen Hogan]

We might not have it, though. It might be best to ask National Defence. Unless we've audited the pilots themselves, we wouldn't have that information. We'd have to go to National Defence to ask for it.

[Shelby Kramp-Neuman, Conservative, Hastings—Lennox and Addington, ON]

Earlier, you mentioned the importance of creating industries and recognizing how this can absolutely work. We've seen examples in Canada of when it works and when it doesn't.

Do you feel there's a danger to the industry and CAF operational capabilities if we try to create an industry where none exists, just because we want and/or need the jobs in Canada, but then the industry fails?

[Karen Hogan]

That's why I made the comment earlier about it being a strategic decision on what should be built in Canada, what can be built in Canada and why. That really is a policy choice. I don't believe Canada can build everything it would need. We are a small country, and it's about where Canada can excel. That's a decision that should be made, so that the focus on industrial benefits really has the most enduring quality for Canada.

[Shelby Kramp-Neuman, Conservative, Hastings—Lennox and Addington, ON]

This is my last question. You spoke earlier about delays in procurement, as they may occur, because the government needs to balance CAF needs with economic benefits.

Do we need to do a better job on balancing the immediate needs of the CAF and the potential long-term industrial and technological benefits?

[Karen Hogan]

I think, quickly, I would answer yes. Again, it goes back to that comment on the consensus on what the Canadian Armed Forces should look like now. What does it need? Then, when does it need to be there? Where is that sense of urgency? When should that sense of urgency kick in?

[The Chair, Liberal, John McKay]

Thank you, Ms. Kramp-Neuman.

Ms. O'Connell, you have five minutes.

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

Thank you, Mr. Chair, and thank you, all, for being here today.

Based on what you've described in terms of the procurement process, it sounds like the expertise is certainly there, but we've said, time and time again, that it's the capacity issue. It almost sounds like, when there's a big contract coming, everybody works together to deal with whatever that need is. They move forward once that's completed, and then everyone goes back to move on to the next big thing.

I'm just wondering if, perhaps, especially for the CAF, since the equipment requires.... If we're using the example of shipbuilding or purchasing aircraft, it requires that constant long-term planning. Is part of it, perhaps, not a dedicated team or looking at...? Instead of a dedicated team, it's more of a need-by-need basis. It's kind of a flurry in government, working on something and then moving on to the next big thing.

Would that be a fair assessment, or what is it that doesn't allow for that constant long-term planning and reassessment?

[Karen Hogan]

I guess I would tell you that I believe it's about having that life-cycle planning thought out first and not just reacting, “Oh, we're going run out of certain types of ships. They're no longer in service. Maybe we should think about replacing them.” It is about having that long-term thinking. I would argue that there are so many pieces of equipment in the Canadian Armed Forces that, yes, you would probably have a dedicated team, in the long term, doing that if you really were planning on a full life cycle for major equipment in the armed forces.

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

However, it doesn't sound like that. There may be a CAF dedicated team, but in terms of that focus, even if you get that next contract out tomorrow, the day after that you begin the process of the next 15-20 years. Governments often don't work that way. It's that immediate check and then move on to the next big thing.

How we create that within the public service is number one. Number two is that balance of democracy. Different parties are going to be elected on different platforms based on what Canadians send them here, so there's not always going to be that consistency in policy.

How do we balance the public service work but allow that public discourse or change of priorities to still exist? It's that balance that I'm struggling to figure out.

[Karen Hogan]

I guess I would point to one of the findings in our surveillance of Arctic waters. Actually, in all the reports we're talking about today, there are long-standing, known issues—long-standing, known gaps. A ship doesn't have an unlimited life.

Regardless of what the main political or policy decision might be, there is a certain level of ships that Canada will just need, especially to monitor the Arctic. That base should fundamentally be there, and there is no acting on those long-standing, known gaps until they are creating a potential gap in surveillance, which is what we're seeing now if something isn't done.

Again, while consensus might take some time, there should be a base level of what is needed, and that should be maintained. The commitment made to meet NORAD and NATO's high alert is one that was made many, many years ago. That requires a large number of aircraft. That commitment is still there, so then you need to have the public service work towards continuously being able to meet that commitment, including the spending commitment that's been made.

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

That's part of the question that I hope we home in on a bit better throughout this study. Every government wants to make the announcement and those commitments, but they don't want the line item in their budgets. We have to figure out how to make sure that continuous funding is part of the ongoing discourse, so that it's not the question. That's the fight every time: the cost and going to the public. How do we make sure that the public service and procurement work is ongoing behind the scenes, so that at least governments have choices, but we're not in a situation where it's not ready even if we wanted to make that investment?

[The Chair, Liberal, John McKay]

Ms. O'Connell is extremely clever. She asks her question right at the end of her five minutes.

Because of your efficiency, we're going to ask you to answer Ms. O'Connell's question and then wrap it up.

Thank you.

[Karen Hogan]

Thank you.

I would point to the need for consensus on what the Canadian Armed Forces should look like and their needs. That shouldn't fundamentally change. We are one country. We need to do what's right to support our troops. That consensus is needed to ensure that there are no longer gaps for what the military needs.

[The Chair, Liberal, John McKay]

Thank you, Madam Auditor General and your colleagues.

As I sat here, I couldn't help thinking that in the course of this committee's being empanelled and doing what we do, the threat environment has changed dramatically. It doesn't seem to have penetrated the government writ large, whether it's the civil servants or the politicians. We don't have the luxury of time. Even if we ever had the luxury of time, we no longer have the luxury of time.

This study does have maybe an urgency that two years ago or even a year ago it wouldn't have had.

I thank you for your contribution. I wish you'd come with a silver bullet, but apparently you didn't.

[Karen Hogan]

If I may, Mr. Chair, I will leave you with this. It's to motivate that consensus is needed. Once the ships are in our Arctic, it's too late to say, “Oh, there's a ship in our Arctic. What should we do about it?”

It's that need to recognize what our Canadian Armed Forces need to protect us domestically, but also to meet our international commitments.

[The Chair, Liberal, John McKay]

Indeed. Thank you for that.

With that we will suspend, re-empanel and move on.

[The Chair, Liberal, John McKay]

We have with us Professor Lagassé from Carleton University and Professor Anessa Kimball from Université Laval, who are no strangers to the committee.

Both of you are experienced before this committee, so I will ask Professor Lagassé to start with a five-minute opening statement, and then we'll move to Professor Kimball.

[Dr. Philippe Lagassé, Associate Professor, Carleton University, As an Individual]

Thank you, Mr. Chair.

Thank you to committee members.

Today, my preliminary observations are based on 20 years of academic study of Canadian defence, as well as a decade of experience as an independent reviewer of the defence procurement process, first as a member of the Independent Review Panel overseeing the evaluation of options for the CF-18 replacement, from 2012 to 2014, and then as a member of the Independent Defence Procurement Review Panel, from 2015 to 2022.

In this latter role in particular, as a member of the IRPDA, I had the opportunity to review and advise three separate ministers on over 100 major Crown projects planned for DND-CAF and the Canadian Coast Guard as they made their way through options analysis. I have five interrelated observations to convey on defence procurement based on this experience.

First, there is a mismatch between our defence policy and defence funding.

Canada's defence ambitions are considerable. The defence policy objectives we have set for ourselves over the past 20 years would require a level of spending in excess of 2% of GDP. Unfortunately, our spending tends to be closer to 1.5% of GDP. The result is a structural deficit in the development of our capabilities.

Both governments and DND-CAF have contributed to this problem. Governments, be they Liberal or Conservative, want Canada to play an important part on the world stage, hence their embrace of ambitious policies, yet they have not been willing to spend on par with their ambitions. DND-CAF, in turn, need policy direction from the government to acquire the capabilities required to face the threats that we face. This leads DND-CAF to advocate for ambitious policies and worry about adequate funding later.

Second, our costing of defence procurements is undermined by a pervasive optimism bias. Capital projects are costed too early in the procurement process, before any serious work has been done on requirements. When requirements are developed and engagement with industry occurs, too many projects are discovered to lack sufficient funding, which leads to either delays or compromises in the quality or quantity of the capabilities that are ultimately acquired.

The Department of National Defence needs a more robust costing methodology that shifts from optimism to pessimism. In addition, the government must accept that the costs of some capabilities cannot be known in advance, and can only be realistically determined once the options analysis is complete.

Thirdly, procurement processes are too rigid and risk-averse to keep pace with technological change.

Our acquisition system is designed to minimize risk and ensure the application of robust safeguards and controls. Unfortunately, this means that the system cannot easily adapt to rapidly evolving technologies or changing operational needs.

To ensure that the CAF has the latest and most relevant technologies in key areas, DND must be allowed to take greater risks and move more quickly. I note that this will lead to failures, errors and regrettable uses of public funds in isolated cases, but these are the trade-offs that we must accept if we want the CAF to be equipped with the right technologies at the right time in most cases.

As importantly, you as parliamentarians will need to arrive at common agreement that not every failure or error should be seized upon for partisan advantage. Without a bipartisan consensus on this issue, the procurement process will be not able to speed up or meet the ever-adapting threat.

Fourth, the Department of National Defence and the Canadian Armed Forces are facing major capacity problems. You've already discussed this with the Auditor General, so I won't go into it in depth.

I will only say, however, that increasing DND-CAF's capacity to manage procurement—the human side of the equation—cannot be ignored and must be better appreciated. We are asking too much of too few people. This is not a recipe for success.

Finally, Canada must continue to make transparency in procurement a priority. DND has made important advances in making defence procurement more transparent.

Of note, the defence capabilities blueprint now provides easily accessible information about where projects find themselves in the procurement system and what capabilities they are delivering.

However, Canada still lags behind its allies, such as Australia and the UK, in providing detailed information on the financial status of the overall investment portfolio and the risks surrounding it, as well as on individual projects.

Canada should publish an annual report similar to the Australian and UK defence procurement reports, that is, one that provides an overview of portfolio risks, costs and updates.

Thank you very much. I look forward to your questions.

[The Chair, Liberal, John McKay]

Thank you, Professor Lagassé.

Professor Kimball, you have five minutes, please.

[Professor Anessa Kimball, Professor, Université Laval, As an Individual]

I appreciate your invitation to speak before the standing committee today.

I invite you to join me in acknowledging that the land from which I offer these remarks is the traditional unceded territory of the Abenaki and Wabanaki Confederacy and the Wolastoqiyik.

As a scholar of international co-operation, my comments draw from ideas in the organizational management literature of public administration and political science, the economics research on collective behaviour and political science work on institutions as political actors, and the institutional design of legal contracts, including my own work from 2015 on modifications to the U.S. defence procurement system undertaken throughout the Obama administrations with respect to contract design.

In that work, I offered a set of recommendations to Canada for defence procurement. In fact, I was pleased to see that one of the recommendations from said research was partially adopted when the government accepted my recommendation that Canada work to diversify the sources of its contract partners concerning major defence procurement projects when it purchased F-18 Hornets from Australia.

That recommendation was offered during a presentation on an expert panel in 2014. It then appeared in 2015 in a policy paper and finally in a cost-benefit analysis I provided to MLI on the interim purchase itself. It was the final recommendation.

I appreciate that it took three distinct occasions over a number of years to make that recommendation see the light of day, and right now, of course, we have purchased those items, but it's still a few years until full delivery and full integration into the force, which is expected for 2025. I think it's important to note that this took a decade, and I think we can improve this, so I'm going to offer five recommendations in the next portion of these remarks.

By way of introduction, the bureaucratic steps and processes required to procure equipment and assets to equip CAF and functionally defend Canada’s territory could be described as an interlayered labyrinth of procedures and processes managed and implemented by various stakeholders across different agencies. These processes and procedures are sets of institutions and practices with the goal of ensuring transparency in the responsible use of funds and resources on behalf of the public through accountability to the electorate.

Institutions can also be interpreted as constraints to restrain actors, as well as obstacles to efficiency and speed. They may be unfavourable to the flexibility required by governments during crisis, which is needed to ensure CAF readiness. There is a trade-off between ensuring oversight versus speed in the face of a punctual crisis that may require defence force responses, and we saw this emergency procurement—in some senses—during the pandemic.

On procurement affecting CAF readiness, Canada has done a level of constraining itself, one might say, through the creation of institutions producing various trade-offs, delays and externalities; as an example, policies concerning defence industrial offsets complicate the production of defence goods it needs. This is market intervention meant to redistribute benefits. Other schemes are available to do this that are frankly more efficient. Canada is wasting time and resources and affecting readiness when it does that.

Its procurement process could be improved though modifying and even abandoning those industrial regional benefits, which I know would be very critical and not very popular. It is a distortion on the market and, frankly, it impacts the procurement process. There are effects and, essentially, it delays essential military and defence R and D products and projects. This speaks directly to readiness of forces.

When it comes to procurement from research and development particularly, a second example is Canada’s DND innovation funding authority. In fact, one of the problems is that it has severe limitations in terms of what we call “other transfer authority”. An OTA is essentially how we go about hiring these defence sector contractors and companies to produce the projects.

In the United States in 2016, there were various changes in an amendment called “OTA 815”, an authorization amendment. These modifications made the process in the United States much more nimble, flexible and capable of managing with delays. I'm going to talk about a couple of these things, which Canada could adopt itself without very much work.

Basically, these OTA 815 amendments affected three parts of the legislation: the dollar thresholds at which additional approvals are required for OTA; what it means to be a non-traditional defence contractor, where they changed what it means to be non-traditional contractors and how companies can become available again to become non-traditional contractors; and certain aspects about transitioning from prototype development into production. I see this as very important for Canada, because this is where right now we have huge delays in what's going on.

There are extra processes involved, and there are ways in which we can make procurement more nimble by doing various things.

Right now, for example, in the United States these changes mean that once a project has been approved for a certain amount, they can up those levels of approval into certain limits, as long as the initial contracting procedure was competitive. Those projects themselves—

[The Chair, Liberal, John McKay]

Professor Kimball, we're past the five-minute point, quite a bit past it.

[Prof. Anessa Kimball]

I'm sorry. I can come right down to the point.