National Defence Committee on Oct. 5th, 2023

[The Chair, Liberal, John McKay]

I call this meeting to order.

Folks, let's get started. I see quorum.

I offer insincere apologies to the witnesses, all of whom appreciate the difficulties of getting started on time.

This is a pretty important study the committee is dealing with. It's pretty well universal among committee members that the procurement system is not working, and it's certainly not working at any level of efficiency. As the threat analysis is getting more and more dire, we don't enjoy the luxuries we may have had in other years of being able to be a bit more leisurely about our procurement, hence the desire of committee members to bring all of you together, as the main players, to talk about what the current system is. However, I hope you will feel free to offer your suggestions on how to improve the current system.

I hope that doesn't impair your employability later on, but as I said, we can't carry on the way we're carrying on. We need some answers, and you folks are in the midst of this.

With that, I've asked the witnesses to be economical in their statements. I'd like to see a three-minute statement, if that's possible, but I'm not going to be too harsh about it.

I understand we're going to start with Mr. Page, then go to Mr. Crosby, Madam Tattersall and Mr. Xenos. We'll go in that order.

If you can, make it three minutes, Mr. Page. Thank you.

[Simon Page, Assistant Deputy Minister, Defence and Marine Procurement, Department of Public Works and Government Services]

Thank you, Mr. Chair.

Good afternoon, Mr. Chair and committee members. My name is Simon Page. I am the assistant deputy minister of defence and marine procurement at Public Services and Procurement Canada.

Thank you for the opportunity to appear here today to discuss the impact of Canada's procurement process on the Canadian Armed Forces. Given the current geopolitical environment, this committee's study is of pertinent interest.

PSPC works closely with the Department of National Defence, Innovation, Science and Economic Development, or ISED, and other key federal partners to ensure that it provides the procurement support needed to deliver the right equipment and services to the Canadian Armed Forces in a timely manner. Procurement processes are part of a system whereby smart and sound procurement principles—such as early engagement, effective governance and independent advice through open, fair and transparent solicitations—ensure the best value for Canadians and the federal government.

PSPC chairs the interdepartmental governance committees established under the defence procurement strategy, and leads the stakeholder and industry engagement before and during the procurement process. It brings together all the key federal players to transparently consider trade-offs related to capabilities or performance, cost or value for money, the timely delivery of equipment and services, and economic benefits to Canada.

Since the start of 2020, PSPC has awarded close to 2,500 distinct defence contracts, valued at just over $29 billion. There are over 250 projects and procurements being managed at the moment within the system, all at various stages of maturity and progress.

The system operates in a rich environment that includes specific statutes, policies, regulations, procedures, processes, and agreements. It has numerous inputs, covering a wide spectrum of scope, from large complex ships and aircraft to pistols through munitions and comprehensive in-service support solutions.

The system, like so many other entities in the Government of Canada, is fluid and requires continuous improvement and adaptation. Therefore, there is a constant and focused effort to modernize procurement policies and practices so that they are simpler, less administratively burdensome, continue to support policy goals while delivering impactful results for the client departments.

Under a specific optimization initiative, the desire for deliberate policy-making that leverages procurement is as strong as ever, as public budgets are tightened to achieve and support a number of mandates.

As part of Canada's defence policy, “Strong, Secure, Engaged”, the effectiveness and efficiency of defence and marine procurement are fundamental elements of supporting Canada's positioning in terms of territorial protection, assistance to allied countries and support for humanitarian aid at the national and international levels. To ensure the success of this initiative, the Government of Canada recognizes the need to prioritize, so we have established a senior-level team to work on the broad topic of defence procurement and many of its elements in the periphery. The purpose of this team is to respond to the new realities through novel approaches to acquisitions, sustainment and strategic industry engagement.

I would like to bring to your attention, Mr. Chair, ongoing affairs that are of particular interest to defence procurement.

First the Sustainment Initiative, which is based on four principles: performance, value for money, flexibility, and economic benefits. Since 2016, the progress on this initiative has improved collaboration with key stakeholders, and provided early indications of optimized sustainment principles. This initiative, along with the Continuous Capabilities Sustainment initiative led by DND, as an agile programmatic approach to capability acquisition and sustainment, we expect to achieve better performance, enhanced goods and services and strong business partnerships with industry.

Finally, the risk-based defence procurement process allows for a delegation of authority to the minister of PSPC to enter into and amend contracts and contractual arrangements for lower risk and low-medium complexity defence procurement exceeding PSPC's contracting limits. PSPC led the implementation of the pilot, in partnership with Treasury Board of Canada Secretariat and the Department of National Defence.

Thank you, Mr. Chair and committee members. I would be pleased to answer your questions.

[The Chair, Liberal, John McKay]

Thank you, Mr. Page.

Mr. Crosby, you have five minutes.

[Troy Crosby, Assistant Deputy Minister, Materiel Group, Department of National Defence]

Mr. Chair, I'd like to thank you for the invitation to appear before you to discuss procurement within Canada as it relates to national defence.

I'm Troy Crosby, assistant deputy minister materiel at the Department of National Defence. It's my role at DND to ensure that members of the Canadian Armed Forces have the services and required equipment—equipment that is safe, fit for purpose and available—to enable the CAF to accomplish the missions assigned to it by the Government of Canada.

The commitments made in Strong, Secure, Engaged continue to be our focus as we make progress on the 362 projects of the Defence Policy, 39 of which are currently in definition and 117 in implementation, while 156 are in close-out or have already been closed.

Additionally, work is under way on NORAD modernization and for the support of ongoing operations.

There remains a large volume of complex work still ahead of us. Of the 77 capital projects that the materiel group is currently leading, 22 are in definition phase, including the logistics vehicle modernization and remotely piloted aircraft systems projects, which are nearing the end of competitive selection processes.

Among the 55 major capital projects being led by the materiel group that are already in implementation—the project phase following contract award—are the future fighter capability project; the armoured combat support vehicle project, which has produced more than 90 vehicles to date, not including the 39 already donated to Ukraine; the fixed-wing search and rescue replacement project, which completed polar navigation testing this summer; the strategic tanker transport capability project, which will deliver a second CC-330 Husky later this year; and the Griffon limited life extension and Cormorant mid-life upgrade projects.

We continue to take important steps. Twelve months ago we had the third of six Harry DeWolf-class Arctic and offshore patrol ships, and recently in September we had the fourth. In the same month, we also completed the assembly of the 123 structural blocks for the first joint support ship.

Construction of the second joint support ship is already well under way, and preliminary design review for the Canadian surface combatant was completed in December 2022 with a view to reaching full-rate production in 2025.

Despite all of this progress in our procurement projects, there is still room for improvement in how we plan and implement the ongoing maintenance of operational capabilities of equipment already in service to keep pace with rapid technological change.

To accomplish this, we need to adopt a less transactional approach to our relationships with industry in order to realize improved outcomes for CAF readiness.

Mr. Chair, thank you for this opportunity to address the committee. I look forward to answering questions.

[The Chair, Liberal, John McKay]

Thank you, Mr. Crosby.

Next is Ms. Tattersall.

[Samantha Tattersall, Assistant Comptroller General, Acquired Services and Assets Sector, Treasury Board Secretariat]

Thank you, Mr. Chair.

My name is Samantha Tattersall. I am the assistant comptroller general for the acquired services and assets sector within the Office of the Comptroller General at Treasury Board Secretariat. I'd like to thank you for the opportunity to be here today with my colleagues.

First, I'd like to take a moment to outline the role that Treasury Board Secretariat plays in supporting the management of investments and procurement, including defence procurement.

The management of investments and their procurements is a shared responsibility across the federal system. The Office of the Comptroller General, which is the area of Treasury Board that I work in, provides policy and guidance on investment planning, projects and procurement. Treasury Board sets the administrative policy framework within which departments operate, and deputy heads of departments are responsible for ensuring they have the right governance, systems and resources in place to manage those investments and contracts. It's important to note that Treasury Board administrative policy exists within a broader legal framework, whether that be the Financial Administration Act, departmental legislation, trade agreements, etc.

As you know, the Government of Canada manages thousands of projects in any given year and enters into hundreds of thousands of contracts on an annual basis. The vast majority of these are managed within departments and, where applicable, with Public Services and Procurement Canada as a common service provider.

The more complex and higher-risk projects and procurement may require additional Treasury Board authorities. The requirements for when Treasury Board approval is needed are set out in the investment policy, as well as the procurement directive.

In 2021, we made an important reset to our investment and procurement policies, and we moved away from a prescriptive direction to a principles-based approach to provide more flexibility to departments to manage within their individual operational contexts.

For contracts, the dollar limits over which Treasury Board authority is sought are set out in the directive on the management of procurement. These are set at departmental levels, and for specific circumstances there are also exceptional contracting limits. DND, for example, currently has six exceptional contracting limits that are above its basic limits.

In recognition that dollar value is not always a perfect predictor for complexity, I think my colleague highlighted that we have been working and innovating with PSPC and DND to increase efficiency and support the streamlining of defence procurement approvals. As Simon mentioned, we've been piloting an approach for defence procurements that establishes a risk-based contract approval process for low-risk, low- to medium-complexity defence projects where the value exceeds PSP's existing contracting delegation. The idea is that they're low risk and low complexity, so those don't have to come into Treasury Board.

With that, Mr. Chair, I am pleased to answer any questions from committee members.

[The Chair, Liberal, John McKay]

Mr. Xenos is next.

[Demetrios Xenos, Director General, Industrial and Technological Benefits Branch, Department of Industry]

Thank you, Mr. Chair and members of the committee, for the invitation.

My name is Demetrios Xenos. I'm the director general of the industrial and technological benefits branch at the Department of Innovation, Science and Economic Development.

Under Canada’s Defence Procurement Strategy framework, Innovation, Science and Economic Development Canada, or ISED, is responsible for leveraging some defence procurement to promote economic activity and growth across Canada. The purpose is to create a sustainable industrial base and ensure that certain large scale military purchases contribute more broadly to the Canadian economy.

The ITB policy applies to certain defence and Canadian Coast Guard projects over $100 million that are not subject to trade agreements or when a national security exception is invoked. The ITB policy contractually requires companies awarded contracts to undertake business activity in Canada equal to the value of the contracts they have won. Business activities can be directly related to procurement or can include activities in other high-value areas that strengthen Canada's industrial base in defence and other high-technology sectors and also advance key priorities.

The value proposition is at the heart of the Industrial and Technological Benefits Policy, which includes Canada’s economic benefits requirements for each procurement project. The value proposition is developed from a thorough market analysis, as well as engaging industry. This work is being done in parallel with other government departments to meet procurement project timelines.

Our economic benefit requirements also target business activities in Canada's key industrial capabilities, or KICs, which include areas of established strength, such as simulation and training, and emerging technology, such as artificial intelligence. KICs are designed to support a resilient domestic defence industrial base that can provide our military with the equipment and services they require. They also serve the needs of close allies such as the United States, which is our largest export market.

As a core department under Canada’s Defence Procurement Strategy, ISED participates in interdepartmental governance, and works closely with our partner departments in the procurement process.

This enables our officials to develop economic benefit approaches in parallel with the work of our partner departments to support timely decision-making and meet procurement project timelines.

Canada's regional development agencies also play an important role in the process and work closely with businesses to streamline the identification of potential suppliers for major prime contractors. As a market-sensitive tool, the ITB policy does not prescribe with whom a contractor must do business.

Since Canada has leveraged defence procurement for economic benefits for over three decades, most large contractors are well aware of the Industrial and Technological Benefits Policy and its associated obligations.

Under Canada’s defence procurement strategy, the ITB policy remains an important tool to foster economic growth, support innovation, contribute to exports and help maintain and build Canada’s defence industrial base. Under the current portfolio, the ITB has resulted in nearly $44 billion in economic obligations associated with defence procurements, with $39 billion of that completed to date. Over 715 Canadian organizations are benefiting from the ITB policy, of which close to 65% are small and medium-sized enterprises.

I would be pleased to answer your questions.

[The Chair, Liberal, John McKay]

Thank you, Mr. Xenos.

I think, colleagues, if we're disciplined, we can get in two full rounds with maybe a little bit left over.

With that, we will begin with Ms. Shelby Kramp-Neuman.

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

Thank you, Chair.

Thank you, witnesses, for your patience with respect to the delay at the start of the meeting and for being here today.

There's no doubt we live in a very unpredictable and volatile international threat environment. Our decentralized, complex, multidepartmental approach to defence procurement is unique and doesn't seem to be working. It's characterized by bureaucrats, hurdles, political influence, cost overruns and delays in delivering major projects.

My first question is this. DND had $2.6 billion in lapsed spending last year. Is the bottleneck of defence procurement in other departments a contributing factor to DND's lapsed spending problem?

Mr. Crosby, go ahead.

[Troy Crosby]

Thank you for the question.

I would start by offering that the budget forecasting my organization contributes to at National Defence begins well ahead of the start of a new fiscal year and is largely focused on expenditures for the delivery of equipment. Ultimately, we pay for the delivery of progress from goods delivered to services rendered.

We work with industry. We work through our contract forecast to understand what we think our financial requirements will be for the coming fiscal year. Whether or not we can actually deliver against those forecasts is largely informed by industry's delivery.

Now, industry is not in that on its own by any stretch. Countless decisions have to be made on a contract deliverable, so we are part of that, but there is an unpredictability in our forecasting and we rely on supplementary estimates through the year to achieve what we're trying to achieve.

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

Thank you.

Given the current state of our conflict abroad, do you believe that our current materiel capabilities would allow us to respond as needed if the situation were to escalate?

[Troy Crosby]

I think the question would be better responded to by the Canadian Armed Forces.

We, as the materiel group, respond to any requirements that are identified by the Canadian Armed Forces, whether it's the consumption of ammunition or the need for spare parts—these sorts of things. We work closely with them. My organization is responsible for providing that in-service support.

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

Perhaps, then, I can have you comment on this. A recent Canadian Forces general message announced that the federal government is going to cut at least $1 billion from the already underfunded defence budget. General Eyre characterized this announcement as “difficult”.

Mr. Crosby, can we have your assurance that this announcement will have no negative effects on DND's ability to support the CAF's operational capacity or on DND's ability to procure the kit our troops need to do their jobs effectively and safely?

[Troy Crosby]

Work is currently under way to look at how DND can ensure that we're being as efficient as possible with our spending. Some specific areas have been looked at to date. Travel has been mentioned. There are others. That information is now being rolled up and will be provided as advice. We'll wait for decisions to be made and then implement those decisions.

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

Thank you.

Mr. Page, last week our witnesses informed us that there was an utter disconnect between political leadership and defence procurement. How has political leadership, or the lack thereof, impacted the ability for procurement projects to be completed in a sensible period of time?

[Simon Page]

Thank you for the question.

We run all of the procurement processes within the defence procurement strategy apparatus. I described it in my opening remarks as a system. It's a complex system, but it's an effective system that is also benefiting from a very rigid known governance, whereby all entities come to the table and discuss specific procurements in a very synchronized fashion—issue by issue—really trying to optimize the output.

To your question, this governance is at various levels depending on the complexity of the project, as described by Samantha earlier from a Treasury Board Secretariat point of view. There's the director level. There's the director general level. We have the ADM—assistant deputy minister—and the deputy minister.

We work on projects that are approved by cabinet and are coming from client departments—in this case National Defence—and we put those through DPS governance. From the point of view of efficiency and of leadership having eyes on what we're trying to achieve, I'd like to think we're in a pretty good spot.

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

We've heard the Parliamentary Budget Officer mention in the past the mixed accountability between all of the different, multiple departments. Would a single minister make a difference and be a helpful way to control these projects?

[Simon Page]

Actually, another thing that is effective and quite clear within defence procurement strategy governance is the accountabilities. For the set of policies, procedures, processes and laws that we operate under at the moment, the accountabilities in the discussions we have within this governance are known. For every project coming our way, there will be a discussion on requirements and performance, there will be a discussion on value for money and costs, and there will be a discussion on economic benefits for Canada. Independent of the complexity of the project, these accountabilities are known and they're discussed in a very structured fashion.

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

Thank you.

[The Chair, Liberal, John McKay]

Thank you, Ms. Kramp-Neuman.

Mr. Fillmore, you have six minutes, please.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you, Mr. Chair.

Thank you very much to our guests today.

To the entire panel, the chair set the tone at the beginning of the meeting in stating there's consensus that something needs to change in the way we're doing defence procurement in the world. The very excellent analysts who support this committee researched models that exist in countries all around the world. They range from models where each branch of service is responsible for its own procurement to models where simply the department of defence is responsible for its procurement or an executive council of government is responsible for defence procurement. There may even be an independent, external civilian committee or organization that looks into procurement.

The point is that there are many different models, but Canada is unique. There is no other country that seems to have the dispersed accountability, if I could call it that, that Canada is using.

I noted in each of your opening remarks that you used most of your time to talk about the way you're doing things now and to describe the current processes. There was discussion about a pilot. I heard that.

Having worked in bureaucracies myself, I know that bureaucracies are sometimes naturally resistant to change. Maybe it's not the individuals within them, but the collective is sometimes resistant to change.

I want to take your temperature on being hospitable to change. In particular, do you see any pitfalls or benefits to some of these other models that do not have dispersed accountability?

Mr. Page, I will start with you.

[Simon Page]

Before I answer the question with specific pieces, I'll say I'm a computer engineer, so I look at things maybe in a very binary fashion. Defence procurement is being labelled as a whole bunch of things, but there are predefence procurement things. There is what I call pure and raw defence procurement and defence procurement processes, and there is postcontract award implementation procurement stuff, which I think tags along well with the “money being lapsed” question we had earlier. Each one of these things we want to characterize, then, as defence procurement. That's fine.

Starting with that as a premise, I think each one of those entities would benefit from improvement. I had a little bit of that in my opening remarks: This is a system, a complex system, delivering complex equipment, and it does need improvement on a continuous basis to make sure we keep up with things.

I'll mention three areas where I personally think the system would benefit from improvement. I'll leave room for my colleagues to weigh in also.

The first one is in the preprocurement basket. Capability development and capability planning need to be there ahead of time. You don't deliver a ship overnight and you don't deliver an aircraft overnight. You don't deliver a radar system overnight. You don't deliver bullets or ammunition overnight. It takes planning. It needs to be acknowledged that the average time to deliver an airplane is probably between six and 10 years from the time you actually get the go signal in the pure procurement box. For a ship, it's longer than that. Therefore, we need to do a very diligent job, with consistency, regarding what we want from a capability development point of view.

The other thing I will mention—and I'm probably stealing a bit of the flavour of my colleague Mr. Crosby here—is that we're working on something now called continuous capability sustainment. That, for me, could be a fairly golden solution to quite a few things we're seeing in the system, including innovation and generating relevant equipment for the Canadian Armed Forces by investing in service, in a capability. We take a hit maybe at the beginning, accept a capability that is viable and functional, and then invest in it to make sure that it remains relevant over time.

The other thing I would mention is costing. I have a lot of respect for all of those who work in that domain. It's tough. It's tougher than ever. We have done, I think, within the enterprise a really good job of investing in that capability over the years. However, when the design of something is not even finished and when that something is not in implementation, will only deliver seven or eight years for now and will deliver until 2050, costing it to the nth degree, for me, is not the most useful thing the system can do. We should take a different strategic approach in how we cost things and how we get going with what I characterize as massive projects that will be multi-year and worth multiple billions.

I have other ideas, but I'll stop here and leave some room for others.

[Andy Fillmore, Liberal, Halifax, NS]

Okay. There may not be room, but thank you very much for that, Mr. Page.

Mr. Crosby, if I could hear from you, I'll ask you the same question, really. Are men and women in uniform and taxpayers being served by the process as it is now, or would they be better served with changes? What changes might those be?

[The Chair, Liberal, John McKay]

You will have 10 seconds.