National Defence Committee on Oct. 5th, 2023

[Troy Crosby]

There's a trade-off, as Mr. Page opened with, on capability, cost, schedule, economic benefits and the various outcomes we're seeking through our procurement processes for Canadian Armed Forces capabilities. We need to bring a focus to schedule, which is not on that immediate list. I think we're doing some work in the background now to look for best practices among our allies on how to incentivize schedule adherence. We have to get the schedules right in the beginning, but then we need to make sure we're driving to achieve schedules and deliver against those requirements.

When I attend meetings of the Conference of National Armaments Directors at NATO, this is complex business. Nobody has a golden answer that I've seen to this point. The governance we're using now is how we bring these trade-offs together and make the most optimized solution that we can for everyone concerned.

[The Chair, Liberal, John McKay]

Unfortunately, we'll have to leave Mr. Fillmore's answer there.

I just want to thank you for going out of the lanes, because we are looking for other ideas, and we appreciate your thinking in this area.

Madame Normandin, you have six minutes, please.

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

Thank you very much to all the witnesses.

Mr. Crosby, you talked quite briefly in your opening remarks about the fact that we should have a less transactional approach with the industry. Can you tell us more about this idea and explain to me why it is problematic?

[Troy Crosby]

In general, historically, we've approached each procurement as a project with a beginning and an end. We deliver and we move on to the next challenge. As Mr. Page opened with, there's a longer-term requirement here that is not just about delivering a platform at the beginning of its life cycle. It's about sustaining the capability—I touched on that in my opening remarks as well—over a period of 30 to 40 years.

What we see increasingly is that technology is driving obsolescence into Canadian Armed Forces capabilities. We need to be able to not only keep up with that but also keep ahead of it.

Industry has wonderful insight into not only where technology is going but also where our allies are going at times, because they're selling internationally. The Canadian Armed Forces, the Department of National Defence and our colleagues have good insight into what that trajectory looks like. I think if we work more closely together in exploring these capability road maps over time, it will enable more timely decision-making and investment.

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

Is it possible that, in the long run, the speed of technological change could impact our ability to use tendering?

Will we always have to find commercial products on the market because the industry is a little ahead of us? Will the fact that technological advances happen so quickly mean that we will no longer be able to issue real tenders in the future? Can this be a problem?

[Troy Crosby]

Where we see this potentially going.... We're in conversations now, including with the associations that I know you met with early this week, about methods of achieving these improved outcomes. By having industry involved earlier in the process, or continuously in the process, we'll enable them to make the research and development investments they need to deliver new solutions to problems before they're problems. We'll also, then, potentially be in a position to release capability incrementally over time rather than waiting until we have a challenge and creating a project that we only begin then, taking a fair amount of time because of the complexity to get through the project.

Again, they're ideas that we're exploring now.

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

Thank you very much.

I would like to continue the discussion on technology development, particularly industrial and technological benefits.

Mr. Xenos, because of the multiplier effects, the industry tends to go into research and development. When it comes to defence, are we losing control of what we want in this area if we let the industry choose its research and development activities?

When industrial and technological benefits must be delivered as part of the contract, how can we make sure that those requirements are met?

[Demetrios Xenos]

Thank you for the question.

Research and development is proportionally a much smaller part of the industrial and technological benefits portfolio, in comparison to procurement and to the development of technology suppliers. Most of our portfolio has to do with agreements between companies, such as prime contractors and Canadian companies, to deliver products and services that complement global value chains.

Investments under the research and development stream target small and medium-sized businesses as well as post-secondary institutions. We try to help contractors reach agreements with these partners and encourage them to do so. Incentives are provided to these prime contractors through policies and multipliers, but these incentives are proportionally less than those in other streams.

We are really looking to foster activities that give partners the opportunity to interact with prime contractors, who are large companies. Usually, these partners cannot speak directly to contractors. Large companies find it difficult to work with smaller companies and schools. We are trying to give them incentives to reach agreements and encourage activities in this area.

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

Thank you very much.

Mr. Page, in terms of minor acquisitions, should we be delegating more decision-making responsibilities to the industry regarding certain parts of the supply chain in order to alleviate the burden for the government? Should we also limit the number of military personnel involved in decision-making chains?

If you do not have time to answer my question, I will continue later.

[Simon Page]

I thank the member for her question.

In the field of defence and navy, contracts and projects are so large that it is difficult to have standing offers. The Government of Canada uses them to purchase other products and services.

That said, there are things we can do. For example, we have a strategic program for ammunition. We have integrated five companies and we are able to do specific things with them. We also have the key industrial capabilities, a tool that is managed by our colleagues from Innovation, Science and Economic Development Canada and that we can use for some purchases.

However, most of the time, when Public Services and Procurement Canada needs to launch what I call a pure procurement process, by default, we will call for tenders. Otherwise, we have to justify our position. That is a basic rule according to the policies that govern our work.

[The Chair, Liberal, John McKay]

Unfortunately, we'll have to leave Madame Normandin's question there.

Ms. Mathyssen, you have six minutes.

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

Thank you, Mr. Chair.

To our witnesses, again, thank you for your patience. We're starting a bit late today.

On Tuesday, we heard from industry. They were talking about the problems that the delay of the updated defence policy has created. They were saying that ultimately it creates a bit of a.... Industry doesn't know where it needs to go because government hasn't determined where it needs to go. They're waiting for that.

Can you talk about how that is impacting you or what you're seeing from that on your end?

[Troy Crosby]

At this point the focus continues to be on “Strong, Secure, Engaged”. There is a lot of work there—I think I outlined some of it in my opening remarks—and a lot left to do.

The defence policy update will of course bring us forward in time, reflect the current geostrategic situation that we find ourselves in and make applicable adjustments there. We will look forward to when those decisions are made, but in the meantime, we continue to move out with “Strong, Secure, Engaged” and NORAD modernization, as well as support to ongoing operations.

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

One of the initiatives within “Strong, Secure, Engaged” is the “Reform of Canada's procurement model and adoption of life-cycle costing to ensure the Department of National Defence has not only the funding to procure new equipment, but also the funding to maintain and operate new equipment.” Can you quickly provide a life-cycle cost for Canada's acquisition of the 88 F-35 fighter jets?

[Troy Crosby]

The acquisition cost for the F-35 is forecast at $19 billion, and the life-cycle cost—I'm going from memory here—is $70 billion. That was publicly released when the acquisition was announced.

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

Okay. Following up on that, interestingly, just on September 21, the United States Government Accountability Office came out with a report on their F-35 program, stating that the life-cycle cost for America's fleet will amount to $1.7 trillion, which is $680 million per aircraft. The same study said that $1.3 trillion of that, which was about 76.5%, was for the operational sustainment of the F-35s. Then there are more statistics, of course, coming out about mass deployment being required. Only 55% would be usable of those F-35s, and a lot of time is required for maintenance.

The report talked about Lockheed Martin's price gouging and stated that by 2036, the F-35 project will be unaffordable for even America's defence budget. This is quite concerning to hear, of course, considering that we're going into a massive purchase and, by America's own watchdog numbers, that life-cycle cost is far outweighing what they believe they can even afford. In addition to that, we know this is happening on American soil. They're doing their own updating and maintenance there, which would heavily impact Canadians in terms of the wait-list.

I know that the PBO is supposed to do a life-cycle costing. We are anxiously awaiting that, but can you talk to this committee about the fact that this could be a potential problem, what you foresee and how your department is trying to ensure that we won't fall into a lot of those same problems?

[Troy Crosby]

We participate actively in the governance committees that our allies are part of. Our allies are part of the production, sustainment, follow-on development and memorandum of understanding for the F-35s. We attend those meetings. The power of that collective voice with industry can't be understated.

I think we're quite fortunate to be working alongside close allies that have motivations similar to our own in making sure they're getting value for money and delivering readiness for their armed forces.

It's something we will need to watch. There are some choices that can be made along the way in terms of capability enhancements that will be brought to the F-35 over its life cycle. At the same time, I can assure you that all of our allies are focused on making sure we're getting the best value for our money.

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

What specific mechanisms are in place to ensure we don't fall down into the same problem the Americans clearly have now? Are there things within the contracts and the negotiations? I know we have to be careful about talking about them. Are there mechanisms within them to protect us from that?

[Troy Crosby]

From an acquisition point of view, as a member of this memorandum of understanding, Canada will pay the same price for the F-35s that the U.S. military will pay for them and no more. Because of legislation, we can't pay less.

The in-service support costs are partially driven by the way the aircraft are operated, the number of flying hours and the readiness levels. The amount of deployment readiness that a military plans for speaks to the amount of money that's spent on spare parts and where they're positioned—these sorts of things. We have the autonomy to match our operational requirements and our environment, but the fundamentals are the same.

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

If the Americans are being gouged, as stated by their watchdog, how do we ensure that we are not equally price-gouged?

[Troy Crosby]

I have no evidence directly that we're being gouged. I wasn't aware of the public commentary there. Again, I reassure you that the motivation of all departments of defence is to make sure that we are paying as little as possible for the most operational output we can achieve.

[The Chair, Liberal, John McKay]

Thank you, Ms. Mathyssen.

Mr. Kelly, go ahead for five minutes, please.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

I'll probably direct my question to the Department of Industry.

What is stopping Canada from having contracts in place to produce additional 155-millimetre shells?

I think the pause is almost telling. What is stopping us?

[Demetrios Xenos]

Pardon me, but I'm wondering if the question is about the munitions supply program in Canada.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Yes.