National Defence Committee on Oct. 24th, 2023

[The Chair, Liberal, John McKay]

Colleagues, I see that it is past 3:30. We have quorum.

We have our witness in place. I want to apologize in advance to Mr. Jeglic for mispronouncing his name.

Thank you for joining us, sir. We'd appreciate your opening remarks, and then we'll go from there.

Thank you very much.

[Alexander Jeglic, Procurement Ombudsman, Office of the Procurement Ombudsman]

Thank you very much.

I'd like to begin by acknowledging that the land on which we are gathered is the traditional unceded territory of the Algonquin Anishinabe people.

Good afternoon.

My name is Alexander Jeglic, and I am the Procurement Ombudsman.

I'd like to thank the chair of the House of Commons Standing Committee on National Defence for inviting me to be here today to participate in the committee's review of the impact of Canada's procurement process on the Canadian Armed Forces.

I'd like to start by explaining my office's role in federal procurement, as this is my first appearance at this committee during my tenure as procurement ombudsman.

The Office of the Procurement Ombudsman opened in 2008, with a focus on providing Canadian businesses, mostly small and medium-sized, an avenue of recourse for procurement and contracting issues.

My office operates at arm's length from all other federal organizations, including Public Services and Procurement Canada. While I report to the Minister of Public Services and Procurement, the minister has no involvement in my office's daily activities or the contents of my report. The minister is required to table my annual report in Parliament.

My office is a neutral and independent organization of the Government of Canada. My mandate covers all government organizations, except for Crown corporations, the Senate, the House of Commons and certain federal security agencies.

Specifically, my legislative mandate is as follows.

First is to review complaints from Canadian suppliers about the award of certain federal contracts below $30,300 for goods and $121,200 for services.

Second is to review complaints regarding the administration of certain contracts regardless of dollar value. We rarely receive this type of complaint, but when we do, it most often pertains to late payments or non-payment.

Third is to review the procurement practices of federal departments to assess fairness, openness, transparency and consistency with laws, policies and guidelines. These larger systemic reviews examine the way in which federal departments do their contracting in general and often involve the review of multiple procurement files.

In terms of good practices to ensure fairness, openness and transparency in federal procurement, my office has identified three highest-risk procurement elements. We use these risk elements to establish three lines of inquiry: one, the establishment of evaluation criteria and selection plans; two, the bid solicitation process; and three, the evaluation of bids and contract awards.

These systemic reviews have two important functions: First, they identify areas in which departments can take concrete steps to improve the overall fairness, openness and transparency of their procurement practices; second, they point out good practices that can be emulated by other departments. Any recommendations made in these reviews are designed to improve practices and do not focus on individual complainants or winning and losing bidders in the same way that reviews of specific complaints do.

In 2018, my office put in place a five-year procurement practice review plan, which identifies and describes the reviews to be conducted by my office. The planned practice reviews looked at the highest-risk procurement areas as defined by our extensive environmental scanning.

As part of the 17 systemic reviews conducted under the five-year plan, my office conducted a review of the Department of National Defence, which was published on my office's website in May 2022. We made several recommendations regarding DND's procurement practices that required improvement and identified some good practices. For example, an area of improvement that was identified included inconsistencies in the bid evaluation process, including missing evaluation guidelines and results and incorrectly awarded contracts. An example of a positive observation that was made was that DND consistently used standardized solicitation documents, which contributed to the simplification of procurement processes for both Canadian businesses and DND officials conducting procurement. We made six recommendations for improvement to DND and will follow up next year to assess the implementation status of these recommendations. DND agreed with all of our recommendations.

My office also offers dispute resolution services with the help of certified mediators from my office. Either a supplier or a department can request our mediation services, and both parties have to voluntarily agree to participate in order for the mediation session to take place. Mediation is a highly successful and effective service that my office offers, which unfortunately remains underutilized by federal departments. There are no dollar value limitations associated with our mediation services, and we can mediate contracts valued at $6,000 or $60 million. Our mediation generally requires only a one-day mediation session, and these services offer a quick, inexpensive and administratively less burdensome process to litigation.

My office also conducts research studies on important issues in federal procurement. In 2018, we launched an initiative called “Knowledge deepening and sharing” to provide information and guidance to suppliers and departments. We've published a total of nine KDS studies, and some of the topics we've written about to date include emergency procurement, the chief procurement officer and late payments.

In addition, my office plays an active role in diversifying the federal supply chain. To date, we have hosted five annual summits, bringing more than 2,000 indigenous and diverse business owners together in the same room with representatives of government and private sector organizations that provide services to help these businesses access federal contracts.

OPO has become an important component of federal procurement, and we hope to continue to serve stakeholders in a way that brings positive change. This requires our office to be proactive in some areas, but, unfortunately, budget implications currently prevent us from continuing some of this important work.

My office has been operating on its 2008 budget for the past 15 years. For the first time, last fiscal year we sought program integrity funding to address critical gaps in delivering on my legislative mandate and on government and ministerial commitments. This request was unsuccessful, but we have again put forward a new ask to address our funding shortfall in future years.

We are acutely aware of the need for fiscal prudence and efficiency at the federal level and have been working diligently to ensure our operations are as lean as possible to best deliver on our mandate; however, as a result of my existing budget and the inability to hire additional staff, my office has had to curtail several vital activities for the current fiscal year and beyond. These cancelled activities include conducting follow-up reviews to determine if my recommendations for improvement have been implemented by departments and providing information and guidance to Canadian businesses through KDS research papers.

This year, we are once again seeking program integrity funding. Without this additional funding, OPO will become a reactive organization and will no longer be able to effectively provide key services necessary for the improvement of federal procurement.

I'm pleased to see the growing support of my office from the various House of Commons committees. I'd like to thank the national defence committee particularly for the invitation to be here today.

I welcome all your questions.

Thank you.

[The Chair, Liberal, John McKay]

Thank you, Mr. Jeglic.

Mrs. Gallant, you have six minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

With respect to the replacement of the propulsion system of the Canadian Coast Guard heavy icebreaker Terry Fox, how did it come to pass that the bid failed to meet the mandatory requirements set out in the tender documents yet won the contract anyhow?

[Alexander Jeglic]

As I didn't conduct the review, unfortunately I can't answer your question directly.

The intention, obviously, is that if you're non-compliant with mandatory criteria, you should not be awarded the contract.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

If we go back to December 2019, the Liberal government said that only Davie was qualified to build the Coast Guard's new icebreakers, not Heddle. Yet now PSPC chose Heddle over Davie to replace the icebreaker Terry Fox's propulsion system, as I mentioned before.

Do you have any idea why PSPC made the conclusion that Heddle was now qualified to handle icebreakers over Davie?

[Alexander Jeglic]

Mr. Chair, unfortunately I can't answer that question directly because I did not conduct the review on the matter.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay. I'll go to the army, then. There are urban operation training centres in Petawawa, Gagetown, Valcartier and Wainwright, and $500-million laser weapon simulators have been mothballed. They were part of the integrated soldier program that uses simulated weaponry, which, most importantly, provides feedback to the soldier.

These were just mothballed and shelved. How is it that a contract renewal for such a vital training system could have simply been forgotten—they forgot to renew it—especially at this particular point in time when the world's state actors are poised for war?

[Alexander Jeglic]

I think the right person to answer that question is a representative of the department.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

We have several other procurements. Have you reviewed any of the procurements with respect to the Aurora replacement?

[Alexander Jeglic]

As a point of clarity, the way my organization works is that we have jurisdiction for complaints related to relatively low-dollar value procurements. We have complementary jurisdiction with another organization called the Canadian International Trade Tribunal, which has authority and jurisdiction at or above that.

All of the projects you're citing are above the monetary thresholds in terms of our review jurisdiction.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Generally speaking, then, how can we guarantee that PSPC is going to make programs follow the legal guidelines and come in on time and on budget so that our armed forces don't have gaps in their capabilities?

[Alexander Jeglic]

Mr. Chair, that's a fair question, and I think the appropriate answer there is to utilize the existing recourse mechanisms. That is the nature of the Canadian International Trade Tribunal.

I would encourage them, if there are active complaints, to seek recourse from the Canadian International Trade Tribunal.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Are the Auroras too big of a project? Okay.

The entire issue with these other procurements is not adding up. In your experience, is there a possibility, given that the bids are awarded on issues other than the requirements, that there would be political interference involved?

[Alexander Jeglic]

Again, Mr. Chair, unfortunately I can't wade into that discussion, but the contract should be awarded based on the solicitation documents themselves.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Making sure that procedure is followed is one issue, but another is the utter inefficiency with the rollout of these projects.

Has the Office of the Procurement Ombudsman identified any opportunities for simplifying DND's procurement practices?

[Alexander Jeglic]

We have. As I mentioned in my opening statement, one of the things DND is good at is using standardized documentation. That matters because, as you can imagine, suppliers are bidding on multiple opportunities across different departments. It's a little bit unique in the Department of National Defence, where many of the projects are very specific. However, in a general way, DND uses procurement documentation that's standardized, which helps suppliers from all across the country who are bidding on multiple opportunities to participate in an active way.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Are you in contact with international allies' procurement departments, and have you discussed how DND and PSPC can employ those methods to achieve greater project efficiencies?

[Alexander Jeglic]

I have not engaged with international counterparts on defence procurement specifically, no.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay.

What findings led to the OPO, in its review of DND's procurements, to recommend that DND should ensure that the established electronic system accurately tracks, controls and reports on its contracting activities and ensures that all contracts required to be disclosed are?

[Alexander Jeglic]

That's an absolutely fair question that I can directly respond to, which makes me happy.

[Voices]

Oh, oh!

[Alexander Jeglic]

We identified, through our review of DND, that documentation was a significant issue, and it was a shortcoming. We sought 40 files for review, and we had to replace 19 of those 40 files.

The process of obtaining documentation may sound somewhat administrative, but there is a real consequence there. The lack of evaluation material means that you cannot justify how you made decisions associated with awarding contracts. The lack of documentation around communications with suppliers means that you cannot say that all communications with suppliers were done on an equal and timely basis.

There are broad implications to documentation, so that's ultimately what led us to make that recommendation.

[The Chair, Liberal, John McKay]

Thank you.

We have left it on a happy note.

Mr. Fillmore, you have six minutes.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you, Mr. Chair.

Thank you very much for joining us today and for sharing your experiences and wisdom.

Throughout this study, we have been hearing about and getting exposure to different kinds of procurement processes that are in use in different jurisdictions around the world. At the same time, we have also been hearing about some of the tensions that exist between domestic procurement and offshore procurement and the tensions that arise from that with conflicts like Ukraine's when timeliness is of most importance.

I wonder if you could talk a little bit about the tension between domestic and offshore procurement and about where you see Canada going—whatever you would like to tell us about that.