Public Accounts Committee on Dec. 7th, 2010

[Andrew Saxton, Conservative, North Vancouver, BC]

That's helpful. Thank you very much.

The military procurement process seems to be of some concern. Can you share with us what's being done to improve the process?

[Dan Ross]

Yes, sir, I can take that one as well.

Over the past four or five years, the government has made a number of significant changes in defence procurement. The most basic one has been going to performance-based procurement, therefore best value--best value of both the acquisition cost and the cost to own it, to run it, so the cost of ownership over 20 years--and to leave the detailed specifications and lowest-price compliant process behind, although not necessarily exclusively.

This government has also committed to the Canadian Forces on the Canada First defence strategy, which has taken away a lot of the political and financial insecurity associated with where you can make a decision to proceed or not. It also has implemented accrual-based financing, where effectively you can buy a series of equipment, you get accrual cash from the Department of Finance, and then you repay that as a series of mortgage payments within the A-base of the department, which has permitted the department to proceed on a large number of programs at the same time. Historically, you had to have the cash to actually go out and buy a frigate, or a ship, or a helicopter, and you actually couldn't afford to do more than one at once.

So there are I think three major factors that have made a big difference in how long it's taken, and we've driven it down from about 10 years to less than four years, from the identification requirement to contract signing.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Ross.

That concludes the first round. For the second round, you have five minutes apiece.

Mr. Bains.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Chair.

The problem we're dealing with today, and the problem that stands out through the discussion we've had so far, is really that the acquisitions were not done in a fair, open, and transparent process. That's what I'm trying to understand. So this is a question for the Department of Defence: why did you not comply with the oversight and approval framework set out in the project approval guide that you had?

[Dan Ross]

Perhaps, Mr. Chairman, I can start.

I think, sir, you're referring to what we call our project approval guide, the PAG. The PAG is a guide; it is not a mathematical, scripted, “you must do every step”.... We periodically amend that guide, and I'll let Admiral Donaldson comment on where we're going with the PAG. One of the requirements in the PAG is to have something called a senior review board, and annually you must have a review of each one of the major projects. I chair 194 of those, and they are normally co-chaired by an environmental chief of staff. We review the status of all activities of the project.

But there are occasions when it's necessary to have much more senior participation in those reviews. A senior review board is normally at the lieutenant-colonel/director level. It does not have three-star generals or assistant deputy ministers. So there have been occasions upon which we've actually pulled it up to a higher level, which we had to do on the Cyclone helicopter project.

We are going to make some changes to our PAG, the project approval guide, to indicate that it is a guide and that on occasion there will have to be variances from that guide.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Just on that point--because you raised a good point--you said that it's simply a guide, and then we heard from Public Works before that there was a difference of interpretation.

I'd like to ask the Auditor General to shed some light on this. Is this simply, in your opinion, a guide and a difference in interpretation, or was it that it genuinely, as you stated, “did not fully comply with the oversight and approval framework set out in its Project Approval Guide”, nor did it “develop full life-cycle plans and costs for these helicopters in a complete and timely way”, and is that why you referred to the fact that this process, in your opinion, “was not fair, open and transparent”?

[Sheila Fraser]

There are two issues, Chair. One is the internal processes that were used within National Defence to monitor, challenge, and approve the project. There were many changes, budgets, delays, etc., that we would have expected, as outlined in the project approval guide, of which there would have been senior oversight and senior approval, and those processes were not followed.

On the question of whether it was fair, open, and transparent, that goes back to the acquisition of the Chinook for which an ACAN was used. We had several issues with the way the process was done. We felt there should have been much better rationale and documentation as to why it was a directed contract, that there was only one supplier. When the ACAN was issued and another supplier indicated interest, that supplier was rated against the requirements, but the supplier to whom the contract was given had never been rated against those requirements. Furthermore, this was done in 2006, but the project definition changed significantly by the time the contract was finally done in 2009. We believe that, at a minimum, another ACAN should have been issued in 2009 with all of those new requirements.

So we do not believe that the contract process was fair, open, and transparent, and quite frankly, we believe it is more than a question of just fixing terminology.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

That's what I wanted clarification on. If I may, to allow for fairness, I would ask the deputy minister from Public Works to comment on that as well, just briefly because I know I'm tight on time.

[François Guimont]

Am I allowed to give an answer or...?

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Oh, absolutely.

[François Guimont]

Thank you. I appreciate it.

On the issue of documentation, and just to expand on that difference of opinion, the Auditor General has a very clear view that we should have on file a robust, very strict, sole-sourced justification. When we carry out an ACAN, we use a market analysis--i.e., those requirements can be discharged by Boeing--and we complement that with the actual ACAN. A combination of both becomes the reason for us to direct that contract to that supplier. So it is different indeed from having on file a documentation of a sole-source contract. There's no question.

On the second point--do you want me to address it?

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

It depends on the time....

[The Chair, Liberal, Joe Volpe]

You're over time again. But when you get to answer again, you can go on to the second point if you like.

Madam Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, I will simply allow Mr. Guimont to finish his answer to the question asked by my colleague and then I will take it from there.

[François Guimont]

In that case, I will continue.

Very good.

I will do so in English and in French

if you're comfortable with that.

On the issue of criteria, when we had a company, through the ACAN process--which is meant to be open, fair, and transparent--we posted it for 30 days instead of 15 days, to give more time to people to say they could probably meet those high-level requirements. We rated that company against the seven high-level requirements identified by DND. Why did we not rate Chinooks--Boeing--against the criteria? Well, they were the source of the criteria, so they had passed the first door, essentially. That is the reason.

The third point—

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Wait a minute, I would just like to clarify something.

Ms. Fraser, do you agree with everything Public Works and Government Services Canada has indicated so far?

[Sheila Fraser]

No. I do not want to open a big debate on notices of arbitration on contracts, but we sent a letter to the committee which contains excerpts of policies and rules regulating the awarding of contracts. You will see that all this is very clear. Based on our interpretation, ACAN must provide a justification

in their directed contract

and it must be in accordance with one of the exemptions, one of the exceptions, to justify having an open contract.

We also do not agree on the fact that Boeing has met all of the requirements, because the company could not guarantee that it would meet the deadlines, which was one of the basic requirements. At least it was obvious that the company could not meet that requirement.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I have a question for you, Mr. Fonberg. In light of the explanation that the Auditor General has just given us, as well as her earlier statement to the effect that the ACANs did not comply with regulations, I would like to know whether you were already deputy minister in December 2006?

[Robert Fonberg]

No.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Very well. I was wondering about that because your name appears in the appointment books of the Deputy Minister of Public Works. I was wondering what your role was at the time.

[Robert Fonberg]

I began in my job on October 1, 2007, Mr. Chairman.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

October 2007. What was your position at time of your meetings with the Deputy Minister of Public Works in 2006-2007?

[Robert Fonberg]

At that time I was the Associate Secretary to the Treasury Board.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Therefore, as a representative of Public Works on issues concerning military procurement?

[Robert Fonberg]

I worked on a project on the overall reform of military procurement while I was at the Treasury Board, but it was not specific to the purchase of helicopters.