Public Accounts Committee on Feb. 28th, 2013

[Marta Morgan]

Well, yes. I think the programs have been in place since 2007, and five years quite shortly thereafter the recession hit. It's absolutely normal in a program like this that the funds would be disbursed over time, because they're disbursed as the company carries out its R and D activities.

What we saw during the recession was that there was somewhat of a slowdown in the rate of spending and also in the number of applications that came in to us, particularly in those couple of years, 2008 and 2009.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Again, SADI is the strategic aerospace defence initiative, for those who are watching.

From my perspective, I've been in business and one of the things that I always look at when we do research and development, and then what is the actual outcome and the value we get, is where does the commercialized value come out of it. You talked about it being at 50%, I think, based on the number of projects, which represented about 50% of it. Is that satisfactory?

What would be your goal? If you were to put it on a bell curve and you could start to see the development of research and development, where would that peak to satisfy some sort of return on investment, where you would say that's great because it's been commercialized?

[Mitch Davies]

Mr. Chair, I would refer back to and commend particularly to analysts of the committee to look at our performance measurement strategy, which is quite detailed in enumerating how we are undertaking to examine performance. It addresses also the facts of the challenges, in particular when you're supporting programs, mechanisms where you're trying to achieve an outcome in the commercial market where a lot of other factors come into play over and above whether or not the support for the R and D is in place. I think it is important to make that point.

Our objective in terms of commercialization is that 80% of the projects that we support would see the technologies that are developed ultimately find their way into products and services in the marketplace. Then a subset, in terms of our own objectives, is managing the portfolio itself.

In the case of SADI, we're seeking to achieve nominal repayment to the crown for the funds that are expended. That's a very key indicator. If the companies are in a position to return those funds back to the program and essentially make them available for reinvestment, then we're succeeding.

Those companies are having success in the marketplace and there is an objective to have nominal repayment to the fund over time, but each agreement—speaking to where we are with the agreements and where we were in the early days when the reporting was thinner—is a 20-year relationship. There is a five-year period in which R and D is undertaken. It takes time for the actual engineering, the technical work, to develop to a level where you can actually say you're starting to see the objectives of the project come to fruition. Then there is a 15-year period over which they're repaying.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I have a short time here.

That really helped, and I thank you, especially with the time limit.

I have a quick question for the AG. A little earlier Mr. Davies went down the list he had in his presentation, and I think there are seven items. Recognizing the audit was completed in July 2012, which is now seven or eight months ago, whatever the math is, he went down and actually gave categorically some indication of where they are and what they, as an industry, have done.

Could you comment on that, recognizing that before 2007 apparently there were inadequate performance evaluation tools, before 2010. I'm just trying to get a sense of this, because there's a gap here, and since you wrote the audit and since they've reported today.

[Ronnie Campbell]

Thank you, Mr. Chair.

With all the caveats that an auditor would put on something that he hasn't audited—and I could go on but I won't—we haven't audited that information. Nonetheless, we took a quick look at the department's action plan and it seems to be complete. We just took a quick look. Probably if we had a bit more time we would talk to the department about a couple of areas where we think there could be more detail, but they seem to be addressing—

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Not to put you on the spot or anything, but we need to get some sort of feeling because there has been a time lag. That's all.

Thank you.

Thank you, Mr. Chair.

[The Chair, NDP, David Christopherson]

You're welcome.

Mr. Byrne, you have the floor, sir.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thanks, Mr. Chair.

Thank you to our witnesses and to the assistant auditor general.

My question is for the associate deputy minister. Since 2007, $350 million has been entrusted to the Bombardier CSeries aircraft program.

Madam Morgan, would you be able to tell the committee if the Bombardier CSeries program has met its objectives as stated in its contribution agreements?

[Marta Morgan]

We collect very detailed information on the Bombardier CSeries program with respect to the R and D activities that are being undertaken in support of that initiative. We have very comprehensive information on the project. From that perspective, we are very confident that the milestones are being met and that the R and D that was contracted to is being undertaken by Bombardier.

Ultimately the success of this project will be reflected in Bombardier's success with its CSeries program. We are very hopeful that Bombardier will be successful with that program, because it is a very important project for the company.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Understood. Thank you for that. I'll take it that the official position of the Department of Industry is that it is meeting its objectives.

I'll move the question now to the assistant auditor general. Was that a reasonable statement for the associate deputy minister to make to this parliamentary committee, that it is indeed reaching its objectives?

[Ronnie Campbell]

Mr. Chairman, the department is doing a lot of stuff. It's done a lot of good stuff and it's gathering a lot of information. What we've pointed out is that there's critical information that needs to be gathered, evaluated, and reported. It's not a question of their doing nothing and it's not a question of their having done everything. They're doing a lot. There are some critical things in the evaluative sense that we think they need to do, and we've made recommendations to that effect.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you.

I note in your opening statement, Mr. Campbell, when you were referring to the Bombardier CSeries program, that you said to this committee that both Parliament and Canadians do not know whether the program is meeting its objectives. You said that in the course of your audit you found that Industry Canada had not collected all documents required by the two contribution agreements to determine progress towards the program's objectives.

From the point of view of this committee, we're trying to establish whether or not benchmarks are being met. It doesn't appear that they are. This is a significant amount of taxpayers' money being provided to individual companies in this regard. I'll leave it at that, but I'm still left a little confused.

I'll ask this question. Industry Canada committed to providing Parliament and Canadians with annual reports regarding the SADI program. It was approved, and SADI was initiated in 2007, yet there has never been a report to Parliament, if I understand correctly. Is that your understanding as well? I'll ask the associate deputy minister.

[Marta Morgan]

We have reported a significant amount of information on the SADI program on our website, on new agreements, amounts disbursed, program service standards, repayments, and evaluation findings. The Auditor General recommended that we also report publicly in the form of an annual report on the extent to which the program is meeting its objectives and on the accomplishments of each project, so less on the project objective side of the program and more on the program objective side.

Now that projects are beginning to complete their R and D and enter the repayment phase and the implementation phase, we have more information to report on this. We've accepted that recommendation by the Auditor General and we've recently published a program highlights 2011-12 report, which we posted on our website in February.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you.

One of the most important tools the public accounts committee has available to us to hold the government to account and make sure that the Auditor General's reports are respected and upheld is the provision of action plans to us. We provided a directive to departments as a committee that we expected that not only would action plans be provided, but key individuals would be identified in the production of action plans in response to AG reports, and also that key timeframes would be provided.

Recommendation number four of the Auditor General, found in paragraph 6.45, is that Industry Canada should ensure that it meets its commitment to report publicly each year on how approved projects met the SADI assessment criteria. You list the time frame for your compliance with that as ongoing. Would you be more specific about your intended compliance to that particular request?

[Mitch Davies]

The ongoing is not to indicate that something hasn't already been done. We've achieved the first milestone, which was to have published a comprehensive report reflecting the 2011-12 fiscal year, which we did on February 8. It's available publicly on our website. The ongoing part is that every fiscal year thereafter we will do the same.

[The Chair, NDP, David Christopherson]

Sorry, time has expired.

We move along to Mr. Dreeshen. You have the floor, sir.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much, Mr. Chair.

Thank you, folks, for coming here today.

It's great that you've been able to explain some of the aspects of this, especially the 20-year plan and the fact that we've taken the first five years to get through the start-up phase, if you like, and then work our way through from there. I imagine that eventually, if you have new projects that are coming on line, you'd be able to come up with certain metrics for how you'd be able to look at it in the first three years of a 20-year program or when you're seven or eight years into it, because you're obviously looking for different things as you go through the project.

Perhaps you could go through some of those metrics that you will be using in order to look at program objectives, outcomes, and benefits. What types of things are you looking at so that you will be able to satisfy the questions that have come from the Auditor General?

[Mitch Davies]

It's definitely the case that over time in each project there will be a different set of metrics that become important.

In the early part of the R and D program, essentially the metrics relate to whether the R and D is being executed as contracted in the agreement, which is not a stage at which we're seeing benefits other than there's direct employment, there's actual activity, being an activity of procurement, there's knowledge development, and so forth that's occurring at that early stage. That's the one in the case where we were speaking of wishing to see a target of 90% of that activity being executed upon under the agreements we achieve in the program. We will report on that on an ongoing basis.

The next stage, of course, is the question of collaboration, where we have a particular objective to encourage spillovers through the program, so it's not simply a matter of R and D completely being conducted in-house inside the enterprise, but also in collaboration with our higher education institutes and research institutes so we have a transfer of knowledge, we have education of students, and we have a pathway for innovation to transfer across the two sectors. We will report on the extent of those collaborations over time.

Finally, we have a target in terms of 80% for those projects to lead to actual commercial outcomes, where the technology is transferred into a product that makes its way into the marketplace.

Of course, one doesn't do any of this with the assurance that all of it will turn out. It's all done in an environment where there's a risk being undertaken, that you ultimately achieve the objectives. But we have established targets in those areas and we will report on that publicly over time.

[Earl Dreeshen, Conservative, Red Deer, AB]

When the Auditor General took a look at what was happening and so on, were there discussions with the folks from the AG's office as to the type of metrics you should be using, what they would like to see, to make it easier when you do come up with the reporting regime later?

[Mitch Davies]

The Auditor General is bound to look at the facts of what our files and documentation reflect at any given point in time to the extent that we make improvements, as we continue to do, and as we do as good administrators of our programs, for example, publishing the performance measurement strategy, which is quite comprehensive. It wasn't an undertaking we made in respect to this audit. It was something we were going to do in and of itself for good reason. But when they come back and check in with us in a number of years, and I'm certain they will be back, they will be able to reflect on how well we've implemented that to the extent that we've reported.... I assume they'll have to talk about something else next time when they do their report on us. That's what we'd hoped to do.

I take a lot of credit in the sense that there's one paragraph in the report that is quite key, which is not all the areas where we need to improve, but it's that the core operation of the program, the way we determine eligibility, the due diligence, that we actually pay claims appropriately, that we collect the funds, that sort of beating heart of what we do, they found us to have done a good job.

[Earl Dreeshen, Conservative, Red Deer, AB]

That's great.

Could you expand somewhat on the collaboration you have with the colleges and universities? What can we see happening there? What types of things do you see in the future where you might be able to work with those institutions?

[Mitch Davies]

In this case it's a question of having the companies undertake collaborations. In fact, now it's something we contract with them around. It's gone from an aspirational objective when we commenced the program to something where we actually ask them to make commitments contractually to execute various arrangements with colleges or universities to establish research chairs in particular disciplines, which are part of the overall research that they're interested in, to sponsor students or internships in their firms in order to ensure there's a transfer of knowledge.

We have students in universities and higher research institutes actually learning what Canadian companies are doing and becoming familiar with that work so that knowledge and eventually that talent can transfer from the university sector, the higher education sector, into companies. That's what we're looking for.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you.

[The Chair, NDP, David Christopherson]

That's very good. Thank you. Time has expired.

It's over to Monsieur Giguère. You have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

I thank the witnesses for having come here to provide us with this information.

I note in the documents provided by Industry Canada that in 2001 there were 48,000 employees in the aerospace products and parts manufacturing sector, but that there are only 40,000 left, which represents a loss of 17%. The same Industry Canada documents indicate that currently, 20% of Canadian aerospace equipment is manufactured outside of Canada. The exportation of our jobs offshore increased by 12%. And yet job impacts were an inherent part of the evaluation of SADI.

Can you give us some more information on future job-related outcomes that SADI will generate?