Public Accounts Committee on May 1st, 2017

[John Forster]

I'll say a few words and then I'll turn to Pat.

All of these contracts predated how we are approaching it now. We locked in kind of a fixed level of support, then you pay the increment. A lot of that would have been to make sure that we have more than enough support so that, if we end up using the plane—you can't predict crises in the world, you can't predict where your planes need to fly—we have it well covered.

As Pat indicated earlier, the new kind of contract we're trying to sign for that has tiered pricing so we're not locked in. When we have either.... We're finished in Afghanistan, then we no longer use the plane as much, or we have budget cuts that were put in place.... We had $2 billion in budget cuts to deal with. You can adjust your contracts going forward. That's what we've talked about in terms of the new kind of contract we're trying to sign.

Pat, do you want to add anything?

[RAdm Patrick Finn]

In separating out I think the two key points the Auditor General made, the importance of life-cycle costing and the good planning assumptions, if you look at the main fleets we're talking about here, all were acquired and looked at in service support contract during the height of our mission in Afghanistan. If you think about how much we were using the previous generation of Chinooks, how much we were using C-130J, etc., during a fairly large campaign on the ground with troops dying because of improvised explosive devices, we were operating those fleets to the levels we're talking about here.

Where we stumbled, I think it was perhaps a rational assumption that we would continue to use it at that level, and therefore structured it accordingly to make sure we would have the capacity because what we don't want to find ourselves doing is my saying to the chief, “I know you have a mission, you have to deploy here, but I don't have a support contract.” But admittedly, structuring it in a way that says we're going to use all these hours is where we erred.

As we renew them, as we've done in the C-130J, which is the same contract...but when it came up for renewal period, we went back to the original equipment manufacturer, Lockheed Martin, based on international practices and reduced it. As the Chinooks come forward and the other ones come forward, we'll do the same. We'll band them and tier them, but we want to make sure that we get good value for money. There is a threshold at which we have to pay for the readiness for industry to be there and ready to surge. It's just to make sure that we're not paying a ridiculous amount for a few hours, and that's what we're trying to change.

[David Christopherson, NDP, Hamilton Centre, ON]

Which we have been up until now.

[RAdm Patrick Finn]

There certainly are examples where we've absolutely done that. That's where, as we renegotiated C-130Js and moved to the others, the new contracts and the new fleets we're bringing into place now follow much more the sustainment initiative—and you asked about lessons learned—that make sure we adopt that lesson.

[David Christopherson, NDP, Hamilton Centre, ON]

Deputy, you look like you were getting—

[VAdm Ron Lloyd]

If I could just add, looking forward.... The force posture and readiness is a mechanism. It's a tool by which a chief of the defence staff sets the readiness across the fleets of the Canadian Armed Forces.

One of the things where we'll start to use DRMIS and these new tools is in looking at how we're actually delivering that force posture and that readiness across the board.

In the navy, as the deputy minister indicated, we've adopted business practices, if you will, because that's the way to maximize profits. Unlike business, where profits are measured in terms of dollars and cents, we measure our profits in terms of increased personnel, materiel, and combat readiness. These tools will help us do that.

We'll then take a look at what we've planned to expend in terms of hours on aircraft, sea days on ships, and kilometres in vehicles, for example. Then we'll see how we did compared to that plan. We'll execute, and then we'll measure. Then we'll adjust to make sure we have it right so that when the national procurement oversight committee sits down and we allocate those resources, we'll have a trend with respect to how well we're doing against that benchmark.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you for that. I appreciate it.

I will just mention that I do understand some of the readiness you're talking about. For eight months, I was the defence critic, so I do have an understanding of that. That's why, when you were saying you needed to be ready, I mouthed to the deputy that you don't want the opposite. That's an even bigger problem. It doesn't mean this one doesn't have to be managed, but I understand you can't push the button and have nothing happen when you do that. When you need something to move, it has to move.

[John Forster]

That's exactly it.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Christopherson.

Mr. McColeman, please.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you, Mr. Chair.

I want to ask a couple of general questions on policy. Does the department have policy regarding sole-source contracts?

[John Forster]

Yes. The Government of Canada has policy regarding sole-source contracts.

Pat, do you want to add to this?

[RAdm Patrick Finn]

They fall under the government contracting regulations. There are, generally, four criteria under which we could choose to sole-source. For all of our large contracts, we, of course, do that through Public Services and Procurement Canada and, in many cases, Treasury Board. However, there is actually a policy with four criteria.

[Phil McColeman, Conservative, Brantford—Brant, ON]

What are those four criteria?

[RAdm Patrick Finn]

The contract is under $25,000, there is only one source of supply, not in the national interest, or there is an emergency.

There are also, in the context—and this falls under the government contracting regulations at Treasury Board—some caveats that were introduced by the previous government that allow us to step outside of the government contracting regulations...notably, urgent operational requirements.

[Phil McColeman, Conservative, Brantford—Brant, ON]

The first one you said was “under $25,000”. Is that correct?

[RAdm Patrick Finn]

That is correct.

[Phil McColeman, Conservative, Brantford—Brant, ON]

That's the first criteria. Okay.

Again, I know this is government policy. Mr. Chair, if I'm veering here too much, please let me know. In the Auditor General's view, in terms of the objective voice here, what are best practices regarding sourcing or procurement? Is it in every case that we can have a competitive bidding situation best business practice? Or, in your view, is sole-sourcing a practice that should be, for sake of a better word and from the world I come from, tolerated?

[Michael Ferguson]

Whenever there was an acquisition, no matter how it was done—sole source, competitive, etc.—what we would do is make sure the rules had been appropriately followed and the decisions had been appropriately supported. If there were a decision, for example, to sole-source, we would look at the four criteria that were just mentioned, or we might look at this urgent operational requirement criterion. We would go back and make sure that, in any acquisition, the department had appropriately applied the rules and had documented why it felt that it was an emergency situation or a national interest question, or whatever. Why did it feel that was the case? If it was with regard to a sole-source contract, did it seem to have appropriately supported why it chose that part of the sole-source criteria to justify a sole-source contract?

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you for that.

I'm also curious to see if there are any further comments.

Mr. Fragiskatos, I really liked your line of questioning in terms of pulling together a perspective on trends, on being able to use the collective knowledge for a more effective use of hard-working taxpayers' dollars, frankly.

When I sit here as a parliamentarian and I look at you, I don't envy the position you're in. We're pushing you hard. We're pushing you hard on issues of value, and the Auditor General is pushing you hard on issues of value. In your own personal lives, I suspect you're interested in getting value. When you see some of what's uncovered in an Auditor General's report like this, your perspective somehow gets a little lost. This should not happen, if we could all agree on that premise, and yet it's happened.

As an extension of my colleague's earlier comments—and I said it earlier in a different way—what is really learned here? Can we not apply the simple value propositions that each of us use in our lives to make sure these things don't happen? Is it unreasonable to ask that question, as a parliamentarian, as a person who's asking for scrutiny here in a very hard, difficult way? These seem to me to be elements that should be worked into every discussion of every procurement of every item, right down to the boots the soldiers wear.

[John Forster]

I think that's a perfectly reasonable approach to take, and I would agree totally with it, both as a taxpayer and also as the deputy minister of the department. If I'm wasting money in one area, that means I have less money to spend on equipment or readiness or training for the armed forces. As I said earlier, I think there are key lessons learned. How do we do better planning upfront? Do we need to lock in a certain level of availability, hours per year on an aircraft, or how do we get more flexibility to move it up and move it down, recognizing that there will be a premium for some of that flexibility? Where's the balance there? How do we do better life-cycle costing? I've spoken today about the steps we've taken, and actually I believe we have taken significant steps in the last 18 months to improve how we do costing in this department. How are we going to measure and track our performance? I agree with everything the Auditor General has said. How do we get to do that better? It is a big, complex beast. It operates around the world 24-7, hundreds of platforms, millions of parts. We're running an airline, a trucking service, a hospital, the works. Yes, we need to do better, and that's what we're trying to do with our system.

You should see what the navy has done. They can go to any ship, anywhere in the world 24-7 and know what the repair status is, know what maintenance has been done, what's scheduled, what needs to be done, what parts they're going to use; and that's the future direction we want to go. As much as you talked about your hand-held device, we're doing that now on ships, and we want to do it around all the rest of the fleets. The directions are there, the work is there, but I think it's always going to be that you're going to want to do better and better, and there's never a final destination on this.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

Ms. Shanahan.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

I want to pick up on a few things. I think we're really getting to where we want to go with this. Really, it's an ongoing discussion. It's not for nothing that you have appeared before us on different occasions. There are many moving parts. I'm always interested, personally, in how we can improve things going forward, and frankly, looking for signs that there is learning going on, that there is a using of outside knowledge as well. So to get to performance measurement, I'm very interested, Mr. Lloyd, when you say that the performance in your world is not dollars and cents, but actually in tangible outcomes.

Just in passing, I had the occasion to visit a group of visiting Commonwealth parliamentarians in public accounts last week, in Montreal. One thing that they are looking to us for—Mr. Ferguson, you'd be interested to hear this—is how we do performance measurement here in Canada, how the Auditor General's office does that, and how we're doing that as the public accounts office. Please talk to me about the things that you've learned about performance indicators, and then I would like to hear from Mr. Ferguson about what he sees can be improved.

[John Forster]

I think the big challenge for a lot of us on performance indicators is the data to support them. It's pretty easy to come up with great indicators. It's often very difficult to then find an inexpensive, efficient way to collect that data.

The government has now given us a pretty heavy task, which is to come up with a much more robust results framework for all departments. For the Department of National Defence, Vice-Admiral Lloyd is leading that work. Maybe I'll let him speak a bit to that.

[VAdm Ron Lloyd]

One of the key areas that clearly we have to have visibility on is our spend. If we use the budget that the navy is provided as an example, now that we're able to leverage the financial aspects of DRMIS, using these tools, I can now give you visibility into our spend across a number of activities.

We've broken the navy up into various business lines, and now we have visibility into our spend. It's not in accordance with your vote or whether it's personnel or it's reserve, but what are the activities that you're spending money on? Now that you have visibility with respect to where your spend is, you can then see if it actually maps to your priorities.

One of the things that we firmly believe is that if you want to understand an organization's priorities, you track the money. Now we're tracking the money to make sure that it aligns with the overall navy's priorities, and we need to scale that across the department.

We have learned a significant amount over the last two years with respect to performance measurement, and we've now been able to scale it, not only from our financial but into our materiel and our personnel and training. We're continuing to make consistent progress with respect to those initiatives.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Would you say that you have two sets of performance indicators, then: one that has to do with the financial, and the other that has to do with the outcomes? Or are they somehow interrelated?