THE STANDING SENATE COMMITTEE ON NATIONAL SECURITY, DEFENCE AND VETERANS AFFAIRS
EVIDENCE
OTTAWA, Monday, June 3, 2024
The Standing Senate Committee on National Security, Defence and Veterans Affairs met with videoconference this day at 3:58 p.m. [ET] to examine and report on issues relating to national security and defence generally; and, in camera, to examine the subject matter of those elements contained in Division 39 of Part 4 of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Senator Jean-Guy Dagenais (Deputy Chair) in the chair.
[English]
The Deputy Chair: Before we begin, I would like to ask all senators and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents.
Please take note of the following preventative measures in place to protect the health and safety of all participants, including the interpreters.
If possible, please ensure that you are seated in a manner that increases the distance between microphones. Only use a black approved earpiece. The former grey earpieces must no longer be used.
Keep your earpiece away from all microphones at all times.
When you are not using your earpiece, place it face down on the sticker placed on the table for this purpose.
[Translation]
Thank you all for your cooperation.
Welcome to this meeting of the Standing Senate Committee on National Security, Defence and Veterans Affairs. I’m Jean-Guy Dagenais, a senator from Quebec and deputy chair of the committee. Unfortunately, our chair, Senator Tony Dean, couldn’t be with us today.
Before we begin, I would like the committee members here today to introduce themselves, starting on my left.
[English]
Senator Richards: Senator Richards from New Brunswick.
Senator Patterson: Rebecca Patterson from Ontario.
Senator Cardozo: Andrew Cardozo from Ontario.
Senator M. Deacon: Marty Deacon, Ontario.
Senator Anderson: Margaret Dawn Anderson, Northwest Territories.
Senator Boehm: Peter Boehm, Ontario.
Senator McNair: John McNair, New Brunswick.
[Translation]
Senator Oudar: Manuelle Oudar from Quebec.
[English]
Senator Yussuff: Hassan Yussuff, Toronto, Ontario.
The Deputy Chair: Today, we begin our study on defence procurement and the Canadian defence industry.
[Translation]
To kick off this work, I’m pleased to welcome, from the Office of the Parliamentary Budget Officer, Yves Giroux, Parliamentary Budget Officer.
From the Office of the Auditor General of Canada, we’re joined by Andrew Hayes, deputy auditor general, and Nicholas Swales, principal. From the Office of the Procurement Ombud, we’re joined by Alexander Jeglic, procurement ombud.
Welcome. We’re ready to hear your opening remarks. We’ll start with Yves Giroux. The floor is yours.
[English]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you today. I am pleased to discuss the work of my office that is relevant to the topic of today’s meeting: defence procurement and the Canadian defence industry.
My office has undertaken and published a number of analyses on defence procurement, notably on the topic of naval shipbuilding and the acquisition of next-generation fighter aircraft. I will begin by briefly detailing the findings of the two most recent reports on these subjects.
In November 2023, my office released a report entitled The Life Cycle Cost of Canada’s F-35 Program – A Fiscal Analysis. Our report found that the total cost of purchasing, operating, maintaining and eventually disposing of this new fleet of 88 fighter jets would reach approximately $74 billion. Of this total, $20 billion accounts for development and acquisition, almost $54 billion accounts for operations and sustainment and an additional $0.2 billion accounts for the disposal of the fleet at the end of its useful life.
Our most recent report on naval shipbuilding, published in October 2022, concerns the government’s plan to acquire 15 next-generation surface combatants for the Royal Canadian Navy. This report, titled The Life Cycle Cost of the Canadian Surface Combatants: A Fiscal Analysis, found a total estimated cost of $306 billion. This total is inclusive of project development and acquisition costs of $84.5 billion, operations and sustainment costs of $219.8 billion and disposal costs of $1.7 billion.
[Translation]
I’ll now continue in French.
In addition to conducting analyses on individual defence procurement projects, my office has regularly released reports that look at the Department of National Defence’s planned capital spending. In February 2024, we released a report entitled Planned Capital Spending under Canada’s Defence Policy: 2024 Update.
Since this report was released before the government announced its new defence policy entitled Our North, Strong and Free: A Renewed Vision for Canada’s Defence, it doesn’t cover all the spending planned under this policy. However, a number of findings remain relevant.
Under the government’s previous defence policy entitled Strong, Secure, Engaged, we found a deficit variance of almost $12 billion between what the Department of National Defence planned to spend on capital assets at the start of its policy in 2017-18 and what it actually spent at the end of the 2022-23 fiscal year. We also found that most capital spending — 62% — was planned for the second half of the 20-year period studied by my office, resulting in a significant concentration of spending towards the end of the period.
Lastly, my office is currently preparing two new reports on defence, which should be released in the coming weeks. First, we’re updating our 2021 analysis of the cost of purchasing two new polar icebreakers. Second, we’re preparing a report on Canada’s military spending and the NATO spending target of 2% of the GDP.
I’ll be happy to answer your questions about our defence analyses. Thank you.
The Deputy Chair: Thank you, Mr. Giroux, for your remarks. Before continuing, I would like to welcome Senator Claude Carignan, who has joined us.
[English]
Andrew Hayes, Deputy Auditor General, Office of the Auditor General of Canada: Mr. Chair and honourable senators, thank you for this opportunity to appear before your committee as part of its study on defence procurement in the Canadian defence industry. I would like to acknowledge that this hearing is taking place on the traditional, unceded territory of the Algonquin Anishinaabe people. Joining me today is Nicholas Swales, who are responsible for many of our audits in this area.
There are a number of themes that have emerged from our audits linked to defence procurement that I would like to highlight for the committee. First, I will speak to delays and scope changes and the impact they have on the timely renewal of the fleet. When fleet renewal is delayed, aging aircraft and ships remain in service beyond their planned useful lives or are retired before replacements are operational. Keeping aging aircraft and ships in service also means increased operating and maintenance costs.
In 2021, we audited the National Shipbuilding Strategy, which was launched in 2010. It calls for the building of different classes of at least 50 large science and defence vessels over some 30 years. Overall, we found that the delivery of many ships had been significantly delayed because of challenges in design and construction. For example, welding problems were discovered in the offshore fisheries science vessels, which required time to investigate and repair. This caused delays in the construction schedules of other vessels, increasing the risk of not having the vessels ready to do what you need when you need to do it.
In our 2022 audit of Arctic Waters Surveillance, we found that delays and their impact persisted. The audit also found risks of gaps in surveillance, patrol and presence capabilities because aging satellites and patrol aircraft may also reach the end of their useful lives before replacements are available.
The replacement of Canada’s fighter force is another example of delays and their impact on readiness. Canada bought its CF-18s in the early 1980s, expecting to replace them after about 20 years of service. However, this did not happen. In 2016, the government directed National Defence to have enough fighter aircraft available every day to meet the highest NORAD alert level and Canada’s NATO commitment at the same time. This meant that National Defence had to increase by 23% the number of fighter aircraft available for operations. To meet the demand, the government purchased used fighter jets from Australia that were about 30 years old and had the same operational limitations as Canada’s fleet of CF-18s.
[Translation]
This brings me to the second topic that I want to focus on. Without the staff to operate and maintain the equipment, the readiness issue remains.
As part of Canada’s fighter jet program, National Defence planned to spend around $3 billion to purchase and operate Australian aircraft and to extend the life of its fleet.
However, the department lacked a plan to address the shortage of experienced pilots and the declining combat capability of the CF-18s. The purchase of additional aircraft wasn’t enough to meet NORAD and NATO needs.
In 2022, while following up on previous audits, we found that National Defence increased the number of aircraft and pilots available for operations, but not the number of technicians. Since National Defence’s recruitment and retention strategies were still being implemented, some positions remained unfilled.
The last topic that I want to bring to your attention today is inventory management.
We’ve been identifying issues in this area as part of our financial audit work for about 20 years. We took a thorough look at the Canadian Armed Forces supply chain during a performance audit in 2020. We found that, in 50% of cases, military units were late in receiving materials such as spare parts, uniforms and food.
Priority items for critical operating requirements were delivered late even more often, or in 60% of cases. These delays were often caused by inventory shortages, and they affected National Defence’s ability to carry out its missions and manage its resources efficiently. These audits show the need to supply Canada’s military forces and to renew fleets in a timely manner in order to avoid capability gaps that could prevent Canada from meeting its national and international defence and science commitments.
Mr. Chair, this concludes my opening remarks. We look forward to answering the committee members’ questions. Thank you.
[English]
The Deputy Chair: Thank you, Mr. Hayes. Finally, the Procurement Ombud, Mr. Alexander Jeglic.
Alexander Jeglic, Procurement Ombud, Office of the Procurement Ombudsman: Thank you.
I would like to begin by acknowledging that the land on which we gather is the traditional unceded territory of the Algonquin Anishinaabeg People. My name is Alexander Jeglic, and I am the Procurement Ombud, as just mentioned.
[Translation]
I want to thank the chair and members of the Standing Senate Committee on National Security, Defence and Veterans Affairs for inviting me to appear today as a witness for your study on defence procurement.
[English]
I would like to start by briefly explaining my office’s role in federal procurement, as this is my first appearance at this committee. The Office of the Procurement Ombud was established in 2008, with a focus on providing mainly small- and medium-sized Canadian businesses 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, or PSPC,
While I report to the Minister of Public Services and Procurement, the minister has no involvement in my office’s daily activities or the content of my reports. That said, the minister is required to table my annual report to Parliament.
[Translation]
We’re a neutral and independent federal organization with a government-wide mandate covering the procurement practices of roughly 90 federal departments and agencies.
[English]
Specifically, my legislative mandate includes the following items:
First, to review complaints from Canadian suppliers about the award of certain federal contracts.
Second, to review complaints respecting the administration of certain federal contracts.
Third, to review the procurement practices of federal departments to assess fairness, openness and transparency and make recommendations for improvements.
Fourth, my office also offers dispute resolution and mediation services led by trained mediators from our office. We can provide mediation services regardless of the dollar value of the contract in dispute.
Fifth, my office also undertakes research studies on important issues in federal procurement called Knowledge Deepening and Sharing, or KDS, to provide information and guidance to suppliers and departments. Since 2018, we have published a total of nine KDS studies, including emergency procurement, Chief Procurement Officer, social procurement and national security exception.
Sixth, my office is also very involved in helping to diversify the federal supply chain. To date, we have organized five annual summits, bringing more than 2,000 participants including Indigenous and diversely owned businesses together with government and private sector organizations that offer services to help these businesses win federal contracts.
When we review complaints or undertake procurement practice reviews, we repeatedly encounter the same issues. Common problems include unfair or overly restrictive evaluation criteria, incorrect evaluations, contracts awarded to the wrong bidders, inadequate or missing debriefings to unsuccessful bidders and payment issues.
[Translation]
While these points aren’t specific to defence procurement, we have consistently seen these issues identified in our systemic procurement reviews of 17 departments, including the Department of National Defence and Public Services and Procurement Canada.
[English]
I have also previously appeared on the topic of defence procurement before the House Standing Committee on National Defence and shared some suggestions on potential areas for improvement. While we have not performed a systemic review specifically to defence procurement, the work of my office points broadly to the need for transformational changes to federal procurement. One of the potential changes my office is looking into is the creation of a federal Chief Procurement Officer, or CPO, and we expect to release a study on this topic later this summer.
My office has become an important component of federal procurement landscape, and even more so since the release of our ArriveCAN and McKinsey reports, 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, and, unfortunately, budget restrictions have prevented us from conducting some important work.
My office has been operating on its 2008 budget for the past 16 years. Over the past two fiscal years, we have sought permanent program integrity funding to address critical gaps in fulfilling our legislative mandate and meeting government and ministerial commitments. Unfortunately, these requests have been unsuccessful, to date.
I am pleased to see the growing support of my office from the various Senate and House of Commons committees, and I would like to thank you for the invitation to be here today. My office remains available to work with committee members as long as necessary.
[Translation]
I look forward to answering your questions. Thank you.
[English]
The Deputy Chair: Thank you very much, Mr. Jeglic. Now, we will proceed to questions. As usual, four minutes will be allotted for each question including the answer. I ask that you keep your questions succinct in an effort to allow as many interventions as possible.
[Translation]
Senator Carignan: My question is for all three witnesses. It concerns the Canadian contracting agency, which is the Canadian Commercial Corporation, or CCC. They seem extremely effective and inexpensive, with a budget of $12 or $13 million. They have been self-funded in certain years. We don’t often see self-funded government agencies. As a result, we have military equipment companies selling faster to Americans than to Canadians. I understand your suggestion regarding the Chief Procurement Officer. Could a type of structure similar to CCC be implemented to speed up procurement? To my knowledge, CCC hasn’t seen any scandals or signs of non-compliance with good procurement practices.
[English]
Mr. Jeglic: In full disclosure, I previously worked at the Canadian Commercial Corporation, or CCC, so I’m very familiar with their mandate.
[Translation]
Senator Carignan: Good.
[English]
I will say that that organizational structure — sitting outside of the traditional government model — is certainly a different option available to suppliers. Its platform is government-to-government transactions. They have specific expertise — as you pointed out — selling to the U.S. government.
As you also rightly mentioned, we often hear from suppliers saying that they have an easier time selling to foreign governments — particularly the United States — than they do to Canada. Again, you heard in my comments the call for transformational change. The Chief Procurement Officer — as I mentioned in my remarks — will not answer all the problems within the systemic framework. I have offered a number of suggestions that I would like to table with the committee that should be considered as you pursue this study. There are 17 of them.
As I mentioned, the one area of discomfort for me — as opposed to my colleagues — is that we’ve not done a specific review of defence procurement. Until such time that we do, I can’t make formal recommendations, but I would say that we have done a vast number of procurement reviews that are systemic in nature. I think these same suggestions apply directly to defence procurement.
I’d be happy to table that document with the committee to help as you move forward in your study.
[Translation]
Mr. Giroux: Unfortunately, I don’t know this entity well enough to provide informed feedback.
Senator Carignan: It’s just $13 million. They don’t get much attention, but they’re effective.
Mr. Hayes: CCC is a Crown corporation that we audit as part of our special examination mandate. However, it wasn’t included in our audits.
In general, I think that the issue isn’t structural, but procedural. Changes in priorities, objectives and outcomes during a procurement process lead to issues, delays and challenges for the public service.
Moreover, when you’re trying to accomplish many things through a single procurement process, such as building a foundation to create better economic conditions for people across the country, you need to make compromises. These compromises generate costs and delays.
[English]
Senator Richards: Thank you all for being here today. Mr. Giroux, I’m going to direct my questions to you, but anyone can respond. How much have the expenses in procurement increased since I came into the Senate and was on the Defence Committee six and a half years ago and how much it might increase before this procurement is finally complete?
Mr. Giroux: Senator, are you talking about the surface combatants?
Senator Richards: Any military equipment we’d like to talk about, sir.
Mr. Giroux: When it comes to the F-35s, it’s hard to see fundamental reasons why procurement costs would go up significantly because it’s an aircraft that’s been used in the U.S. and in many other countries. Good data is emanating from the U.S. as to the procurement and the operation costs of that aircraft. I’m relatively confident — barring unforeseen disasters with, for example, engines or something like that — that the cost will be in that ballpark at the very least.
When it comes to the Canadian surface combatants, it’s a new design. To my knowledge, there’s no such ship in the water yet or at least being commissioned. Technically, there’s one in the water but not in operation. The cost could increase further when it comes to the warships because it’s a new concept and the number of ships being built is just starting. We still don’t know whether there will be further design changes to these ships.
Senator Richards: I know you’re not an officer in the military, but do you have any idea at all, in your position as a financial expert, when this procurement of F-35s might be complete?
Mr. Giroux: For the F-35s, we have their delivery starting in 2026, and they’re supposed to be in operation for at least 30 years. The first jets are to be procured in 2026 and the last ones in 2032, so a full complement of eight fighter jets starting in 2032.
Senator Richards: Thank you.
Senator M. Deacon: Thank you for being here today. I appreciate that. I’m going to ask a question based on your earlier comments.
The recently announced defence policy, Our North, Strong and Free: A Renewed Vision for Canada’s Defence, is set to nearly double our defence spending from the current $30 billion to roughly $59 billion by the end of the decade.
I hear you’re reviewing and looking at things. Is your office large enough to handle the influx of complaints and disputes in the coming years as this procurement ramps up?
I’ll ask the second part together, namely, is defence procurement one of your busier files relative to other government acquisitions?
Mr. Jeglic: I’ll answer the second question first. Traditionally, it has not been, for the main reason that, as we were stood up in 2008, we were predominantly marketed as a resource for small- and medium-sized businesses. As a result, we did not see a number of complaints that were defence specific.
Now I will go back to your first question. We’ve seen an influx across the board. We had a record number of cases last year, which is why you heard me talk about our integrity funding that’s required to keep up with the demand. We’ve had an incredibly busy last several years. We would very much like to do defence-related reviews, but currently I’m afraid we don’t have the existing resources to do so.
That being said, we always want to work toward solutions. We want to be a positive organization and a contributor to the ongoing dialogue. You mentioned Canada’s defence policy, Canada Our North, Strong and Free, we see that as a positive step forward. One of the suggestions you’ll see in the document I tabled is a transparent project pipeline. That’s certainly a great start. However, more granularity needs to be provided in order to facilitate investable projects for suppliers. I think a document in between what has been provided and a true project pipeline that the suppliers can rely upon based on fiscal years is what’s necessary.
I know I overly answered your first question, but I wanted to give you additional context.
Senator M. Deacon: Thank you. I have a comment. We look at procurement thoroughly here at this committee, but it’s also something that comes up over and over again at National Finance.
When you’re reviewing and making suggestions, anything that helps Canadians beyond this table understand procurement, the purchase and the strategy for this I think will help your work. Thank you.
Mr. Jeglic: I’m experiencing one existing frustration. I’ve reached a seminal tipping point. I’m now on my second mandate, so I’m six years in. If you go back further than a decade and you read some of the reports that were issued, whether it be by the OAG, by our office or by others, the issues are repetitive in nature. That’s why I’m trying to ask for transformational changes as clearly as possible because Band-Aid solutions are not working. You have to address the root issues, or we’re going to be here in five years from now talking about strikingly similar things.
I hate to be so stark in my language, but, as you’ll see in my annual report, there is a call to action. I think the work of this committee, and others looking into this, is incredibly important to encourage accountability across the board in the procurement community.
Senator M. Deacon: Thank you.
Senator Patterson: I’d like to pull some threads on my fellow senators’ comments. I’ll use shipbuilding as an example. You have a confluence of challenges in trying to get the product to the people who are being asked to defend this country both at home and abroad. You have time, the astronomical costs, which are very hard for Canadians to swallow; and the internal processes of procurement. How do we get this equipment into the hands of the people who are being asked to do the unthinkable?
You talked about the report that you would like to table. Could you talk a bit more about that? Can you provide more specific examples? I’m particularly interested in the time it takes to procure something, which makes it extremely difficult to accurately calculate a cost. Is the current system working? This is your transformational change. If you would like to comment, I’d appreciate that.
Mr. Jeglic: Sure. To spur some questions, I’ll go through the list of suggested changes. To be clear, it’s a document that I’ve tabled and not a report that we’ve done.
The first one, as I just mentioned, a transparent project pipeline for non-National Security Council, or national security exception, projects.
I think engagement in full life-cycle planning, so the contract has to address obsolescence and interoperability.
Number three, host a hackathon-style event with all key players. The goal is to get ideas on the table in short order as opposed to a prolonged process.
Number four, embed Treasury Board as part of the procurement project team.
Number 5, incorporate a risk-based approach, increasing delegation, less Treasury Board oversight on most projects.
Number 6, develop a government-wide vendor performance management framework. This is incredibly important. I have been speaking on this for a number of months, if not years, at this point. If I’m given an opportunity, I’ll circle back to that in a moment.
Number seven, create a federal chief procurement officer position, which you heard me mention already.
Number eight, engage in non-project-specific industry engagement. So not during an active solicitation where the conversations can be different in nature.
Number nine, create clear accountability. Decisions based on consensus without clear accountability do not work. Do not triage procurement issues too early so as to not bring them to the attention of the ADM and DM level.
Number ten, review regulations, including the government contracting regulations and policies for possible amendments for better alignment.
Number 11 — now we’re getting into more procedural — is pay bid costs for compliant bids. We see a general lack of competition across the board. In Defence, it’s particularly acute. I would suggest paying bid costs for compliant bids as a potential solution.
Number 12, reduce the number of mandatory criteria. As you have rightly mentioned, these are incredibly sophisticated acquisitions. Nonetheless, I would argue that there is an overabundance of mandatory criteria which dilutes the number of competitors who can viably participate.
Number 13, use exceptions to competition when the purpose is met. I think there is a general fear to invoke exceptions, particularly now in the current environment. People need to stand up and make decisions and support them through documentation.
Number 14, do not live in fear of litigation. Let the dispute resolution process work. I understand it’s easy to say and difficult to implement, but I think it’s a real risk.
Number 15, looking to other jurisdictions internationally for best practices. I appreciated the question about the Canadian Commercial Corporation, or CCC. Look outside the box for solutions. What are other jurisdictions doing to provide timely resources to their troops?
Number 16, establish courses and programs both at the bachelor’s and master’s level, both on procurement and complex defence procurement. This speaks to the training component, so when you get an employee, they already have a background in defence procurement as opposed to having to train them when they join.
Lastly, I would say mimic what worked in emergency procurement. So you’re looking to expedite procurement. Obviously, eliminate the bad practices and mimic those that worked successfully in an emergency procurement context.
Senator Cardozo: You covered a lot of the things I wanted to raise. Some of them might be a bit riskier than what a government can do in terms of the accountability that is necessary, but I think it’s really creative to do.
Let me ask if the other two agencies can give me their thoughts. The megaproject purchasing or development has been a problem that has confounded governments for ages. In your view, what are one or two things they do wrong, and what are one or two things they should be doing right?
Mr. Jeglic, you have done 17. I am asking the others for one or two. They may be the same as what has been covered.
Mr. Hayes: Right off the bat, if you look at procurement that has gone right and procurement that have gone wrong — by “wrong,” I think you would call them procurement that has been significantly delayed or that has cost a lot more than you would expect — one of the root causes is consensus, identifying what our Canadian Armed Forces should look like, what it needs and being agreed on that and following that through.
It’s very difficult with major capital projects that take a long time, but if you look at the times when it’s worked, it’s because there has been clarity of the outcome and thought.
Senator Cardozo: Consensus among?
Mr. Hayes: It should happen at both levels, the public service but also at the political level. You need to have consensus across the board.
The Auditor General said this, so I won’t hesitate to say this: We wonder whether there is a sense of urgency that is present in terms of moving forward to equip our troops with the materiel, equipment and support that they need in order to defend our country.
Quite frankly, we have made recommendations. For example, we talked about the need to improve the recruitment and retention of pilots and technicians. We made that recommendation in 2018. That is six years ago. Quite frankly, without a sense of urgency, we’re going to see these delays just add on.
If you can get consensus and move forward, you’ll solve a lot of the problems.
Mr. Giroux: I think my colleagues have explained very well the issues with procurement. I would add that there is usually more than one point of accountability, especially when it comes to military procurement, which goes against the consensus that Mr. Hayes mentioned. There are also political decisions that can sometimes imply delay. Political decisions are where these decisions should be made. There is no doubt about that. But sometimes changing somebody’s mind — again, coming back to consensus — adds delays and with delays comes costs.
Senator Cardozo: With political delays, apart from party political, I’m thinking geographical political, so you want to give contracts to different parts of the country.
Mr. Giroux: I have just in mind the decision on the F-35. The decision was made, reversed and then made again. That was what I had in mind.
Mr. Hayes: One that I would add is the trade-off that you have to make when you’re making a decision about, for example, purchasing a big piece of military machinery but also trying to build an economic system in Canada and achieve regional benefits.
I’m sort of foreshadowing the fact that we will have an audit coming out in the fall about industrial technology benefits, but when you have those countervailing, sometimes political objects, you will see that there will be a compromise that you will have to make, a trade-off that you will have to make. As long as you walk in knowing exactly what that is going to mean in terms of delays and costs, then you are aware of the cost-benefit analysis when you make the call.
Senator Cardozo: Thank you.
Senator Yussuff: Thank you to the witnesses for coming here.
Military procurement is not a new challenge we face in this country. As we are about to start our work, the ultimate question is: Are we ever going to find a way to have procurement done that represents the taxpayers’ need to see the cost that was promised and the cost of what is delivered being the same?
Second, timeliness of equipment. I don’t think there is a project we have taken on in this country that I can remember that we have actually concluded in the time frame we set. As a matter of fact, if you ask the forces in terms of their desire to have equipment, they will probably tell you it might have been ten decades ago we should have had that.
Coming back to the F-35, we had been deliberating about this for almost a decade or more before we finally came to a conclusion, and yet, now we’re struggling with: Can we get this equipment in time, recognizing the equipment that we currently have cannot meet the needs of the country and meet our NATO obligation but also our NORAD obligation? So just anything to learn.
Mr. Jeglic, I heard very clearly the 17 or 20 points that you outlined, but these would not be new points that we have been struggling with.
Coming back to what my colleague just said in terms of advice, should Canadians have any confidence in our elected officials when they tell them that they will do the following within this time frame that they will get it done?
We may have a change in government. If we do in the near future, some of these same decisions we’re talking about might get reversed in another direction, so we’re starting all over again. You’re not political people; you’re the people who provide us with sage advice on how we can do things better. Based on your review, what are three things you could tell us from each of your perspectives that would be of value that we could include in our recommendation and report at the end of the day?
Mr. Hayes: Thank you for that question. The point has already been raised about life-cycle thinking. For example, if you looked at our audit report on the surveillance of Arctic waters, none of the things that we talk about are that surprising. You can look at when a ship is going to hit the end of its useful life or when a satellite will no longer be effective for surveillance purposes.
As we pointed out, there is an exhibit in our report that shows when a replacement is coming. That is, the fact that you might have a period of time when you do not have the ability to use satellites in the North. This should be concerning and it was known. These are long-standing, known issues. If you take a life-cycle look at your management of these assets, you should be ready to be able to mobilize and replace them.
Factoring in the complexity of the procurement processes and identifying ways to make sure you find the best value is important. But it has to come with the reconciliation of this life‑cycle idea.
Finally, in previous studies, we have been asked about whether there should be a distinction between Public Services and Procurement Canada as the purchaser and the Canadian Armed Forces or whether it should be brought under one roof. The reality is, no matter what you do, you’re going to need the people who have the expertise of the material that you want to buy, and you are going to need the people that have the expertise on how to buy it. Those are two very different things. Sometimes checks and balances are important.
Before making a wholesale change away from a model where there are particular problems that we know about, it would be important to identify what other problems might come up. For example, the chain of command can order something to happen. If the procurement officer and your materiel officer are in different places, one of them will lose. Having a vibrant and rigorous challenge process is important.
I think I probably talked for too long.
Senator Boehm: Thank you, witnesses, for being here.
I wanted to pick up on a few points that were made about other jurisdictions. I would like your comments on whether other jurisdictions have a central defence procurement entity as was suggested by the government in 2019, but there hasn’t been progress on that.
Do other jurisdictions have the sort of oversight components that we have, as you represent?
I was quite also struck by the comment of Mr. Jeglic on obsolescence and interoperability. We have some really old kits sitting around — Victoria-class submarines that were ancient when we got them; the used F-18s from Australia. There might be other things, but it’s not helpful to us.
I’m realizing this is not turning into a question but into a commentary. Nevertheless, I would still like your comments. NATO has two new members: Finland and Sweden. They are both well armed, well stocked and Arctic equipped. This committee produced a study on defence in the Arctic and NORAD and all of that. What can we learn from them in terms of the agility of their own procurement processes? Thanks and my apologies.
Mr. Jeglic: I’ll take a shot at coupling some of those questions together with an answer.
In terms of what jurisdictions have what authorities, I couldn’t definitively answer the question because we have not undertaken that review. My suggestion is that we look more closely at other jurisdictions. Do they have bodies similar to ours? I can comment on the United States. The United States does have similar bodies to our own. I think that remains true with many NATO allies, but I don’t want to comment too broadly because we haven’t done the work yet. It’s an interesting point that we share the view that there are lessons to be learned from other jurisdictions. That should be one of the first places we look because interoperability is a major issue. We don’t want to lag behind.
In terms of obsolescence and your commentary about purchasing antiquated equipment as new, those are decisions well beyond our capability in terms of making those decisions. However, it does speak to the contractual vehicle. How do you keep those pieces of equipment modern? That has to be contemplated in the contract; otherwise, as you rightfully point out, obsolescence becomes an issue upon purchase. It has to be specifically contemplated.
I’ll leave my commentary there. I might circle back to the other questions about the new NATO countries. Again, I am not armed to provide you with a coherent answer but I would be willing to look into it.
Mr. Hayes: Obviously, this is not something that we’ve audited. However, if you look at the geographical location of those countries — and add Poland in there, because about a year ago they were able to purchase military equipment in six months — what is the reason? They have a threatened environment that is very close and they have a census on what they are going to do. I bring that back to my point earlier about consensus.
Senator Boehm: Thank you.
[Translation]
The Deputy Chair: Before moving on to the second round, I would like to use my privilege to ask Mr. Giroux a question. In your remarks, you described the costs and developments involved in purchasing CF-18s, a $74 billion program with $20 billion earmarked for development and acquisition. Given how long it took the government to make the decision to purchase them and looking solely at the development costs, was this spending properly factored into the budget or was it questionable?
Mr. Giroux: Given the timetable or planning for the acquisition of fighter jets, I believe that the cost estimate provided by the government is reasonable. If all costs incurred by the government since the start of the project, which dates back a number of years, had been factored in, the cost would have been higher. Development costs prior to 2016 and 2017 would have been taken into account. This would probably have added a few hundred million dollars. However, no one measured the additional acquisition cost had these fighter jets been purchased a number of years earlier.
This alternative scenario wasn’t considered. There was an estimate of the costs involved in the program as it stands today.
If the planes had been purchased earlier, the old F-18s could have been taken out of service sooner and costly maintenance could have been avoided, including the purchase of used F-18s from Australia.
The Deputy Chair: Before moving on to the second round, I would like to remind the senators that you have two and a half minutes per question.
Senator Carignan: To sum up, aside from the part addressing the 17 different recommendations, one key aspect is leadership. This includes both political and departmental leadership. This means the ability to make choices and become more efficient by letting go of political aspects at the top, which could delay acquisitions. Also, at the bottom, you must ensure a set and specific definition of requirements from the start. You mustn’t try to turn a helicopter into a jet as you go through the manufacturing process, or make such specific and special requests that you completely change the equipment planning and create delays. Does that cover everything?
[English]
Mr. Jeglic: I can echo the comment about the need for leadership. I would mirror that with the word “accountability.” Ultimately, who is accountable? If you cannot answer that question, then that immediately creates your problem because you don’t know who should be accountable and to whom. That’s the first issue I would mention.
I would say the second part of your question speaks to an old theme of procurement, which is simplification. My colleagues mentioned the constant layering of new obligations. You can’t continually layer on new obligations without losing some, and the current process is just layering on new obligations. Therefore, a constant message from our office is that simplification has to be the driver. I also accept the fact that you can’t change tires on a moving vehicle, so there is that component as well. As these ideas are percolating, you cannot do so while the machinery is moving forward. There has to be a two-track process: one to continue to make the existing processes as effective as possible and the other to look at those transformational changes that will make the process easier as we move forward.
Senator Patterson: I’m going to follow up on costs and timelines. What I have to reinforce for those watching is that these decisions we make ultimately have the lives of Canadian taxpayers on the lines: those who serve. We’re not looking at postal delivery trucks. We’re looking at submarines and planes that can go into — not forest fires — areas like Ukraine.
With that, you talked from the Auditor General’s perspective. I think you mentioned the $82 billion for Canadian Surface Combatants, or CSC, in basically the design and procurement. Because it is a bespoke system, it isn’t seen anywhere else. You’re up against interoperability and the cost to make up a bespoke system interoperable. In your studies, have you had a look at what that costs?
Mr. Hayes: I’m going to ask Mr. Swales if he might have anything to add. I do not believe we have done the analysis of what it would have cost if we didn’t try to design — I suppose “customize” is another word for that — systems to be Canadian specific. However, it’s clear that depending on what we’re purchasing, if it needs to be used in collaboration with our allies, it needs to take into consideration their requirements as well.
Mr. Swales, would you like to add something?
Nicholas Swales, Principal, Office of the Auditor General of Canada: As Mr. Hayes said, we haven’t looked at that specifically. Of course, the issue is always on the table as to whether we should be buying existing equipment or new ones. Sometimes, we seem to get a bit confused about that, as with the CSC, which to some degree was supposed to be a proven design but which we are ending up virtually redesigning ourselves. That’s the kind of situation where we need to get a better understanding of what exactly it is we’re embarking on when we start and structuring our contracts accordingly.
Senator Patterson: Thank you.
Senator Yussuff: Mr. Hayes, I wanted to pick up where you left off awhile ago in my last question. If we were to streamline the structure — recognizing you have procurement on one side, National Defence on another and a whole lot of others. Given the challenge we have continually been facing, do you have any confidence this might help us solve these problems overall? These are generational issues we as a country have been struggling with. Yet, we have not come up with the perfect model of how we can better achieve the objective because, as always, you have three or four departments making a decision.
How do you streamline that in a way that gets the results we’re looking for in a timely manner?
Mr. Hayes: Broadly speaking, I would say that it’s not clear to us — and the Auditor General has said this in the past — that the structure is the problem. Complexity certainly is part of the problem. The complex nature of procurement rules and processes and the way they get operationalized is certainly part of the problem.
The question has at its root, the idea of a single point of accountability — somebody that will be answerable and accountable for delays and cost increases. At this point in time, however, I would say that in our system, we do have clear accountability both from Public Services and Procurement Canada and the Canadian Armed Forces and National Defence.
I guess my earlier point was to signal that, clearly, there are problems that we know about. Changing a model could bring unintended consequences. It might be better. It might be worse. We don’t know. It’s going to be important to make certain we have thought through the way that’s going to work before we embark on a major shift like that.
[Translation]
The Deputy Chair: We’ve been really disciplined and we have time left. Mr. Hayes, you attributed some delays in receiving inventory to a shortage. However, I believe that the delays in placing orders are just as significant.
Are politics too much of a factor in procurement decisions?
Mr. Hayes: I’ll ask Mr. Swales to answer the question.
Mr. Swales: In our report on inventory procurement, we observed a lack of a sound calculation, a proper policy and a good idea of what should be where to ensure that the procurement process takes place as quickly and inexpensively as possible. There was room for improvement in determining our needs. From this perspective, there was considerable need for policy improvements.
The Deputy Chair: Thank you.
[English]
The Deputy Chair: That brings us to the end of our time with this panel. Thank you, Mr. Giroux, Mr. Hayes, Mr. Swales and Mr. Jeglic for taking the time to meet with us today.
[Translation]
Welcome, everyone. For those joining us live, we are meeting today to examine defence procurement and the Canadian defence industry. We are now continuing with our second panel. I’d like to welcome Philip Ducharme, Vice President, Entrepreneurship and Procurement, Canadian Council for Indigenous Business, joining us by video conference, and Youri Cormier, Executive Director, Conference of Defence Associations.
Welcome to you both. I now invite you to provide your opening remarks. We’ll begin with Philip Ducharme. The floor is yours.
[English]
Philip Ducharme, Vice-President, Entrepreneurship and Procurement, Canadian Council for Indigenous Business: Good afternoon. As mentioned, my name is Philip Ducharme, and I am a member of the Manitoba Métis Federation. As Vice-President of Entrepreneurship and Procurement at Canadian Council for Indigenous Business, or CCIB, I want to thank you, Mr. Chair, and all distinguished members of the committee for the opportunity to provide comment on the involvement of Indigenous businesses in defence procurement and the Canadian defence industry.
Speaking to you from my home office, I acknowledge the land as the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabe, the Chippewa, the Haudenosaunee and the Wendat peoples and now home to many other First Nations, Inuit and Métis peoples.
For 40 years, CCIB has built bridges between Indigenous and non-Indigenous businesses in support of mutual growth, opportunity and economic reconciliation.
In January 2018, CCIB officially launched Supply Change, our trademarked Indigenous procurement program, which includes the Aboriginal Procurement Marketplace, to provide Indigenous suppliers and corporate buyers opportunities to engage and develop relationships while sharing relevant opportunities.
The Deputy Chair: Mr. Ducharme, for the translators, can you speak slowly, please?
Mr. Ducharme: Sure.
The Deputy Chair: Thank you.
Mr. Ducharme: There are currently over 1,300 certified Indigenous businesses and 155 Indigenous procurement champions engaging with the program and marketplace. A few of the Indigenous procurement champions within Supply Change that are players in the defence sector include Babcock, Calian, General Dynamics, GE, Rheinmetall and Seaspan.
Several defence sector corporations also participate in CCIB’s Partnership Accreditation in Indigenous Relation Program where they learn strategies to engage effectively in Indigenous relations and report on their progress. Some examples of companies at the committed level are CAE and Defence Construction Canada.
The Canadian Council for Indigenous Business has made a concerted effort to explore opportunities within the defence sector over the last few years, and in 2023, we hosted an Indigenous pavilion at CANSEC whereby we sponsored 10 Indigenous businesses to attend, and we also had 7 of our certified Indigenous businesses participate as well in round-table discussions with federal defence officials at the event.
It was also at CANSEC in 2023 that CCIB launched its Indigenous Business Defence Sector Accelerator program in partnership with General Dynamics to bolster Indigenous businesses’ capacity to engage in the sector. This initiative pairs Indigenous businesses with organizational sponsors through the program to learn about regulatory requirements, acquire knowledge and skills to work within the industry and leverage opportunities within their sponsors’ global supply chain.
Last week at CANSEC, we celebrated our initial cohort group on successfully completing the program. Our inaugural participants included Acosys Consulting Services, COTA, MBS Techservices, LaFlesche and XTENDED Hydraulics & Machine, all of which received great value from engaging with the program. We also announced our second iteration of the program and will begin accepting applications from Indigenous businesses interested in participating on June 14.
The Canadian Council for Indigenous Business has also collaborated with government and corporate partners to deliver webinars to Indigenous businesses on accessing security clearance and engaging in the sector more broadly. Through our interactions with Indigenous businesses, we learn of the challenges and barriers to procurement and with our partners come up with learning sessions and advocate for solutions to overcome these barriers.
We are also members of the Indigenous Procurement Working Group within the Defence Industry Advisory Group and advising on how to increase Indigenous participation in defence procurement.
According to recent reporting by Indigenous Services Canada on government-wide performance on meeting the 5% Indigenous procurement target, DND spent $273.8 million with Indigenous businesses in the 2022-23 fiscal year, or 5.18% of the total $5.3 billion in contracts awarded to all businesses, excluding the value of deputy head approved exceptions of $6.4 billion. However, if one takes into account the exemptions, this expenditure only amounts to 2.33% of DND’s total procurement spend.
I would like to take this opportunity to highlight some of the recent successes that our Indigenous businesses have had within the defence sector.
RaceRocks, an Indigenous women-owned and led training modernization company based in Victoria, B.C., which includes among their partners Boeing, Thales and the Canadian Coast Guard to name a few, has recently secured a $3-million funding round led by Raven Indigenous Capital Partners, which will help in their expansion of operations in Halifax, coupled with strategic investments in product development and cutting-edge technology.
Pro Metal Industries, a Pasqua First Nation-owned company who has produced fabricated and machined components that were integrated in General Dynamics Land Systems Canada’s light-armoured vehicle project will host their grand opening next week on June 11 for their 50,000-square-foot, purpose-designed, state-of-the-art, cutting-edge facility that is set to redefine the landscape of their operations and enhance their capabilities significantly.
At the 2024 Canadian Navy Outlook day, or the Canadian Armed Forces Outlooks conference, COTA was recognized as becoming the first Indigenous-owned business in Canada to become a prime contractor on a Canadian Navy submarine refit. COTA will be designing and delivering new modern galley facilities for Canada’s four Victoria-class submarines.
I would like to thank the committee for the opportunity to contribute to this incredibly important work, and I look forward to answering any questions you may have.
[Translation]
The Deputy Chair: Thank you very much, Mr. Ducharme.
[English]
Youri Cormier, Executive Director, Conference of Defence Associations: Thank you, deputy chair. Good afternoon, everyone. I’d like to thank the committee for calling the Conference of Defence Associations, or CDA, as a witness for your study on Canadian defence procurement.
[Translation]
The Conference of Defence Associations was founded in 1932 and today serves as an umbrella group for 40 member associations that represent over 400,000 active and retired members of the Canadian Armed Forces. Our goal is to foster a facts-based rational approach to Canada’s defence and security policy through education and research programs.
[English]
In only a few years, the geopolitical environment has rapidly deteriorated. I think we can all agree with this and those who don’t agree have probably not been paying close attention to China, Russia and the Middle East. In this context, getting procurement right is not only important, it is terribly urgent.
Recognizing that Canada cannot act alone, we need to leverage our membership in NORAD, NATO and the Five Eyes better. Our allies are looking at us — some might say impatiently — to ensure that the Canadian Armed Forces have what they need to contribute meaningfully not only to the missions, but to the larger purpose of these alliances, which is to project a deterrent effect by showing unity among like-minded democracies.
Another key idea to keep in mind is that transparency, fairness and accountability in public procurement is paramount, especially when dealing with weapons systems. The Canadian population has the right to know, and Parliament must provide the highest standards of oversight.
How we conduct this oversight doesn’t need to be partisan. That can, in fact, be contrary to the higher purpose of keeping Canada safe and thinking long term. Instead, we need to be better at coalition building and consensus making among parties. We should maybe look to Denmark and Norway as good models, good examples of how they do it there.
Turning south now, let’s talk about the United States. There is an underutilized set of opportunities to enhance defence industrial base integration with our American partners. We should formalize greater supply chain integration and make joint purchases as a way to limit the boom and bust cycles of Canadian procurement that are so damaging to the sector and its ability to supply the CAF in a timely and more cost-effective manner.
I’ve actually seen companies bail on Canada and move to kinder markets because of the way that this set-up makes it difficult for them. When companies start moving out, the competition suffers as a result. How do we get the best price and the best equipment if they’re not there to bid on the purchases in the first place?
When it comes to short- and medium-term operational requirements, off-the-shelf options should be prioritized. Whether that means fully foreign built when we don’t have the capacity here, or built in part or fully in Canada on a foreign template, the main thing to consider is the benefit of purchasing something “as is” rather than overly “Canadianizing” it and building it to spec. This sends costs through the roof because it takes a lot longer to arrive, inflation hits hard year after year in this market, and the maintenance costs of waiting and taking care of the platforms that are rusting out are tremendous.
We wind up paying such a high premium for ultra-“Canadianized” systems — we’re talking 300% or 500% markups — that these costs can undermine the very economic benefits that are being sought in the first place. Equipment needs to be fit for purpose, adaptable and do most of what we need it to do, rather than being set up as an “ideal” or something that can “do it all.”
The trouble is that sometimes the exorbitant costs we have built into our system makes us choose to go in the opposite direction. We go thrift shopping for leftovers from our allies to fill the gaps between platforms. We wind up with rusting Australian jets, Dutch tanks and British Victoria-class submarines that cost a fortune to upkeep and practically never go to sea. By trying to save money, we’re actually wasting money instead of being ahead of the curve on this.
One thing that likely doesn’t help is that we have four different ministries and bureaucracies overseeing military procurement on top of the Office of the Prime Minister, or PMO, and the Privy Council Office, or PCO, overseeing the oversight. The bottlenecks can feel insurmountable. All the more so if we’re wanting to add more procurement. The Defence Policy Update, or DPU, is a good example. We’re looking to expand procurement, but we haven’t built up the staff, capacity and system to handle that, so we’re probably going to wind up punting down further spending into the future until we can’t wrap our heads around it.
[Translation]
We also need to develop a higher risk tolerance. One way of mitigating this risk is to use parliamentary oversight to give greater political cover to public procurement issues, where risk‑minimizing bureaucratic procedures create significant delays.
[English]
Finally, the Industrial and Technological Benefits, or ITB, Policy needs to undergo a full review. In its current embodiment, it may well be counterproductive and opposite to Canadian interests, leaving the Canadian Armed Forces, or CAF, under‑equipped, below an adequate state of readiness, and creating measures of value proposition that are speculative, overly expensive and much too slow to roll out.
When contracts are won because new technologies are being factored in with subjective and large multipliers, they are awarded on promises of future wealth creation more so than a measure of urgency or requirements. Furthermore, these promises do not necessarily materialize if once the technology is finally operationalized, export permits are then withheld even when dealing with close allies. The zero tolerance for risk exists from the very inception to the final end goal. This stifles both the economy and the ability for Canada to engage in the world and support our ideals of peace, prosperity, the international rule of law and the protection of human rights.
Thank you for your time.
The Deputy Chair: Thank you very much, Mr. Cormier.
Now we will proceed to questions. I remind you that four minutes will be allotted for each question including the answer. I ask that you keep your questions succinct in an effort to allow as many interventions as possible. We will begin with Senator Cardozo.
Senator Cardozo: I have two quick questions.
Mr. Ducharme, in terms of Indigenous companies that bid, what safeguards do you want to see in place to ensure that the companies are indeed Indigenous and are providing jobs and training to Indigenous people? There have been questions about one particular company in the news recently, so perhaps you can talk about what safeguards you would like to see.
Mr. Cormier, in terms of greater tolerance of risk, no government wants to have a greater tolerance of risk. It’s the opposite of what is demanded of government. Could you address that issue?
Mr. Ducharme: At the Canadian Council for Indigenous Business, or CCIB, we have a certification process because we want to ensure — I’m an Indigenous person myself — that the procurement opportunities are going to valid Indigenous-owned businesses. We follow the federal Government of Canada’s guidelines. We need the proof of Indigeneity. We need the ownership documentation to show that the Indigenous person has ownership and control of the company. There has to be a post-award contract audit done to ensure that the full value that’s being reported that is going to Indigenous businesses is of legitimate value. Right now in some of the joint ventures, in particular — it could be a $100 million joint venture, or JV, with a non-Indigenous partner — that full $100 million is being accounted as Indigenous spent, but there’s no way that $100 million is actually going to Indigenous. I think we need to ensure that there are post-award contracts audits to show what the actual value of that $100 million contract was to the Indigenous business.
Senator Cardozo: Thank you. Mr. Cormier, you have about two minutes.
Mr. Cormier: I think that we need to break down what we mean by risk. There are multiple areas of risk, some of which we have more control over and some less. There are some risks we try to avoid altogether. The risk to our Canadian Armed Forces personnel should be our main priority. Whereas political risk between parties — as to how they’re going to manage the next election with one area of rhetoric or another — is the type of risk that we should be working toward alleviating and not politicizing procurement in the way that we have done in the past. There’s been a vote of non-confidence on the F-35 that happened a few years ago. Those are places where there are possibilities for better oversight and better management of political risk.
With regard to bad procurement risk at the public service level, there are ways to manage and perceive risk. We don’t necessarily have to go through 25 layers of reanalysis of every single project to guarantee that everything is perfect. We can streamline it in a way that nonetheless provides an adequate measure of risk as opposed to zero risk. There is 1% risk, 0.5% risk and 0% risk. You have to choose one.
The last thing is that because there’s intolerance for political risk, I think senior public servants are wedged in a place where they’re seeking out zero risk because they don’t have that assurance that the political parties are together providing that political cover for anything that might have happened in there.
Senator M. Deacon: Thank you to our witnesses for being here today. I appreciate it. My question is for Mr. Cormier. You may have heard me touch on this a little bit in our last hour.
A number of our Arctic and offshore patrol ships have been delivered. We’ve listened to the challenges. They’ve run into issues including lead in drinking water, anchors that aren’t effective, a refuelling system that’s too heavy to use and vessels that might be leaking. We have asked in previous hearings about this. Essentially, the Department of National Defence, or DND, and Irving Shipbuilding have said that it’s part of the growing pains, breaking in the equipment, and it happens with new ships. But for me, they’re only under their first year of warranty, and taxpayers may end up paying more, as you started to describe a bit earlier.
I’m wondering if this is typical for procurement at this scale. I ask that question. Do companies reinvent the wheel when they’re awarded a contract like this, and best practices are not evenly shared about things that we had to do in our break-in phase? I think I’ll take 20 more seconds and say that we’re gearing up at this period of time, and we’ve talked about a decade of defence procurement ahead of us with some big numbers predicted. Moving forward, do we now have to factor these growing pains into the analysis of our scheduled deliveries and costs and almost dropping a bar?
Mr. Cormier: I’d start by saying that I grew up in Quebec City, and the Davie shipyard was one of those things throughout the 1980s and 1990s where they had ups and downs, they’d close altogether, and you never knew what was going to happen next. It was difficult for my community.
What we see now with having three shipyards and contracts well into the future, it does create the ability for knowledge, skills and expertise that are not going to suddenly drop and disappear. I think we will see benefits from this. Maybe it’s a model that we should be exploring in other areas of procurement now that we’ve tested it with ships.
In my speech I was talked about market integration with the United States. There’s one place where the shipyards could be used to maintain American ships the same way that the Japanese and the Indians have this ability to maintain American ships when they’re away.
We need to look into whether there are opportunities to rejig our relationships with the U.S. to make sure that opportunity exists. That might be a way to ensure that when there are no contracts coming in from the Canadian government, we have access to maintaining that skill set.
Overall, the model can work and it has demonstrated its ability to do so. I have faith. I think we’re on the right track.
Senator M. Deacon: That’s a good start. Thank you.
Senator Patterson: Dr. Cormier, you talked about the protection and deterrents that this type of procurement goes toward and then you talked about the requirement for transparency in everything that we do so the public knows what is going on. I’m going to ask you for an outcome of this.
We know that we have fleets that are rusting out on the Coast Guard side as well as on the navy side — it can be aircraft; it can be land-based vehicles. If we were focusing on Our North, Strong and Free defence policy specifically, what are the consequences to Canadian of allowing things like submarines and satellites to rust out with nothing to fill the gap in between?
Mr. Cormier: There are multiple layers to that, obviously. The first question you ask yourself is when is the best time to recapitalize CAF? Is it today? Is it next year? Or is it, rather, 20 years ago when we should have been doing this stuff? I think we’re late to the need for a lot of these things. That’s why we’re paying the price that we’re paying today. That’s where, going back to the previous question, having a system in place that avoids these boom and bust cycles but creates constancy can be leveraged to make sure that the CAF is always ready with the right equipment at the right time and arguably much cheaper for Canadian pocket books.
This involves an educational process as well. Historically, Canadians have felt safe because of our three oceans and our friendly neighbour to the south. But the reality is that we’re no longer in that fireproof house, far from any flammable materials. The Russians are practically in our waters to the North. There are all kinds of reasons to be worried about the trajectory the world is taking. In addition, the problems we’re facing have become so transnational that you can’t assume that everything is safe. I think climate change has become the big factor that is playing into how much we use the CAF resources, whether it’s for managing heat domes, or forest fires, or flooding, you’re making more demand on the Canadian Armed Forces, the equipment and the personnel. But the world isn’t getting any easier to deal with, so there has to be some equilibrium thinking.
As long as we’re communicating the demand to the Canadian public, they will get it. Actually, we’re seeing it with recent surveys. I think 76% of Canadians are now agreeing with the premise that Canada needs to invest more in defence and security, which is far greater than it was three, four, five or 10 years ago. I think there is a bit of a wake up call, and a lot of it has come from our allies, who have made it clear to us that we haven’t been doing enough in terms of burden sharing.
In my job, I work closely with the military attaché community here in Ottawa. What we see on the news coming from the capitals, we feel viscerally here in downtown Ottawa on a regular basis. They do make direct complaints about where things are and they hope that Canada will get better at this.
Senator Richards: Thank you both for being here. My question is to Mr. Cormier.
It’s a long time since we have had the third-largest navy and the fourth-largest army in the world. I’m thinking of June 6, 1944.
Thinking of the recent decision by Britain, the U.S.A. and Australia not to include Canada in the nuclear submarine construction to bolster the Pacific fleet — I mean, we didn’t even get a phone call — do our western allies have any faith in us at all to be able to bolster them in any way at a time of crisis?
Mr. Cormier: I don’t want to say the sad part, but the frustrating part is that Canada seems to think itself a lot smaller than it actually is. We’re the ninth-largest economy on the planet. Yet, we have this tendency to think that we can’t afford to be the ninth global player in global security.
AUKUS is a good example. Australia goes in and is willing to make purchases of nuclear submarines. Australia got into the F-35 game more than a decade ago and they have all been delivered. They actually ordered anywhere between 70 and 100; we ordered 88. What people seem to forget in all this is that Australia is no Canada. Australia has an economy 30% smaller than Canada’s economy. When we tell ourselves that we’re not able to play in the big leagues, we’re minimizing what Canada can and should be and, most of all, where, historically — and this is getting back to your question — we have been in the past.
When we talk about narrative and how we connect it back to the Canadian population, there is a lot of nostalgia in what we perceive as Canada’s role in the world. It’s very disconnected from where we actually are. People still think that Canada plays a large role in peacekeeping operations when, if you look at the numbers, we’re talking about 35 individual peacekeepers out of 120,000 peacekeepers globally. We’re not really there. If you’re not there, but you want to talk the talk but not walk the walk, it’s not that surprising that we don’t get invited to these conversations or that when it’s our turn — if I want to use that term — to be on the United Nations Security Council, people don’t show up to vote for us. Canada is not playing the right game in order to get the street cred that it once had and hopes to have.
Senator Richards: Thank you very much.
[Translation]
Senator Carignan: I have been listening to you and you’ve already answered some of my questions, including the one about communications. So politicians take action when they feel it will be popular to do so. If 75% or 76% of people think we should do more, we may end up doing more.
This is a survey; it’s not yet deep at all levels of decision-making. We’re a federal government. There are municipal and provincial jurisdictions. Hasn’t the federal government exercised or isn’t it exercising leadership over the other authorities so that this would really become an issue in the country?
I’ll give you the example of the General Dynamics plant for manufacturing 155-millimetre shells in Valleyfield or somewhere in that area. Two years are planned. These are 155‑millimetre shells. They are needed; Ukraine is asking for them and is getting down on its knees to get 155-millimetre shells. We’re getting bogged down in issues of municipal zoning, provincial jurisdiction and the Bureau d’audiences publiques sur l’environnement, BAPE. So we’re talking about more than two years before the plant is finished — I hope Ukraine won’t have lost by then.
Isn’t it really a question of class authority at all levels? Do we need to change our mentality about armed forces in Canada? I like to give the example of the fire department. There isn’t a single citizen in a town who is opposed to the fire department; no elected official refuses to invest in the fire department, saying that there haven’t been any fires this month, so there’s no need to buy more trucks or employ firefighters 24 hours a day, as most fires take place during the day or in the evening and there won’t be any at night. No one questions this; it’s automatic. Shouldn’t it be the same for defence?
Mr. Cormier: I think there’s a cultural element to this. I think there’s a sense of security in Canada. I remember the French ambassador coming out publicly and saying that Canada is comfortable, even too comfortable, and that’s perhaps why we can’t hang with the world’s great nations. I come back to the role of politicians, senators, MPs; they have to be educators.
Basically, in my academic background, I am a professor of political philosophy, not a professor of procurement. I feel I’m in a slightly different lane to what I expected.
That said, the Greek nation-state was always basically a tool of collective defence. That was the primary purpose of the state. After that, institutions were constructed on which democracy and human rights were built.
Basically, the state must be there to guarantee security. The federal government should play a bigger role in communicating the urgency of taking action and of working with the provinces and territories. That way, when a situation arises where there is an urgent need to act, we will have the means to do so on provincial and territorial lands. That’s where it all happens, as Canada is not a unitary state.
Links have to be made. The recent defence policy has succeeded in this objective of linking certain issues that are at the heart of Canadians’ concerns, such as costs relative to inflation. Food prices, global inflation and supply chains are all quite closely linked. You may think that, if it weren’t for the war in Ukraine, we’d be in a different situation. There are ways to do more.
In military procurement, creating a budget is very easy. Deciding what to spend it on is a bit more difficult. We have created future budgets with our defence policy. There are immediate issues, such as ammunition for Ukraine. The Canadian Armed Forces have about three days’ worth of ammunition when, under our agreements with NATO, we’re supposed to have 30 days’ worth. We’re a long way from our goal.
The Deputy Chair: I’m sorry to interrupt you, but being mindful of time, I’m going to give the floor to Senator Yussuff, and then you can continue.
[English]
Senator Yussuff: My first question is for Mr. Cormier. I want to pick up on the point you made earlier. We’re not unique. Political consensus can be found when there is a desire to find it. The challenge we face is that every procurement decision we make in this country is always subjected to criticism and debate and sometimes even change — even after a consensus was found.
How do we build political consensus, recognizing we’re talking about the safety of the country and, of course, the need to ensure the men and women we ask to do the things on behalf of the country have the equipment necessary to do that job very well? Maybe you can point to some other places in which this debate is less acrimonious and more conciliatory to find common ground.
Mr. Cormier: The first thing is that Canada has had some political growing pains from being a two-party state that had majority after majority for decades upon decades to now being in a situation where minority governments have become the norm for the past 20 years — with a few exceptions along the way. We haven’t built in systems to better coordinate parties to be able to make some decisions behind the scenes or through consensus.
There is a model that I think is interesting. In Norway, for example, the national defence parliamentary committee has an extended version of itself where they bring in the leaders of all the political parties on top of the members of the national defence committee, and it’s kind of a basement meeting that is somewhat off the record. That way, when consensus is developed, it becomes that much easier afterwards for parties to have their say in the development of policy.
When you read the recent defence policy update, you wonder to what extent it is likely to survive an election. Is it based too much on a certain vision of what Canada needs to do in the world, or is there enough buy-in from the other parties that we could tell our allies that this policy will stand the test of time? I think there are a lot of people right now who don’t feel that policy has built in that kind of narrative that goes beyond party lines. Maybe that’s one place where there are still possibilities to improve.
Senator Yussuff: I now have a question for Mr. Ducharme. Clearly, procurement policy by the government is really important to your constituency. Maybe you could share with the committee what the level of procurement is that your members currently enjoy in regard to defence and procurement so that, in thinking forward, we have some reference to what totality of procurement has been achieved with your members from the government.
Mr. Ducharme: Thank you for the question. As I reported, currently, when you look at the spend that was with Indigenous businesses — removing exceptions — it was 5.18% of the defence procurement. If you included the exceptions, it would be 2.33%. Again, that has to be evaluated to see what was actually going to the Indigenous businesses.
We were quite surprised to see the number of businesses that we do have. A lot of them are actually subcontracting. They are having struggles to actually become prime vendors and share one vendors to the federal government. Some of these businesses are actually looking at going outside and exporting some of their stuff. We have one business doing work with the United Arab Emirates where they manufacture the component and ship it so that it’s assembled and manufactured in the United Arab Emirates.
However, I believe the Indigenous businesses are strongly pivoting. We have been around for a while. There are a lot of opportunities — the 5% rather than the 2.33% that the overall procurement of the federal government is doing for National Defence is definitely achievable. I think it could probably go up as high as 8% or 10%.
Senator Boehm: My question is for Dr. Cormier. It’s always great when a witness comes and joins us and quotes a former senator as you did, although you didn’t quite identify him. But you did quote Raoul Dandurand speaking to the League of Nations Assembly in 1924, when he said that Canadians want to live in a fireproof house far from inflammable materials. I think that has been our credo since 1924, if not before that too. It explains why the Avro Arrow did not happen. It explains the decision taken in the 1960s on the Bomarc missile and the decision on the missile defence system by the Martin government not so long ago.
I asked the previous panel about the threat level and whether a threat level internationally will make our governments — and this is over time, of course — be a bit more serious about procurement and participating. You also mentioned a number of the Nordic countries.
We’re in a polycrisis environment. This committee has produced a very good study on Arctic security. In the other place, they have done work on this as well. The government has responded on the NORAD renewal file — et cetera — but, in your view, is that really enough to push us further?
Mr. Cormier: I think the first problem is that when the scale of costs for big projects like ships and planes is politicized, it can be taken out of context. You take a very large number like $100 billion, and that just becomes unworldly. But when you put it into the context where you are actually explaining what that $100 billion does over how many years, how many jobs it creates and how much of that economic cycle actually pays for itself —
Senator Boehm: Without taxes.
Mr. Cormier: — well, it can be done. There is a way to communicate it in a way that settles the issue rather than makes a big case out of it and scares people into not going that route. So there is that part to be done.
I also think that the way we’re doing industrial and technological benefits increases the costs to government so much that it further adds to that fire.
We have to remember that the B in “benefits” is important to recall. It’s not the end goal of military procurement. It’s a side benefit that makes it possible to afford the things that the Canadian Armed Forces would need. When you frame it that way, it reinvents how you wrap your head around it.
It’s always nice to quote Raoul Dandurand when you get a chance. People seem to think in Quebec that he’s mostly a chair — La chaire Raoul-Dandurand in Montréal — but there is more to it than that.
Senator Boehm: He had a very active career and, of course, was a senator, which is why I had to mention his name. Thank you.
[Translation]
The Deputy Chair: Before moving on to the second round of questions, I’d like to ask Mr. Ducharme a question. In the past, were certain indigenous businesses that had services to offer the government invited to combine their efforts or create partnerships with other businesses in order to be better considered in the supplier review process for certain calls for tenders?
[English]
Mr. Ducharme: Yes, there are Indigenous businesses that do have to partner. One of the barriers that Indigenous businesses have sometimes are the bid bonding or the insurance requirements. The only way that we can meet those requirements are by partnering with non-indigenous businesses that are able to cover that for us.
If you look at the joint ventures, there should be a shelf life to joint ventures to make it really beneficial. A true joint venture will help our Indigenous businesses grow their capacity so that they no longer need a partner to meet the requirements and fulfillment of some of the opportunities that are presented from the federal government. Some of the joint ventures have been going on for 20 years. That’s not really a joint venture. It’s just a way of getting the 5% that has been allocated or been mandated for Indigenous businesses.
[Translation]
Thank you very much, Mr. Ducharme.
[English]
Senator Dasko: Thank you to our witnesses. My question is for Mr. Cormier. You made several comments about increasing defence spending, and you made some comments about public opinion, too. I can say from 30 years in the public opinion business, when I polled Canadians every year on spending, defence was usually at the bottom of the list of items that Canadians wanted to spend more on. But you’re right that support has shifted somewhat. Three quarters of Canadians may think we should spend more. The real question is: How much more? And we are spending more. Our new defence policy and previous ones did call for more spending, so there is more spending coming. The real question is: How much more is that going to be? We see what is in the defence paper.
I wanted to ask you how much more we should be spending. Is it the 2% that we have committed to NATO? Is it more than that? What are we looking at, in your opinion? I have another question after that.
Mr. Cormier: The first thing I would say is 2% is a very random number. It doesn’t necessarily mean that what you’re putting into that basket constitutes 2%. I would be careful to make that an objective in itself.
In terms of how we’re spending, one of the things that we saw in the last year is that the defence policy update brought in an extra billion dollars into defence for year one, but it was coincidental with removing $1 billion from the Canadian Armed Forces in terms of maintenance and operations. You’re winding up with a pretty much flat outcome, and the $1 billion of new money promised is actually going to the procurement side and things that will be delivered in five or ten years from now. But the immediate cuts to operations and maintenance, those are affecting the readiness levels right now.
They are playing around with accounting so that at the end day, we’re actually less ready rather than more ready than when these new monies were being promised.
The other clear thing we see in recent policy is there is a tendency to put a lot of the major spending very far into the future. So you’re promising large numbers, and you’re not getting any in real time.
One of the things that was built into the Strong, Secured, Engaged defence policy was actually the opportunity to bump unspent money to the following year. So you do wind up with a situation where unless you accelerate the procurement process the amount of procurement that needs to be done in the next year and the year after is always insurmountable because you haven’t built up the capacity to go through those projects.
I was recently talking to the military attaché from Germany. He said, “Why aren’t you guys looking to us for leadership on this? We have been doing it for the past few years, and we have ramped up our ability to procure quickly. We have some lessons learned that we would love to share with you.” Maybe that’s one place we should be looking to.
Senator Dasko: It’s a bit of smoke and mirrors is what you’re saying with the spending pushed into the future and cut in the present. So there is not a clear commitment to spend more. That’s kind of what you’re saying.
Mr. Cormier: It’s the impression one gets.
Senator Dasko: In your comments, you mentioned a number of issues in procurement: four ministries, paying high markups to customize things as Canadian and so on. Which is the most important for to us deal with? Which is the most problematic and something we should really attack right now?
Mr. Cormier: I think the ITBs and reducing the cost per item is the most pressing.
The four ministries are a problem, maybe. You could merge it into a single ministry and think you have fixed it, but unless you resource it properly and give it clear mandates and decision-making tools, you’re not necessarily going to fix the problem.
We need to explore options here. In the short term, fixing the cost, fixing the ITBs, is probably the best way forward.
Senator Patterson: Mr. Ducharme, I would like to go back to your comments about really only attaining a 2.33% Indigenous engagement in Defence procurement. You have certainly talked about one of the big challenges, which is the big bonding happening to partnership. Are there other reasons why you’re not able to engage as fully as you are capable of that you’re able to share with the committee, and what can we do to help improve that?
Mr. Ducharme: Thank you for the question. I do want to also state, though, that National Defence, they are part of tier 3 for the 5%. They have until March 31, 2025, to reach the 5%, so they are actually still doing fairly well. I think any numbers that we get shows we have to monitor and evaluate that.
One of the issues that a lot of our Indigenous businesses — which are small to medium enterprises, much like the rest of Canada — have is when things are based solely on price, it’s difficult for us to compete. With smaller organizations, we don’t have the same buying power. That was another issue that makes it harder for us.
If you look at the full value of that procurement purchase, sometimes you do have to spend more money. One of our larger Indigenous businesses is a privately held business. Nineteen per cent of their procurement is with Indigenous businesses. They have a 40% workforce of Indigenous people. So you may be paying more for goods or service, but in reality, you’re actually doing a social saving to Canada as well because by procuring from Indigenous businesses, we, in turn, are hiring people, buying goods and services from our businesses, contributing more to the economy and doing a saving to the social network. Again, I think cost is another real challenge.
The other thing is some of these procurement requirements and responding to the RFPs, you need a full-time staff. You actually need a few people on staff. Smaller businesses don’t have those resources, so it makes it difficult.
One of the interesting things is with Indigenous businesses, we always look at the big picture, and we give a price, saying, “This is what is going to be needed to fulfill this requirement.” Quite often, it ends up being higher. But if you have professional responders to these RFPs, they give the bare minimum. They say, “It’s going to cost you $10 for what is required in this bid,” knowing full well that there will be add-ons required. By bringing those add-ons, they have increased it more than what the Indigenous business submitted as their bid for the first time that included all of that.
We need to educate our Indigenous businesses more on responding to RFPs and knowing how to play correctly in the system.
Senator Patterson: What would be a concrete recommendation you would like to provide to help us? We’ve certainly addressed Indigenous businesses, but it’s within a system that you have to be able to access. What can the system do?
Mr. Ducharme: Yes. Also when Mr. Cormier was talking about the ITBs, one of the things within the ITBs, I think there should be a percentage weighed for including Indigenous businesses. I think right now, there is $6 billion worth of opportunities within the ITBs that haven’t been identified. If Indigenous businesses had 5% of that as well, that’s a pretty good chunk.
I think a revamping of the ITB, which again falls outside of that 5% procurement mandate, would help Indigenous businesses become participants within the supply chain.
Senator Patterson: Thank you very much.
[Translation]
The Deputy Chair: Before we wrap up, I have one final question for you, Mr. Cormier.
Prime Minister Lester B. Pearson was a historian and actually won the Nobel Peace Prize for helping establish the United Nations peacekeeping force after the Suez crisis. We may not see that again any time soon.
In light of your comments, it seems that Canada has lost its aura or reputation internationally. Would you be able to tell us at what point Canada shifted or gave up on its military commitment?
Mr. Cormier: That’s quite a question. I think it was on a September 3, if I remember correctly….
That’s a trend. These are slices that have been removed little by little. As we enjoyed the peace of the end of the Cold War, we began to love the dividends of peace and to slightly lose sight of the fact that it may be temporary, that the world may become less and less beautiful on a course that would not necessarily go in the direction we had hoped.
I don’t think we should despair; after all, Canada is very good at pivoting quickly.
When we went to Afghanistan, there was no problem getting the equipment we needed when we needed it. We had this multi-partisan ability to quickly meet the needs of our troops on the ground.
I think that even before the Second World War, Canada became the third or fourth world power, as it was able to pivot quickly.
What we lack is the idea that Canada is an important player. We need to instill this in people and remind them that Canada’s success is measured first and foremost by its role in the world.
Ultimately, Canadian prosperity is fully integrated into the success of markets and equal opportunities among countries; this means we cannot fall into a kind of geopolitical game between the great powers in which Canada would be crushed. We have everything to gain by having a fair multilateral order that complies with international law. I think that, if we can do more, it will be very profitable for Canada in the long term. We have much more to lose than to gain if we don’t get involved in the world.
The Deputy Chair: Thank you very much.
[English]
That brings us to the end of our second panel. I would like to thank Mr. Ducharme and Mr. Cormier for this fruitful discussion. We appreciate the time you have dedicated to meeting with us today.
Colleagues, with your agreement, we will now move in camera to discuss the committee’s report on the subject matter of Division 39 of Part 4 of Bill C-69. Do we have agreement to proceed in camera?
Hon. Senators: Agreed.
The Deputy Chair: Thank you.
(The committee continued in camera.)