Proceedings of the Standing Senate Committee on
Issue No. 92 - Evidence - April 10, 2019
OTTAWA, Wednesday, April 10, 2019
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the processes and financial aspects of the Government of Canada’s system of defence procurement.
Senator André Pratte (deputy chair) in the chair.
The Deputy Chair: Honourable senators, my name is André Pratte. I’m the deputy chair of the committee. I’ll chair the committee this evening in the absence of our chair, Percy Mockler, who is travelling with another committee.
I’d now like the senators to introduce themselves, starting on my right.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Eaton: Nicky Eaton, Ontario.
Senator Oh: Victor Oh, Ontario.
Senator Forest-Niesing: Josée Forest-Niesing from Ontario.
Senator Duncan: Pat Duncan, Yukon.
Senator M. Deacon: Marty Deacon, Ontario.
Senator Forest: Welcome. Éric Forest from the Gulf region of Quebec.
Senator Klyne: Marty Klyne, Saskatchewan.
The Deputy Chair: Thank you. Today our committee is continuing its special study on military procurement, which we started on October 30 last year. The committee is studying the processes and financial aspects of the Government of Canada’s system of defence procurement. We have held five meetings on this topic. Today we wanted to hear from defence industry associations.
We welcome, from the Canadian Association of Defence and Security Industries, Christyn Cianfarani, President and Chief Executive Officer. From the Armed Forces Communications and Electronics Association, Ottawa Chapter, Kelly Stewart-Belisle, President; and Major-General (retired) Greg Loos. I’ve been informed that a number of your members are present tonight, and if we need their contribution, we would certainly appreciate it. From the Aerospace Industries Association of Canada, Jim Quick, President and Chief Executive Officer. Welcome to the committee. Thanks for accepting our invitation.
I would ask that you each make your opening statements in turn, starting with Ms. Cianfarani.
Christyn Cianfarani, President and Chief Executive Officer, Canadian Association of Defence and Security Industries: Thank you. Good evening, senators. Thank you for inviting me to speak to you today. I am the President and CEO of the Canadian Association of Defence and Security Industries. We’re also known as CADSI. We represent over 900 defence firms in Canada, large and small, that provide technologies and services to our Canadian Armed Forces, Department of National Defence, Coast Guard, policing and security agencies.
We’ve provided you with a short handout on the industry to help you better understand it.
On a personal note, I have worked in the defence industry for 20 years, 17 of those in corporate Canada, and 10 of those years were spent answering requests for proposals, RFPs, from government and defence procurement agencies from all around the world.
Improving Canada’s system of defence procurement is especially important, given the government’s ambition — as articulated in Strong, Secure, Engaged — to increase defence acquisitions to levels not seen in a generation, some 250 projects or more.
Just last week, when the Canadian Armed Forces provided an update on their projects, I think that the number used for the follow-up was 333.
In your deliberations, you may have noticed two basic narratives on defence procurement in Canada. The first, largely coming from those in government, is that the system works well most of the time but needs some improvement, especially around major Crown projects.
The second narrative, from the media, academics and others outside of government, is that the system is fundamentally broken and needs radical reform. In my view, the truth lies somewhere between these two poles.
There is also no consensus on what to do about the situation.
Let me begin by noting that defence procurement is one of the more complex processes in the government. Many projects are hugely expensive, but vital to national defence and security.
The physical safety of military personnel is on the line. The equipment purchased is expected to last for decades. The stakes couldn’t be higher. Defence acquisitions also involve serious risks driven by financial, technological or scheduling factors. There is a legitimate necessity in Canada, as in every advanced country, to balance among three objectives: capability, cost and economic returns to the nation.
Because of this inherent complexity, every country, regardless of what system they have, has problems and controversies associated with defence acquisitions. Here are three headlines that illustrate that reality.
From The Guardian in 2018, “Buyer’s remorse: Australia’s sorry record on defence hardware.” From Forbes magazine in 2011, “How To Waste $100 Billion: Weapons That Didn’t Work Out.” From the Financial Times in 2018, “Spiralling cost of UK defence projects signals hard choices.”
Canada is not unique in terms of problems and controversies associated with defence acquisitions. That said, our defence procurement system has an increasingly bad reputation at home and abroad, especially among companies.
The system is seen as one of the slowest globally. It’s complex to navigate, highly risky and opaque, and it has uncertain outcomes.
I think it’s important to state that our current system did not come about as some grand design by any one person or any one government. Over many years, we’ve developed a system of layered and interwoven processes, procedures, regulations, conventions, cultures and habits. Missteps along the way have layered oversight upon oversight in individual departments. Few people, if any, know and understand it in all its dimensions. According to the Department of National Defence’s own analysis, acquisition cycle times in Canada had reached 16 and a half years by 2010-11, a 66 per cent increase since 2004. That being said, we were rusty.
We don’t have any more recent data to draw upon, but most industry executives would say that the process is not noticeably faster today. More data on the performance of the system I think could help you in your study.
Our view is that the Canadian system needs some significant but prudent reforms if it’s to deliver on the procurement ambitions in Strong, Secure, Engaged.
To their credit, the government has taken some positive steps in the last three years, notably in the introduction of the new ITB policy, in particular value propositions, both of which undergo continuous feedback and improvement loops, and in the publication of DND’s Investment Plan and the corresponding Defence Capabilities Blueprint.
Specifically with reference to the Investment Plan, this is something that industry has wanted for years. It’s an important document to help companies understand what acquisitions are coming, when they’re coming and how much the government envisages spending on them. That’s vital information for companies to plan and make decisions regarding investments in research and development, supply chains and teaming arrangements.
We’re also told that the projects in the Investment Plan are fully costed and funded, which should allow for better management in terms of priority, oversight and accountability. While the Investment Plan is a step in the right direction, we hope the government sees it as a work in progress. It can and should continue to be improved through greater specificity around project cost ranges, some of which are so broad as to be virtually meaningless to industry and more precision on anticipated schedules.
The government should be able to have narrower cost ranges for so-called off-the-shelf technologies, where risks are low and equipment is in service in other jurisdictions. More broad developmental projects will, of course, necessitate broader cost ranges, owing to uncertainties and risks associated with them.
The government’s commitment to enhancing protection, security and engagement and to professionalizing the procurement workforce is also welcome. However, we recognize that this initiative will take years to bear fruit.
In the meantime, we’re encouraging the government to continue to train staff to help them better understand how things work on the business side, and to consider longer terms and civilian partners on the National Defence side to enhance stability and corporate memory.
What else can be done to improve the process of defence procurement in the short or medium term? As a first step, the government should map the system from end to end and publish that map. This will help establish a baseline and may make it easier to identify areas like choke points for improvement.
The current one-size-fits-all governance structure for procurement should be replaced by a system that tailors governance and oversight to the level of risk and complexity of a project.
One idea that is often advocated is a single procurement agency that would consolidate the functions residing in three departments — DND, PSPC and ISED — into one entity. This is a macro-level reform that seems common sense on the surface. I would caution you about this. Going down the single-agency road is a leap of faith involving an enormously complex consolidation of functions, legal authorities and organizational cultures, not to mention many thousands of people, both civilian and military. A centralized procurement agency would likely take years to gel into anything approaching a well-functioning organization, and during this transition, the procurement process could, and likely would, grind to a halt.
Assigning all the responsibility for defence procurement to one minister is not a simple change. It would be analogous to a company fundamentally changing its assembly line during peak production, given the number of projects scheduled to move through the system. The assembly line will remain broken, no matter how often the CEO changes or who the CEO is.
We should also be mindful that existing centralized procurement agencies, like the ones in the U.S., the U.K. and Australia — the ones that our headlines are about — include a deeply ingrained defence industrial policy mandate. Without this safeguard, Canadian industry could stand to be completely eroded, and the growth that we’re seeing now, 9 per cent from 2014 to 2016, could be lost.
It is also worth noting that the allied countries that have recently adopted the single procurement agency model — the U.K. and Australia — continue to see cost overruns and project delays. A new agency would still need to address the underlying project approval process and governance processes, many of which are set within DND. There is no easy way around any of this.
A more measured approach would begin with a root-and-branch analysis of the existing system to isolate parts of the system that have grown up over time, outlived their usefulness and may be duplicative. And industry, which interfaces with parts of the system every day, probably needs to be at the table to offer its perspective on the processes and functions that cause frustrations and problems.
This method is not as bold or flashy as the creation of a new government agency. However, it’s also not as risky and it might produce better results, faster.
That is probably the best advice that I can offer to achieve real results in improving the processes of defence procurement. My basic message to you, senators, is that there are no magic pills or simple solutions, but industry is ready to provide input and work with the government to improve the outcomes for all of us because their success is our success.
Thank you for your time today. I would be pleased to answer any questions.
Kelly Stewart-Belisle, President, Armed Forces Communications and Electronics Association (AFCEA) Ottawa Chapter: Good evening and thank you, Mr. Chair and members of the committee, for this opportunity to speak to you here today and to provide our thoughts on military procurement improvements.
With me today are members of our Armed Forces Communications and Electronics Association, known as AFCEA Canada: Myself, President of AFCEA Canada and cyber delivery executive for Accenture Canada, Major-General (Ret'd) Greg Loos, Brigadier-General (Ret'd) John Turnbull of CFN Consultants, Kelly Williams and Rich Fawcett of General Dynamics Mission Systems–Canada, Wayne Teeple of RHEA Group and Lieutenant-General (Ret'd) John Leech.
AFCEA is a member-based non-profit international professional association that connects people, ideas and solutions globally to help our members advance information technology, communications and electronics capabilities since 1946. We do this by developing networking and educational opportunities and providing them in an ethical, non-lobbyist forum.
AFCEA currently has over 31,000 individual members, 140 chapters and 1,632 corporate members worldwide. AFCEA worldwide follows extremely strict ethical guidelines, including not performing as a lobbyist body, thus enabling military, government, industry and academia to align technology and strategy to meet the needs of those who serve.
AFCEA looks at the issues of military procurement from an information management, information technology and information protection lens. Given the nature and importance of national security, we need to be looking at this in terms of cyberspace. This is a domain of international strategic conflict, and there needs to be a particular focus to treat this domain differently — because it is different — than the more traditional platform, which is based on environment. It is strongly recommended that this in itself be the subject of a future long-term study or engagement.
Why is it different? Because it focuses on technologies that are obsolete before they can even be procured. Traditional procurement is totally nonsensical for technology that the Canadian Forces needs to rely on.
Given this, it is important to distinguish between the differences in the information and technology supporting the information environment and the traditional platform-based acquisitions such as ships, weapons, planes, vehicles, et cetera. Given the complexity of this environment and how very different it is than the traditional land, sea and air integrational security, it is important to distinguish the lines between the military requirement for continuum and the need for the systems to work together.
The informational nature of cyberspace and informational warfare is that IM and IT embed itself in absolutely all facets of military procurement, and with the timeline or runway of procurement methodology for traditional platforms being more of an eight- to 12-year process for major platform acquisition to acquire a 20- to 40-year usability, such as a ship or plane, this does not translate well into the IT environment. It is simply not designed that way.
The rate of change of technology is much faster, and Internet or Web years dictating the timeline for major technology advances is now less than a year. A two- to five-year procurement cycle, including the requirements definition, cannot possibly compete with the speed of advancement or dare to realize efficiencies with these timelines. The civilian equivalent to this would be to go from requirements to development to production in less than a year, in order to stay competitive, relevant and efficient.
A message from our member community is that there needs to be acquisition in this space that is commensurate with the speed of advancement and to differentiate it from traditional contemporary armed conflicts procurement.
In order to accomplish this, our military procurement needs to integrate with commercial off-the-shelf technology products, for example, in order to maintain parity with our commercial counterparts and better align through the entire security technology lifecycle.
The accelerated lifecycle of technology is further driven by the global threat landscape, and by the nature and frequency of emerging threats and how they manifest through social media platforms, now even further accelerating this landscape.
Whereas traditional warfare can be more easily adapted to their physical environment, these threats are highly tailored to the technology. Cyber needs to really understand the nature of the threat: what operating systems, platform, functionality. It needs to be a more dynamic environment that allows for rapid acquisition to anticipate the nature of both adversary and threats, and requires more flexibility at a lower level, likewise requiring parallel flexibility in the technology procurement to stay operationally effective.
Our recommendations to acquisition reform would be to look into developing different acquisition methodologies, to identify and field systems in a more agile manner that are relevant to the operational threat landscape in play to enable industry to quickly develop systems to meet the needs of Canadian defence.
This environment is a domain of conflict. When you look at the informational environment, it manifests itself in ways you wouldn’t see in an armoured vehicle, ship or plane. The core message from a procurement perspective is that these strategic areas of conflict, the cyber and space domains, are no longer forthcoming but are upon us and actually happening today.
What does this mean? In the past we had urgent operational requirements. We need to start thinking about using something like our national procurement exemptions and/or extraordinary circumstances, as procurement for these kinds of cyber needs are far more urgent. There needs to be enough space for areas like these where we are in the fight today. We can’t be putting together a cyber procurement strategy for technology that won’t even be purchased for another five or more years.
All this to say, we see three core messages or directions to be explored. The first is agile procurement. We need to move to a more agile procurement framework that would fundamentally change the relationship with industry, with an emphasis on enhancing technology and advancing small to medium business.
We need to get away from generational technology insertions and move to a smaller, cyclical procurement cycle, based on one to three years, not five to fifteen years.
Second, relational contracts. As we move forward, it’s very clear that National Defence cannot do this alone. Personnel capacity, for example, is bigger than just Canadian Forces capacity and it’s more about procurement staff — Treasury Board and PSPC, for example. The military is responsible for articulating the requirements, and someone else is responsible for integration to the environment, industrial regional benefits, improvements, et cetera.
The model within which we currently work has a clear firewall between National Defence and industry. We need to figure out a better way to do business. There should be a focus on selecting integration partners — specific partners to build out a supply chain around specific technologies. We need to move away from the traditional options analysis processes and their desire to get cost certainty on something that won’t be procured for five-plus years, or possibly longer.
One of the issues within the Canadian military is that they are chronically undermanned on large programs. In order to get people in skills they desperately need, they are creating staff augmentation projects, which are then skewing their long-term procurement strategy.
Third, and last, a shared accountability framework. In the commercial world, teaming arrangements between clients and industries outside of the Government of Canada work very well. Shared accountability equals shared responsibility, equals shared risk, equals shared success.
Canada is sitting in a unique position when looking at our export potential around the world. The Government of Canada has identified technology as a major thrust line. The relationship between government and industry is paramount.
The communications and electronics are 75 per cent of the cost of ships, planes and so on. To be clear, this includes sensors, weapons controls, avionics, marine systems, integration and more, not just the communications and the cyber. There is far too much attention given to the steel bending and not the information technology and electronics. We need to recognize that the cybersecurity pieces are tied to this technology and that it is far more cost-effective to have the cyber embedded in the frame instead of trying to backward engineer the security or security by design after the fact.
In closing, if the Government of Canada is dependent on industry for major economic growth and export potential, then in order to achieve that, there needs to be recognition that the speed of technology advancement is ever accelerating. We absolutely need to be more agile. Being more agile allows relationships to change, which allows for more stability in our supply chain, which leads to more innovation as small and medium companies realize the value.
Furthermore, if we need to leverage defence exports to help realize that growth, then we need to fundamentally change our procurement practices. Competing around the world where others have a 12- to 18-month procurement cycle — and Canada’s is more of a two- to five-year cycle, the small and medium businesses simply cannot survive on that procurement cycle. The small to medium businesses, if we don’t make these changes to agile procurement, will undoubtedly be impacted through our competitive processes. Better risk models for iterative approaches need to be explored, implemented and adopted.
The rate of change of IT capabilities is so much faster than that of other major weapons systems. Buying IT systems following that same methodology used for ships, trucks and airplanes just doesn’t work. Thank you.
The Deputy Chair: Thank you very much.
Mr. Quick, the floor is yours.
Jim Quick, President and Chief Executive Officer, Aerospace Industries Association of Canada: Mr. Chair, senators, thank you for the opportunity to address the committee today.
The committee’s study into the Government of Canada’s system of defence procurement is timely. The organization I lead, the Aerospace Industries Association of Canada, is focused on this issue. My members are concerned with making sure the procurement system is efficient and effective and that it benefits Canada’s domestic aerospace industry, which employs close to 200,000 Canadians in good, high-paying jobs.
Last November, AIAC kicked off a new initiative called Vision 2025. Led by the Honourable Jean Charest, Vision 2025 is AIAC’s response to our members’ call for a long-term aerospace strategy from the Government of Canada. Defence procurement issues have come up in all of our consultations, which included stops in Toronto, Montreal, Winnipeg, Vancouver, Halifax and Ottawa.
What do we know and what did we hear with respect to defence procurement?
Our response to what ails the Canadian defence procurement system can be summed up in two words: risk aversion. In our view, the current system has developed into one in which everyone is focused on preventing failure, but no one is focused on, or responsible for, ensuring success.
Over the past few years, the system has increasingly expanded the definition of “failure” to include any kind of controversy or public questioning. This is a problem. Officials within the system are quite clear that they consider themselves to have failed if their decision attracts any negative attention.
In recent years, increasing levels and stages of oversight have been added to the procurement system. However, the various oversight bodies are not coordinated in any way, despite the fact that their interests often overlap.
As a result, procurement teams are forced to pass through multiple, but completely separate, review gates. When changes are made by later gates, they often require the team to come back and have the modified procurement reviewed by other gates.
This lack of coordination exacerbates risk aversion. Procurement teams feel an incentive to choose easily defensible strategies and approaches rather than those which might be more appropriate or require more complex explanations.
The current procurement system works for procurement that is relatively simple and straightforward, which include most procurements. Even when dollar values are substantial, if the procurement is easy to understand and explain the procurement system is quite capable of executing it.
However, when procurements become complicated, or worse, controversial, the risk aversion inherent in the oversight model causes progress to grind to a halt. Officials become concerned that their decisions may be challenged or questioned. Because such questioning inevitably leads to further delays, officials default to the path of least resistance. Risk aversion negatively affects the procurement process and also affects procurement costs.
There is a continued myth that the Canadian defence industry is uncompetitive and costly in comparison to foreign alternatives. In large part, this myth continues because the procurement system and public commentary pays too much attention to cost and not enough attention to value.
It is our experience that, within the current procurement system, the only acceptable way for the procurement team to demonstrate they have obtained best value is to hold an open competition in which there are at least three competitive bids. In many instances, the selection criteria effectively orientates heavily toward lowest costs.
All other procurement outcomes are viewed as controversial because they require justifying why the higher price delivers more value. This requires risk. The risk aversion inherent in our current system often means the system will go to significant lengths to avoid other outcomes.
There have been several examples in the past few years where Canadian companies were in possession of innovative, competitive solutions that met the specific needs of our Armed Forces and procurement officials recognized this. However, because recognizing the competitive advantage of the domestic solution provider precludes requiring multiple bids that could then be costed, the procurement team “evolved” the requirements — not to respond to the needs of the Canadian Armed Forces, but to allow other bidders to be able to bid.
Usually these other bidders are foreign and use their economies of scale to propose similar, more generic, less technical innovation solutions to a Canadian problem. In these situations, the Canadian competitor is ultimately forced to enter a competition heavily biased toward lower cost rather than one based on best value. As a result, higher value Canadian solutions are branded as expensive and not competitive, even if they are more tailored to the Canadian problem that the procurement was trying to solve.
While government policies may express the government’s commitment to innovation and supporting a strong defence industry, the implementation of defence procurement favours the exact opposite. Where possible, the risk aversion inherent in the procurement system inevitably forces procurement teams down the road of seeking a low cost denominator, off-the-shelf, low innovation solution. These challenges, both in terms of process and the systems costs versus value have been raised by AICA membership during our Vision 2025 consultations.
We have heard from industry, educators and elected officials. Overwhelmingly they have said Canada needs a long-term strategy for aerospace and that taking calculated managed risks in procurement and innovation and elsewhere is a necessary part of the strategy.
It is important that we work together and tackle the hard issues like procurement. If we expect this sector to continue to punch above its weight in a global economy, this is what we need.
We will be releasing the Vision 2025 report and its recommendations in the near future, including those on procurement. We would be pleased to share those with you.
To summarize, we have the procurement system that has built many layers of oversight which are fixated on prevention — prevention of failure and error, but also prevention of controversy and questions. There is a difference between preventing failure and promoting success. Until we design a system that understands that difference, it will continue to struggle to generate the results Canadians expect.
The Deputy Chair: Thank you very much.
Senator Eaton: Why is the Canadian system seen as the slowest and the most complex globally? I think it was Ms. Cianfarani who said that.
Ms. Cianfarani: Our cycle times are pretty much an indication — a 16-and-a-half-year cycle time.
Senator Eaton: What are the others? Ours is 16 and a half years.
Ms. Cianfarani: It depends on what you’re procuring. It can be anywhere from 18 months if you’re talking about a lean technology project, to two years to five years, but on a large platform you can get as long as the Canadian system from time to time.
Senator Eaton: Say we take the navy, the surface combatants; can you compare that to Australia or New Zealand?
Ms. Cianfarani: That’s hard. Then we fall into the situation where we say all of these countries, for example, in Australia and the Collins-class submarine, that is a debacle that has lasted over 12 years. It’s no better than the Canadian system, depending upon the complexity of the platform you’re procuring.
Our average, however, when you look at all of procurement — small, medium and large — our average is much longer because we apply a one-size-fits-all system to a simple and complex procurements the same. A 250-step process out of National Defence for a $20-million project and a $65-billion project, they are not the same magnitude, complexity and/or should be the same duration.
Senator Eaton: You talked about a map of the whole system, which is very interesting. We have five ministries. I believe Treasury Board is the lead ministry right now. Would you change that and put DND as the lead ministry?
Ms. Cianfarani: I think each ministry understands their level of responsibility. We have five ministries, principally four, and each one has a certain part of the procurement system for which they are responsible based on their specialization.
Senator Eaton: I would love to hear you go on; I know that.
Ms. Cianfarani: I wouldn’t. My answer is I would not put one.
Senator Eaton: Major-General Loos.
Major-General (retired) Greg Loos, Armed Forces Communications and Electronics Association (AFCEA) Ottawa Chapter: We are talking about procurement authority. There is something to be looked at in terms of the proximity of procured authority to those who understand both the requirements and the value that’s supposed to come out of the requirements in terms of keeping suppliers accountable for what they deliver. I would offer that in terms of if it’s cycle time, the more ministries involved the longer it will take.
Defence may have its own warts in terms of how long it takes to do things. When you add up and now have three or five ministries in succession, and back and forth between them, especially for large complex projects, I would say one-size-fits-all is the wrong answer and what it would involve is probably for smaller and medium-sized things shifting authority back to defence would be a good answer.
Senator Eaton: Back to Ms. Cianfarani: When you say one-size-fits-all for smaller projects, would you have fewer ministries involved?
Ms. Cianfarani: No, you would likely eliminate, you would empower the people beneath and give them higher authorities to purchase things at a moderate cost. As you would do in a business, you would do a delegation of authority at higher levels and reduce the number of steps.
If I need a general in two other departments, I would reduce that to probably one step to get it through the pipeline. I would most likely look at, if it was a sole-sourced procurement, then I could probably eliminate two or three involvements from other departments because you have already cleared the fact that it’s Canadian, it’s sole-sourced, we don’t necessarily need input from ISED because we have already done that homework of ensuring we are making a purchase with an economic benefit to Canada.
You could develop four or five different models based on a set of guidelines and then pass it through a lean system, a moderate system and then the big bang system that we have for the much larger procurements.
Senator Klyne: Thanks for your input and future answers here.
I’m starting to think that streamlining defence procurement is an oxymoron. In many ways, you get excited where you are going with something and then it’s like you pull the plug out from underneath and here is reality. I look forward to reading this. I hope I get on this because there are always little solutions, but they seem to be getting abandoned part way through dialogue.
One thing we always hear is three things that get focused on — the negative things. Everybody wants to glom on to the cost overruns, project delays, the final requirements and meeting the operational requirements. In many ways I think that is the root of things, the final requirements.
Mr. Quick mentioned you get down to a certain stage of things and through a couple of gates and now you are into the real understanding of where the final requirements are going to be, and you have to get them back up and see if anything needs to get modified from previous steps. I think that’s where the cost overruns and project delays happen. Because you start out, you have something that is a great idea on paper and put an estimate to it. Then the final requirements come, which is reality, and you realize that the initial cost estimate was below what it is going to be. It also adds to project delays. Once you start getting closer, you realize what the requirements are. One solution is to bring in the suppliers or the companies earlier to get closer to understanding the final requirements.
Two of the three of you are more on the advocate side, so you get to talk suppliers and companies that are dealing with this. Quite often, when they get to look at it from a different perspective, they have some “aha” moments and say, “All you have to do is . . . ” My question is: Do you hear the recurring theme of “all you have to do is” but we don’t seem to get there? I lay that out as a question.
Quite often I hear, “You should do this as you run a business.” You gave an example of different levels of authorities. “We should do it at this level and let’s move it on quickly. This one has a different level of authority, and it’s going to get into another process.” What is holding things back? Is it the culture or a way of doing business, and we have to change it? Where are the issues in terms of being able to think in that paradigm?
Ms. Cianfarani: On the first question, there have been a number of steps introduced to avoid the situation of getting what we would call requirements that the industry can’t build. The IRPDA— you had Ret’d Admiral Larry Murray here — that is a checkpoint that basically susses out what is being asked, which is a conglomeration of what could be provided by the industry but actually not one company could ever build. We call it frankenspecs, basically. We’re trying to shake out the frankenspecs.
We have early industry engagement. The challenge with some of that is sometimes the desire to check the box that you have engaged with industry doesn’t necessarily mean you have listened to them. The feedback we have given is: Don’t engage with industry unless you are prepared for a back and forth because just checking the box will not get you further along the process.
To your second point, which was about?
Senator Klyne: Working at the speed of business.
Ms. Cianfarani: Working at the speed of business and giving delegations of authority and why we don’t do it.
I think that comes back to Jim’s point about risk aversion. When you do that in a corporation, you empower the people beneath you. You have to, as a business leader, own that afterwards, that you have let your people do that and you will, no matter what the result is — if you need the fix the result, you will do it together, but it is not a system of punishment. If there is a mistake, the individual is not punished.
To my understanding, it is a system of punishment. What bureaucrat is rewarded for taking a risk and getting their name in the paper? You need to think about that from that perspective. That’s why I think the culture would be a risk-aversion culture.
Senator Marshall: I’m going to start with Ms. Cianfarani. If I have time, I would like to hear comments from our other two witnesses.
You focused on an area that I’m interested in. You referenced the Strong, Secure, Engaged policy and the Investment Plan. You said it can and should continue to be improved through a greater specificity around project cost ranges and more precision on anticipated schedule. I know you have been around for a long time.
Ms. Cianfarani: Senator, you are aging me already.
Senator Marshall: You said it.
In 2009, you released a report on Canada’s defence industry. The recommendation was to increase transparency and share annually with Canadian industry the ongoing plan to equip the Canadian Forces, including project timing and budget. That’s what I’m interested in, the schedule, the time budgets and the cost.
Knowing that over the last two years under Strong, Secure, Engaged they only spent two thirds of what they thought they were going to spend under the policy. Can you give us some insight on how they are doing with providing this information on finances and costs, and what else could they do to improve it?
Ms. Cianfarani: I will play a little bit of devil’s advocate. The ultimate scenario, which I think industry understands it would never get, would be a massively perfect spreadsheet and every single project would be time phased and every single milestone would be costed. We understand that it would be a Herculean effort and probably it does exist within DND, but it would be a Herculean effort to keep something like that up to date because it would change on probably a weekly basis.
Senator Marshall: But you could track.
Ms. Cianfarani: You would. We have something that is in middle of that. It takes quite a lot of digging to put all the pieces together. You have an Investment Plan, and it’s at a very macro level.
When you go into the defence capabilities blueprint, it will tell you effectively how long that project will last, and it will give you an idea of what phase the project is in.
Those of us who have spent a little time in this domain can give it a rough guesstimate that if it’s a project lasting 10 years, so they have given us a beginning and an end point, and we have a rough idea of what we are going to procure, then we take $64 billion and we time phase it. It usually takes about five years to get out of options analysis, and we suspect this much from preliminary design review to critical design review. We expect this much amount of money, 20 per cent, will be dislodged in the first couple of years.
We do these mathematics, back-of-the-envelope calculations within our companies to better understand when the money will phase in for when we are doing our financial forecasting for our years or our business plans.
It’s not an exact science. We would love the master plan. I think that’s probably a cabinet confidential piece of information. To be honest, every person in industry would be poking their fingers at it and asking why this changed and why that changed and why this minor project changed, and it would probably be a nightmare for them to manage us.
Senator Marshall: Would you not need to have some of this mapped out if you are looking at the change in the system?
Ms. Cianfarani: We create them.
Senator Marshall: You need some of that in order to help you decide what needs to change.
Ms. Cianfarani: We create them. Within our own companies, we will create an Excel sheet based on all that available information, and we will look at each project within the defence capabilities blueprint to give us a relative time phasing, and most business development people will be using that to feed into their business development pipeline.
We’re doing it in a rough order of magnitude.
Senator Marshall: I’ll go on second round to get the views of the other witnesses.
Senator Forest: Ms. Cianfarani, you made me feel very insecure when you said that there are so many controls, conventions and regulations that few people know or understand all the dimensions of the process. Did I understand your comments correctly?
Ms. Cianfarani: Yes.
Senator Forest: I’ll have trouble sleeping tonight. What can we do about it? It’s quite worrying when we look at the amounts, nature and scope of transactions in this sector.
Ms. Cianfarani: I believe each department has a pretty sophisticated process document that maps out all the steps they go through in their procurement process. DND has one. It has some 250 steps. It’s a project approval document. We call it sometimes a “papper,” however there is no one master human. Many people who have worked in the system for years upon years have a reasonable intuition which parts of the process go together. There is no one human being in this that has every single process across every single department joined up in one giant process map. That is probably part of the problem.
Senator Forest: Do your colleagues have the same impression?
Maj.-Gen. Loos: I would offer that Christyn is not far off. I think the more senior you are in your department, the greater the scope of your knowledge and familiarity of things outside your department. It is a joined-up process. We’re talking about a number of departments that have to get involved in procurement. You’re more familiar with your own department.
For us, it’s 250 steps. If you’re working on a project as a captain or a civilian equivalent, you know certain aspects of program management. The higher you go, the more you understand how those 250 steps are supposed to work one after another. The higher still, you’re going to understand the connection points of the departments, how to work both the straight-up process and the political aspects of that, small “p” political, between departments.
Having it mapped end to end? I don’t think a document exists that shows that. To an earlier point, if we accept that maybe a better answer is not having a one-size-fits-all, you have to map it all out before deciding what the submaps are going to be for either lower risk, lower dollar value or for things that just have to go faster.
Senator Forest: Given that five departments are involved, shouldn’t our main goal be to improve the military procurement system?
Ms. Cianfarani: I don’t think so. I don’t think you would get the result you’re looking for because it’s the parts of the process underneath that are causing your churn.
I try to think about it like an assembly line. You can keep changing the department head or cranking up the speed, but if what is underneath is not working, you just get more deficiencies in the system. Solving it at the top is a Band-Aid on a process that fundamentally needs to be leaned out from the bottom up. Does that make sense?
We frequently do this in business. It’s called business process engineering. Generally speaking, you don’t collapse department upon department. The first thing you do is map out all the pieces of the process and then you start taking out choke points and approval processes. You can get your process down to 50 per cent versus just by changing the piece at the top, which basically keeps the same inefficient structure underneath still functioning and sometimes, in fact, by having one person at the top push it faster out the door, you actually get more and more deficiencies, which chokes the process.
Senator Oh: Thank you, witnesses. My question is for Ms. Cianfarani. You say you have been in the industry for 20 years.
Ms. Cianfarani: I have.
Senator Oh: What’s your background, military?
Ms. Cianfarani: I was in our Canadian Armed Forces. I was in the navy. I got out very early in my career. Most of my career has actually been spent in the defence industry, at CAE, actually.
Senator Oh: You claim you have over 900 members.
Ms. Cianfarani: Our association has over 900 members, yes.
Senator Oh: Are these your members?
Ms. Cianfarani: Yes, some of these people are within our member family. Most companies in the defence sector are our members.
Senator Oh: Okay. In a 2009 report, you recommended for the government to implement a defence industry policy, which would align economic objectives to military procurement.
Ms. Cianfarani: Yes.
Senator Oh: How can the government best support our Canadian defence industry while maintaining its commitment to open and fair competitions? How does the government still ensure that companies do not overstate their costs?
Ms. Cianfarani: I am well known for not being a proponent of open, fair, transparent competition at any cost. I would be the first person to tell you that the best way to support the Canadian defence industry is where we have a key industrial capability of actually buying it. In fact, creating a national security exemption and purchasing the Canadian equipment, provided that it isn’t in world class. That is effectively a piece of what you would consider to be a defence industrial policy, which most G7 nations actually employ very well. We don’t have a defence industrial policy in Canada. We have the bones of one. We have an ITB policy which helps incentivize contractors to put work into Canada. We are not nearly as directive as what it would look like if we had a defence industrial policy.
To my friends talking about the cyber world, that would be the perfect test case to have a bunch of Canadians with national security exemptions working directly with DND, building cyber technologies, without having to go through competition after competition. That’s probably the place we have to get to, which is effectively a piece of a national defence industrial strategy. Did I answer your question?
Senator Oh: Yes. Does that mean that over the years you have done a lot of deals with the Canadian government?
Ms. Cianfarani: Sorry, I lost the thread on that one.
Senator Oh: I said over the years you must have done a lot of deals with the military?
Ms. Cianfarani: Yes. I’ve worked a lot with our own government and other governments. The company that I work for essentially provides lots of things for the Canadian Armed Forces.
Senator Oh: Foreign company? Foreign government?
Ms. Cianfarani: The company I worked for is the world leader in simulation technologies.
Senator Oh: Thank you.
Senator Forest-Niesing: Thank you. I have a feeling you’ve answered this question. We’ve heard about Phoenix. We understand the debacle there. Depending on the opinion, the responsibility for the debacle is in large part due to the fact that the requirements were determined before industry was consulted. I’m wondering whether the same can’t be said here.
In your earlier answer you mentioned “frankenspecs,” I think you said. Is the solution not to consult and involve industry in the determination of the procurement requirements?
Ms. Cianfarani: There are two things. One is a checks and balances in the system itself. You’ll consult industry. Depending on what product or service you sell, industry will tell you, “This is the best thing.” Another company will tell you, “But this is the best thing.” Sometimes, if you think about it, you take the best thing from over here and the best thing from over here, you put them together and say, “I’m going to buy the super-best thing.” In reality, nobody makes the super best thing.
The IRPDA is there to weed out the super best things that actually can’t be made but you’re consulting with industry to find out what they actually make. It’s just when you try to put them together, the sum of the parts sometimes does not equal the whole. We have two check points. Consult with industry, get their input and do that in a continuous feedback loop throughout the entire process as you’re refining what you’re going to buy. The second piece is an internal process with DND to say you can’t get through the gates if you build a “frankenspec.” That’s essentially what it is.
Senator Forest-Niesing: Thank you for that. Ms. Stewart-Belisle, you were indicating in your presentation — and there is logic for the need to be more agile to account for the ever-evolving technology. That would help balance the assumption of risk and keeping up with technology.
How can we increase agility without risking or compromising the predictability of an already complex and long procurement process?
Maj.-Gen. Loos: I can weigh in on that. There are a number of ways to answer that. First of all, it’s looking at authorities and dollar values at levels and pushing more down. This is one of those areas where you’re not going to be agile across many departments. It doesn’t work that way. In each department, you’re going to have the queue of things to do. The queues will be determined by priority. Much of our work is sorting through priorities to make sure we get the first thing first.
If you’re talking about agile, especially in response to an urgency that comes out of cyber risk or something like that, it’s not going to happen in our current system. We have to get better at a more innovative approach where we buy a little, test a little, de-risk and say that works. We can do some of that now. It’s some of what I did while I was still serving. Now you’ve got the $5 million test answer and you want to scale it up to $100 million enterprise solution and we don’t have the means to do that. We’re back to square one with the one-size-fits-all procurement strategy. You have de-risked it a bit but you still have to go through an open procurement process and have two other options that maybe you didn’t test. You’re still going to be taking at least two to five years for something that should maybe take 12 months.
Ms. Stewart-Belisle: You go to that two to five years, the technology is done.
Senator Forest-Niesing: And you lose.
Ms. Stewart-Belisle: You lose.
Senator Andreychuk: I may prove how late it is in the evening. We keep talking procurement, but I’ve spent more time looking at our defence and security. That’s the government’s job, to protect and defend and secure citizens. The military looks at capability to deliver. However, the government defines its program, if I can call it that.
The threat is always external. In the past it was like war, conflict. We went through, in the 1990s, the peace dividend, downsizing, eliminating. All of a sudden we have cybersecurity, that is ratcheting up. I have followed NATO a lot. We’ve got threat assessments that come from external sources. They have rapidly changed. We’ve got military capability that’s trying to catch up. We have political decisions that sometimes are made overnight. It’s sometimes discussed in Parliament, sometimes not.
What we really want is rapid response to any of the threats. Are we really talking about a procurement system that doesn’t take that rapid response in? I appreciate all the layers that we’ve talked about and there are better ways of doing it. It still seems to me it’s a procurement system, like you said Phoenix, where we’re going to project computerize differently, et cetera. We don’t have time. Afghanistan proved that to us. Cybersecurity has proven that to us.
Do we need a different model in the political end first, and then where that leads? Look at NATO. They ran and we didn’t have the capability. We didn’t have airlift. We didn’t have the proper tanks in Afghanistan. Then we’re leasing, lending, trying to get interoperability, and in the middle is procurement. When I look at the system, it still seems to be that long-term World War I, World War II kind of look at procurement. And then we layer on this new technology.
I’m confused, from a political angle, how we attack the needs of the military so the government can do its job of defence and security. Do I make sense?
Ms. Stewart-Belisle: You do. I would say we need to come up with something — maybe not the national exemption but something like it — that then looks at the different tiers of what needs to be procured so we’re back to the not one-size-fits-all. If you’re procuring IT to get into the field or ships, they need not to be following that same model.
Ms. Cianfarani: Yes. There is conventional warfare. That’s when you’re talking about platforms. You’re also talking about being present and active, whether that’s in conflict or at peace. Defending your borders, looking after your Arctic, things like that. Truth be told, I think what you’re getting at is, yes, we can design different procurement models but fundamentally, philosophically, on the political level or even in the minds of the general public, I’m still not convinced that Canada believes we are at war. We are at war. There is a cyberwar going on. I’m sure you’re all aware of it because in this room you’re studying it. But there is war around us. We just don’t feel it.
I think Canadians, by extension, don’t feel it either. We felt it in Afghanistan because it was very real and people wouldn’t come back. There was a giant forcing function that focused the minds of politicians to say, “We must buy equipment because we cannot have people out there dying.” We don’t feel a cyberwar in the same perspective. You don’t hear all of us running around screaming, “Somebody lost a billion dollars in a phishing scam yesterday so we need to get our cyber procurement system moving.” But the reality is that it is there.
I hear what you’re saying. I don’t know how you move the needle to reframe the problem space in the general public’s mind. By nature, politicians who will be looking for votes in the upcoming election, how do they translate their decision making into something that the general public consumes and would potentially vote for?
Mr. Quick: Senator, I would add to that, as you travel the globe and look at other people’s systems, a place like Israel, for example, they fully understand we have a different enemy at the door, what that enemy is capable of and how they operate on a day-to-day basis.
To your question, what they also do is structure their procurement systems based on what it is we need as a country and what are we going to build and buy indigenously to make sure we can protect our borders, coasts, skies and other places. I think that’s one of the things that’s different than the system that we have here. As others have said, we pretty much have a one-size-fits-all.
If you go to any other jurisdiction, they basically said there are things we’re going to do Indigenously in terms of building and/or buying, and this is how we’re going to do it. Our system is very much focused on a one-size-fits-all type of thing.
Senator Duncan: Thank you to the presenters for the information. I’d like to follow up on the silver bullet that is not a silver bullet and your comment about mapping the system. I’d like some specifics. Who and how? What kind of a time frame? What kind of a structure? If we were to say to you, “Great idea. Here’s your magic wand. What would it look like?”
I just want to give some background while you formulate your answer. In the 1980s, we had the Nielsen Task Force Program Review, years long, and there were volumes upon volumes. There was unlimited access to information. I led a government that completed a devolution deal where transfer of authority over land, water and resources was transferred from Ottawa to the Yukon. We looked at all the government departments, how they would function and what accountabilities could be built in.
A by-product of that — I’m very cautious of this because of the difficulties we’ve experienced with Phoenix — is that can cause a great deal of uncertainty in the public service that is being asked to administer said map or to look at the map. It can cause a great deal of angst. I would ask you to follow up on that, as well.
I have one other comment about the communications system. The one-size-fits-all shouldn’t apply to our country. What works in Tuktoyaktuk may or may not work in Antigonish. That’s a very key point. I don’t think that communications folks can keep up with the new systems. If you watch tonight’s news and the CTV news story about the new radio system purchased for the OPP, guess what? It doesn’t work, or they’re having difficulties with it.
Would you then separate out the different parts of the procurement in your map?
Ms. Cianfarani: Would I separate certain things out? Yes. I would probably, in fact, in some cases change from a product-based model to a service model. We do things like looking at going from buying all the IT equipment and housing it in big, long racks of servers to cloud-based computing. That is having someone like Microsoft or Amazon provide a service to us.
The same principle could apply when you move from buying IT as a bunch of products that the government then has to administer and put together to buying it as a service, where you effectively almost create a P3 or a partnership with industry. They deliver the tools, they deliver part of the service and you execute it. The model goes from being a product-based model where you’re trying to buy and stay current to having someone else keep you current and provide that service. That’s one option. You can fundamentally shift from how you’re buying to a different model.
To your point about how I would go about the mapping process, I can’t tell you how I would do it from a defence context because I don’t work in those departments. I can tell you how we would do it corporately. You can get people attached to their processes. You will most likely have an outside firm that specializes, in this case, in process mapping come in and work with experts within their own departments and you would give them targets. You’ve got to take away the fear of someone losing their job if they cut out a bunch of steps that were the things they used to do.
The biggest thing you have to tell them is making this efficient isn’t going to work you out of a job. What it will do is keep you in a job because we will give you something else more value-added to do. You put that person who’s a specialist in process engineering and they start to work with the department to map out what that process looks like.
Usually, you don’t spend an inordinate amount of time on your first few rounds. You draw it in big boxes and look at big chunks of inefficiency. For example, we know options analysis is a big bottleneck in the Department of National Defence where things get stuck there and come back frequently. You would dive into that piece of the process and ask how you can streamline this chunk where we know a lot of time and energy is being spent repeatedly on a lot of recurring activities. That’s the way I would start it so you don’t try to boil the ocean in one go.
That’s traditionally the way we would do it in a company. How that translates to government, I leave it to people who have worked in the public sector. Certainly that’s not me.
Senator Duncan: Would you have a panel, then, of government and industry with this consultant? How long do you think it would take?
Ms. Cianfarani: It is not our processes. We are people who interface with those processes. I think you would bring them in at the end to ask where they are experiencing problems and how we can help streamline bits where they feel it’s inefficient. The reality is this is something the government itself and the process owners have to do. In the end, they’re going to be the ones who have to administer the new process. They have to believe it, or what tends to happen is they’ll time out and wait for the next posting cycle and then just bring back all the old stuff they got rid of because it feels very comfortable. Nobody likes to remove things if you’ve worked in it for 20 years. It makes you feel very uncomfortable. You do things like that.
Senator Boehm: I’d like to focus on the question of a single procurement agency. I’ve asked this question of every group of witnesses who have come to this committee.
I would set the United States aside in terms of their experience. If we look at the United Kingdom and the Australians in terms of what they’ve done recently, they’ve had some successes. Ms. Cianfarani, you suggested in your remarks that maybe they haven’t had as many successes as they would like. They’ve had cost overruns and delays. We are no strangers to cost overruns and delays. We are no strangers to the perils that come with having five departments or agencies working on something with bureaucratic inertia, due diligence and cautious behaviour.
You also suggested in your remarks that because the industrial component is ingrained in defence policy in some other countries, and some of the G7 countries qualify, this would expose our industry to higher risk if we were to go to a single agency-type model.
I’d like to probe a little bit whether this would really be the case. Setting up any sort of agency would require a lot of work. You’d have to bring in lawyers. It would require some setup and you’d probably run into some procurement delays as a result. On the other hand, once you’ve got it running and it’s all under one roof, does that not suggest greater efficiency and, perhaps, better decision making when it comes to procurement?
Ms. Cianfarani: I remain unconvinced. I really do. I think you would need to include the industrial component. You would need to legislate it, obviously, because the first thing that will go is the industrial component, I guarantee it. You buy off the shelf or buy from a foreign entity. We don’t make platforms here in Canada. We have a long history of having three platforms we purchased directly from an OEM and have few residual industry components with those platforms. I would caution that at the end of the day, the challenge becomes how you maintain those particular platforms over the course of the entire lifecycle.
Think about it like your car. I don’t know how many you here go back to your dealer for a 10-year-old car, but I certainly don’t. I need a maintainer here in the country that costs me a fraction and they’re capable of doing the work.
All of those things need to be thought of out front within that process that you would move into this one über-department.
The skills would have to be all consolidated within that one single department. That would take years to ingrain in people who have never thought about that before.
I also think that given our peaks and valleys in our buying cycles, we are going to buy equipment — right now we are doing it in a chunk — and this will last for 40 to 50 years. We will hit a cycle where we’re buying less. It will probably take us that long to put together one department. By the time we get through it, we will have procured everything for the next 50 years, in this potentially chaotic type of situation. We might not have gotten everything we wanted; and then we go into the low valley, where in fact we are not procuring at all.
I am really not convinced that we would become more efficient in any amount of reasonable time and that perhaps in the next 100 years that model would work out. But in the next 10, when we have to buy all this equipment, I really don’t know how that would translate into something more efficient in the interim; I really don’t.
Mr. Quick: I would agree. We have had a bit of experience in moving to a single body. Under DPS, we had the defence secretariat that was going to be set up. It was going to be kind of the clearing house and help with decisions and coordination, that sort of thing. It didn’t work. Now it’s a briefing body to a group of deputy ministers, in fact. It didn’t work. Part of the reason it didn’t work is that it didn’t have the authority to make any decisions or to coordinate departments in terms of their decision making.
It goes to what I said earlier about risk aversion. They felt they couldn’t make a decision that would cause a decision somewhere else in the system that may create a risk for that other department. That was our experience. The whole function of it has now changed.
Senator Eaton: Mr. Quick, we have gone through these boom and bust cycles, since the Second World War. I’m wondering: With these booms and busts, and with the life cycles that our procurement, the military, have where they can track the whole life cycle of boats, submarines and planes. They don’t seem to have a procurement strategy in that life cycle that knows that we need jet fighters, that they are ancient, why wasn’t the procurement process started 10 or 15 years ago? Do you have a comment to make?
Mr. Quick: I’m more familiar with the aviation side.
Senator Eaton: That’s why I’m asking you.
Mr. Quick: You are building an aircraft that will have a life of 30 years. As you are doing that, your whole plan around the build is that you know it will last for 30 years. You also know it will have to be upgraded, refitted and everything else.
Senator Eaton: That would add another 10 years to it?
Mr. Quick: It could, yes, depending on the particular aircraft.
Senator Eaton: What I’m saying to you is in your strategy — if you have something you could give to the committee in writing — in your aeronautic strategy, would that mean that procurement would start a lot sooner, or do you think because of the boom and bust cycles we go through in this country, that will never be possible?
Mr. Quick: I think that’s part of it, for sure, is the cycle we go through. The other thing it comes down to is having a National Defence industrial strategy, which will lay out what you need and when you need it, barring that if you come into conflicts you may require other platforms and kits and otherwise. In this country we don’t have a defence industrial strategy that lays that out for us.
It is the same on the aviation side. We don’t have a national strategy as to how we are going to build our industry. Then it happens to be project by project, happenstance, and when we need something, we have to procure it.
Ms. Cianfarani mentioned we did procurement in the past but that zero industrial development opportunity has come to this country because we make a decision because we are going into theatre, and we don’t have an industrial strategy that guides our decisions.
Senator Eaton: We have no industrial strategy that would support a national defence strategy?
Mr. Quick: It’s a National Defence industrial strategy.
Senator Eaton: Do you have anything on paper that you’ve thought about?
Mr. Quick: We have bits and pieces.
Senator Eaton: Would you like to share it with this committee?
Mr. Quick: Sure.
Senator Eaton: If you could give it to our clerk, I would be grateful. We want to do a report on this, so I would be grateful. Thank you.
Senator Klyne: I want to pick up on something that Senator Boehm was asking about. I’m going to go back to the idea that there might be varying levels of a procurement system, if you will.
An analogy might be that at this level you buy house paint. There’s a certain level of authority buying there. Another level, you are going to buy paint that has to withstand the desert heat on transport trucks. You have to go to this group. Another level, you want coatings that will sit on a battleship on the ocean for 10 years, and the salt. Another group. You couldn’t come to a single agency. I’m extrapolating a little bit here, but on one level there is a single agency; and on another one they have another agency; and another one, another agency.
If you go to certain levels of authority, it’s a pretty quick single window and you can get something done. At the other level, it might be a little more cumbersome, but you know there is a level of authority that will deal with it at that window. I don’t think you could do it horizontally; you would have to do it in three verticals, would you not, three single agencies?
Ms. Cianfarani: It depends what outcome you’re trying to accomplish.
Senator Klyne: Get something done quick, with the right outcomes and with quality standards in place.
Ms. Cianfarani: We are kind of confounding structure with empowerment. I don’t see that the structure necessarily matters in this agency. It is not about agency; it’s about delegations of authority.
In our company model, I need IT. I’ve got a buying agency. I’ve got my computer science department. My buying agency buys this piece of equipment 25 times a year. They have an authority level of up to $1 million. We know we get it from Canadian sources and our vendors are excellent. Buy, buy, buy. We’re not competing. Buy, buy, buy.
That has nothing to do with the structure of the department. Nobody in the computer science department got torqued up about it. The criteria that we believed would make that purchase agile was in place. If it meets X plus Y plus Z, go buy.
It is the same principle. You get into the medium layer and you might say, “Okay. My department, which is responsible for industrial benefits, if it meets the certain industrial benefits threshold, go buy. If did doesn’t, though, we want to develop a strategy together that puts pressure to leverage that procurement for the benefit of the country.”
You would probably want those two entities talking to each other. One of them is a specialist in that certain domain, like our computing department, and the other is a specialist in the buying department.
I guess when I look at those things, I don’t necessarily see them as horizontal or vertical; I see them as questions of authority and of modules that go together, that make sense, and allow us to expedite certain parts of process.
Senator Klyne: It’s such a complex thing, this whole procurement on the Defence and Canadian Coast Guard side. I think that’s why people want to gravitate to that single agency.
Ms. Cianfarani: I think it makes us feel comfortable. We believe that will solve what is an inherently complex thing that requires a balancing function between economic benefits, cost, value to Canada and requirements.
We would like one human being to control it all so that there is essentially one person accountable. The reality is when you look at a lot of procurement that has gone by the wayside, it actually isn’t the process.
Senator Klyne: It is okay until you start peeling the onion.
Ms. Cianfarani: Right.
Senator Marshall: When we finish our study, we have got to come up with recommendations. I see your two areas almost like specialty areas. I don’t know if I’m looking at it right, but your specialty areas.
Mr. Quick, what would be the one big recommendation you would like to see, something specific? I know you spoke a lot about risk averse. I don’t want you to give me that recommendation because that’s sort of like not something you can get your hands around. What would be the one big recommendation you would like to see in our report that would have a positive impact on your industry?
Mr. Quick: For me it would be the National Defence industrial strategy, if we had something. A lot of other things that you heard from my colleagues today, that would drive those processes and the things that they have been talking about in terms of how do you simplify and how do you deal with peaks and valleys in terms of your procurement cycles.
Senator Marshall: It would like be a sub strategy of the overall strategy, okay.
Ms. Stewart-Belisle: I would say something similar. I mean a sub strategy is something that looks at IT and cyber in a different procurement fashion that could be some sort of an empowerment down to the different departments as Ms. Cianfarani mentioned based on thresholds, dollar values or preapproved vendors and software, making it a much more agile and a quick procurement so that they can keep up with the advances.
Senator Marshall: Thank you.
Senator Forest: I think that one of the key components of your testimony is the importance of adopting an industrial procurement strategy. One of the strategies is sectoral, and it concerns procurement in the marine sector. In this sector, for example, all surface combatant contracts were awarded to one shipyard.
This strategy has been in place for a few years now. In your experience, does it work?
Ms. Cianfarani: All three shipbuilders, by the way, are our members. The shipbuilding industry has grown from 2014 to 2016 by 150 per cent, so yes, it is working. Canadian industry has been involved in those platforms in a way that we have never seen before.
I had the pleasure in my previous job of being part of early discussions around teaming arrangements for the shipbuilding for the surface combatants. We couldn’t get a piece of the action on the surface combatants until effectively the government went and looked at the value propositions that would come from the shipbuilders to include Canadian industry in the actual overall ship design. At the end of day if you leave it to a foreign prime — and this is very normal, any company for that matter — they will try to eat the whole pie. Do I believe the strategy of building ships in Canada and then incentivizing the shipyards to share the wealth, to invest in the country, to avoid the boom-and-bust cycles over the long term and then the shipyards design yards to be sub-primes to those shipbuilders and incentivize those designs to be built, executed and include technologies in the Canada? Absolutely I think it is the right strategy.
Senator Forest: I have the impression that the situation is a bit like in computer science. When we adopt an operating system, we’re stuck with that system and we often need to update the software. Don’t you think that the fact that all surface vessels were entrusted to the same shipyard resulted in a monopoly for the shipyard? Doesn’t this approach lead to the loss of value-added?
Ms. Cianfarani: When the National Shipbuilding Procurement Strategy was launched, they looked at it at the most macro level, which is how is it best to separate the work to allow for this work to flow out for a period of about 50 years, because that’s how long the ships are going to go and they will be in refit with certain volumes of fleets, so 600,000 man hours or person hours per year, something along those lines. Don’t correct me if I’m in the thousands or the millions, whatever it is. How many coasts or how many yards could that volume of work be spread over so that you don’t get peaks and valleys and booms and busts in shipbuilding like we have before, which is why the industry completely eroded.
When they did that study, they determined Canada could support two yards for the volume of ships that we were going to produce. For me, it doesn’t matter which yard is executed, it’s Canadian. There are Canadians yards, those are Canadian jobs. For the industry, though, it matters how many yards executed because there is only a certain amount of volume that can be taken by the yards for the long term. We know that in the short term there have been challenges and that there are peaks and valleys, we know about the joint support ship, we know there is a volume of work that is a little bit piled up because of the ability to execute. When we look at it over a 50-year period, we have to stretch out the refits, the ins and outs, the technology insertions, and effectively it is a two-yard project over a 50-year period to manage the volume of ships and ensure the navy has its operational capacity.
Senator Boehm: I will continue where I left off, if I can. If we are really risk averse and don’t think there is a magic pill, do we think that the current system has enough checks and balances built in between the five agencies and the various ADM and DM committees that work on this to basically continue as we are? Or if, as Mr. Quick said, we want to have a defence industrial strategy, does this suggest going to something bigger and something that can oversee this? Recognizing that in the past, we’ve seen the dangers of going too quickly and to a single platform-type situation, whether it’s Shared Services Canada or Phoenix which still has to rise from the ashes. I’m just curious as to a recommendation. It gets back to Senator Marshall’s point as to whether this would be a sub recommendation that you would make to have something that would try to establish this linkage in policy on the industrial and the defence side?
Ms. Cianfarani: I think you wouldn’t add. I think the policy pieces in some way exist today. We have key industrial capabilities. What it would be is establishing that, for example, if you have a procurement where you are procuring a key industrial capability in Canada, the general steps that the deputy minister levels would all understand is the first thing we are going to do is exert a national security exemption. Then we are going to compete it amongst the Canadian companies because we have that skill here in Canada and we want to procure it and keep it here in Canada, because we already know it is a key industrial capability and that’s something that we want to maintain. That immediately leans out the process of do we have to have five competitors, do we have to have a foreign entity who is complaining about not getting their piece of the pie, et cetera. All those conversations that are the head butting that goes on would lean out. It doesn’t mean there are fewer people involved, but it means that there’s less of the back and forth, less of the choke point at the options analysis because you have already set a certain set of guidelines to be able to get down that path a lot faster.
Then you might say at that level, once you percolate it within the cogs of DND, perhaps you don’t need a certain threshold. Let’s say we agree on those principles, and at a certain threshold, it only needs to be signed off by a one-star or by the Director of Naval Requirements because of that authority. Again, now you’re within DND. Treasury Board knows that at that level, we put you on the docket. This is not a big debate; it has already passed through X, Y and Z. It’s in line with our key industrial capability. We don’t navel gaze. It’s out the door in 18 months.
I would not add more layers; I wouldn’t advocate for adding more layers. I would be looking to remove the number of interlocutors within the layers that have to happen based on, again, authorities, levels, complexity, risk, et cetera, and leaning out the process in that way.
Mr. Quick: That’s on the structural side. On the substance side, we are in the process now of going through procurement modernization, digitization, and how we approach and speed up the process and make it more efficient. On the policy side, we are doing things like vendor performance management. We are looking at other things around cost, profit, and modernizing that type of policy.
We’ve created the value propositions, which has been really helpful. The value props get better every single procurement. They are changing behaviour.
There is a structure piece, but there is also the substance piece. We’re making headway on that. I wouldn’t throw the baby out with the bathwater just yet. We are seeing some progress, and we have to play it through. I agree with Chris: If we can try to do the structural and the substantial pieces inside the current system, we need to see how much more efficient we are going to make the current system.
Senator Klyne: I’m just looking for clarity from Ms. Stewart-Belisle. I didn’t get the gist of this, but you — making circuitry or electronics are such that have life for one to three years and putting them into a vessel that want to see them last five to 15 years. They have to understand that what you have put in there will not last those numbers of years. Is that the point you are making?
Ms. Stewart-Belisle: Yes. The advances and changes in technology are more on that 12 to 18 month — probably not more than a 12 month refresh — that technology would not be something you would want to put in place now for 15 years.
You have two parts. One, the procurement needs to be quicker, and you’re right that the refresh and modernization has to be on a different schedule as well.
Senator Klyne: You take this, put it in and three years come back and put the next generation in?
Ms. Stewart-Belisle: Yes.
Senator Klyne: They would understand that?
Ms. Stewart-Belisle: Yes.
Senator Klyne: They are at the point where they think it should last 10 or 15 years.
Ms. Stewart-Belisle: No. I don’t think anybody thinks the technology should.
Maj.-Gen. Loos: No, but the point is that, in our procurement system, if we go through IRBDA and costings, we have to have a definitive test back, but if you are in a program that isn’t going to deliver for five to 10 years, the technology will be different, certainly in five years, and in ways that will make the costings not make sense at all. But a lot of process time is in getting better and better costings. Industry is saying that they’re putting a lot of time and effort in putting their costings, bids, and getting ready. They want the business but they don’t want that extra work or extra costs, either, to get down to decimal points on costing estimates that have no basis in reality, when it applies to information technology.
Senator Klyne: Thanks.
Senator Forest: In your sectors, the fact that the supplier fully assumes the risk affects the cost. Could you provide some written information on this subject? In your sectors, do you have risk-sharing models? In your experience, are there good practices that promote risk sharing and that would lower the costs at the end of the equipment purchase?
Ms. Cianfarani: We have all the various models from firm-fixed price, which is a good thing to use if you have a well-known entity, to cost-plus or sometimes cost-plus with a ceiling. As a contractor, if you are building something that is an unknown like a new warship, for example, the risks to being able to do that are quite high. A risk-sharing arrangement that shares the cost overruns, so to speak, or shares the potential scope creep and then refine the solution over years as you are building — that’s generally a preferred model for industry.
On sustainment sides, we have things like we want to do risk- and profit-sharing. For example, if you subcontract me to do your maintenance for 20 years, and I get better and better on it — in fact, you want to incentivize me to get better, so you pay less over time — then I can give you back some profits and I can share some of those profits to make myself better in the future. That model exists.
Then you can get into other arrangements like paying for things as a service, leasing with buyback arrangements — all of those various models exist. They just depend upon what you are procuring, what level of risk is inherent in what you are procuring and the risk tolerance of the various agencies. Each one of those will change the behaviour of your supplier. If you buy something that is highly risky with a firm-fixed price, generally speaking, those projects tend to go poorly, because the supplier then tries to find ways of getting out of cost overruns. It’s like when you buy a Glebe house, and you open it up and realize there is lead piping. If you force your contractor to do it for the original price, it will get ugly quickly. The same principle applies, depending upon the risks.
The kinds behaviours you get out of your contractor tend to go with if you inappropriately choose a particular model based on the risk profile of the thing that you are trying to build. They are all available. It just is about making the right choice for the project you are undertaking.
Maj.-Gen. Loos: I can add to that. You brought up a point earlier. We are on the cusp for IT at the industrialization of services in many ways. The services themselves and the security of the services will be part of our digital future across government and in the military as well. I’d argue that today, our procurement system, both departmentally and across all the other departments, are not well placed to do well with services in general and how we procure them.
To your point about risk, that’s one way. With services, if you make it performance-based, the contractor has all the risk. They have to deliver the service or they don’t get paid up to service levels.
Someone raised the spectre of Shared Services Canada. Besides speaking to the wisdom of going to a single agency, it also speaks to the fact that we’ve got something in place that isn’t necessarily getting us closer to that digital future of being more agile and getting what we need. It’s an extra step, certainly for defence, to get to what they need, whether hardware or services.
The Deputy Chair: I want to thank the witnesses for being here for a long evening. It was very interesting. We learned a lot. Thank you very much for your appearance tonight.