NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 21, 2000

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[English]

The Chair (Mr. Pat O'Brien (London—Fanshawe, Lib.)): I'd like to call to order today's meeting of the Standing Committee on National Defence and Veterans Affairs.

Just before we welcome our witnesses today, I'd like to inform the committee that our researcher, Corinne, has been busy at work on the procurement. She's taken some 700 pages of testimony we've had presented at the committee and has broken that down to 70 pages. Probably next week, her final crunching of that material will be ready for translation to the clerk.

So it shouldn't be too many more meetings before we will have to revisit procurement and probably take a couple of meetings, one to look at the preliminary draft report and send it back to staff, and then another meeting, or if it takes more, two—whatever it would take—to do the clause-by-clause and produce the final report.

Having said that, it does lead me to introducing today's two witnesses, who are the final people we will hear from on the topic of procurement. You know we were into RMA and nuclear missile defence, and now we reach back for our final session on procurement.

I'm very pleased to welcome Mr. Richard Burton, who has been to the committee before, and Mr. Alan Williams, who I don't believe has been to this committee before. You have? Okay, under a different guise, but not in your new capacity as assistant deputy minister.

Gentlemen, welcome. Thank you for being here. We're anxious to hear your remarks.

Mr. Alan Williams (Assistant Deputy Minister, Materiel, Department of National Defence Canada): Thank you very much.

[Translation]

Good afternoon, honourable members, it is a pleasure for me to appear again before you. With me today is Rich Burton, Director General Material Business Management.

[English]

A year ago, on March 2 and 4, my predecessor appeared before you and briefed you on procurement and how the various rules are applied within the department. He spoke of many of the initiatives that were underway in the area of procurement reform.

On March 4, 1999, I also had the opportunity to appear before you as assistant deputy minister of supply operations service with the Department of Public Works and Government Services. At that time I reviewed with you the role of Public Works and Government Services Canada and the government's procurement process.

I know Mr. John Taylor, the team leader for U.K. Smart Procurement, has spoken to you about their initiative. I am sure all the briefings you have heard up to this point have given you a profound appreciation of the complexities involved and the broad scope of the procurement business, along with an insight into the wave of change that is sweeping through the procurement organizations that support our military forces and those of our allies.

That said, perhaps you haven't been exposed to the framework we have put in place to harness, build upon, and better communicate the individual initiatives that have been previously described to you.

[Translation]

Today, I would like to provide you with my view on what I see as the way ahead for our Department in the area of procurement reform or, in a broader sense, the way ahead in Material Acquisition and Support, which we refer to as MANS.

[English]

I refer to the way ahead as Getting it Right. We work very hard at sharing best practices and experiences amongst our allied partners. I trust you will conclude that our Getting it Right model tracks very closely with U.K. Smart Procurement and similar defence procurement models in other countries. Indeed, in many cases Canada is more advanced in implementing the individual initiatives in the realm of defence procurement reform.

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Before I get to that, however, I'd like to tell you how pleased I am to be representing the Department of National Defence. It has now been seven months since I joined the department. If I have one concern, it is in picking up on the language. Two weeks after I assumed these responsibilities, I had the opportunity to speak at a Canadian Defence Industries Association luncheon. At that time I joked that my number one priority would be to learn one acronym a day, at which point someone from the audience yelled, “You'll have to be with the department for 40 years!”

Seriously, in the time I have been here, I have tried to learn more about the business of defence through daily briefings on the status of our operations abroad. I have met with the large majority of the 5,000 people in my organization in Ottawa and in other parts of Canada, and I have visited our troops in the Golan Heights and Egypt. The one overriding impression left with me is of the pride, capability, and commitment of our soldiers. They make me tremendously proud to be part of this department. If only more Canadians could share their experiences, Canada would benefit tremendously.

[Translation]

Over the past few years, these people have met tremendous challenges and have been subjected to rapid and widespread changes both in the workplace and in their daily lives. That change has affected all areas of our business and the impact has been felt equally within the domain of Material Acquisition Support and in particular, Procurement.

[English]

Let me now begin to walk you through the presentation deck before you. Please feel free to stop me during my presentation and ask any questions you may have.

The Chair: Mr. Williams, that's a good invitation, but I think it might be better if you go through, and unless there's a technical question or something, at the end of your presentation we'll go to questions.

Mr. Alan Williams: I'm just pointing out that as public servants, we're totally flexible.

The Chair: Thank you.

Mr. Alan Williams: My purpose today is to cover a few topics with you. If you go to slide 2, first I'll talk about the roles and responsibilities of the various players in the materiel acquisition and support business in government, then I'll talk a little about the context in which this business operates within National Defence, and then I'll move to the new framework we have adopted, called Getting it Right, to harness, build upon, and communicate the many innovative procurement reforms we are introducing within National Defence. I'll give you a brief introduction to the definition, we'll talk about the main thrust of this initiative, and then I will discuss some of the detailed activities and share with you some examples.

I'll follow that up with some high-level comparisons between Canada, the United States, and the United Kingdom. Given that you've had a detailed briefing on Smart Procurement, I thought I would do a juxtaposition of Smart Procurement versus Getting it Right, so that you can see it in context.

Parliament is clearly at the centre of the major players. They provide us with our funding and they monitor and oversee our activities through the standing committees, through AG audits, through public accounts, and through our reports on plans and priorities, where we review our progress achieved.

In the Department of National Defence we are accountable for identifying the threats, defining the operational requirements, undertaking the funding and scheduling, and ensuring overall project delivery. Interdepartmental project management teams are formed to provide overall government guidance to individual project staffs. This team, the senior project advisory committee, ensures that all major issues receive senior interdepartmental attention and that appropriate ministers are fully informed of matters warranting their attention or guidance.

Here again the members of the team must comply as closely as possible with their own department's objectives. Public Works and Government Services Canada is accountable for the integrity of the procurement process and is the contracting authority for most complex procurements. Industry Canada is accountable for developing and monitoring industrial and regional benefits that form part of many of our acquisitions.

Turning now to the context within which we operate in National Defence, slide 4 tries to project at the top a number of the key pressures our business faces. In particular let me draw your attention to the legislative and policy framework. It is one of the most complex anywhere. It encompasses the government contracting regulations of the Treasury Board. It involves trade agreements such as the North American Free Trade Agreement and the World Trade Organization, which are international trade agreements, and our own Agreement on Internal Trade, which also is a key part of the framework. Coupled with the availability of redress mechanisms through the Canadian International Trade Tribunal, through Federal Court, and the general tendency or proclivity of industry to challenge unfavourable bid results, this means that we really have very little room to manoeuvre.

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This is the environment in which we work. This is the pressure on our materiel acquisition and support business and this is the reason we have developed a framework called Getting it Right. To support this framework, we have developed four pillars of activity that we feel are fundamentally important, and these pillars of activity you will see throughout the presentation.

The first one focuses on our people. Clearly the people are a key. Our objective as management is to foster an environment that builds on our people's abilities and talents, respects their needs and concerns, and encourages what I call e-cubed: energy, excellence, and enthusiasm.

A key part is alliances, ones that we form with our clients, ones that we form with industries, ones that we form with our allies.

Governance: ensuring that we have the proper internal management practices and processes in order to manage our organization is crucial.

Finally, we must ensure that information management, the use of technology, is applied constructively and intelligently to support our business.

These four pillars rest on the values of integrity and honesty within our organization, and together form the management framework that we hope will lead us in National Defence to be effective in the delivery of our business.

What is Getting it Right? Well, as the next slide shows, it means getting the right goods at the right time for the right price with the right support, applying the right rules, all with the right people, hence getting it right.

Just a word or two on the last three “rights”. I think most are self-evident to everybody, but more and more it's becoming very clear to us—and this is one area where in fact we lead relative to other countries—that you can't separate the initial front-end acquisition from the ongoing support. You do that at a risk of increasing the life cycle costs. So you will see how more and more of our practices are intent on bundling these together so that we do have a comprehensive front-end knowledge and understanding of our costs.

We talked earlier about the rules. The rules are very complex, and we have to make sure that our people understand what they are and apply them fairly. Our focus is on the people. Emphasizing our people and their skills and the training they get will be a recurring theme of this discussion.

There are three main thrusts in Getting it Right. The first is to leverage industry's and our allies' knowledge and strengths. Over the past year, you've had a lot of presentations from a lot of associations and industry officials. We're trying to work more and more effectively with them in order to build and harness their knowledge and capabilities.

The second thrust has to do with best practices. As you'll see, I'll take you through the best practices in three main areas. One is in the area of risk minimization, a second is in the area of cost visibility and containment, and the third is in the area of program delivery.

The third main thrust of Getting it Right is enhancing our contract structure and management, making sure in essence that the contracts we are signing support and are consistent with the business practices we're trying to achieve.

Moving now to the area of leveraging, our objective is to take advantage of what is already known or has been learned by somebody else. We want to focus on our core business and take advantage of those whose core businesses make them leaders in their field. This should allow us to take advantage of their economies of scale and their expertise while obtaining premium services and support at lower costs.

We are trying to have earlier and more extensive discussions with industry. One very recent example of this is the collaboration that's now ongoing for a study conducted in alliance with the Aerospace Industries Association of Canada to look at this capability to find streamlined and more effective ways of supporting air force fleets. In addition, I have discussed with officials in the Canadian Defence Industries Association the utility of having more frequent general consultation meetings between us, and I expect to start that later this year as well.

We have learned that getting feedback from industry prior to finalizing a request for proposals, or an RFP, is critical to getting it right. We did this before we finalized the in-service support RFP for servicing and providing our in-service support for our Cormorant search and rescue helicopters. Also, it was an approach extensively followed in the development of our materiel acquisition and support information system, called MASIS.

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With regard to MASIS, we conducted early workshops with industry. We sought and received 23 formal expressions of interest. We released the draft RFP in March 1998. We held four industry days to exchange information and ideas and we had industry dialogue that resulted in significant change to our initial approach and strategy.

Accessing industry's core strengths is another way of leveraging industry. One very current example of that, which you may be aware of, is our supply chain project. We are exploring the private sector's potential to deliver existing internal supply and distribution functions to the department. We issued a draft RFP on January 24 to stimulate industry dialogue. The industry is currently visiting our DND sites during the months of February and March. To date, some 60 representatives from 25 companies have registered for these site visits. Finalizing the feedback from them, we would hope to release a final RFP in May 2000.

A final area of leveraging has to do with industry support for operational missions. As part of Canada's restructuring of its contribution to both the Bosnia and Kosovo theatres of operation, we are exploring the potential to use contractors to support our troops in Bosnia. The aim of this project is to improve quality of life by providing necessary relief for support soldiers currently experiencing the stress of continuous operational deployments.

Draft statements of work were issued in January 2000. Site visits were conducted in early February 2000 with representatives from nine interested companies. We expect that the final RFP will be issued sometime late this month or next month with the contract in place for June, implementation in the fall of 2000.

Let me now move to the area of best practices and talk first about the area called risk minimization. It is vital if we are going to assure ourselves that we are looking at the organization horizontally and basing our requirements on the needs of our capability gaps within the department as a whole. This is the approach we now follow. We examine our capability gaps from a strategic, tactical, and operational focus and then determine our priorities.

Secondly, it is no longer the person or the area or the organization that screams loudest that in fact is going to have their requirements met. A thoroughly developed business case is critical if we are going to proceed with a particular activity. Again, the example of supply chain is a very good one, where a rigorous business case was prepared and we are looking for potential savings to industry of between $20 million and $70 million. It will be interesting to get their feedback to see whether or not they think this is attainable.

You've undoubtedly heard a lot about commercial off-the-shelf products. No longer are we moving towards developmental activities, but more and more we are looking for products that currently exist. In our development of the MASIS system I referred to, the software that was used was a well-known product called SAP. In our Canadian Forces supply system upgrade project, which is our inventory control project, we moved from a developmental project to COTS software in order to ensure its viability.

In many of our acquisitions we're also moving towards COTS products. The light utility vehicle wheel, which will replace our Iltises in this next year, has a commercial version that is going to be obtainable. Commercial, off-the-shelf kinds of vehicles are available in the marketplace. The utility transport tactical helicopters that we acquired from Bell Textron again were essentially a commercial product with minimum military modifications.

A fourth area is performance specifications. This is very crucial because the movement away from detailed specifications to performance specifications is one of the most crucial ways not only to ensure that we get the products that better meet our needs and allow industry to apply a more creative idea towards meeting our ends, but to short-circuit and cut back on the length of time it takes to prepare specifications.

In the MASIS example we cut back from typically 3,000 specs to less than 250, and the performance required was detailed in under 12 pages. Our NATO flying training is another example where we have highlighted at a high level the kind of performance requirements we need from our various aircraft.

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Comprehensive project risk analysis and mitigation is another key area. In 1990, the United States President's Council on Management Improvement put out a paper that indicated that typically there are 14 reasons why major projects fail. These would include things like lack of top management commitment and adequate planning, abandoning the project plan, and an unwieldy procurement process. What we're saying here is that it's very important that when one undertakes a project one undertakes comprehensive risk analysis looking at all of these risks; and if any of the risks are too large, then rather than commit the taxpayers' money to a contract, one stops and reassesses and sees what one can do to mitigate the risk before proceeding.

Finally, there is the area of benchmarking. Matching us against industry's strength is what most government departments are now trying to do, and I think we're doing it very successfully. In fact you may not be aware that two of our organizational units in National Defence, our 25 CF Supply Depot in Montreal and our fleet maintenance facility in the east coast, are two of only 44 organizations in Canada that have achieved both ISO 9000 and ISO 14000 certification.

Let me now move to the second area of best practices: cost visibility and containment. Applying cost as an independent variable is a practice that more and more governments are moving towards. CAIV, as it's called, is a process by which one goes out to industry and says, this is the amount of money we have available, what can you deliver to us for that price? Here are our requirements, and we will take those that come as close as possible to meeting our operational needs within the budget available. It is not something we have done extensively so far, but it's a practice that in fact we will be looking at more extensively in the future.

Reducing the life cycle costs of equipment is something I alluded to earlier on. One of our approaches to this is called the total package procurement, which incorporates along with the front-end acquisition the examination at the same time of the total life cycle costs. In this way we hold the front-end supplier accountable for the commitments and undertaking he gives us when he supplies the initial good or service in terms of the ongoing maintenance costs of the particular product.

A second aspect of reducing life cycle costs is in the application of various tools that we have in place. One of the tools is a logistics analysis tool called LOGAN, which was developed within National Defence and is accepted by industry. It allows us to make support decisions during both the acquisition and in-service support phases of equipment ownership. In fact in our light utility vehicle wheeled project that I alluded to before, we will be undertaking in a total package procurement mode... and life-cycle costs have in fact been examined as part of our evaluation by this LOGAN tool.

The third area is called controlling cost and schedule, and again, here's a further example of the benefits we achieve when we in DND work in consultation with industry. We have developed a cost schedule performance management standard, which has been published by the Canadian General Standards Board. The standard's core of performance management is what we call the earned value concept, which links the scope, schedule, and budget so that the progress measurement compares work performed with the budget plan for the work. This standard is typically applied to large-scale projects with a higher than normal level of risk.

Let me now turn to the third area of best practices, that of program delivery. The first best practice is clearly to try to use information management technology to the fullest extent possible. We are now undertaking a complete review of our vision and strategy of IM/IT to see whether or not it will allow us to support the business practices that we hope to achieve. Two of the key components are the materiel acquisitions support information system, which will ensure optimum life cycle use of our assets, and the Canadian Forces supply systems upgrade project, which provides us with first-rate inventory control.

Tailoring weapons system support is a second initiative that in fact is an area in which we look to the private sector to see the extent to which they can support our goods or services. More and more, we're looking at our limited resources and seeing whether it is appropriate for the private sector to undertake in-service support. After much consultation with industry and much deliberation within the department, for example, we now have on the street an RFP that will allow industry to provide in-service support for our search and rescue helicopters.

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With regard to ASD, I'm frankly very proud of DND's commitment to alternative service delivery. Pursuing ASD is essentially asking whether there is a better way of doing something or delivering a service or program. The fact that DND has been pursuing so many ASD initiatives is a reflection of our ongoing efforts to try to do better.

While I know that we have been criticized for not delivering on all of our planned savings, I would offer two observations. First, our savings are in the order of $62 million a year right now. That's still a fairly large sum of money. Second, we are continually learning to try to do it better. We have standard business cases prepared, and better policy and guidelines, to assist us in the future. In the end, we will pursue an ASD only if it makes business sense. In my short time in National Defence, I can tell you that I have been tremendously impressed with the entrepreneurial spirit among many of our people who deal in the materiel business.

The two current key ASDs that I'm particularly focused on are the supply chain project, which I've mentioned, and NATO flying training.

Integrated project teams is another best practices initiative. It really has two dimensions.

One is an internal one, where within our department we are trying to better organize ourselves into more cost-effective, more meaningful ways. So we have, for example, combined our procurement expertise with our engineering expertise and combined them into equipment program management units that work together. In large-scale, major crown projects, we combine these skill sets with the contracting skill sets of Public Works and Government Services Canada. We have also established a unit that can be considered a centre of excellence in the delivery of complex service organizations.

The second dimension is an external one with the private sector, where we try to work collaboratively with industry in developing certain projects. This approach has been successful in delivering the major IM/IT project that I've talked about. It's interesting that one of our officers came back recently from Denmark, where they were trying to deliver exactly the same corporate information capability but have not been successful, and now they in fact are very excited about trying to follow our model in terms of benefits-driven procurement, in terms of contracting and doing things smarter, including integrated project teams.

Just-in-time delivery you have undoubtedly heard much about. In our case we've achieved a 30% reduction of inventory volume held in our supply system. This is accomplished by emphasizing just-in-time delivery of required items as an alternative to holding inventory ourselves. We're now beginning the second phase of inventory reduction and hope to achieve an equal 30% reduction in volume.

A second example you might want to consider again is the utility tactical helicopter, the Bell Helicopter Textron one I talked about that we procured. Rather than use the military supply system and buying an inventory of spare parts, we contracted for just-in-time supply support from Bell Helicopter using their commercial system through which they support all of their customers. By applying this strategy, significant cost savings were achieved in warehousing, reduced inventory levels, and shortened procurement lead time.

The final aspect again comes back to people. We continually come back to our people. We are spending tremendous time trying to train our people in our materiel business so they will be prepared to cope and lead in this area. About 1,300 people a year are trained at our materiel management training centre. We have over 16 courses, which include things like risk management—in which over 200 people take courses a year—and project management, as well as a variety of other courses related to materiel acquisition and support.

We have recently conducted a project management occupational analysis study, which identified the skill sets required for developing updated formal qualification standards. A new project management course is being developed. Also, in conjunction with the government-wide procurement reform initiative, we are looking at a new certification program for materiel and supply managers.

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The third dimension to Getting it Right is to enhance our contract structure and management. Contract structure must support and be consistent with project objectives. While I was accountable for contract management at Public Works and Government Services Canada, we developed a new framework called benefit-driven procurement, which incorporates many of these principles.

In terms of accountability, you may be surprised to hear that I am one of the people who does not support... I am a fair opponent of the terms “partnerships” and “partnering”. My experience tells me that these kinds of notions lead to a situation in which, as partners, we become very friendly with each other. We are only too willing to make changes to contract structures and designs to help each other as buddies or as friends. Six months or a year later we find out that while everybody has been helpful and friendly, what has been achieved has no bearing at all on the contractual obligations on all the parties. That's when we find ourselves with our lawyers on both sides, hardly behaving like partners. So I do not use that term at all.

I am much more bullish on ideas like having strong business alliances, formal relationships, and clear accountabilities. I think those kinds of words connote the kind of relationship we need to have. That's not to say we can't have mutual respect, and it's not to say we shouldn't have open communication, but we must be very cognizant or respectful of our accountabilities and hold each other to them.

When one enters into a contract, the world changes very quickly, especially with regard to technology. As such, a smart contract, a benefit-driven procurement kind of contract, allows us to have very short-term milestones with off-ramps that give us a chance to revisit the business case. If things have progressed or changed dramatically, those off-ramps allow us to make turns appropriately rather than sticking to a contractual structure that bears no resemblance to reality.

At the same time, it is crucial—and this is very difficult from a cultural standpoint—to get people to understand the dangers and risks in effecting changes. We must learn to control and minimize those changes. Keeping changes to a minimum will likely more often result in getting 90% of what you need on time and on budget, rather than doubling the cost and tripling the time while making a lot of changes. But this is something that is much more easily said than done. People consistently feel there's just a small little change they'd like to make, and they will push for it. In terms of management structure, we have to try to be a little more rigorous in doing better front-end planning and in minimizing those changes.

Performance incentives and penalties are a crucial part. We must try to link compensation to performance. Companies that go out of their way to do better than expected should be rewarded. The converse is also true. Companies that fail to perform should be penalized and must be penalized.

We have to be smarter about monitoring contracts. We have to look at, and we are looking at the risk inherent in non-performance, at what the danger or the impact of non-performance is, and at the result. We then have to structure a kind of monitoring regime that is consistent with that. In some cases, it might mean more frequent site visits if the risks are higher. In other cases, it might be more reporting. Or the converse is true. The point is that you can't have a “one size fits all” kind of monitoring regime for a contract if you want to be successful.

Finally, ensuring senior management oversight over a project is obviously crucial. We have learned the hard way about the importance of having senior management at all levels involved in projects earlier on, and overseeing it on a continuous basis. Where we get into trouble is in leaving things too long between senior management meetings, often with industry capturing things early and correcting them before they get to be too severe.

Let me now turn to comparing ourselves to some of the other countries that you may have heard about. I have a couple of general observations. Frankly, we're all in the same boat—or, as I've learned to say at National Defence, all in the same ship. We all have very similar challenges, and we're all trying to introduce a similar range of best practices. I'd like to think ours is slightly more advanced and slightly more structured. Nevertheless, we're all on a similar plane.

Let me first take you through some very high-level national comparisons and focus on those items that are in the lighter shade of pink. In terms of trade agreements, I think it's very noteworthy that the major international trade agreements that really apply to us and our colleagues south of the border are excluded from both NAFTA and the WTO. However, our own Agreement on Internal Trade encompasses defence business, and we are in fact consumed by that Agreement on Internal Trade.

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In terms of governance, again I believe ours is the only one—certainly there aren't very many—that is structured government-wide, with a separate governance structure dealing with contracting.

Thirdly, in terms of redress, it's interesting to compare our redress process with the Canadian International Trade Tribunal, to that in the General Accounting Office that the United States uses. I think it's fair to say that if a company in the United States wants to complain that it was poorly done by, in order for the GAO to hear it, this company must in fact be able to show that it would have won were it not for their issue of contention. Otherwise, they will not be heard. In Canada's case, of course, anybody can complain. Whether or not you in fact have participated in the bid or not, you will be heard and remedies can be applied.

Finally, in terms of acquisition and support, I've talked a fair bit about the importance of merging the acquisition with the in-service support. Only by doing that do you really get a totally consistent picture of the total costs. In comparing ourselves to the U.K. and the United States, we are in fact the only one of the major organizations that is structured that way. In the others, these are separate. I would offer that combining them in the way that we have offers a much better perspective on ensuring that we do get it right.

The next two slides give you a brief overview of a Canada-U.K. comparison. Most of what I've talked about is reflected here, so I won't dwell on these at length. There, again the through-life systems approach that you have heard about, is what I have called total package procurement, combining acquisition and support costs. They are in fact looking at trying to do what we have done with our integrated project teams. They have not done that as of yet, but they also want to try to have a better merging of engineering, support and procurement kinds of teams, the way we have already structured things.

On improving our requirements, I've talked a fair bit about our linkage to strategic capabilities planning and the fact that we have senior management oversight committees to ensure that we do in fact stay on track.

On improved cost forecasting, I've talked about the standard we've put in place with industry to ensure that we have a value to our cost management, and the importance of business-case analysis methodology that we have introduced.

Finally, on the issues of benchmarking and improved business practices, again those are things we have achieved by having that centre of excellence that I talked about, and by having our ongoing focus on best practices in terms of ISO 9000 and ISO 14000.

Incentive-based contracting is a key feature of benefit-driven procurement and pre-facilitated contracting, where we merge contracts and get a just-in-time kind of delivery.

Both Canada and the U.K. are trying to move as aggressively as we can in terms of e-commerce. Both of us are focusing extensively on the importance of our people and training, and both of us are trying to use information management to the fullest extent possible.

In closing, let me state that the challenge for management is to ensure that this framework is applied in an appropriate and judicious manner. Clearly, not all thrusts and activities are relevant in each and every transaction. The key is people: having skilled people working with energy, excellence, and enthusiasm in a learning environment. That is why we plan to record all of our transactions: to identify the main thrusts or activities used, and to place them in a library of cases that we can all share and learn from in workshops.

I am by nature a very competitive person. We believe that this framework, coupled with our emphasis on people, will result in our being the best in the world in doing what we do, that being delivering materiel acquisition and support to the forces.

Thank you very much, and I'd be pleased to handle any questions you may have.

The Chair: Thank you, Mr. Williams. We appreciate your presentation. I'm sure it will generate a number of questions.

We'll go right now to members of the committee. We'll start with a seven-minute round of questions, beginning with Mr. Hanger.

Mr. Art Hanger (Calgary Northeast, Ref.): Thank you, Mr. Chairman.

Thank you for appearing before our committee again, Mr. Williams and Mr. Burton. I was hoping for another such opportunity to question especially the deputy minister of materiel. I felt there were a lot of questions yet to be asked and answered. Now, with your presentation here today, I have a whole myriad of other questions that have arisen on top of those that I initially had.

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I was just looking at slides 11 and 13, and also slide 9. In particular, I wanted to make reference to slide 11, “Enhancing Contract Structure and Management”. Are these processes, as you describe here, being practised presently?

Mr. Alan Williams: Yes, and I'll elaborate a little bit more. In Public Works and Government Services Canada, we have introduced the notion of benefit-driven procurements that I talked about. These principles are part of it, and we at National Defence, along with our colleagues, try to apply these principles in each and every transaction as is appropriate. As I said, one has to look at each case in its own right. But these basic principles are in fact live and are part of our considerations each and every time we do a contract now.

Mr. Art Hanger: Going to slide 9, “Best Practices Cost Visibility/Containment”, your first point pertains to applying cost as an independent variable. Has that not been practised at the present time?

Mr. Alan Williams: No, not to any great extent. It's something that I think we, as well as our colleagues in other jurisdictions, will be looking at more effectively in the future. But it hasn't really been seen to date.

Mr. Art Hanger: All right, on your second point on reducing the life cycle cost of equipment, you stated that you wanted to hold the front-end suppliers accountable. In other words, you want them to give an evaluation of what might be the potential maintenance costs or life cycle or lifespan of a procurement item.

Mr. Alan Williams: When we go ahead and do a front-end acquisition now, we're cognizant of the fact that the costs for a particular good or service are certainly not consumed just in the front-end acquisition. Many of our goods have ten to fifteen years of service in them, so what we want to try to do is get at the front end the total life cycle cost picture.

Now, if in fact we apply a total package procurement standpoint, what we're really saying to industry is that we're going to go out with this acquisition. We're also going to ask them not only to bid on providing us with that good, but to please bid also on the total life cycle costs. We will evaluate them on that total cost. In terms of the advantage of bundling them, if you in fact separate them, the front-end good that we have bought may be based on certain commitments that the supplier indicated would be the life cycle cost. Later on, however, when we try to secure that in service support, we find that those costs are totally out of hand, but we have left that front-end supplier off the hook. By bundling, we hope to hold the front-end supplier accountable for the life cycle costs that they commit to us at the front-end acquisition.

And it's what we plan to do with the light utility vehicle wheeled exercise that will be undertaken this coming year.

Mr. Art Hanger: Is that the LAV?

Mr. Alan Williams: No, that's our replacement for the Iltis.

Mr. Art Hanger: Oh, okay.

If you were to look at, say, the Coyote, how would you apply this second process on the evaluation of that, on the Coyote's performance, in terms of the manufacturer's specifications or his statement as to how it will hold up compared to what's happening in the field?

Mr. Alan Williams: Of course, what I'm talking about now is how we will be procuring in terms of bundling. That wasn't the case with the Coyote.

Mr. Art Hanger: So no one is subject to this form of evaluation at this point, then. Only procurement coming in the future will be subject to it.

Mr. Alan Williams: It's the kind of bundling that we want to try to do in the future.

Mr. Art Hanger: Now, turning to slide 13, I'm just trying to understand your slides as they might apply. I suppose I can't see the whole picture, but I'm trying to get a clearer picture from you. That's the reason for my questions.

In the national comparisons, you indicate that equipment and acquisition and support in Canada is provided by a single organization in National Defence Headquarters.

• 1615

Mr. Alan Williams: Right. That's me.

Mr. Art Hanger: That's you. Where does the Treasury Board fit into all this?

Mr. Alan Williams: They are accountable for project controls, strategic policy direction, and certain Treasury Board approvals at the appropriate time.

The point I'm making here is that in our department, one organization looks at the front-end acquisition and the support as a totality. That's us. Whereas in other jurisdictions, one organization looks after the acquisition and another looks after the support, and that brings into it the kind of dilemma in terms of accountability that we talked about briefly before.

Mr. Art Hanger: I can certainly appreciate the structure you have described here as quite significant, if there is only a single organization in National Defence Headquarters, if that is all that is involved in the acquisition process.

Mr. Alan Williams: No. My intent was not to... At the front end we talked about the roles of the different players, and within the government there are certainly a lot of players involved, but if you look at not Public Works' role, not Treasury Board's role, not Finance's role, and not Parliament's role, but if you look at specifically the issue of getting the goods and supporting the goods, those activities are, at least in our particular jurisdiction in Canada, bundled together with one organization accountable, whereas in other jurisdictions you will find those separated. That was the intent. It wasn't to suggest that all activities in acquisition rest solely within DND. There are key players that have their key responsibilities.

Mr. Art Hanger: Fair enough.

[Translation]

The Chair: Mr. Laurin, you have seven minutes, please.

Mr. René Laurin (Joliette, BQ): Mr. Williams, I would like you to clearly distinguish between the time when National Defence plays its role and when the Department of Public Works steps in. We get the impression that at times you buy equipment on the outside market and that, at other times, it's the Department of Public Works that does this. Could you provide us with some clarification?

Mr. Alan Williams: To begin with, we have to distinguish between goods and services. Goods are the responsibility of the Department of Public Works and Government Services Canada. Like the other departments, we cannot make purchases that exceed $5,000. For purchases that exceed this amount, we have to go through the services of the Department of Public Works and Government Services Canada.

We are authorized to spend more on services, but if we go beyond $2 million, we have to go through the Department of Public Works and Government Services Canada. We are responsible for determining our requirements, and it is the Department of Public Works and Government Services Canada that is responsible for the contracting process.

Mr. René Laurin: When you purchase goods that are for the exclusive use of National Defence, we can understand that the Canadian Forces are in the best position to know what your needs are.

When you purchase goods that are common to several other departments, we can understand the advantage in grouping these goods together and in having one department look after the procurement and subsequent distribution amongst the other departments. However, this does not appear to be the case.

Helicopters may be a poor example because other departments may also need to buy them, but I don't think that another department is going to buy Coyote vehicles. Why do you have to go through the Department of Public Works to buy Coyotes?

Mr. Alan Williams: It is because of our government structure. It has already been established. We are not authorized to sign contracts that exceed more than $5,000. This is a responsibility of the Department of Public Works and Government Services Canada.

Mr. René Laurin: I understand, but since we are in the process of reviewing the effectiveness of structures, this is the time to talk about it. If I ask you why things are as they are and you answer by saying «because», I'm not any further ahead when it comes to making recommendations.

I will repeat my questions: would there not be an advantage in having the Canadian Forces look after the purchase of specialized goods, which are only used by the Forces?

• 1620

Mr. Alan Williams: It depends. There are both advantages and disadvantages in going through the Department of Public Works and Government Services Canada. That department has real experts in the area of contracting and they know the international agreements. Consequently, the ability to draw on their expertise in these fields is a good thing.

Moreover, if you are asking me whether it takes more time or if it's more expensive to go through another department, the answer is yes.

Mr. René Laurin: Does the involvement of several stakeholders in the goods acquisition process explain, for example, the double billings that have recently been the subject of criticism in the newspapers? A tractor is purchased to meet the needs of the Forces. The department issues a cheque to the wrong supplier and, when the mistake is discovered, a second cheque is issued to pay the real supplier, and an attempt is made to cancel the first transaction, as if we forgot about the cheque. Consequently, the tractor is paid for twice: once to the right supplier and once to another unknown supplier. The internal inquiry appears to show that there were several other cases of double billing just like that one. How do you explain this situation?

Mr. Alan Williams: Billing, in these situations, is totally different from what we are discussing today. In these cases, we are talking about the internal process of our financial systems and about the control measures for these systems. It's really something entirely different from the process that we discussed.

Mr. René Laurin: You are telling me that my question is not in order. Is that what you really want to tell me? You are trying to be polite about it. Is that what you are really trying to say?

Mr. Alan Williams: Not at all. We have internal systems, financial systems that we use for spending. The control measures and the procedures related to these systems are assessed to ensure that they are able to deal with this type of thing in an appropriate manner. The billing problems that you refer to concern our internal financial system. We have discussed, in general terms, the process used to purchase goods and services. This is a process that is different from the one found in the government and in our department.

Mr. René Laurin: In other words, when the time comes to issue an invoice, you're no longer involved. You explain your needs, you make a request and you receive the merchandise. You are not involved in paying for the merchandise. Another department looks after that. Is that what you're telling me?

Mr. Alan Williams: It is not necessarily another department. Once a contract has been awarded, there are internal systems that deal with the payments. We review the contracts and we ensure that the goods and services comply with our expectations, and then there is a service that looks after payment.

Mr. René Laurin: I understand that there is a service that spends the money, but if you pay for goods without ensuring that they have in fact been received, there is a problem somewhere. You are the user of the product. You ask for it and you receive it. Someone somewhere pays for it, or someone looks like he is paying for it without checking to make sure that the merchandise has been received, where it was bought and to whom the cheque is to be written.

Is this due to a lack of communication? Don't you tell them when you have received the goods and from whom?

Mr. Alan Williams: We have a very well-established process to ensure that we pay for goods and services only once they have been delivered. It seems to me that the three cases that you are referring to took place a year and a half or two years ago. I know that our deputy minister who is responsible for these systems had asked, at that time, that an audit be conducted in order to improve the process.

• 1625

[English]

The Chair: Thank you, Monsieur Laurin.

Okay, then we come to this side.

Mr. Proud, first.

Mr. George Proud (Hillsborough, Lib.): Thank you very much, Mr. Chairman, and thank you, Mr. Williams and Mr. Burton. I enjoyed your presentation.

I had a question when there were other people here before us who were talking about RMA, and they said one of the questions I asked them would be better asked of somebody in charge of materiel. So my first question is about information technology becoming more important in the future of the armed forces. What has been done to guarantee that the acquisition cycles are short enough that the product of new technology is not outdated when we take delivery of it?

Mr. Alan Williams: First, let me say we don't have a foolproof answer. It really is a significant challenge to try to do that. For instance, we began acquiring our new radio systems, our TICs project, back in 1991-92. At that time we specified 286s in terms of our computers. Here we are seven or eight years later, and of course we're talking about pentiums and pentium-pluses. So it is a very significant challenge to try to do that, and I don't have a magical answer. I'll tell you what we are trying to do.

We are trying to develop under benefit-driven procurement a process by which, instead of committing to everything up front, we take bite-sized chunks and give ourselves and our contractors the flexibility to adapt as much as possible. We are trying to put off the final technology decisions as late as we can, so that we take best advantage of the technology apparent at the time. But if I were to suggest to you that we've solved that problem... We haven't; we're all struggling with that. Technology is changing so dramatically that it is very difficult to keep on top of it.

Mr. George Proud: We'll go to another one now—

Mr. Alan Williams: I think Mr. Burton would like to elaborate.

Mr. Richard Burton (Director General, Materiel Comptrollership and Business Management, Materiel, Department of National Defence Canada): I was just going to add, in regard to the context you mentioned, revolution in military affairs, that we are making some very tentative steps, driven by our research and development community, to look at something that we call a technology demonstration program.

That program is aimed at moving away from the traditional sequential development of something that is just an idea, to something that's a little more developed, to something that is encased in military hardware so it'll withstand the rigours of the field and so on, to something that's more put together taking advantage of current technology, new ideas, things that are off the shelf, putting them together into some sort of capability that we can get out into the field more quickly and have the operational units use it, develop their doctrine, understand its capabilities, give us feedback in terms of how well it's meeting their needs, and then continue to upgrade it through its life cycle. That is a program we're emulating following our American colleagues, and that we're just in the process now of introducing, quite honestly, this year.

Mr. George Proud: Thank you. In a new process, how important is it that we show industry our commitment to them? Should we support industry financially in research and development of large acquisitions? Would we have a better product if we did? Do we do this, support industry in this manner?

Mr. Alan Williams: Well, certainly our organization founds itself and bases itself on working extensively with industry, trying to find new and smarter ways of using technology, absolutely.

Mr. George Proud: Thank you.

The Chair: Thank you, Mr. Proud.

Mr. Bertrand, there are four minutes of Mr. Proud's time left, if you wish it.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Mr. Williams, on slide 7, you talk about getting it right and leveraging. In your second point, you talk about getting industry feedback through solicitations of interest and draft requests for proposals. If I've understood properly, you are asking industry to help you by submitting proposals.

Mr. Alan Williams: Before drawing up the final version of an invitation to tender, we write a first draft that is submitted to the private sector. We ask for their comments, and if they can detect any problems or mistakes or elements that are not practical. We get their feedback before deciding on the final version.

• 1630

Mr. Robert Bertrand: Mr. Chair, I will ask my two next questions right away, because I fear there won't be enough time. Does the number of bid proposals that you asked for depend on the size of the contract? Is it proportional?

My second question is on something different. Do you believe that the changes that have been made up until now to the department's procurement program have been fully satisfactory? Is there a need for further changes? If so, what changes should be made?

Mr. Alan Williams: I'm not sure if I fully understood your first question. We prepare an invitation to tender for each complex procurement and we usually try to have some feedback from the private sector for drafting the final version.

Mr. Robert Bertrand: Do you deal with only one company from the private sector?

Mr. Alan Williams: No, never. It's very important that we get a number of different opinions.

Mr. Robert Bertrand: Do you consult with two or with five companies?

Mr. Alan Williams: We use the MERX system, which provides access to any company that has a computer. They can obtain information with respect to our drafting and we are quite interested in getting feedback from these companies.

Mr. Robert Bertrand: Oh, good.

Mr. Alan Williams: It is very important that there be a level playing field for all companies. We consider all of the feedback that these companies provided us with.

Mr. Robert Bertrand: In the case of some contracts, you could consult up to a hundred companies.

Mr. Alan Williams: We can consult with five, 10 or 15 companies.

Mr. Robert Bertrand: And what is the answer to my second question?

Mr. Alan Williams: I believe that the new initiatives that we have undertaken will have a positive effect. Once we have finished implementing these new measures, I will probably be able to suggest further changes in order to continue improving our activities. We are in constant dialogue with our colleagues from industry, as well as with our counterparts in the US, in France and in Great Britain, who are also taking similar actions. I believe that if we can manage to make these changes work, we will be in a good situation.

Mr. Robert Bertrand: There is another reason why I asked you this question. As you know, we are finishing up our study on procurement policy and we need to draft a report. I think that this would be the right opportunity to share with us any suggestions.

Mr. Alan Williams: As we have just discussed, I think that it is essential that the committee examine the laws and ensure that government policy be as efficient as possible for the Department of National Defence.

The Chair: Thank you, Mr. Bertrand.

[English]

Indeed, Mr. Williams and Mr. Burton, if you have anything else that, upon reflection, you want to offer to us, we would be happy to receive it, but we would need it fairly soon, because we're just into the drafting stage—at least, our hard-working staff is looking at that right now.

Now we'll go to Mr. Earle, for seven minutes, please.

Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chair.

Thank you for your presentation.

On slide 10, “Getting it Right Program Delivery Best Practices”, you touched upon alternate service delivery. I think you mentioned that currently you're saving about $62 million per year and that you will only pursue ASD if it makes sense, and you spoke about the supply chain project.

I noticed in the Auditor General's report that at one point it showed in-house bids quite often fared better in terms of their business management plans, and so forth, than external bids. Are you going to entertain in-house bids for the supply chain project?

• 1635

I ask that in light of the comments you made about building upon people and the importance of people and the training of people, because I think there are a lot of people within the department, at least people who have come to me, who are somewhat concerned about it and not in the best morale, because they're uncertain as to whether they'll be considered in this project.

Mr. Alan Williams: It is hard to undertake an in-house bid with this project, for the reason that what you're really looking at here is seeing whether or not there is a company out there that could look holistically at the complete supply and distribution network of the department, which involves distribution, depots and warehouses, and all these kinds of things. So in fact there is no one organization around that you could go to and ask if they could do this better, because it is so diffused across the country.

Having said that, and I mentioned this earlier on, you can't help but be tremendously impressed at the kind of initiatives we undertake in each and every one of our areas. So I am anxious to see whether or not industry themselves feel that given all the improvements our people have made and are making, they think they can do even better, to the extent that we're talking about 20% to 30% better.

Once I get that feedback, we will see whether or not they say yes or no, and if they say yes, whether it's in the complete process or whether they think there are only certain parts of it they can optimize, because the government and its people have done a terrific job in optimizing their own individual parts.

Mr. Gordon Earle: If industry comes in and says “Yes, we can do better”, and they give you either a specific area of concern where they feel that they can do better or a total picture, then will you be in a position to go back to the workers who are currently in-house and say to them, “Okay, it's felt that it can be better done by industry, so now what can you do in response to this to improve the situation and perhaps even to do better than industry?”

In other words, what I'm trying to get at is this: Will the in-house people be left out of this process, or will they have an opportunity to compete for whatever kinds of changes you are looking for?

Mr. Alan Williams: I think it's fair to say that we have been providing and will continue to provide the motivation for our people, not that they need that much of it. But they are in fact not waiting for industry to respond. They are doing everything possible to make it very difficult for industry, which, I have to tell you, deep in my heart pleases me.

Mr. Gordon Earle: In regard to my second question, we're talking about acquisition of goods, but I guess there's some concern that perhaps one has already acquired lots of goods that may not be being utilized. What's being done with respect to doing an inventory about the equipment you may currently have that is not being used or is outdated, and how is that being looked after?

Mr. Alan Williams: I think this gets back to a comment or a point to which I made reference. That is, first of all, our requirements are now being based on a very dramatic and significant capability study. We don't simply go out now and buy things unless we have done a rigorous examination of the capabilities that the forces need, where they currently stand, and what the gaps are.

In so doing, one must do exactly what you're talking about. If there's an airlift or a sealift capability, or a sustainment capability, what are the mechanisms, what are the goods we now have in place, what is their status, and do we have a need to bridge that gap? If so, how do we bridge it, by a new acquisition, by an upgrade, a modernization? Which is the most efficient strategy?

So I think we have now a fairly sophisticated and horizontal look at the needs of the organization in order to do exactly what you're talking about.

[Translation]

Mr. Gordon Earle: Do I still have time?

[English]

Okay, I have another question. On slide 7, you speak about industry feedback through solicitations of interest and draft requests for proposals. I have somewhat of an idea of what the difference is, but could you elaborate a bit upon the difference between the SOIs and the RFPs, and how each will come into play.

Mr. Alan Williams: Sure.

An SOI is a statement of interest, which is kind of an informal piece of paper that describes to industry what we're thinking of doing, and we get feedback from them as to whether or not, for example, they think they can play in this game or not, whether they think there is a business opportunity for them. It's fairly soft, it doesn't bind anybody to anything, and it's prior to a formal procurement process.

• 1640

When we go out with a draft RFP, it's usually with this feedback, and we're much more structured in terms of what we're going to be asking for when we go out with the final RFP. So at that stage it's still unofficial, and we're asking for comments, but it is much more structured in terms of what the final terms and conditions will look like.

Mr. Gordon Earle: When the RFP goes out, would it be available only to those who have put in an SOI, or would it be available to anybody?

Mr. Alan Williams: Consistent with what we answered to Mr. Bertrand, virtually everything we put out will go out on the Internet on the government MERX system, which is run by CEBRA, a subsidiary of the Bank of Montreal. It's also produced in paper form. It goes out to everybody. We have to make sure that openness, fairness, and transparency are the key watchwords. I sound a lot like when I was in my previous job. But that's what we do, and it's very important. Frankly, that's the best way to ensure that we get the products we want and that taxpayers get them at the lowest price or best value.

Mr. Gordon Earle: On the total package procurement, I think you indicated to a previous questioner that this is something you're getting into now as opposed to having necessarily applied it in the past. I was thinking, for example, of the submarine purchases, where the submarines are purchased and then another cost is added for bringing them up to scratch, so to speak. Is it a matter that with the new process we won't get into that, that we'll know up front what the complete cost will be?

Mr. Alan Williams: Typically, yes. Our attempt is going to be to bundle the way I've talked about. As I said, we will be using this approach on the light utility vehicle wheels, LUVWs, and we will be trying to bundle. The submarines were a unique kind of purchase, obviously, given the unique circumstance surrounding them.

Mr. Gordon Earle: Thank you.

The Chair: Thank you, Mr. Earle.

That concludes the first round of questions, but I know there are more. Mr. Williams, you can catch your breath. We'll start with a second round of questions, five minutes per member, with Mr. Hanger, please.

Mr. Art Hanger: Thank you, Mr. Chairman.

I find this procurement process rather fascinating. It appears to be very complicated. I don't know if it should or should not be. Maybe it's complicated because there are so many other fingers in the pie before it even reaches, as you point out here in your analysis, the single organization, which is National Defence Headquarters.

I would have to say that I would embrace some of the things you're saying in here. This is the way it should be, such as applying cost as an independent variable. That has never happened, and this is what you're intending to do. Another example is reducing life cycle costs of equipment.

But a whole myriad of things have to happen apart from these things becoming really and truly part of the process. For instance, you'd have to have a long-term capital acquisition plan. If there wasn't a—I'm not sure what you would call it—final date where the piece of equipment would no longer be serviceable, how could you really spell it out, or how could you hold a contractor accountable? You just couldn't do it. That's one point.

If I go back and look at your presentation and some of the suggestions as to what you would like to do, I'd see that it would be very essential in the procurement process.

But I look at something outside of that, which keeps troubling me. Nothing in here—and of course you have no control over that—is to say that the Treasury Board won't influence a contract after it has been let, or that the Privy Council won't involve itself after it has been let, or that the politicians won't make a decision because they figure they can curry favour with the voters by cancelling a contract. None of that exists in here, which you could never put in there anyway. There would have to be a whole new attitude spelled out in government to gain a broad level of support so that this thing would work properly. With the way it's set up right now, as soon as the politicians with their influence became involved again, you'd be right back to square one.

Mr. Alan Williams: I'm not sure what the question is.

Mr. Art Hanger: I know. I think it's more of a comment than a question, and I appreciate your not being able to really answer that question. I look at it from maybe a different point of view, coming from my position as official opposition and questioning the process as it sits and what has happened in the past. You can't address that. This is what you would like to have happen, but I don't feel quite as confident as you do that it will happen that way.

• 1645

Mr. Alan Williams: Maybe I could make a couple of comments. I've now been in this department for seven months, and for four years I was accountable for government contracting. I'm not sure that it is all that complex. I will say that the legislative and policy framework is complex, absolutely. Each of the different trade agreements has its own reasons to sole-source and its exclusions, and one has to be aware of all of them if one is going to apply them and work within this world.

Having said that, it's also not that complicated. Parliament gives us money. We determine what our needs are. We go out and try to do the best we can in terms of articulating them. Public Works finally puts out the process that allows us to buy something. We hope that we've bought it in the most cost-effective way, and we sign the contract. Hopefully we monitor our performance, and we give what we need to service our soldiers. Typically that's how it works. Once one embarks on the process of an RFP, I have found it essentially to work that way.

Mr. Art Hanger: If it worked that way, why is it that after 20 years we still don't have a replacement for the Sea King helicopter? It's a far-reaching question, but I can give you several reasons. Your procurement process will be sliding down the mountainside for the very reasons we still don't have a Sea King replacement.

Mr. Alan Williams: Of course I could say that we haven't started the procurement process yet.

Mr. Art Hanger: Yes, you have started it. Twenty years ago there was talk about putting together a replacement program for the Sea King helicopter, the maritime helicopter project.

Mr. Alan Williams: There is no question that the need has been articulated. All I'm saying is that officially we haven't started the procurement process.

The Chair: Thank you, Mr. Hanger. Thank you, Mr. Williams.

All of us on this committee, on both sides of the table, anxiously await the announcement of the new helicopter.

I'm going to go now to Mrs. Longfield for five minutes.

Mrs. Judi Longfield (Whitby—Ajax, Lib.): I'm in two areas of thought. I'll start with the first, because Mr. Bertrand knew I would be asking about ASD.

We talk about ASD with supply management and giving private industry the opportunity to choose what they want. Do we not run the risk of their cherry-picking and our getting left with the most difficult? Would it not cause real difficulties inside our own operation if we were to allow industry to simply say, “I can do this, I can do this, and I can do this, but the rest I don't want”?

Mr. Alan Williams: The answer is no, we don't have that risk. The draft RFP says we want to know if you can do it all. If they come back and nobody says they can do it all but they want to cherry-pick, that's not the name of the game. Then we will stop and reassess whether any of those parts are worth while for us. But there is no commitment on our part to do any of that.

Mrs. Judi Longfield: Okay. I'm pleased to hear that.

The other issue is, how do we factor in the unique operational requirements of the armed forces? It's not like other government departments. If you're doing food preparation or food delivery, that kind of thing, it works well if it's on a base, but what happens in the field of operation when the private sector is going in? Maintenance is another one.

Mr. Alan Williams: Are you talking now about the supply chain in general or just...

Mrs. Judi Longfield: Just ASD.

Mr. Alan Williams: In terms of ASD, we do have a proposal out there right now for the Balkans rationalization, which I've talked about. The feedback we've got from industry is that in fact they can perform the tasks we're asking them to do, which don't involve a certain degree of military requirement. They involve distribution, traffic management, and food services, those kinds of things. That will allow us to take our soldiers who were doing them and improve their quality of life by allowing them a little bit more time at home.

So we have done extensive consultation. Industry would not be undertaking these kinds of activities if it brought them too close to a war zone where there were risks for them. So we have been very narrow in terms of the kinds of services. But these companies are capable of performing internationally a wide range of services, and they are very excited about being provided the opportunity.

• 1650

Mrs. Judi Longfield: My second question has to do with the whole procurement process. Mr. Hanger mentions the Sea Kings, which brings me to the length of time involved. I think part of it is getting the statement of requirements before you can even put forth an RFP or look for SOIs and that kind of thing. How can we streamline that? You talked about the whole process costing more when suddenly, partway through, you say, well, I want to change this, this, and this. Is this what's happening in just preparing the statement of requirement?

Mr. Alan Williams: In terms of statement of requirement, that has to be and is a rigorous process and it is very complex. The military world is evolving—as we've talked about—very quickly. Typically you will see a very large number of sophisticated operations and research kinds of studies out there. Those take time and they will continue to take time. I think that what you can do, perhaps, is a little more advance planning, so that by the time you're ready, you've done a lot of the homework earlier on.

I think the kind of capability-driven work we're now doing, where we look at our capabilities and we start to look ahead and say, okay, in terms of our long-term capital plan we can envision that two or three years from now this equipment will be out of date... Well, instead of waiting two or three years to undertake the SOR, let's start it right now, let's start to see what's out there, what are the trends, what are the risks and threats, so that in a couple of years from now we will be already prepared with our statement of requirement and we will take that out to industry in a more timely fashion.

Mrs. Judi Longfield: How do you marry that with the revolution in military affairs? I mean, you prepare a statement of requirement on 286s and four years from now it's something totally different.

Mr. Alan Williams: I do a lot of writing in pencil rather than pen, recognizing that you can't set it up in such a solid way that there'll be no changes. It's the same thing with the contracting. Clearly we're going to have to be more evolutionary, more flexible, recognize that the world is changing, and have our antennae out there all the time to continue to modify and be abreast of what's going on. That involves a lot more, too, about consulting with industry, about R and D work with our allies, and about always trying to at least be out there knowing what's going on, to the best of our abilities.

But there isn't a magic formula, and staying on top of things is difficult to do with resource constraints. Again, there is no magic bullet for that.

Mrs. Judi Longfield: I think that's complicated by the various ministries that would have their finger in the pie, like Treasury Board, Public Works, that kind of thing, or...

Mr. Alan Williams: I don't think so. I think we each have our own role. You can question whether they're all necessary, but Treasury Board isn't going out checking on the capabilities of helicopters in this world. Neither is Public Works. We're the ones doing that.

The Chair: Thank you, Mrs. Longfield.

[Translation]

Mr. Laurin, you have five more minutes.

Mr. René Laurin: Mr. Williams, at the beginning of your talk, you referred on a number of occasions to the fact that in many cases, Canada was further ahead than other countries when it comes to implementing measures to reform the material procurement process. Could you give us a few examples?

Mr. Alan Williams: Certainly. I can think of two. As I have already said, we have set up a team of engineers and supply specialists in our organization. Great Britain wants to try the same thing. Also, within our organization, there is an accountability for goods and for support. Other organizations want to have the same thing, but they're not yet there.

Mr. René Laurin: I will now talk about...

Mr. Alan Williams: There is one thing that might be very important.

Mr. René Laurin: Yes.

Mr. Alan Williams: It seems to me that we are the best in the world when it comes to communicating our needs to the private sector. Our MERX system, which seems to be the most open service of that kind in the world, helps us meet our needs in the best way possible.

Mr. René Laurin: Now let's talk about Canada's agreement with the United States, NORAD, and the decision which will need to be made before June on setting up an anti-missile base in the US and Canada's participation. What role would Canada take when it comes to making decisions about procurement? The United States would be ordering very specialized material. Will Canada be asked to pay for a part of the bill or will we be involved in the decision?

• 1655

[English]

The Chair: Mr. Williams, if you wish to answer, I certainly welcome it. I would note that you're here on procurement and that my colleague has strayed a bit from that, but it's up to you if you wish to offer an opinion.

[Translation]

Mr. Alan Williams: No, I quite liked your answer.

[English]

The Chair: I'm going to let him answer, René. I'm just indicating that you've widened the topic a fair bit, but I'm going to give him an opportunity.

Obviously the government has made no decision whatsoever on this. We're just beginning our hearings, but if you would like, you may make a brief comment.

Mr. Alan Williams: I always say if there is one thing I know, it's my limits, and I'm in no position to talk, not for any really valuable comments on that.

[Translation]

Mr. René Laurin: We have been talking about the revolution in military affairs. This is in fact what we are talking about, the revolution in military affairs, is it not? And is the American national missile defence system not at the forefront of the revolution in military affairs? Is it not one of the most advanced systems, one of the things that people are talking about most right now?

It stands to reason then, that there would be procurement to set up the system. And are we not talking about procurement? I don't see how I have strayed from the subject by asking this question, Mr. Chair. On the contrary, it seems to me that it is quite timely that I ask, should this materiel be procured, what role Canada might play in any eventual decisions.

Mr. Alan Williams: I think before making any decisions...

[English]

The Chair: Monsieur Laurin, today's topic is procurement. The ADM is here specifically on procurement. A proposed missile defence system is so hypothetical right now that we're not talking about that today. For the missiles, with the little discussion we've had on that, the most likely idea, if Canada were to participate in such a system, is that we would probably be involved in an asymmetrical contribution through NORAD. We've heard this from expert witnesses like General Macdonald. These missiles in the proposed system would not even be on Canadian soil. There would be a limited number of missiles on American soil.

With all due respect, I think it's not something we can expect Mr. Williams to help us with today. I'm going to give you a last question, but on procurement, though, please. We're really not on RMA today. We're on procurement process with the final witness for our study.

[Translation]

Mr. René Laurin: Fine, OK. In any case, I was surprised when you said that it wasn't current. I find this strange because Minister Axworthy spoke about this last week-end at the Liberal convention, and so did Minister Eggleton, but in both cases it was controversial. We can come back to this later, Mr. Chair.

I have one last question for Mr. Williams. You mentioned that you have purchasing authorization to a maximum of $5,000. How many people have this...

[English]

Mr. Alan Williams: Five thousand.

[Translation]

Mr. René Laurin: I didn't hear.

Mr. Alan Williams: Five thousand dollars.

Mr. René Laurin: That's what I said. So you have a purchasing authorization to a maximum of $5,000. How many people have this type of authorization and where are they in the hierarchy?

Mr. Alan Williams: It is important to make a distinction between the authorization to sign contracts, contract authority, which is for amounts of $5,000, and the responsibility for our budgets, which is something completely different. The authorization to sign contracts of more than $5,000 is with Public Works and Government Services Canada.

In our department, almost everyone is authorized to spend up to $5,000 in their field, no problem.

Mr. René Laurin: Could, in theory at least, 10 people with authorization to spend $5,000 pool that authorization to purchase something for $50,000?

Mr. Alan Williams: There are policies for accountability which prevent that type of thing. There are rules which cannot be ignored.

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Mr. René Laurin: Are these purchases made by credit card?

Mr. Alan Williams: There are also credit cards, no doubt, for expenses under $5,000.

Mr. René Laurin: Could you give us an idea of the amount of money that can be spent each year using this authorization for purchases under $5,000? How much can be spent though this type of authorization?

Mr. Alan Williams: I don't know exactly, but we can probably make purchases worth several millions of dollars. Every department has a budget of a few million dollars for small purchases.

Mr. René Laurin: Could that total three billion dollars?

Mr. Alan Williams: No, no. We're talking about small acquisitions such as miscellaneous articles, things like that.

The Chair: Thank you, Mr. Laurin.

[English]

Because the missile defence system came up, I'll recall for colleagues that we have begun hearings on missile defence. That's not a secret. It was time to begin hearings, and the defence committee has begun. Following the lead of the defence committee, I would note for you, the DFAIT committee, foreign affairs and international trade, has also begun hearings on the same topic.

That leads me to a reminder to two of my colleagues here that since this is such a topic of interest—indeed it was discussed at our convention on the weekend—I'm informed that Thursday we have both ministers coming to a joint meeting of SCONDVA, our committee, and also DFAIT, the foreign affairs and international trade committee, for a special meeting on that very topic. So we'll have a chance for those questions that day. It should be a very interesting meeting.

So thank you very much, Monsieur Laurin, but I really do want to keep the discussion to procurement per se today.

I'll go now to

[Translation]

Mr. Bertrand. You have five minutes, Mr. Bertrand.

Mr. Robert Bertrand: Thank you very much, Mr. Chairman.

[English]

Mr. Williams, in slide 11 you talk about enhancing contract structure and management. In the last three bullets you mention building in performance incentives and penalties, applying a risk-based monitoring regime, and ensuring senior management oversight, and you used a few more adjectives that weren't on the paper here. I was just wondering about IRBs. If you give more power to your senior managers, how does that mesh with taking into account the IRBs?

Mr. Alan Williams: There are two closely linked but in some sense separate issues here. When we develop our statement of requirements, we will identify the needs of the forces. When the trade agreements permit—and that will often happen when we're dealing just with the Agreement on Internal Trade—we can in fact insist upon industrial and regional benefits in addition to meeting the operational requirements of this department.

The responsibility for articulating the industrial and regional benefits, the IRBs, rests with Industry Canada. They will articulate the kinds of benefits that potential suppliers have to be able to support or comply with in order for their bids to be viewed as compliant. Typically they're equal to the value of the contract, and typically industry is allowed to respond to that within Canada, from coast to coast, in a way that meets their needs in both direct and indirect job creation.

Mr. Robert Bertrand: That's it.

The Chair: Okay.

Mr. Earle for five minutes, please.

Mr. Gordon Earle: Thank you, Mr. Chair.

I have two points, one on the training of people. You mentioned there's a new certification program for people working in the requisition area. How does that work? Who qualifies for that? Are all the people working in that area going to be trained?

Mr. Alan Williams: This is a major initiative undertaken by procurement reform. A lot of people in this business in the government we feel are very professional in what they do, and we felt it was important for them to be so recognized. So we have gone out to a number of currently established private sector organizations that provide materiel certifications. We have asked them to work with us in developing a program that will allow our people to get these kinds of designations.

• 1705

In regard to the modality, as to whether all the people will get it or how it will be pursued, these are the discussions that are going on right now with our own people and will involve unions. But the intent is very clear. The intent is to showcase our people as being excellent. In the financial community, you have different designations. Engineers have certain designations. Our feeling is that people who work in this business are equally professional and should be so treated and so recognized.

Mr. Gordon Earle: Thank you.

If we're all truthful around this table, we realize there are two main elements to the procurement process. One is political. Certain political decisions have to be made. The other is administrative, and then certain mechanisms kick into place. When we start talking about the helicopters, we know right now the holdup there is on the political side, not on the administrative side. Therefore I appreciate the comment you made that the procurement process has not begun. In reality, what I think we are waiting for is a political decision to be made. After that, then the mechanism, the administrative side, kicks in.

So I'm going to ask you not about the political side, because that's inappropriate; but on the administrative side of procurement, given all the things you've pointed out in your presentation, the improvements you're working toward, is there any one particular thing that really stands out as a key item for you that will help to make this system more efficient and more effective? I'm talking administratively; I'm not talking about the political side.

Mr. Alan Williams: There are things one can do to shortcut it. Shortcutting is not necessarily better. If you didn't have the Agreement on Internal Trade, you wouldn't have to put things out on MERX system for 40 days. You could do it for less time. Is that better? I'm not so sure.

If you didn't have to work with Public Works, undoubtedly you could short-circuit some of the administrative process. Is that better, given their unique skill sets? I think that again is a critical point to consider.

Moving from detailed specifications to performance specifications is something that is under our control and something that we are trying to pursue and get our people to understand is a much smarter way of doing business and will save a lot of time. But I think you typically have to expect that from the time you get the go-ahead, if you're going to have a full-fledged competition, it will be two years from the time you launch it. You go to draft RFP and then an RFP, and you allow three months for the bids to come in and two or three months for evaluation. You're talking about a two-year process for a full-fledged one. I think you have to expect and understand that. But of course you're talking about billions of dollars worth of expenditures, and you want to “Get it Right”.

Mr. Gordon Earle: Is that two-year timeframe a minimum administratively?

Mr. Alan Williams: For a complex procurement, I would expect it to be that, 18 months to two years.

Mr. Gordon Earle: Yes.

Mr. Alan Williams: I think that's a reasonable, fair expectation, with delivery of the goods, depending on the good, potentially years after that.

Mr. Gordon Earle: Thank you.

The Chair: Thank you, Mr. Earle.

Mr. Proud.

Mr. George Proud: I have a question on slide 7.

You mentioned industry support for operations and how it sometimes frees up military people to spend more time with their families, things like that. What other benefits are there from industry support for operations? Is it quicker? Is it better? Does it save money?

Mr. Alan Williams: In fact, it likely will cost more, not less. If we go ahead and contract out some of our services in the Balkans, their total cost may be less than ours, but of course most of the resources we were using, we still have. We're just allowing them to be redeployed back in Canada to get the rest they need. So this kind of activity is a quality-of-life initiative that will in fact probably cost us more, but it's still important to undertake.

Can they do it more cheaply, in total terms, than we can? I don't know yet. We'll find out. It's quite possible. But without question, the key advantage is that if you have a fixed number of military resources, allowing them to focus on those things on which they have to focus, and not on other things, is why we would undertake these kinds of activities.

Mr. George Proud: Thank you.

The Chair: We've had two rounds, so I have a question, Mr. Williams, and then we'll see if any other members have questions before we go to the vote.

• 1710

We've had several witnesses recommend that we integrate the Public Works contracting function into DND, and you yourself just kind of posed that question. I guess you're the ideal person to put on the spot, since you've served in Public Works and now in DND. So I'd like to ask you to answer your own question of a minute ago as to whether that is wise and the best course. I understand we're one of the few countries that has this separation of functions.

In the interest of our trying to make recommendations to the ministers and the government on how to improve procurement, what is your answer to that question?

Mr. Alan Williams: Hopefully it will be a judicious one.

I think it's certainly worth being examined. I would just again indicate that there are trade-offs. On the one hand, you do have an organization, Public Works, whose sole mandate is ensuring integrity in the process. I think that's very valuable for Canada. They have nothing else to focus on but that. On the other hand, having limited-skilled people around, this kind of structure clearly has overlap in terms of resources and duplication, which probably means time and cost. It's balancing the pros and cons of those two realities that I think is necessary before coming to a final conclusion.

The Chair: Do you think it's worth serious consideration?

Mr. Alan Williams: Yes.

The Chair: All right. Thank you.

My last quick question, and then I'll go to the other colleagues, follows up what Mr. Proud asked about industry support for operational missions. I was a bit surprised to see that there. Given what DND wants to achieve, if I understand correctly, 6 months away and 24 months guaranteed back home, does that point on slide 7 relate to that 6-24 number? I'm not sure exactly what you're saying, how industry can help give these people more time with their families.

Mr. Alan Williams: When you have limited staff, if in fact you have to deploy, say, hundreds of people more than you need with limited resources out doing these services—

The Chair: Rather than your core function.

Mr. Alan Williams: Well, that is their core function, but because you're so limited in numbers of resources and because we're situated in so many theatres in the world, you may have to in fact shorten the amount of time they can spend at home. To support in 21 or 22 theatres around the world, there's no cost advantages; each one has to do its own. So by allowing the private sector to do it, you're in a better position to allow the 6 months there and 24 months back home that you alluded to.

The Chair: Can you give me a specific example of what industry would do, a function they would do?

Mr. Alan Williams: Sure.

In the Balkans, for instance, there's a list of 12 different services that they're going to be looking at: supply/materiel distribution; management of bulk fuel; environmental protection; billeting and laundry services; equipment management; food services; communications; power and water supply and distribution; waste management; facilities O and M; roads and ground maintenance; and fire services.

The Chair: Okay, so that's what I meant when I said “core”. Some of those, people might not consider core functions of a soldier.

Mr. Alan Williams: No, but in fact the truth is that a lot of people have been historically undertaking those very varied services, and in a very skilled way.

The Chair: It's an important part of the work we do.

Mr. Alan Williams: Absolutely.

The Chair: Thank you very much.

In fairness, colleagues, I'm going to ask you to limit yourself to one question, because we're now into a third round and we're going to get bells shortly.

Mr. Hanger, you're first, and then we'll go around.

Mr. Art Hanger: What would your preference be for procurement in general and specific to the maritime helicopter project, sole source or competition?

Mr. Alan Williams: Competition.

Mr. Art Hanger: Okay, good.

The Chair: Thank you.

Mr. Clouthier.

Mr. Hec Clouthier (Renfrew—Nipissing—Pembroke, Lib.): Alan, with regard to the SOR, I want to get something straight. When we have the statement of requirement, do we have a committee, say through the government, in procurement that would determine exactly what we want, and then we would ask industry to bid on that? Or will we just say, listen, let's go with the search and rescue helicopter? Did we—meaning the government—have a procurement team? I know we had a search and rescue committee. Did we get down to every minute detail as to what we wanted and then put that in the RFP, or did we ask industry to give us an idea if, say, we wanted something state of the art with all the bells and whistles?

Mr. Alan Williams: Typically, we would tell them what we think we need. They would come back to us and say “We hear what you're saying. It makes good sense, except for this, or except for that” or “Why are you asking for this?” or “There's something better” or “Have you considered this?” We would then take that feedback, and in terms of the final RFP that would go out, we'd make a decision on whether or not those suggestions merit a change to our SOR.

• 1715

Mr. Hec Clouthier: Okay, so we would have a specific team that would know exactly—

Mr. Alan Williams: Absolutely.

Mr. Hec Clouthier: Have you ever determined what that cost would be as a percentage of the total cost?

Mr. Alan Williams: Cost of... I'm not sure—

Mr. Hec Clouthier: Say on the helicopter one, which is about $3 billion, how much time would we spend getting the SOR out?

Mr. Alan Williams: We have spent a fair bit of time developing the statement of requirements, and that's a fairly lengthy process, absolutely. Most of the cost, frankly, is for people. It's not an out-of-pocket cost. Studies are undertaken, but that's part of the process. When the process does get launched, that will be made available to industry to see what their views are on it.

Mr. Hec Clouthier: So you would incur the majority of that cost?

Mr. Alan Williams: Absolutely.

Mr. Hec Clouthier: On the SOR?

Mr. Alan Williams: In the front end, in developing it, absolutely. It's our military people who are clearly articulating what they need in order to fulfil the missions they see in front of them.

Mr. Hec Clouthier: Okay.

The Chair: That's the fifteen-minute bell. We still have a couple of questions. Mr. Earle, then Mr. Hanger and Mrs. Longfield.

Mr. Gordon Earle: Thank you.

I just want to return quickly to the ASD situation again, speaking particularly about the supply chain project. I realize that when you talk about putting these things out to industry, you're looking at coming out with a cost factor that might save some money, but isn't there also a bit of a danger? Say something is contracted out to industry and that particular industry starts to run into a problem, either a management problem or they're on strike or they're going to go out of business or something. You may need something in a hurry, and then, because you have a contract with that business, you may have difficulty getting it, whereas in-house there's much more certainty to it being available.

So wouldn't it be more advisable to just keep improving the in-house quality and forget about this contracting out to see if business can do it much more efficiently?

Mr. Alan Williams: I don't think you have to throw out the baby with the bathwater. If you've set up the contract properly with certain performance standards and those kinds of things, you can be pretty assured that you'll be guaranteed the service levels you want. There's no guarantee 100%, but neither is there when you do it in-house.

These are some of the factors that are legitimately to be considered. It may be that industry will come back and say “We cannot guarantee you the kinds of service levels and commitments you're talking about”, which would force us to reassess. Another factor too is that before we undertake an ASD, we want to make sure that for the contract beyond this contract, there will be viable competition. We don't want to find ourselves beholden to one company and one company only in a monopoly position, such that next time, two or three years down the road, there's nobody else out there.

So there are a lot of factors we'd have to seriously look at before we would outsource.

Mr. Gordon Earle: Is the morale going well with the employees as this is progressing?

Mr. Alan Williams: They're concerned. We're trying to communicate with them as openly and as frequently as we can. We've done a lot more of it. But they are concerned, for sure.

The Chair: Thanks, Mr. Earle.

Mr. Hanger, one question, and then Mrs. Longfield.

Mr. Art Hanger: I'm going to go back to the maritime helicopter. It's a favourite topic of mine lately. I'm going to ask if you can describe the operational environment in which this maritime helicopter will operate.

Mr. Alan Williams: That's a very complex question, and I think it would be better answered by someone from the military than by me.

Mr. Art Hanger: I'll put it in these terms: would it be considered a benign environment or a hostile one?

Mr. Alan Williams: As I said, I think a one-word answer probably wouldn't do justice. It's a fair question, and certainly, as I said, the military people can better comment on the environment in which it has to operate, which I don't think is a simple answer. There's a whole wide range of scenarios that helicopters have to perform in. But I think they'd be in the best position to answer the question.

The Chair: The committee will in the near future likely have General Baril back again on the quality of life report and other topics. That might be a good chance for that question from Mr. Hanger.

I'll give the last question then to Mrs. Longfield.

Mrs. Judi Longfield: We're talking generally in terms of requests for proposal RFPs. Is the tender process in play any more?

Mr. Alan Williams: The RFP is in fact a tendering process. It's one way of tendering.

• 1720

Mrs. Judi Longfield: But it's not the lowest cost. Tender documents generally are very specific and don't give the same opportunity for interpretation and flexibility—

Mr. Alan Williams: We have a very simple kind of... Very often we use it in the construction world, where everybody is bidding on a particular building with particular drawings. Then you can do what we call invitations to tender, ITTs. But typically that's where you're talking about a very specific kind of good or service that's out there. That's typically—not always, but typically—not the business we're in.

Mrs. Judi Longfield: Okay, so we wouldn't see much of that in the military.

Mr. Alan Williams: No. It's rare when everybody can deliver exactly, and it's just, “We'll do this for you the way you said, and here's the price.”

Mrs. Judi Longfield: But it might come into play in building facilities, housing construction, and those kinds of things?

Mr. Alan Williams: With construction drawings you'll see that much more frequently, yes.

Mrs. Judi Longfield: Okay. Thank you.

The Chair: Thanks, Mrs. Longfield.

Mr. Williams and Mr. Burton, thank you very much for being here. Your testimony concludes our receiving of testimony from witnesses on procurement. We and our staff will be seized with the issue and hopefully will produce a report that can do some good. Thank you very much for being here today. We appreciate it.

For colleagues, before we go to vote, just a reminder, Thursday will be a very important day for the committee, a very interesting day, I would think. Thursday morning in this room we'll meet with Mr. Heinbecker from Foreign Affairs on missile defence, and then Mr. Laurin and others will have their chance to be on topic with questions about that. That afternoon we'll have a special meeting with the two ministers, Minister Eggleton and Minister Axworthy, on NORAD and of course likely the missile defence. That's Thursday afternoon at 3:30, again in this same room. Thank you very much.

Thank you, gentlemen.

The meeting is adjourned.