Committee members, ladies and gentlemen, thank you for the invitation to come and speak to you about procurement in the Department of National Defence today.
As the chair said, I'm the assistant deputy minister, matériel. The materiel group is a central service provider and functional authority for all materiel for the Canadian Forces and the Department of National Defence. Essentially, that means that the materiel group is accountable for acquiring and managing the equipment through its entire life cycle, from the identification of a requirement right through to disposal.
We are the overall design authority for Canadian Forces equipment and systems. We also oversee the defence materiel relationship with other Canadian government departments, agencies, the Canadian defence industry, foreign governments, and international organizations.
[Translation]
We employ approximately 4,400 civilian and military personnel. It takes experienced and professional staff to execute on the various procurement activities we face, and in this regard we are fortunate in that we have innovative, capable and dedicated professionals. We continue to make strenuous efforts to further professionalize our skills in complex project management.
[English]
I manage an annual budget of over $3.5 billion for capital expenditures annually and another $2.6 billion for maintenance and upgrades. We oversee approximately $22 billion in existing inventory of major systems and assets and I co-manage an active inventory of $5.2 billion with the Canadian Operational Support Command.
On average, annually we spend on materiel approximately $6 billion. There is a very predictable funding framework provided by the Canada First defence strategy, and that is reinforced by the departmental strategic investment plan. And I would comment, as well, that accrual budgeting has also been a key improvement in accelerating defence procurement in the past three or four years.
What keeps me awake at night, as you're no doubt aware, is the operational tempo of the Canadian Forces around the world, particularly over the last decade. Currently, we have 18 international missions under way, involving 5,200 members of the Canadian Forces. Vital as that is to meeting our obligations, it does consume resources, it increases equipment maintenance and repair, and it hastens deadlines for replacement.
[Translation]
Our military's equipment is often unique, is generally highly complex or sophisticated and frequently requires a measure of adaptation for use by our forces
[English]
The number of suppliers of major platforms is small and it is becoming smaller with the merger of various defence corporations worldwide. And these same corporations supply various countries, not just Canada.
Finally, in addition to meeting the urgent short-term requirements of our troops engaged in conflict and the longer-term requirements to make the future defence vision a reality, we also need to be accountable to Canadian taxpayers, to get best value for money, while taking into consideration industrial regional benefits, environmental health and safety, legislation of regulatory requirements, and international treaties and trade agreements.
I would comment that we have had some successes for our troops in recent years. For example, in terms of process we have shortened considerably the process in the past five years. We were averaging, in the previous ten years, 107 months to get to contract award, and we're averaging less than 48 months. This has largely been achieved by going to performance-based procurement, by going from the very detailed requirements to much higher-level performance-based requirements by minimizing customization and focusing on proven off-the-shelf solutions.
[Translation]
By applying these concepts, we have seen many examples of procurement successes such as the CF-18 modernization, with the last fighter delivered last week, ahead of schedule and well under budget.
[English]
There is also the Halifax class modernization program to extend the operational life of our frigates. It's a more than $2 billion program and is well under way, with our first frigate coming out of the water this fall in Halifax.
We've delivered the four C-17 strategic airlift aircraft early and well under budget again.
[Translation]
We are planning to accept the first of 17 new Hercules tactical airlifters shortly, six months ahead of schedule.
[English]
We signed a contract last August for 15 new Chinook 47F helicopters that will be based in Petawawa, a huge increase in the army's ability to conduct all sorts of operations, from combat to disaster relief.
We purchased 100 surplus Leopard 2 tanks, which have been enormously effective in Afghanistan and provided vital protection to our troops in dangerous missions.
The last project I'd comment on is with our armoured logistics trucks, which have been enormously effective in Afghanistan. Our crews have not suffered a single casualty to date in using those new heavy armoured trucks.
There are many other projects that have been brought under contract or delivered in the past four or five years.
As a result of the Canada First defence strategy, in the future the department will replace more of the force's core equipment platforms to preserve the maximum operational flexibility for the Canadian Forces. This will include replacing our existing destroyers and frigates and replacing the fixed-wing search and rescue aircraft, a capability currently provided by the Buffalo and Hercules.
We are also procuring the next generation of fighter aircraft to replace the existing fleet of CF-18s. We will replace the Aurora maritime aircraft, joint support ships, and Arctic offshore patrol ships.
Lastly, I would comment that we will progress to acquire a new family of land combat vehicles and systems to protect our land force soldiers in high-risk missions abroad. This will include the close combat vehicle, a light armoured vehicle upgrade--to be done by GDLS in London, Ontario--a tactical armoured patrol vehicle, and new armoured engineer vehicles based on Leopard 2 tanks.
Of particular note is the replacement of our ships. As stated in the Speech from the Throne, the government will continue to support the shipbuilding industry's sustainable development through a long-term approach to federal procurement for ships. In order to capitalize on a number of shipbuilding projects that we and other departments like the Canadian Coast Guard will undertake, we are working towards a national shipbuilding procurement strategy. This will reinvigorate Canadian shipbuilding and will provide work for our shipyards for the foreseeable future. It will also ensure the best value for Canada, the defence dollar, and the economy.
There is no other public sector organization of a comparable size or function in Canada to DND's materiel group. I'm proud of the progress we've made in the last few years.
Mr. Chair, I'd be delighted to take any questions from the members.
I think it's true that project managers who have extensive experience to take on extremely difficult, large, and complex projects are relatively rare. We haven't had very many large, complex programs in the past 15 years. In six years, my predecessor actually only achieved the contract of one major new project, which was the maritime helicopter project.
Having said that, we've made a lot of progress in the past several years. We are growing and developing a stable of some very capable project managers, and we're working extremely hard to professionalize the skill of those project managers.
I'll give you a couple of examples. We have adopted and documented an international standard of skill as to what a complex project manager needs to do. Secondly, we've agreed with the Treasury Board Secretariat on project complexity and risk analysis, which we do for every project. We try to match the skill of a given project manager to the assessed risk level of a given project. For example, projects are rated from one, most simple, to four, most complex. Most of our project managers are in the one to three range, and we're trying to develop those skills...training, seminars. I've sent two senior people on a masters program in complex project management in Australia, where they stay for a one-year assignment. In exchange, Australia is sending extremely experienced project managers to Canada.
We are almost ready to implement our formal qualifications structure for managers of complex projects. This takes a long time to get to the level of people doing level-four complex projects, but we are working really hard at it. We've made some progress. Are we there? We're not there completely.
The fundamental question is Industry Canada's responsibility to articulate that from a point of government policy. I know the government will look very closely at the CADSI recommendation and respond at the appropriate time.
To go more specifically to your point, the predictability of where we will invest next with industry is a huge issue. I know that Tim Page and the CADSI organization made that recommendation, but we work very hard at communicating where the Canada First defence strategy priorities are. I meet regularly with those associations and brief them in detail.
For example, this month, army, navy, and air force industry days are occurring a full entire day with, for example, air force requirement staff and my project staff. We go through, with all interested Canadian parties, in great detail on what the air force program coming up will be, when, the requirements, and the deficiencies. We have a very open exchange.
I guess the last thing I would say is that on virtually every project we have multiple industry days and post our draft requirement documents, draft RFPs, etc. Most other countries don't do that at all. I think we've come a long way in being more communicative with our industry partners.
Thank you, Mr. Ross, for joining us this morning. I too am interested in the joint support ships, or joint supply ships, as they have also been called. It seems to me that a lot of people were disappointed at the end of August 2009 when the government declared the bidders to be non-compliant and essentially cancelled that round of proposals.
My information was that the government long knew that the ships could not be built for the amount that had been designated back in 2002. Correct me if I'm wrong, I understand the figure was set by the government as to what the value of this project was back in 2002. These were shortlisted design projects going on in 2008.
My understanding was that the bidders had told the government that it could not possibly be done for that amount of money and that the government didn't take into account the cost drive—you call it your cost drive—and the fact that this cost had risen considerably since then. The whole thing ended up being...I call it cancelled, but obviously it's not cancelled. It has to be started again.
Is there a figure that has been set aside for this project now? If so, how can you be sure that this can be done within that figure? Are we cutting the garment to fit the cloth?
The dry-run capability of our H-92 Cyclone will be fully certified and tested before we accept the aircraft. The program is going extremely well, actually. The air vehicle has been flying with very few problems since October 2008. It is a fairly significantly modified and upgraded version of an H-92. It is fly-by-wire, which takes the complex hydraulics and so on of flight control out of the aircraft. It has automatic rotor- and tail-folding capability. It is very sophisticated.
That program has been flying very well. They will be doing at-sea trials off HMCS Montreal next week in Halifax. We have landed the aircraft on our modified ships successfully and they have taken off successfully, and now we're going to do actual at-sea live motion in the wind conditions off HMCS Montreal.
I just have a broader comment about big, complex air programs like that. The track record shows that it takes about ten years to do one like that. The Europeans, for example, have really struggled with the NH90 maritime helicopter. It's extremely light.
We're at the five-year, three-month point, not counting the previous history of the CHs and all the rest of that stuff. We're at five years, three months of what typically takes ten years. In November, we're scheduled to take our first of six maritime helicopters to begin our training and operational testing phase of what we think is going to be an outstanding helicopter. And the program remains well under budget.
If you ask me if I am happy with the maritime helicopter project, yes, I am. Have there been challenges? Yes. Has it been an extremely difficult program? We have asked for things on that helicopter that no one else in the world has done. It will be, clearly, the best in the world, by a big margin. But the performance specifications, including run-dry capability, are very high standards to meet.
That's a long answer. I'm sorry.
:
That's a good point. Every quarter I chair a meeting of the defence industry advisory committee, which includes the CEOs and presidents of about 15 major Canadian companies. Every 90 days, we spend an afternoon and have very frank conversations. They find that extremely helpful.
Tim Page, the chair of CADSI, is in that group. Mr. Lajeunesse, from the aerospace industry association, is in that group. That is our forum, in which we have really honest conversations.
Perhaps I'll go back to your second previous question, sir, about where we can improve our processes. My sense is that we need to integrate our efforts and have a Public Works and DND bilateral effort. We need to synchronize our teams so that we're doing one job once, and we need to change the culture so we can do that more efficiently. We could perhaps have joint sign-off sequences that we would do once in our buildings.
I don't think it's really an issue of Industry Canada or Treasury Board Secretariat or the other players. My process goes right from problem to definition to disposal. Public Works plays that key contracting piece in there, and that's where we need to target the most efficient activity with the most efficient use of, effectively, PG procurement specialists.
Mr. Ring and I are going to work very hard on that.
:
The Chinook contract was signed last August for $17 billion. That included the complete definition of the scope of the work we wanted on our Chinooks. It included extended-range fuel tanks, special self-defence systems, de-icing of the rotor blades for Canadian winters, self-protection systems. It is a very, very capable Chinook F helicopter.
Boeing proposed two extremely good industrial regional packages to Canada. At that time it proposed a package for acquisition, both direct work and indirect work. My understanding was that Industry Canada was very happy with that proposal. It is dollar for dollar in Canadian content terms, not just dollar for dollar contract terms.
So if they propose to buy technology from Canada to meet their IRB commitments, and there's only 25% content in that, only the 25% content counts towards their commitment. So it is actually a lot of money.
They are working right now with major Canadian in-service support suppliers on their second part, which is to meet their IRB requirements for in-service support. They will partner with Canadian companies to do the maximum of actual direct work on the helicopters. If they can't do it directly, they will provide strategic opportunities for other companies, for example, to do work on other Boeing fleets worldwide. For example, they could propose to do work on 787s and manufacture components in Canada for the next 15 to 20 years to meet Chinook ISS IRB commitments.
The new policy by has been very effective in encouraging a much longer-term strategic approach to those IRBs by Canadian companies. I've been very, very happy with that new approach on the IRBs.