NDDN Committee Report

While we agree in principle with the report submitted by the Standing Committee on National Defence to the House of Commons on procurement, we feel that additional points must be made and expanded upon.

The Department of National Defence has an obligation to spend the money of hard- working Canadians is an open way that provides the maximum benefit to security at the best price. The Department’s spending must benefit the Canadian economy and create family-supporting jobs in Canada. We would encourage the Standing Committee on Industry to look at current military procurement, and how to better organize Industrial Regional Benefits.

When the then Minister of National Defence appeared before our committee on February 6 2007 he stated “ There is no final responsibility on defence procurement”. This was in response to a question I posed on Ministerial Accountability.

The current system of one department which defines capabilities, another which manages contracts and yet another that hands out regional benefits is a situation that is uniquely Canadian and which has developed out of bureaucratic happenstance. While our inclination in public policy is to never have too much power invested in a small number of people, we have serious doubts as to whether the current system is one with checks and balances, or one of no accountability.

In our study we heard differing testimony as to the effectiveness of having requirements, contracts and industrial policy being run out of different departments. We think that the division is long overdue for review. We are particularly interested in the proposal of Mr. Alan Williams to create a “Defence Procurement Canada” which would oversee the defence acquisition process. We believe this proposal has merit, and that it should be more carefully considered.

While it is true that DND has moved towards performance-based specifications when tendering military contracts, in some cases, the Department has used these specifications to exclude specific contractors. Before embarking on an unprecedented acquisition of over $20 billion it seemed that the government had already made up its mind as to which equipment it wanted. Commanders were known to favour particular aircraft or equipment and there was a disinclination within the Department to run a full competition, particularly regarding  medium and heavy lift capabilities for the air force.

On certain occasions the government made the unprecedented step of invoking a national security exemption which resulted in awarding the contract to a foreign manufacturer.

In sum, while we agree that the move to performance-based specifications has been positive, DND still uses these specifications to favour particular models and exclude contractors who may offer more cost-effective or innovative solutions. Further oversight of DND’s SORs is required to avoid this problem.

While the Department has considerably expedited the process by which it acquires equipment for immediate operational needs, acquiring based on operational requirements is not only problematic in terms of sole-sourcing and off-the-shelf, as identified in the Committee’s report. It also allows the military to acquire equipment that does not necessarily fit with the long-term defence policy objectives of the Canadian government.

Treating all acquisitions as immediate or operationally necessary will undermine long term attempts to create a coherent National Defence policy. Future operations and maintenance budgets would be set based on what type of equipment was acquired in the past, not on what would make sense in the long term.

Of course, this is not to say that operational requirements should be ignored. Instead, every procurement made for operational reasons should also outline how the procurement in question could and will be used in future operations, how the procurement in question fits with the government’s defence policy, and what the opportunity costs of that procurement are (ie: what is the CF not buying or replacing in order to acquire equipment for Afghanistan).

A case in point is the Leopard tanks purchased in 2006. By acquiring the tanks, the CF decided it will retain a tracked direct-fire capability. The 2005 Defence Procurement Strategy noted that this capability was no longer necessary. The Chief of Defence Staff also noted that this capability was no longer necessary.

Why did this change so drastically? Why do other forces in the south of Afghanistan operate without tanks? What were the opportunity-costs associated with the acquisition of the tanks? Even operational procurements should outline the long-term rationale of the acquisition, the opportunity costs involved and explain why alternatives were not pursued. Otherwise, the CF can use the operational rationale to shape future deployments, policies, and expenditures without proper civilian oversight. The failure to replace the Fixed-Wing Search and Rescue aircraft seems an obvious example of an opportunity cost. The FWSAR replacement was a stated priority, yet has been demoted on the list of priorities in favour of operational requirements. These issues need to be addressed. 

We agree with the key suggestions proposed by some witnesses and would add an emphasis on competition and innovation.

• Every SOR should be explicitly linked with the most current defence policy.
• all relevant industries should be involved in proposing solutions. SORs should primarily consider end results (performance-based specifications), rather than restrictively detail the technology required. Innovative thinking is what allows performance-based acquisitions to function well. If only certain contractors are invited to be part of the identification of solutions, innovation will be stunted.
• Contractors should be permitted to submit proposals even if they do not fit with all technical specifications. This would allow contractors to offer plausible alternatives. It would also increase transparency and force DND to be cautious when putting forth technical specifications meant to exclude a specific contractor.

For almost two years the Conservative government has neglected to release its “Canada First Defence Strategy” previously known as the Defence Capabilitys Plan. It’s difficult for Parliamentarians to judge the course the government has taken with the Canadian Forces or intentions for the future without a plan that we can examine.

We feel that the Defence Committee can play a particularly important role in encouraging and ensuring civilian oversight of the procurement process. The Committee should also ensure that a strategic direction of defence procurement is set and followed by the Department.

Without a clear presentation of the government’s defence policy, procurement will be open to abuse and lack proper civilian oversight. Without a clear policy, the government might build a force structure that is well-suited to the current operation in Afghanistan, but not to the protection of Canadians, or other expeditionary operations at the lower end of the spectrum of conflict.

Crucially, both the Defence Capability Plan and Canada First defence policy must clearly cost the procurements they outline. Only a fully-costed procurement plan and defence policy will tell Canadians how much they will be expected to pay for defence and why they need to pay that amount. This costing plan must be clear and accessible, and lay out not only the costs of purchases, but also the cost of the support and maintenance contracts and of the cancellation clauses.

Finally, the new strategy should set out a timeline for future procurement. For instance, Parliament should know when FWSAR aircraft, the CF-18s and the Halifax Class Frigates will need to be replaced.

There have been differing stories about what the full costs will be of the Conservative plan, but that information should be available now so Parliament will know what the effect of this will be on the fiscal framework.

While the Committee’s report makes major strides in encouraging a balance between accountability and fairness in the procurement process and the current and future needs of Canada and Canadian Forces, it does not go far enough in detailing the ways in which this should be done. Our report reflects real concern over the way in which the Department has and may use procurement to effect a change in the mandate and operations of the CF.